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EVERGREEN
LIMITED
MARKET
FUND, INC.
- ------------------
SEMI-ANNUAL REPORT
MARCH 31, 1995
THE EVERGREEN FUNDS [LOGO]
<PAGE>
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DEAR FELLOW SHAREHOLDER: March 31, 1995
During the months of November and December, Evergreen Limited Market Fund
suffered a decline as a result of the negative impact of tax-loss selling in the
very small capitalization sector of the stock market. A recovery in the second
fiscal quarter was only modest, as large capitalization stocks continued to
outperform the less liquid, smaller capitalization stocks. Our sector of the
stock market, the very small capitalization or "micro-cap" sector, suffered the
greatest weakness at year-end. Additionally, this sector has had the least
boost, as the stock market recovery has been led by strength in the larger
company sectors, particularly technologically-based growth companies. However,
the Fund's historical performance keeps us optimistic that our strategy of
investing in very small, high-quality, entrepreneurial companies can provide
exceptional vehicles for growth. (See performance table on the third page of
this report.)
We will try to illustrate in this report that the Fund is well-positioned
with a portfolio of undervalued, under-followed, quality growth companies. Their
potential for growth over both the near and the long-term convinces us that when
the market rotates back toward very small capitalization company investing, our
shareholders may reap the benefits of our having built investment positions in
stocks which are often difficult to accumulate in size, and at reasonable
prices.
Following are the Fund's three largest net purchases during the first six
months of the fiscal year:
* 150,000 shares of Westcast Industries, Inc. - A specialist manufacturer
of exhaust manifolds for cars and light trucks. These shares were purchased at
the time of their initial public offering.
* 70,000 shares of American Eagle Outfitters, Inc. - A fast-expanding
retail chain specializing in mens' and womens' casual clothing, with major 1995
and 1996 store opening programs.
* 95,000 shares of American Sensors, Inc. - A manufacturer and marketer of
detectors for hazardous gases in residential, commercial, and industrial
structures, and a principal manufacturer of carbon monoxide detectors.
The Fund's three largest net sales during the period under review were:
78,800 shares of Regal Cinemas, 30,000 shares of Ag-Chem Co., 111,200 shares of
LSI Industries and 76,400 shares of camron Ashley, Inc. Among these, the
largest gain was in the shares of LSI Industries, 93.2%, which had been held
just over three years. During the period under review, the largest realized
percentage loss was in Clearly Canadian Beverage, whose shares declined 66.2%
since purchase in May, 1993.
Many of the large gains taken were in holdings which had been held for
quite some time. For example, in January and March, 1995, we sold shares of
Consolidated Products which were purchased in May and June, 1988, for an average
gain of 214.9%. However, even in the difficult environment of 1994, the Fund
realized a number of very substantial gains on issues purchased during that
year. The two largest were in the shares of Pediatric Services of America,
154.3%, held seven months, and Kenneth Cole Productions, 80.5% held just five
months.
Twenty-six issues bought during the first half of the 1995 fiscal year
had gains of 20% or more by March 31. Outstanding among these is the 68.3% gain
in the shares of Personnel Management Inc. purchased in October, 1994, and On
Assignment Inc., with a gain of 65.6%, purchased in September and October, 1994.
Companies whose stocks provided gains of 30% or better included Donnkenny,
Childrens Discovery Centers, and Meridian Diagnostics. Significantly, these
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FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
5/95
<PAGE>
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issues were purchased during the last quarter of calendar 1994, when the
pressures of tax-loss selling offered exceptional opportunities to buy
undervalued stocks.
The subsequent turn-around from tax-loss selling has already produced a
number of extraordinary increases. From January 1, 1995, to March 31, many
companies in the portfolio which had been under great pressure showed impressive
recoveries. Twenty issues advanced 30% or more, ranging from 30.9% by Model
Imperial Inc., a major distributor of perfume to discount stores such as
Wal-Mart, to 50.4% by Ernst Home Centers, a northwestern regional discount home
remodeling and supply retailer.
These increases in value were offset to some degree by adverse performance
of a number of smaller companies whose fourth quarter or year-end results
interrupted a growth trend that led to sell-offs by momentum-driven investors.
The Fund's largest holding impacted by this kind of selling was Hosposable
Products Inc., which declined 24% for the quarter ended March 31. This company's
profits momentum was interrupted by a sharp rise in raw material costs, as it is
a converter of pulp which had an unprecedented price rise.
During the first half of the fiscal year, five Fund holdings benefitted by
the long-term trend of mergers and acquisitions. Three were banks, reflecting
the nationwide trend toward the acquisition of community and regional banks. Of
these, FNC Bancshares (purchased September, 1987), realized the largest gain,
114.5%. This was followed by a gain of 50.8% in the shares of Central Mortgage
Bancshares, purchased in 1993, and 40.6% in the shares of Deerbank Corp.,
purchased in April, 1994, whose shares we sold prior to the completion of the
acquisition. Apart from banks, Triconex Corp. was acquired for a 23.9% gain to
the Fund in a six-month holding period. Loewenstein Furniture Group merged with
Winston Furniture to form Winsloew Furniture Inc. (another Fund holding), with a
loss (unrealized since we accepted the merged shares) of 38.5% at the time of
closing.
We anticipate that 1995 will be a year of acceleration in the trend of
mergers and acquisitions. Since its inception on June 11, 1983, the Fund has had
61 mergers or acquisitions among its portfolio holdings, with an average gain of
63.9%.
In looking to the second half of the year, our major challenge is likely to
be that of avoiding or reducing investment in issues with potential short-term
interruptions to their earnings growth trends. It is becoming increasingly
evident that we are in a highly volatile, short-time frame oriented investing
environment, where undervaluation and long-term potentials are not often valued
as highly as are near-term earnings trends. Our effort will be to focus our
investment analysis program on the careful projection of very short-term trends,
as well as the careful delineation and analysis of longer-term opportunities
which is usually our basic strategy. We are convinced that the portfolio is
characterized by long-term opportunities, and we will make every effort to
reduce downside volatility. Over the years, the Fund's shareholders have had a
very favorable combination of upside to downside volatility, and we will attempt
to continue that record, notwithstanding the adverse results of the last quarter
of calendar 1994.
Our conviction about the quality and the potential of the area in which we
invest remains high. Our research group is committed to the continuing search
for appropriate vehicles. We appreciate the continuing support of Evergreen
Limited Market Fund shareholders.
Sincerely,
/s/Stephen A. Lieber /s/Derrick E. Wenger
Stephen A. Lieber Derrick E. Wenger
Chairman Portfolio Manager
Evergreen Asset
Management Corp.
<PAGE>
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PERFORMANCE AT A GLANCE
AVERAGE ANNUAL COMPOUNDED RATES OF RETURN
FOR PERIODS ENDED MARCH 31, 1995*
-------------------------------------------
CLASS Y CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES
------- ------- ------- -------
3-month Total Return 4.5% -0.5% -0.7% 3.3%
6-month Total Return -6.7% -11.2% -10.7% -6.9%
1 year Total Return -4.2% -8.7% -8.2% -5.1%
5 year 9.2% 8.1% 8.9% 9.1%
10 year 12.6% 12.0% 12.5% 12.5%
Since Inception
on 6/1/83 13.6% 13.1% 13.6% 13.6%
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FIGURES REPRESENT PAST PERFORMANCE WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance figures include reinvestment of income dividends and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
Effective 1/3/95, the Fund adopted a multi-class distribution arrangement to
issue additional classes of shares, designated as Class A, Class B and Class C.
The Fund's performance for its Class A shares (subject to a maximum front-end
sales charge of 4.75%), its Class B shares (subject to a maximum contingent
deferred sales charge of 5%) and its Class C shares (subject to a 1%
contingent deferred sales charge within the first year of purchase) prior to
1/3/95, has been calculated based on the performance of the existing no-load
(Class Y) shares as adjusted for any front-end or back-end sales charges.
Performance data prior to 1/3/95 does not reflect any 12b-1 fees, and if
reflected the returns would be lower. Performance data beginning from 1/3/95
reflects actual performance including 12b-1 fees.
The Fund (except for Class Y shares) may incur 12b-1 expenses up to an annual
maximum of .75 of 1% of its aggregate average daily net assets attributable to
Class A shares, 1% of its aggregate average daily net assets attributable to
Class B shares and 1% of its aggregate average daily net assets attributable to
its Class C shares. For the foreseeable future, however, management intends to
limit such payments on the Class A shares to .25 of 1% of the Fund's aggregate
average daily net assets.
The adviser is currently waiving a portion of the expenses for the Fund's Class
A, B and C shares. Had expenses not been absorbed, returns for Class A, B, and C
shares would have been lower.
<PAGE>
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Statement of Investments
March 31, 1995 (unaudited)
COMMON STOCKS--98.4% Shares Value
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BANKS--13.6%
Abington Savings Bank 40,000 $ 520,000
Bank of New Hampshire Corp. 25,000 662,500
*Benson Financial Corp. 50,000 525,000
Cape Cod Bank & Trust Co. 26,000 741,000
Cornerstone Bank 83,900 880,950
Eagle Financial Corp. 5,500 105,875
Family Bancorp 20,000 435,000
Fed One Savings Bank FSB 20,000 250,000
Hudson Chartered Bancorp, Inc. 20,000 325,000
Letchworth Independent
Bancshares Corp. 22,000 467,500
*Letchworth Independent
Bancshares Corp.
Warrants Expiring 12/31/97 10,000 26,250
Main Street Community Bancorp, Inc. 70,000 980,000
Merchants Bancorp, Inc. 36,000 855,000
Seacoast Banking Corporation
of Florida 50,000 915,625
*Springfield Institution for Saving 75,000 829,688
State Financial Services Corp. 79,000 1,145,500
*Surety Capital Corp.+** 151,500 610,545
Susquehanna Bancshares, Inc. 10,625 249,687
West Coast Bancorp, Inc. 40,000 515,000
----------
11,040,120
----------
BUILDING & CONSTRUCTION--6.7%
*American Buildings Co. 50,000 859,375
*Cameron Ashley, Inc. 53,600 857,600
*Devcon International Corp. 31,100 254,631
*Inco Homes Corp. 40,000 60,000
JLG Industries, Inc. 52,700 2,088,238
*NCI Building Systems, Inc. 50,100 876,750
*Southern Energy Homes, Inc. 40,000 460,000
----------
5,456,594
----------
CONSUMER PRODUCTS--21.0%
Aaron Rents, Inc. Cl. B 33,000 453,750
*American Sensors, Inc. 95,000 760,000
*Ashworth, Inc. 50,000 443,750
*Bollinger Industries, Inc. 30,000 255,000
*Celebrity, Inc. 125,000 812,500
*Conso Products Company 47,500 665,000
Culp, Inc. 50,000 475,000
*Deckers Outdoor Corp. 30,000 448,125
*Donnkenny, Inc. 46,000 753,250
*Fedders Corp. Cl. A 243,100 1,306,663
*Gotham Apparel Corp.++ 110,000 165,000
*Happiness Express, Inc. 80,000 820,000
*Holson Burnes Group, Inc. 147,800 665,100
*Motorcar Parts and Accessories, Inc. 10,000 96,250
*Norton McNaughton, Inc. 30,000 532,500
*Oneita Industries, Inc. 68,000 824,500
*Quaker Fabric Corp. 125,000 1,281,250
*Recovery Engineering, Inc. 6,000 100,500
*Roberds, Inc. 154,200 1,503,450
*Rocky Shoes & Boots, Inc. 45,000 438,750
Rowe Furniture Corp. 104,700 444,975
Scott's Liquid Gold, Inc. 115,000 646,875
CONSUMER PRODUCTS (continued)
Sport Supply Group, Inc. 10,200 $140,250
*Sport Supply Group, Inc.
Warrants Expiring 12/15/98 9,025 23,691
*Vans, Inc. 65,000 333,125
*Winsloew Furniture, Inc. 382,580 2,247,658
Wolf (Howard B.), Inc. 47,900 347,275
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16,984,187
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CONSUMER SERVICES--5.1%
*Bugaboo Creek Steak, Inc. 16,300 203,750
*Children's Discovery Centers of
America, Inc. 25,000 393,750
*Consolidated Products, Inc. 70,858 832,582
*Cruise America, Inc. 34,650 145,097
*Eateries, Inc.++ 199,600 698,600
*Imax Corp. 9,000 97,875
*JB's Restaurants, Inc. 60,000 307,500
*Noble Roman's, Inc. 116,000 572,750
*Regal Cinemas, Inc. 30,000 742,500
*Wall Street Deli, Inc. 12,000 102,000
----------
4,096,404
----------
ENERGY--0.4%
KCS Energy, Inc. 22,300 359,588
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FINANCE & INSURANCE--2.1%
*AmVestors Financial Corp. 25,000 262,500
*Financial Federal Corp. 10,000 178,750
*Oxford Resources Corp. 100,000 1,275,000
----------
1,716,250
----------
HEALTH CARE PRODUCTS
& SERVICES--6.4%
Allied Health Care Products, Inc. 59,400 913,275
*Allou Health & Beauty Care, Inc. 113,000 1,002,875
*Bio-Dental Technologies Corp. 58,500 250,453
*Gelman Sciences, Inc. 4,000 68,500
*Hosposable Products, Inc.++ 96,500 530,750
*Medical Technologies
Systems, Inc. 57,900 427,012
<PAGE>
*Mediware Information
Systems, Inc.++ 148,000 134,125
*National Dentex Corp. 1,000 12,250
*Orthopedic Technology, Inc. 50,000 231,250
*Oxboro Medical International, Inc. 68,000 119,000
*Phoenix Shannon PLC-ADR 40,000 365,000
*Sullivan Dental Products, Inc. 31,000 503,750
Superior Surgical
Manufacturing Co., Inc. 50,000 593,750
----------
5,151,990
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INDUSTRIAL & COMMERCIAL
SERVICES--12.0%
*AG Services of America, Inc. 160,000 1,420,000
*Clean Harbors, Inc. 90,000 303,750
*Continental Waste Industries, Inc. 20,000 217,500
Falcon Products, Inc. 57,950 673,668
*Handex Environmental Recovery, Inc. 70,000 551,250
*Heist (C.H.) Corp. 112,500 1,012,500
<PAGE>
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COMMON STOCKS (continued) Shares Value
------ -----
INDUSTRIAL & COMMERCIAL
SERVICES (continued)
Insituform Mid-America, Inc. Cl. A 73,333 $769,996
*Integrated Waste Services, Inc. 200,000 525,000
*Matrix Service Co. 240,000 855,000
Northern Technologies
International Corp. 3,500 13,344
*Personnel Management, Inc. 20,350 335,775
*Right Management Consultants, Inc. 30,000 540,000
*Serv-Tech, Inc. 185,300 1,621,375
*Utilx Corp. 220,000 632,500
*Weston (Roy F.), Inc. Cl. A 40,000 177,500
*Winston Resources, Inc. 27,900 52,312
----------
9,701,470
----------
INDUSTRIAL SPECIALTY
PRODUCTS--11.5%
*Astec Industries, Inc. 127,500 1,530,000
*Autocam Corp. 130,885 1,407,013
*Chase Brass Industries, Inc. 7,800 82,388
*Digitran Systems, Inc.** 32,500 32,500
*Dynamic Materials Corp. 78,000 170,625
*Hilite Industries, Inc. 31,000 220,875
*Holopak Technologies, Inc. 120,500 753,125
*Liberty Technologies, Inc. 37,500 196,875
LSI Industries, Inc. 30,000 416,250
*Mercer International, Inc. 55,000 797,500
Met-Pro Corp. 18,400 345,000
*Metrotrans Corp. 50,000 293,750
*Mity-Lite, Inc. 65,000 520,000
*Shaw Group, Inc. 132,800 796,800
*Struthers Industries, Inc. 100,000 93,750
*Truck Components, Inc. 50,000 453,125
Wescast Industries, Inc. 150,000 1,200,000
----------
9,309,576
----------
RETAILING--11.0%
*American Eagle Outfitters, Inc. 70,000 1,233,750
*Central Tractor Farm & Country, Inc. 68,000 867,000
*CHIC By H.I.S., Inc. 85,000 935,000
*Duckwall-ALCO Stores, Inc. 65,000 585,000
*Ernst Home Center, Inc. 69,000 897,000
*50-OFF Stores, Inc. 50,000 84,375
*Geerlings & Wade, Inc. 10,000 170,000
*Kenneth Cole Productions, Inc. 21,000 535,500
Michaels (J.), Inc. 25,400 285,750
*Model Imperial, Inc. 195,500 1,197,437
*Mothers Work, Inc. 90,300 1,151,325
*S & K Famous Brands, Inc. 20,000 145,000
*Spec's Music, Inc. 55,000 220,000
*Sportmart, Inc. Cl. A 40,000 245,000
*Trend-Lines, Inc. 30,000 393,750
----------
8,945,887
----------
Technological Products
& Services--5.1%
*Checkmate Electronics, Inc. 11,500 $100,625
*Consolidated Graphics, Inc. 50,000 575,000
*Cyberoptics Corp. 19,800 217,800
*EqualNet Holding Corp. 20,000 235,000
*Medar, Inc. 120,000 1,215,000
*Micrion Corp. 42,000 456,750
*SPSS, Inc. 30,000 375,000
*Supertex, Inc. 25,000 220,313
*Video Display Corp.++ 312,750 625,500
Wireless Telecom Group 4,800 81,000
----------
4,101,988
----------
THRIFT INSTITUTIONS--0.8%
BSB Bancorp, Inc. 22,500 630,000
----------
TRANSPORTATION--2.7%
*Cannon Express Inc. Cl. B 105,225 1,525,762
*OTR Express, Inc. 86,200 678,825
----------
2,204,587
----------
OTHER SECURITIES--0.0% 18
----------
TOTAL COMMON STOCKS
(COST $84,262,337) 79,698,659
----------
PRINCIPAL
AMOUNT
--------
CONVERTIBLE DEBENTURES--0.4%
HEALTH CARE PRODUCTS
& SERVICES--0.4%
Meridian Diagnostics, Inc.
7.25% Due 09/01/01
(Cost $337,800) $315,000 332,325
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TOTAL INVESTMENTS 98.8% 80,030,984
(COST $84,600,137)
OTHER ASSETS & LIABILITIES--NET 1.2 966,655
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TOTAL NET ASSETS 100.0% $80,997,639
===== ===========
* Non-income producing.
** Valued at fair value as determined in good faith by the Fund's Board of
Directors.
+ Restricted security which represents an investment in a security not
registered under the Securities Act of 1933. At March 31, 1995 this
security amounted to .8% of total net assets.
++ Investment in non-controlled affiliate-holdings over 5% of outstanding
voting securities. There were no dividends earned on these securities and
none of these securities were sold during the six months ended March 31,
1995.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995 (UNAUDITED)
ASSETS:
Investments at market value (identified cost $84,600,137) $80,030,984
Cash 502,880
Receivable for investment securities sold 782,621
Receivable for Fund shares sold 891,261
Dividends and Interest receivable 54,991
Prepaid expenses 74,291
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Total assets 82,337,028
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LIABILITIES:
Payable for investment securities purchased 973,501
Payable for Fund shares repurchased 185,228
Payable to Adviser 45,880
Accrued advisory fee 68,851
Accrued expenses 65,929
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Total liabilities 1,339,389
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NET ASSETS:
Paid-in capital 85,018,340
Accumulated net investment loss (336,230)
Undistributed net realized gain on investment transactions 884,682
Net unrealized depreciation of investments (4,569,153)
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Net assets $80,997,639
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CALCULATION OF NET ASSET VALUE PER SHARE:
CLASS A SHARES
Net asset value per share
($731,636/44,623 shares of beneficial interest outstanding) $16.40
Sales charge--4.75% of offering price .82
-----
Maximum offering price $17.22
=====
CLASS B SHARES
Net asset value per share
($1,598,158/97,662 shares of beneficial interest outstanding) $16.36
=====
CLASS C SHARES
Net asset value per share
($58,529/3,575 shares of beneficial interest outstanding) $16.37
=====
CLASS Y SHARES
Net asset value per share
($78,609,316/4,793,586 shares of beneficial interest outstanding) $16.40
=====
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See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
INVESTMENT INCOME:
Income:
Dividends $223,610
Interest 11,526
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235,136
EXPENSES:
Advisory fee $430,245
Distribution fee--Class A shares 221
Distribution and shareholder services fees--
Class B shares 2,032
Distribution and shareholder services fees--
Class C shares 66
Custodian fee 38,959
Registration and filing fees 27,007
Transfer agent fee 26,062
Professional fees 25,829
Reports and notices to shareholders 11,227
Insurance 6,659
Trustees' fees and expenses 4,824
Other 1,910
-------
575,041
Less expense reimbursement (3,675)
-------
Total expenses 571,366
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Net investment loss (336,230)
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 997,927
Net change in unrealized appreciation (depreciation)
of investments (7,465,440)
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Net loss on investments (6,467,513)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(6,803,743)
================================================================================
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED FOUR MONTHS
MARCH 31, 1995 ENDED
(UNAUDITED) SEPTEMBER 30, 1994
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INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $(336,230) $(219,094)
Net realized gain on investments 997,927 5,921,027
Net change in unrealized appreciation
(depreciation) of investments (7,465,440) (3,012,423)
- --------------------------------------------------------------------------------
Net increase (decrease) resulting
from operations (6,803,743) 2,689,510
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET REALIZED GAINS ON INVESTMENT
TRANSACTIONS (15,681,527) --
- --------------------------------------------------------------------------------
Fund share transactions (Note 7):
Net increase resulting from Fund share
transactions 4,143,136 293,065
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets (18,342,134) 2,982,575
NET ASSETS:
Beginning of year 99,339,773 96,357,198
- --------------------------------------------------------------------------------
End of period (including net investment
losses of $336,230 and $536,569,
respectively) $80,997,639 $99,339,773
================================================================================
See accompanying notes to financial statements.
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED)
NOTE 1--CHANGE IN ACCOUNTING AND TAX YEAR
The Evergreen Limited Market Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. On September 21, 1994, the Fund's Board
of Directors approved a change in the Fund's accounting and tax year from May 31
to September 30.
NOTE 2--APPROVAL AND ISSUANCE OF MULTIPLE CLASSES OF SHARES
On December 13, 1994, the Fund's shareholders, among other things, approved
amendments to the Articles of Incorporation to permit the issuance of additional
classes of shares. On December 27, 1994, the Securities and Exchange Commission
approved the application to issue additional classes of shares. In connection
with the adoption of the multiple class distribution program, the Board of
Directors have designated the existing shares of the Fund as Class Y (no-load)
shares and have created three new classes of shares designated Class A, Class B
and Class C shares. Class A shares are offered with a front-end sales charge of
4.75% which will be reduced on purchases in excess of $100,000. Class B shares
are offered with a contingent deferred sales charge payable when shares are
redeemed which would decline from 5% to zero over a seven year period. Class C
shares are offered with a 1% contingent deferred sales charge on shares redeemed
during the first year of purchase. All four classes of shares have identical
voting, dividend, liquidation and other rights, except that certain classes bear
different distribution expenses (see Note 5) and have exclusive voting rights
with respect to their distribution plan.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION: Portfolio securities including National Market stocks are
valued at the last reported sales price on an exchange which is the primary
market for such securities, or, if no sales were reported, as in the case of
most securities traded over-the-counter, the mean between the last reported bid
and asked prices. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Directors. Short-term obligations are stated at amortized cost, which
approximates market value. Cost of securities is determined and gains and losses
are based upon the specific identification method for both financial statement
and Federal income tax purposes.
FEDERAL TAXES: It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute timely all of its taxable income and net capital gains to its
shareholders. Therefore, no Federal income or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-distribution date. The amount of distributions from net investment income and
net realized capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their Federal tax-basis
treatment; temporary differences do not require reclassification. Distributions
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in capital. At
March 31, 1995, the Fund reduced accumulated net investment loss and
undistributed net realized gain on investment transactions by $536,569. This
reduction was due to reclassifications of net operating losses for the fiscal
year ended May 31, 1994 and for the fiscal period ended September 30, 1994 from
accumulated net investment loss to undistributed net realized gain on investment
transactions.
ALLOCATION OF EXPENSES: Expenses specifically identifiable to a class of shares
are charged to that class. Other expenses common to the Fund as a whole are
primarily allocated to the classes in the Fund in proportion to net assets.
OTHER: Security transactions are accounted for on the trade date, the date the
order to buy or sell is executed. Dividend income is recorded on the ex-dividend
date and interest income is recorded on the accrual basis.
<PAGE>
NOTE 4--ADVISORY FEE AND RELATED PARTY TRANSACTIONS
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994 to the
advisory business of the same name, but under different ownership. The Adviser
is entitled to a fee, accrued daily and paid monthly, for the performance of its
services at an annual rate of 1% of the daily net assets of the Fund. For the
six months ended March 31, 1995, the Adviser voluntarily reimbursed Class A,
Class B and Class C shares for certain class specific expenses in the amount of
$1,225 for each class. The Adviser may, at its discretion, revise or cease these
voluntary reimbursements at any time.
Total operating expenses of the Fund, exclusive of taxes, interest, brokerage
fees, 12b-1 distribution and shareholder services fees and extraordinary
expenses are subject to the most restrictive of expense limitations, as may be
amended from time to time, under the rules and regulations of states where the
Fund is authorized to sell its shares. If in any fiscal year such operating
expenses exceed the most restrictive limitation then in effect, the Adviser will
reimburse the Fund for the amount of such excess. For the six months ended March
31, 1995, the Fund's expenses did not exceed the limitation in effect.
Lieber & Company is the investment sub-adviser to the Fund and also provides
brokerage services with respect to substantially all security transactions of
the Fund effected on the New York and American Stock Exchanges. For transactions
executed during the six months ended March 31, 1995, the Fund incurred brokerage
commissions of $51,423 with Lieber & Company. For the six months ended March 31,
1995, Lieber & Company was reimbursed by the Adviser, at no additional expense
to the Fund, for its cost of providing investment advisory services to the
Adviser.
NOTE 5--DISTRIBUTION AND SHAREHOLDER SERVICES FEES
The Fund has adopted for each if its Class A, Class B and Class C shares, a
Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which may not exceed, as a percentage of average
daily net assets on an annual basis, .75 of 1% of Class A shares and 1% for both
Class B and Class C shares. The payments under the Class A Plan will be
voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution agreement
with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz
Incorporated, whereby the Fund will compensate EFD for its services at a rate
which may not exceed, as a percentage of average daily net assets on an annual
basis, .25 of 1% for Class A shares and .75 of 1% for both Class B and Class C
shares. Such fees are accrued daily and paid monthly. The Agreement provides
that EFD will use such fees to finance activities that promote the sale of Class
A, Class B and Class C shares.
A portion of the payments under the Class B and Class C Plans, up to .25 of 1%
of average daily net assets may constitute a shareholder services fee. The Fund
has entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of the Adviser, whereby the Fund will compensate
FUBS for certain services provided to shareholders and/or for the maintenance of
shareholders accounts relating to the Fund's Class B and Class C shares. Such
fees are accrued daily and paid monthly.
NOTE 6--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments other than short-term
obligations aggregated $34,328,717 and $45,235,665, respectively, for the six
months ended March 31, 1995.
The aggregate cost of investments owned at March 31, 1995, for Federal income
tax purposes is $84,820,528 due to sales of certain portfolio securities on
which losses are deferred for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities was $8,367,834 and $13,157,378,
respectively, resulting in net unrealized depreciation for Federal income tax
purposes of $4,789,544.
<PAGE>
NOTE 7--SHARES OF BENEFICIAL INTEREST
There is a limited number of $.10 par value shares of beneficial interest
authorized, allocated 25,000,000 to each of four classes, designated Class A,
Class B, Class C and Class Y shares. Transactions in shares of beneficial
interest were as follows:
SIX MONTHS ENDED
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------------------------------
CLASS A*
Shares sold 44,623 $724,605
Shares redeemed -- --
- --------------------------------------------------------------------------------
Net increase 44,623 $724,605
================================================================================
CLASS B*
Shares sold 98,418 $1,592,940
Shares redeemed (756) (12,296)
- --------------------------------------------------------------------------------
Net increase 97,662 $1,580,644
================================================================================
CLASS C*
Shares sold 3,575 $57,888
Shares redeemed -- --
- --------------------------------------------------------------------------------
Net increase 3,575 $57,888
================================================================================
CLASS Y
Shares sold 1,033,943 $18,672,133
Shares issued on reinvest-
ment of distributions 901,732 14,048,985
Shares redeemed (1,711,116) (30,941,119)
- --------------------------------------------------------------------------------
Net increase 224,559 $ 1,779,999
================================================================================
TOTAL NET INCREASE
RESULTING FROM FUND
SHARE TRANSACTIONS 370,419 $4,143,136
================================================================================
FOUR MONTHS ENDED
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------------------------------
CLASS Y
Shares sold 3,073,194 $64,053,556
Shares redeemed (3,049,291) (63,760,491)
- --------------------------------------------------------------------------------
Net increase 23,903 $ 293,065
================================================================================
* For Class A, Class B and Class C shares, the Fund share transaction activity
reflects the period January 3, 1995 (commencement of class operations)
through March 31, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1995* THROUGH MARCH 31, 1995
---------------------------------------------------------------
PER SHARE DATA CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.76 $15.76 $15.76
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.01) (.03) (.03)
Net realized and unrealized gain on
investments .65 .63 .64
- ------------------------------------------------------------------------------------------------------------------
Total income from investment operations .64 .60 .61
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.40 $16.36 $16.37
==================================================================================================================
TOTAL RETURN** 4.1% 3.8% 3.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $732 $1,598 $59
Ratios to average net assets:
Expenses+ 1.41% 2.17% 2.15%
Net investment income+ (.71)% (1.47)% (1.38)%
Voluntary expense reimbursement+(a) 1.34% .60% 1.35%
Portfolio turnover rate++ 40% 40% 40%
==================================================================================================================
</TABLE>
*Commencement of class operations.
**Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales and contingent deferred sales
charges are not reflected.
+Annualized. Due to the recent commencement of their offering, the ratios for
Class A, Class B and Class C shares are not necessarily comparable to that of
the Class Y shares, and are not necessarily indicative of future ratios.
++Portfolio turnover rate is calculated for the six months period ended March
31, 1995.
(a)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
<TABLE>
<CAPTION>
Six Months Four Months
Ended Ended YEAR ENDED MAY 31,
March 31, 1995 September 30, ------------------------------------------------------
PER SHARE DATA (unaudited) 1994* 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $21.74 $21.20 $20.87 $21.02 $18.81 $17.69 $21.02
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) (.06) (.05) (.07) (.03) .02 .56 .45
Net realized and unrealized gain
(loss) on investments (1.60) .59 1.67 1.57 3.33 1.67 .25
- --------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations (1.66) .54 1.60 1.54 3.35 2.23 .70
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income -- -- -- -- (.14) (.53) (.36)
From net realized gains (3.68) -- (1.27) (1.69) (1.00) (.58) (3.67)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (3.68) -- (1.27) (1.69) (1.14) (1.11) (4.03)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.40 $21.74 $21.20 $20.87 $21.02 $18.81 $17.69
====================================================================================================================
TOTAL RETURN** (6.7)% 2.6% 7.6% 7.5% 18.3% 14.4% 4.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $78,609 $99,340 $96,357 $80,605 $62,172 $45,687 $37,838
Ratios to average net assets:
Expenses 1.32%+ 1,37%+ 1.26% 1.24% 1.25% 1.32% 1.33%
Net investment income (.78)%+ (.70)%+ (.33)% (.07)% .22% 3.32% 2.25%
Portfolio turnover rate 40% 36% 89% 29% 55% 59% 46%
====================================================================================================================
</TABLE>
*On September 21, 1994, the Fund's Board of Directors approved a change in the
Fund's fiscal year end from May 31 to September 30.
**Total return is calculated for the periods indicated and is not annualized.
+Annualized.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN FAMILY OF FUNDS
GROWTH FUNDS ____________________________________
EVERGREEN FUND seeks capital appreciation by investing in securities of little
known or relatively small companies and companies with entrepreneurial
management.
GLOBAL REAL ESTATE EQUITY FUND seeks capital appreciation by investing in
securities of companies involved in various aspects of the real estate industry
throughout the world.
LIMITED MARKET FUND seeks capital appreciation by investing in securities of
little-known, small or special situation companies.
U.S. REAL ESTATE EQUITY FUND seeks long-term capital growth by investing in
equity securities of U.S. companies which are principally engaged in the real
estate industry or which own significant real estate assets.
GROWTH & INCOME FUNDS _________________________
AMERICAN RETIREMENT FUND seeks conservation of capital, reasonable income and
capital growth by investing in a diversified and balanced portfolio of equity
and fixed income securities.
EVERGREEN FOUNDATION FUND seeks reasonable income, conservation of capital and
growth by investing in common and preferred stocks, convertibles and fixed
income securities.
GROWTH & INCOME FUND seeks capital appreciation and current income by investing
in securities of companies undervalued in the marketplace due to temporary
adverse circumstances or misperceptions of underlying values.
SMALL CAP EQUITY INCOME FUND seeks a return consisting of current income and
capital appreciation by investing primarily in companies with market
capitalizations of less than $500 million.
TAX STRATEGIC FOUNDATION FUND seeks to maximize the after tax total return on
its portfolio investments by investing in common and preferred stocks and
securities convertible into or exchangeable for common stocks, and municipal
securities.
TOTAL RETURN FUND seeks a total return consisting of current income and capital
appreciation by investing in common and preferred stocks, securities convertible
or exchangeable for common stocks and fixed income securities.
INCOME FUND _____________________________________
U.S. GOVERNMENT SECURITIES FUND seeks a high level of return from a combination
of current income and capital appreciation through investment in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
TAX-FREE FUNDS___________________________________
NATIONAL TAX-FREE FUND seeks a high level of current income, exempt from Federal
income tax, by investing at least 80% of its portfolio in insured long-term
municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income,
exempt from Federal income tax (other than the alternative minimum tax), as is
consistent with preserving capital and providing liquidity by investing in short
and intermediate-term municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current
income, exempt from Federal and California state income taxes, as is consistent
with preserving capital and providing liquidity by investing in short and
intermediate-term municipal securities.
MONEY MARKET FUNDS _________________________
MONEY MARKET TRUST seeks as high a level of current income as is consistent with
preserving capital and providing liquidity.
TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from
Federal income taxes as is consistent with preserving capital and providing
liquidity.
THE PROSPECTUS(ES) CONTAIN MORE COMPLETE INFORMATION AND SHOULD BE READ
CAREFULLY PRIOR TO INVESTING.
<PAGE>
[This page left blank intentionally]
<PAGE>
BOARD OF DIRECTORS
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT AUDITORS
Ernst & Young LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment adviser to the Evergreen Funds is Evergreen Asset Management
Corp., which is wholly owned by First Union National Bank of North Carolina.
Investments in the Evergreen Funds are not endorsed or guaranteed by First Union
or any bank, are not deposits or other obligations of First Union, are not
insured or otherwise protected by the U.S. Government, the FDIC or any other
government agency, and involve investment risks, including possible loss of
principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
The financial information included herein is taken from the records of the Fund
without examination by the Fund's independent auditors, who do not express an
opinion thereon.
2500 Westchester Avenue
Purchase, New York 10577 #536050
<PAGE>
