1933 Act No. 333-37453
1940 Act No. 811-08413
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 26 [X]
EVERGREEN EQUITY TRUST
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on December 22, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
EVERGREEN EQUITY TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 25
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 25 to Registrant's Registration Statement
No. 333-37453/811-08413 consists of the following pages, items of information
and documents, together with the exhibits indicated in Part C as being filed
herewith:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for Institutional Service shares of Evergreen
Small Cap Value Fund is contained herein.
Prospectus for Institutional Service shares of Evergreen Stock
Selector Fund is contained herein.
Prospectus for Classes A, B, C and Y shares of Evergreen Aggressive
Growth Fund, Evergreen Capital Growth Fund (formerly Mentor Capital Growth
Portfolio), Evergreen Fund, Evergreen Growth Fund (formerly Mentor Growth
Portfolio), Evergreen Masters Fund, Evergreen Omega Fund, Evergreen Small
Company Growth Fund, Evergreen Strategic Growth Fund, Evergreen Stock Selector
Fund and Evergreen Tax Strategic Equity Fund is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference herein.
Prospectus for Classes A, C and Y shares of Evergreen Capital Income and
Growth Fund (formerly Mentor Income and Growth Portfolio) is contained in Post-
Effective Amendment No. 24 to Registration Statement No. 333-37453/811-08413
filed on January 28, 2000 is incorporated by reference herein.
Prospectus for Classes A, B, C and Y shares of Evergreen Capital Balanced Fund
(formerly Mentor Balanced Portfolio) is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference herein.
Prospectus for Classes A, B, C and Y of Evergreen Healthcare Fund
and Evergreen Technology Fund
contained in Post-Effective Amendment No. 23 to
Registration Statement No 333-37453/811-08413 filed on
December 22, 1999 is incorporated by reference herein.
Prospectus for Classes A, B, C and Y of Evergreen Equity Income Fund, Evergreen
Growth and Income Fund, Evergreen Income and Growth Fund, Evergreen Small Cap
Value Fund, Evergreen Value Fund, Evergreen Utility Fund and Evergreen Blue Chip
Fund contained in Post-Effective Amendment No. 21 to Registration Statement No.
333-37453/811-08413 filed on November 29, 1999 is incorporated
by reference herein.
Prospectus Classes A, B, C and Y for Evergreen America's Utility Fund (formerly
America's Utility Fund, Inc.) contained in Post-Effective Amendment No. 10 to
Registration Statement No. 33-45437/811-6549 filed on May 3, 1999
is incorporated by reference herein.
Prospectus for Classes A, B, C and Y of Evergreen Balanced Fund, Evergreen
Foundation Fund and Evergreen Tax Strategic Foundation Fund is contained in Post
Effective Amendment No. 16 to Registration Statement No. 333-37453/811-08413
filed on July 29, 1999 and is incorporated by reference herein.
PART B
------
Statement of Additional Information for Evergreen Aggressive
Growth Fund, Evergreen Capital Growth Fund (formerly Mentor
Capital Growth Portfolio), Evergreen Fund, Evergreen
Growth Fund (formerly Mentor Growth Portfolio),
Evergreen Masters Fund, Evergreen Omega Fund, Evergreen Small
Company Growth Fund, Evergreen Strategic Growth Fund, Evergreen
Stock Selector Fund and Evergreen Tax Strategic Equity
Fund is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference herein.
Statement of Additional Information for Evergreen Capital Balanced Fund
(formerly Mentor Balanced Portfolio) is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference herein.
Statement of Additional Information for Evergreen Capital Income
and Growth Fund (formerly Mentor Income and Growth Portfolio)
is is contained in Post-Effective
Amendment No. 24 to Registration Statement No. 333-37453/811-08413 filed on
January 28, 2000 is incorporated by reference herein.
Statement of Additional Information for Evergreen Healthcare Fund and
Evergreen Technology Fund contained in Post-Effective
Amendment No. 23 to Registration Statement No 333-37453/811-08413 filed on
December 22, 1999 is incorporated by reference herein.
Statement of Additional Information for Evergreen Equity Income Fund,
Evergreen Growth and Income Fund, Evergreen Income and Growth Fund,
Evergreen Small Cap Value Fund, Evergreen Value Fund,
Evergreen Utility Fund and Evergreen Blue Chip Fund contained in
Post-Effective Amendment No. 21 to Registration Statement
No. 333-37453/811-08413 filed on November 29, 1999
is incorporated by reference herein.
Statement of Additional Information for Evergreen Balanced Fund, Evergreen
Foundation Fund and Evergreen Tax Strategic Foundation Fund is contained in
Post-Effective Amendment No. 16 to Registration Statement No.
333-37453/811-08413 filed on July 29, 1999 and is
incorporated by reference herein.
Statement of Additional Information for Evergreen
America's Utility Fund (formerly America's Utility Fund, Inc.)
contained in Post-Effective Amendment No. 10 to Registration Statement
of America's Utility Fund, Inc. Registration Nos. 33-45437/811-6549 filed on
May 3, 1999 is incorporated by reference herein.
PART C
------
Exhibits
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN EQUITY TRUST
PART A
SMALL CAP VALUE FUND
PROSPECTUS
<PAGE>
Evergreen
Growth and
Income Funds
Evergreen Small Cap Value Fund
Institutional Service
Prospectus, May 15, 2000
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
FUND RISKS/RETURN SUMMARIES:
Overview of Fund Risks....................... . 2
Evergreen Small Cap Value Fund................. 4
GENERAL INFORMATION:
The Fund's Investment Advisor....................6
The Fund's Portfolio Manager.....................6
Calculating the Share Price......................6
How to Choose an Evergreen Fund..................6
How to Choose the Share Class
That Best Suits You..............................7
How to Buy Shares................................8
How to Redeem Shares.............................9
Other Services...................................10
The Tax Consequences of
Investing in the Fund............................10
Fees and Expenses of the Fund....................11
Other Fund Practices.............................12
In general, the Fund seeks to provide investors with a
combination of current income and capital growth. This Fund
tends to have less risk, volatility and growth potential than
more aggressive stock funds. As of the date of this prospectus,
Institutional Service shares of this Fund are not yet available;
however, it is Performance expected that this share
class will be available on or about July 21, 2000.
Fund Summaries Key
The Fund's summary is organized around the following basic
topics and questions:
Investment Goal
What is the Fund's financial objective? You can find
clarification on how the Fund seeks to achieve its
objective by looking at the Fund's strategy and investment
policies. The Fund's Board of Trustees can change the
investment objective without a shareholder vote.
Investment Strategy
How does the Fund go about trying to meet its goals? What
types of investments does it contain? What style of
investing and investment philosophy does it follow? Does
it have limits on the amount invested in any particular
type of security.
Risk Factors
What are the specific risks for an investor in the
Fund?
Performance
How well has the Fund performed in the past
year? The past five years? The past ten years?
Expenses
How much does it cost to invest in the Fund? What
is the difference between sales charges and expenses?
<PAGE>
Small Cap
Value Fund
typically relies on a combination of the following strategies:
o Investing in companies that have a history of paying regular dividends in
order to cushion stock market fluctuation with a steady stream of income;
o investing a portion of the Fund in bonds and convertible securities to lower
overall risk and provide regular income;
o investing in companies whose stock price is lower than the Fund's manager
believes the true, "fundamental" price should be; and
o selling a portfolio investment when its price equals or exceeds its
estimated fair value, when the issuer's investment fundamentals begin to
deteriorate, when the investment no longer appears to meet the Fund's
investment objective, when the Fund must meet redemptions, or for other
reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
o want an investment with moderate volatility relative to more aggressive stock
funds; and
o want a combination of growth potential and regular dividend income potential.
Following this overview, you will find information on the Fund's specific
investment strategies and risks.
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
o not guaranteed to achieve their investment goal
o not a deposit of a bank
o not insured, endorsed or guaranteed by the FDIC or any government agency o
subject to investment risks, including possible loss of your original investment
Like most investments, your investment in the Fund could fluctuate significantly
in value over time and could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following this
overview:
Stock Market Risk
Your investment in the Fund will be affected by general economic conditions such
as prevailing economic growth, inflation and interest rates. When economic
growth slows, or interest or inflation rates increase, equity securities tend to
decline in value. Such events could also cause companies to decrease the
dividends they pay. If these events were to occur, the value of and dividend
yield and total return earned on your investment would likely decline. Even if
general economic conditions do not change, your investment may decline in value
if the particular industries, issuers or sectors in which your Fund invests do
not perform well.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories - large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
fund that invests in these companies to increase in value more rapidly than a
fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. As a result, stocks of small and medium capitalization
companies may decline significantly in market downturns.
Investment Style Risk
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. The
Fund may outperform or underperform other funds that employ a different style.
The Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when value
investing is in favor. Value stocks are those which are undervalued in
comparison to their peers due to adverse business developments or other factors.
Value oriented funds will typically underperform when growth investing is in
favor.
Interest Rate Risk
When interest rates go up, the value of debt securities tends to fall. If the
Fund invests a significant portion of its portfolio in debt securities or
dividend paying stocks that are purchased for dividend income and interest rates
rise, then the value of and total return earned on your investment may decline.
When interest rates go down, interest earned by the Fund on its investments may
also decline, which could cause the Fund to reduce the dividends it pays. Debt
securities with longer maturities are generally more sensitive to interest rate
changes than securities with shorter maturities.
<PAGE>
Small Cap Value Fund
FUND FACTS:
Goal:
o Current Income
o Capital Growth
Principal Investment:
o Small-Cap U.S. Common Stocks
Class of Shares Offered in this Prospectus:
o Institutional Service
Investment Advisor:
o Evergreen Asset Management Corp.
Portfolio Manager:
o Jordan D. Alexander, CFA
Dividend Payment Schedule:
o Quarterly
Investment Goal
The Fund seeks current income and capital growth in the value of its shares.
Investment Strategy
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in equity securities of small U.S. companies (less
than $1.5 billion in market capitalization at time of purchase). The Fund's
equity securities will include common stocks and securities convertible into
common stock. The Fund's portfolio manager seeks to limit the investment risk of
small company investing by seeking stocks that produce regular income and trade
below what the portfolio manager considers their intrinsic value. The Fund's
portfolio manager looks specifically for various growth triggers, or catalysts,
that will bring the stock's price into line with its actual or potential value,
such as new products, new management, changes in regulation and/or restructuring
potential.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return and
loss of market opportunity.
Risk Factors
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
o Stock Market Risk
o Market Capitalization Risk
o Investment Style Risk
o Interest Rate Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following charts show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class Y shares of the
Fund in each calendar year since 10/1/1993, the inception date of Class Y
shares. It should give you a general idea of the risks of investing in the Fund
by showing how the Fund's return has varied from year-to-year. This table
includes the effects of Fund expenses.
Year-by-Year Total Return for Class Y Shares (%)*
[BAR CHART APPEARS HERE]
1990
1991
1992
1993
1994 -0.70
1995 29.10
1996 22.40
1997 33.62
1998 -9.39
1999 0.99
Best Quarter: 2nd Quarter 1999 +16.70%*
Worst Quarter: 3rd Quarter 1998 -13.36%*
Year-to-date total return through 3/31/2000 is 2.10%.*
The next table lists the Fund's average annual total return for Class Y shares
over the past one and five years and since inception (through 12/31/1999). This
table is intended to provide you with some indication of the risks of investing
in the Fund by comparing its performance with the Russell 2000 Index and the
Wilshire Small Cap Value Index. The Russell 2000 Index (Russell 2000) is an
unmanaged market capitalization-weighted index measuring the performance of the
2000 smallest companies in the Russell 3000 Index, representing approximately
10% of the total market capitalization of the Russell 3000 Index. The Wilshire
Small Cap Value Index (Wilshire) is an unmanaged index that measures small-cap
stocks that exhibit value characteristics. Wilshire is a market
capitalization-weighted index including a selection of securities chosen from
the Wilshire Small Cap 1750 Index that meet Wilshire's definition of value. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly in
an index.
Average Annual Total Return
(For the period ended 12/31/1999)*
Inception Performance
Date Since
of Class 1 year 5 year 10 year 10/1/1993
Class Y 10/1/1993 0.99% 14.08% N/A 11.43%
Russell 2000 21.26% 16.69% N/A 13.27%
Wilshire -1.40% 13.63% N/A 8.60%
* Since Institutional Service shares have no previous operating history, the
performance shown is for Class Y shares which are not offered in this
prospectus. The performance of Institutional Service shares will differ only to
the extent that the Class does not have the same expenses. Year-by-Year Total
Return and Average Annual Total Return do not include the effects of Rule 12b-1
fees. Class Y does not charge a Rule 12b-1 fee. The Rule 12b-1 fee for
Institutional Service shares is 0.25%. If Institutional Service shares had been
in existence for the periods presented above, its total returns would have been
lower.
Expenses
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Institutional
Service 0.90% 0.25% 0.45 % 1.60%++
+ Estimated for the fiscal period ending 7/31/2000.
++ The Fund's investment advisor has agreed to waive the management fee and/or
reimburse expenses for a period of two years beginning in July 2000 in order to
limit Total Fund Operating Expenses to 1.55%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and that
you reinvest all of your dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
After: Institutional Service
1 year $163
3 years $505
5 years $871
10 years $1,900
<PAGE>
The Fund's Investment Advisor
The investment advisor manages the Fund's investments and supervises its daily
business affairs. All investment advisors for the Evergreen Funds are
subsidiaries of First Union Corporation, the sixth largest bank holding company
in the U.S., with over $255.2 billion in consolidated assets as of 4/30/2000.
First Union Corporation is located at 301 South College Street, Charlotte, North
Carolina 28288-0013.
Evergreen Asset Management Corp. (EAMC) is the investment advisor to the Fund.
EAMC, with its predecessors, has served as investment advisor to the Evergreen
Funds since 1971, and currently manages over $23.4 billion in assets for 20 of
the Evergreen Funds. EAMC is located at 1311 Mamaroneck Avenue, White Plains,
New York 10605.
For the fiscal year ended 7/31/1999, the Fund paid EAMC an aggregate advisory
fee of 1.00% of its average net assets. As of January 3, 2000, the advisory fee
was reduced to 0.90% of the Fund's average daily net assets.
Lieber & Company (Lieber) is the investment sub-advisor to the Fund. EAMC has
entered into a sub-advisory agreement with Lieber which provides that Lieber's
research department and staff will furnish EAMC with information, investment
recommendations, advice and assistance, and will generally be available for
consultation on the Fund's portfolio. Lieber will be reimbursed by EAMC in
connection with the rendering of services on the basis of the direct and
indirect costs of performing such services. There is no additional charge to the
Fund for the services provided by Lieber. Lieber is located at 1311 Mamaroneck
Avenue, White Plains, New York 10605.
THE FUND'S PORTFOLIO MANAGER
Jordan Alexander, CFA, has managed or co-managed the Fund since April 1999. Mr.
Alexander has been an assistant portfolio manager with Evergreen Asset
Management Corp. since September 1998. From 1995 to 1998, he was employed by
PaineWebber Inc. as an associate health care analyst.
Calculating The Share Price
The value of one share of the Fund, also known as the net asset value, or NAV,
is calculated on each day the New York Stock Exchange is open at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares outstanding.
Each class of shares is calculated separately. Each security held by the Fund is
valued using the most recent market data for that security. If no market data is
available for a given security, the Fund will price that security at fair value
according to policies established by the Fund's Board of Trustees. Short-term
securities with maturities of 60 days or less will be valued on the basis of
amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your account at
any given time is the latest share price multiplied by the number of shares you
own. Your account balance may change daily because the share price may change
daily.
How To Choose an Evergreen Fund
When choosing an Evergreen Fund, you should:
o Most importantly, read the prospectus to see if the Fund is suitable for you.
o Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading
the Fund's prospectus. He or she can also assist you through all phases of
opening your account.
o Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website at
www.evergreen-funds.com.
How To Choose The Share Class That Best Suits You
After choosing a Fund, you select a share class. The Fund offers five different
share classes. Only Institutional Service shares are offered in this prospectus.
Institutional service shares are sold without a front-end sales charge or
contingent deferred sales charge. Institutional Service shares do pay an ongoing
service fee. The minimum initial investment in Institutional Service shares is
$1 million, which may be waived in certain situations. There is no minimum
amount required for subsequent purchases.
The Fund's Institutional Service shares incur an annual service fee of 0.25% of
the average daily net assets of the class for personal service rendered to
shareholders and /or the maintenance of accounts.
<PAGE>
How To Buy Shares
Institutional investors may buy shares through broker-dealers, banks and certain
other financial intermediaries, or directly through the Fund's distributor,
Evergreen Distributor, Inc. (EDI).
<TABLE>
<CAPTION>
<S> <C> <C>
Method Opening an Account Adding to an Account
By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express Line at
and get wiring instructions (call before 12 noon if 1-800-346-3858 24 hours a day or
you want wired funds to be credited that day). 1-800-343-2898 between 8 a.m. and 6
o Instruct your bank to wire or transfer your p.m. Eastern time, on any business
purchase (they may charge a wiring fee). day.
o Complete the account application and mail to: o If your bank account is set up on
Evergreen Service Company Overnight Address: file, you can request either:
P.O. Box 2121 Evergreen Service Company - Federal Funds Wire (offers
Boston, MA 02106-2121 200 Berkeley St. immediate access to funds) or
Boston, MA 02106-2121 Boston, MA 02116-5039 - Electronic transfer through the
Automated Clearing House which avoids
wiring fees.
o Wires received after 4 p.m. Eastern time on market
trading days will receive the next market day's
closing price.*
By Exchange o You can make an additional investment by exchange from an existing Evergreen Funds account by
contacting your investment representative or calling the Evergreen Express Line at 1-800-346-3858.**
o You can only exchange shares within the same class.
o There is no sales charge or redemption fee when exchanging Funds within the Evergreen Funds family.
o Orders placed before 4 p.m. Eastern time on market trading days will receive that day's closing
share price (if not, you will receive the next market day's closing price).*
o Exchanges are limited to three per calendar quarter, but in no event no more than five per calendar
year.
o Exchanges between accounts which do not have identical ownership must be made in writing with
a signature guarantee (see below).
</TABLE>
*The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with EDI. The
Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
**Once you have authorized either the telephone exchange or
redemption service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a telephone
transaction in your account. All calls are recorded or monitored for
verification, recordkeeping and quality-assurance purposes. The Evergreen Funds
reserve the right to terminate the exchange privilege of any shareholder who
exceeds the listed maximum number of exchanges, as well as to reject any large
dollar exchange if placing it would, in the judgment of the portfolio manager,
adversely affect the price of the Fund.
<PAGE>
How To Redeem Shares
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Methods Requirements
Call Us o Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-2898 between 8 a.m.
and 6 p.m. Eastern time, on any business day.
o This service must be authorized ahead of time, and is only available for regular accounts.*
o All authorized requests made before 4 p.m. Eastern time on market trading days will be processed at
that day's closing price. Requests after 4 p.m. will be processed the following business day.**
o We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank account via the Automated Clearing House
service
- mail you a check.
o All telephone calls are recorded and monitored for your protection. We are not responsible for
acting on telephone orders we believe are genuine.
o See exceptions list below for requests that must be made in writing.
Write Us o You can mail a redemption request to: Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116-5039
o Your letter of instructions must:
- list the Fund name and the account number
- indicate the number of shares or dollar value you wish to redeem
- be signed by the registered owner(s).
o See exceptions list below for requests that must be signature guaranteed.
Redeem Your You may also redeem your shares through participating broker-dealers by delivering a letter as
Shares in described above to your broker-dealer. A fee may be charged for this service
Person
</TABLE>
* The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with EDI. The
Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
** Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded and monitored for verification, recordkeeping
and quality-assurance purposes. The Evergreen Funds reserve the right to
terminate the exchange privilege of any shareholder who exceeds the listed
maximum number of exchanges, as well as to reject any large dollar exchange if
placing it would, in the judgment of the portfolio manager, adversely affect the
price of the Fund.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days for
investments made by Automated Clearing House transfer. We also reserve the right
to redeem in kind by paying you the proceeds of a redemption in securities
rather than in cash, and to redeem the remaining amount in the account if your
redemption brings the account balance below the initial minimum of $1,000,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
You want the proceeds transmitted to a bank account not listed on the account.
o You want the proceeds payable to anyone other than the registered owner(s) of
the account.
o Either your address or the address of your bank account has been changed
within 30 days.
Who Can Provide A Signature Guarantee:
o Commercial Bank
o Trust Company
o Savings Association
o Credit Union
o Member of a U.S. stock exchange
Other Services
Evergreen Express Line
(800) 346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find the Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market commentary
from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can be
made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will be
included on your statement.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
in amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request is
received.
Reinvestment Privileges
Under certain circumstances, shareholders may, within one year of redemption,
reinstate their accounts at the current price. This is the Fund's net asset
value, also sometimes referred to as the Fund's "NAV."
The Tax Consequences of Investing in the Fund
You may be taxed in two ways:
o On Fund distributions (dividends and capital gains)
o On any profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the Fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Fund will distribute two types of taxable income to you:
o Dividends. To the extent the regular dividends are derived from interest
that is not tax exempt, or from short-term capital gains, you will have to
include them in your federal taxable income. The Fund pays a quarterly
dividend from the dividends, interest and other income on the securities in
which it invests.
o Capital Gains. When a mutual fund sells a security it owns for a profit,
the result is a capital gain. The Fund generally distributes capital gains,
if any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and
are considered ordinary income just like dividends. Profits on securities
held longer than 12 months are considered long-term capital gains and are
taxed at a special tax rate (20% for most taxpayers).
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and capital
gain payments will be reinvested to buy additional shares. Distribution checks
that are returned and distribution checks that are uncashed when the shareholder
has failed to respond to mailings from the shareholder servicing agent will
automatically be reinvested to buy additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by the Fund during the previous calendar year.
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital gains.
It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gains or losses you incur when you
sell shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend and
capital gains distributions for each calendar year on Form 1099 DIV. Proceeds
from a sale are reported on Form 1099B. You must report these on your tax
return. Since the IRS receives a copy as well, you could pay a penalty if you
neglect to report them.
Evergreen Service Company will send you a tax information guide each year during
tax season, which may include a cost basis statement detailing the gain or loss
on taxable transactions you had during the year. Please consult your own tax
advisor for further information regarding the federal, state and local tax
consequences of an investment in the Fund.
Fees and Expenses of the Fund
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, sub-advisory fees, corporate
overhead expenses and related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Institutional Service shares. Up to 0.75% of the Institutional Service
shares' average daily net assets are payable as 12b-1 fees. However, currently
the 12b-1 fees are limited to 0.25% of the Institutional Service shares' average
daily net assets. These fees will increase the cost of your investment. The Fund
may use 12b-1 fees as a "service fee" to pay broker-dealers for additional
shareholder services and/or the maintenance of accounts.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken out
before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your total
return in the Fund is reduced in direct proportion to the fees; 2) expense
ratios can vary greatly between funds and fund families, from under 0.25% to
over 3.0%; and 3) the Fund's advisor may waive a portion of the Fund's expenses
for a period of time, reducing its expense ratio.
<PAGE>
OTHER FUND PRACTICES
The Fund may invest in futures and options which are forms of derivatives. Such
practices are used to hedge the Fund's portfolio to protect against changes in
interest rates, to maintain the Fund's exposure to its market, to manage
cash or to attempt to increase income. Although this is intended to increase
returns, these practices may actually reduce returns or increase volatility.
Please consult the Statement of Additional Information for more information
regarding these and other investment practices used by the Fund, including
risks.
<PAGE>
Evergreen Funds
Select Money Market Trust
Select Money Market Fund
Select Treasury Money Market Fund
Select Municipal Money Market Fund
Select 100% Treasury Money Market Fund
Select U.S. Government Money Market Fund
Select Fixed Income Trust
Select Adjustable Rate Fund
Select Core Bond Fund
Select Fixed Income Fund
Select Fixed Income Fund II
Select High Yield Bond Fund
Select Income Plus Fund
Select Intermediate Term Municipal Bond Fund
Select International Bond Fund
Select Limited Duration Fund
Select Total Return Fund
Select Equity Trust
Select Balanced Fund
Select Core Equity Fund
Select Diversified Value Fund
Select Equity Index Fund
Select Large Cap Blend Fund
Select Secular Growth Fund
Select Small Cap Growth Fund
Select Small Company Value Fund
Select Social Principles Fund
Select Special Equity Fund
Select Strategic Growth Fund
Select Strategic Value Fund
Equity Trust
Small Cap Value Fund
Stock Selector Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
<PAGE>
1. Evergreen Express Line
Call 1-800-346-3858
24 hours a day to
o check your account
o order a statement
o get a Fund's current price, yield and
total return
o buy, redeem or exchange Fund shares
2. Investor Services
Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m.
Eastern time to
o buy, redeem or exchange shares
o order applications
o get assistance with your account
3. Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m.
Eastern time
4. Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
o to buy, redeem or exchange shares
o to change the registration on your account
o for general correspondence
5. For express, registered or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
6. Visit us on-line:
www.evergreen-funds.com
7. Regular communications you will receive:
Account Statements -- You will receive quarterly statements for
each Fund you invest in.
Confirmation Notices -- We send a confirmation of any transaction
you make within five days of the transaction.
Annual and Semi-annual reports -- You will receive a detailed
financial report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax
information you need to include in your tax returns as well
as the Evergreen Tax Information Guide.
<PAGE>
For More Information About the Fund, Ask for:
The Fund's most recent Annual or Semi-annual Report, which contains a
complete financial accounting for the Fund and a complete list of portfolio
holdings as of a specific date, as well as commentary from the Fund's
portfolio manager. This Report discusses the market conditions and
investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Fund. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents
are legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days.
Information about the Fund (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov. Copies of this material may
be obtained, for a duplication fee by writing the SEC Public Reference
Section, Washington, DC 20549-6009, or by electronic request at the
following e-mail address: [email protected]. This material can also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
For more information about the operation of the Public Reference Room, call
the SEC at 1-202-942-8090.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.:811-08413
22162 554338 5/2000
[Evergreen Funds Logo]sm
Since 1932
401 South Tryon Street
Charlotte, NC 28288
<PAGE>
EVERGREEN EQUITY TRUST
PART A
STOCK SELECTOR FUND
PROSPECTUS
<PAGE>
Evergreen
Domestic Growth Funds
Evergreen Stock Selector Fund
Institutional Service
Prospectus, May 15, 2000
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
<TABLE>
<CAPTION>
FUND RISKS/RETURN SUMMARIES: Investment Goal
<S> <C>
Overview of Fund Risks ........................ 1 What is the Fund's financial objective? You can find
Evergreen Stock Selector Fund .................. 2 clarification on how the Fund seeks to achieve its
objective by looking at the Fund's strategy and investment
GENERAL INFORMATION: policies. The Fund's Board of Trustees can change the
The Fund's Investment Advisor....................4 investment objective without a shareholder vote.
The Fund's Portfolio Managers....................4
Calculating the Share Price......................4 Investment Strategy
How to Choose an Evergreen Fund..................4 How does the Fund go about trying to meet its goals? What
How to Choose the Share Class types of investments does it contain? What style of
That Best Suits You..............................4 investing and investment philosophy does it follow? Does
How to Buy Shares................................6 it have limits on the amount invested in any particular
How to Redeem Shares.............................7 type of security?
Other Services...................................8
The Tax Consequences of Risk Factors
Investing in the Fund............................8 What are the specific risks for an investor in the Fund?
Fees and Expenses of the Fund....................9
Other Fund Practices............................10
Performance
In general, the Fund seeks to provide investors with maximum How well has the Fund performed in the past year? The
capital growth. This Fund tends to have more growth past five years? The past ten years?
potential, risk and volatility than less aggressive funds.
Expenses
As of the date of this prospectus, Institutional Service How much does it cost
to invest in the Fund? What is the shares of the Fund are not yet available. It
is expected that difference between sales charges and expenses?
this share class will be available for sale on or about July
21, 2000.
</TABLE>
Fund Summaries Key
The Fund's summary is organized around the following basic topics and questions:
<PAGE>
Stock Selector Fund
typically relies on a combination of the following strategies:
* investing primarily in common stocks of large U.S. growth and value
companies;
* investing in companies expected to provide capital growth; and
* selling a portfolio investment when the issuer's investment fundamentals
begin to deteriorate when the investment reaches or exceeds estimated
fair value, when the investment no longer appears to meet the Fund's
investment objective, when the Fund must meet redemptions, or for other
reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
* seek an investment expected to grow over time; and
* can tolerate stock market volatility in the value of their investment.
Following this overview, you will find information on the Fund's specific
investment strategies and risks.
Risk Factors For All Mutual Funds Please remember that mutual fund shares are:
not guaranteed to achieve their investment goal
* not a deposit of a bank
* not insured, endorsed or guaranteed by the FDIC or any government
agency
* subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in the Fund could fluctuate significantly
in value over time and could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following this
overview:
Stock Market Risk
Your investment in the Fund will be affected by general economic conditions such
as prevailing economic growth, inflation and interest rates. When economic
growth slows, or interest or inflation rates increase, equity securities tend to
decline in value. Such events could also cause companies to decrease the
dividends they pay. If these events were to occur, the value of, 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 in which your Fund invests do not
perform well.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories - large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
fund that invests in these companies to increase in value more rapidly than a
fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. As a result, stocks of small and medium capitalization
companies may decline significantly in market downturns.
Investment Style Risk
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform or underperform other funds that employ a different style. A
Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when value
investing is in favor. Value stocks are those which are undervalued in
comparison to their peers due to adverse business developments or other factors.
Value oriented funds will typically underperform when growth investing is in
favor.
<PAGE>
Stock Selector Fund
FUND FACTS:
Goal:
o Capital Growth with modest yield
Principal Investment:
o Large Cap U.S. Common Stocks
Class of Shares Offered in this Prospectus:
o Institutional Service
Investment Advisor:
o Meridian Investment Company
Portfolio Managers:
o Eric M. Teal
o Jay Zelko
o Timothy M. Stevenson, CFA
Dividend Payment Schedule:
o Annually
INVESTMENT GOAL
The Fund seeks capital growth and modest income.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund strives to provide maximum appreciation greater than that of the S&P
500 Index by investing primarily in the common stocks of large U.S. companies
expected to experience growth in earnings and price. Although the Fund focuses
on large-cap stocks, the Fund's portfolio managers will consider companies of
any market capitalization. This style of diversified equity management is best
defined as a blend between growth and value stocks. "Growth" stocks are stocks
of companies which the Fund's portfolio managers believe have anticipated
earnings ranging from steady to accelerated growth. "Value" stocks are stocks of
companies which the Fund's portfolio managers believe are undervalued. The Fund
may also invest up to 20% of its assets in preferred stocks, securities
convertible into common stocks and warrants.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return and
loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
o Stock Market Risk
o Market Capitalization Risk
o Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
<PAGE>
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class A shares of the
Fund in each calendar year since the Class A shares' inception on 2/28/1990. It
should give you a general idea of the risks of investing in the Fund by showing
how the Fund's return has varied from year-to-year. This table includes the
effects of Fund expenses, but not sales charges. Returns would be lower if sales
charges were included.
Year-by-Year Total Return for Class A Shares (%)*
[BAR CHART APPEARS HERE]
1990
1991 43.19
1992 9.18
1993 8.01
1994 -2.59
1995 35.43
1996 27.19
1997 30.43
1998 12.55
1999 19.73
Best Quarter: 4th Quarter 1998 +26.52%
Worst Quarter: 3rd Quarter 1998 -18.28%
Year-to-date total return through 3/31/2000 is 1.99%.
The next table lists the Fund's average annual total return for Class A over the
past one and five years and since inception (through 12/31/1999), including
sales charges. This table is intended to provide you with some indication of the
risks of investing in the Fund by comparing its performance with the S&P 500
Index, which is an unmanaged market value-weighted index measuring the
performance of 500 U.S. stocks chosen for market size, liquidity and industry
group representation. An index does not include transaction costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index.
Average Annual Total Return
(For the period ended 12/31/1999)*
Inception Performance
Date Since
of Class 1 year 5 year 10 year 2/28/1990
Class A 2/28/1990 14.02% 23.58% N/A 17.32%
S&P 500 21.04% 28.56% N/A 19.22%
Index
*Since Institutional Service shares have no previous operating history, the
performance shown is for Class A shares which are not offered in this
prospectus. The performance of Institutional Service shares would differ only to
the extent that the Class does not have the same expenses or sales charges.
Year-by-Year Total Return includes the effects of Rule 12b-1 fees. The Rule
12b-1 fees for Class A shares and Institutional Service shares are 0.25%.
Average Annual Total Return includes the effects of applicable sales charges and
Rule 12b-1 fees. The sales charge is 4.75% for Class A shares. Institutional
Service shares do not pay sales charges. If Institutional Service shares had
been in existence for the periods presented above, its total returns would have
been higher.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses++
Institutional 0.66% 0.25% 0.20% 1.11%
Service
+ Estimated for the fiscal year ending 9/30/2000.
++The Fund's investment advisor has agreed to voluntarily waive the management
fee and/or reimburse expenses for a period of two years beginning in July 2000
in order to limit Total Fund Operating Expenses to 0.97%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and that
you reinvest all of your dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
After: Institutional Service
1 year $113
3 years $353
5 years $612
10 years $1,352
<PAGE>
THE FUND'S INVESTMENT ADIVSOR
The investment advisor manages the Fund's investments and supervises its daily
business affairs. All investment advisors for the Evergreen Funds are
subsidiaries of First Union Corporation, the sixth largest bank holding company
in the U.S., with over $255.26 billion in consolidated assets as of 4/30/2000.
First Union Corporation is located at 301 South College Street, Charlotte, North
Carolina 28288-0013.
Meridian Investment Company (MIC) is the advisor
to the Fund. MIC has been managing money for over 15 years and currently manages
over $2.8 billion in assets, including $1.1 billion in assets for 5 of the
Evergreen Funds. MIC is located at 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355.
For the fiscal year ended 9/30/1999, the Fund paid MIC an aggregate advisory fee
of 0.74% of its average net assets.
THE FUND'S PORTFOLIO MANAGERS
Stock Selector Fund
Eric M. Teal, Jay Zelko and Timothy M. Stevenson, CFA, have co-managed the Fund
since October 1999.
Mr. Teal joined First Union National Bank (FUNB) in September 1993 as an
investment officer and has been Vice President and quantitative equity portfolio
manager since September 1997. Mr. Teal has been affiliated with MIC as a
portfolio manager since October 1999.
Mr. Zelko joined FUNB in April 1994 and is an equity portfolio manager within
MIC who maintains sector analytical and portfolio management responsibilities.
Mr. Zelko has been affiliated with MIC as a portfolio manager since March 1999.
Mr. Stevenson joined FUNB in November 1994 as a Senior Vice President and
portfolio manager. Mr. Stevenson has been affiliated with MIC as a portfolio
manager since October 1999.
CALCULATING THE SHARE PRICE
The value of one share of the Fund, also known as the net asset value, or NAV,
is calculated on each day the New York Stock Exchange is open at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares outstanding.
Each class of shares is calculated separately. Each security held by the Fund is
valued using the most recent market data for that security. If no market data is
available for a given security, the Fund will price that security at fair value
according to policies established by the Fund's Board of Trustees. Short-term
securities with maturities of 60 days or less will be valued on the basis of
amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your account at
any given time is the latest share price multiplied by the number of shares you
own. Your account balance may change daily because the share price may change
daily.
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
o Most importantly, read the prospectus to see if the Fund is suitable for
you.
o Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading
the Fund's prospectus.
He or she can also assist you through all phases of opening your account.
o Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website at
www.evergreen-funds.com.
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a Fund, you select a share class. The Fund offers five different
share classes. Only Institutional Service shares are offered in this prospectus.
Institutional Service shares are sold without a front-end sales charge or
contingent deferred sales charge. Institutional Service shares do pay an ongoing
service fee. The minimum initial investment in Institutional Service shares is
$1 million, which may be waived in certain situations. There is no minimum
amount required for subsequent purchases.
The Fund has adopted for its Institutional Service shares a distribution plan
which provides for the payment of an annual service fee of up to 0.25% of the
average daily net assets of the class for personal service rendered to
shareholders and /or the maintenance of accounts.
<PAGE>
HOW TO BUY SHARES
Institutional investors may buy shares through broker-dealers, banks and certain
other financial intermediaries, or directly through the Fund's distributor,
Evergreen Distributor, Inc. (EDI).
<TABLE>
Method Opening an Account Adding to an Account
<S> <C> <C>
By Phone o Call 1-800-343-2898 to set up an account number o Call the Evergreen Express Line at
and get wiring instructions (call before 12 noon if 1-800-346-3858 24 hours a day or
you want wired funds to be credited that day). 1-800-343-2898 between 8 a.m. and 6
o Instruct your bank to wire or transfer your p.m. Eastern time, on any business
purchase (they may charge a wiring fee). day.
o Complete the account application and mail to: o If your bank account is set up on
Evergreen Service Company Overnight Address: file, you can request either:
P.O. Box 2121 Evergreen Service Company - Federal Funds Wire (offers
Boston, MA 02106-2121 200 Berkeley St. immediate access to funds) or
Boston, MA 02106-2121 Boston, MA 02116-5039 - Electronic transfer through the
Automated Clearing House which avoids
wiring fees.
o Wires received after 4 p.m. Eastern time on market
trading days will receive the next market day's
closing price.*
By Exchange o You can make an additional investment by exchange from an existing Evergreen Funds account by
contacting your investment representative or calling the Evergreen Express Line at 1-800-346-3858.**
o You can only exchange shares within the same class.
o There is no sales charge or redemption fee when exchanging Funds within the Evergreen Funds family.
o Orders placed before 4 p.m. Eastern time on market trading days will receive that day's closing
share price (if not, you will receive the next market day's closing price).*
o Exchanges are limited to three per calendar quarter, but in no event no more than five per calendar
year.
o Exchanges between accounts which do not have identical ownership must be made in writing with
a signature guarantee (see below).
</TABLE>
*The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with EDI. The
Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
**Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded and or monitored for verification, recordkeeping
and quality-assurance purposes. The Evergreen Funds reserve the right to
terminate the exchange privilege of any shareholder who exceeds the listed
maximum number of exchanges, as well as to reject any large dollar exchange if
placing it would, in the judgment of the portfolio manager, adversely affect the
price of the Fund.
<PAGE>
<TABLE>
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
Methods Requirements
<S> <C>
Call Us o Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-343-2898 between 8 a.m.
and 6 p.m. Eastern time, on any business day.
o This service must be authorized ahead of time, and is only available for regular accounts.*
o All authorized requests made before 4 p.m. Eastern time on market trading days will be processed at
that day's closing price. Requests after 4 p.m. will be processed the following business day.**
o We can either:
- wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank account via the Automated Clearing House
service
- mail you a check.
o All telephone calls are recorded and monitored for your protection. We are not responsible for
acting on telephone orders we believe are genuine.
o See exceptions list below for requests that must be made in writing.
Write Us o You can mail a redemption request to: Evergreen Service Company Overnight Address:
P.O. Box 2121 Evergreen Service Company
Boston, MA 02106-2121 200 Berkeley St.
Boston, MA 02116-5039
o Your letter of instructions must:
- list the Fund name and the account number
- indicate the number of shares or dollar value you wish to redeem
- be signed by the registered owner(s).
o See exceptions list below for requests that must be signature guaranteed.
Redeem Your You may also redeem your shares through participating broker-dealers by delivering a letter as
Shares in described above to your broker-dealer. A fee may be charged for this service
Person
* The Fund's shares may be made available through financial service firms which
are also investment dealers and which have a service agreement with EDI. The
Fund has approved the acceptance of purchase and repurchase request orders
effective as of the time of their receipt by certain authorized financial
intermediaries.
** Once you have authorized either the telephone exchange or redemption service,
anyone with a Personal Identification Number (PIN) and the required account
information (including your broker) can request a telephone transaction in your
account. All calls are recorded and or monitored for verification, recordkeeping
and quality-assurance purposes. The Evergreen Funds reserve the right to
terminate the exchange privilege of any shareholder who exceeds the listed
maximum number of exchanges, as well as to reject any large dollar exchange if
placing it would, in the judgment of the portfolio manager, adversely affect the
price of the Fund.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days for
investments made by Automated Clearing House transfer. We also reserve the right
to redeem in kind by paying you the proceeds of a redemption in securities
rather than in cash, and to redeem the remaining amount in the account if your
redemption brings the account balance below the initial minimum of $1,000,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
You want the proceeds transmitted to a bank account not listed on the account.
o You want the proceeds payable to anyone other than the registered
owner(s) of the account
Who Can Provide A Signature Guarantee
o Either your address or the o Commercial Bank
address of your bank account o Trust Company
has changed within 30 days. o Savings Association
o Credit Union
o Member of a U.S. stock
exchange
</TABLE>
<PAGE>
OTHER SERVICES
Evergreen Express Line
(800) 346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find the Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market commentary
from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can be
made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will be
included on your statement.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account.
Telephone requests received by 4 p.m. Eastern time will be invested the day the
request is received.
Reinvestment Privileges
Under certain circumstances, shareholders may, within one year of redemption,
reinstate their accounts at the current price. This is the Fund's net asset
value, also sometimes referred to as the Fund's "NAV."
The Tax Consequences of Investing in the fund
You may be taxed in two ways:
o On Fund distributions (dividends and capital gains) o On any profit you make
when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the Fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Fund will distribute two types of taxable income to you:
o Dividends. To the extent the regular dividends are derived from interest that
is not tax exempt, or from short-term capital gains, you will have to include
them in your federal taxable income. The Fund pays a quarterly dividend from
the dividends, interest and other income on the securities in which it
invests.
o Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. The Fund generally distributes capital gains, if
any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and are
considered ordinary income just like dividends. Profits on securities held
longer than 12 months are considered long-term capital gains and are taxed at
a special tax rate (20% for most taxpayers).
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and capital
gain payments will be reinvested to buy additional shares. Distribution checks
that are returned and distribution checks that are uncashed when the shareholder
has failed to respond to mailings from the shareholder servicing agent will
automatically be reinvested to buy additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by the Fund during the previous calendar year.
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital gains.
It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gains or losses you incur when you
sell shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend and
capital gains distributions for each calendar year on Form 1099 DIV. Proceeds
from a sale are reported on Form 1099B. You must report these on your tax
return. Since the IRS receives a copy as well, you could pay a penalty if you
neglect to report them.
Evergreen Service Company will send you a tax information guide each year during
tax season, which may include a cost basis statement detailing the gain or loss
on taxable transactions you had during the year. Please consult your own tax
advisor for further information regarding the federal, state and local tax
consequences of an investment in the Fund.
FEES and Expenses OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Institutional Service shares. Up to 0.75% of the Institutional Service
shares' average daily net assets are payable as 12b-1 fees. However, currently
the 12b-1 fees are limited to 0.25% of the Institutional Service shares' average
daily net assets. These fees will increase the cost of your investment. The Fund
may use 12b-1 fees as a "service fee" to pay broker-dealers for additional
shareholder services and/or the maintenance of accounts.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken out
before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your total
return in the Fund is reduced in direct proportion to the fees; 2) expense
ratios can vary greatly between funds and fund families, from under 0.25% to
over 3.0%; and 3) the Fund's advisor may waive a portion of the Fund's expenses
for a period of time, reducing its expense ratio.
<PAGE>
OTHER FUND PRACTICES
The Fund may invest in futures and options which are forms of derivatives. Such
practices are used to maintain the Fund's exposure to its market, to manage cash
or to attempt to increase income. Although this is intended to increase returns,
these practices may actually reduce returns or increase volatility.
In addition, the Fund may borrow money and lend its securities. Borrowing is a
form of leverage, which may magnify a Fund's gain or loss. Lending securities
may cause the Fund to lose the opportunity to sell these securities at the most
desirable price and, therefore, lose money.
While not a principal investment strategy, the Fund may invest up to 20% of its
assets in foreign securities. If the Fund invests in foreign securities, which
may include foreign currency transactions, the value of the Fund's shares will
be affected by changes in exchange rates. To manage this risk, the Fund may
enter into currency futures contracts and forward currency exchange contracts.
Although the Fund uses these contracts to hedge the U.S. dollar value of a
security it already owns, the Fund could lose money if it fails to predict
accurately the future exchange rates. The Fund may engage in hedging and cross
hedging with respect to foreign currencies to protect itself against a possible
decline in the value of another foreign currency in which certain of the Fund's
investments are denominated. A cross hedge cannot protect against exchange rate
risks perfectly, and if a Fund is incorrect in its judgment of future exchange
rate relationships, the Fund could be in a less advantageous position than if
such a hedge had not been established. Some other certain unique risks of
foreign investing are political turmoil and economic instability in the
countries in which the Fund invests could adversely affect the value of your
investment. In addition, if the value of any foreign currency in which the
Fund's investments are denominated declines relative to the U.S. dollar, the
value of your investment in the Fund may decline as well. Certain foreign
countries have less developed and less regulated securities markets and
accounting systems than the U.S. This may make it harder to get accurate
information about a security or company, and increase the likelihood that an
investment will not perform as well as expected.
<PAGE>
Please consult the SAI for more information regarding these and other investment
practices used by the Funds, including risks.
<PAGE>
Evergreen Funds
Select Money Market Trust
Select Money Market Fund
Select Treasury Money Market Fund
Select Municipal Money Market Fund
Select 100% Treasury Money Market Fund
Select U.S. Government Money Market Fund
Select Fixed Income Trust
Select Adjustable Rate Fund
Select Core Bond Fund
Select Fixed Income Fund
Select Fixed Income Fund II
Select High Yield Bond Fund
Select Income Plus Fund
Select Intermediate Term Municipal Bond Fund
Select International Bond Fund
Select Limited Duration Fund
Select Total Return Fund
Select Equity Trust
Select Balanced Fund
Select Core Equity Fund
Select Diversified Value Fund
Select Equity Index Fund
Select Large Cap Blend Fund
Select Secular Growth Fund
Select Small Cap Growth Fund
Select Small Company Value Fund
Select Social Principles Fund
Select Special Equity Fund
Select Strategic Growth Fund
Select Strategic Value Fund
Equity Trust
Small Cap Value Fund
Stock Selector Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
1.
Evergreen Express Line
Call 1-800-346-3858
24 hours a day to
o check your account
o order a statement
o get a Fund's current price, yield and
total return
o buy, redeem or exchange Fund shares
2. Investor Services
Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m.
Eastern time to
o buy, redeem or exchange shares
o order applications
o get assistance with your account
3. Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m.
Eastern time
4. Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-2121
o to buy, redeem or exchange shares
o to change the registration on your account
o for general correspondence
5. For express, registered or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5039
6. Visit us on-line:
www.evergreen-funds.com
7. Regular communications you will receive:
Account Statements -- You will receive quarterly statements for each Fund
you invest in.
Confirmation Notices -- We send a confirmation of any transaction you make
within five days of the transaction.
Annual and Semi-annual reports -- You will receive a detailed financial
report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax information you
need to include in your tax returns as well as the Evergreen Tax
Information Guide.
<PAGE>
For More Information About the Fund, Ask for:
The Fund's most recent Annual or Semi-annual Report, which contains a
complete financial accounting for the Fund and a complete list of portfolio
holdings as of a specific date, as well as commentary from the Fund's
portfolio manager. This Report discusses the market conditions and
investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Fund. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents
are legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days.
Information about the Fund (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov. Copies of this material may
be obtained, for a duplication fee by writing the SEC Public Reference
Section, Washington, D.C. 20549-6009, or by electronic request at the
following e-mail address: [email protected]. This material can also be
reviewed and copied at the SEC's Public Reference Room in Washington, DC.
For more information about the operation of the Public Reference Room, call
the SEC at 1-202-942-8090.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.: 811-08413
<PAGE>
EVERGREEN EQUITY TRUST
PART B
<PAGE>
SMALL CAP VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
GROWTH AND INCOME FUNDS
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
Evergreen Blue Chip Fund ("Blue Chip Fund")
Evergreen Equity Income Fund ("Equity Income Fund")
Evergreen Growth and Income Fund ("Growth and Income Fund")
Evergreen Income and Growth Fund ("Income and Growth Fund")
Evergreen Small Cap Value Fund ("Small Cap Value Fund")
Evergreen Utility Fund ("Utility Fund")
Evergreen Value Fund ("Value Fund")
(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 prospectus dated December 1, 1999 for the Fund
in which you are interested. The Funds are offered through a single prospectus
offering Class A, Class B, Class C and Class Y shares of each Fund. You may
obtain the prospectus by calling (800) 343-2898.
Certain information may be incorporated by reference to the Funds'
Annual Report dated July 31, 1999. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898 or downloading it off our website at
www.evergreen-funds.com.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY................................................................
INVESTMENT POLICIES..........................................................
OTHER SECURITIES AND PRACTICES...............................................
PRINCIPAL HOLDERS OF FUND SHARES.............................................
EXPENSES.....................................................................
PERFORMANCE..................................................................
SERVICE PROVIDERS............................................................
FINANCIAL STATEMENTS.........................................................
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES................
PURCHASE AND REDEMPTION OF SHARES............................................
SALES CHARGE WAIVERS AND REDUCTIONS..........................................
PRICING OF SHARES............................................................
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 Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. Each Fund is a
diversified series of the Trust. A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. Evergreen Equity Income Fund (formerly Evergreen Fund for Total Return)
changed its name on April 6, 1999. Also on April 6, 1999, Evergreen Small Cap
Value Fund (formerly Evergreen Small Cap Equity Fund) changed its name.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund=s practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund=s practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities), except that Utility will concentrate its investments in
utility industries.
Further Explanation of Concentration Policy: Each Fund except Utility
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), except that Utility is required to invest at least 65% of
its total assets in utility industries.
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 securities the Funds may purchase and
investment practices the Funds may use, see the following section in Part 2 of
this SAI under "Additional Information on Securities and Investment Practices."
Information provided in the sections listed below expands upon and supplements
information provided in the Funds' prospectus. The list below applies to all
Funds unless otherwise noted.
Money Market Instruments
Convertible Securities
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
(not applicable to Growth and Income Fund, Income and Growth Fund and Small
Cap Value Fund)
Repurchase Agreements
Reverse Repurchase Agreements (not applicable to Growth and Income
Fund and Income and Growth Fund)
Options
Futures Transactions
Foreign Securities (not applicable to Growth and Income Fund)
Foreign Currency Transactions (not applicable to Growth and Income
Fund)
High Yield, High Risk Bonds (applicable only to Equity Income Fund and Growth
and Income Fund)
Illiquid and Restricted Securities
Investment in Other Investment Companies
Short Sales (applicable only to Growth and Income and Income and Growth Fund)
Warrants (applicable only to Blue Chip Fund)
Limited Partnerships (applicable only to Blue Chip Fund)
Payment-in-kind Securities Securities
Lending Swaps, Caps, Floors and Collars
PRINCIPAL HOLDERS OF FUND SHARES
As of November 1, 1999, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund=s knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of November 1, 1999.
----------------------------------------------------------------
Blue Chip Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Blue Chip Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Blue Chip Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
Douglas M. Ellingson
1833 East Carver Street 12.74%
Tempe, AZ 85284-2509
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Douglas M. Ellingson TTEE 8.49%
Ellingson Irrevocable Trust
1833 East Carver Street
Tempe, AZ 85284-2509
---------------------------------------------------- -----------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 5.80%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Blue Chip Fund Class Y
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank BK/EB/INT
Cash Account 56.69%
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank EB/INT 19.45%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Equity Income Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 5.13%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Equity Income Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 8.86%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Equity Income Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
Lavedna Ellingson 19.11%
DouglasEllingson TTEES
Lavedna Ellingson Marital Trust U/A Dtd 5-1-86
8510 McClintock
Tempe, AZ 85284-2527
---------------------------------------------------- -----------
---------------------------------------------------- -----------
MLPF&S for the Sole Benefit of Its Customers 10.60%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
---------------------------------------------------- -----------
State Street Bank and Trust Company Custodian 5.07%
Rollover IRA FBO
Warren C. Smothers
C/O Linsco Private Ledger
4402 Vance Jackson Suite 101
San Antonio, TX 78230-5333
---------------------------------------------------- -----------
----------------------------------------------------------------
Equity Income Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank/EB/INT 70.99%
Reinvest Account
Attn: Joe Gainey
401 S. Tryon St. 3rd Fl.
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
---------------------------------------------------- -----------
State Street Bank and Trust Company 6.36%
Custodian
Rollover IRA FBO
Arnold Lieber
33 W. 88th Street
New York, NY 10024-2537
---------------------------------------------------- -----------
---------------------------------------------------- -----------
State Street Bank and Trust Company Custodian 5.62%
IRA FBO
Mitchell S. Cohen
23 Gregory Lane
Millwood, NY 10546-1039
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth and Income Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth and Income Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth and Income Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 19.38%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth and Income Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank EB/INT 49.34%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank EB/INT 25.51%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
----------------------------------------------------------------
Income and Growth Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Income and Growth Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Income and Growth Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Income and Growth Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Cap Value Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Cap Value Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 8.28%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Small Cap Value Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 17.12%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Cap Value Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National BK EB/INT 64.06%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank EB/INT 17.55%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
----------------------------------------------------------------
Utility Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Utility Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Utility Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
Wexford Clearing Services Corp. 14.43%
Edward S. Carrier
57 Walbridge Road
West Hartford, CT 06119-1344
---------------------------------------------------- -----------
---------------------------------------------------- -----------
MLPF&S For the Sole Benefit of Its Customers 9.61%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
---------------------------------------------------- -----------
State Street Bank and Trust Company 9.11%
Custodian
Rollover IRA FBO
Sandra K. Rosenberg
1558 Park Circle
Mendota Heights, MN 55118-2745
---------------------------------------------------- -----------
---------------------------------------------------- -----------
PaineWebber FBO 5.01%
Dee Ann Thomas
682 Broad Ave. So.
Naples, FL 34102
---------------------------------------------------- -----------
----------------------------------------------------------------
Utility Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank 63.83%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1910
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank 13.56%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S.Tryon Street
Charlotte, NC 28202-1910
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Khalid Iqbal C/F 6.11%
Fatima Khalid IQBAL
Unif Gift Min ACT KY
401 Bogle Street
Somerset, KY 42503-2870
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Value Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Value Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Value Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
Donaldson Lufkin Jenrette 13.12%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Douglas M. Ellingson 10.37%
1833 East Carver St.
Tempe, AZ 85284-2509
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Douglas M. Ellingson TTEE 6.91%
Ellingson Irrevocable Trust
1833 E. Carver St.
Tempe, AZ 85284-2509
---------------------------------------------------- -----------
----------------------------------------------------------------
Value Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank 65.74%
Trust Accounts
Attn: Ginny Batten
CMG-1151 11th Floor
301 S. Tryon Street
Charlotte, NC 28202-1910
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank 25.62%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1910
---------------------------------------------------- -----------
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 Growth and
Income Fund, Income and Growth Fund and Small Cap Value Fund. 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%
---------------------------------- -----------------
Evergreen Investment Management ("EIM")(formerly known as Capital
Management Group) a division of First Union National Bank is the investment
advisor to Utility Fund and Value Fund. EIM is entitled to receive from each
of these Funds an annual fee equal to 0.50% of the average daily net assets of
the Fund.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Blue Chip Fund.
EIMC is entitled to receive from Blue Chip Fund an annual fee based on the
Fund's average daily net assets, as follows:
<PAGE>
---------------------------------- -----------------
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%
---------------------------------- -----------------
EIMC is also the investment advisor to Equity Income Fund. EIMC is
entitled to receive from Equity Income Fund an annual fee based on 1.5% of the
Fund's gross dividend and interest income plus a percentage of the Fund's
average daily net assets, as follows:
---------------------------------- -----------------
Average Daily Net Assets Fee
---------------------------------- -----------------
---------------------------------- -----------------
first $100 million 0.60%
---------------------------------- -----------------
---------------------------------- -----------------
next $100 million 0.55%
---------------------------------- -----------------
---------------------------------- -----------------
next $100 million 0.50%
---------------------------------- -----------------
---------------------------------- -----------------
next $100 million 0.45%
---------------------------------- -----------------
---------------------------------- -----------------
next $100 million 0.40%
---------------------------------- -----------------
---------------------------------- -----------------
next $500 million 0.35%
---------------------------------- -----------------
---------------------------------- -----------------
over $1 billion 0.30%
---------------------------------- -----------------
<PAGE>
Advisory Fees Paid
Below are the advisory fees accrued by each Fund for the last three
fiscal periods.
----------------------------- ---------------------- ---------------------
Fiscal Period/Fund Advisory Fee Waiver
----------------------------- ---------------------- ---------------------
--------------------------------------------------------------------------
Period Ended July 31, 1999
--------------------------------------------------------------------------
----------------------------- ---------------------- ---------------------
Blue Chip Fund $2,858,644 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Equity Income Fund $983,976 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Growth and Income Fund $17,519,113 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Income and Growth Fund $8,634,036 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Small Cap Value Fund $2,765,667 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Utility Fund $745,510 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Value Fund $4,710,657 -0-
----------------------------- ---------------------- ---------------------
--------------------------------------------------------------------------
Periods Ended 1998
--------------------------------------------------------------------------
----------------------------- ---------------------- ---------------------
Blue Chip Fund (1) $2, 052,676 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Equity Income Fund (2) $1,062,354 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Growth and Income Fund (2) $16,275,918 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Income and Growth Fund (2) $9,685,921 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Small Cap Value Fund (2) $2,055,006 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Utility Fund (2) $704,533 $204,617
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Value Fund (2) $7,023,408 -0-
----------------------------- ---------------------- ---------------------
--------------------------------------------------------------------------
Periods Ended 1997
--------------------------------------------------------------------------
----------------------------- ---------------------- ---------------------
Blue Chip Fund (3) $1,794,364 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Equity Income Fund (7) $546,092 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Growth and Income Fund (4) $5,736,248 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Income and Growth Fund (5) $4,371,784 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Income and Growth Fund (6) $8,823,541 -0-
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Small Cap Value Fund (4) $180,153 $35,183
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Utility Fund (4) $382,537 $146,640
----------------------------- ---------------------- ---------------------
----------------------------- ---------------------- ---------------------
Value Fund (4) $4,753,235 -0-
----------------------------- ---------------------- ---------------------
(1) Eleven months ended 7/31/1998
(2) Year ended 7/31/1998
(3) Year ended 8/31/1997
(4) Seven months ended 7/31/1997
(5) Six months ended 7/31/1997
(6) Year ended 1/31/1997
(7) Eight months ended 7/31/1997
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
periods. For more information regarding brokerage commissions, see "Brokerage"
in Part 2 of this SAI.
- ------------------------------- ---------------------- ----------------------
Fiscal Period/Fund Total Paid to All Total Paid to Lieber
Brokers
- ------------------------------- ---------------------- ----------------------
- -----------------------------------------------------------------------------
Period Ended July 31, 1999
- -----------------------------------------------------------------------------
- ------------------------------- ---------------------- ----------------------
Blue Chip Fund $1,128,579 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Equity Income Fund $376,821 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Growth and Income Fund $2,254,572 $2,145,290
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Income and Growth Fund $2,647,692 $1,734,853
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Small Cap Value Fund $410,670 $322,591
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Utility Fund $249,350 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Value Fund $2,327,193 -0-
- ------------------------------- ---------------------- ----------------------
- -----------------------------------------------------------------------------
Periods Ended 1998
- -----------------------------------------------------------------------------
- ------------------------------- ---------------------- ----------------------
Blue Chip Fund (1) $722,562 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Equity Income Fund (2) $247,967 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Growth and Income Fund (2) $1,527,103 $1,460,628
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Income and Growth Fund (2) $2,839,407 $1,762,628
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Small Cap Value (2) $382,504 $305,340
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Utility Fund (2) $255,495 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Value Fund (2) $2,277,475 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Periods Ended 1997
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Blue Fund Chip (3) $656,022 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Equity Income Fund (7) $153,935 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Growth and Income Fund (4) $412,968 $348,590
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Income and Growth Fund (5) $1,575,483 $1,066,378
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Income and Growth Fund (6) $3,529,313 $2,835,293
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Small Cap Value Fund (4) $74,018 $61,390
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Utility Fund (4) $220,091 -0-
- ------------------------------- ---------------------- ----------------------
- ------------------------------- ---------------------- ----------------------
Value Fund (4) $273,045 -0-
- ------------------------------- ---------------------- ----------------------
(1) Eleven months ended 7/31/1998
(2) Year ended 7/31/1998
(3) Year ended 8/31/1997
(4) Seven months ended 7/31/1997
(5) Six months ended 7/31/1997
(6) Year ended 1/31/1997
(7) Eight months ended 7/31/1997
Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year ended July 31, 1999, (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.
- ------------------------------ ---------------------------- -------------------
Fund Percentage of Commissions Percentage of
to Lieber & Company Commissionable
Transactions through
Lieber & Company
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Growth and Income Fund 95.2% 91.4%
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Income and Growth Fund 65.5% 39.3%
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Small Cap Value Fund 78.6% 65.0%
- ------------------------------ ---------------------------- -------------------
Portfolio Turnover
The Funds generally do not take portfolio turnover into account in
making investment decisions. This means the Funds could experience a high rate
of portfolio turnover (100% or more) in any given fiscal year, resulting in
greater brokerage and other transaction costs which are borne by the Funds and
their shareholders. It may also result in the Funds realizing greater net
short-term capital gains, distributions from which are taxable to shareholders
as ordinary income.
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last three fiscal periods.
For more information, see "Principal Underwriter" in Part 2 of this SAI.
- ------------------------------ ---------------------------- -------------------
Fiscal Period/Fund Total Underwriting Underwriting
Commissions Commissions Retained
- ------------------------------ ---------------------------- -------------------
<PAGE>
- -------------------------------------------------------------------------------
Period ended July 31, 1999
- -------------------------------------------------------------------------------
- ------------------------------ ---------------------------- -------------------
Blue Chip Fund $1,387,879 $55,530
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Equity Income Fund $228,712 -0-
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Growth and Income Fund $1,065,602 $36,299
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Income and Growth Fund $145,172 $11,661
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Small Cap Value Fund $472,825 $35,233
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Utility Fund $103,237 -0-
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Value Fund $193,003 $16,490
- ------------------------------ ---------------------------- -------------------
<PAGE>
- -------------------------------------------------------------------------------
Periods ended 1998
- -------------------------------------------------------------------------------
- ------------------------------ ---------------------------- -------------------
Blue Chip Fund (1) $1,989,997 $23,620
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Equity Income Fund (2) $849,763 $30,676
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Growth and Income Fund (2) $20,963,554 $603,197
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Income and Growth Fund (2) $649,901 $26,252
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Small Cap Value Fund (2) $6,344,098 $182,887
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Utility Fund (2) $327,363 $13,944
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Value Fund (2) $2,716,315 $109,283
- ------------------------------ ---------------------------- -------------------
- -------------------------------------------------------------------------------
Periods ended 1997
- -------------------------------------------------------------------------------
- ------------------------------ ---------------------------- -------------------
Blue Chip Fund (3) $1,017,961 $363,862
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Equity Income Fund (7) $128,762 $7,709
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Growth and Income Fund (4) $1,796,199 $169,177
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Income and Growth Fund (5) $41,996 $4,196
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Income and Growth Fund (6) $187,403 $20,208
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Small Cap Value Fund (4) $72,045 $8,281
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Utility Fund (4) $15,633 $1,789
- ------------------------------ ---------------------------- -------------------
- ------------------------------ ---------------------------- -------------------
Value Fund (4) $479,927 $51,343
- ------------------------------ ---------------------------- -------------------
(1) Eleven months ended 7/31/1998
(2) Year ended 7/31/1998
(3) Year ended 8/31/1997
(4) Seven months ended 7/31/1997
(5) Six months ended 7/31/1997
(6) Year ended 1/31/1997
(7) Eight months ended 7/31/1997
<PAGE>
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year ended
July 31, 1999. For more information, see "Distribution Expenses Under Rule
12b-1" in Part 2 of this SAI.
<TABLE>
<CAPTION>
- -------------------- --------------------------------- -------------------------------- ---------------------------------
Class A Class B Class C
Fund
--------------------------------- -------------------------------- ---------------------------------
---------------- ---------------- ---------------- --------------- ---------------- ----------------
Distribution Service Fees Distribution Service Fees Distribution Service Fees
Fees Fees Fees
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Fund -0- $774,362 $1,228,306 $409,435 $11,459 $3,820
- -------------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
Equity Income Fund -0- $127,494 $662,123 $219,982 $139,251 $46,417
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
Growth and Income Fund -0- $676,478 $7,038,523 $2,346,174 $329,695 $109,898
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- --------------- ---------------- ----------------
Income and Growth Fund -0- $34,283 $379,904 $126,634 $8,087 $2,696
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
Small Cap Value Fund -0- $149,687 $889,482 $296,494 $179,951 $59,983
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
Utility Fund -0- $245,543 $357,248 $119,083 $4,596 $1,532
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
Value Fund -0- $1,154,951 $2,433,726 $811,242 $34,053 $11,351
- -------------------- ---------------- ---------------- ---------------- --------------- ---------------- ----------------
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
for the fiscal year ended July 31, 1999 and by the Trust and the eight other
trusts in the Evergreen Fund Complex for the calendar year ended December 31,
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.
<TABLE>
<CAPTION>
------------------------------- ------------------------------ -----------------------------
Aggregate Compensation from Total Compensation from the
Trustee the Trust for the fiscal Evergreen Fund Complex for
year ended 7/31/1999 the calendar year ended
12/31/1998**
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C>
Laurence B. Ashkin $7,013 $75,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Charles A. Austin, III $7,043 $75,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
K. Dun Gifford $6,937 $73,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
James S. Howell $9,071 $99,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Leroy Keith Jr. $6,937 $73,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Gerald M. McDonnell $7,012 $75,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Thomas L. McVerry $8,085 $86,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
William Walt Pettit $6,937 $68,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
David M. Richardson $6,937 $73,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Russell A. Salton, III $7,162 $79,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Michael S. Scofield* $8,489 $79,500
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
Richard J. Shima $6,937 $73,000
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
</TABLE>
* As of January 1, 2000, Michael S. Scofield will become Chairman
of the Board and James S. Howell will become Trustee Emeritus.
** Certain Trustees have elected to defer all or part of their
total compensation for the calendar year ended December 31,
1998. The amounts listed below will be payable in later years to
the respective Trustees:
Austin $11,325
Howell $79,200
McDonnell $75,500
McVerry $86,500
Petit $68,000
Salton $78,500
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of July 31, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Fund/Class One Year Five Years Ten Years or Since Inception Date
Inception
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Fund (1)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A 11.71% 20.42% 13.58% 1/20/1998
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B 11.26% 20.66% 13.31% 9/11/1935
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 15.37% 20.74% 13.21% 1/22/1998
- ------------------------- ------------------ --------------------- -------------------- ---------------------
<PAGE>
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 17.46% 21.88% 14.40% 4/30/1999
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
Equity Income Fund (3)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A 3.06% 17.56% 12.95% 4/14/1987
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B 2.74% 17.56% 12.92% 2/1/1993
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 6.45% 17.79% 12.92% 2/1/1993
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 8.44% 18.77% 13.53% 1/13/1997
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
Growth and Income Fund (2)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A -0.47% 17.31% 13.60% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B -1.27% 17.50% 13.78% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 2.69% 17.71% 13.79% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 4.75% 18.74% 14.29% 10/15/1986
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
Income and Growth Fund (2)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A 6.80% 12.68% 9.42% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B 6.48% 12.79% 9.58% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 10.37% 13.01% 9.58% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 12.46% 14.02% 10.07% 8/31/1978
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
Small Cap Value Fund (2)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A -2.71% 14.11% 12.07% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B -3.59% 14.21% 12.25% 1/3/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 0.30% 14.40% 12.31% 1/24/1995
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 2.31% 15.50% 13.23% 10/1/1993
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------
Utility Fund (4)
- -------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class A 20.03% 15.88% 13.34% 1/4/1994
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class B 20.23% 15.93% 13.42% 1/4/1994
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class C 24.23% 16.17% 13.59% 9/2/1994
- ------------------------- ------------------ --------------------- -------------------- ---------------------
- ------------------------- ------------------ --------------------- -------------------- ---------------------
Class Y 26.35% 17.29% 14.61% 2/28/1994
- ------------------------- ------------------ --------------------- -------------------- ---------------------
<PAGE>
- -------------------------------------------------------------------------------------------------------------
Value Fund (3)
- -------------------------------------------------------------------------------------------------------------
- ----------------------- -------------------- --------------------- -------------------- ---------------------
Class A 8.08% 17.45% 12.98% 4/12/1985
- ----------------------- -------------------- --------------------- -------------------- ---------------------
- ----------------------- -------------------- --------------------- -------------------- ---------------------
Class B 7.65% 17.54% 13.03% 2/2/1993
- ----------------------- -------------------- --------------------- -------------------- ---------------------
- ----------------------- -------------------- --------------------- -------------------- ---------------------
Class C 11.66% 17.77% 13.13% 9/2/1994
- ----------------------- -------------------- --------------------- -------------------- ---------------------
- ----------------------- -------------------- --------------------- -------------------- ---------------------
Class Y 13.81% 18.90% 13.79% 1/3/1991
- ----------------------- -------------------- --------------------- -------------------- ---------------------
</TABLE>
(1) Historical performance shown for Classes A, C, and Y prior to their
inception is based on the performance of Class B, the original class
offered. These historical returns for Classes A and Y have been adjusted to
eliminate the effect of the higher 12b-1 fees applicable to Class B. The
12b-1 fees for Class A are 0.25%, for Class B are 1.00%, and for Class C
are 1.00%. Class Y does not pay a 12b-1 fee. If these fees had not been
eliminated, returns would have been lower.
(2) 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
Class A are 0.25%, for Class B are 1.00%, and for Class C are 1.00%. Class
Y does not pay a 12b-1 fee. If these fees had been reflected, returns would
have been lower.
(3) Historical performance shown for Classes B, C, and Y prior to their
inception is based on the performance of Class A, the original class
offered. These historical returns for Classes B, C, and Y have not been
adjusted to reflect the effect of each Class' 12b-1 fees. These fees for
Class A are 0.25%, for Class B are 1.00%, and for Class C are 1.00%. Class
Y does not pay a 12b-1 fee. If these fees had been reflected, returns for
Classes B and C would have been lower while returns for Class Y would have
been higher.
(4) Historical performance shown for Classes C and Y prior to their inception
is based on the performance of Class A, one of the original classes offered
along with Class B. These historical returns for Classes C and Y have not
been adjusted to reflect the effect of each Class' 12b-1 fees. These fees
for Class A are 0.25%, for Class B are 1.00% and for Class C are 1.00%.
Class Y does not pay a 12b-1 fee. If these fees had been reflected, returns
for Class C would have been lower while returns for Class Y would have been
higher.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value ("NAV") plus a sales
charge. Below is an example of the method of computing the offering price of
Class A shares of each Fund. The example assumes a purchase of Class A shares of
each Fund aggregating less than $100,000 based upon the NAV of each Fund's Class
A shares at the end of each Fund's latest fiscal period. For more information,
see "Purchase, Redemption and Pricing of Shares."
<TABLE>
<CAPTION>
============================== ------------------- ------------------ ------------------- ===================
Fund Date NAV Per Share Sales Offering Price
Charge Per Share
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
<S> <C> <C> <C> <C>
Blue Chip Fund 7/31/1999 $32.88 4.75% $34.52
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
Equity Income Fund 7/31/1999 $20.17 4.75% $21.18
============================== ------------------- ------------------ ------------------- ===================
Growth and Income Fund 7/31/1999 $29.56 4.75% $31.03
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
Income and Growth Fund 7/31/1999 $22.57 4.75% $23.70
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
Small Cap Value Fund 7/31/1999 $15.57 4.75% $16.35
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
Utility Fund 7/31/1999 $12.85 4.75% $13.49
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
Value Fund 7/31/1999 $24.86 4.75% $26.10
============================== ------------------- ------------------ ------------------- ===================
============================== ------------------- ------------------ ------------------- ===================
</TABLE>
<PAGE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator for
Utility and Value, 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 Blue Chip
Fund, Growth and Income Fund, Income and Growth Fund, Small Cap Value Fund
and Equity Income Fund on behalf of the investment advisor. Blue Chip Fund
and Equity Income Fund 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:
----------------------------- --------------- --------------
Fund Type Annual Fee Annual Fee
Per Open Per Closed
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. Each Fund pays ESC cost plus
15% for broker accounts.
** Closed accounts are maintained on the system in order to
facilitate historical tax information.
Distributor
Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is 125
W. 55th Street, New York, NY 10019.
<PAGE>
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of each Fund.
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 audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund or the Class in which you are
interested. See the list under Other Securities and Practices in Part 1 of this
SAI to determine which of the sections below are applicable.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. Evergreen Equity Income Fund 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) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA"). The
Fund may invest in securities issued by the GNMA, a corporation wholly-owned by
the U.S. Government. GNMA securities or "certificates" represent ownership in a
pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the security
which is the subject of the agreement. In addition to the general risks involved
in leveraging, dollar rolls are subject to the same risks as repurchase and
reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allow convertible securities to be employed for a
variety of investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options
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, resulting in a
potential loss of value to the Fund.
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.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
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 high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
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. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the 1940
Act. In the event an issuer of debt securities collateralized by real estate
defaults, it is conceivable that the REITs could end up holding the underlying
real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Internal
Revenue Code of 1986, as amended (the "Code"), each item of income, gain, loss,
deduction, and credit is not taxed at the partnership level but flows through to
the holder of the partnership unit. This allows the partnership to avoid double
taxation and to pass through income to the holder of the partnership unit at
lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (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:
<TABLE>
<CAPTION>
REDEMPTION TIME CDSC RATE
<S> <C>
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%
</TABLE>
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 EDI. 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 an
investment advisor of an Evergreen Fund or the advisor's 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
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.
<PAGE>
Contingent Deferred Sales Charge
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Expenses Under Rule 12b-1,"
below). Institutional and Institutional Service shares do not charge a CDSC. If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional and
Institutional Service 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.
<PAGE>
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1
tax-sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisors;
4. investment advisors, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisors or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, EDI, any broker-dealer with
whom EDI, has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single account
in the name of such bank or trust company if the initial
investment in any of the Evergreen Funds made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
<PAGE>
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 which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen Fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC 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.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily (or twice
daily, for Money Market Funds) on Monday through Friday, as described in the
prospectus. The Fund will not compute its NAV on the days the New York Stock
Exchange is closed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded or
on the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in the investment advisor's opinion, the last sales price does not
reflect an accurate current market value; and other assets are valued
at prices deemed in good faith to be fair under procedures established
by the Board of Trustees.
(6) Municipal bonds are valued by an independent pricing service at
fair value using a variety of factors which may include yield,
liquidity, interest rate risk, credit quality, coupon, maturity and
type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
P(1 + T)n = ERV
P = initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b
Yield = 2[(----- +1)6 - 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:
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:
Yield
Tax Equivalent 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
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that EDI will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it.
All subscriptions and sales of shares by EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust and each person who has been,
is, or may be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim, action, suit, or
proceeding to which any of them may be a party that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of EDI or any other person for whose acts EDI is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C and Institutional
Service shares, as applicable, the Fund may incur expenses for 12b-1 fees up to
a maximum annual percentage of the average daily net assets attributable to a
class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
* Currently limited to 0.25% or less to be used exclusively as
a shareholder service fee. 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 EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C and
Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- -------------
Class A 0.25%*
----------------------------- -------------
----------------------------- -------------
Class B 1.00%
----------------------------- -------------
----------------------------- -------------
Class C 1.00%
----------------------------- -------------
----------------------------- -------------
Institutional Service 0.25%*
----------------------------- -------------
*May be lower. See the expense table in the prospectus of the
Fund in which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
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 EDI to
compensate broker-dealers in connection with the sale of such shares.
Service fees are accrued daily and paid at least annually on Class A,
Class B, Class C, and Institutional Service shares and are charged as class
expenses, as accrued.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C 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 Service shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B, Class C 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 EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond 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 or
U.S. Government money market fund, it anticipates that all or a portion of the
ordinary dividends which it pays will qualify for the 70% dividends-received
deduction for corporations. The Fund will inform shareholders of the amounts
that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S.
Government money market fund, none of its income will consist of corporate
dividends; therefore, none of its distributions will qualify for the 70%
dividends-received deduction for corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Shareholders of Municipal Bond Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code, as amended.) of a facility financed with an issue of tax-exempt
obligations or a "related person" to such a user should consult his tax advisor
concerning his qualification to receive exempt interest dividends should the
Fund hold obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund.
Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under
a tax treaty) on amounts treated as income from U.S. sources under the Code.
<PAGE>
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 Evergreen Asset Management Company ("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
The foregoing is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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 Evergreen Masters Fund) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services.
See "Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, the Vice Chairman of the Board, Michael Scofield, and
Russell Salton, each of whom is an Independent Trustee. Commencing January 1,
2000, the Trust's Executive Committee will consist of the Chairman of the Board,
Michael Scofield, K. Dunn Gifford and Russell Salton. 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 consultant; and
(DOB: 2/2/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President, Oldways
Preservation and Exchange Trust (education); former Chairman
of the Board, Director, and Executive Vice President,
The London Harness Company (leather goods purveyor);
former Managing Partner, Roscommon Capital Corp.;
former Chief Executive Officer, Gifford Gifts of Fine
Foods; former Chairman, Gifford, Drescher & Associates
(environmental consulting).
James S. Howell* Chairman of the Board Former Chairman of the Distribution Committee, Foundation
(DOB: 8/13/24) of Trustees for the Carolinas; and former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
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
(DOB: 9/14/41) International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield* Vice Chairman of the Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) Board of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Anthony J. Fischer** President and Treasurer Vice President/Client Services, BISYS Fund Services.
(DOB:2/10/59)
Nimish S. Bhatt*** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National Bank; former
Senior Tax Consulting/Acting Manager, Investment Companies
Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft*** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
</TABLE>
* As of January 1, 2000, Michael S. Scofield will become Chairman of the
Board and James S. Howell will become Trustee Emeritis.
** Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016
*** Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<PAGE>
<TABLE>
<CAPTION>
COMPARISON OF LONG-TERM BOND RATINGS
<S> <C> <C> <C> <C>
----------------- ---------------- --------------- =================================================
MOODY'S S&P FITCH Credit Quality
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
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:
o 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
o Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
<PAGE>
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and
are extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
o 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
o Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
<PAGE>
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
<PAGE>
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
<PAGE>
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
<PAGE>
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN EQUITY TRUST
PART B
STOCK SELECTOR FUND
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
DOMESTIC GROWTH FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
Evergreen Aggressive Growth Fund ("Aggressive Growth Fund")
Evergreen Capital Growth Fund ("Capital Growth Fund")
Evergreen Fund ("Evergreen Fund")
Evergreen Growth Fund ("Growth Fund")
Evergreen Masters Fund ("Masters Fund")
Evergreen Omega Fund ("Omega Fund")
Evergreen Small Company Growth Fund ("Small Company Growth Fund")
Evergreen Stock Selector Fund ("Stock Selector Fund")
Evergreen Strategic Growth Fund ("Strategic Growth Fund")
Evergreen Tax Strategic Equity Fund ("Tax Strategic Equity Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end management investment company
known as Evergreen Equity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but
should be read in conjunction with the prospectus for the Fund in which you
are interested dated February 1, 2000.
The Funds are offered through a single prospectus offering Class A,
Class B, Class C, and Class Y shares. You may obtain a copy of the
prospectus without charge by calling (800) 343-2898 or downloading off our
website at www.evergreen-funds.com. The information in Part 1 of this SAI
is specific information about the Funds described in the prospectus. The
information in Part 2 of this SAI contains more general information that
may or may not apply to the Fund or Class of shares in which you are
interested.
Certain information may be incorporated by reference to the Funds'
Annual Reports dated September 30, 1999. You may obtain a copy of an Annual
Report without charge by calling (800)-343-2898 or downloading it off our
website at www.evergreen-funds.com.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART 1
<S> <C>
TRUST HISTORY...................................................................................................1-3
INVESTMENT POLICIES.............................................................................................1-3
OTHER SECURITIES AND PRACTICES..................................................................................1-5
PRINCIPAL HOLDERS OF FUND SHARES................................................................................1-5
EXPENSES
1-13
PERFORMANCE....................................................................................................1-20
COMPUTATION OF CLASS A OFFERING PRICE ........................................................................ 1-21
SERVICE PROVIDERS..............................................................................................1-22
FINANCIAL STATEMENTS...........................................................................................1-24
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES...................................................2-1
PURCHASE AND REDEMPTION OF SHARES..............................................................................2-12
SALES CHARGE WAIVERS AND REDUCTIONS............................................................................2-14
PRICING OF SHARES..............................................................................................2-15
PERFORMANCE CALCULATIONS.......................................................................................2-17
PRINCIPAL UNDERWRITER..........................................................................................2-19
DISTRIBUTION EXPENSES UNDER RULE 12b-1.........................................................................2-20
TAX INFORMATION................................................................................................2-22
BROKERAGE......................................................................................................2-25
ORGANIZATION...................................................................................................2-26
INVESTMENT ADVISORY AGREEMENT..................................................................................2-27
MANAGEMENT OF THE TRUST........................................................................................2-29
CORPORATE AND MUNICIPAL BOND RATINGS...........................................................................2-31
ADDITIONAL INFORMATION.........................................................................................2-41
</TABLE>
<PAGE>
PART 1
TRUST HISTORY
The Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. Each Fund is a
diversified series of the Trust. A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. On October 15, 1999, in connection with the reorganization of the Mentor
Funds, Evergreen Capital Growth Fund (formerly Mentor Capital Growth Portfolio)
and Evergreen Growth Fund (formerly Mentor Growth Portfolio) changed their
names.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
<PAGE>
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.
<PAGE>
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 in
Part 2 of this SAI under "Additional Information on Securities and Investment
Practices." Information provided in the sections listed below expands upon and
supplements information provided in the Funds' prospectus. The list below
applies to all Funds unless noted otherwise:
Money Market Instruments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
(not applicable to Growth Fund)
Repurchase Agreements
Reverse Repurchase Agreements (not applicable to Growth Fund)
Options
Futures Transactions
Foreign Securities (not applicable to Aggressive Growth Fund, Evergreen Fund or
Growth Fund)
Foreign Currency Transactions (not applicable to Aggressive Growth Fund,
Evergreen Fund or Growth Fund)
Illiquid and Restricted Securities (not applicable to Capital Growth Fund or
Growth Fund)
Investment in Other Investment Companies (not applicable to Capital Growth Fund
or Growth Fund)
Short Sales (not applicable to Capital Growth Fund or Growth Fund)
Convertible Securities
Warrants
Dollar Roll Transactions (applicable only to Capital Growth Fund)
Derivatives (not applicable to Capital Growth Fund and Growth Fund)
Premium Securities (applicable only to Capital Growth Fund and Growth Fund)
Securities Lending Limited Partnerships (applicable only to Small Company Growth
Fund, Strategic Growth Fund and Tax Strategic Equity Fund)
PRINCIPAL HOLDERS OF FUND SHARES
As of January 3, 2000, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of January 3, 2000.
----------------------------------------------------------------
Aggressive Growth Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 9.436%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Aggressive Growth Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Aggressive Growth Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 13.21%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
Lavedna Ellingson, Douglas Ellingson JT WROS
8510 McClintock 6.839%
Tempe, AZ 85384-2527
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Aggressive Growth Fund Class Y
---------------------------------------------------- -----------
---------------------------------------------------- -----------
51.53%
First Union National Bank Trust Accounts
Attn: Ginny Batten 11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1915
18.32%
First Union National Bank Trust Accounts
Attn: Ginny Batten 11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1915
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Capital Growth Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Capital Growth Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Capital Growth Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Capital Growth Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Evergreen Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Evergreen Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Evergreen Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Evergreen Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank EB/INT 27.44%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
First Union National Bank EB/INT 9.65%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Growth Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
First Clearing Corporation 5.17%
Plumbers & Pipe Fitters Local Union
901 East Byrd Street
Richmond, VA 23219
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
First Clearing Corporation FBO 22.62%
Judith Druyanoff Kandel
12850 SW 4 Court #205
Pembroke Pines, FL 33027
MLPF&S for the sole benefit of its customers 15.86%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
First Union Securities 12.86%
Iowa Signal & Electric Co.
111 East Kilbourn Avenue
Milwaukee, IA 50325-1251
First Clearing Corporation FBO 9.60%
Troy S. Penley SEPP
3283 NC 18 & US 64
Morganton, NC 28655
First Clearing Corporation 6.13%
Guarantee & Trust TTEE FBO
Sheryl W. Loop
6103 Dorchester Street
Springfield, VA 22150-2412
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Growth Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank 94.88%
Attn: Kay Lavender
1525 W. WT Harris Boulevard
Charlotte, NC 28262-8522
---------------------------------------------------- -----------
----------------------------------------------------------------
Masters Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 7.02%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Masters Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Masters Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 15.48%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
Robert L. Farner 11.11%
Robert L. Farner Assoc. Profit Sharing Plan
U/A Dtd. 12/8/69
204 E. Santa Fe
Box 485
Toluca, IL 61369-0485
---------------------------------------------------- -----------
----------------------------------------------------------------
Masters Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank Trust Accounts 84.50%
Attn: Ginny Batten 11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1915
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Omega Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Omega Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Omega Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 15.33%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Omega Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank Cash Account 14.93%
Attn: Trust Operations Fund Group
1525 West WT Harris Boulevard
Charlotte, NC 28262-8522
First Union National Bank Reinvest Account 12.31%
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Company Growth Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Company Growth Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 18.39%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Small Company Growth Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 36.67%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
Fred Kavli
14501 E. Los Angeles Avenue 7.39%
Moorpark, CA 93021-9738
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Small Company Growth Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank Cash Account 58.28%
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
Charlotte, NC 28202-1911
Robert P. Geroch 35.11%
12325 Algonquin Road
Palos Park, IL 60464-1937
---------------------------------------------------- -----------
----------------------------------------------------------------
Stock Selector Fund Class A
----------------------------------------------------------------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
----------------------------------------------------------------
Stock Selector Fund Class B
----------------------------------------------------------------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 9.15%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
----------------------------------------------------------------
Stock Selector Fund Class C
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union Securities Inc. FBO 9.53%
Gary L. Hildebrandt
111 East Kilbourn Avenue
Milwaukee, TX 76034-8689
Donaldson Lufkin Jenrette Securities Corp. Inc. 32.22%
P.O. Box 2052
Jersey City, NJ 07303-9998
Resources Trust Company CUST IRA FBO 8.00%
John G. Leckie
P.O. Box 5900
Denver, CO 80217-5900
First Clearing Corporation 6.39%
Don Richard Howell SEP IRA
P.O. Box 308
Ellerbe, NC 28338-0308
---------------------------------------------------- -----------
<PAGE>
----------------------------------------------------------------
Stock Selector Fund Class Y
----------------------------------------------------------------
---------------------------------------------------- -----------
First Union National Bank BK/EB/INT 60.51%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
First Union National Bank BK/EB/INT 36.48%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Strategic Growth Fund Class A
---------------------------------------------------- -----------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Strategic Growth Fund Class B
---------------------------------------------------- -----------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Strategic Growth Fund Class C
---------------------------------------------------- -----------
---------------------------------------------------- -----------
None
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Strategic Growth Fund Class Y
---------------------------------------------------- -----------
---------------------------------------------------- -----------
First Union National Bank BK/EB/INT 50.59%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
First Union National Bank 23.77%
Trust Accounts
Attn: Ginny Batten CMG 1151 11th Floor
301 S. Tryon Street
Charlotte, NC 28202-1915
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Tax Strategic Equity Fund Class A
---------------------------------------------------- -----------
---------------------------------------------------- -----------
PaineWebber FBO 8.26%
James W. Garvey Charitable Remainder Unitrust
U/IND DTD 3/30/93
1081 S. Glendale
Wichita, KS 67218
---------------------------------------------------- -----------
<PAGE>
---------------------------------------------------- -----------
Tax Strategic Equity Fund Class B
---------------------------------------------------- -----------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 8.36%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Tax Strategic Equity Fund Class C
---------------------------------------------------- -----------
---------------------------------------------------- -----------
MLPF&S for the sole benefit of its customers 17.43%
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO 7.19%
Nancy J. Vandenput
1314 Orlando Drive
Green Bay, WI 54313
Lara Nehemiah & Associates FBO 5.82%
Zelma Morrison TTEE JA Manfuso Trust
FBO Zelma Morrison U/A DTD 1-8-1998
7705 Chatham Road
Chevy Chase, MD 20815
---------------------------------------------------- -----------
---------------------------------------------------- -----------
Tax Strategic Equity Fund Class Y
---------------------------------------------------- -----------
---------------------------------------------------- -----------
L. Charles Hilton Jr. Lela G. Hilton JT WROS 54.48%
4116 North Highway 231
Panama City, FL 32404-9235
Nola Maddox Falcone 29.12%
70 Drake Road
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 Tax
Strategic Equity Fund. EAMC is entitled to receive from the Fund an annual fee
equal to 0.87% of the average daily net assets of the Fund. EAMC is also the
investment advisor to Evergreen Fund. EAMC is entitled to receive an annual fee
based on the Fund's average daily net assets, as follows:
---------------------------------- =================
Average Daily Net Assets Fee
---------------------------------- =================
---------------------------------- =================
first $750 million 0.90%
---------------------------------- =================
---------------------------------- =================
next $250 million 0.80%
---------------------------------- =================
---------------------------------- =================
Over $1 billion 0.70%
---------------------------------- =================
Evergreen Investment Management ("EIM") (formerly known as Capital
Management Group), a division of First Union National Bank ("FUNB"), is the
investment advisor to Masters Fund. EIM is entitled to receive from Masters Fund
an annual fee equal to 0.87% of the average daily net assets of the Fund.
Evergreen Investment Management Company ("EIMC") is the investment
advisor to Aggressive Growth Fund and Omega Fund. EIMC is entitled to receive
from Aggressive Growth Fund an annual fee equal to 0.52% of the average daily
net assets of the Fund and from Omega Fund an annual fee based on the Fund's
average daily net assets, as follows:
---------------------------------- =================
Average Daily Net Assets Fee
---------------------------------- =================
---------------------------------- =================
first $250 million 0.66%
---------------------------------- =================
---------------------------------- =================
next $250 million 0.585%
---------------------------------- =================
---------------------------------- =================
next $500 million 0.510%
---------------------------------- =================
---------------------------------- =================
over $1 billion 0.410%
---------------------------------- =================
EIMC is also the investment advisor to Small Company Growth Fund and
Strategic Growth Fund. 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 0.61%
---------------------------------- =================
---------------------------------- =================
next $100 million 0.56%
---------------------------------- =================
---------------------------------- =================
next $100 million 0.51%
---------------------------------- =================
---------------------------------- =================
next $100 million 0.46%
---------------------------------- =================
---------------------------------- =================
next $100 million 0.41%
---------------------------------- =================
---------------------------------- =================
next $500 million 0.36%
---------------------------------- =================
---------------------------------- =================
next $500 million 0.31%
---------------------------------- =================
---------------------------------- =================
over $1.5 billion 0.26%
---------------------------------- =================
Meridian Investment Company ("MIC") is the investment advisor to Stock
Selector Fund. MIC is entitled to receive from Stock Selector Fund an annual fee
equal to 0.66% of the average daily net assets of the Fund, MIC has agreed to
limit the expenses of the Fund until August 2000.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment
advisor to Capital Growth Fund and Growth Fund. Mentor Advisors is entitled to
receive from Capital Growth Fund an annual fee equal to 0.80% of the average
daily net assets of the Fund and from Growth Fund an annual fee equal to 0.70%
of the average daily net assets of the Fund.
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
years or periods.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------------ -------------------- =================
Advisory Advisory
Fee Fee
Fund Paid Waived
------------------------------------------------------------------------ -------------------- =================
===============================================================================================================
Year or Period Ended September 30, 1999
------------------------------------------------------------------------ -------------------- =================
Aggressive Growth Fund $1,470,729 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Capital Growth Fund $4,069,089 -0-
------------------------------------------------------------------------ -------------------- =================
Evergreen Fund $18,282,740 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Growth Fund $3,600,834 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Masters Fund(a) $1,762,332 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Omega Fund $3,375,183 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Small Company Growth Fund $4,527,512 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Stock Selector Fund $3,346,783 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Strategic Growth Fund $5,150,970 -0-
-------------------- =================
------------------------------------------------------------------------ -------------------- =================
Tax Strategic Equity Fund $137,638 $123,734
------------------------------------------------------------------------ -------------------- =================
===============================================================================================================
Year or Period Ended 1998
===============================================================================================================
Aggressive Growth Fund $1,390,081 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Capital Growth Fund $2,153,467 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Evergreen Fund $17,536,054 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Growth Fund $4,204,377 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Omega Fund $2,214,127 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Small Company Growth Fund $6,367,129 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Stock Selector Fund (b) $968,973 $85,492
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Stock Selector Fund $4,270,615 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Strategic Growth Fund $4,870,007 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Tax Strategic Equity Fund (c) $2,079 $2,079
------------------------------------------------------------------------ -------------------- =================
===============================================================================================================
Year or Period Ended 1997
===============================================================================================================
------------------------------------------------------------------------ -------------------- =================
Aggressive Growth Fund $1,013,344 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Capital Growth Fund $1,063,903 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Evergreen Fund $13,089,112 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Growth Fund $3,238,498 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Omega Fund(d) $1,480,178 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Small Company Growth Fund (e) $2,387,425 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Small Company Growth Fund $7,788,033 -0-
------------------------------------------------------------------------ -------------------- =================
------------------------------------------------------------------------ -------------------- =================
Stock Selector Fund $3,459,108 -0-
------------------------------------------------------------------------ -------------------- =================
Strategic Growth Fund (f) $3,205,753 -0-
------------------------------------------------------------------------ -------------------- =================
</TABLE>
(a) For the period from December 31, 1998 (commencement of investment
operations) to September 30, 1999.
(b) For the three months ended September 30, 1999. The Fund changed its fiscal
year end from June 30 to September 30, effective September 30, 1998.
(c) Tax Strategic Equity Fund commenced investment operations on 9/4/1998.
(d) For the nine months ended September 30, 1997. Omega Fund changed its fiscal
year end from December 31 to September 30, effective September 30, 1997.
(e) For the four months ended September 30, 1997. Small Company Growth Fund
changed its fiscal year end from May 31 to September 30, effective
September 30, 1997.
(f) For the eleven months ended September 30, 1997. The Fund changed its fiscal
year end from October 31 to September 30, effective September 30, 1997.
<PAGE>
Sub-Advisory Fees Paid
Lieber & Company ("Lieber") acts as sub-advisor to Evergreen Fund and
Tax Strategic Equity Fund and is reimbursed by EAMC for the costs of providing
sub-advisory services. EAMC acts as the sub-advisor to a segment of the Masters
Fund and receives a sub-advisory fee equal to 0.50% of the first $500 million of
the Masters Fund's average daily net assets managed by EAMC, 0.40% of the next
$500 million of such net assets, and 0.35% of such net assets in excess of $1
billion. OppenheimerFunds, Inc. ("Oppenheimer"), MFS Institutional Advisors,
Inc. ("MFS") and Putnam Investment Management, Inc. ("Putnam") each also manage
a segment of the Masters Fund. EIM pays Oppenheimer, MFS and Putnam fees equal
in the aggregate up to 0.50% of the Masters Fund's average daily net assets.
Below are the sub-advisory fees paid by the investment advisors to the
sub-advisors for the last three fiscal years or periods:
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------------------------------------
Sub-Advisory Fee Paid
- --------------------------------------- -------------------------------------------------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Oppenheimer
MFS
Fund EAMC Lieber Putnam
- --------------------------------------- -------------------- --------------------- ------------------------
- -----------------------------------------------------------------------------------------------------------
Year or Period Ended September 30, 1999
- -----------------------------------------------------------------------------------------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
<S> <C> <C> <C>
Evergreen Fund N/A $18,273,599 N/A
- --------------------------------------- -------------------- --------------------- ------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Masters Fund (g) $303,974 N/A $939,858
- --------------------------------------- -------------------- --------------------- ------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Tax Strategic Equity Fund N/A $137,569 N/A
- --------------------------------------- -------------------- --------------------- ------------------------
- -----------------------------------------------------------------------------------------------------------
Year or Period Ended 1998
- -----------------------------------------------------------------------------------------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Evergreen Fund N/A $17,527,286 N/A
- --------------------------------------- -------------------- --------------------- ------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Tax Strategic Equity Fund (h) N/A $2,078 N/A
- --------------------------------------- -------------------- --------------------- ------------------------
- -----------------------------------------------------------------------------------------------------------
Year or Period Ended 1997
- -----------------------------------------------------------------------------------------------------------
- --------------------------------------- -------------------- --------------------- ------------------------
Evergreen Fund N/A $13,082,567 N/A
- --------------------------------------- -------------------- --------------------- ------------------------
</TABLE>
(g) For the period from December 31, 1998 (commencement of operations) to
September 30, 1999.
(h) Tax Strategic Equity Fund commenced investment operations on 9/4/1998.
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber, First Union Securities,
Inc. (formerly known as Wheat First Securities) ("First Union Securities") or
Everen Securities, Inc. ("Everen"), for the last three fiscal years or periods.
For more information regarding brokerage commissions, see "Brokerage" in Part 2
of this SAI.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------- ----------------- -------------- ---------------- ==============
Total Paid to Total Paid Total Paid to Total paid
Fund/Fiscal Year or Period All Brokers to Lieber First Union to Everen
Securities
- ---------------------------------------------------- ----------------- -------------- ---------------- ==============
Year or Period Ended 1999
=====================================================================================================================
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
<S> <C> <C> <C> <C>
Aggressive Growth Fund $348,579 N/A $4,512 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Capital Growth Fund $392,325 N/A $110,545 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Evergreen Fund $1,518,844 $657,786 N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Growth Fund $316,311 N/A $36,441 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Masters Fund (i) $519,980 $122,777 N/A $828
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Omega Fund $1,353,427 N/A $14,841 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Small Company Growth Fund $2,468,166 N/A $10,272 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Stock Selector Fund $800,984 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Strategic Growth Fund $2,473,266 N/A $19,356 N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Tax Strategic Equity Fund $52,397 $45,122 N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
<PAGE>
=====================================================================================================================
Year or Period Ended 1998
=====================================================================================================================
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Aggressive Growth Fund $127,761 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Capital Growth Fund $920,105 N/A $104,188 $63,266
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Evergreen Fund $507,457 $405,182 N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Growth Fund $2,620,649 N/A $148,289 $20,738
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Omega Fund $512,446 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Small Company Growth Fund $2,527,607 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Stock Selector Fund (j) $81,289 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Stock Selector Fund $840,644 N/A N/A N/A
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
- ---------------------------------------------------- ----------------- -------------- ------------------ ============
Strategic Growth Fund $162,350 N/A N/A N/A
- ---------------------------------------------------- ================= -------------- ------------------ ============
Tax Strategic Equity Fund (k) $5,853 $5,693 N/A N/A
- ---------------------------------------------------- ================= -------------- ------------------ ============
<PAGE>
- ---------------------------------------------------- ----------------- -------------- --------------- ===============
Total Paid to Total Paid Total Paid to Total paid to
Fund/Fiscal Year or Period All Brokers to Lieber First Union Everen
Securities
- ---------------------------------------------------- ----------------- -------------- --------------- ===============
Year or Period Ended 1997
- ---------------------------------------------------- ----------------- ==============================================
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Aggressive Growth Fund $677,860 N/A N/A N/A
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Capital Growth Fund $275,151 N/A $29,226 $9,793
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Evergreen Fund $503,276 $416,953 N/A N/A
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Growth Fund $1,482,817 N/A $101,434 $2,331
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Omega Fund (l) $403,294 N/A N/A N/A
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Small Company Growth Fund $1,891,397 N/A N/A N/A
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
Stock Selector Fund $1,026,435 N/A N/A N/A
- ---------------------------------------------------- ----------------- ----------------- --------------- ============
- ---------------------------------------------------- ================= ----------------- --------------- ============
Strategic Growth Fund (m) $1,144,065 N/A N/A N/A
- ---------------------------------------------------- ================= ----------------- --------------- ============
</TABLE>
(i) For the period from December 31, 1998 (commencement of investment
operations) to September 30, 1999.
(j) For the three months ended September 30, 1999. The Fund changed its fiscal
year end from June 30 to September 30, effective September 30, 1998.
(k) Tax Strategic Equity Fund commenced investment operations on 9/4/1998.
(l) For the nine months ended September 30, 1997. Omega Fund changed its fiscal
year end from December 31 to September 30, effective September 30, 1997.
(m) For the eleven months ended September 30, 1997. The Fund changed its fiscal
year end from October 31 to September 30, effective September 30, 1997.
Percentage of Brokerage Commissions Paid to Lieber, First Union Securities, and
Everen
The tables below show, for the fiscal year or period ended September
30, 1999, (1) the percentage of aggregate brokerage commissions paid by each
applicable Fund to Lieber, First Union Securities, and Everen and (2) the
percentage of each applicable Fund's aggregate dollar amount of commissionable
transactions effected through Lieber, First Union Securities, and Everen. For
more information, see "Selection of Brokers" under "Brokerage" in Part 2 of this
SAI.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------------- ===================================
Percentage of Commissionable
Transactions through Lieber
Percentage of Commissions to
Lieber
Fund
- ---------------------------------- ----------------------------------- ===================================
- ---------------------------------- ----------------------------------- ===================================
<S> <C> <C>
Evergreen Fund 43.3% 1.6%
- ---------------------------------- ----------------------------------- ===================================
- ---------------------------------- ----------------------------------- ===================================
Masters Fund 67.7% N/A
- ---------------------------------- ----------------------------------- ===================================
- ---------------------------------- ----------------------------------- ===================================
Tax Strategic Equity Fund 86.1% 93.3%
- ---------------------------------- ----------------------------------- ===================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------- ------------------ --------------------- ------------------ =====================
Percentage of
Percentage of Commissionable
Commissions to Transactions Percentage of
First Union through First Union Percentage of Commissionable
Securities Securities Commissions to Transactions
Fund Everen through Everen
------------------ =====================
- ---------------------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund 1.3% 1.2% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
Growth Fund 11.5% 3.9% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
Capital Growth Fund 28.2% 11.4% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
- ---------------------------------- ------------------ --------------------- ================== =====================
Masters Fund N/A N/A 0.7% N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
Omega Fund 1.1% 0.7% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
Small Company Growth Fund
0.4% 0.1% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
Strategic Growth Fund 0.8% 0.2% N/A N/A
- ---------------------------------- ------------------ --------------------- ================== =====================
</TABLE>
Portfolio Turnover
The Funds, with the exception of Tax Strategic Equity Fund, generally
do not take portfolio turnover into account in making investment decisions. This
means the Funds could experience a high rate of portfolio turnover (100% or
more) in any given fiscal year, resulting in greater brokerage and other
transaction costs which are borne by the Funds and their shareholders. It may
also result in the Funds realizing greater net short-term capital gains,
distributions from which are taxable to shareholders as ordinary income.
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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- -------------------- ==================
Total Underwriting Underwriting
Commissions Commissions
Fund/Fiscal Year or Period Retained
- -------------------------------------------------------------- -------------------- ==================
Year or Period Ended 1999
======================================================================================================
- -------------------------------------------------------------- -------------------- ==================
<S> <C> <C>
Aggressive Growth Fund $437,490 $7,010
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Capital Growth Fund $404,779 $55,269
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Evergreen Fund $3,126,728 $34,013
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Growth Fund $614,858 $83,953
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Masters Fund (n) $4,354,040 -0-
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Omega Fund $10,103,331 $81,805
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Small Company Growth Fund $447,699 -0-
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Stock Selector Fund $63,918 $3,020
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Strategic Growth Fund $554,207 $14,187
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Tax Strategic Equity Fund $307,795 $6,430
- -------------------------------------------------------------- -------------------- ==================
======================================================================================================
Year or Period Ended 1998
======================================================================================================
- -------------------------------------------------------------- -------------------- ==================
Aggressive Growth Fund $414,138 $19,289
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Capital Growth Fund $320,153 $320,153
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Evergreen Fund $10,689,087 $233,260
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Growth Fund $231,016 $231,016
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Omega Fund $790,103 $25,765
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Small Company Growth Fund $958,402 $2,569
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Stock Selector Fund $110,148 $10,160
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Stock Selector Fund (o) $5,836 $324
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Strategic Growth Fund $883,936 $12,462
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Tax Strategic Equity Fund (p) $477 $52
- -------------------------------------------------------------- -------------------- ==================
======================================================================================================
Year or Period Ended 1997
======================================================================================================
- -------------------------------------------------------------- -------------------- ==================
Aggressive Growth Fund $278,145 $21,472
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
$132,159 $132,159
Capital Growth Fund
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Evergreen Fund $1,464,361 $129,417
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
$116,796 $116,796
Growth Fund
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Omega Fund (q) $254,113 $19,806
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Small Company Growth Fund (r) $878,274 $22,796
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
Small Company Growth Fund $17,885,604 $13,187,854
- -------------------------------------------------------------- -------------------- ==================
- -------------------------------------------------------------- -------------------- ==================
$646,769 $14,708
Strategic Growth Fund (s)
- -------------------------------------------------------------- -------------------- ==================
Stock Selector Fund $96,837 $4,819
- -------------------------------------------------------------- -------------------- ==================
</TABLE>
(n) For the period from December 31, 1998 (commencement of investment
operations) to September 30, 1999.
(o) For the three months ended September 30, 1999. The Fund changed its fiscal
year end from June 30 to September 30, effective September 30, 1998.
(p) Tax Strategic Equity Fund commenced investment operations on 9/4/1998.
(q) For the nine months ended September 30, 1997. Omega Fund changed its fiscal
year end from December 31 to September 30, effective September 30, 1997.
(r) For the four months ended September 30, 1997. Small Company Growth Fund
changed its fiscal year end from May 31 to September 30, effective
September 30, 1997.
(s) For the eleven months ended September 30, 1997. Strategic Growth Fund
changed its fiscal year end from October 31 to September 30, effective
September 30, 1997.
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year or
period ended September 30, 1999. For more information, see "Distribution
Expenses Under Rule 12b-1" in Part 2 of this SAI.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ---------------------------------- ---------------------------------- ================================
Class A Class B Class C
Fund
- ---------------------------
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Service Fees Distribution Service Fees Distribution Service Fees
Fees Fees
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
<S> <C> <C> <C> <C> <C>
Aggressive Growth Fund $403,975 $364,688 $121,563 $30,977 $10,326
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Capital Growth Fund $642,323 -0- -0- $1,887,791 $629,264
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Evergreen Fund $516,968 $5,171,528 $1,723,843 $103,327 $34,442
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Growth Fund $251,717 -0- -0- $2,854,567 $951,522
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Masters Fund $330,910 $372,740 $124,247 $21,252 $7,084
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Omega Fund $592,955 $1,642,750 $547,583 $149,456 $49,819
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Small Company Growth Fund $1,737,875 $1,045,523 $348,507 $23,980 $7,993
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Stock Selector Fund $50,314 $8,744 $2,915 $52 $17
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Strategic Growth Fund $2,145,390 $895,009 $298,336 $14,778 $4,926
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
Tax Strategic Equity Fund $8,480 $36,807 $12,269 $8,911 $2,970
- --------------------------- --------------- ------------------ ---------------- ----------------- ----------------- ==============
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
for the fiscal year ended September 30, 1999 and by the Trust and the eleven
other trusts in the Evergreen Fund Complex for the calendar year ended December
31, 1999. The Trustees do not receive pension or retirement benefits from the
Funds. For more information, see "Management of the Trust" in Part 2 of this
SAI.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- ------------------------------ ================================
Total Compensation from the
Evergreen Fund Complex for the
Aggregate Compensation from calendar year ended12/31/1999*
Trust for the fiscal year
ended 9/30/1999
Trustee
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
<S> <C> <C>
Laurence B. Ashkin $5,448 $75,500
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Charles A. Austin, III $5,458 $75,500
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Arnold H. Dreyfuss** N/A N/A
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
K. Dun Gifford $5,456 $73,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
James S. Howell*** $7,113 $99,500
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Leroy Keith Jr. $5,434 $73,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Gerald M. McDonnell $5,480 $75,500
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Thomas L. McVerry $6,288 $86,500
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Louis W. Moelchert, Jr.** N/A N/A
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
William Walt Pettit $5,434 $68,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
David M. Richardson $5,465 $73,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Russell A. Salton, III $5,669 $79,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Michael S. Scofield $7,003 $79,500
---------------------------------- ------------------------------ ================================
Richard J. Shima $5,465 $73,000
---------------------------------- ------------------------------ ================================
---------------------------------- ------------------------------ ================================
Richard K. Wagoner N/A N/A
---------------------------------- ------------------------------ ================================
</TABLE>
* Certain Trustees have elected to defer all or part of their total
compensation for the calendar year ended December 31, 1999. The amounts
listed below will be payable in later years to the respective Trustees:
Austin $11,325
McVerry $86,500
Howell $79,200
Salton $78,500
Petit $68,000
McDonnell $75,500
** Arnold H. Dreyfuss, Louis W. Moelchert, Jr. and Richard K. Wagoner were
elected to the Board of Trustees on December 16, 1999.
*** As of January 1, 2000, James S. Howell retired and became Trustee Emeritus.
<PAGE>
PERFORMANCE
Total Return
Below are the average annual total returns for each class of shares of
the Funds (including applicable sales charges) as of September 30, 1999. The
returns for Masters Fund are cumulative. For more information, see "Total
Return" under "Performance Calculations" in Part 2 of this SAI.
<TABLE>
<CAPTION>
- ----------------------- -------------------- --------------------- -------------------- =====================
Ten Years or Since
Inception Inception Date
Fund/Class One Year Five Years Of Class of Class
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
<S> <C> <C> <C> <C>
Aggressive Growth Fund (t)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 30.42% 17.12% 15.87% 4/15/1983
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 31.00% 17.38% 16.10% 7/7/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 33.90% 17.54% 16.08% 8/3/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 37.36% 18.57% 16.58% 7/11/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Capital Growth Fund (u)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 14.50% 20.68% 14.62% 4/29/1992
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 15.21% 21.67% 15.36% 10/25/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 17.08% 20.89% 14.53% 4/29/1992
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 20.57% 21.96% 15.44% 11/19/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
- -------------------------------------------------------------------------------------------------------------
Evergreen Fund (v)
- -------------------------------------------------------------------------------------------------------------
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 9.88% 15.67% 11.13% 1/3/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 9.65% 15.90% 11.33% 1/3/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 12.67% 16.08% 11.32% 1/3/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 15.79% 17.17% 11.85% 10/15/1971
- ----------------------- -------------------- --------------------- -------------------- =====================
<PAGE>
=============================================================================================================
Growth Fund (w)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 8.47% 12.06% 10.90% 6/5/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 8.01% 12.14% 11.07% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 11.01% 12.40% 11.07% 4/15/1985
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 14.08% 12.59% 11.10% 11/19/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Masters Fund (x)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A N/A N/A 0.50% 12/31/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B N/A N/A 0.10% 12/31/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C N/A N/A 0.00% 12/31/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y N/A N/A 0.70% 12/31/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Omega Fund (t)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 32.95% 20.45% 16.54% 4/29/1968
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 33.57% 20.42% 16.51% 8/2/1993
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 36.52% 20.60% 16.52% 8/2/1993
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 39.99% 21.75% 17.17% 1/13/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Small Company Growth Fund (y)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 32.99% 8.65% 12.66% 1/20/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 33.95% 8.73% 12.51% 9/11/1935
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 36.65% 8.92% 12.30% 1/26/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 40.01% 10.00% 13.50% 1/26/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Stock Selector Fund (t)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 28.82% 20.01% 16.43% 2/28/1990
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 29.25% 18.55% 15.80% 11/7/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 32.95% 21.13% 17.00% 6/30/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 35.49% 21.40% 17.13% 2/21/1995
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Strategic Growth Fund (y)
=============================================================================================================
Class A 24.00% 19.12% 14.87% 1/20/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 24.15% 19.42% 14.88% 9/11/1935
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 27.15% 19.42% 14.50% 1/22/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 30.48% 20.60% 15.72% 6/30/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
Tax Strategic Equity Fund (v)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 25.44% N/A 30.75% 9/4/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 26.03% N/A 32.54% 10/14/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 29.22% N/A 36.35% 11/4/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 32.34% N/A 37.43% 9/1/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
</TABLE>
(t) Historical performance shown for Classes B, C, Y prior to their inception
reflects is based on the performance of Class A, the original class offered.
These historical returns for Classes B, C, and Y have not been adjusted to
reflect the effect of each Class' 12b-1 fees. These fees for Class A are 0.25%,
for Class B are 1.00%, and for Class C are 1.00%. Class Y does not pay a 12b-1
fee. If these fees had been reflected, returns for these Classes B and C would
have been lower while returns for Class Y would have been higher.
(u) Historical performance shown for Classes B and Y prior to their inception is
based on the performance of Class A, one of the original classes offered along
with Class C. These historical returns for Classes B and Y have not been
adjusted to reflect the effect of each Class' 12b-1 fees. These fees for Class A
are 0.25%, for Class B are 1.00% and for Class C are 1.00%. Class Y does not pay
a 12b-1 fee. If these fees had been reflected, returns for Class B would have
been lower while returns for Class Y would have been higher.
(v) 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 Class A are 0.25%, for Class B
are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower. Returns reflect expense
limits previously in effect, without which returns would have been lower.
(w) Historical performance shown for Classes A, B and Y prior to their inception
is based on the performance of Class C, the original class offered. These
historical returns of Classes A and Y have not been adjusted to reflect the
effect of each Class' 12b-1 fees. These fees for Class A are 0.25%, for Class B
are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns for Classes A and Y would have been higher.
(x) Performance shown for all classes are cumulative returns. Classes A, B, C
and Y have an inception date of 12/31/98. The returns reported are not
annualized returns due to the Fund's inception date.
(y) Historical performance shown for Classes A, C, and Y prior to their
inception is based on the performance of Class B, the original class offered.
These historical returns for Classes A and Y have been adjusted to eliminate the
higher 12b-1 fees applicable to Class B. The 12b-1 fees for Class A are 0.25%,
for Class B are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1
fee. If these fees had not been eliminated, returns would have been lower.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value ("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 $50,000 based upon the NAV of each Fund's Class
A shares at September 30, 1999. For more information, see "Pricing of Shares" in
Part 2 of this SAI.
<TABLE>
<CAPTION>
------------------------------------- ------------ -------------- ------------- ==============
Per Share Offering
Net Asset Sales Charge Price Per
Fund Value Share
------------------------------------- ------------ -------------- ------------- ==============
<S> <C> <C> <C>
Aggressive Growth Fund $25.87 4.75% $27.16
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Capital Growth Fund $24.38 4.75% $25.60
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Evergreen Fund $24.24 4.75% $25.45
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Growth Fund $15.99 4.75% $16.79
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Omega Fund $26.82 4.75% $28.16
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Masters Fund $10.05 4.75% $10.55
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Small Company Growth Fund $6.47 4.75% $6.79
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Stock Selector Fund $20.06 4.75% $21.06
------------------------------------- ------------ -------------- ------------- ==============
------------------------------------- ------------ -------------- ------------- ==============
Strategic Growth Fund $11.03 4.75% $11.58
------------------------------------- ------------ -------------- ------------- ==============
Tax Strategic Equity Fund $14.01 4.75% $14.71
------------------------------------- ------------ -------------- ------------- ==============
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street,
Boston, MA 02116 serves as administrator to the Funds, subject to the
supervision and control of the Trust's Board of Trustees. EIS provides the Funds
with facilities, equipment and personnel and is entitled to receive a fee from
each Fund at the rate of 0.10% of each Fund's average daily net assets, and for
Capital Growth and Growth Fund at the annual rate of 0.15% of each Fund's
average daily net assets.
For the fiscal year ended September 30, 1999 for Evergreen Fund, the
administration fee was paid by the investment advisor and was not a fund
expense. Below are the administrative service fees paid (under a prior fee
arrangement) for the last three fiscal years or periods:
- -------------------------------------------------------------- =================
Fund/Fiscal Year or Period Administrative
Fee Paid
- -------------------------------------------------------------- =================
Year or Period Ended September 30, 1999
================================================================================
- -------------------------------------------------------------- =================
Aggressive Growth Fund $48,293
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Capital Growth Fund $650,694
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Evergreen Fund N/A
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Growth Fund $637,352
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Masters Fund (z) $35,850
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Omega Fund $59,410
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Small Company Growth Fund $104,938
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Stock Selector Fund $89,398
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Strategic Growth Fund $140,909
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Tax Strategic Equity Fund $2,815
- -------------------------------------------------------------- =================
<PAGE>
================================================================================
Year or Period Ended 1998
================================================================================
- -------------------------------------------------------------- =================
Aggressive Growth Fund $55,254
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Capital Growth Fund $269,183
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Evergreen Fund N/A
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Growth Fund $600,625
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Omega Fund $50,291
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Small Company Growth Fund $223,424
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Stock Selector Fund $19,034
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Stock Selector Fund (aa) $1,442,337
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Strategic Growth Fund $155,809
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Tax Strategic Equity Fund (bb) $59
- -------------------------------------------------------------- =================
================================================================================
Year or Period Ended 1997
================================================================================
- -------------------------------------------------------------- =================
Aggressive Growth Fund $51,010
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Capital Growth Fund $132,988
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Evergreen Fund N/A
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Growth Fund $462,643
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Omega Fund (cc) $33,135
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Small Company Growth Fund (dd) $165,513
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Small Company Growth Fund $17,039
- -------------------------------------------------------------- =================
- -------------------------------------------------------------- =================
Strategic Growth Fund (ee) $87,178
- -------------------------------------------------------------- =================
Stock Selector Fund $341,000
- -------------------------------------------------------------- =================
(z) For the period from December 31, 1998 (commencement of investment
operations) to September 30, 1999.
(aa) For the three months ended September 30, 1999. The Fund changed its fiscal
year end from June 30 to September 30, effective September 30, 1998.
(bb) Tax Strategic Equity Fund commenced investment operations on 9/4/1998.
(cc) For the nine months ended September 30, 1997. Omega Fund changed its fiscal
year end from December 31 to September 30, effective September 30, 1997.
(dd) For the four months ended September 30, 1997. Small Company Growth Fund
changed its fiscal year end from May 31 to September 30, effective
September 30, 1997.
(ee) For the eleven months ended September 30, 1997. The Fund changed its fiscal
year end from October 31 to September 30, effective September 30, 1997.
Transfer Agent
Evergreen Service Company ("ESC"), P.O. Box 2121, Boston, MA 02106, a
subsidiary of First Union Corporation, is the Funds' transfer agent. ESC issues
and redeems shares, pays dividends and performs other duties in connection with
the maintenance of shareholder accounts. Each Fund pays ESC annual fees as
follows:
----------------------------- --------------- ==============
Annual Fee Annual Fee
Per Open Per Closed
Account* Account**
Fund Type
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Monthly Dividend Funds $25.32 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Quarterly Dividend Funds $24.60 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Semiannual Dividend Funds $23.40 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Annual Dividend Funds $23.40 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Money Market Funds $25.32 $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"), 90 Park Avenue, New York, NY 10016,
markets the Funds through broker-dealers and other financial representatives.
Independent Auditors
KPMG LLP, 99 High Street, Boston, MA 02110, audits the financial
statements of each Fund.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, is the Funds' custodian. The bank keeps custody of each Fund's securities
and cash and performs other related duties.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Funds.
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from Evergreen Service Company, P.O. Box 2121, Boston,
MA 02106-2121, or by calling ESC toll-free at 1-800-343-2898.
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund or the Class in which you are
interested. See the list under Other Securities and Practices in Part 1 of this
SAI to determine which of the sections below are applicable.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. Evergreen Equity Income Fund 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) Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and Student Loan Marketing
Association.
Securities Issued by the Government National Mortgage Association ("GNMA").
The Fund may invest in securities issued by the GNMA, a corporation wholly-owned
by the U.S. Government. GNMA securities or "certificates" represent ownership in
a pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the security
which is the subject of the agreement. In addition to the general risks involved
in leveraging, dollar rolls are subject to the same risks as repurchase and
reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, bonds
with warrants attached or bonds with a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allow convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. As a result, the
swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options
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, resulting in a
potential loss of value to the Fund.
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.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments.
Investors should be aware of the following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond, and
(c) the Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
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.
U.S. Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the U.S.
Virgin Islands, Guam and Puerto Rico to the extent such obligations are exempt
from the income or intangibles taxes, as applicable, of the state for which the
Fund is named. The Fund does not presently intend to invest more than (a) 10% of
its net assets in the obligations of each of the U.S. Virgin Islands and Guam or
(b) 25% of its net assets in the obligations of Puerto Rico. Accordingly, the
Fund may be adversely affected by local political and economic conditions and
developments within the U.S. Virgin Islands, Guam and Puerto Rico affecting the
issuers of such obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructurings under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
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. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the 1940
Act. In the event an issuer of debt securities collateralized by real estate
defaults, it is conceivable that the REITs could end up holding the underlying
real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Internal
Revenue Code of 1986, as amended (the "Code"), each item of income, gain, loss,
deduction, and credit is not taxed at the partnership level but flows through to
the holder of the partnership unit. This allows the partnership to avoid double
taxation and to pass through income to the holder of the partnership unit at
lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of First Union National Bank ("FUNB") and its affiliates, EDI and any
broker-dealer with whom EDI has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees; and (g) upon the
initial purchase of an Evergreen Fund by investors reinvesting the proceeds from
a redemption within the preceding 30 days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC. These provisions are generally intended to provide additional
job-related incentives to persons who serve the funds or work for companies
associated with the Funds and selected dealers and agents of the Funds. Since
these persons are in a position to have a basic understanding of the nature of
an investment company as well as a general familiarity with the Fund, sales to
these persons, as compared to sales in the normal channels of distribution,
require substantially less sales effort. Similarily, these provisions extend the
privilege of purchasing shares at net asset value to certain classes of
institutional investors who, because of their investment sophistication, can be
expected to require significantly less than normal sales effort on the part of
the Funds and the Distributor. In addition, the provisions allow the Funds to be
competitive in the mutual fund industry, where similar allowances are common.
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 EDI. 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 2.00% on shares you redeem
within 24 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..................... 2.00%
Second 12-month period following the month of purchase..... 1.00%
Thereafter................................................. 0.00%
See "Contingent Deferred Sales Charge" below.
Class C shares purchased through an omnibus account with Merrill Lynch will
be charged a 1.00% CDSC if redeemed within 12 months after the month of
purchase. Redemptions made thereafter will not be charged a CDSC.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisor's affiliates. Class Y
shares are offered at 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
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 and Institutional Service shares do not charge a CDSC. If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional and
Institutional Service 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 FUNB, its affiliates, EDI, any broker-dealer
with whom EDI has entered into an agreement to sell shares of
the Fund, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single
account in the name of such bank or trust company if the
initial investment in any of the Evergreen Funds made pursuant
to this waiver is at least $500,000 and any commission paid at
the time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission
on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has
died or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a
shareholder who is at least 59 years old;
6. shares in an account that we have closed because the
account has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic 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 which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen Fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC 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.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily (or twice
daily, for Money Market Funds) on Monday through Friday, as described in the
prospectus. The Fund will not compute its NAV on the days the New York Stock
Exchange is closed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities
exchange or the over-the-counter National Market System
("NMS") are valued on the basis of the last sales price on the
exchange where primarily traded or on the NMS prior to the
time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or
in the over-the-counter market for which there has been no
sale and other securities traded in the over-the-counter
market are valued at the mean of the bid and asked prices at
the time of valuation.
(3) Short-term investments maturing in more than 60 days, for
which market quotations are readily available, are valued at
current market value.
(4) Short-term investments maturing in sixty days or less are
valued at amortized cost, which approximates market.
(5) Securities, including restricted securities, for which
market quotations are not readily available; listed securities
or those on NMS if, in the investment advisor's opinion, the
last sales price does not reflect an accurate current market
value; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of
Trustees.
(6) Municipal bonds are valued by an independent pricing
service at fair value using a variety of factors which may
include yield, liquidity, interest rate risk, credit quality,
coupon, maturity and type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that EDI will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it.
All subscriptions and sales of shares by EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust and each person who has been,
is, or may be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim, action, suit, or
proceeding to which any of them may be a party that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of EDI or any other person for whose acts EDI is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C and Institutional
Service shares, as applicable, the Fund may incur expenses for 12b-1 fees up to
a maximum annual percentage of the average daily net assets attributable to a
class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
* Currently limited to 0.25% or less to be used exclusively as
a shareholder service fee. 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 EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C and
Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- -------------
Class A 0.25%*
----------------------------- -------------
----------------------------- -------------
Class B 1.00%
----------------------------- -------------
----------------------------- -------------
Class C 1.00%
----------------------------- -------------
----------------------------- -------------
Institutional Service 0.25%*
----------------------------- -------------
*May be lower. See the expense table in the prospectus of the
Fund in which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
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 EDI to
compensate broker-dealers in connection with the sale of such shares.
Service fees are accrued daily and paid at least annually on Class A,
Class B, Class C, and Institutional Service shares and are charged as class
expenses, as accrued.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C 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 Service shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B, Class C 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 EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond 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 or
U.S. Government money market fund, it anticipates that all or a portion of the
ordinary dividends which it pays will qualify for the 70% dividends-received
deduction for corporations. The Fund will inform shareholders of the amounts
that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S.
Government money market fund, none of its income will consist of corporate
dividends; therefore, none of its distributions will qualify for the 70%
dividends-received deduction for corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Shareholders of Municipal Bond Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code, as amended.) of a facility financed with an issue of tax-exempt
obligations or a "related person" to such a user should consult his tax advisor
concerning his qualification to receive exempt interest dividends should the
Fund hold obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund. Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a
tax treaty) on amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
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 Evergreen Asset Management Company ("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
The foregoing is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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 Evergreen Masters Fund) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, and K. Dun Gifford and Russell Salton, each of
whom is an Independent Trustee. The Executive Committee recommends Trustees to
fill vacancies, prepares the agenda for Board Meetings and acts on routine
matters between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/2/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corporation; Trustee, Mentor Funds,
(DOB: 9/2/28) Mentor Variable Investment Portfolios, Mentor Institutional
Trust, and Cash Resource Trust; Director, America's
Utility Fund, Inc.; Formerly, Chairman and Chief
Executive Officer, Hamilton Beach/Proctor-Silex, Inc.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President,
Oldways Preservation and Exchange Trust (education);
former Chairman of the Board, Director, and Executive
Vice President, The London Harness Company (leather
goods purveyor); former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford
Gifts of Fine Foods; former Chairman, Gifford, Drescher
& Associates (environmental consulting).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
Louis W. Moelchert, Jr. (DOB: Trustee President, Private Advisors, LLC; Vice President for
12/20/41) Investments, University of Richmond; Director, America's
Utility Fund, Inc.; Trustee, The Common Fund, Mentor
Variable Investment Portfolios, Mentor Funds, Mentor In
stitutional Trust, and Cash Resource Trust.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Richardson & Runden & Company (executive search
(DOB: 9/14/41) and advisory services); former Vice Chairman, DHR
International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, First Union
Corporation; former consultant to the Board of Trustees
of the Evergreen Funds; former member, New York Stock
Exchange; member, North Carolina Securities Traders
Association; member, Financial Analysts Society.
Anthony J. Fischer* President and Vice President/Client Services, BISYS Fund Services.
(DOB: 2/10/59) Treasurer
Nimish S. Bhatt** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National Bank; former
Senior Tax Consulting/Acting Manager, Investment Companies
Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
* Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016
** 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.
<TABLE>
<CAPTION>
COMPARISON OF LONG-TERM BOND RATINGS
----------------- ---------------- --------------- =================================================
<S> <C> <C> <C>
MOODY'S S&P FITCH Credit Quality
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
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 or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN EQUITY TRUST
PART C
Item 23 Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997
(b) By-laws Incorporated by reference to
Registrant's Registration Statement
Filed on October 8, 1997
(c) Provisions of instruments defining the rights Incorporated by reference to Exhibits I and II
of holders of the securities being registered of Registrant's Registration Statement
are contained in the Declaration of Trust Filed on October 8, 1997
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII.
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and First Post-Effective Amendment No. 4 to
Union National Bank Registrant's Registration Statement
Filed on March 12, 1998
(d)(2) Form of Investment Advisory and Management contained herein.
Agreement between the Registrant and Evergreen
Asset Management Corp.
(d)(3) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Post-Effective Amendment No. 4 to
Evergreen Investment Management Company Registrant's Registration Statement
(formerly Keystone Investment Management Filed on March 12, 1998
Company)
(d)(4) Form of Investment Advisory and Management contained herein.
Agreement between the Registrant and
Meridian Investment Company
(d)(5) Sub-advisory Agreement between Evergreen Asset Incorporated by reference to
Management Corp. and Lieber & Company Post-Effective Amendment No.9 to
Registrant's Registrant Statement
Filed on October 1, 1998
(d)(6) Portfolio Management Agreement between Incorporated by reference to
OppenheimerFunds, Inc. and First Union Post-Effective Amendment No. 12 to
National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(7) Portfolio Management Agreement between Incorporated by reference to
MFS Institutional Advisors, Inc. and First Post-Effective Amendment No. 12 to
Union National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(8) Portfolio Management Agreement between Incorporated by reference to
Putnam Investment Management, Inc. and First Post-Effective Amendment No. 12 to
Union National Bank Registrant's Registration Statement
Filed on February 1, 1999
(d)(9) Form of Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant and Mentor Post-Effective Amendment No. 19 to
Investment Advisors, LLC Registrant's Registration Statement
Filed on October 14, 1999
(e)(1) Class A and Class C Principal Underwriting Incorporated by reference to
Agreement between the Registrant and Evergreen Post-Effective Amendment No. 4 to
Distributor, Inc. Registrant's Registration Statement
Filed on March 12, 1998
(e)(2) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Investment Post-Effective Amendment No. 4 to
Services, Inc. (B-1) Registrant's Registration Statement
Filed on March 12, 1998
(e)(3) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to
Inc. (B-2) Registrant's Registration Statement
Filed on March 12, 1998
(e)(4) Class B Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to
Inc. (Evergreen/KCF) Registrant's Registration Statement
Filed on March 12, 1998
(e)(5) Class Y Principal Underwriting Agreement Incorporated by reference to
between the Registrant and Evergreen Distributor, Post-Effective Amendment No. 4 to
Inc. Registrant's Registration Statement
Filed on March 12, 1998
(e)(6) Principal Underwriting Agreement between Incorporated by reference to
the Registrant and Kokusai Securities Company Post-Effective Amendment No. 6 to
Limited Registrant's Registration Statement
Filed on July 31, 1998
(e)(7) Specimen Copy of Dealer Agreement used by Incorporated by reference to
Evergreen Distributor, Inc. Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(e)(8) Principal Underwriting Agreement between Incorporated by reference to
the Registrant and Nomura Securities Company Post-Effective Amendment No. 6 to
Registrant's Registration Statement
Filed on July 31, 1998
(f) Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 1
Filed on November 10, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(h)(1) Administration Agreement between the Incorporated by reference to
Registrant and Evergreen Investment Post-Effective Amendment No. 4 to
Services, Inc. Registrant's Registration Statement
Filed on March 12, 1998
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(h)(3) Administration Agreement between contained herein.
the Registrant and Evergeen Investment
Service, Inc. (10/15/99 Agreement)
(i)(1) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Registrant's Post-Effective Amendment No. 2
Filed on December 12, 1997
(i)(2) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to
Post-Effective Amendment No. 19
Registrant's Registration Statement
Filed on October 14, 1999
(j)(1) Consent of KPMG LLP Incorporated by reference to
Domestic Growth Funds Post-Effective Amendment No. 24
Registrant's Registration Statement
Filed on January 28, 2000.
(j)(2) Consent of KPMG LLP Incorporated by reference to
Capital Balanced Fund (formerly Post-Effective Amendment No. 24
Mentor Balanced Portfolio) Registrant's Registration Statement
Filed on January 28, 2000.
(j)(3) Consent of KPMG LLP Incorporated by reference to
Capital Income and Growth Fund Post-Effective Amendment No. 24
(formerly Mentor Income and Growth Portfolio) Registrant's Registration Statement
Filed on January 28, 2000.
(j)(4) Consent of PricewaterhouseCoopers LLP Incorporated by reference to
Domestic Growth Funds Post-Effective Amendment No. 24
Registrant's Registration Statement
Filed on January 28, 2000.
(j)(5) Consent of KPMG LLP Incorporated by reference to Registrant's
Balanced Fund Post-Effective Amendment No. 16
Filed on July 29, 1999
(j)(6) Consent of PricewaterhouseCoopers LLP Incorporated by reference to Registrant's
Growth and Income Funds Post-Effective Amendment No. 21
Filed on November 29, 1999
(j)(7) Consent of KPMG LLP Incorporated by reference to Registrant's
Growth and Income Funds Post-Effective Amendment No. 21
Filed on November 29, 1999
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan for Class A Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(2) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-1) Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(3) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KAF B-2) Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(4) 12b-1 Distribution Plan for Class B Incorporated by reference to
(KCF/Evergreen) Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(m)(5) 12b-1 Distribution Plan for Class C Incorporated by reference to
Post-Effective Amendment No. 4 to
Registrant's Registration Statement
Filed on March 12, 1998
(n) Not applicable
(o) Multiple Class Plan contained herein.
(p) Code of Ethics contained herein.
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustees and officers are
also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of the Registrant's Investment Advisors
are contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust Company,
the Registrant's custodian, are contained in the Custodian Agreement between
State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
G. Kennedy Thompson President, First Union Corporation;
President, First Union National Bank
Mark C. Treanor Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen Investment
Management Company (formerly Keystone Investment Management Company) is
incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
The information required by this item with respect to Meridian Investment
Company is incorporated by reference to the Form ADV (File No. 801-8327) of
Meridian Investment Company.
The information required by this item with respect to Mentor Investment
Advisors, LLC is incorporated by reference to the Form ADV (File No. 801-40384)
of Mentor Investment Advisors, LLC.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Maryann Bruce President
Dennis Sheehan Director, Chief Financial Officer
Kevin J. Dell Vice President, General Counsel and Secretary
Messrs. Sheehan and Dell are located at the following address:
Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10019.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the Principal Underwriter in the last fiscal year.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company (formerly Keystone Investment
Management Company), all located at 200 Berkeley Street, Boston,
Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Mentor Investment Advisors, LLC, 901 East Byrd Street, Richmond, Virginia
23219
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Meridian Investment Co., 55 Valley Stream Parkway, Malvern, Pennsylvania
19355
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and State of Massachusetts, on the 15th day
of May, 2000.
EVERGREEN EQUITY TRUST
By: /s/ Carol Kosel
-----------------------------
Name: Carol Kosel
Title: Treasurer
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 15th day of May, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William E. Ennis /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William E. Ennis Laurence B. Ashkin* Charles A. Austin III*
President (Principal Finanical Trustee Trustee
and Accounting Officer)
/s/ Arnold H. Dreyfuss /s/ K. Dun Gifford /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
Arnold H. Dreyfuss* K. Dun Gifford* William Walt Pettit*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Louis M. Moelchert, Jr.
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Louis M. Moelchert, Jr.*
Trustee Trustee Trustee
/s/ Michael S. Scofield /s/ David M. Richardson /s/ Russell A. Salton, III MD
- ------------------------------ ------------------------------- --------------------------------
Michael S. Scofield* David M. Richardson* Russell A. Salton, III MD*
Chairman of the Board Trustee Trustee
and Trustee
/s/ Leroy Keith, Jr. /s/ Richard J. Shima /s/ Richard K. Wagoner
- ------------------------------ ------------------------------- -------------------------------
Leroy Keith, Jr.* Richard J. Shima* Richard K. Wagoner*
Trustee Trustee Trustee
</TABLE>
*By: /s/ Catherine Foley
- -------------------------------
Catherine Foley
Attorney-in-Fact
*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.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
(h)(3) Administration Agreement between Registrant and
Evergreen Investment Services, Inc.
(d)(2) Investment Advisory and Management Agreement between
the Registrant and Meridian Investment Company.
(d)(4) Investment Advisory and Management Agreement between
the Registrant and Evergreen Asset Management Corp.
(o) Multiple Class Plan
(p) Code of Ethics
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this 3rd day of
January, 2000 between Evergreen Equity Trust, a Delaware business trust (herein
called the "Trust"), and Evergreen Investment Services, Inc., a Delaware
corporation (herein called "EIS").
W I T N E S S E T H:
WHEREAS, Trust is a Delaware business trust consisting of one or more
series which operates as an open-end management investment company and is so
registered under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain EIS as its Administrator to
provide it with administrative services and EIS is willing to render such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints EIS as Administrator
of the Trust and each of its series listed on SCHEDULE A attached hereto on the
terms and conditions set forth in this Agreement; and EIS hereby accepts such
appointment and agrees to perform the services and duties set forth in Section 2
of this Agreement in consideration of the compensation provided for in Section 4
hereof.
2. SERVICES AND DUTIES. As Administrator, and subject to the supervision and
control of the Trustees of the Trust, EIS will hereafter provide facilities,
equipment and personnel to carry out the following administrative services for
operation of the business and affairs of the Trust and each of its series:
(a) Prepare, file and maintain the Trust's governing documents,
including the Declaration of Trust (which has previously been prepared
and filed), the By laws, minutes of meetings of Trustees and
shareholders, and proxy statements for meetings of shareholders;
(b) Prepare and file with the Securities and Exchange Commission and
the appropriate state securities authorities the registration
statements for the Trust and the Trust's shares and all amendments
thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents as may be
necessary or convenient to enable the Trust to make a continuous
offering of its shares;
(c) Prepare, negotiate and administer contracts on behalf of the Trust
with, among others, the Trust's distributor, and custodian and transfer
agent;
(d) Supervise the Trust's fund accounting agent in the maintenance of
the Trust's general ledger and in the preparation of the Trust's
financial statements, including oversight of expense accruals and
payments and the determination of the net asset value of the Trust's
assets and of the Trust's shares, and of the declaration and payment of
dividends and other distributions to shareholders;
(e) Calculate performance data of the Trust for dissemination to
information services covering the investment company industry;
(f) Prepare and file the Trust's tax returns;
(g) Examine and review the operations of the Trust's custodian and
transfer agent;
(h) Coordinate the layout and printing of publicly disseminated
prospectuses and reports;
(i) Prepare various shareholder reports;
(j) Assist with the design, development and operation of new series
of the Trust;
(k) Coordinate shareholder meetings;
(l) Provide general compliance services; and
(m) Advise the Trust and its Trustees on matters concerning the
Trust and its affairs.
The foregoing, along with any additional services that EIS shall agree
in writing to perform for the Trust hereunder, shall hereafter be referred to as
"Administrative Services." Administrative Services shall not include any duties,
functions, or services to be performed for the Trust by the Trust's investment
adviser, distributor, custodian or transfer agent pursuant to their agreements
with the Trust.
3. EXPENSES. EIS shall be responsible for expenses incurred in providing office
space, equipment and personnel as may be necessary or convenient to provide the
Administrative Services to the Trust. The Trust shall be responsible for all
other expenses incurred by EIS on behalf of the Trust, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees who are not EIS employees, and trade
association dues.
4. COMPENSATION. As compensation for the Administrative Services provided to the
Trust with respect to each series, the Trust hereby agrees to pay and EIS hereby
agrees to accept as full compensation for its services rendered hereunder an
administrative fee, calculated daily and payable monthly, at an annual rate
determined in accordance with Schedule B attached hereto.
5. RESPONSIBILITY OF ADMINISTRATOR. EIS shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. EIS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Trust) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice. Any person, even though also an officer, director, partner,
employee or agent of EIS, who may be or become an officer, trustee, employee or
agent of the Trust, shall be deemed, when rendering services to the Trust or
acting on any business of the Trust (other than services or business in
connection with the duties of EIS hereunder) to be rendering such services to or
acting solely for the Trust and not as an officer, director, partner, employee
or agent or one under the control or direction of EIS even though paid by EIS.
6. DURATION AND TERMINATION.
(a) This Agreement shall be in effect until December 31, 2000, and
shall continue in effect from year to year thereafter, provided it is
approved, at least annually, by a vote of a majority of Trustees of the
Trust including a majority of the disinterested Trustees.
(b) This Agreement may be terminated at any time, without payment of
any penalty, on sixty (60) day's prior written notice by a vote of a
majority of the Trust's Trustees or by EIS.
7. AMENDMENT. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. NOTICES. Notices of any kind to be given to the Trust hereunder by EIS
shall be in writing and shall be duly given if delivered to the Trust at: 200
Berkeley Street, Boston, MA 02116, Attention: Secretary. Notices of any kind to
be given to EIS hereunder by the Trust shall be in writing and shall be duly
given if delivered to EIS at 200 Berkeley Street, Boston, Massachusetts 02116.
Attention: Chief Administrative Officer.
9. LIMITATION OF LIABILITY. EIS is hereby expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust and agrees that
the obligations pursuant to this Agreement of a particular series and of the
Trust with respect to that particular series be limited solely to the assets of
that particular series, and EIS shall not seek satisfaction of any such
obligation from the assets of any other series, the shareholders of any series,
the Trustees, officers, employees or agents of the Trust, or any of them.
10. MISCELLANEOUS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Delaware law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
<PAGE>
SCHEDULE A
(As of January 3,2000)
EVERGREEN EQUITY TRUST
Domestic Growth Funds
Evergreen Aggressive Growth Fund
Evergreen Capital Growth Fund
Evergreen Growth Fund
Evergreen Fund
Evergreen Omega Fund
Evergreen Small Company Growth Fund
Evergreen Strategic Growth Fund
Evergreen Stock Selector Fund
Evergreen Tax Strategic Equity Fund
Evergreen Masters Fund
Balanced Funds
Evergreen Capital Balanced Fund
Evergreen Capital Income and Growth Fund
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Balanced Fund
Growth and Income Funds
Evergreen America's Utility Fund
Evergreen Equity Income Fund
Evergreen Growth and Income Fund
Evergreen Income and Growth Fund
Evergreen Small Cap Value Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Blue Chip Fund
Evergreen Healthcare Fund
Evergreen Technology Fund
<PAGE>
SCHEDULE B
(As of January 3, 2000)
EVERGREEN EQUITY TRUST
<TABLE>
- ---------------------------------------------------------------------------------------- -----------------------------
FUND ADMINISTRATIVE SERVICES FEE
<S> <C>
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Domestic Growth Funds
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Aggressive Growth Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Capital Growth Fund 0.15%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Growth Fund 0.15%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Omega Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Small Company Growth Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Strategic Growth Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Stock Selector Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Tax Strategic Equity Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Masters Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Balanced Funds
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Capital Income and Growth Fund 0.15%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Capital Balanced Fund 0.15%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Foundation Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Tax Strategic Foundation Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Balanced Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Growth and Income Funds
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen America's Utility Fund 0.39%*
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Equity Income Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Growth and Income Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Income and Growth Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Small Cap Value Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Value Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Utility Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Blue Chip Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Healthcare Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
- ---------------------------------------------------------------------------------------- -----------------------------
Evergreen Technology Fund 0.10%
- ---------------------------------------------------------------------------------------- -----------------------------
</TABLE>
*The aggregate of Management Fees and Administrative Services Fees may not
exceed 0.65% of net assets per annum. Per budget, administrative expenses are
currently 0.39%.
FORM OF INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 31st day of May 1998, by and between EVERGREEN
EQUITY TRUST, a Delaware business trust (the ATrust@) and MERIDIAN INVESTMENT
COMPANY, a Pennsylvania corporation (the AAdviser@).
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this Agreement and
each series of shares subsequently issued by the Trust (each singly a AFund@ or
collectively the AFunds@).
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and administer
the operation of the Trust and each of its Funds, to supervise the provision of
the services to the Trust and each of its Funds by others, and to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund=s investment objectives and restrictions as may be set
forth from time to time in the Fund=s then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
<PAGE>
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the A1934 Act@)) provided
to a Fund and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for a Fund which is in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Trust office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser=s organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such; and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation:
(a) all charges and expenses of any custodian or depository appointed
by the Trust for the safekeeping of the cash, securities and other property of
any of its Funds;
(b) all charges and expenses for bookkeeping and auditors;
(c) all charges and expenses of any transfer agents and registrars
appointed by the Trust; (d) all fees of all Trustees of the Trust who
are not affiliated with the Adviser or any of its
affiliates, or with any adviser retained by the Adviser;
(e) all brokers= fees, expenses, and commissions and issue and transfer
taxes chargeable to a Fund in connection with transactions involving securities
and other property to which the Fund is a party;
(f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 (A1940 Act@);
(g) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies;
(h) all costs of certificates representing shares of the Trust or its
Funds;
<PAGE>
(i) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the ACommission@) and registering or qualifying the
Funds= shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities;
(j) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(k) all expenses of shareholders= and Trustees= meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(l) all charges and expenses of legal counsel for the Trust and its
Funds and for Trustees of the Trust in connection with legal matters relating to
the Trust and its Funds, including, without limitation, legal services rendered
in connection with the Trust and its Funds= existence, trust, and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state, and other laws, issues of securities,
expenses which the Trust and its Funds have herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Trust and its Funds, its Trustees, officers, employees, or agents;
(m) all charges and expenses of filing annual and other reports with
the Commission and other authorities; and
(n) all extraordinary expenses and charges of the Trust and its Funds.
In the event that the Adviser provides any of these services or pays
any of these expenses, the Trust and any affected Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser=s services to the Trust with respect
to each Fund during the period of this Agreement, the Trust will pay to the
Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser=s fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust=s fee with respect to a Fund shall be
payable in arrears at the end of each day or calendar month as the Adviser may
from time to time specify to the Trust. If and when this Agreement terminates,
any compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms (ASubAdviser@) to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser=s rights, obligations, and duties hereunder.
<PAGE>
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust or any of its Funds in connection
with the performance of this Agreement, except a loss resulting from the
Adviser=s willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser=s duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its Funds to
be audited at least once each year by a reputable independent public accountant
or organization of public accountant or organization of public accountants who
shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of the
Trust, the governing documents of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the date
set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
<PAGE>
10. On sixty days= written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of any Fund with respect to that Fund; and on sixty days=
written notice to the Trust, this Agreement may be terminated at any time
without the payment of any penalty by the Adviser with respect to a Fund. This
Agreement shall automatically terminate upon its assignment (as that term is
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postage prepaid, to the other party
at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A Amajority of the outstanding voting securities@ of the Trust or
the affected Funds shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed, and
enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EVERGREEN EQUITY TRUST
By:
Name:
Title:
MERIDIAN INVESTMENT COMPANY
By:
Name:
Title:
<PAGE>
As of December 31, 1999
Schedule 1
Evergreen Stock Selector Fund
<PAGE>
As of December 31, 1999
Schedule 2
As compensation for the Adviser=s services to each Fund during the
period of this Agreement, each Fund will pay to the Adviser a fee at the annual
rate of:
I. Evergreen Stock Selector Fund
0.74% of Average Daily Net Assets of the Fund
FORM OF INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 18th day of September 1997, by and between EVERGREEN
EQUITY TRUST, a Delaware business trust (the ATrust@) and EVERGREEN ASSET
MANAGEMENT CORP., a New York corporation (the AAdviser@).
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this Agreement and
each series of shares subsequently issued by the Trust (each singly a AFund@ or
collectively the AFunds@).
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and administer
the operation of the Trust and each of its Funds, to supervise the provision of
the services to the Trust and each of its Funds by others, and to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund=s investment objectives and restrictions as may be set
forth from time to time in the Fund=s then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
<PAGE>
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the A1934 Act@)) provided
to a Fund and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for a Fund which is in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Trust office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser=s organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such; and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation:
(a) all charges and expenses of any custodian or depository appointed
by the Trust for the safekeeping of the cash, securities and other property of
any of its Funds;
(b) all charges and expenses for bookkeeping and auditors;
(c) all charges and expenses of any transfer agents and registrars
appointed by the Trust;
(d) all fees of all Trustees of the Trust who are not affiliated with
the Adviser or any of its affiliates, or with any adviser retained by the
Adviser;
(e) all brokers= fees, expenses, and commissions and issue and transfer
taxes chargeable to a Fund in connection with transactions involving securities
and other property to which the Fund is a party;
(f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 (A1940 Act@);
(g) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies; (h) all costs of
certificates representing shares of the Trust or its Funds;
<PAGE>
(i) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the ACommission@) and registering or qualifying the
Funds= shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities;
(j) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(k) all expenses of shareholders= and Trustees= meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(l) all charges and expenses of legal counsel for the Trust and its
Funds and for Trustees of the Trust in connection with legal matters relating to
the Trust and its Funds, including, without limitation, legal services rendered
in connection with the Trust and its Funds= existence, trust, and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state, and other laws, issues of securities,
expenses which the Trust and its Funds have herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Trust and its Funds, its Trustees, officers, employees, or agents;
(m) all charges and expenses of filing annual and other reports with
the Commission and other authorities; and (n) all extraordinary
expenses and charges of the Trust and its Funds.
In the event that the Adviser provides any of these services or pays
any of these expenses, the Trust and any affected Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser=s services to the Trust with respect
to each Fund during the period of this Agreement, the Trust will pay to the
Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser=s fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust=s fee with respect to a Fund shall be
payable in arrears at the end of each day or calendar month as the Adviser may
from time to time specify to the Trust. If and when this Agreement terminates,
any compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms (ASubAdviser@) to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser=s rights, obligations, and duties hereunder.
<PAGE>
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust or any of its Funds in connection
with the performance of this Agreement, except a loss resulting from the
Adviser=s willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser=s duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its Funds to
be audited at least once each year by a reputable independent public accountant
or organization of public accountant or organization of public accountants who
shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of the
Trust, the governing documents of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the date
set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
<PAGE>
10. On sixty days= written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of any Fund with respect to that Fund; and on sixty days=
written notice to the Trust, this Agreement may be terminated at any time
without the payment of any penalty by the Adviser with respect to a Fund. This
Agreement shall automatically terminate upon its assignment (as that term is
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postage prepaid, to the other party
at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A Amajority of the outstanding voting securities@ of the Trust or
the affected Funds shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed, and
enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EVERGREEN EQUITY TRUST
By:
Name:
Title:
EVERGREEN ASSET MANAGEMENT CORP.
By:
Name:
Title:
<PAGE>
As of December 31, 1999
Schedule 1
Evergreen Foundation Fund
Evergreen Fund
Evergreen Growth and Income Fund
Evergreen Income and Growth Fund
Evergreen Small Cap Value Fund (formerly Evergreen
Small Cap Equity Income Fund)
Evergreen Tax Strategic Foundation Fund
Evergreen Tax Strategic Equity Fund*
*Series added since date of agreement.
<PAGE>
As of December 31, 1999
Schedule 2
As compensation for the Adviser=s services to each Fund during the
period of this Agreement, each Fund will pay to the Adviser a fee at the annual
rate of:
I. Evergreen Fund, Evergreen Small Cap Value Fund, Evergreen Growth
and Income Fund, and Evergreen Income and Growth Fund
Management Fee Daily Net Assets of The Fund
1% on the first $750,000,000; plus
0.90 of 1% on the next $250,000,000; plus
0.80 of 1% on amounts over $1,000,000,000
II. Evergreen Foundation Fund and Evergreen Tax Strategic Foundation
Fund
Mangement Fee Daily Net Assets of the Fund
0.875 of 1% of the first $750,000,000; and
0.75 of 1% of the next $250,000,000; and
0.70 of 1% of amounts over $1,000,000,000
III. Evergreen Tax Strategic Equity Fund
Management Fee Daily Net Assets of the Fund
-------------- ----------------------------
0.050% on the first $7 billion; and
0.035% on the next $3 billion; and
0.030% on the next $5 billion; and
0.020% on the next $10 billion; and
0.015% on the next $5 billion; and
0.010% oon assets in excess of $30 billion
MULTIPLE CLASS PLAN
FOR THE
EVERGREEN FUNDS
As of March 24, 2000
Each Fund in the Evergreen group of mutual funds currently offers one or more of
the following nine classes of shares with the following class provisions and
current offering and exchange characteristics. Additional classes of shares
(such classes being shares having characteristics referred to in Rule 18f-3
under the Investment Company Act of 1940, as amended (the "1940 Act")), when
created, may have characteristics that differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act (a "12b-1
Distribution Plan") and/or a shareholder services
plan. The plans provide for annual payments of
distribution and/or shareholder service fees that are
based on a percentage of average daily net assets of
Class A shares, as described in a Fund's current
prospectus.
2. Class A Shares are offered with a front-end sales
load, except that purchases of Class A Shares made
under certain circumstances are not subject to the
front-end load but may be subject to a contingent
deferred sales charge ("CDSC"), as described in a
Fund's current prospectus.
3. Shareholders may exchange Class A Shares of a Fund
for Class A Shares of any other fund, as described in
a Fund's current prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan
and/or a shareholder services plan. The plans
provide for annual payments of distribution and/or
shareholder services fees that are based on a
percentage of average daily net assets of Class B
shares, as described in a Fund's current prospectus.
2. Class B Shares are offered at net asset value without
a front-end sales load, but may be subject to a CDSC
as described in a Fund's current prospectus.
3. Class B Shares automatically convert to Class A
Shares without a sales load or exchange fee after
designated periods.
4. Shareholders may exchange Class B Shares of a Fund
for Class B Shares of any other fund, as described in
a Fund's current prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan
and/or a shareholder services plan. The plans
provide for annual payments of distribution and/or
shareholder services fees that are based on a
percentage of average daily net assets of Class C
shares, as described in a Fund's current prospectus.
2. Class C Shares are offered at net asset value without
a front-end sales load, but may be subject to a CDSC,
as described in a Fund's current prospectus.
3. Shareholders may exchange Class C Shares of a Fund
for Class C Shares of any other fund, as described in
a Fund's current prospectus.
D. Class J Shares
1. Class J Shares have adopted a 12b-1 Distribution Plan
and/or a shareholder services plan. The plans provide
for annual payments of distribution and/or
shareholder service fees that are based on a
percentage of average daily net assets of Class J
shares, as described in a Fund's current prospectus.
2. Class J Shares are offered with a front-end sales
load, except that purchases of Class J Shares made
under certain circumstances are not subject to the
front-end load or may be subject to a CDSC, as
described in a Fund's current prospectus.
3. Shareholders may exchange Class J Shares of a Fund
for Class J Shares of any other fund named in a
Fund's prospectus.
E. Class S Shares
1. Class S Shares have a 12b-1Distribution Plan and/or a
shareholder services plan. The plans provide for
annual payments of distribution and/or shareholder
service fees that are based on a percentage of
average daily net assets of Class S shares, as
described in a Fund's current prospectus.
2. Class S Shares are offered at net asset value without
a front-end sales load, but may be subject to a CDSC
as described in a Fund's current prospectus.
3. Shareholders may exchange Class S Shares of a Fund
for Class S Shares of any other fund, as described in
a Fund's current prospectus.
F. Class Y Shares
1. Class Y Shares have no distribution or shareholder
services plans.
2. Class Y Shares are offered at net asset value without
a front-end sales load or CDSC.
3. Shareholders may exchange Class Y Shares of a Fund
for Class Y Shares of any other fund, as described in
a Fund's current prospectus.
G. Institutional Service Shares
1. Institutional Service Shares have adopted a 12b-1
Distribution Plan and/or shareholder services plan.
The plans provide for annual payments of distribution
and/or shareholder services fees that are based on a
percentage of average daily net assets of
Institutional Service Shares, as described in a
Fund's current prospectus.
2. Institutional Service Shares are offered at net asset
value without a front-end sales load or CDSC.
3. Shareholders may exchange Institutional Service
Shares of a Fund for Institutional Service Shares of
any other fund, as described in a Fund's current
prospectus, to the extent they are offered by a Fund.
H. Institutional Shares
1. Institutional Shares have no distribution or
shareholder services plans.
2. Institutional Shares are offered at net asset value
without a front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a
Fund for Institutional Shares of any other fund, as
described in a Fund's current prospectus, to the
extent they are offered by a Fund.
I. Charitable Shares
1. Charitable Shares have no distribution or shareholder
services plans.
2. Charitable Shares are offered at net asset value
without a front-end sales load or CDSC.
3. Shareholders may exchange Charitable Shares of a Fund
for Charitable Shares of any other fund, as
described in a Fund's current prospectus, to the
extent they are offered by a Fund.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or
shareholder services plan. Class J Shares shall also bear that portion
of the Transfer Agency fees and other expenses allowed by Rule 18f-3
that are attributable to them due to distribution outside of the United
States. There currently are no other class specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and
expenses not assigned to a class will be allocated to each class based
on the relative net asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter
submitted to its shareholders that relates solely to its clas
arrangement.
B. Each class will have separate voting rights on any matter
submitted to shareholders where the interests of one class
differ from the interests of any other class.
C. In all other respects, each class has the same rights
and obligations as each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
December 17, 1999
CODE OF ETHICS
Evergreen Select Fixed Income Trust
Evergreen Select Equity Trust
Evergreen Select Money Market Trust
Evergreen Municipal Trust
Evergreen Equity Trust
Evergreen Fixed Income Trust
Evergreen International Trust
Evergreen Money Market Trust
Evergreen Variable Annuity Trust
Mentor Funds
Mentor Cash Resource Trust
Mentor Income Fund, Inc.
1. Definitions
(A) "Access Person" -- any trustee or officer of the Evergreen
Trusts.
(B) The "Act" -- the Investment Company Act of 1940.
(C) "Beneficial Ownership" -- A direct or indirect financial
interest in an investment giving a person the opportunity
directly or indirectly to participate in the risks and rewards
of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership
include, but are not limited to:
(1) Securities owned by a spouse, by or for
minor children or by relatives of the person
or his/her spouse who live in his/her home,
including Securities in trusts of which such
persons are beneficiaries;
(2) A proportionate interest in Securities held
by a partnership of which the person is a
general partner;
(3) Securities for which a person has a right to
dividends that is separated or separable
from the underlying securities; and
(4) Securities that a person has a right to
acquire through the exercise or conversion
of another Security.
(D) "Compliance Officer" - James Angelos, Compliance Department,
Evergreen Investment Management Company, 200 Berkeley Street,
Boston, MA 02116 - (617)210-3690.
(E) "Disinterested Trustee" -- a trustee of any Evergreen Trust
who is not an "interested person" of the Evergreen Trust
within Section 2(a)(19) of the Act.
(F) "Fund" -- any portfolio established by any of the Evergreen
Trusts.
(G) "Purchase or sale of a security" -- includes the writing of an
option to purchase or sell a security.
(H) "Security" -- the same meaning as it has in Section 2(a)(36)
of the Act, but excluding securities issued by the United
States Government, bankers= acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
2. Prohibited Securities Transactions
(A) No Access Person shall, in connection with the purchase or
sale, directly or indirectly, by such person of a Security
held or to be acquired by any Fund:
(1) Employ any device, scheme or artifice to defraud the
Fund;
(2) Make to the Trust in connection with any Fund any
untrue statement of a material fact or omit to state
a material fact necessary in order to make the
statements made, in light of the circumstances under
which they are made, not misleading;
(3) Engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit
upon any Fund; or
(4) Engage in any manipulative practice with respect to
any Fund.
(B) Inside Information
It is a violation of Federal Securities Laws to enter into
transactions when in possession of material non-public
information (i.e. inside information). Inside Information is
information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC
filing or widely distributed news release, and which a
reasonable investor would consider important in making an
investment decision or which is reasonably likely to impact
the trading price of the Security. Inside Information
includes, but is not limited to, information about (i)
dividend changes, (ii) earnings estimates and changes to
previously released estimates, (iii) other changes in
financial status, (iv) proposed mergers or acquisitions, (v)
purchases or sales of material amounts of assets, (vi)
significant new business, products or discoveries or losses of
business, (vii) litigation or investigations, (viii) liquidity
difficulties or (ix) management changes
From time to time, Trustees may learn about transactions in
which a Fund may engage and other information that may be
considered Inside Information.
(C) No Access Person shall purchase or sell, directly or
indirectly, any security in which he or she has or thereby
acquires any direct or indirect Beneficial Ownership and which
to his or her actual knowledge at the time of such purchase or
sale is being purchased or sold by any Fund or has been
recommended or is being purchased or sold by any Fund.
(D) Section 2(B) shall not apply to the following:
(1) Transactions for any account over which the Access
Person has no direct or indirect influence or
control.
(2) Involuntary transactions by the Access Person or any
Fund.
(3) Purchases under an automatic dividend reinvestment
plan.
(4) Purchases effected by the exercise of rights, issued
by an issuer pro-rata to all holders of a class of
its securities, to the extent such rights were
acquired from such issuer, and sale of such rights.
(5) Transactions approved in advance in writing by the
Chairman of the Board of any Trust (and in his
absence or unavailability by the President of the
Trust) which he or she finds to be:
(a) Only remotely potentially harmful to a Fund
because they would be very unlikely to
affect a highly institutional market, or
(b) Clearly not related economically to the
securities to be purchased, sold or held by
a Fund.
3. Reports
(A) Subject to subsection (B) below, each Access Person shall make
the reports required by section 270.17j-1(d) of the rules and
regulations issued under the Act.
(B) A Disinterested Trustee of any Fund need only report a
transaction in a Security if he or she knows at the time of
such transaction or, in the ordinary course of fulfilling his
or her official duties as trustee, should have known that
during the 15 day period immediately preceding or after the
date of the transaction, such Security was or would be
purchased or sold by any Fund or was or would be considered
for purchase or sale by any Fund or its investment adviser.
4. Enforcement
(A) Each violation of or issue arising under this Code shall be
reported to the Board of Trustees at or before the next
regular meeting of the Boards.
(B) The Board of Trustees may impose such sanctions or penalties
upon a violator of this Code as it deems appropriate
circumstances.
(C) The Compliance Officer shall review reports filed under the
Code to determine whether any violation may have occurred.
5. Recordkeeping
The Compliance Officer shall maintain the appropriate records and
reports of the Code, any violations and/or sanctions for at least 5
years.
<PAGE>
CODE OF ETHICS
CAPITAL MANAGEMENT GROUP OF FIRST UNION NATIONAL BANK
EVERGREEN INVESTMENT MANAGEMENT
FIRST CAPITAL GROUP
FIRST INVESTMENT ADVISORS
EVERGREEN ASSET MANAGEMENT CORP.
EVERGREEN INVESTMENT MANAGEMENT COMPANY
LIEBER & COMPANY MENTOR INVESTMENT ADVISORS MENTOR PERPETUAL ADVISORS MERIDIAN
INVESTMENT COMPANY TATTERSALL ADVISORY GROUP, INC.
Effective December 17, 1999
As an Employee of any of the CMG Covered Companies, you are required to read,
understand and abide by this Code of Ethics. The Code contains affirmative
requirements as well as prohibitions that you are required to adhere to in
connection with securities transactions effected on your behalf and on behalf of
clients (including the Evergreen Funds). Such requirements include, among other
things, (i.) notifying the Compliance Department upon establishing a personal
securities account with a broker/dealer, (ii.) in certain cases, obtaining
permission prior to engaging in a personal securities transaction, and (iii.)
reporting personal securities transactions to the Compliance Department. FAILURE
TO ADHERE TO THE CODE COULD RESULT IN SANCTIONS, INCLUDING DISMISSAL FROM
EMPLOYMENT, AND COULD ALSO IN CERTAIN CASES EXPOSE YOU TO CIVIL OR CRIMINAL
PENALTIES SUCH AS FINES AND/OR IMPRISONMENT.
No written code can explicitly cover every situation that possibly may arise.
Even in situations not expressly described, the Code and your fiduciary
obligations generally require you to put the interests of your clients ahead of
your own. If you have any questions regarding the appropriateness of any action
under this Code or under your fiduciary duties generally, you should contact
your Compliance Officer or Assistant General Counsel to discuss the matter
before taking the action in question. Similarly, you should consult with your
Compliance or Legal officer if you have any questions concerning the meaning or
interpretation of any provision of the Code.
Finally, as an Employee of First Union Corporation or one of its divisions or
subsidiaries, you should consult First Union's Code of Conduct contained in your
Employee Handbook. This Code uses many defined terms that are defined in Section
V.
I. PROHIBITED ACTIVITIES
A. No Employee shall engage in any Security transactions, activity or
relationship that creates or has the appearance of creating a conflict of
interest (financial or other) between the Employee and a Covered Company or a
Client Account. Each Employee shall always place the financial and business
interests of the Covered Companies and Client Accounts before his or her own
personal financial and business interests.
B. No Employee shall:
(1) employ any device, scheme or artifice to defraud a Client Account;
(2) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Client Account; or
(3) engage in any fraudulent, deceptive or manipulative practice with
respect to a Client Account.
C. No Employee shall purchase or sell, directly or indirectly, any Security for
any Personal Account, any Client Account, the account of a Covered Company, or
any other account, while in possession of Inside Information concerning that
Security or the issuer without the prior written approval of the Compliance
Officer and the Assistant General Counsel and (per First Union's Code of
Conduct) First Union's Conflict of Interest Committee, which approval shall
specifically determine that such trading would not constitute an improper use of
such Inside Information. Employees possessing Inside Information shall take
reasonable precautions to ensure that such information is not disseminated
beyond those Employees with a need to know such information. Any questions
should be directed to the Compliance Officer or Assistant General Counsel.
D. No Employee shall recommend or cause a Covered Company or Client Account to
take action or refrain from taking action for the Employee's own personal
benefit.
E. It is presumed that Employees in one geographic location will not have
knowledge of transactions effected in another geographic location, but use of
any such information would likewise be prohibited.
(1) No Employee shall purchase or sell any Security for any Personal
Account if he or she knows such Security (i.) is being purchased or
sold for any Covered Company or Client Account or (ii.) is being
actively considered for purchase or sale by any Covered Company or
Client account.
(2) A Covered Company shall not purchase or sell any Security for its own
account if the Employee making such purchase or sale knows such
Security (i.) is being purchased or sold for any Client Account or
(ii.) is being actively considered for purchase or sale by any Client
Account.
The prohibitions contained in E.(1) and E.(2) shall not apply to:
(a) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder
or depositor;
(b) purchases of Securities through the exercise of rights issued to
the Employee as part of a pro rata issue to all holders of such
Securities, and the sale of such rights;
(c) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long
as collateral was not withdrawn from such account within 10 days
prior to the call; and
(d) transactions previously approved in writing by the Compliance
Officer that have been determined not to be harmful to any Client
Account because of the volume of trading in the Security.
F. No Employee shall purchase a Security for any Personal Account in an initial
public offering, except for initial public offerings where the individual has a
right to purchase the Security based on a preexisting status as a security
holder, policy holder or depositor.
G. No Employee shall maintain or open a brokerage account constituting a
Personal Account unless duplicate confirmations and statements of all account
activity are forwarded to the Compliance Officer.
H. No Employee shall use any Derivative to evade the restrictions of this Code
of Ethics.
I. No Investment Person shall be a director of a publicly traded company other
than First Union Corporation without prior written approval of the Compliance
Officer. Approval generally will not be granted.
J. No Access Person shall make investments for any Personal Account in any
investment club without prior written approval from the Compliance Officer.
K. No Access Person may purchase a Security for any Personal Account in a
private offering without prior written approval of the person's Chief Investment
Officer or the Compliance Officer. In considering whether to grant such
approval, the Compliance Officer or Chief Investment Officer will consider
several factors, including but not limited to:
(1) whether the investment opportunity should be reserved for a Client
Account; and
(2) whether the opportunity is being offered to the Access Person by virtue
of his or her position with respect to a Client Account or a Covered
Company.
If approval is granted, the Access Person must disclose the investment to the
appropriate Chief Investment Officer before participating in any way in any
decision as to whether a Client Account should invest in such Security or in
another Security issued by the same issuer. In such circumstances, the Chief
Investment Officer will conduct a review by investment personnel with no
interest in the issuer prior to a purchase on behalf of a Client Account. The
Compliance Officer shall retain a record of this approval and the rationale
supporting it.
L. No Access Person may offer investment advice or manage any person's portfolio
in which he or she does not have Beneficial Ownership other than a Client
Account without prior written approval from the Compliance Officer.
M. No Investment Person may profit from the purchase and sale or sale and
purchase of the same (or equivalent) Securities (other than securities issued by
First Union Corporation) in a Personal Account within 60 calendar days. Any
resulting profits will be disgorged as instructed by the Compliance Officer.
N. No Investment Person may buy or sell a Security for any Personal Account
within seven calendar days before or after a Client Account that he or she
manages, or provides information or advice to, or executes investment decisions
for, trades in that Security, except:
(1) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder or
depositor;
(2) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(3) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call; and
(4) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
Any related profits from such transaction will be disgorged as instructed by
the Compliance Officer.
O. No Employee shall, directly or indirectly, in connection with any purchase or
sale of any Security by a Client Account or a Covered Company or in connection
with the business of a Client Account or a Covered Company, accept or receive
from a third party any gift or other thing of more than de minimis value, other
than (i.) business entertainment such as meals and sporting events involving no
more than ordinary amenities and (ii.) unsolicited advertising or promotional
materials that are generally available. An Employee also should consult First
Union Corporation's Code of Conduct relating to acceptance of gifts from
customers and suppliers. An Employee shall refer questions regarding the
permissibility of accepting items of more than de minimis value to the
Compliance Officer.
II. PRE-CLEARING PERSONAL TRADES
Pre-Clearance Procedures and Standards
A. No Access Person may engage in a Securities transaction (other than a
transaction described in Section B. below) involving a Personal Account unless
he/she has first pre-cleared the transaction by completing a Personal Investment
Pre-Clearance Form and had the form signed and/or initialed as set forth
therein. Approval shall be indicated by the Access Person's Chief Investment
Officer or other designated supervisor signing and dating the Form where
indicated at the bottom. Any such approval shall only be valid until the end of
the next trading day. The time allotment is limited to the actual time of
purchase or sale of the Security. If execution of the trade does not take place
by the end of the next trading day, then another pre-clearance request must be
processed and approved. "Good till cancelled" orders are forbidden and "no -
limit" orders must be cancelled or pre-cleared again by the end of the next
trading day after the approval if the trade is not executed.
B. The following transactions are excluded from the pre-clearance requirement:
(1) any transactions in Securities traded on a national securities exchange
or NASDAQ NMS with an aggregate amount of (i.) 500 shares or less or
(ii.) $25,000 or less (whichever is a lessor amount) of a particular
security within a seven-day window. The de minimis is not valid for an
Investment Person who has knowledge of recent purchases and sales of
the same security within Client accounts.
(2) purchases pursuant to a dividend reinvestment program (DRIP) or
purchases based upon preexisting status as a security holder, policy
holder or depositor;
(3) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(4) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call;
(5) transactions in Securities issued by First Union Corporation;
(6) transactions by an Investment Person in a Security that all Client
Accounts for which the person makes or executes investment decisions or
recommendations are prohibited under their investment guidelines from
purchasing; and
(7) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
C. Failure to receive pre-approval on applicable trades will result in the
following actions:
(1) First Failure: Letter of Reprimand;
(2) Second Failure: $100.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(3) Third Failure: $250.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(4) Fourth Failure: Referral to appropriate management for action.
D. All employees should consult the First Union Code of Conduct regarding the
permissibility of investing in other financial institutions.
III. REPORTING REQUIREMENTS
A. Each year every Employee must sign an acknowledgment stating that he/she has
received and reviewed and will comply with this Code of Ethics. New Employees
should read and sign the policy within 30 days of employment.
B. Each Employee shall give written instructions to every broker with whom he or
she transacts for any Personal Account to provide duplicate confirmation for all
purchases and sales of Securities to:
For First Union Capital Management Group, First Capital Group, and Evergreen
Investment Management (not EIMCO) Employees:
First Union National Bank
201 South College St./CP3
Charlotte, NC 28202-0137
ATTN: CMG Compliance
For Lieber & Company and Evergreen Asset Management Corp. Employees:
Evergreen Funds
2500 Westchester Avenue
Purchase, NY 10577
ATTN: Compliance Department
For Evergreen Investment Management Company, Inc. Employees:
Evergreen Funds
200 Berkeley Street
Boston, MA 02116
ATTN: Compliance Department
For Mentor Investment Advisor and Mentor Perpetual Advisors Employees:
Evergreen Funds
901 E. Byrd St.
Richmond, VA 23219
ATTN: Compliance Department
For Tattersall Advisory Group, Inc. Employees:
Tattersall Advisory Group, Inc.
6802 Paragon Place, Suite 200
Richmond, VA 23230
ATTN: Compliance Department
For Meridian Investment Company Employees:
Vicki Calhoun
First Union National Bank/Trust Compliance
PO Box 7558
Philadelphia, PA 19101-7558
C. Employees who are not Investment Persons or Access Persons must report all
transactions for their Personal Account annually for each year ending December
31 by the following January 31.
D. Each Access Person must report all Securities holdings in all Personal
Accounts upon commencement of employment (or within ten days of becoming an
Access Person) and thereafter annually, for each year ending December 31 by the
following January 31. A separate holdings list need not be provided if all
personal security holdings are otherwise listed on copies of brokerage
statements received by Compliance.
E. Each Access Person shall file with the Compliance Officer within ten calendar
days after the end of each calendar quarter (March 31, June 30, September 30,
December 31) a report listing each Security transaction (including those exempt
from the pre-clearance requirements) effected during the quarter for any
Personal Account; provided, however, a Security transaction need not be
separately reported under this paragraph if a copy of a broker confirmation for
the transaction was forwarded to the appropriate Compliance Officer as required
under Section 1.G.
F. Any Employee who becomes aware of any person trading on or communicating
Inside Information (or contemplating such actions) must report such event to the
Compliance Officer or the Assistant General Counsel.
G. Any Employee who becomes aware of any person violating this Code of Ethics
must report such event to the Compliance Officer or the Assistant General
Counsel.
IV. ENFORCEMENT
A. Review - The Compliance Officer shall review reports filed under the Code of
Ethics to determine whether any violation of this Code of Ethics may have
occurred.
B. Investigation - The Assistant General Counsel shall investigate any
substantive alleged violation of the Code of Ethics. An Employee allegedly
involved in a violation of the Code of Ethics may be required to deliver to the
Assistant General Counsel or his/her designee all tax returns involving any
Personal Account or any Securities for which the Employee has Beneficial
Ownership for all years requested. Failure to comply may result in termination.
C. Sanctions - In determining the sanctions to be imposed for a violation of
this Code of Ethics, the following factors, among others, may be considered:
(1) the degree of willfulness of the violation;
(2) the severity of the violation;
(3) the extent, if any, to which an Employee profited or benefited from the
violation;
(4) the adverse effect, if any, of the violation on a Covered Company or a
Client Account; and
(5) any history of prior violation of the Code.
The following sanctions, among others, may be considered:
(1) disgorgement of profits;
(2) fines;
(3) letter of reprimand;
(4) suspension or termination of employment; and
(5) such other actions as the Compliance Officer in concert with
appropriate legal counsel, or the Boards of Trustees of the Evergreen
Funds, shall determine.
D. All violations of the Code of Ethics involving Employees with
responsibilities relating to the Evergreen Funds or otherwise involving the
Evergreen Funds, and any sanctions imposed shall be reported to the Boards of
Trustees of the Evergreen Funds. All violations of the Code and any sanctions
also shall be reported to the Employee's supervisor, and any regulatory agency
requiring such reporting, and shall be filed in the Employee's personnel record.
E. Potential Legal Penalties for Misuse of Inside Information
(1) civil penalties up to three times the profit gained or loss avoided;
(2) disgorgement of profits;
(3) injunctions, including being banned from the securities industry;
(4) criminal penalties up to $1 million; and/or
(5) jail sentences.
V. DEFINITIONS
ACCESS PERSON: Access Person includes: (i.) any director of a Covered Company or
any officer of a Covered Company with the title of Vice President or above, but
excluding any such director or officer excluded in writing by the Covered
Company's Compliance Officer with the approval of the Assistant General Counsel;
(ii.) any Investment Person, but excluding any such person excluded in writing
by the appropriate person's Compliance Officer with the approval of the
Assistant General Counsel; and (iii.) any Employee of a Covered Company who, in
connection with his or her regular duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by a Client Account or
a Covered Company. Upon being notified of the hiring of a new Employee or of a
change in an Employee's job title or responsibilities, the appropriate
Compliance Officer will determine and notify the Employee as to whether he/she
is or has become an Access Person under the Code.
ASSISTANT GENERAL COUNSEL: Michael H. Koonce - 617/210-3663
BENEFICIAL OWNERSHIP: A direct or indirect financial interest in an investment
giving a person the opportunity directly or indirectly to participate in the
risks and rewards of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership include, but are not
limited to:
(1) securities owned by a spouse, by or for minor children, or by relatives
of the person or his/her spouse who live in his/her home, including
Securities in trusts of which such persons are beneficiaries;
(2) a proportionate interest in Securities held by a partnership of which
the person is a general partner;
(3) securities for which a person has a right to dividends that are
separated or separable from the underlying securities; and
(4) securities that a person has a right to acquire through the exercise or
conversion of another Security.
CLIENT ACCOUNT: Any account of any person or entity (including an investment
company) for which a Covered Company provides investment advisory or investment
management services. Client Account does not include brokerage or other accounts
not involving investment advisory or management services.
COMPLIANCE OFFICER: The Compliance Officers for each Covered Company are set
forth below:
First Union Capital Management Group
Evergreen Investment Management, and
First Capital Group
------------------------------------
Clint Lackey 704/374-3476
Karen Knudtsen 704-374-2249
Joni McCabe 704/374-6404
Donna Mooney 704/383-8197
Vicki Calhoun 215/985-8742
Evergreen Asset Management Corp.
Lieber & Company
-------------------------------
Christina Carroll 914/641-2301
Jim Angelos 617/210-3690
Evergreen Investment Management Company, Inc.
--------------------------------------------
Cathy White 617/210-3606
Jim Angelos 617/210-3690
Meridian Investment Company
---------------------------
Vicki Calhoun 215/985-8742
Tattersall Advisory Group
-------------------------
Margaret Corwin 804/289-2663
Mentor Investment Advisors
Mentor Perpetual Advisors
--------------------------
Taylor Nelson 804/782-3209
COVERED COMPANY: Includes Evergreen Asset Management Company, Evergreen
Investment Management Company, Inc., Lieber & Company, Mentor Investment
Advisors, Mentor Perpetual Advisors, Meridian Investment Company, Tattersall
Advisory Group, Inc. and the investment groups included within the Capital
Management Group of First Union National Bank, which currently include Evergreen
Investment Management, First Capital Group, and First Investment Advisors.
Covered Company also includes any CMG advisors that are acquired during the time
this Code is in effect.
DERIVATIVE: Every financial arrangement whose value is linked to, or derived
from, fluctuations in the prices of stock, bonds, currencies or other assets.
Derivatives include but are not limited to futures, forward contracts, options
and swaps on interest rates, currencies, and stocks.
DIRECT OR INDIRECT INFLUENCE OR CONTROL: The power on the part of an Employee,
his/her spouse or a relative living in his/her home to directly or indirectly
influence the selection or disposition of investments.
EMPLOYEE: Any director, officer, or employee of a Covered Company, including
temporary or part-time employees and employees on short-term disability or leave
of absence. Independent contractors and their employees providing services to a
Covered Company, if designated by the Compliance Officer, shall be treated as
Employees under this Code.
EVERGREEN FUNDS: The open and closed-end investment companies advised or
administered by the Covered Companies.
INSIDE INFORMATION: Information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC filing or widely
distributed news release, and which a reasonable investor would consider
important in making an investment decision or which is reasonably likely to
impact the trading price of the Security. Inside Information includes, but is
not limited to, information about (i.) dividend changes, (ii.) earnings
estimates and changes to previously released estimates, (iii.) other changes in
financial status, (iv.) proposed mergers or acquisitions, (v.) purchases or
sales of material amounts of assets, (vi.) significant new business, products or
discoveries or losses of business, (vii.) litigation or investigations, (viii.)
liquidity difficulties or (ix.) management changes.
INVESTMENT PERSON: An Employee who is a portfolio manager, securities analyst,
or trader, or who otherwise makes recommendations regarding or effects the
purchase or sale of securities by a Client Account.
PERSONAL ACCOUNT: Any holding of Securities constituting Beneficial Ownership,
other than a holding of Securities previously approved by the Compliance Officer
over which the Employee has no Direct Influence or Control. A Personal Account
is not limited to securities accounts maintained at brokerage firms, but also
includes holdings of Securities owned directly by an Employee.
SECURITY: Any type of equity or debt instrument and any rights relating
thereto, such as derivatives, warrants and convertible securities.
Unless otherwise noted, Security does not include:
(1) US Government Securities (see definition below);
(2) commercial paper, certificates of deposit, repurchase agreements,
bankers' acceptances, or any other money market instruments;
(3) shares of registered open-end investment companies (i.e., mutual
funds);
(4) commodities (except the Security that does include options on
individual equity or debt securities);
(5) real estate investment trusts;
(6) guaranteed insurance contracts/ bank investment contracts; or
(7) index based securities;
(8) derivatives based on any instruments listed above.
Shares issued by all closed end funds (excluding index-based derivatives) are
included in the definition of Security.
U.S. Government Securities: All direct obligations of the U.S. Government and
its agencies and instrumentalities (for instance, obligations of GNMA, FHLCC, or
FHLBs).
