STATEMENT OF ADDITIONAL INFORMATION
March 3, 1997
THE EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS 2500
Westchester Avenue, Purchase, New York 10577
800-807-2940
Evergreen Emerging Markets Growth Fund ("Emerging Markets")
Evergreen International Equity Fund ("International Equity")
Evergreen Global Real Estate Equity Fund ("Global")
Evergreen Global Leaders Fund ("Global Leaders")
This Statement of Additional Information pertains to all classes of shares of
the Funds listed above. It is not a prospectus and should be read in conjunction
with the Prospectus for the Fund in which you are making or contemplating an
investment. The Evergreen International/Global Growth Funds are offered through
two separate prospectuses: one offering Class A, Class B and Class C shares of
Emerging Markets, International Equity, Global and Global Leaders, and a
separate prospectus offering Class Y shares of Emerging Markets, International
Equity, Global, and Global Leaders. Copies of each Fund's Prospectus may be
obtained without charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies................................2
Investment Restrictions...........................................9
Certain Risk Considerations.......................................14
Management........................................................15
Investment Advisers...............................................23
Distribution Plans................................................29
Allocation of Brokerage...........................................32
Additional Tax Information........................................35
Net Asset Value...................................................39
Purchase of Shares................................................40
General Information About the Funds...............................52
Performance Information...........................................54
Financial Statements..............................................58
Appendix A - Description of Bond, Municipal Note and Commercial
Paper Ratings........................................58
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INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives
and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of Emerging Growth, International Equity, Global, and Global Leaders
are fundamental and may not be changed without the approval of a majority of the
outstanding voting securities of the Fund.
Types of Investments
Convertible Securities -- (All Funds)
Each 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.
Each Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment adviser or
sub-adviser, the investment characteristics of the underlying common shares will
assist a Fund in achieving its investment objective. A Fund may also elect to
hold or trade convertible securities. In selecting convertible securities, the
adviser or sub-adviser 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 adviser or
sub-adviser 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 (All Funds)
Each 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
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percentage increase or decrease in the market price of the optioned common
stock.
Sovereign Debt Obligations (All Funds)
Each Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of Latin American nations
or other developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
Closed-End Investment Companies (All Funds)
Each Fund may purchase the equity securities of closed-end investment
companies to facilitate investment in certain countries. Equity securities of
closed-end investment companies generally trade at a discount to their net asset
value. Investments in closed-end investment companies involve the payment of
management fees to the advisers of such investment companies.
Strategic Investments (All Funds)
Foreign Currency Transactions; Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although a Fund values its assets daily
in U.S. dollars, a Fund generally does not convert its holdings to U.S. dollars
or any other currency. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies.
Each Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. A Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
Each Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (usually less than one year) from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
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currency traders (usually large commercial banks) and their customers. A forward
contract generally has a deposit requirement, and no commissions are charged at
any stage for trades. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the spread)
between the price at which they are buying and selling various currencies.
However, forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency relationships. The
advisers and the sub-advisers believe that it is important to have the
flexibility to enter into forward foreign currency exchange contracts whenever
they determine that it is in a Fund's best interest to do so. A Fund will not
speculate in foreign currency exchange.
Except for cross-hedges, a Fund will not enter into forward foreign
currency exchange contracts or maintain a net exposure in such contracts when it
would be obligated to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency
or, in the case of a "cross-hedge" denominated in a currency or currencies that
the adviser or sub-adviser believes will tend to be closely correlated with that
currency with regard to price movements. At the consummation of such a forward
contract, a Fund may either make delivery of the foreign currency or terminate
its contractual obligation to deliver the foreign currency by purchasing an
offsetting contract obligating it to purchase, at the same maturity date, the
same amount of such foreign currency. If a Fund chooses to make delivery of the
foreign currency, it may be required to obtain such currency through the sale of
portfolio securities denominated in such currency or through conversion of other
assets of the Fund into such currency. If a Fund engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been a change in forward contract prices.
It should be realized that this method of protecting the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase. Generally, a Fund will not enter into a forward foreign currency
exchange contract with a term longer than one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation, to sell the currency.
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When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.
A call option on a foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if a Fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if a
Fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of purchase and
the settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed for
settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign currency
options are relatively new, and a Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Funds will not purchase or write such options unless and
until, in the opinion of the advisers or sub-advisers, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
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There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e, less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
a Fund may be able to achieve many of the same objectives as it would through
the use of forward foreign currency exchange contracts. The Funds may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the Fund,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a loss. Similarly, the closing out of a currency
futures contract purchase is effected by the Fund entering into a currency
futures contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the offsetting sale price is less than the
purchase price, the Fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on futures currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
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is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Funds will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the advisers or the sub-advisers,
the market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection with
transactions in the underlying foreign currency futures contracts. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Funds
because the maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss, such as when
there is no movement in the price of the underlying currency or futures
contract.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees ("Trustees") to determine the
liquidity of certain restricted securities is permitted under a Securities and
Exchange Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for sale
under the Rule. The Funds which invest in Rule 144A Securities believe that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under the Rule) for determination by
the Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
When-Issued and Delayed Delivery Securities (Emerging Markets, International
Equity and Global Leaders)
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of a Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
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and are maintained until the transaction has been settled. Emerging Markets and
International Equity do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the total value of their assets.
Lending of Portfolio Securities (All Funds)
The collateral received when a Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the lending Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Repurchase Agreements (All Funds)
The Funds or their custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Funds, the Funds 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 Funds might be
delayed pending court action. The Funds believe that under the regular
procedures normally in effect for custody of a Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the adviser
or a sub-adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements (All Funds)
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
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the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
investment adviser without shareholder approval, subject to review and approval
by the Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1. Diversification
No Fund may invest more than 5% of its total assets, at the time of the
investment in question, in the securities of any one issuer other than the U.S.
government and its agencies or instrumentalities and, with respect to Emerging
Markets and International Equity, repurchase agreements collateralized by such
securities except that up to 25% of the value of a Fund's total assets may be
invested without regard to such 5% limitation.
2. Ten Percent Limitation on Securities of Any One Issuer
Global and Global Leaders may not purchase more than 10% of any class
of securities of any one issuer other than the U.S. government and its agencies
or instrumentalities.
Neither Emerging Markets nor International Equity may purchase more
than 10% of the outstanding voting securities of any one issuer.
3. Investment for Purposes of Control or Management
Emerging Markets, International Equity, Global and Global Leaders may
not invest in companies for the purpose of exercising control or management.
4. Purchase of Securities on Margin
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No Fund may purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions. A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
5. Unseasoned Issuers
Emerging Markets*, International Equity*, Global and Global Leaders* may
not invest more than 15% of their net assets in securities of unseasoned issuers
that have been in continuous operation for less than three years, including
operating periods of their predecessors, except obligations issued or guaranteed
by the U.S. government and its agencies or instrumentalities (this limitation
does not apply to real estate investment trusts).
6. Underwriting
The Funds will not underwrite any issue of securities except as they
may be deemed an underwriter under the Securities Act of 1933, as amended (the
"1933 Act") in connection with the sale of securities in accordance with their
investment objectives, policies and limitations.
7. Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
Global and Global Leaders* may not purchase, sell or invest in
interests in oil, gas or other mineral exploration or development programs.
Neither Emerging Markets* nor International Equity* will purchase
interests in oil, gas or other mineral exploration or development programs or
leases, although each Fund may purchase the securities of other issuers which
invest in or sponsor such programs.
8. Concentration in Any One Industry
Global may not concentrate its investments in any one industry, except
that it will invest at least 65% of its total assets in securities of companies
engaged principally in the real estate industry.
Emerging Markets, International Equity and Global Leaders* will not
invest 25% or more of the value of their total assets in any one industry except
that they may invest more than 25% of their total assets in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. For
purposes of this restriction, utility companies, gas, electric, water and
telephone companies will be considered separate industries.
9. Warrants
Global and Global Leaders* may not invest more than 5% of their net
assets in warrants, and, of this amount, no more than 2% of the Fund's total net
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assets may be invested in warrants that are listed on neither the New York nor
the American Stock Exchanges.
Emerging Markets* and International Equity* will not invest more than
5% of their net assets in warrants, including those acquired in units or
attached to other securities. For purposes of this restriction, warrants
acquired by the Funds' in units or attached to securities may be deemed to be
without value.
10. Ownership by Trustees/Officers
None of Emerging Markets*, International Equity*, Global or Global
Leaders* may purchase or retain the securities of any issuer if (i) one or more
officers or Trustees of a Fund or its investment adviser or investment
sub-adviser individually owns or would own, directly or beneficially, more than
1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such
persons own or would own, directly or beneficially, more than 5% of such
securities.
11. Short Sales
Neither Emerging Markets nor International Equity will sell any
securities short.
Global and Global Leaders* may not make short sales of securities
unless, at the time of each such sale and thereafter while a short position
exists, either Fund owns an equal amount of securities of the same issue or owns
securities which, without payment by the Fund of any consideration, are
convertible into, or are exchangeable for, an equal amount of securities of the
same issue.
12. Lending of Funds and Securities
Global and Global Leaders* may not lend their funds to other persons,
except through the purchase of a portion of an issue of debt securities publicly
distributed or the entering into of repurchase agreements. Global and Global
Leaders* may not lend their portfolio securities, unless the borrower is a
broker-dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the U.S.
government having a value at all times not less than 100% of the current
market-value of the loaned securities, including accrued interest, provided that
the aggregate amount of such loans shall not exceed 30% of the Fund's net
assets.
Emerging Markets and International Equity will not lend any of their
assets, except portfolio securities up to one-third of the value of their total
assets. This does not prevent the Funds from purchasing or holding corporate or
government bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other transactions which are
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permitted by a Fund's investment objectives and policies or the Declaration of
Trust governing the Fund.
13. Commodities
Emerging Markets and International Equity will not invest in
commodities except that each Fund reserves the right to engage in transactions
including futures contracts, options and forward contracts with respect to
securities indices or currencies.
Global and Global Leaders will not purchase, sell or invest in
commodities or commodity contracts; provided, however, that this policy does not
prevent either Fund from purchasing and selling currency futures contracts and
entering into forward foreign currency contracts.
14. Real Estate
Neither Emerging Markets nor International Equity will purchase or sell
real estate, including limited partnership interests in real estate, although
each Fund may invest in securities of companies whose business involves the
purchase or sale of real estate or in securities which are secured by real
estate or interests in real estate.
Global and Global Leaders may not purchase or invest in real estate or
interests in real estate (although they may purchase securities secured by real
estate or interests therein or issued by companies or investment trusts which
invest in real estate or interests therein).
15. Borrowing, Senior Securities, Reverse Repurchase Agreements
Emerging Markets and International Equity will not issue senior
securities except that each Fund may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of its total
assets, including the amount borrowed and except to the extent that a Fund may
enter into futures contracts. The Funds will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary or emergency measure to facilitate management of their
portfolios by enabling them to, for example, meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
Global and Global Leaders may not borrow money, issue senior
securities or enter into reverse repurchase agreements, except for temporary or
emergency purposes, and not for leveraging, and then in amounts not in excess of
10% of the value of the Fund's total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of each Fund's total assets at the time of such
borrowing, provided that Global will not purchase any securities at times when
any borrowings (including reverse repurchase agreements) are outstanding. Global
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and Global Leaders* will not enter into reverse repurchase agreements exceeding
5% of the value of its total assets.
16. Joint Trading
Global, Global Leaders*, Emerging Markets* and International Equity*
may not participate on a joint or joint and several basis in any trading account
in any securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with its investment adviser or accounts under its
management to reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in securities
for purposes of this restriction.)
17. Options
Global and Global Leaders*, may not write, purchase or sell put or
call options, or combinations thereof except as permitted under "Description of
Funds Investment Practices and Restrictions" in each Fund's Prospectus.
Emerging Markets* and International Equity* may write covered call
options and secured put options on up to 25% of their net assets and may
purchase put and call options provided that no more than 5% of the market value
of its net assets may be invested in premiums on such options.
18. Pledging Assets
Neither Emerging Markets nor International Equity will mortgage, pledge
or hypothecate any assets except to secure permitted borrowings. In these cases,
a Fund may pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets at the time of
borrowing. For purposes of this limitation, the following are not deemed to be
pledges: margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a
when-issued basis.
19. Investing in Securities of Other Investment Companies
Emerging Markets*, International Equity*, Global* and Global Leaders*
will limit their investment in other investment companies to no more than 3% of
the total outstanding voting stock of any investment company, will invest no
more than 5% of their total assets in any one investment company and will invest
no more than 10% of their total assets in investment companies in general. A
Fund will purchase securities of closed-end investment companies only in
open-market transactions involving customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation or acquisition of assets. It should be noted that investment
companies incur certain expenses such as management fees and
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therefore any investment by a Fund in shares of another investment company would
be subject to such duplicate expenses. There is no present intention of making
such investments on behalf of Global Leaders.
20. Restricted Securities
Emerging Markets* and International Equity* will not invest more than
5% of their total assets in securities subject to restrictions on resale under
the 1933 Act, except for restricted securities which meet criteria for liquidity
established by the Trustees.
21. Illiquid Securities.
Global* and Global Leaders* may not invest more than 15% of their net
assets in illiquid securities and other securities which are not readily
marketable, including repurchase agreements which have a maturity of longer than
seven days, but excluding securities eligible for resale under Rule 144A of the
1933 Act, which the Trustees have determined to be liquid.
Emerging Markets* and International Equity* will not invest more than
15% of their net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice and certain
securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value of net assets will not result in a violation
of such restriction.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items".
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objective and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in each Fund's Prospectus.
While Global is technically diversified within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), because the
investment alternatives of the Fund are restricted by a policy of concentrating
at least 65% of its total assets in companies in the real estate industry,
14
<PAGE>
investors should understand that investment in the Fund may be subject to
greater risk and market fluctuation than an investment in a portfolio of
securities representing a broader range of industry investment alternatives.
Borrowing.
Global has borrowings outstanding. It is in essence leveraged and,
therefore, share price fluctuations may be more pronounced than the market in
general. The table set forth below describes the extent to which Global entered
into borrowing transactions during the three fiscal periods ended Ocotber 31,
1996.
Global
Average
Amount of Debt Average Amount of Average Number of Amount of Debt
Outstanding Debt Outstanding Shares Outstanding Per-Share
Year Ended End of Year During the Year During the Year During Year
- ---------- ----------- ----------------- ------------------ --------------
9/30/94* $ 4,885,000 $ 2,090,861 10,670,806 $0.20
9/30/95 $ 0 $ 1,572,261 7,184,794 $0.22
10/31/95** $ 1,050,000 $ 283,871 5,474,147 $0.05
10/31/96 $ 0 $ 583,642 4,432,611 $0.13
* Nine Months
**One Month
MANAGEMENT
The Trustees and executive officers of the Trusts, their ages,
addresses and principal occupation during the past five years are set forth
below:
TRUSTEES
JAMESS. HOWELL (72), 4124 Crossgate Road, Charlotte, NC Chairman of the
Evergreen Group of Mutual Funds, and Trustee. Retired Vice President of
Lance Inc. (food manufacturing); Chairman of the Distribution Comm.
Foundation for the Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
Trustee. Medical Director, U.S. Healthcare of the Charlotte, NC Carolinas
since 1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all forty-four investment
companies:
GERALD M. MCcDONNELL (57), 821 Regency Drive, Charlotte, NC Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
15
<PAGE>
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation
from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources,
Rexham Corporation from 1979 to 1990.
WILLIAM WALT PETTIT*(41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC. Trustee. Partner in the law firm Holcomb and Pettit, P.A.
since 1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of forty-three of the
investment companies (excluded are those established within the Evergreen
Variable Trust).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL Trustee. Real
estate developer and construction consultant since 1980; President of
Centrum Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM* (70), Greenwich Plaza, Greenwich, CT Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of forty-two of the investment companies
(excluded are those established within the Evergreen Variable Trust and
Evergreen Investment Trust).
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL
Trustee Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven of the investment
companies since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust, as well as the Keystone Group of Funds).
ADVISORY COMMITTEE TO THE BOARDS OF TRUSTEES OF THE EVERGREEN FUNDS
F. RAY KEYSER, JR. (69) ), 200 Berkeley Street, Boston, MA
Counsel, Keyser, Crowley & Meub, P.C.; Member, Governor's (VT) Council of
Economic Advisers; Chairman of the Board and Director, Central Vermont
Public Service Corporation and Hitchcock Clinic; Director, Vermont Yankee
Nuclear Power Corporation, Vermont Electric Power Company, Inc., Grand Trunk
Corporation, Central Vermont Railway, Inc., S.K.I. Ltd., Sherburne
Corporation, Union Mutual Fire Insurance Company, New England Guaranty
Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
RICHARD J. SHIMA (57), 200 Berkeley Street, Boston, MA
Chairman, Environmental Warranty, Inc., and Consultant, Drake Beam Morin,
Inc. (executive out placement); Director of Connecticut Natural Gas
Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association, and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood- Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President, and Vice
Chairman of The Travelers Corporation.
EXECUTIVE OFFICERS
16
<PAGE>
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel,
Alliance Capital Management from 1988 to 1995.
- ----------------------------------
*Messrs. Pettit and Bam may both be deemed to be an "interested person" within
the meaning of the Investment Company Act of 1940, as amended (the "1940 Act").
The officers of the Trusts are all officers and/or employees of BISYS Fund
Services. BISYS Fund Services is an affiliate of Evergreen Keystone Distributor,
Inc., the distributor of each Class of shares of each Fund.
The Funds do not pay any direct remuneration to any officer or Trustee who is
an "affiliated person" of either First Union National Bank of North Carolina,
Evergreen Asset Management Corp. or Keystone Investment Management Company or
their affiliates. See "Investment Advisers". Currently, none of the Trustees is
an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee
who is not an "affiliated person" an annual retainer and a fee per meeting
attended, plus expenses, as follows:
Name of Trust/Fund
Annual Retainer Meeting Fee
Evergreen Equity Trust
$ 1,000*
Global
$100
Global Leaders
100
Evergreen Investment Trust
15,000** 2,000
Emerging Markets
International Equity
- --------------------
* The annual retainer paid by Evergreen Equity Trust is allocated among its
three series based on assets.
** The annual retainer and meeting fee paid by Evergreen Investment Trust to
each Trustee are allocated among its fourteen series based on assets.
In addition:
(1) The Chairman of the Board of the Evergreen group of mutual funds is paid an
annual retainer of $5,000, and the Chairman of the Audit Committee is paid an
annual retainer of $2,000. These retainers are allocated among all the funds in
the Evergreen group of mutual
17
<PAGE>
funds, based upon assets.
(2) Each member of the Audit Committee of the Evergreen group of mutual funds is
paid an annual retainer of $500.
(3) Each non-affiliated Trustee of the Evergreen group of mutual funds is paid a
fee of $500 for each special telephonic meeting in which he participates,
regardless of the number of Funds for which the meeting is called.
(4) Each non-affiliated Trustee of the Evergreen group of mutual funds is paid a
fee of $250 for each special Committee of the Board telephone conference call
meeting of one or more Funds in which he participates.
(5) The members of the Advisory Committee to the Boards of Trustees of the
Evergreen Funds are paid an annual retainer of $17,500 and a fee of $2,200 for
each meeting of the Boards of Directors or Trustees of the Evergreen Funds
attended.
(6) Any individual who has been appointed as a Trustee Emeritus of one or more
funds in the Evergreen group of mutual funds is paid one-half of the annual
retainer fees that are payable to regular Trustees, and one-half of the meeting
fees for each meeting attended.
18
<PAGE>
Set forth below for each of the Trustees is the aggregate compensation
(and expenses) paid to such Trustees by each Trust for the fiscal period ended
October 31, 1996.
TRUSTEES COMPENSATION TABLE
Total
Compensation
Aggregate Compensation From Each Trust From Trusts
Evergreen Evergreen and Fund
Name of Equity Trust Investment Complex Paid
Trustee Trust to Trustees
Laurence Ashkin $1,661 0 $26,475
Foster Bam $1,661 0 $26,475
James S. Howell $1,677 $22,029 $52,500
Robert J.
Jeffries $ 828 0 $15,238
Gerald M.
McDonnell $1,656 $19,916 $45,975
Thomas L.
McVerry $1,662 $20,456 $47,100
William Walt
Pettit $1,654 $19,737 $45,600
Russell A.
Salton, III, M.D. $1,654 $19,737 $48,750
Michael S.
Scofield $1,654 $19,737 $48,750
The number and percent of outstanding shares of each Fund owned
by officers and Trustees as a group on January 31, 1997, is as follows:
No. of Shares Owned
By Officers and Ownership by Officers and
Trustees Trustees as a % of
Name of Fund as a Group Shares Outstanding
Emerging Markets 1,812 .95% (Class A)
International Equity -0-
Global 11,074 .32% (Class Y)
Global Leaders 126,309 6.54% (Class Y)
19
<PAGE>
Set forth below is information with respect to each person, who, to
each Fund's knowledge, owned beneficially or of record more than 5% of a class
of each Fund's total outstanding shares and their aggregate ownership of the
Fund's total outstanding shares as of January 31, 1997.
Name of % of
Name and Address Fund/Class No. of Shares Class/Fund
- ---------------- ---------- ------------- ----------
Fubs & Co. Febo Emerging Markets/B 18,837 5.75%/.50%
Carol A. Bierbrauer
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 1,000 9.71%/.02%
Frances B. Goldstein
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
State Street Bank & Trust Co. Emerging Markets/C 2,181 21.18%/.05%
Cust for the SEP IRA of
Terrance W. Dancey
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 2,157 20.95%/.05%
Thomas J. McGuire Jr. and
Mary I. McGuire
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 1,196 11.61%/.03%
M. Albert Carmichael and
Ann K. Carmichael
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank* Emerging Markets/Y 2,924,519 82.02%/71.41%
Trust Accounts
Attn: Ginny Batten
20
<PAGE>
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank* Emerging Markets/Y 609,356 17.09%/14.88%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Merrill Lynch International/C 1,674 6.94%/.01%
Trade House Account-Aid Equity
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville, FL 32246-6484
Fubs & Co. Febo International/C 1,458 6.04%/.01%
Carol King Landscape Maint Inc Equity
Profit Sharing Plan
Gerald J. & Bruce G.Bachand
Co-TTees U/A/D 4-01-80
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo International/C 1,942 8.05%/.01%
Don F. Wiles Equity
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo International/C 1,494 6.19%/.01
Estate of Eddie Biola Hammond Equity
H D Hammond Executor
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Emery Jahnke International/C 4,660 19.32%/.03
C/O First Union National Bank Equity
301 S. Tryon Street
21
<PAGE>
Charlotte, NC 28288-0001
First Union National Bank** International/Y 7,470,399 55.00%/47.38%
Trust Accounts Equity
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank** International/Y 5,935,634 43.70%/37.65%
Trust Accounts Equity
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Charles Schwab & Co. Inc. Global/A 5,785 8.55%/.16%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
Charles Schwab & Co. Inc. Global/A 21,002 31.06%/.60%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
NFSC Febo #X02-095028 Global/A 4,082 6.04%/.12%
John W. Propst - IV
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Donaldson Lufkin Jenrette Global/A 7,945 11.75%/.22%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Merrill Lynch Global/B 813 5.08%/.03%
Trade House Account-Aid
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville FL 32246-6484
State Street Bank & Trust Co. Global/B 1,606 10.05%/.05%
Cust for the IRA of
22
<PAGE>
Patricia L. Corey
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Global/B 1,938 12.12%/.05%
Dr. Nsidibe Ikpe
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Global/B 801 5.01%/.02%
Robert M. Sherman MD PA
401K Profit Sharing Plan
DTD 1-1-94
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
NFSC FEBO # 0C8-628271 Global/B 801 5.01%/.02%
NFSC/FMTC IRA
FBO John Delee
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Donaldson Lufkin Jenrette Global/B 1,612 10.08%/.05%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
NFSC FEBO # OKS-628913 Global/B 1,213 7.58%/.03%
NFSC/FMTC IRA Rollover
FBO Theodore C. Fleming
c/o First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288
Donaldson Lufkin Jenrette Global/B 888 5.56%/.03%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Ameritrade Inc. Global/B 2,421 36.03%/.07%
PO Box 2226
Omaha NE 68103-2226
NFSC FEBO # 0C8-623873 Global/C 377 5.60%/.01%
Peter J. Healy
C/O First Union National Bank
301 S. Tryon St.
23
<PAGE>
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 2,793 41.57%/.08%
Painewebber CDN FBO
William R. Mack Jr.
301 S. Tryon St.
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 399 5.93%/.01%
Painewebber CDN FBO
Robert P. Little
301 S. Tryon St.
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 431 6.41%/.01%
Donald H. Fryslie TTEE for
The Donald H. Fryslie Trust
U/A DTD 11/24/95
301 S. Tryon St.
Charlotte, NC 28288-0001
Stephen A. Lieber*** Global/Y 1,164,329 33.70%/32.84%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Charles Schwab & Co. Inc. Global/Y 560,142 16.21%/15.80%
Special Custody Account For the
Exclusive Benefit of Customers
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104-4122
Merrill Lynch Global Leaders/C 12,125 12.07%/.14%
Trade House Account-Aid
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville, FL 32246-6484
Fubs & Co. Febo Global Leaders/C 8,157 8.12%/.0%
Leland Johansen
301 S. Tryon Street
Charlotte, NC 28288-0001
Stephen A. Lieber Global Leaders/Y 100,498 5.21%/1.14%
C/O Lieber & Co.
2500 Westchester Ave.
Purchase, NY 10577
24
<PAGE>
First Union National Bank/EB/INT Global Leaders/Y 978,567 50.72%/11.19%
Cash Account
Attn: Trust Operation Dept.
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT Global Leaders/Y 186,868 9.69%/ 2.14%
Cash Account
Attn: Trust Operation Dept.
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
- ---------------------------------
Global Real Estate Equity Fund
As a result of this direct and beneficial ownership of 32.84% of the shares of
Global Real Estate Equity Fund on January 31, 1997, Stephen A. Lieber may be
deemed to "control" the Fund as that term is defined in the 1940 Act.
Emerging Markets Growth Fund
First Union National Bank of North Carolina and its affiliates act in various
capacities for numerous accounts. As a result of its ownership on January 31,
1997, of 86.29% of the shares of Evergreen Emerging Markets Growth Fund, First
Union may be deemed to "control" the Fund as that term is defined in the 1940
Act.
International Equity Fund
First Union National Bank of North Carolina and its affiliates act in various
capacities for numerous accounts. As a result of its ownership on January 31,
1997, of 85.03% of the shares of Evergreen International Equity Fund, First
Union may be deemed to "control" the Fund as that term is defined in the 1940
Act.
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus)
The investment adviser of Global and Global Leaders is Evergreen Asset
Management Corp., a New York corporation, with offices at 2500 Westchester
Avenue, Purchase, New York ("Evergreen Asset" or the "Adviser"). Evergreen Asset
is owned by First Union National Bank of North Carolina ("FUNB" or the
"Adviser") which, in turn, is a subsidiary of First Union Corporation ("First
Union"), a bank holding company headquartered in Charlotte, North Carolina. The
investment adviser of Emerging Markets and International Equity is FUNB which
provides investment advisory services through its Capital Management Group.
Marvin & Palmer Associates, Inc. ("Marvin & Palmer") and Warburg, Pincus
Counselors,
25
<PAGE>
Inc. ("Warburg Pincus") are the sub-advisers for Emerging Markets and
International Equity, respectively, under the terms of Sub- Advisory Agreements
between FUNB and the respective sub-adviser. The Directors of Evergreen Asset
are Richard K. Wagoner and Barbara I. Colvin. The executive officers of
Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer,
Nola Maddox Falcone, President and Co-Chief Executive Officer and Theodore J.
Israel, Jr., Executive Vice President.
On June 30, 1994, Evergreen Asset and Lieber & Company ("Lieber") were
acquired by First Union through certain of its subsidiaries. Evergreen Asset was
acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying
shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned
an affiliate of FUNB. EAMC then assumed the name "Evergreen Asset Management
Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with
the succession of EAMC to the business of Evergreen Asset and its assumption of
the name "Evergreen Asset Management Corp.", Global entered into a new
investment advisory agreement with EAMC. EAMC also entered into a new
sub-advisory agreement with Lieber pursuant to which Lieber provides certain
services to Evergreen Asset in connection with its duties as investment adviser.
Global and Global Leaders have also entered into a distribution agreement with
Evergreen Keystone Distributor, Inc.(formerly known as Evergreen Funds
Distributor, Inc.) (the "Distributor") an affiliate of BISYS Fund Services.
The partnership interests in Lieber, a New York general partnership,
were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned
subsidiaries of FUNB. The business of Lieber is being continued.
Under its Investment Advisory Agreement with each Fund, each Adviser
has agreed to furnish reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the 1933 Act, and the 1940
Act, printing prospectuses (for existing shareholders)as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, each Adviser will pay
the costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each of the Funds
for the three most recent fiscal periods, or the period from inception,
reflected in its registration statement are set forth below:
Year Ended
GLOBAL LEADERS 10/31/96
Advisory Fee $199,941
Waiver (138,323)
26
<PAGE>
--------
Net Advisory Fee $ 61,618
==========
One Month
GLOBAL Year Ended Ended Year Ended
10/31/96 10/31/95 9/30/95
Advisory Fee $580,089 $55,450 $869,965
Waiver ( 37,319) __ __
--------- -------- --------
Net Advisory Fee $542,770 $55,450 $869,965
========== ========== ==========
Expense
Reimbursement $ 27,960 $8,469 $ 39,432
--------- ---------- ---------
Period From
September 6, 1994
Ten Months (Commencement of
EMERGING Year Ended Ended operations) through
MARKETS 10/31/96 10/31/95 12/31/94
Advisory Fee $342,379 $130,542 $35,047
Waiver (326,122) (130,542) ($35,047)
--------- --------- ----------
Net Advisory Fee
$ 16,257 $ 0 $ 0
======== ======== ========
Expense
Reimbursement $79,746 $63,492 $15,890
------- -------- ---------
Period from
September 2, 1994
Ten Months (Commencement of
Year Ended Ended operations) through
10/31/96 10/31/95 12/31/94
INTERNATIONAL
EQUITY
Advisory Fee $891,137 $299,412 $60,885
Waiver (479,316) (212,295) ($44,928)
-------- --------- --------
Net Advisory Fee $411,821 $86,917 $15,957
========= ========= =========
Expense
Reimbursement $ 4,283 $24,528 $16,438
--------- --------- ---------
27
<PAGE>
Global changed its fiscal year end from September 30 to October 31,
during the periods covered by the foregoing table. Accordingly, the investment
advisory fees reported in the foregoing table reflect for Global, the fiscal
year ended September 30, 1995, the one month period ended October 31, 1995, and
the fiscal year ended October 31, 1996.
Emerging Markets and International Equity commenced operations on
September 6, 1994 and September 2, 1994, respectively. Therefore, the first
year's figures set forth in the table above reflect for Emerging Markets and
International Equity investment advisory fees paid for the period from
commencement of operations through December 31, 1994. Emerging Markets and
International Equity then changed their fiscal year-end from December 31 to
October 31 during the periods covered by the foregoing table. Accordingly, the
investment advisory fees reported in the foregoing table reflect for Emerging
Markets and International Equity, the period from January 1, 1995 through
October 31, 1995 and the fiscal year ended October 31, 1996.
Global Leaders commenced operations on November 1, 1995. Therefore, the
figures set forth above reflect for Global Leaders the investment advisory fee
paid for the fiscal year ended October 31, 1996.
Marvin & Palmer Associates, Inc. earned sub-advisory fees from Emerging
Markets for the period from September 6, 1994 (commencement of operations) to
December 31, 1994, the period from January 1, 1995 through October 31, 1995, and
the fiscal year ended October 31, 1996, of $23,133, $87,463, and $114,131,
respectively. Boston International Advisers, Inc. earned sub-advisory fees from
International Equity for the period from September 2, 1994 (commencement of
operations) to December 31, 1994, the period from January 1, 1995 through
October 31, 1995 and the period from November 1, 1995 through September 30,
1996, of $23,505, $116,844, and $247,367, respectively. Warburg, Pincus
Counselors, Inc., who was approved as the sub-adviser to the International
Equity effective October 1, 1996, earned sub-advisory fees from International
Equity for the period from October 1, 1996 through October 31, 1996 of $68,025.
As a result of the appointment of Warburg and the consequent shift investment
strategy, portfolio turnover for the most recent fiscal year was higher than
might otherwise be anticipated.
Expense Limitations
Each Adviser has in some instances voluntarily limited (and may in the
future limit) expenses of certain of the Funds. For further information, refer
to the expense information in the current Prospectus.
The Investment Advisory Agreements and Sub-Advisory Agreements are
terminable, without the payment of any penalty, on sixty days' written notice,
by a vote of the holders of a majority of each Fund's outstanding shares, or by
a vote of a majority of each Trust's Trustees or by the respective Adviser. The
Investment Advisory Agreements will automatically terminate in the event of
their assignment. Each Investment Advisory Agreement provides in substance that
the Adviser shall not be liable for any action or failure to act in accordance
with its duties thereunder in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser or of reckless disregard of its
obligations thereunder. The Investment Advisory Agreement with respect to Global
28
<PAGE>
was approved by the Fund's shareholders on June 23, 1994, became effective on
June 30, 1994, was last approved by the Trustees of the Evergreen Equity Trust
on February 8, 1996, for a one year period beginning May 1, 1996, and it will
continue in effect from year to year provided that its continuance is approved
annually by a vote of a majority of the Trustees of the Evergreen Equity Trust
including a majority of those Trustees who are not parties thereto or
"interested persons" (as defined in the 1940 Act) of any such party,
("disinterested Trustees") cast in person at a meeting duly called for the
purpose of voting on such approval or a majority of the outstanding voting
shares of the Fund. The Investment Advisory Agreement with respect to Global
Leaders was approved by the sole shareholder of Global Leaders on September 22,
1995. It became effective on September 29, 1995, and will continue in effect
until September 29, 1997, and thereafter, from year to year provided that its
continuance is approved annually by a vote of a majority of the Trustees of the
Evergreen Equity Trust including a majority of the disinterested Trustees cast
in person at a meeting duly called for the purpose of voting on such approval or
a majority of the outstanding voting shares of the Fund. With respect to
Emerging Markets and International Equity, the Investment Advisory Agreement
dated February 28, 1985 and amended from time to time thereafter, and the
Sub-Advisory Agreement dated July 28, 1994, between Emerging Markets and Marvin
and Palmer were last approved by the Trustees of Evergreen Investment Trust on
February 8, 1996, for a one year period commencing May 1, 1996. The Sub-Advisory
Agreement dated October 1, 1996 between International Equity and Warburg, Pincus
was approved by the Trustees of Evergreen Investment Trust on August 1, 1996,
for a two year period commencing September 30, 1996. Each Agreement will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees of
Evergreen Investment Trust including a majority of disinterested Trustees cast
in person at a meeting duly called for the purpose of voting on such approval or
by a vote of a majority of the outstanding voting securities of each Fund.
Certain other clients of each Adviser may have investment objectives
and policies similar to those of the Funds. Each Adviser (including the
sub-advisers) may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients simultaneously
with a Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of each Adviser and sub-adviser to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by the Adviser and sub-adviser to the accounts involved, including the Funds.
When two or more of the clients of the Adviser or sub-Adviser (including one or
more of the Funds) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
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security available to each Fund. If simultaneous transactions occur, each
Adviser and sub-adviser attempts to allocate the securities, both as to price
and quantity, in accordance with a method deemed equitable to each Fund and
consistent with their different investment objectives. In some cases,
simultaneous purchases or sales could have a beneficial effect, in that the
ability of one Fund to participate in volume transactions may produce better
executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit
purchase and sales transactions to be effected between each Fund and the other
registered investment companies for which either Evergreen Asset, FUNB or
Keystone Investment Management Company ("Keystone"), a wholly-owned subsidiary &
FUNB, act as investment adviser, or between the Fund and any advisory clients of
Evergreen Asset, FUNB, Keystone, Lieber, Marvin & Palmer or Warburg, Pincus.
Each Fund may from time to time engage in such transactions but only in
accordance with these procedures and if they are equitable to each participant
and consistent with each participant's investment objectives.
Prior to July 7, 1995, Federated Administrative Services, a subsidiary
of Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million average daily net assets of the Trust; .125% on the
next $250 million; .10% on the next $250 million and .075% on assets in excess
of $250 million. For the period from September 6, 1994 (commencement of
operations) to December 31, 1994, and from January 1, 1995 to July 7, 1995,
Emerging Markets incurred $15,890 and $3,922, respectively in administrative
service costs, all of which was voluntarily waived. From September 2, 1994
(commencement of operations) to December 31, 1994 and from January 1, 1995 to
July 7, 1995, International Equity incurred $16,438 and $16,062, respectively in
administrative service costs, all of which was voluntarily waived.
Effective March 11, 1997, Evergreen Investment Services ("EKIS") will
succeed Evergreen Asset in providing administrative services to each of the
Funds, for a fee based on the average daily net assets of each fund administered
by EKIS for which Evergreen Asset, Keystone or FUNB also serve as investment
adviser, calculated daily and payable monthly at the following annual rates:
.050% on the first $7 billion; .035% on the next $3 billion; .030% on the next
$5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and
.010% on assets in excess of $30 billion. For the administrative services
provided by Evergreen Asset from July 8, 1995 through October 31, 1995, Emerging
Markets and International Equity incurred $1,980 and $8,466, respectively in
administration service costs, all of which was voluntarily waived; and for the
fiscal year ended October 31, 1996, Emerging Markets, International Equity and
Global Leaders incurred $11,191, $55,875 and $8,409, respectively, in
administrative service costs.
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billion; and .0040% on assets in excess of $25 billion. The total assets of
mutual funds administered by Evergreen Asset for which Evergreen Asset, Keystone
or FUNB serve as investment adviser as of November 29, 1996 were approximately
$28.8 billion. For the fiscal year ended February 28, 1997, Emerging Markets,
International Equity and Global Leaders paid Evergreen Asset $6,786, $51,592,
and $9,998, respectively in administration service fees.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund offering Class A, Class B and Class C
shares for additional disclosure regarding the Funds' distribution arrangements.
Distribution fees are accrued daily and paid monthly on the Class A, Class B and
Class C shares and are charged as class expenses, as accrued. The distribution
fees attributable to the Class B shares 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, and, in the case of Class C shares,
without the assessment of a contingent deferred sales charge after the first
year following purchase, while at the same time permitting the Distributor to
compensate broker-dealers in connection with the sale of such shares. In this
regard the purpose and function of the combined contingent deferred sales charge
and distribution services fee on the Class B shares and the Class C shares, are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of their Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plan and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the disinterested
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
(the "SEC") make payments for distribution services to the Distributor; the
latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Global commenced offering Class A, Class B and Class C shares on
January 3, 1995. The Plan with respect to the Fund became effective on December
30, 1994 and was initially approved by the sole shareholder of each Class of
shares of the Fund with respect to which a Plan was adopted on that date and by
the unanimous voting vote of the Trustees of the Trust, including the
disinterested Trustees voting separately, at a meeting called for that purpose
and held on December 13, 1994. The Distribution Agreement between the Fund and
the Distributor, pursuant to which distribution fees are paid under the Plan by
the Fund with respect to its Class A,
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Class B and Class C shares was also approved at the December 13, 1994 meeting by
the unanimous vote of the Trustees, including the disinterested Trustees voting
separately.
Global Leaders commenced offering Class A, Class B and Class C shares
on May 17, 1996. The Plan with respect to the Fund became effective on February
8, 1996 and was initially approved by the sole shareholder of each Class of
shares of the Fund with respect to which a Plan was adopted on that date and by
the unanimous vote of the Trustees of the Trust, including the disinterested
Trustees voting separately, at a meeting called for that purpose and held on
February 8, 1996. The Distribution Agreement between the Fund and the
Distributor, pursuant to which distribution fees are paid under the Plan by the
Fund with respect to its Class A, Class B and Class C shares was also approved
at the February 8, 1996 meeting by the unanimous vote of the Trustees, including
the disinterested Trustees voting separately.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class,
and, in either case, by a majority of the disinterested Trustees of the Trust.
Prior to July 8, 1995, Federated Securities Corp., a subsidiary of
Federated Investors, served as the distributor for Emerging Markets and
International Equity as well as other portfolios of Evergreen Investment Trust.
The Distribution Agreements between each Fund and the Distributor pursuant to
which distribution fees are paid under the Plans by each Fund with respect to
its Class A, Class B and Class C shares were approved on June 15, 1995 by the
unanimous vote of the Trustees including the disinterested Trustees voting
separately.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to the Funds and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Funds and holders of Class A, Class B and Class C
shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to, providing office space, equipment, telephone facilities,
and various personnel including clerical, supervisory, and computer, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding Class A, Class B and Class C shares; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as the Fund reasonably requests for its Class A, Class B and Class C
shares.
In addition to the Plans, Emerging Markets and International Equity
have each adopted a Shareholder Services Plan whereby shareholder servicing
agents
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may receive fees from the Fund for providing services which include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemptions of Class B and Class C shares of the Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. With respect to Emerging
Markets and International Equity, amendments to the Shareholder Services Plan
require a majority vote of the disinterested Trustees but do not require a
shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement
may be terminated (a) by a Fund without penalty at any time by a majority vote
of the holders of the outstanding voting securities of the Fund, voting
separately by Class or by a majority vote of the disinterested Trustees or (b)
by the Distributor. To terminate any Distribution Agreement, any party must give
the other parties 60 days' written notice; to terminate a Plan only, the Fund
need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment.
Emerging Markets incurred distributions fees on behalf of Class A,
Class B, and Class C shares, respectively, of $505, $2,294, and $163,
respectively, from September 6, 1994 (commencement of operations) through
December 31, 1994; $2,083, $10,858, and $240, respectively, for the period
January 1, 1995 through October 31, 1995 and $3,883, $19,319, and $493
respectively, for the fiscal year ended October 31, 1996.
International Equity incurred distribution fees on behalf on Class A,
Class B, and Class C shares, respectively, of $1,270, $8,718, and $281,
respectively, from September 2, 1994 (commencement of operations) through
December 31, 1994; $6,269, $40,874, and $1,422, respectively, for the period
January 1, 1995 through October 31, 1995; and $14,674, $86,432, and $1,589,
respectively, for the fiscal year ended October 31, 1996.
Global incurred distribution fees on behalf of Class A, Class B, and
Class C shares, of $165, $123, and $37, respectively, for the period February
10, 1995,
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February 8, 1995, and February 9, 1995, respectively, (commencement of class
operations) through September 30, 1995; $16, $73, and $4, respectively, for the
period October 1, 1995 through October 31, 1995 and $2,800, $765 and $78,
respectively for the fiscal year ended October 31, 1996.
Global Leaders incurred distribution fees on behalf of Class A, Class B
and Class C shares of $7,416, $64,024 and $837, respectively, for the period May
17, 1996 (commencement of class operations) through October 31, 1996.
Shareholder Services Plans - Emerging Markets and International Equity.
Emerging Markets incurred shareholder services fees on behalf of Class
B and Class C shares, of $975 and $54, respectively, from September 6, 1994
(commencement of operations) through December 31, 1994; $3,620 and $80,
respectively, for the period January 1, 1995 through October 31, 1995, and
$6,440 and $165, respectively, for the fiscal year ended October 31, 1996.
International Equity incurred shareholder services fees on behalf of
Classes B, and Class C shares, of $2,906 and $93, respectively, from September
2, 1994 (commencement of operations) through December 31, 1994; $13, 624 and
$474, respectively, for the period January 1, 1995 through October 31, 1995 and
$28,811 and $530, respectively, for the fiscal year ended October 31, 1996.
Global incurred shareholder services fees pursuant to its Rule 12b-1
Plan, on behalf of Class B, and Class C shares, of $41, and $12, respectively,
for the period February 10, 1995, February 8, 1995 and February 9, 1995,
respectively, (commencement of class operations) through September 30, 1995; $24
and $2, respectively, for the period October 1, 1995 through October 31, 1995;
and $255, and $26, respectively, for the fiscal year ended October 31, 1996.
Global Leaders incurred shareholder service fees pursuant to its Rule
12b-1 Plan on behalf of Class B and Class C shares of $21,341 and $279,
respectively, for the period from May 17, 1996 (commencement of class
operations) through October 31, 1996.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser or,
in the case of Emerging Markets and International Equity, the sub-advisers,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser or sub-advisers, all of whom, in the case of Evergreen Asset, are
associated with Lieber. In general, the same individuals perform the same
functions for the other funds managed by the Adviser or sub-advisers. A Fund
will not effect any brokerage transactions with any broker or dealer affiliated
directly or indirectly with the Adviser or sub-advisers unless such transactions
are fair and reasonable, under the circumstances, to the Fund's shareholders.
Circumstances that may indicate that such transactions are fair or reasonable
include the frequency of such transactions, the selection process
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and the commissions payable in connection with such transactions.
A substantial portion of the transactions in equity securities for each
Fund will occur on foreign stock exchanges. Transactions on stock exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are negotiated, whereas on many foreign
stock exchanges these commissions are fixed. In the case of securities traded in
the foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most purchase and sale transactions involving
fixed income securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between the bid and ask price.
In selecting firms to effect securities transactions, the primary
consideration of each Adviser or sub-adviser shall be prompt execution at the
most favorable price. An Adviser or sub-adviser will also consider such factors
as the price of the securities and the size and difficulty of execution of the
order. If these objectives may be met with more than one firm, the Adviser or
sub-adviser will also consider the availability of statistical and investment
data and economic facts and opinions helpful to the Adviser. The extent of
receipt of these services would tend to reduce the expenses for which the
Adviser, the sub-adviser or its affiliates might otherwise have paid.
Under Section 11(a) of the Securities Exchange Act of 1934, as amended,
and the rules adopted thereunder by the Securities and Exchange Commission,
Lieber may be compensated for effecting transactions in portfolio securities for
a Fund on a national securities exchange provided the conditions of the rules
are met. Each Fund advised by Evergreen Asset has entered into an agreement with
Lieber authorizing Lieber to retain compensation for brokerage services. In
accordance with such agreement, it is contemplated that Lieber, a member of the
New York and American Stock Exchanges, will, to the extent practicable, provide
brokerage services to such Funds with respect to substantially all securities
transactions effected on the New York and American Stock Exchanges. In such
transactions, the Adviser will seek the best execution at the most favorable
price while paying a commission rate no higher than that offered to other
clients of Lieber or that which can be reasonably expected to be offered by an
unaffiliated broker-dealer having comparable execution capability in a similar
transaction. However, no Fund will engage in transactions in which Lieber would
be a principal. While no Fund advised by Evergreen Asset contemplates any
ongoing arrangements with other brokerage firms, brokerage business may be given
from time to time to other firms. In addition, the Trustees have adopted
procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
brokerage
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transactions with Lieber, as an affiliated broker-dealer, are fair and
reasonable.
Any profits from brokerage commissions accruing to Lieber as a result
of portfolio transactions for Global and Global Leaders will accrue to FUNB and
to its ultimate parent, First Union. The Investment Advisory Agreements do not
provide for a reduction of the Adviser's fee with respect to any Fund by the
amount of any profits earned by Lieber from brokerage commissions generated by
portfolio transactions of the Fund.
The following chart shows: (1) the brokerage commissions paid by Global
during its last three fiscal years and for Global Leaders for the period from
November 1, 1995 (commencement of investment operations) through October 31,
1996; (2) the amount and percentage thereof paid to Lieber; and (3) the
percentage of the total dollar amount of all portfolio transactions with respect
to which commissions have been paid which were effected by Lieber:
Twelve Months One Month Twelve Months Nine Months
GLOBAL Ended 10/31/96 Ended Ended Ended
10/31/95 9/30/95 9/30/94
Total Brokerage $221,762 $8,314 $532,714 $917,989
Commissions
Dollar Amount and % $ 40,808 $2,374 $106,123 $174,137
paid to Lieber 18% 29% 20% 19%
% of Transactions
Effected by Lieber 25% 36% 31% 33%
Twelve Months
Ended
GLOBAL LEADERS 10/31/96
Total Brokerage $203,040
Commissions
Dollar Amount and % $ 54,074
paid to Lieber 27%
% of Transactions
Effected by Lieber 45%
Global changed its fiscal year end from December 31 to September 30,
and then from September 30 to October 31, during the periods covered by the
forgoing table. Accordingly, the commissions reported in the foregoing table
reflect for Global, the period from January 1, 1994 through September 30, 1994,
the fiscal year ended September 30, 1995, the one month period ended October 31,
1995 and the fiscal year ended October 31, 1996.
Emerging Markets and International Equity did not pay any commissions
to Lieber. Emerging Markets paid commissions on brokerage commissions for the
period from September 6, 1994 (commencement of operations) through December 31,
1994, the period from January 1, 1995 through October 31, 1995, and the fiscal
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year ended October 31, 1996 of $41,532, $60,543, and $242,847, respectively.
International Equity paid commissions on brokerage commissions for the period
from September 2, 1994 (commencement of operations) through December 31,
1994,the period from January 1, 1995 through October 1, 1995 and the fiscal year
ended October 31, 1996 of $16,438, $71,508, and $560,019, respectively.
ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and elect
the tax treatment applicable to regulated investment companies ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
(Such qualification does not involve supervision of management or investment
practices or policies by the Internal Revenue Service.) In order to qualify as a
regulated investment company, a Fund must, among other things, (a) 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; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months; and (c) diversify its holdings so
that, at the end of each quarter of its taxable year, (i) 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 (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
government securities and securities of other regulated investment companies).
By so qualifying, a Fund is not subject to Federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
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tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
what is in effect a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
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 his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers to a
Fund and to certify as to its correctness and certain other shareholders may be
subject to a 31% Federal income tax backup withholding requirement on dividends,
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distributions of capital gains and redemption proceeds paid to them by the Fund.
If the withholding provisions are applicable, any such dividends or capital gain
distributions to these shareholders, whether taken in cash or reinvested in
additional shares, and any redemption proceeds will be reduced by the amounts
required to be withheld. Investors may wish to consult their own tax advisers
about the applicability of the backup withholding provisions. The foregoing
discussion relates solely to U.S. Federal income tax law as applicable to U.S.
persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). It does not reflect the special tax
consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt
organizations and foreign persons). Shareholders are encouraged to consult their
own tax advisers regarding specific questions relating to Federal, state and
local tax consequences of investing in shares of a Fund. Each shareholder who is
not a U.S. person should consult his or her tax adviser regarding the U.S. and
foreign tax consequences of ownership of shares of a Fund, including the
possibility that such a shareholder may be subject to a U.S. withholding tax at
a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as
income from U.S. sources under the Code.
Special Tax Considerations
Each Fund maintains accounts and calculates income in U.S. dollars. In
general, gains or losses on the disposition of debt securities denominated in a
foreign currency that are attributable to fluctuations in exchange rates between
the date the debt security is acquired and the date of disposition, gains and
losses attributable to fluctuations in exchange rates that occur between the
time the Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivable or pays such liabilities, and gains and losses from the
disposition of foreign currencies and foreign currency forward contracts will be
treated as ordinary income or loss. These gains or losses increase or decrease,
respectively, the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
Each Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) are subject to special provisions of the Code that, among
other things, may affect the character of gains and losses of the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) require the Fund to mark-to-market
certain types of positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding U.S. Federal income and
excise taxes. Each Fund will monitor its transactions, make appropriate tax
elections and make appropriate entries in its books and records when it acquires
any foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules. The Funds anticipate
that their hedging activities will not adversely affect their regulated
39
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investment company status.
Income received by a Fund from sources within various foreign countries
may be subject to foreign income tax. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Fund may elect to "pass through" to the
Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required: (i) to treat a
proportionate share of dividends paid by the Fund which represent foreign source
income received by the Fund plus the foreign taxes paid by the Fund as foreign
source income; and (ii) either to deduct their pro-rata share of foreign taxes
in computing their taxable income, or to use it as a foreign tax credit against
Federal income taxes (but not both). No deduction for foreign taxes could be
claimed by a shareholder who does not itemize deductions.
Each Fund intends to meet for each taxable year the requirements of the
Code to "pass through" to its shareholders foreign income taxes paid if it is
determined by its Adviser to be beneficial to do so. There can be no assurance
that the Fund will be able to pass through foreign income taxes paid. Each
shareholder will be notified within 60 days after the close of each taxable year
of the Fund whether the foreign taxes paid by the Fund will "pass through" for
that year, and, if so, the amount of each shareholder's pro-rata share (by
country) of (i) the foreign taxes paid and (ii) the Fund's gross income from
foreign sources. Of course, shareholders who are not liable for Federal income
taxes, such as retirement plans qualified under Section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.
Each Fund may invest in certain entities that may qualify as "passive
foreign investment companies". Generally, the income of such companies may
become taxable to the Fund prior to the receipt of distributions, or,
alternatively, income taxes and interest charges may be imposed on the Fund on
"excess distributions" received by the Fund or on gain from the disposition of
such investments by the Fund. In addition, gains from the sale of such
investments held for less than three months will count toward the 30% of gross
income test described above. Each Fund will take steps to minimize income taxes
and interest charges arising form such investments, and will monitor such
investments to insure that the Fund complies with the 30% of gross income test.
Proposed tax regulations, if they become effective, will allow the Funds to mark
to market and recognize gains on such investments at each Fund's taxable year
end. The Funds would not be subject to income tax on these gains if they are
distributed subject to these proposed rules.
NET ASSET VALUE
The following information supplements that set forth in each Fund's
Prospectus under the subheading "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".
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The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
Alternative ". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class B
and Class C shares may be lower than the per share net asset value of the Class
A shares (and, in turn, that of Class A shares may be lower than Class Y shares)
as a result of the greater daily expense accruals, relative to Class A and Class
Y shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Emerging Market and International Equity shareholder
service fee) and, to the extent applicable, transfer agency fees and the fact
that Class Y shares bear no additional distribution, shareholder service or
transfer agency related fees. While it is expected that, in the event each Class
of shares of a Fund realizes net investment income or does not realize a net
operating loss for a period, the per share net asset values of the four classes
will tend to converge immediately after the payment of dividends, which
dividends will differ by approximately the amount of the expense accrual
differential among the Classes, there is no assurance that this will be the
case. In the event one or more Classes of a Fund experiences a net operating
loss for any fiscal period, the net asset value per share of such Class or
Classes will remain lower than that of Classes that incurred lower expenses for
the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
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The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. Such calculation does not
take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the Exchange will not be reflected in a Fund's
calculation of net asset value unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made. Securities transactions are accounted for on the trade date, the date
the order to buy or sell is executed. Dividend income and other distributions
are recorded on the ex-dividend date, except certain dividends and distributions
from foreign securities which are recorded as soon as the Fund is informed after
the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after purchase (the "level-load alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Distributor ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their affiliates, that have entered into selected agent agreements with the
Distributor ("selected agents"), or (iii) the Distributor. The minimum for
initial investments is $1,000; there is no minimum for subsequent investments.
The subscriber may use the Share Purchase Application available from the
Distributor for his or her initial investment. Sales personnel of selected
dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
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through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Alternative Purchase Arrangements
Each Fund issues four classes of shares: (i) Class A shares, which are
sold to investors choosing the front-end sales charge alternative; (ii) Class B
shares, which are sold to investors choosing the deferred sales charge
alternative; (iii) Class C shares, which are sold to investors choosing the
level-load sales charge alternative; and (iv) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Advisers and their affiliates, and (c) institutional investors. The four
classes of shares each represent an interest in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except that (I) Class A, Class B and Class C shares are subject to a Rule 12b-1
distribution fee, (II) Class B and Class C shares of Emerging Markets and
International Equity are subject to a shareholder service fee, (III) Class A
shares bear the expense of the front-end sales charge and Class B and Class C
shares bear the expense of the deferred sales charge, (IV) Class B shares and
Class C shares each bear the expense of a higher Rule 12b-1 distribution
services fee and shareholder service fee than Class A shares and, in the case of
Class B shares, higher transfer agency costs, (V) with the exception of Class Y
shares, each Class of each Fund has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its distribution services
(and, to the extent applicable, shareholder service) fee is paid which relates
to a specific Class and other matters for which separate Class voting is
appropriate under applicable law, provided that, if the Fund submits to a
simultaneous vote of Class A, Class B and Class C shareholders an amendment to
the Rule 12b-1 Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, the Class A shareholders and
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the Class B and Class C shareholders will vote separately by Class, and (VI)
only the Class B shares are subject to a conversion feature. Each Class has
different exchange privileges and certain different shareholder service options
available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, shareholder service) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
services (and, to the extent applicable, shareholder service) fee on Class C
shares, would be less than the front-end sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class B and Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge. For this reason, the Distributor will reject any order (except orders
for Class B shares from certain retirement plans) for more than $2,500,000 for
Class B shares.
Class A shares are subject to a lower distribution services fee and no
shareholder service fee and, accordingly, pay correspondingly higher dividends
per share than Class B shares or Class C shares. However, because front-end
sales charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their investment for an extended period of time
might consider purchasing Class A shares because the accumulated continuing
distribution (and, to the extent applicable, shareholder service) charges on
Class B shares or Class C shares may exceed the front-end sales charge on Class
A shares during the life of the investment. Again, however, such investors must
weigh this consideration against the fact that, because of such front-end sales
charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, shareholder service) fees
and, in the case of Class B shares, being subject to a contingent deferred sales
charge for a six-year period. For example, based on current fees and expenses,
an investor subject to the 4.75% front-end sales charge imposed by Evergreen
Equity and Long-Term Bond Funds (i.e. Emerging Markets, International Equity,
Global and Global Leaders) would have to hold his or her investment
approximately seven years for the Class B and Class C distribution services
(and, to the extent applicable, shareholders service) fees, to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B and Class C
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distribution services (and, to the extent applicable, shareholder service) fees
on the investment, fluctuations in net asset value or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent deferred sales charge may find
it more advantageous to purchase Class C shares.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-end Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund at the end of each Fund's latest fiscal
year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
Emerging
Markets $8.46 $.42 10/31/96 $8.88
International $10.43 $.52 10/31/96 $10.95
Equity
Global $12.28 $.61 10/31/96 $12.89
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Global
Leaders $11.91 $.59 10/31/96 $12.50
Prior to January 3, 1995, shares of Global were offered exclusively on
a no-load basis and, accordingly, no underwriting commissions were paid in
respect of sales of shares of the Fund or retained by the Distributor. In
addition, since Class B and Class C shares were not offered prior to January 3,
1995, contingent deferred sales charges have been paid to the Distributor with
respect to Class B or Class C shares only since January 3, 1995.
Prior to May 17, 1996, shares of Global Leaders were offered
exclusively on a no-load basis and, accordingly, no underwriting commissions
have been paid in respect of sale of shares of the Fund or retained by the
Distributor.
The commissions on behalf of Emerging Markets and International
Equity were paid to and retained by Federated Securities Corp, through July 7,
1995, which until such date was the principal underwriter of the portfolios of
Evergreen Investment Trust. For the period from July 8, 1995 through October 31,
1995, and the fiscal year ended October 31, 1996, commissions were paid to and
amounts were retained by Evergreen Keystone Distributor, Inc. (formerly known as
Evergreen Funds Distributor, Inc.) who effective July 7, 1995, became the
principal underwriter of the portfolios of Evergreen Investment Trust:
Fiscal Year Period From Period From
Ended July 7, 1995 January 1,
October 31, to October 31, 1995 to July
1996 1995 6, 1995
Emerging Markets:
Commissions Received $12,924 $4,835 $3,194
Commissions Retained 1,307 561 388
Fiscal Year Period From Period From
Ended July 7, 1995 January 1,
October 31, To October 31, 1995 to July
1996 1995 6, 1995
International Equity:
Commissions Received $40,927 $24,198 $12,195
Commissions Retained 6,190 2,958 1,470
With respect to Global, the following commissions were paid to and
amounts were retained by Evergreen Keystone Distributor, Inc. for the period
from February 10, 1995, February 8, 1995 and February 9, 1995 (the commencement
of operations of Class A, Class B and Class C shares, respectively) through
October 31, 1995, and the fiscal year ended October 31, 1996:
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Fiscal Year Period from Period from
Ended February 10, 1995 October 1, 1995
October 31, 1996 to September 30, to October 31,
1995 1995
Global
Commissions Received $5,823 $47 $514
Commissions Retained 664 6 59
Period from
June 3, 1996 to
October 31, 1996
Global Leaders
Commissions Received $221,285
Commissions Retained 23,449
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more of the
Evergreen Keystone mutual funds other than money market funds into a single
"purchase", if the resulting "purchase" totals at least $100,000. The term
"purchase" refers to: (i) a single purchase by an individual, or to concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his or her spouse and their children under the age of 21 years
purchasing shares for his, her or their own account(s); (ii) a single purchase
by a trustee or other fiduciary purchasing shares for a single trust, estate or
single fiduciary account although more than one beneficiary is involved; or
(iii) a single purchase for the employee benefit plans of a single employer. The
term "purchase" also includes purchases by any "company", as the term is defined
in the 1940 Act, but does not include purchases by any such company which has
not been in existence for at least six months or which has no purpose other than
the purchase of shares of a Fund or shares of other registered investment
companies at a discount. The term "purchase" does not include purchases by any
group of individuals whose sole organizational nexus is that the participants
therein are credit card holders of a company, policy holders of an insurance
company, customers of either a bank or broker-dealer or clients of an investment
adviser. A "purchase" may also include shares, purchased at the same time
through a single selected dealer or agent, of any Evergreen Keystone mutual
fund. Currently, the Evergreen Keystone mutual funds include:
Evergreen Trust:
Evergreen Fund
Evergreen Aggressive Growth Fund
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Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund) The
Evergreen American Retirement Trust:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
The Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Investment Trust:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
The Evergreen Lexicon Fund:
Evergreen Intermediate-Term Government Securities Fund
Evergreen Intermediate-Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax-Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
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Keystone America Hartwell Emerging Growth Fund
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Emerging Markets Fund
Keystone Fund for Total Return
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone Liquid Trust
Keystone Omega Fund
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund:
Florida Tax Free Fund
Massachusetts Tax Free Fund
Pennsylvania Tax Free Fund
New York Insured Tax Free Fund
Keystone State Tax Free Fund- Series II:
California Insured Tax Free Fund
Missouri Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
Prospectuses for the Evergreen Keystone mutual funds may be obtained
without charge by contacting the Distributor or the Advisers at the address or
telephone number shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C shares
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<PAGE>
of the Fund held by the investor and (b) all such shares of
any other Evergreen Keystone mutual fund held by the investor;
and
(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, Class B or Class C shares of
an Evergreen Keystone mutual fund worth $200,000 at their then current net asset
value and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the sales charge for the $100,000 purchase, in the case of any
Evergreen Equity or Long-Term Bond Fund (i.e., Emerging Markets, International
Equity, Global and Global Leaders) would be at the 2.50% rate applicable to a
single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Statement of Intention. Class A investors may also obtain the reduced
sales charges shown in the Prospectus by means of a written Statement of
Intention, which expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in Class A shares (or Class A, Class B
and/or Class C shares) of the Fund or any other Evergreen Keystone mutual fund.
Each purchase of shares under a Statement of Intention will be made at the
public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Statement of Intention.
At the investor's option, a Statement of Intention may include purchases of
Class A, Class B, or Class C shares of the Fund or any other Evergreen mutual
fund made not more than 90 days prior to the date that the investor signs a
Statement of Intention; however, the 13-month period during which the Statement
of Intention is in effect will begin on the date of the earliest purchase to be
included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone mutual funds under a single
Statement of Intention. For example, if at the time an investor signs a
Statement of Intention to invest at least $100,000 in Class A shares of the
Fund, the investor and the investor's spouse each purchase shares of the Fund
worth $20,000 (for a total of $40,000), it will only be necessary to invest a
total of $60,000 during the following 13 months in shares of the Fund or any
other Evergreen Keystone mutual fund, to qualify for the 3.75% sales charge
applicable to purchases in any Evergreen Equity or Long-Term Bond Fund (i.e.,
Emerging Markets, International Equity, Global and Global Leaders) on the total
amount being invested (the sales charge applicable to an investment of
$100,000).
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The Statement of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. Shares purchased with the first 5%
of such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Share Purchase Application. Current Class A
shareholders desiring to do so can obtain a form of Statement of Intention by
contacting a Fund at the address or telephone number shown on the cover of this
Statement of Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen Keystone mutual funds available to their participants. Investments
made by such employee benefit plans may be exempt from any applicable front-end
sales charges if they meet the criteria set forth in the Prospectus under "Class
A Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone mutual funds
available to their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
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Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; or their affiliate 0.9 Keystone, officers, directors
and present or retired, full-time employees of the Advisers, the Distributor,
and their affiliates; officers, directors and present and full-time employees of
selected dealers or agents; or the spouse, sibling, direct ancestor or direct
descendant (collectively "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the benefit of any
such person or relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not be resold
except to the Fund); (iii) certain employee benefit plans for employees of the
Advisers, the Distributor and their affiliates; (iv) persons participating in a
fee-based program, sponsored and maintained by a registered broker-dealer and
approved by the Distributor, pursuant to which such persons pay an asset-based
fee to such broker-dealer, or its affiliate or agent, for service in the nature
of investment advisory or administrative services. These provisions are 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. Similarly, 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.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B
shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee (and, with respect to Emerging Markets and International Equity,
the shareholder service fee) enables the Fund to sell the Class B shares without
a sales charge being deducted at the time of purchase. The higher distribution
services fee (and, with respect to Emerging Markets and International Equity,
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the shareholder service fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption it will be assumed that the redemption is first of any Class A shares
or Class C shares in the shareholder's Fund account, second of Class B shares
held for over six years or Class B shares acquired pursuant to reinvestment of
dividends or distributions and third of Class B shares held longest during the
six-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending six years after the
end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Emerging Markets and International Equity, the shareholder service fee) imposed
on Class B shares. Such conversion will be on the basis of the relative net
asset values of the two classes, without the imposition of any sales load, fee
or other charge. The purpose of the conversion feature is to reduce
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the distribution services fee paid by holders of Class B shares that have been
outstanding long enough for the Distributor to have been compensated for the
expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Emerging Markets and International Equity, shareholder service fee) and transfer
agency costs with respect to Class B shares does not result in the dividends or
distributions payable with respect to other Classes of a Fund's shares being
deemed "preferential dividends" under the Code, and (ii) the conversion of Class
B shares to Class A shares does not constitute a taxable event under Federal
income tax law. The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time such conversion
is to occur. In that event, no further conversions of Class B shares would
occur, and shares might continue to be subject to the higher distribution
services fee (and, with respect to Emerging Markets and International Equity,
shareholder services fee)for an indefinite period which may extend beyond the
period ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after purchase. No charge is
imposed in connection with redemptions made more than one year from the date of
purchase. Class C shares are sold without a front-end sales charge so that the
Fund will receive the full amount of the investor's purchase payment and after
the first year without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset value of his or
her Class C shares. The Class C distribution services fee (and, with respect to
Emerging Markets and International Equity, shareholder service fee) enables the
Fund to sell Class C shares without either a front-end or contingent deferred
sales charge. However, unlike Class B shares, Class C shares do not convert to
any other class shares of the Fund. Class C shares incur higher distribution
services fees (and, with respect to Emerging Markets and International Equity,
shareholder service fees) than Class A shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than Class A shares.
Class Y Shares
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Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
The Evergreen Emerging Markets Growth Fund and Evergreen International
Equity Fund, which prior to July 7, 1995 were known as the First Union Emerging
Markets Growth Portfolio and First Union International Equity Portfolio, are
each separate series of Evergreen Investment Trust, a Massachusetts business
trust. On July 7, 1995, First Union Funds changed its name to Evergreen
Investment Trust. Evergreen Global Real Estate Equity Fund and Evergreen Global
Leaders Fund are each separate series of Evergreen Equity Trust, a Massachusetts
business trust. The above-named Trusts are individually referred to in this
Statement of Additional Information as the "Trust" and collectively as the
"Trusts". Each Trust is governed by a board of trustees. Unless otherwise
stated, references to the "Board of Trustees" or "Trustees" in this Statement of
Additional Information refer to the Trustees of all the Trusts.
Emerging Markets, International Equity, Global and Global Leaders may
issue an unlimited number of shares of beneficial interest with a $0.0001 par
value. All shares of these Funds have equal rights and privileges. Each share is
entitled to one vote, to participate equally in dividends and distributions
declared by the Funds and on liquidation to their proportionate share of the
assets remaining after satisfaction of outstanding liabilities. Shares of these
Funds are fully paid, nonassessable and fully transferable when issued and have
no pre-emptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees can elect
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100% of the Trustees if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more of the Trusts. Any issuance of shares of another series or class would be
governed by the 1940 Act and the law of the Commonwealth of Massachusetts. If
shares of another series of a Trust were issued in connection with the creation
of additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Trust may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the SEC permitting the issuance and
sale of multiple classes of shares representing interests in each Fund. In the
event a Fund were to issue additional classes of shares other than those
described herein, no further relief from the SEC would be required.
Distributor
Evergreen Keystone Distributor, Inc. (formerly known as Evergreen Funds
Distributor, Inc.)(the "Distributor"), 120 Clove Road, Little Falls, New Jersey
07424, serves as each Fund's principal underwriter, and as such may solicit
orders from the public to purchase shares of any Fund. The Distributor is not
obligated to sell any specific amount of shares and will purchase shares for
resale only against orders for shares. Under the Agreement between the Fund and
the Distributor, the Fund has agreed to indemnify the Distributor, in the
absence of its willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil liabilities,
including liabilities under the 1933 Act.
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Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors
of the Funds.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the SEC, the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. The Fund will include performance data
for Class A, Class B, Class C and Class Y shares in any advertisement or
information including performance data of the Fund.
The shares of Global outstanding prior to January 3, 1995, have been
reclassified as Class Y shares. Set forth in the table below is the average
annual compounded total return for each Class of shares offered by Global,
Global Leaders, Emerging Markets and International Equity for the most recently
completed one and five year fiscal periods and/or the period from inception
through October 31, 1996.
From
Global 1 Year 5 Years 2/1/89
Ended Ended (inception)
10/31/96 10/31/96 to 10/31/96
Class A 6.0% 8.34% 4.04%
Class B 5.3% 8.09% 3.89%
Class C 5.3% 8.09% 3.89%
Class Y 6.2% 8.39% 4.08%
Emerging One Year From 9/6/94
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Markets Ended (inception)
10/31/96 to 10/31/96
Class A 2.6% (9.3%)
Class B 1.9% (9.2%)
Class C 5.9% (7.9%)
Class Y 7.9% (7.0%)
International One Year From 9/6/94
Equity Ended (inception)
10/31/96 to 10/31/96
Class A 4.7% 0.2%
Class B 4.1% 0.5%
Class C 8.3% 1.9%
Class Y 10.3% 2.7%
Global Leaders From 11/1/95
(Inception)to
10/31/96
Class A 5.5%
Class B 5.1%
Class C 5.0%
Class Y 19.6%
The performance numbers for Global and Global Leaders for the Class A,
Class B and Class C shares are hypothetical numbers based on the performance for
Class Y shares as adjusted for any applicable front-end sales charge or
contingent deferred sales charge.
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
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the result (assuming compounding of income) in order to arrive at an annual
percentage rate.
The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = 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
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of Global, Global Leaders, Emerging Markets and International
Equity for the thirty-day period ended October 31, 1996 for each Class of shares
offered by the Funds, is set forth in the table below:
Global
Class A .24%
Class B (.46%)
Class C (.50%)
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Class Y .49%
Emerging Markets
Class A ( .48%)
Class B (1.28%)
Class C (1.29%)
Class Y ( .25%)
International Equity Class A 1.95% Class B 1.31% Class C 1.30% Class Y 2.29%
Global Leaders
Class A .36%
Class B (.34%)
Class C (.34%)
Class Y .62%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, Europe, Australia and Far East index, Morgan Stanley Capital
International Equity Emerging Markets Free Index or any other commonly quoted
index of common stock prices, which are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
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All shareholder inquiries may be directed to the shareholder's broker
or to each Adviser at the address or telephone number shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statements filed by the Trusts with the SEC under the 1933 Act. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements appearing in their most current fiscal
year Annual Report to shareholders and the report thereon of the independent
auditors appearing therein, namely Price Waterhouse LLP are incorporated by
reference in this Statement of Additional Information. The Annual Reports to
Shareholders for each Fund, which contain the referenced statements, are
available upon request and without charge.
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate bond
rating is a current assessment of the credit worthiness of an obligor with
respect to a specific obligation. This assessment of credit worthiness may take
into consideration obligers such as guarantors, insurers or lessees. The debt
rating is not a recommendation to purchase, sell or hold a security, inasmuch as
it does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
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3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
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is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, 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.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate issues. The ratings measure the credit
worthiness of the obligor but do not take into account currency exchange and
related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
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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 fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
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. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
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 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
issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk,
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which may vary very slightly from time to time because of economic conditions;
A-- average credit quality with adequate protection factors, but with greater
and more variable risk factors in periods of economic stress. The indicators "+"
and "-" to the AA and A categories indicate the relative position of a credit
within those rating categories.
Fitch Investors Service LLP.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
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o MIG 2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service LLP.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1 -- very strong, with only slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
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