EVERGREEN
SMALL CAP
EQUITY INCOME
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1995
THE EVERGREEN FUNDS [LOGO]
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Dear Fellow Shareholder:
Previous reports for Evergreen Small Cap Equity Income Fund discussed our
strategy of seeking to provide a low-risk, high-return investment style through
investment in small-capitalization issues that have yields that are higher than
that of the S&P 500 Reinvested Index*. This strategy is based on the thought
that the yield support and financial quality of the companies held in the
portfolio will offer reduced volatility. This focus is complemented by a search
for entrepreneurial companies which offer strong growth outlook, often
represented by convertible bonds or preferreds. Often these issues offer capital
appreciation potential from a merger or acquisition. Our approach has been to
focus on a search for issues that will not expose the portfolio to the potential
boom-and-bust of a sector- driven market rally but, rather, expose it to a wide
range of value opportunities. (Please see the third page of this letter for the
Fund's performance information).
PORTFOLIO
Banks continue to represent the largest sector weighting within the
portfolio. Our investments have been in issues that not only have good growth
prospects, but also should benefit from the continued consolidation in the
industry. Fed One Savings Bank FSB was purchased during the quarter and
subsequently sold after appreciating 40% in fewer than five months. We also
purchased Citizens Bancorp, which has an attractive branch franchise in
Maryland, and was selling at 1.3 times book value, a substantial discount to
potential takeover value. On average, the takeover value for banks has been 2
times book value.
Merger and acquisition activity is also occurring in other industries. Most
notable for the Fund was the cash acquisition of Paco Pharmaceutical Services
(held since October, 1993) by West Co., Inc., which provided a 27% gain to the
portfolio. Due to continued pressure by HMOs and the government to reduce
healthcare costs, healthcare companies are merging or acquiring others to reduce
costs of goods or services and/or improve margins.
Since the end of the quarter, an acquisition offer was announced for Joslyn
Corp. Joslyn exemplifies our research in special situations. The company had a
significant amount of cash on the balance sheet, representing about 25% of the
price of the stock. New management has recently started on a plan which commits
to using that money to redirect the company toward growth opportunities, away
from old struggling lines of business. Our analysis upon purchase showed that
the company was undervalued because of recent poor operating results.
The proposed deregulation communications bill in Congress is causing an
increased interest in cable and broadcasters, with stock prices appreciating as
mergers and acquisitions are announced. During the quarter, we added to our
position in Jones Intercable Inc. Convertible Debentures in which BCE, Inc. (a
Canadian telecommunications company) has invested a substantial sum. Retailers
are also consolidating in an attempt to improve margins in a very competitive
environment. We added to Proffit's Inc. Convertible Debentures, expecting margin
improvement following their acquisition of McRae and Parks - Belk Co.
Another investment theme was our emphasis on adding interest sensitive
issues as we saw long-term bond rates decline and began to anticipate the
Federal Reserve's recent cut in the discount rate - a reversal from their stance
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* An unmanaged index of selected securities
8/95
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during the last year. We sought value among real estate issues, and invested
when stock prices had languished below their underlying asset value. New
holdings included: Columbus Realty Trust, a real estate investment trust (REIT)
which invests in apartments; Tucker Properties Corp., a manager and developer of
shopping centers; and Sovran Self Storage, an owner of self storage facilities.
Other purchases were in natural gas utilities and special situation electric
utilities. For example, we added to the Fund's holding of TNP Enterprises, an
electric utility in Texas and New Mexico, which we believe is poised for growth
as it has successfully worked through major rate difficulties. This issue is
extremely undervalued based on recent takeover prices of small utilities.
The healthcare sector led performance in the six-month period with large
gains in Adac Laboratories, +53.8%, Shared Medical Systems Corp., +22.5%, and
Meridian Diagnostics Convertible Debenture, +19.8%. Banks and thrifts also
performed well, not only as a result of merger and acquisition activity driving
up the valuation levels, but also in response to lower interest rates. Consumer
related stocks suffered from the shift of consumers away from spending toward
more saving. Energy issues were negatively affected by concerns about a slowing
economy.
OUTLOOK
The economy appears to be headed toward the frequently discussed "soft
landing." The significant fall in bond yields has led investors to expect that
credit stimulus would prevent the decelerating economy from moving into
recession. Fears of inflation have declined. Expectations have been built that
the apparent inventory build-up and industrial slowdown would encourage the
Federal Reserve to further lower short-term interest rates. Investors are
beginning to discover that real interest rates (inflation adjusted) are too high
if inflation rates stabilize at current levels.
Looking ahead, we see the economy working at a lower level of capacity and,
therefore, becoming more competitive for undifferentiated goods and services.
This will force a higher selectivity among investors who are anxious for
superior profit growth trends. Consequently, we anticipate a well-sustained
demand for those companies which have powerful business franchises through
either a stream of innovative products which will be sought after by the
consumer or industry, or services which are uniquely effective. Credit
availability will be a positive factor, gradually stimulating the recently
depressed residential construction industry. Lower interest rates will also
benefit financial service companies. As capacity increases in
technologically-based companies, we expect a more competitive environment. It
will be increasingly necessary to focus on those businesses with the best
customer franchises and the greatest ability to lead rather than follow the
competition. Even though the economy may be slowing, we expect to find many
investment vehicles characterized by sustained or accelerated growth in
profitability coupled with yield.
Sincerely,
/s/ Stephen A. Lieber /s/ Nola M. Falcone
Stephen A. Lieber Nola M. Falcone
Chairman President
Evergreen Asset Evergreen Asset
Management Corp. Management Corp.
July 7, 1995
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PERFORMANCE AT A GLANCE
Performance for periods ended June 30, 1995*
Class Y Class A Class B Class C
Shares Shares Shares Shares
------- ------- ------- -------
6-month total return +10.5% +5.1% +5.0% +9.0%
12-month total return +13.4% +7.9% +7.9% +11.9%
Average annual compound
return since inception
on 10/01/93 +7.0% +4.0% +4.5% +6.7%
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FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance figures include reinvestment of income dividends and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
Effective 1/3/95, the Fund adopted a multi-class distribution arrangement to
issue additional classes of shares, designated as Class A, Class B and Class C.
The Fund's performance for its Class A shares (subject to a maximum front-end
sales charge of 4.75%), its Class B shares (subject to a maximum contingent
deferred sales charge of 5%) and its Class C shares (subject to a 1% contingent
deferred sales charge within the first year of purchase) for the period prior to
commencement of operations on 1/3/95 for Class A and Class B shares, and 1/24/95
for Class C shares, has been calculated based on the performance of the existing
no-load (Class Y) shares as adjusted for any front-end or back-end sales
charges. Performance data prior to those dates does not reflect any 12b-1 fees,
and if reflected the returns would be lower. Performance data beginning from
those dates reflects actual performance including 12b-1 fees.
The Fund may incur 12b-1 expenses up to an annual maximum of .75 of 1% of its
aggregate average daily net assets attributable to its Class A shares and, 1% of
its aggregate average daily net assets attributable to each of its Class B
shares and Class C shares. For the foreseeable future, however, management
intends to limit such payments on the Class A shares to .25 of 1% of the Fund's
aggregate average daily net assets.
The adviser is currently waiving or absorbing a portion of the expenses for the
Fund's Class A, B and C shares. Had expenses not been waived, returns for class
A, Class B and Class C shares would have been lower.
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STATEMENT OF INVESTMENTS
June 30, 1995 (unaudited)
COMMON STOCKS--63.8% SHARES VALUE
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AUTOMOTIVE EQUIPMENT
& MANUFACTURING--0.7%
Simpson Industries, Inc. 3,000 $ 33,750
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BANKS--15.2%
BancorpSouth, Inc 2,500 96,875
CB Bancshares, Inc 1,000 30,500
CCB Financial Corp 2,000 83,500
Citizens Bancorp 1,500 43,875
Deposit Guaranty Corp 1,500 58,500
Interchange Financial
Services Corp 1,500 28,875
Mahaska Investment Co 3,000 45,750
One Valley Bancorp of
West Virginia, Inc 2,000 61,750
State Financial Services Corp 1,500 21,750
Vermont Financial Services Corp 3,000 81,750
West Coast Bancorp, Inc 10,000 132,500
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685,625
----------
BUILDING & CONSTRUCTION--0.9%\
Monarch Cement Co. 3,000 40,688
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BUSINESS EQUIPMENT
& SERVICES--4.3%
American Business
Products, Inc. 4,500 85,500
Computer Language
Research, Inc. 7,500 70,313
Nashua Corp. 2,000 38,000
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193,813
----------
CONSUMER PRODUCTS
& SERVICES--1.6%
Garan, Inc. 4,400 73,700
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ELECTRICAL EQUIPMENT
& ELECTRONICS--1.1%
Research, Inc. 8,100 50,625
----------
ENERGY--0.7%
Berry Petroleum Co. Cl. A 1,500 14,625
Penn Virginia Corp. 600 16,875
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31,500
----------
FINANCE & INSURANCE--1.4%
Hilb, Rogal & Hamilton Co. 5,000 62,500
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HEALTH CARE PRODUCTS
& SERVICES--5.7%
ADAC Laboratories 7,500 90,938
Kinetic Concepts, Inc. 12,000 85,500
Shared Medical
Systems Corp. 2,000 80,250
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256,688
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INDUSTRIAL, COMMERCIAL
GOODS & SERVICES--7.2%
Elco Industries, Inc. 4,000 75,000
Gilbert Associates, Inc. Cl. A 2,000 26,000
Graco, Inc. 1,500 40,312
Joslyn Corp. 3,000 78,750
Lindberg Corp. 9,000 59,062
Roanoke Electric Steel Corp. 4,200 47,250
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326,374
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REAL ESTATE--6.1%
CBL & Associates Properties, Inc. 2,000 39,750
Chelsea GCA Realty, Inc. 2,500 67,500
Columbus Realty Trust 2,000 37,500
Kranzco Realty Trust 1,000 17,875
Sovran Self Storage, Inc. 2,500 57,500
Tanger Factory Outlet Centers, Inc. 1,500 38,063
Tucker Properties Corp. 1,300 15,762
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273,950
----------
RETAILING & DISTRIBUTION--3.1%
Kellwood Co. 3,500 59,500
Russ Berrie & Co., Inc. 3,800 52,725
Wolf (Howard B.), Inc. 4,200 27,300
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139,525
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TEXTILE & APPAREL--1.6%
Oxford Industries, Inc. 4,000 73,000
----------
THRIFT INSTITUTIONS--0.9%
People's Savings Financial Corp. 2,000 39,000
----------
UTILITIES-ELECTRIC--5.5%
Commonwealth Energy System 2,000 75,500
Eastern Utilities Associates 3,000 67,875
TNP Enterprises, Inc. 6,500 104,813
----------
248,188
----------
UTILITIES-GAS--6.5%
Energen Corp. 2,000 43,000
New Jersey Resources Corp. 4,000 92,500
Providence Energy Corp. 5,000 76,250
Public Service Company
Of North Carolina Inc. 3,000 49,125
Washington Energy Co. 2,000 32,750
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293,625
----------
UTILITIES-WATER--1.3%
United Water Resources, Inc. 4,500 59,625
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TOTAL COMMON STOCKS
(COST $2,685,150) 2,882,176
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CONVERTIBLE PREFERRED
STOCKS--4.4% SHARES VALUE
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BANKS--0.4%
Second Bancorp Inc.
$1.50 Cumulative Cv Pfd Series A-1 700 $ 17,500
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BUILDING, CONSTRUCTION
& FURNISHINGS--0.5%
Southdown, Inc.
$2.875 Cumulative Cv Pfd Series D 500 20,563
----------
ENERGY--0.7%
Chieftain International Funding Corp.
$1.8125 Cv Pfd 1,400 32,200
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INDUSTRIAL SPECIALTY PRODUCTS--1.0%
Quanex Corp.
$1.72 Cv Depositary
Exchangeable Pfd 2,000 47,500
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PUBLISHING, BROADCASTING
& ENTERTAINMENT--1.8%
AMC Entertainment, Inc.
$1.75 Cumulative Cv Pfd 3,000 83,250
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TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $204,589) 201,013
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PRINCIPAL
CONVERTIBLE DEBENTURES--21.9% AMOUNT
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BANKS--1.2%
First State Bancorp
7.00% Due 11/01/03 $ 50,000 55,000
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BUILDING, CONSTRUCTION
& FURNISHINGS--2.0%
Interface, Inc.
8.00% Due 09/15/13 30,000 29,400
Medusa Corp.
6.00% Due 11/05/03 60,000 58,800
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88,200
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CONSUMER PRODUCTS
& SERVICES--2.7%
Bell Sports Corp.
4.25% Due 11/15/00 30,000 22,425
Max & Erma's Restaurants, Inc.
8.00% Due 09/01/04 100,000 99,500
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121,925
----------
FINANCE & INSURANCE--2.2%
Trenwick Group, Inc.
6.00% due 12/15/99 100,000 101,500
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HEALTH CARE PRODUCTS
& SERVICES--4.1%
Maxxim Medical, Inc.
6.75% Due 03/01/03 $100,000 101,000
Meridian Diagnostics, Inc.
7.25% Due 09/01/01 75,000 84,000
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185,000
----------
INDUSTRIAL, COMMERCIAL GOODS
& SERVICES--2.4%
Albany International Corp.
5.25% Due 03/15/02 60,000 57,900
Telxon Corp.
7.50% Due 06/01/12 50,000 51,875
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109,775
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PUBLISHING, BROADCASTING
& ENTERTAINMENT--1.6%
Jones Intercable, Inc.
7.50% Due 06/01/07 70,000 71,400
----------
RETAILING--2.8%
Baker (J.), Inc.
7.00% Due 06/01/02 50,000 44,750
Proffitt's Inc.
4.75% Due 11/01/03 90,000 80,100
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124,850
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TEXTILE & APPAREL--2.9%
Fieldcrest Cannon, Inc.
6.00% Due 03/15/12 75,000 58,500
Guilford Mills, Inc.
6.00% Due 09/15/12 75,000 72,000
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130,500
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TOTAL CONVERTIBLE DEBENTURES
(COST $1,004,913) 988,150
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SHORT TERM U.S. GOVERNMENT
AGENCY OBLIGATIONS--4.4%
Federal Home Loan Mortgage Corp.
5.88% Due 7/20/95 100,000 99,705
5.90% Due 7/19/95 100,000 99,689
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TOTAL SHORT-TERM INVESTMENTS
(COST $199,394) 199,394
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TOTAL INVESTMENTS
(COST $4,094,046) 94.5% 4,270,733
OTHER ASSETS
AND LIABILITIES--NET 5.5 246,525
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TOTAL NET ASSETS 100.0% $4,517,258
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See accompanying notes to financial statements.
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
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ASSETS:
Investments at market value (identified cost $4,094,046) $4,270,733
Receivable for investment securities sold 130,487
Receivable for Fund shares sold 10,125
Receivable from Adviser 32,278
Dividends and interest receivable 26,247
Prepaid expenses 65,599
Unamortized organization expenses 20,004
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Total assets 4,555,473
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LIABILITIES:
Due to custodian bank 5,910
Accrued expenses 32,305
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Total liabilities 38,215
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NET ASSETS:
Paid-in capital 4,301,657
Accumulated net realized gain on investment transactions 38,319
Undistributed net investment income 595
Net unrealized appreciation of investments 176,687
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Net assets $4,517,258
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CALCULATION OF NET ASSET VALUE PER SHARE:
CLASS A SHARES
Net asset value per share
($137,518/13,139 shares of beneficial interest outstanding) $10.47
Sales charge--4.75% of offering price 0.52
------
Maximum offering price $10.99
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CLASS B SHARES
Net asset value per share
($136,577/13,049 shares of beneficial interest outstanding) $10.47
======
CLASS C SHARES
Net asset value per share
($20,335/1,945 shares of beneficial interest outstanding) $10.46
======
CLASS Y SHARES
Net asset value per share
($4,222,828/403,472 shares of beneficial interest outstanding) $10.47
======
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See accompanying notes to financial statements.
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STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995 (unaudited)
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INVESTMENT INCOME:
Dividends $ 68,080
Interest 40,287
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Total income 108,367
EXPENSES:
Advisory fee $ 20,224
Distribution fee-Class A shares 129
Distribution and services fees-Class B shares 524
Distribution and services fees-Class C shares 38
Custodian fee 26,295
Registration and filing fees 25,909
Transfer agent fee 17,870
Professional fees 7,209
Trustees' fees and expenses 4,419
Reports and notices to shareholders 3,644
Amortization of organization expense 3,637
Insurance expense 2,965
Other 1,931
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114,794
Less: Advisory fee waiver (20,224)
Expense reimbursement (63,543)
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Total expenses 31,027
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Net investment income 77,340
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 38,317
Net change in unrealized appreciation (depreciation) of investments 291,411
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Net gain on investments 329,728
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $407,068
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See accompanying notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
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SIX MONTHS
ENDED YEAR
JUNE 30, 1995 ENDED
(UNAUDITED) DECEMBER 31, 1994
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INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 77,340 $ 108,281
Net realized gain on investments 38,317 38,143
Net change in unrealized appreciation
(depreciation) of investments 291,411 (150,229)
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Net increase (decrease) in net assets
resulting from operations 407,068 (3,805)
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME
Class A shares (1,957) --
Class B shares (1,675) --
Class C shares (128) --
Class Y shares (79,038) (101,829)
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Total distributions from net investment
income (82,798) (101,829)
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IN EXCESS OF NET INVESTMENT INCOME:
Class A shares (393) --
Class B shares (115) --
Class C shares (30) --
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Total distributions in excess of net investment
income (538) --
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NET REALIZED GAIN ON INVESTMENTS:
Class A shares (447) --
Class B shares (392) --
Class C shares (9) --
Class Y shares (14,616) (19,339)
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Total distributions from net realized gains on
investments (15,464) (19,339)
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Total distributions to shareholders (98,800) (121,168)
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FUND SHARE TRANSACTIONS (NOTE 7):
Net increase resulting from Fund share
transactions 596,168 1,501,313
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Net increase in net assets 904,436 1,376,340
NET ASSETS:
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Beginning of year 3,612,822 2,236,482
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End of period (including undistributed
net investment income of $595 and
$6,591, respectively) $4,517,258 $3,612,822
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See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (unaudited)
NOTE 1--ORGANIZATION
The Evergreen Small Cap Equity Income Fund (the "Fund") is one of two portfolios
of The Evergreen American Retirement Trust (the "Trust"). The Trust was
organized in the Commonwealth of Massachusetts as a Massachusetts business trust
on December 18, 1987. The Fund is registered under the Investment Company Act of
1940, as amended (the "Act"), as a diversified, open-end management investment
company. The Fund commenced investment operations on October 1, 1993. NOTE
2--ISSUANCE OF MULTIPLE CLASSES OF SHARES
On January 3, 1995, the Fund adopted a multiple class distribution program and
created three new classes of shares designated Class A, Class B and Class C
shares. The then existing shares of the Fund were designated as Class Y (no
load) shares. Class A shares are offered with a front-end sales charge of 4.75%
which will be reduced on purchases in excess of $100,000. Class B shares are
offered with a contingent deferred sales charge payable when shares are redeemed
which would decline from 5% to zero over a seven year period (after which it is
expected that they will convert to Class A shares). Class C shares are offered
with a 1% contingent deferred sales charge on shares redeemed during the first
year of purchase. All four classes of shares have identical voting, dividend,
liquidation and other rights, except that certain classes bear different
distribution expenses (see Note 5) and have exclusive voting rights with respect
to their distribution plan. NOTE
3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION: Portfolio securities that are listed on a securities
exchange are valued at the last quoted sales price on the day the valuation is
made. Price information on listed securities is taken from the exchange where
the security is primarily traded. Such securities not traded on the valuation
date are valued at the mean between the bid and asked price. Unlisted securities
for which market quotations are readily available are valued at a price quoted
by one or more brokers. Debt securities (other than short-term obligations) are
normally valued on the basis of valuations provided by a pricing service when
such prices are believed to reflect the value of such securities. Securities for
which no quotations are readily available, are valued at fair value as
determined in good faith by the Trustees. Short-term obligations when purchased
with remaining maturities of 60 days or less are stated at amortized cost which
approximates market value. Cost of securities is determined and gains and losses
are based upon the specific identification method for both financial statement
and Federal income tax purposes.
FEDERAL TAXES: It is the Funds' policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute timely all of its taxable income and net capital gains to its
shareholders. Therefore, no Federal income or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-distribution date. The amount of distributions from net investment income and
net realized capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
are reclassified within the capital accounts based on their Federal tax-basis
treatment; temporary differences do not require reclassification. Distributions
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in capital.
ALLOCATION OF EXPENSES: Expenses specifically identifiable to the Fund or to a
class of shares are charged to the Fund or class. Other expenses common to the
Fund or the Trust as a whole, are primarily allocated to the Funds in the Trust
or to the classes in the Fund in proportion to net assets.
UNAMORTIZED ORGANIZATION EXPENSES: The expenses of the Fund incurred in
connection with its organization and initial registration which aggregated
approximately $30,000 are being deferred and amortized by the Fund over a period
of benefit not to exceed 60 months from the date the Fund commenced investment
operations.
OTHER: Security transactions are accounted for on the trade date, the date the
order to buy or sell is executed. Dividend income is recorded on the ex-dividend
date and interest income is recognized on the accrual basis.
NOTE 4--ADVISORY FEE AND RELATED PARTY TRANSACTIONS
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994 to the
advisory business of the same name but under different ownership. The Adviser is
entitled to a fee, accrued daily and paid monthly, for the performance of its
services at an annual rate of 1% of the daily net assets of the Fund.
The Adviser has agreed to limit total operating expenses of the Fund, exclusive
of taxes, interest, brokerage fees, 12b-1 distribution and shareholder services
fees and extraordinary expenses, to 1.50% of average net assets until the Fund's
net assets reach $15 million. For the six months ended June 30, 1995, in
accordance with this limitation, the Adviser waived its entire advisory fee and
reimbursed the Fund for certain of its other expenses, including certain class
specific expenses. The Adviser may, at its discretion, revise or cease the
advisory fee waiver and expense absorption at any time.
Lieber & Company is the investment sub-adviser to the Fund and also provides
brokerage services with respect to substantially all security transactions of
the Fund effected on the New York or American Stock Exchanges. For transactions
executed during the six months ended June 30, 1995, the Fund incurred brokerage
commissions of $3,263 with Lieber & Company. For the six months ended June 30,
1995, Lieber & Company was reimbursed by the Adviser, at no additional expense
to the Fund, for its cost of providing investment advisory services to the
Adviser.
NOTE 5--DISTRIBUTION AND SHAREHOLDER SERVICES FEES
The Fund has adopted for each of its Class A, Class B and Class C shares, a
Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which may not exceed, as a percentage of average
daily net assets on an annual basis, .75 of 1% of Class A shares and 1% for both
Class B and Class C shares. The payments under the Class A Plan will be
voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution agreement
with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz
Incorporated, whereby the Fund will compensate EFD for its services at a rate
which may not exceed, as a percentage of average daily net assets on an annual
basis, .25 of 1% for Class A shares and .75 of 1% for both Class B and Class C
shares. Such fees are accrued daily and paid monthly. The Agreement provides
that EFD will use such fees to finance activities that promote the sale of Class
A, Class B and Class C shares.
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A portion of the payments under the Class B and Class C Plans, up to .25 of 1%
of average daily net assets may constitute a shareholder services fee. EFD has
entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of the Adviser, whereby EFD will compensate FUBS
for certain services provided to shareholders and/or for the maintenance of
shareholders accounts relating to the Fund's Class B and Class C shares. Such
fees are accrued daily and paid monthly.
NOTE 6--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments other than short-term
obligations aggregated $1,197,334 and $642,251, respectively, for the six months
ended June 30, 1995.
The aggregate cost of investments owned at June 30, 1995, is the same for both
financial statement and Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities at June 30, 1995, was $324,027 and
$147,340, respectively, resulting in net unrealized appreciation of $176,687.
NOTE 7--SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.0001 par value shares of beneficial interest
authorized, divided into four classes, designated Class A, Class B, Class C and
Class Y shares. Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED
JUNE 30, 1995
(UNAUDITED)
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS A*
Shares sold 13,044 $128,542
Shares issued on reinvestment
of distributions 275 2,795
Shares redeemed (180) (1,893)
- --------------------------------------------------------
Net increase 13,139 $129,444
- --------------------------------------------------------
CLASS B*
Shares sold 13,639 $135,076
Shares issued on reinvestment
of distributions 215 2,181
Shares redeemed (805) (8,058)
- --------------------------------------------------------
Net increase 13,049 $129,199
- --------------------------------------------------------
CLASS C*
Shares sold 1,929 $19,535
Shares issued on reinvestment
of distributions 16 166
- --------------------------------------------------------
Net increase 1,945 $19,701
- --------------------------------------------------------
CLASS Y
Shares sold 60,748 $612,538
Shares issued on reinvestment
of distributions 7,243 73,617
Shares redeemed (36,833) (368,331)
- --------------------------------------------------------
Net increase 31,158 $317,824
- --------------------------------------------------------
TOTAL NET INCREASE
RESULTING FROM FUND
SHARE TRANSACTIONS 59,291 $596,168
========================================================
YEAR ENDED
DECEMBER 31, 1994
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS Y
Shares sold 186,565 $1,843,201
Issued on reinvestment
of distributions 10,291 99,604
Shares redeemed (44,916) (441,492)
- --------------------------------------------------------
NET INCREASE
RESULTING FROM FUND
SHARE TRANSACTIONS 151,940 $1,501,313
========================================================
* The Fund share transaction activity reflects the period from January 3, 1995,
for Class A and Class B shares and January 24, 1995 for Class C shares
(commencement of class operations) through June 30, 1995.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 3, 1995* JANUARY 3, 1995* JANUARY 24, 1995*
THROUGH THROUGH THROUGH
JUNE 30, 1995 JUNE 30, 1995 JUNE 30, 1995
----------------------------------------------------------------
PER SHARE DATA CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.64 $ 9.64 $ 9.74
Income from investment operations:
Net investment income 0.16 0.15 0.15
Net realized and unrealized gain
on investments 0.90 0.88 0.77
- -------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.06 1.03 0.92
- -------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net investment income (0.16) (0.15) (0.15)
In excess of net investment income (0.03) (0.01) (0.01)
From net realized gains on investments (0.04) (0.04) (0.04)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.23) (0.20) (0.20)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.47 $10.47 $10.46
===================================================================================================================
TOTAL RETURN** 11.1% 10.7% 9.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $138 $137 $20
Ratios to average net assets:
Expenses+ 1.75% 2.50% 2.50%
Net investment income+ 3.81% 3.19% 3.68%
Portfolio turnover rate++ 18% 18% 18%
===================================================================================================================
</TABLE>
* Commencement of class operations.
** Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized and net of voluntary expense reimbursements. If the Fund had borne
all expenses that were assumed by the Adviser, the annualized ratios of
expenses and net investment income (loss) to average net assets would be
20.2% and (14.6%), respectively, for Class A Shares, 20.6% and (15.0%),
respectively, for class B Shares and 226.8% and (220.6%), respectively for
Class C Shares. Due to the recent commencement of their offering, the ratios
for Class A, Class B and Class C shares are not necessarily comparable to
that of the class Y shares, and are not necessarily indicative of future
ratios.
++ Portfolio turnover is calculated for the six month period ended June 30,
1995.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
SIX MONTHS FOR THE PERIOD
ENDED YEAR OCTOBER 1, 1993*
JUNE 30, 1995 ENDED THROUGH
PER SHARE DATA (UNAUDITED) DECEMBER 31, 1994 DECEMBER 31, 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.70 $10.15 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .34 .10
Net realized and unrealized gain (loss)
on investments .82 (.41) .15
- -------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.01 (.07) 25
- -------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income (.20) (.33) (.10)
Net realized gains on investments (.04) (.05) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.38) (.10)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.47 $ 9.70 $10.15
===================================================================================================================
TOTAL RETURN++ 10.5% (.7)% 2.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $4,223 $3,613 $2,236
Ratios to average net assets:
Expenses(a) 1.50%+ 1.48% 0%+
Net investment income(a) 3.84%+ 3.72% 4.07%+
Portfolio turnover rate 18% 9% 15%
===================================================================================================================
</TABLE>
* Commencement of operations.
+ Annualized.
++ Total return is calculated for the periods indicated and is not annualized.
(a)Net of voluntary advisory fee waivers and expense reimbursements by the
Adviser. If the Fund had borne all expenses that were assumed or waived by
the Adviser, the annualized ratios of expenses and net investment income
(loss) to average net assets, exclusive of any applicable state expense
limitations, would have been 4.46% and .88%, respectively, for the six months
ended June 30, 1995, 4.68% and .53%, respectively, for the year ended
December 31, 1994 and 4.39% and (.33%), respectively, for the period October
1, 1993, through December 31, 1993.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN FAMILY OF FUNDS
DOMESTIC GROWTH FUNDS
U.S. Real Estate Equity Fund
Aggressive Growth Fund
Limited Market Fund
Evergreen Fund
INTERNATIONAL/GLOBAL GROWTH FUNDS
Global Real Estate Equity Fund
Emerging Markets Growth Fund
International Equity Fund
GROWTH AND INCOME FUNDS
Growth & Income Fund
Value Fund
Total Return Fund
Evergreen Foundation Fund
Balanced Fund
American Retirement Fund
SPECIALTY GROWTH AND INCOME FUNDS
Small Cap Equity Income Fund
Tax Strategic Foundation
Utility Fund
INCOME FUNDS
U.S. Government Fund
Fixed Income Fund
STATE TAX-FREE FUNDS
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
North Carolina Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
TAX FREE FUNDS
High Grade Tax Free Fund
Short-Intermediate Municipal Fund-California
Short-Intermediate Municipal Fund
MONEY MARKET FUNDS
Money Market Fund
Tax Exempt Money Market Fund
Treasury Money Market Fund
<PAGE>
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT AUDITORS
Ernst & Young LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment advisers to the Evergreen Funds are Capital Management Group
of First Union National Bank of North Carolina ("FUNB-NC") and Evergreen
Asset Management Corp., which is wholly owned by FUNB-NC. Investments in
the Evergreen Funds are not endorsed or guaranteed by First Union or its
subsidiaries, are not deposits or other obligations of First Union or its
subsidiaries, are not insured or otherwise protected by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency, and involve investment risks, including possible loss of principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
EVERGREEN SMALL CAP EQUITY INCOME FUND
2500 Westchester Avenue
Purchase, New York 10577
536579
<PAGE>
