EVERGREEN
DOMESTIC GROWTH
FUNDS
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1996 ANNUAL REPORT
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EVERGREEN DOMESTIC GROWTH FUNDS
TABLE OF CONTENTS
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Economic Overview......................................................... 1
(Photo of Wall Street EVERGREEN FUND A Report From Your Portfolio Manager...................................... 2
appears here) Results to Date........................................................... 7
Statement of Investments.................................................. 8
Statement of Assets and Liabilities....................................... 13
Statement of Operations................................................... 14
Statement of Changes in Net Assets........................................ 15
Financial Highlights...................................................... 16
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(Photo of beakers EVERGREEN AGGRESSIVE A Report From Your Portfolio Manager...................................... 18
appears here) GROWTH FUND Results to Date........................................................... 22
Statement of Investments.................................................. 23
Statement of Assets and Liabilities....................................... 24
Statement of Operations................................................... 25
Statement of Changes in Net Assets........................................ 26
Financial Highlights...................................................... 27
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(Photo of architectural EVERGREEN LIMITED A Report From Your Portfolio Manager...................................... 29
relief appears here) MARKET FUND, INC. Results to Date........................................................... 31
Statement of Investments.................................................. 32
Statement of Assets and Liabilities....................................... 34
Statement of Operations................................................... 35
Statement of Changes in Net Assets........................................ 36
Financial Highlights...................................................... 37
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(Photo of American EVERGREEN A Report From Your Portfolio Manager...................................... 39
Flag appears here) U.S. REAL ESTATE Results to Date........................................................... 41
EQUITY FUND Statement of Investments.................................................. 42
Statement of Assets and Liabilities....................................... 43
Statement of Operations................................................... 44
Statement of Changes in Net Assets........................................ 45
Financial Highlights...................................................... 46
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Combined Notes to Financial Statements.................................... 48
Report of Independent Accountants -- Price Waterhouse LLP................. 58
Trustees/Directors and Officers............................ Inside Back Cover
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EVERGREEN FUND CELEBRATES ITS 25TH ANNIVERSARY!
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EVERGREEN DOMESTIC GROWTH FUNDS
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN, (Photo of
STEPHEN A. LIEBER Stephen A. Lieber
The continued expansion of the United States appears here)
economy and the persistence of inflation at 3% or
less, has evidently sent mixed signals to the
investment markets. The equity market this year has
gone from new high to new high. The willingness of
American savers to put money into the hands of equity mutual funds to buy stocks
in the United States and abroad is unprecedented. Even foreign investors, who
have long been skeptical of the rising prices of U.S. equities and the recent
relatively higher valuations than in many other industrial countries, have begun
to move heavily into U.S. equities. Only the bond market has suffered negative
trends this year. But, it showed no further losses when measured from the end of
the second quarter to the end of the third quarter and has since recovered to
the levels of last March.
Evidence of slowed final demand in many sectors of the economy has begun to
reduce the fears of many investors over inflationary pressures. While confidence
increases that both producer and consumer price indices will remain in a narrow
range, around 3%, apprehensions of possibly renewed inflation are now focused on
the trend of hourly wages which have moved up slightly in the last two months.
The apparent consensus among business economists currently is to expect a 2%
growth rate for the U.S. economy in the second half of 1996, with a similar
level to continue into 1997. These views are, in part, based on historical
trends, in which the late-stage expansion cycle characteristics of the U.S.
economy typically show economic deceleration. Such a deceleration is not widely
feared, in view of the fact that real income growth is likely to be sustained by
a 2% to 2 1/2% employment growth, plus a 3% to 3 1/2% earnings growth, before a
3% inflation. The appearance of such decelerating trends and their continuation
would likely bring bond yields down, as the inflation premium would be removed
from bond market expectations. Many who dissent from the consensus view that the
economy will slow, argue that the European economies and Japan's are likely to
revive in 1997, which will create more export demand for U.S. products and,
therefore, increase our growth rate. More pessimistic observers of the American
economy believe that the American consumer has overspent, as evidenced by the
rising rate of credit card delinquencies, and by the "wealth effect" of a stock
market achieving record highs.
The stock market has achieved its historic highs, based not only on a rising
valuation, but also on significantly increased corporate profitability. Any
slowing of the economy will reduce the stimulus to stock buying from the
momentum of earnings growth. It remains questionable though, whether the
incentive to invest in equities would be correspondingly reduced. It may simply
produce a more selective environment, crowding investment interest into a
smaller spectrum of the market. We believe this a likely outcome, so long as the
basic inclination of American investors is increasingly to put their long-term
savings funds into common stocks or common stock mutual funds. We see four areas
of sustained demand for common stocks in the balance of 1996: companies with
internal growth based on innovative products and services, companies which are
using their excess retained earnings to buy back their own stock, companies
which are restructuring their operations to achieve better returns and, finally,
companies whose undervaluation makes them attractive acquisition candidates for
larger enterprises. For the bond market, we expect that fairly stable, rather
than rising, inflation, and a somewhat declining overall business rate of
growth, together with a narrow range currency market, should enable a gradual
decline in interest rates. This would have the effect of supporting the stock
market alternative to fixed income investments.
These economic and market volatilities suggest the need for a longer term
perspective. Taking advantage of declines in prices of quality stocks,
purchasing bonds in periods of exaggerated apprehensions over inflation,
together with systematic investing, should prove the most effective way to
capitalize on the volatilities of a period where many investors are dominated by
their uncertainties. Record corporate profits and strong growth trends by
leaders in new products or services encourage a positive investment response.
The confidence of managements in their ability to generate substantial and even
excess cash flows is shown by the still rising trend of corporate stock
buy-backs. The rising business cycle of the last five years has greatly
strengthened the balance sheets of most American companies. Any decline in
interest rates, such as experienced in recent weeks, should tend to focus even
more attention on comparative returns of strongly positioned, well financed, and
highly profitable companies.
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EVERGREEN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER
STEPHEN A. LIEBER
On September 30, 1996, Evergreen Fund completed its (Photo of
twenty-fifth year with a 4,248.4%* cumulative total return Stephen A. Lieber
(Class Y, no-load shares) since its inception on October 15, appears here)
1971. This equates to an average annual compound return of
16.3%. The Fund's performance for that time compares with the
Standard & Poor's 500 Reinvested Index** which provided a
1,829.0% total return, and the NASDAQ Composite Index** which
provided a 1,019.5% total return. Strategies on which the Fund
was built a quarter century ago have continued to provide
significant opportunities for capital appreciation. In the
1996 fiscal year, the Fund provided an 18.4% return, including
reinvested dividends, over 200 basis points above the Fund's
twenty-five year average.
This is a particularly special annual report to shareholders of the Evergreen
Fund in this, the silver anniversary year. We are proud of our quarter-century
record of performance, with sustained strength of our investment strategies. We
initiated this Fund with a commitment to increasing its shareholder net asset
values, and we remain focused on that goal. The original aim of this Fund was to
benefit its shareholders by participating in the greatest entrepreneurial
opportunities we could find among American companies, basing our selection on
appraisals of corporate managements' long-term capabilities and underlying
financial values. The Fund's portfolio has, over the years, held the shares of
many of the most extraordinary and innovative companies in the American economy.
Some have grown to become great companies, many others were acquired or merged
into larger enterprises which recognized their unique business franchise and
potentials, and others initiated new industries. This concentration on
entrepreneurial managements has sustained the vitality in our portfolio
selections, demanding that we focus on what the business analyst Peter Drucker
has referred to as vital criteria of business success; the capability to
"improve, extend, and innovate simultaneously".
Through the ups and downs of the business cycle, through the inflation and
consequent interest rate crisis of the late 1970's, and through sustained
periods of expansion such as that of the 1990's, the selection of investments
based on these criteria has provided strong results. The achievements of some of
the best managements have permitted Fund holdings to develop over the years from
being interesting small companies, to becoming impressive industry leaders of
size. The core of the Evergreen Fund portfolio remains companies whose
impressive results have continued year after year, and allowed your management
to prudently hold their shares up to a decade or more.
The growth of the Fund has permitted the consistent renewal of its vitality
with the addition of new holdings which meet our criteria for growth potential
and underlying investment quality. With our broadening research program, the
addition of new technology in data collection and analysis, and the increasing
depth and breadth of knowledge of our research staff, we will endeavor to
sustain the achievements of the first quarter century. Initial and early
Evergreen shareholders have often reminded us that this Fund has provided the
cornerstone of their financial security and success. We look forward to
providing similar financial security and success in the next quarter century.
Our thanks are great for the confidence and loyalty of our long-term
shareholders.
2
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EVERGREEN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
The challenge of managing the Fund has seldom seen a more remarkably
interesting time than in fiscal 1996. This was a period of unprecedented flows
of savings into equity mutual funds, and unprecedented mutual fund dominance of
equity investment markets. Thus, it has been a transition of significant scale
and promise, presenting both enormous challenges and enormous opportunities in
an environment of massive changes of world economic patterns, driven by shifts
in the growth rates, capital accumulations among countries, and by technological
transfer and innovation. The test for any investment management effort lies in
how well it interprets those changes, how effectively it builds its capabilities
to handle them and how well it both seizes opportunities and limits risks. We
have endeavored to build these capabilities in the Evergreen Asset Management
organization over the twenty-five year life of Evergreen Fund and to sustain
them with new vigor in 1996, and the years ahead. The Evergreen Fund has been
characterized by several key broad strategic concentrations over the years. In
reviewing fiscal 1996, we will describe the portfolio results within these
strategies.
PERFORMANCE AS OF SEPTEMBER 30, 1996. (For additional performance information,
please see page 7)
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One-Year Five-Year Ten-Year Since Inception
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Class Y (No-Load) Shares 18.4% 14.2% 11.6% 16.3%
S&P 500** 20.3% 15.2% 15.0% 12.3%
NASDAQ OTC Composite** 17.6% 18.4% 13.3% 10.2%
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Start of Class
One-Year (1/3/95)
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Class A Shares 12.5% 24.2%
S&P 500** 20.3% 29.1%
NASDAQ OTC Composite** 17.6% 33.2%
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ENTREPRENEURIAL COMPANIES
The major theme of Evergreen Fund investment since its inception, and today,
is the search for capital appreciation opportunity through investment in
entrepreneurial companies. Demonstrated power of such investment opportunities
is well seen in the Fund's top ten performers for the fiscal year. They are as
follows: Aspect Telecommunications Corp., +176.4%; Clear Channel Communications,
Inc., +132.8%; EZ Communications, Inc., Cl A, +128.3%; Jacor Communications,
Inc., +126.5%; Redman Industries, Inc., +116.6%; Jones Apparel Group, Inc.,
+113.7%; HBO & Co., +113.5%; Hawthorne Financial Corp., +96.7%; Andrew Corp.,
+94.0%; and Nautica Enterprises, Inc., +89.9%. Of these, the most dramatic
contribution to capital appreciation for the Fund was made by Clear Channel
Communications, Inc., purchased in 1986. The original investment of $846,833 is
worth $37.9 million at September 30, 1996. This entrepreneurially managed
developer and acquirer of television and radio stations has combined operating
and financial skills in its complex industry with consistent and impressive
results. The more recent purchases in this group, such as Aspect
Telecommunications Corp. and Andrew Corp., represent different facets of the
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND 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. CLASS
A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO
OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED
SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED
SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF
SHARES MAY BE DIFFERENT.
**THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY,
TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET
PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. THE NASDAQ IS AN UNMANAGED
INDEX OF SELECTED SECURITIES AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
3
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EVERGREEN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
burgeoning communications industry. Aspect Telecommunications Corp. has been a
major developer of systems for automating inbound and outbound telephone service
and its innovations have generated superior growth. Andrew Corp. is the leading
manufacturer of antennas for an increasingly wireless oriented world.
Originally, predominately a producer of microwave antennas and systems, it now
encompasses cellular and satellite technology, and has established a position in
the new PCS (personal cellular service) wireless telephone technology. Our
position in HBO & Co., was established in 1992, at a cost which is less than
one-twentieth of its value at the Fund's 1996 fiscal year-end. It, too, has
created its own opportunities, as a major provider of data systems for the
managed medical care and hospital management industries. Innovative styling and
marketing have been at the heart of the remarkable success of both Jones Apparel
Group, Inc. and Nautica Enterprises, Inc. Shares in Nautica Enterprises, Inc.
have been held since mid-1993, and have provided a return of 368.1% for the
Fund, during which its brand name has become nationally recognized as its sales
momentum and achievements increased.
The Evergreen portfolio today literally includes dozens of entrepreneurial
management companies whose capabilities, we believe, are in the class of these
outstandingly successful businesses. Some may not live up to their promise, and
these are frequently sold after a period of evaluation when we believe the
companies have failed in reaching our goals. Others are patiently held through
weakness when we believe they represent a unique business franchise and a
fundamentally effective management plan.
MERGERS AND ACQUISITIONS
Evergreen Fund has sought to benefit from the merger and acquisition
potential in entrepreneurial businesses we believe to be undervalued. We have
long recognized that a certain portion of independent businesses provide
accelerated or incremental growth opportunities for their managements and
employees when added to larger corporations. Often they represent a franchise
which can be enhanced by either the financial strength or the breadth of
businesses of a larger company. In many cases, founding managements seek the
financial liquidity of participation in a larger business. We have viewed the
substantial gains made by the Fund in this segment as a demonstration of our
success in selecting undervalued companies for investment. Since inception of
the Fund, 297 companies held in the portfolio have been acquired or received
acquisition offers. In fiscal 1996, 20 companies in the portfolio were acquired
or received acquisition offers with 14 of these being completed. The average
return-to-date on those completed transactions was 93.6%.
The five largest positions in this group of fiscal 1996 acquisitions are:
Baybanks, Inc., first purchased in 1990, date of acquisition July, 1996,
appreciation 403.5%; First Financial Management Corp., first purchased in 1989,
date of acquisition October, 1995, appreciation 294.0%; Redman Industries, Inc.,
purchased in 1994, acquisition pending, appreciation 166.4% through September
30+; Medicine Shoppe International, Inc., purchased in 1988, date of acquisition
November, 1995, appreciation 102.5%; and Intercontinental Bank, purchased in
1993, date of acquisition December, 1995, appreciation 87.6%.
TECHNOLOGICAL LEADERSHIP
The Evergreen portfolio strategy from the outset sought to benefit from
technological leadership, especially recognizing the high level of inventive
skills and innovative drive which characterizes the American economy. Our view
of technology centered on the effort to find developers of products which could
achieve a leadership position and literally build the growth of their own
industries, while avoiding the frequent risk of early stage success and
profitability deteriorating into later stage commodity-type of businesses. For
this reason, much of our emphasis has been in health care products and services,
where a combination of rising worldwide incomes, changing demographics, and
technological innovation ranging from molecular biology to electronic implants,
provide almost unlimited opportunities. Many of the Fund's largest single
investments have been in major health care companies, primarily pharmaceutical,
with a broad diversity in innovative producers of health care products and
services. The largest such holdings in the Fund,
+SHOULD THESE ACQUISITIONS NOT BE COMPLETED, THE FUND COULD SUFFER LOSSES ON THE
POSITIONS.
4
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EVERGREEN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Johnson & Johnson and Merck & Co., Inc., produced appreciation during the fiscal
year of 37.8% and 25.6%, respectively. The single largest gainer in the group
was a health management company, FHP International Corp., which provided an
86.7% return with the benefits of an acquisition offer+. Among smaller,
innovative specialty suppliers of health care products, Boston Scientific Corp.
provided a 36.0% return, and Stryker Corp. provided a 29.2% return.
Stryker Corp., we would note, is one of the longest held positions in the Fund,
having been bought in 1981, at a price which is less than 10% of its value at
the Fund's 1996 fiscal year-end.
Electronics products and systems is the central focus of most technology
investment. The variety of the Fund's commitments is broad, but all are intended
to focus on the opportunity for exceptional growth with sustained profitability.
During the fiscal year, the major gainers in this group were HBO & Co., +113.5%,
Andrew Corp., +94.0%, Dialogic Corp., +81.7%, Cisco Systems, Inc., +77.2%,
Parametric Technology Corp., +60.4%, and Intel Corp., +58.8%. The volatility in
this group was exceptional, and several of our holdings experienced periods of
adversity, especially when customer orders or supplier output impacted their
growth plans. Among such companies whose growth was interrupted were In Focus
Systems, Inc., with a decline of 38.1%, Autodesk, Inc., with a decline of 40.6%,
Coherent Communications with a decline of 30.8% and Brooks Automation with a
decline of 32.6%. Each of these have shown advances since the end of the fiscal
year. We often find that such reversals are short-term phenomena and provide
opportunities for adding to the Fund's holdings.
CONSOLIDATING AND DEREGULATING INDUSTRIES
Consolidating and deregulating industries whose successful growth has built
strong franchises in very fractionated or highly regulated industries has been
seen by us as offering unique opportunities for capital appreciation through
merger or acquisition. Since 1980, the banking industry has been a particularly
active area of consolidation, reflecting changes in regulation which first
allowed for intrastate mergers, then interstate mergers, then inter-regional
mergers, and now national mergers. Evergreen Fund has long had major positions
in community and regional banks which we believe present unique opportunities
for a combination of current growth and the eventual benefits of consolidation.
Since the inception of the Fund, 48 banks in the portfolio have been acquired
with an average gain of 117.3%. Fiscal 1996 was a year of generally strong
performance for our bank holdings, with an actual as-weighted performance of
26.4%. Outstanding appreciation was obtained from a variety of banks, led by
North Fork Bancorporation, Inc., +51.3%, Westamerica Bancorporation, +28.7%,
First Michigan Bank Corp., +31.8%, First Empire State Corp., +31.2%, and Arrow
Bank Corp., +33.7%. The largest bank holding in the Fund at the end of the
fiscal year, Bank of Boston Corp., reflected both our long-term holding in
Baybanks, Inc. and a newer position in Bank of Boston Corp., which acquired
Baybanks, Inc. in 1996. The Baybanks holding was originally purchased in
mid-1990, and the entire position provided a gain of 403.5% at the time it was
acquired by the Bank of Boston Corp. We chose to hold the entire position. Of
roughly comparable size is our position in First Empire State Corp., which was
purchased in 1985, and whose end of the fiscal year price of $249.00 was
compared with the cost of $28.72. The Fund's bank stock position remains
actively managed, with a number of profits taken in the course of the year in
issues which we believed were fully valued, and a number of additions made in
issues which we saw as undervalued. Very large acquisitions in the industry,
together with an almost steady stream of acquisitions of smaller and community
banks, leads us to believe that the industry remains an attractive area of
opportunity for consolidation.
5
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EVERGREEN FUND
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
VALUE TIMING -- A CONTRARIAN STRATEGY
In the effort to both maximize opportunity and minimize risk, we have always
searched for undervalued growth opportunities. This frequently involves purchase
at times of either apparent adversity for a business, or pessimism on the part
of investors with regard to the business outlook. Fiscal year 1996 offered both
volatility in a number of industries and periods of anxious pessimism in the
investment community, which resulted in what we considered to have been
exceptional buying opportunities. In expectation of such developments, we
maintained a larger than normal cash position in the Fund throughout the fiscal
year. This provided the resources for aggressive buying during periods of
general weakness and at times of specific company undervaluation. Most notable
were the opportunities to buy shares in technology businesses during sell-offs
which occurred in October 1995, January 1996, and again in July 1996. At each of
these times we made sizable and often highly profitable purchases. Other
opportunities were also numerous and varied. For example, purchases of Coca Cola
Femsa S.A. de CV++, a leading Mexican Coca-Cola bottler was bought during a
period of investment anxiety with regard to the Mexican economy. We reasoned
that this company's product franchise would remain strong, and the demand was
more likely to reflect improving demographics rather than temporarily depressed
economics. The purchase produced a 28.7% return in eight months. Similarly, we
sold shares of Grupo Televisa S.A.++, the principal Mexican television company
and program producer, with a gain of 26.2% in just under a year.
Our search for value anomalies and for neglected values was widespread.
Illustratively, we purchased additional shares of manufactured homes builders,
Clayton Homes, Inc., Redman Industries, Inc., and Southern Energy Homes, Inc.,
during periods of rising interest rates, when many investors assumed that
anything having to do with housing would be under pressure. But we believed that
manufactured housing was not primarily subject to the standard mortgage cycle
and had extremely favorable economic and demographic support. These proved to be
profitable purchases. In the case of managed health care, a period where several
of the major companies in the field were showing adverse earnings figures, we
were able to purchase one of the most highly profitable, on a somewhat depressed
basis, Oxford Health Plans, Inc., with a consequent 34.1% increase from July,
1996, to the end of September. While overall, electronics related companies were
those most subject to occasional severe sell-offs, there were many others which
provided outstanding opportunities. This form of investing has been a
characteristic strategy since the inception of the Fund, and is widely employed
among the Evergreen Family of Funds.
LOOKING AHEAD
The basic Evergreen strategies have provided leadership results over the
twenty-five year history of the Fund. We look forward to new insights and
understanding, and the development of additional or better approaches to help
achieve our desired results of consistent capital appreciation well above the
levels typical of the stock market. We remain convinced that the focus on the
entrepreneurial business is central to the opportunities in the American economy
and deserves our constant attention. We believe that we can sustain competitive
near-term results, and can achieve superior long-term ones, with a continued
focus on enterprise values and patient investment strategies. To enhance
results, we are intensifying our research effort by both adding appropriate new
talent to our team, and enhancing our database, while ensuring we remain current
on increasingly complex technologies and businesses.
SHAREHOLDER GOALS
Your Fund's management has deep gratitude for the support and enthusiasm of
the many shareholders who started with the Fund, the many more who joined us,
and particularly, in recent years, the large number who have chosen to utilize
Evergreen Fund as an important component of their investment programs. We
recognize your expectations, we have tried to live up to them in the past, and
we will endeavor to more than fulfill them in the future.
++ INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS.
6
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EVERGREEN FUND
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RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN FUND
The graphs below compare a $10,000 investment in the Evergreen Fund (Class
A, Class B, Class C and Class Y Shares) with a similar investment in the Russell
2000 and NASDAQ OTC Indexes ("Indexes").
CLASS A 1 YEAR TOTAL RETURN = 12.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 24.2%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
CLASS B 1 YEAR TOTAL RETURN = 12.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 25.0%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
CLASS C 1 YEAR TOTAL RETURN = 16.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 27.0%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
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CLASS Y 1 YEAR TOTAL RETURN = 18.4%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR = 14.2% 10-YEAR = 11.6%
(graph appears here)
<S> <C>
9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
Evergreen Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on September 30, 1996; (c) all
recurring fees (including investment advisory fees), net of fee waivers and
reimbursements, were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
7
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EVERGREEN FUND
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STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1996
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SHARES VALUE
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COMMON STOCKS -- 80.8%
BANKS -- 14.9%
50,300 Amcore Financial, Inc............ $ 1,031,150
100,000* American Bancshares, Inc......... 850,000
100,000 American Federal Bank, FSB....... 1,762,500
28,300 AmSouth Bancorp.................. 1,259,350
105,243 Arrow Financial Corp............. 2,407,434
542,240 Bank of Boston Corp.............. 31,382,140
9,000 Bank of Commerce/San Diego....... 168,750
25,000* Bank Yorba Linda California...... 262,500
546,640 Barnett Banks, Inc............... 18,449,100
161,625 BSB Bancorp, Inc................. 4,101,234
18,000 Cape Cod Bank & Trust Co......... 373,500
45,000 Central Fidelity Banks, Inc...... 1,091,250
230,015 Chittenden Corp.................. 5,807,879
50,000 Cole Taylor Financial
Group, Inc....................... 1,500,000
77,000 Comerica, Inc.................... 3,965,500
12,800 Compass Bancshares, Inc.......... 440,000
83,900 Cornerstone Bank**............... 1,106,431
70,000 Corus Bankshares, Inc............ 2,240,000
28,700 Crestar Financial Corp........... 1,693,300
14,800 Cullen/Frost Bankers, Inc........ 445,850
127,000 First Empire State Corp.......... 31,623,000
277,517 First Michigan Bank Corp......... 6,868,546
100,000 First Palm Beach Bancorp., Inc... 2,325,000
316,818 1st Source Corp.................. 7,128,405
62,500 First State Bancorp.............. 875,000
50,000 1st United Bancorp............... 537,500
150,350 Fort Wayne National Corp......... 4,848,787
36,602 Glacier Bancorp. Inc............. 878,448
889,540 Hibernia Corp. Cl. A............. 10,118,517
22,000 Hudson Chartered Bancorp, Inc.... 484,000
7,000 Letchworth Independent Bancshares
Corp............................. 208,250
10,000* Letchworth Independent
Bancshares Corp. warrants-
$23, expiring 12/31/97........... 77,500
94,000 Liberty Bancorp. Inc............. 3,572,000
67,779 Magna Group, Inc................. 1,897,812
11,000 Merchants Bancorp, Inc........... 341,000
55,000 North Fork Bancorp, Inc.......... 1,732,500
100,203 Old Kent Financial Corp.......... 4,246,102
111,000 ONBANCorp, Inc................... 3,843,375
21,500 One Valley Bancorp of West
Virginia, Inc.................... 849,250
55,000 Sandwich Co-operative Bank....... 1,196,250
100,000* SC Bancorp....................... 700,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
BANKS -- CONTINUED
<TABLE>
<C> <S> <C>
19,700 Seacoast Banking Corp. of
Florida Cl. A.................... $ 462,950
94,800 State Financial Services Corp.... 1,753,800
455,200* Surety Capital Corp.**........... 2,048,400
76,900 United Carolina
Bancshares Corp.................. 1,787,925
88,550* United Security Bancorp.......... 1,295,044
39,285 Univest Corp. of Pennsylvania.... 1,242,585
10,000 USBancorp, Inc................... 385,000
17,640 Valley National Bancorp.......... 447,615
36,000 West Coast Bancorp, Inc. (Fla.).. 603,000
32,340 West Coast Bancorp, Inc. (Ore.).. 634,673
39,000 Westamerica Bancorp.............. 1,969,500
177,319,602
BUILDING, CONSTRUCTION &
FURNISHINGS -- 3.8%
30,000* Castle & Cooke, Inc.............. 495,000
10,000 Cavalier Homes, Inc.............. 185,000
229,300 Clayton Homes, Inc............... 5,044,600
99,700 Continental Homes
Holding Corp..................... 1,782,138
93,960* D.R. Horton, Inc................. 916,110
80,000* Furniture Brands
International, Inc............... 1,170,000
160,900 Interface Systems, Inc........... 2,775,525
95,800 Juno Lighting, Inc............... 1,592,675
63,000 Kaufman & Broad Home Corp........ 819,000
100,000 La-Z-Boy Chair Co................ 3,012,500
70,000 Lennar Corp...................... 1,557,500
76,200* M/I Schottenstein Homes, Inc..... 666,750
70,000 Miller (Herman), Inc............. 2,835,000
210,000* Pacific Greystone Corp........... 2,178,750
60,000 Pulte Corp....................... 1,537,500
252,500* Redman Industries, Inc........... 7,070,000
60,000 Ryland Group, Inc................ 892,500
80,000* Southern Energy Homes, Inc....... 1,280,000
158,200 Standard Pacific Corp............ 909,650
90,000* Sundance Homes, Inc.............. 360,000
377,300* Toll Brothers, Inc............... 6,272,612
101,500* US Home Corp..................... 2,080,750
45,433,560
BUSINESS EQUIPMENT &
SERVICES -- 1.9%
78,750* Boole & Babbage, Inc............. 1,968,750
110,000* Cisco Systems, Inc............... 6,826,875
47,000* Data Translation, Inc............ 528,750
</TABLE>
8
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
BUSINESS EQUIPMENT &
SERVICES -- CONTINUED
<C> <S> <C>
104,800* Gradco Systems, Inc.............. $ 432,300
140,000* Hvide Marine Inc................. 1,820,000
70,000* In Focus Systems, Inc............ 1,006,250
25,000* Input/Output, Inc................ 743,750
20,000* Intuit, Inc...................... 630,000
10,000* Landmark Graphics Corp........... 293,750
59,700* Lumisys Inc...................... 597,933
20,000* MetaTools Inc.................... 420,000
57,000* Metromail Corp................... 1,232,625
110,000 Sensormatic Electronics Corp..... 1,966,250
15,000* Verifone Inc..................... 671,250
140,800* Zebra Technologies Corp.......... 3,608,000
22,746,483
CHEMICAL & AGRICULTURAL
PRODUCTS -- 2.1%
182,000 H.B. Fuller Co................... 6,984,250
30,000 Nalco Chemical Co................ 1,087,500
11,000 OM Group, Inc.................... 418,000
349,568 Schulman (A.), Inc............... 8,127,456
140,000 Sigma-Aldrich Corp............... 7,980,000
24,597,206
COMMUNICATION SYSTEMS &
SERVICES -- 2.4%
137,500* Andrew Corp...................... 6,857,812
79,000* Aspect Telecommunications
Corp............................. 4,917,750
85,000* Boston Technology, Inc........... 1,211,250
50,000* Coherent Communications System
Corp............................. 950,000
108,000* Coherent, Inc.................... 3,807,000
23,000* Colonial Data Technologies
Corp............................. 261,625
50,000* DSP Group, Inc................... 412,500
40,000* Inter-Tel, Inc................... 810,000
70,000* InterCel Inc..................... 1,470,000
35,000* Level One Communications, Inc.... 1,198,750
90,200* Loral Space & Communications..... 1,420,650
51,000* U.S. Robotics Corp............... 3,295,875
115,000* Vertex Communications Corp....... 1,926,250
28,539,462
CONSUMER PRODUCTS & SERVICES --
5.2%
140,000 Aaron Rents, Inc. Cl. B.......... 1,820,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
CONSUMER PRODUCTS & SERVICES -- CONTINUED
<TABLE>
<C> <S> <C>
130,000* American Business
Information, Inc................. $ 2,340,000
46,200* Broderbund Software, Inc......... 1,339,800
165,300 Crown Crafts, Inc................ 1,570,350
226,530* CUC International, Inc........... 9,032,884
40,000 Fila Holdings SpA ADS............ 3,845,000
75,300* Franklin Electronic
Publishers, Inc.................. 960,075
89,000 Gucci Group...................... 6,452,500
267,250 Harman International
Inds., Inc....................... 13,028,437
196,030 K2, Inc.......................... 5,121,284
212,777 Lancaster Colony Corp............ 8,138,720
75,000* LoJack Corp...................... 815,625
80,000* Nautica Enterprises, Inc......... 2,580,000
250,000* Prime Hospitality Corp........... 4,125,000
60,000* Recovery Engineering, Inc........ 742,500
61,912,175
ELECTRICAL EQUIPMENT & SERVICES--
1.1%
200,000* Atmel Corp....................... 6,175,000
276,000 Baldor Electric Co............... 5,382,000
50,700* FEI Co........................... 614,738
30,000 Franklin Electric Co., Inc....... 1,012,500
13,184,238
FINANCE & INSURANCE -- 8.3%
172,200 Allmerica Property & Casualty
Cos., Inc........................ 4,993,800
184,400 AMBAC, Inc....................... 10,280,300
50,000* Automobile Protection Corp....... 235,156
28,000 CapMAC Holdings, Inc............. 931,000
111,900 Countrywide Credit
Industries, Inc.................. 2,867,438
17,100 Enhance Financial Services Group
Inc.............................. 564,300
20,500 Equitable of Iowa Cos............ 850,750
121,500 Executive Risk, Inc.............. 4,677,750
126,900 Federal Home Loan
Mortgage Corp.................... 12,420,337
678,000 Federal National
Mortgage Association............. 23,645,250
60,000 First American Financial Corp.... 2,107,500
50,000* First Enterprise Financial
Group............................ 500,000
85,000* FPIC Insurance Group, Inc........ 1,126,250
93,100 John Nuveen Co. (The) Cl. A...... 2,513,700
35,900 MBIA, Inc........................ 3,078,425
253,800 MGIC Investment Corp............. 17,099,775
</TABLE>
9
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
FINANCE & INSURANCE -- CONTINUED
<C> <S> <C>
39,400* Oxford Health Plans, Inc......... $ 1,960,150
16,600 PennCorp Financial Group, Inc.... 535,350
23,992 Providian Corp................... 1,031,656
43,000 ReliaStar Financial Corp......... 2,042,500
71,531 Resource Bancshares Mortgage
Group, Inc....................... 929,903
30,000 State Auto Financial Corp........ 442,500
59,500 Trenwick Group Inc............... 3,079,125
14,100 Vesta Insurance Group Inc........ 541,088
98,454,003
FOOD RETAILING &
DISTRIBUTION -- .3%
16,500 Coca-Cola Bottling Co. Cl. B
Consolidated+.................... 627,000
134,000 Seaway Food Town, Inc.**......... 2,546,000
3,173,000
HEALTHCARE PRODUCTS &
SERVICES -- 12.7%
65,000 Arbor Drugs, Inc................. 1,413,750
51,500 Arrow International, Inc......... 1,776,750
40,000* Arterial Vascular
Engineering, Inc................. 1,070,000
50,000 Beckman Instruments, Inc......... 1,943,750
100,000* Beverly Enterprises, Inc......... 1,087,500
18,750* Bio-Rad Laboratories, Inc. Cl.
A................................ 539,063
190,000 Biomet, Inc...................... 3,111,250
78,298* Boston Scientific Corp........... 4,502,135
15,000* Circon Corp...................... 262,500
130,200 Columbia / HCA
Healthcare Corp.................. 7,405,125
78,000* Exactech, Inc.................... 555,750
40,000* Express Scripts, Inc............. 1,450,000
45,828* FHP International Corp........... 1,712,822
28,974* Foundation Health Corp........... 981,494
110,000 HBO & Co......................... 7,342,500
47,050* Health Management
Associates, Inc.................. 1,170,369
15,000* Health Management
Systems, Inc..................... 438,750
30,000* Health Systems International,
Inc.............................. 851,250
11,800* Healthsouth Corp................. 452,825
25,000* Heartstream Inc.................. 356,250
240,000* Idexx Laboratories, Inc.......... 10,860,000
30,000 Invacare Corp.................... 840,000
390,000 Johnson & Johnson................ 19,987,500
69,100* Laser Industries, Ltd............ 950,125
<CAPTION>
SHARES VALUE
<C> <S> <C>
HEALTHCARE PRODUCTS &
SERVICES -- CONTINUED
13,400* Lincare Holdings, Inc............ $ 536,000
145,600* Living Centers of America, Inc... 3,640,000
30,000* Maxxim Medical, Inc.............. 427,500
117,900 McKesson Corp.................... 5,585,512
34,400* Medic Computer Systems, Inc...... 1,251,300
144,361 Medpartners/Mullikin, Inc........ 3,284,213
500,000 Merck & Co., Inc................. 35,187,500
35,000 Meridian Diagnostics, Inc........ 468,125
17,000* OrNda Healthcorp................. 465,375
125,000* Regency Health Services, Inc..... 1,390,625
50,000* Regeneron Pharmaceuticals, Inc... 1,006,250
20,000* Research Med Inc................. 347,500
45,000* Salick Health Care, Inc.......... 1,743,750
127,500* St. Jude Medical, Inc............ 5,147,812
468,000* Stryker Corp..................... 14,098,500
128,000* Sun Healthcare Group, Inc........ 1,664,000
35,600 Superior Surgical Manufacturing
Co., Inc......................... 422,750
75,750* Tecnol Medical Products, Inc..... 1,088,906
50,000* Tenet Healthcare Corp............ 1,112,500
45,600 West Co., Inc. (The)............. 1,179,900
151,109,476
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 8.2%
70,000* ADFlex Solutions, Inc............ 735,000
90,500 AptarGroup, Inc.................. 2,907,313
30,000 BHA Group Inc.................... 435,000
55,000* Brooks Automation, Inc........... 694,375
40,500* Chemfab Corp..................... 546,750
75,000 Commonwealth Aluminum Corp....... 1,265,625
145,000* Dionex Corp...................... 5,510,000
44,600 Dover Corp....................... 2,129,650
146,000 Fisher Scientific International,
Inc.............................. 6,022,500
129,800 FlightSafety International,
Inc.............................. 5,792,325
44,200 Furon Co......................... 1,105,000
54,200 Garan, Inc....................... 907,850
43,200* Global Industrial
Technologies, Inc................ 793,800
70,000* Global Industries, Inc........... 1,111,250
70,000 Kaydon Corp...................... 3,010,000
78,800 Keystone Intl Inc................ 1,546,450
22,000 Kysor Industrial Corp............ 591,250
92,900* Lear Corp........................ 3,065,700
170,800 Leggett & Platt, Inc............. 5,017,250
</TABLE>
10
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- CONTINUED
<C> <S> <C>
61,900 Medusa Corp...................... $ 1,903,425
18,000* Moog, Inc........................ 405,000
43,400 Nacco Industries, Inc. Cl. A..... 2,072,350
66,000* Osmonics, Inc.................... 1,303,500
107,600* Park Electrochemical Corp........ 2,192,350
193,358* Paxar Corp....................... 3,166,237
19,500 Roanoke Electric Steel Corp...... 253,500
117,200 Robbins & Myers, Inc............. 2,651,650
40,000* Simula, Inc...................... 655,000
223,500 Snap-on, Inc..................... 7,179,937
185,000 Spartech Corp.................... 1,780,625
20,000* Special Devices, Inc............. 295,000
147,200 Tecumseh Products Co. Cl. A...... 7,985,600
57,800 Tecumseh Products Co. Cl. B...... 2,933,350
115,000 Teleflex, Inc.................... 5,706,875
25,000 Trinova Corp..................... 787,500
202,400* UCAR International, Inc.......... 8,197,200
50,000 Wescast Inds. Inc................ 950,000
19,400 Woodward Governor Co............. 1,804,200
108,800 Zero Corp........................ 2,067,200
97,477,587
INFORMATION SERVICES &
TECHNOLOGY -- 7.0%
89,850* Analytical Surveys, Inc.......... 988,350
120,000 Autodesk, Inc.................... 3,105,000
19,000* Black Box Corp................... 627,000
30,000 Computer Associates
International, Inc............... 1,792,500
110,000* Dialogic Corp.................... 3,905,000
148,565 First Data Corp.................. 12,126,618
95,000* Gateway 2000 Inc................. 4,548,125
240,000 Hewlett-Packard Co............... 11,700,000
205,000 Intel Corp....................... 19,564,687
10,000* Intel Corp. warrants-
$41.75, expiring 3/14/98......... 567,500
40,000* Intersolv, Inc................... 370,000
77,437 Molex, Inc....................... 2,884,528
50,000* Mylex Corp....................... 787,500
70,000* NetManage, Inc................... 614,688
30,000* Optical Data Systems, Inc........ 510,000
90,000* Parametric Technology Corp....... 4,443,750
203,000* Sun Microsystems, Inc............ 12,611,375
113,000* Trimble Navigation Ltd........... 1,878,625
83,025,246
OIL -- .2%
100,000* COHO Energy Inc.................. 712,500
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
OIL -- CONTINUED
<TABLE>
<C> <S> <C>
27,730 Tosco Corp....................... $ 1,521,684
2,234,184
PAPER & PACKAGING -- .7%
90,000 Avery Dennison Corp.............. 4,995,000
166,662 Wausau Paper Mills Co............ 3,208,244
8,203,244
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 5.0%
130,000 Belo A H Corp.................... 4,485,000
130,000 Cadmus Communications Corp....... 2,177,500
428,500* Clear Channel
Communications, Inc.............. 37,922,250
22,500* Evergreen Media Corp............. 703,125
50,000* EZ Communications, Inc. Cl. A.... 2,200,000
190,800* Jacor Communications, Inc........ 6,582,600
190,000 Wiley (John) & Sons, Inc., Cl.
A................................ 5,486,250
59,556,725
REAL ESTATE -- 1.5%
138,760* Alexander's, Inc................. 9,609,130
46,200 Apartment Investment &
Management Co.................... 970,200
54,000 Chelsea GCA Realty, Inc.......... 1,653,750
29,300 Del Webb Corp.................... 509,087
47,400* FRP Properties, Inc.............. 971,700
50,000 Horizon Group, Inc............... 1,031,250
120,000* Host Marriott Corp............... 1,740,000
40,000 Irvine Apartment
Communities, Inc................. 885,000
30,500 Wellsford Residential
Property Trust................... 671,000
18,041,117
RETAILING & WHOLESALE -- 3.1%
110,000 Avnet, Inc....................... 5,335,000
35,600 Blair Corp....................... 765,400
35,000* Burlington Coat Factory
Warehouse........................ 385,000
40,000* Cole National Corp............... 925,000
224,200 Dillard Department
Stores, Inc. Cl. A............... 7,230,450
268,800 Fingerhut Cos., Inc.............. 3,561,600
17,000* Harold's Stores, Inc............. 242,250
70,200 Heilig-Meyers Co................. 1,096,875
59,800* Jones Apparel Group, Inc......... 3,812,250
179,236* Leslie's Poolmart................ 2,106,023
106,000 Lowe's Cos., Inc................. 4,332,750
</TABLE>
11
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
RETAILING & WHOLESALE -- CONTINUED
<C> <S> <C>
114,100 Mercantile Stores Co., Inc....... $ 6,161,400
10,000 Talbots Inc...................... 300,000
36,253,998
THRIFT INSTITUTIONS -- .7%
50,000 Collective Bancorp, Inc.......... 1,425,000
275,000 Dime Financial Corp.**........... 4,743,750
73,500* Hawthorne Financial Corp......... 532,875
50,000 Imperial Thrift & Loan
Associates....................... 681,250
20,000 People's Savings Financial
Corp............................. 570,000
7,952,875
TRANSPORTATION -- 1.7%
125,000 Atlantic Southeast Airlines,
Inc.............................. 2,750,000
108,000 Delta Air Lines, Inc............. 7,776,000
144,977* Heartland Express, Inc........... 4,095,600
13,000 Pittston Brink's Group........... 407,875
75,000 Skywest, Inc..................... 1,068,750
65,000 Southwest Airlines Co............ 1,486,875
120,000 Us Freightways Corp.............. 2,460,000
20,045,100
TOTAL COMMON STOCKS
(COST $545,267,792)......... 959,259,281
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
$
SHORT-TERM INVESTMENTS -- 19.4%
COMMERCIAL PAPER -- 15.5%
American Home Food
Products, Inc.
10,000,000 5.33%, 10/1/96................. 10,000,000
3,000,000 5.33%, 10/28/96................ 2,988,008
19,400,000 Associates First Capital
Corporation
5.32%, 11/1/96................. 19,311,126
4,300,000 B.I. Funding, Inc.
5.38%, 11/1/96................. 4,280,079
BMW U.S. Capital Corp.
24,600,000 5.35%, 10/30/96................ 24,493,981
1,000,000 5.38%, 10/3/96................. 999,701
1,400,000 5.40%, 10/23/96................ 1,395,380
18,500,000 Cemex S.A. Series B
5.37%, 10/18/96................ 18,453,087
5,700,000 Chubb Capital Corporation
5.35%, 10/11/96................ 5,691,529
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
</TABLE>
SHORT-TERM INVESTMENTS -- CONTINUED
COMMERCIAL PAPER -- CONTINUED
<TABLE>
<C> <S> <C>
$15,800,000 Golden Managers
Acceptance Corp.
5.29%, 10/2/96................. $ 15,797,678
900,000 H.J. Heinz Co.
5.36%, 10/24/96................ 896,918
16,700,000 Korea Development Bank
5.38%, 10/15/96................ 16,665,060
14,900,000 Nynex Corp.
5.37%, 10/18/96................ 14,862,216
26,700,000 Raytheon Co
5.34%, 10/7/96................. 26,676,237
3,000,000 Sony Capital Corp.
5.34%, 10/8/96................. 2,996,885
6,800,000 Warner Lambert Company
5.27%, 10/9/96................. 6,792,036
4,700,000 Whirlpool Financial Corp.
5.40%, 10/15/96................ 4,690,130
6,600,000 Xerox Credit Corp
5.30%, 11/8/96................. 6,563,077
183,553,128
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.9%
47,000,000 Federal National Mortgage
Association
5.26%, 10/11/96................ 46,931,328
TOTAL SHORT-TERM INVESTMENTS
(COST $230,484,457).......... 230,484,456
TOTAL INVESTMENTS --
(COST $775,752,249)... 100.2% 1,189,743,737
OTHER ASSETS AND
LIABILITIES -- NET.... (.2) (2,037,419)
NET ASSETS.............. 100.0% $1,187,706,318
</TABLE>
* Non-income producing securities.
** Investment in non-controlled affiliate-holding over 5% of outstanding voting
securities. During the year ended September 30, 1996, the Fund recognized
$123,035 in dividend income from these securities.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Fund's Board of Trustees.
ADS -- American Depositary Shares
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $775,752,249)......................................................... $1,189,743,737
Cash........................................................................................................ 160,069
Receivable for investment securities sold................................................................... 5,238,608
Receivable for Fund shares sold............................................................................. 4,163,335
Dividends receivable........................................................................................ 854,452
Prepaid expenses............................................................................................ 44,302
Total assets.......................................................................................... 1,200,204,503
LIABILITIES:
Payable for investment securities purchased................................................................. 10,101,191
Payable for Fund shares repurchased......................................................................... 808,183
Accrued advisory fee........................................................................................ 971,169
Distribution fee payable.................................................................................... 347,348
Accrued expenses............................................................................................ 270,294
Total liabilities..................................................................................... 12,498,185
NET ASSETS..................................................................................................... $1,187,706,318
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................. $ 743,677,955
Undistributed net investment income......................................................................... 5,218,172
Undistributed net realized gain on investment transactions.................................................. 24,818,703
Net unrealized appreciation of investments.................................................................. 413,991,488
Net assets............................................................................................ $1,187,706,318
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($87,257,741 4,946,132 shares of beneficial interest outstanding)............................ $ 17.64
Sales charge -- 4.75% of offering price..................................................................... .88
Maximum offering price................................................................................ $ 18.52
Class B Shares ($253,847,074 14,517,490 shares of beneficial interest outstanding).......................... $ 17.49
Class C Shares ($5,974,651 342,087 shares of beneficial interest outstanding)............................... $ 17.47
Class Y Shares ($840,626,852 47,464,143 shares of beneficial interest outstanding).......................... $ 17.71
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF OPERATIONS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $6,702)...................................... $ 9,826,134
Interest.................................................................................... 9,661,932
Total investment income.................................................................. 19,488,066
EXPENSES:
Advisory fee................................................................................ $ 9,145,287
Distribution fee -- Class A Shares.......................................................... 149,922
Distribution fee -- Class B Shares.......................................................... 1,185,957
Shareholder services fee -- Class B Shares.................................................. 395,318
Distribution fee -- Class C Shares.......................................................... 30,875
Shareholder services fee -- Class C Shares.................................................. 10,292
Transfer agent fee.......................................................................... 856,272
Reports and notices to shareholders......................................................... 347,090
Custodian fee............................................................................... 248,744
Registration and filing fees................................................................ 99,975
Trustees' fees and expenses................................................................. 52,100
Professional fees........................................................................... 39,500
Insurance expense........................................................................... 3,949
Miscellaneous............................................................................... 48,953
Total expenses........................................................................... 12,614,234
Less: Expense reimbursements................................................................ (9,740)
Net expenses............................................................................. 12,604,494
Net investment income.......................................................................... 6,883,572
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................................................ 26,342,145
Net increase in unrealized appreciation of investments...................................... 127,948,227
Net gain on investments........................................................................ 154,290,372
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $161,173,944
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN FUND
(Photo of Wall Street Sign appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................................................. $ 6,883,572 $ 2,632,001
Net realized gain on investment transactions....................................... 26,342,145 27,142,401
Net change in unrealized appreciation of investments............................... 127,948,227 107,314,951
Net increase in net assets resulting from operations............................ 161,173,944 137,089,353
DISTRIBUTION TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares..................................................................... (140,066) --
Class B Shares..................................................................... (104,944) --
Class C Shares..................................................................... (3,361) --
Class Y Shares..................................................................... (3,380,345) (2,383,433)
Total distributions from net investment income.................................. (3,628,716) (2,383,433)
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares..................................................................... (1,345,646) --
Class B Shares..................................................................... (3,481,371) --
Class C Shares..................................................................... (94,635) --
Class Y Shares..................................................................... (21,876,223) (70,360,416)
Total distributions from net realized gain on investments....................... (26,797,875) (70,360,416)
Total distributions to shareholders............................................. (30,426,591) (72,743,849)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.......................................................... 1,696,117,113 1,350,882,223
Proceeds from acquisition of FFB Lexicon Small Company Growth Fund................. 27,158,980 --
Proceeds from reinvestment of distributions........................................ 27,083,002 66,336,031
Payment for shares redeemed........................................................ (1,411,176,445) (1,289,695,764)
Net increase resulting from Fund share transactions............................. 339,182,650 127,522,490
Net increase in net assets...................................................... 469,930,003 191,867,994
NET ASSETS:
Beginning of year.................................................................. 717,776,315 525,908,321
End of year (including undistributed net investment income of $5,218,172 and
$1,963,316, respectively)........................................................ $ 1,187,706,318 $ 717,776,315
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN FUND
CLASS A, CLASS B AND CLASS C SHARES
(Photo of Wall Street Sign appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3,
1995* 1995* SHARES
YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $15.55 $ 11.97 $15.48 $11.97 $15.48
Income from investment operations:
Net investment income (loss)....................... .12 .01 (.03) (.02) --
Net realized and unrealized gain on investments.... 2.61 3.57 2.64 3.53 2.61
Total from investment operations................. 2.73 3.58 2.61 3.51 2.61
Less distributions to shareholders from:
Net investment income.............................. (.06) -- (.02) -- (.04)
Net realized gains................................. (.58) -- (.58) -- (.58)
Total distributions.............................. (.64) -- (.60) -- (.62)
Net asset value, end of period....................... $17.64 $ 15.55 $ 17.49 $15.48 $ 17.47
TOTAL RETURN+........................................ 18.1% 29.9% 17.3% 29.3% 17.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).............. $87 $29 $254 $74 $6
Ratios to average net assets:
Expenses........................................... 1.45% 1.70%#++ 2.18% 2.32%#++ 2.14%#
Interest expense................................... -- .01%++ -- .01%++ --
Net investment income (loss)....................... .63% .13%#++ (.10%) (.48%)#++ (.07%)#
Portfolio turnover rate.............................. 15% 19% 15% 19% 15%
Average commission rate paid per share............... $ .0603 N/A $ .0603 N/A $ .0603
<CAPTION>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $11.97
Income from investment operations:
Net investment income (loss)....................... (.01)
Net realized and unrealized gain on investments.... 3.52
Total from investment operations................. 3.51
Less distributions to shareholders from:
Net investment income.............................. --
Net realized gains................................. --
Total distributions.............................. --
Net asset value, end of period....................... $15.48
TOTAL RETURN+........................................ 29.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).............. $2
Ratios to average net assets:
Expenses........................................... 2.12%#++
Interest expense................................... .01%++
Net investment income (loss)....................... (.31%)#++
Portfolio turnover rate.............................. 19%
Average commission rate paid per share............... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment 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 the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JANUARY 3, JANUARY 3, JANUARY 3,
1995* 1995* 1995*
THROUGH THROUGH YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996 1995
<S> <C> <C> <C> <C>
Expenses................................................... 1.75% 2.34% 2.38% 5.31%
Net investment income (loss)............................... .08% (.50%) (.31%) (3.50%)
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
EVERGREEN FUND
CLASS Y SHARES
(Photo of Wall Street Sign appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year................................................... $15.59 $14.62 $14.46 $13.10
Income from investment operations:
Net investment income.............................................................. .24 .10 .07 .09
Net realized and unrealized gain on investments.................................... 2.55 3.10 .79 1.96
Total from investment operations................................................. 2.79 3.20 .86 2.05
Less distributions to shareholders from:
Net investment income.............................................................. (.09) (.07) (.09) (.07)
Net realized gains................................................................. (.58) (2.16) (.61) (.62)
Total distributions.............................................................. (.67) (2.23) (.70) (.69)
Net asset value, end of year......................................................... $17.71 $15.59 $14.62 $14.46
TOTAL RETURN*........................................................................ 18.4% 26.8% 6.2% 15.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)................................................ $841 $612 $526 $657
Ratios to average net assets:
Expenses........................................................................... 1.15% 1.16% 1.13% 1.11%
Interest expense................................................................... -- .06% .09% .01%
Net investment income.............................................................. .93% .53% .40% .60%
Portfolio turnover rate.............................................................. 15% 19% 19% 21%
Average commission rate paid per share............................................... $.0603 N/A N/A N/A
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year................................................... $13.32
Income from investment operations:
Net investment income.............................................................. .09
Net realized and unrealized gain on investments.................................... .55
Total from investment operations................................................. .64
Less distributions to shareholders from:
Net investment income.............................................................. (.17)
Net realized gains................................................................. (.69)
Total distributions.............................................................. (.86)
Net asset value, end of year......................................................... $13.10
TOTAL RETURN*........................................................................ 5.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (in millions)................................................ $772
Ratios to average net assets:
Expenses........................................................................... 1.13%
Interest expense................................................................... --
Net investment income.............................................................. .56%
Portfolio turnover rate.............................................................. 32%
Average commission rate paid per share............................................... N/A
</TABLE>
* Total return is calculated on net asset value per share for the periods
indicated.
See accompanying notes to financial statements.
17
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
HAROLD J. IRELAND, JR.
We are pleased to present this annual report for the (Photo of
Evergreen Aggressive Growth Fund for the fiscal year ended Harold J.
September 30, 1996. Our strategies were again successful in Ireland, Jr.
producing returns for the Fund that ranked it near the top of appears here)
its peer group while having a low portfolio turnover rate. For
the trailing twelve months ended September 30, the total
return for the Fund's Class A shares at net asset value (NAV)
ranked in the top 14%, #25 of 175 funds in the Lipper Capital
Appreciation Funds group during that time*. This is in line
with the Fund's ranking in the top 16%, #13 of 80 Lipper
Capital Appreciation Funds, for its five-year total return
ended September 30. The total return for the Fund's Class A shares at NAV ranked
in the top 30%, #16 of the 54 capital appreciation funds tracked by Lipper for
the ten-year period ended September 30. Our long-term investment philosophy
resulted in a portfolio turnover rate for the Fund of just 33% for fiscal 1996.
MANAGEMENT DISCUSSION AND PERFORMANCE REVIEW
At the end of the fiscal year, net asset value per share for Class A shares
was $21.04, up 25.6% over the prior year (adjusted for the $0.639 per share long
term capital gain distribution paid to shareholders on December 19, 1995). This
compares with the total returns of 13.1% for the unmanaged Russell 2000 Index+
and 16.0% for the Lipper Capital Appreciation Funds of 175 funds for the same
period.
Over the long term, Evergreen Aggressive Growth Fund has outperformed its
Lipper peer group by a large margin. For most of the twelve calendar years the
Fund has been in existence, it has bettered its Lipper peer group by an average
of four percentage points per year. Only 1987 and 1994 showed underperformance
as compared with our Lipper peer group.
We are also very pleased to be able to say that the Fund's average annual
compound returns have been significantly better than the Lipper peer group and
the Russell 2000 Index for each of the one-, three-, five-and ten-year periods,
as detailed in the table below:
<TABLE>
<CAPTION>
EVERGREEN AGGRESSIVE LIPPER
PERIOD ENDED GROWTH FUND CAPITAL APPRECIATION
9/30/96 (CLASS A, NAV)** FUNDS AVERAGE* RUSSELL 2000 INDEX+
<S> <C> <C> <C>
One-Year 25.6% 16.0% 13.1%
Three-Year 15.5% 13.2% 12.7%
Five-Year 18.7% 14.2% 15.8%
Ten-Year 15.3% 12.4% 11.9%
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* SOURCE: LANA -- LIPPER ANALYTICAL NEW APPLICATIONS. LIPPER ANALYTICAL
SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER
PERFORMANCE FIGURES AND RANKINGS DO NOT INCLUDE SALES CHARGES, AND IF
INCLUDED, FIGURES WOULD BE LOWER AND RANKINGS MAY BE DIFFERENT.
THE FUND ALSO OFFERS OTHER CLASSES OF SHARES DESIGNATED AS CLASS B, CLASS C,
AND CLASS Y. PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION REGARDING
THESE CLASSES OF SHARES.
** PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND 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.
+ THE RUSSELL 2000 INDEX IS AN UNMANAGED REINVESTED INDEX OF SELECTED
SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
18
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
The Fund's Class A shares are subject to a 4.75% front end
sales charge, which is not reflected in the performance figures
above. The Fund's one-, three-, five- and ten-year average annual
returns as of September 30, 1996, for its Class A shares with the
maximum 4.75% front-end sales charge were 19.7%,13.7%, 17.5% and
14.8%, respectively. (For additional performance information,
please see page 22.)
ECONOMIC AND INVESTMENT BACKGROUND
The economic background during the past year has been generally favorable for
your Fund, with somewhat stronger than expected economic growth and somewhat
less than expected inflation. The disinflationary trends that have continued in
force for several years are supportive of our strategies and of growth stock
investing. Companies that can produce sustained double-digit revenue growth and
maintain or improve margins in an environment of stable pricing are in shorter
supply and command higher price earnings multiples. There is an increasing
payoff on finding and sticking with our long-term corporate winners.
PORTFOLIO PROFILE
Owning superior companies that can sustain high revenue and profit growth
over the long term has been the key to the Fund's success. The profile below
lists some of the characteristics that have been most important for the
companies owned. At September 30, 1996, the Fund's 31 holdings had the following
average position profile on a dollar-weighted basis:
<TABLE>
<S> <C>
Revenue Growth (five years, compounded) 42%
Earnings Per Share Growth (five years, compounded) 42%
Return on Equity (twelve months) 29%
Net Profit Margin (after tax) 8.8%
Median Market Value $2.6 billion
Long-Term Debt as a Percent of Total Capital 20%
Beta++ 1.39
Median Daily Trading Volume (calendar year-to-date) 625,000 shares
Price/Earnings Ratio (twelve months' earnings per share) 40.1
</TABLE>
These characteristics reflect our strategy to own the best companies in their
respective industries and to pay a fair price for their established superior
growth. While these numbers reflect the companies' past achievements, our
successful growth stock investing process also focuses on current business
trends and future growth opportunities for each company.
PHILOSOPHY AND STRATEGY
Most simply put, our philosophy has always been to go with the winners and to
hold on for the long term. A rigorous quantitative screening process produces a
list of candidates for the portfolio and helps separate the contenders from the
pretenders. In-depth analysis of the company, its products and/or services, the
management team and their past successes and current commitment contribute to
the final selection. Finally, careful
++ BETA IS A MEASURE OF THE MARKET RISK OF A FUND'S PORTFOLIO, ILLUSTRATING THE
VOLATILITY OF THE NET ASSET PER SHARE OF A MUTUAL FUND AS COMPARED WITH THE
MARKET AS A WHOLE (AS MEASURED BY S&P 500 REINVESTED INDEX WHICH IS ASSIGNED
A BETA OF ONE). A BETA OF LESS THAN ONE INDICATES THAT A FUND WOULD FLUCTUATE
LESS THAN THE MARKET AND GREATER THAN ONE INDICATES IT WOULD FLUCTUATE MORE
THAN THE MARKET.
19
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
judgment of each company's growth opportunity and the current structure of its
industry's competition are essential in completing the selection process. This
style has often led to a concentrated portfolio. At September 30, the portfolio
held 31, predominantly mid-cap companies. This was a significant increase from
holdings of 24 companies at 1995 fiscal year-end. Since we believe in focusing
on and sticking with established, dominant companies and do not believe in
trading down in quality, the Fund is more concentrated than many. In addition to
greater concentration on established growth leaders, our philosophy also has led
to lower portfolio turnover, which helps to lower expenses which, in turn, can
result in a higher after-tax return to shareholders.
INDUSTRY WEIGHTINGS AND PORTFOLIO HIGHLIGHTS
Business Services comprised 20.3% of net assets and includes the shares of
companies that help other companies lower costs and increase quality and
productivity through outsourcing. APAC Teleservices, Inc., the leader in the
outsourcing of customer services by telephone, is now the second largest
portfolio position and has been our most successful holding in terms of price
appreciation for the calendar year-to-date.
Computers, Information Services and Technology sectors represented 21.7% of
net assets and includes major positions in Cisco Systems, Microsoft and
Parametric Technologies. Each of these companies are not only dominant in their
businesses, but also dictate the structure of competition to all their
competitors.
Healthcare companies constituted 13.9% of the portfolio. The leading position
is Medtronic, Inc., the world's largest maker of implantable biomedical devices,
including pacemakers and cardiovascular support systems.
Specialty Retail comprised 25.0% of net assets. Holdings in this sector are
companies that offer the consumer a better value and that consolidate their
respective industries by taking market share from weaker entities. Tommy
Hilfiger and Viking Office Products are our new names in this sector in the past
year, joining our continuing large positions in Office Depot and Home Depot.
Environmental Services at 8.0% of net assets consists of our position in
Republic Industries, a fast growing consolidator of the highly fragmented waste
service, security and car resale industries with a strong management team and
proven track record.
Financial Services comprised 5.4% of net assets and includes our major
position in Green Tree Financial, the dominant company in providing loans for
the manufactured housing industry. Green Tree also provides specialty loans and
insurance for motorcycles, boats and utility vehicles.
The Oil/Gas sector at 5.1% of net assets consists of our position in
Transocean Offshore, the world's leading offshore contract driller with a
dominant position in deep water and harsh environmental drilling.
20
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
PORTFOLIO THEMES
Each of our highlighted holdings participate in key investment themes that I
believe will carry through into the next century. Global trends of disinflation
are forcing companies to become ever more efficient, to lower their costs and to
specialize in what they do best. Global consumerism, leveraged by the
information technology revolution, is forcing companies to give the customer
better quality with more convenience at a lower price. These trends are most
evident in the U.S., but are emerging in Europe and Asia and will be global.
Change is more rapid than ever. Being the best and being dominant in a specialty
or niche is more highly rewarded. Companies can not be all things to all people.
Technology is both a solution and a driver for this process. Technology
encompasses not only the computers and chips, but also the processes and
techniques, such as software, communications and outsourcing. Identifying,
investing in and sticking with the beneficiaries of these themes is what has
produced and we hope will continue to produce the success of Evergreen
Aggressive Growth Fund. In terms of investment style, your portfolio manager
strives to be a marathon investor rather than a sprinter.
Thank you for investing in our Fund. May we continue to run in this marathon
race toward investment success together.
21
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN AGGRESSIVE GROWTH FUND
The graphs below compare a $10,000 investment in the Evergreen Aggressive
Growth Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the NASDAQ Industrials Index ("Index").
<TABLE>
<CAPTION>
CLASS A 1 YEAR TOTAL RETURN = 19.7%
AVERAGE ANNUAL COMPOUND
RETURN: 5-YEAR = 17.5% 10-YEAR = 14.8%
(graph appears here)
<S> <C>
9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
Evergreen Aggressive Growth Fund
NASDAQ Industrials Index
(Customer to provide plot points)
</TABLE>
CLASS B 1 YEAR TOTAL RETURN = 19.9%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 25.0%
(graph appears here)
7/7/95* 9/30/95 3/31/96 9/30/96
Evergreen Aggressive Growth Fund
NASDAQ Industrials Index
(Customer to provide plot points)
CLASS C 1 YEAR TOTAL RETURN = 24.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 26.8%
(graph appears here)
8/3/95* 9/30/95 3/31/96 9/30/96
Evergreen Aggressive Growth Fund
NASDAQ Industrials Index
(Customer to provide plot points)
CLASS Y 1 YEAR TOTAL RETURN = 25.8%
AVERAGE ANNUAL COMPOUND RETURN
SINCE INCEPTION = 20.7%
(graph appears here)
7/11/95* 9/30/95 3/31/96 9/30/96
Evergreen Aggressive Growth Fund
NASDAQ Industrials Index
(Customer to provide plot points)
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on September 30, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
22
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 99.4%
BUSINESS SERVICES -- 20.3%
200,000* APAC TeleServices, Inc............... $ 10,250,000
140,000 Danka Business Systems, ADR.......... 5,565,000
85,000 First Data Corporation............... 6,938,125
25,000* Fiserv, Inc.......................... 956,250
37,000* Medic Computer Systems, Inc.......... 1,345,875
150,000* Sterling Commerce, Inc............... 4,425,000
29,480,250
COMPUTERS -- 8.1%
30,000* Adaptec, Inc......................... 1,800,000
160,000* Cisco Systems, Inc................... 9,930,000
11,730,000
ENVIRONMENTAL SERVICES -- 8.0%
400,000* Republic Industries, Inc............. 11,600,000
FINANCIAL SERVICES -- 5.4%
185,000 Green Tree Financial Corporation..... 7,261,250
50,000 Mercury Finance Company.............. 600,000
7,861,250
HEALTHCARE -- 13.9%
75,000 HBO & Company........................ 5,006,250
100,000* Health Management
Associates, Inc...................... 2,487,500
30,000* HEALTHSOUTH Corporation.............. 1,151,250
80,000 IVAX Corporation..................... 1,250,000
65,000* Matrix Pharmaceuticals, Inc.......... 520,000
118,000 Medtronic, Inc....................... 7,566,750
75,000 Mylan Laboratories, Inc.............. 1,284,375
40,000* Respironics, Inc..................... 970,000
20,236,125
INFORMATION SERVICES &
TECHNOLOGY -- 13.6%
50,000* Microsoft Corporation................ 6,593,750
250,000* Network General Corporation.......... 5,718,750
150,000* Parametric Technology Corporation.... 7,406,250
19,718,750
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
OIL/GAS -- 5.1%
120,000 Transocean Offshore Inc.............. $ 7,350,000
RETAILING -- SPECIALTY -- 25.0%
25,000* AutoZone, Inc........................ 725,000
150,000* Bed Bath & Beyond, Inc............... 4,106,250
80,000* Fastenal Company..................... 3,960,000
100,000 Home Depot, Inc. (The)............... 5,687,500
300,000* Office Depot, Inc.................... 7,087,500
125,000* Tommy Hilfiger Corporation........... 7,406,250
245,000* Viking Office Products, Inc.......... 7,350,000
36,322,500
TOTAL COMMON STOCKS
(COST $83,804,682).............. 144,298,875
WARRANTS -- 0%
806* Sound Advice, Inc.
$8.70, expire 6/14/99................ --
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
$2,435,000 State Street Bank &
Trust Co., 4.75%, dated
9/30/96, due 10/1/96 --
collateralized by $2,305,000
U.S. Treasury Bonds, 7.50%
interest -- $2,480,036
(cost $2,435,000)........... 2,435,000
TOTAL INVESTMENTS --
(COST $86,239,682)..... 101.1% 146,733,875
OTHER ASSETS AND
LIABILITIES -- NET..... (1.1) (1,572,623)
NET ASSETS................ 100.0% $145,161,252
</TABLE>
* Non-income producing securities.
ADR -- American Depositary Receipt
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $86,239,682)............................................................ $146,733,875
Cash.......................................................................................................... 635,761
Receivable for Fund shares sold............................................................................... 580,197
Unamortized organization expenses and other assets............................................................ 33,931
Dividends and interest receivable............................................................................. 7,275
Total assets............................................................................................... 147,991,039
LIABILITIES:
Payable for securities purchased.............................................................................. 2,364,325
Payable for Fund shares redeemed.............................................................................. 239,807
Accrued expenses.............................................................................................. 86,725
Distribution fee payable...................................................................................... 74,472
Accrued advisory fee.......................................................................................... 64,458
Total liabilities.......................................................................................... 2,829,787
NET ASSETS....................................................................................................... $145,161,252
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $ 87,663,149
Accumulated net investment loss............................................................................... (3,661)
Accumulated net realized loss on investment transactions...................................................... (2,992,429)
Net unrealized appreciation of investments.................................................................... 60,494,193
Net assets.............................................................................................. $145,161,252
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($96,608,271 4,591,937 shares of beneficial interest outstanding).............................. $21.04
Sales charge -- 4.75% of offering price....................................................................... 1.05
Maximum offering price.................................................................................. $22.09
Class B Shares ($21,644,148 1,035,853 shares of beneficial interest outstanding).............................. $20.89
Class C Shares ($990,777 47,462 shares of beneficial interest outstanding).................................... $20.88
Class Y Shares ($25,918,056 1,229,164 shares of beneficial interest outstanding).............................. $21.09
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends (net of foreign withholding taxes of $2,042)....................................... $ 201,976
Interest..................................................................................... 174,032
Total investment income................................................................ 376,008
EXPENSES:
Advisory fee................................................................................. $ 612,492
Administrative personnel and service fees.................................................... 51,109
Distribution fee -- Class A Shares........................................................... 197,507
Distribution fee -- Class B Shares........................................................... 79,406
Shareholder services fee -- Class B Shares................................................... 26,469
Distribution fee -- Class C Shares........................................................... 3,308
Shareholder services fee -- Class C Shares................................................... 1,004
Transfer agent fee........................................................................... 138,425
Custodian fee................................................................................ 55,509
Reports and notices to shareholders.......................................................... 43,890
Registration and filing fees................................................................. 42,984
Professional fees............................................................................ 31,235
Trustees' fees and expenses.................................................................. 7,863
Amortization of organization expense......................................................... 5,533
Miscellaneous................................................................................ 2,817
Total expenses......................................................................... 1,299,551
Net investment loss............................................................................. (923,543)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investment transactions................................................. (2,456,367)
Net increase in unrealized appreciation of investments....................................... 27,981,236
Net gain on investments......................................................................... 25,524,869
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $ 24,601,326
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(Photo of beakers appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ELEVEN MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss........................................................................ $ (923,543) $ (664,876)
Net realized gain (loss) on investment transactions........................................ (2,456,367) 2,713,044
Net change in unrealized appreciation of investments....................................... 27,981,236 12,941,978
Net increase resulting from operations.................................................. 24,601,326 14,990,146
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS:
Class A Shares............................................................................. (2,568,867) --
Class B Shares............................................................................. (157,682) --
Class C Shares............................................................................. (7,213) --
Class Y Shares............................................................................. (213,704) --
Total distributions to shareholders.................................................. (2,947,466) --
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................. 73,789,548 12,332,626
Proceeds from reinvestment of distributions................................................ 2,476,706 --
Payment for shares redeemed................................................................ (28,780,969) (15,935,716)
Net increase (decrease) resulting from Fund share transactions.......................... 47,485,285 (3,603,090)
Net increase in net assets.............................................................. 69,139,145 11,387,056
NET ASSETS:
Beginning of period........................................................................ 76,022,107 64,635,051
End of period (including accumulated net investment loss of $3,661 at September 30,
1996).................................................................................... $ 145,161,252 $ 76,022,107
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
CLASS A SHARES
(Photo of beakers appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES
YEAR ELEVEN MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31,
1996 1995*# 1994|#
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................ $17.37 $13.85 $14.44
Income (loss) from investment operations:
Net investment loss....................................................... (.15) (.16) (.13)
Net realized and unrealized gain (loss) on investments.................... 4.46 3.68 (.22)
Total from investment operations........................................ 4.31 3.52 (.35)
Less distributions to shareholders from net realized gains.................. (.64) -- (.24)
Net asset value, end of period.............................................. $21.04 $17.37 $13.85
TOTAL RETURN+............................................................... 25.6% 25.4% (2.4%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................... $96,608 $70,858 $64,635
Ratios to average net assets:
Expenses.................................................................. 1.22% 1.47%++ 1.25%
Net investment loss....................................................... (.86%) (1.12%)++ (.92%)
Portfolio turnover rate..................................................... 33% 31% 59%
Average commission rate paid per share...................................... $.0582 N/A N/A
<CAPTION>
1993|# 1992|#
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................ $11.76 $12.22
Income (loss) from investment operations:
Net investment loss....................................................... (.12) (.10)
Net realized and unrealized gain (loss) on investments.................... 3.06 1.84
Total from investment operations........................................ 2.94 1.74
Less distributions to shareholders from net realized gains.................. (.26) (2.20)
Net asset value, end of period.............................................. $14.44 $11.76
TOTAL RETURN+............................................................... 25.3% 17.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................... $58,053 $29,302
Ratios to average net assets:
Expenses.................................................................. 1.31% 1.44%
Net investment loss....................................................... (.92%) (.93%)
Portfolio turnover rate..................................................... 48% 46%
Average commission rate paid per share...................................... N/A N/A
</TABLE>
* The Fund changed its fiscal year end from October 31 to September 30.
# Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of
Evergreen Trust, acquired substantially all of the net assets of ABT Emerging
Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that ended on
October 31 was the accounting survivor in the combination. Accordingly, the
information above includes the results of operations of ABT Emerging Growth
Fund prior to June 30, 1995.
| Per share data based on average shares outstanding.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
See accompanying notes to financial statements.
27
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
CLASS B, CLASS C AND CLASS Y SHARES
(Photo of beakers appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES CLASS Y
JULY 7, AUGUST 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........... $17.35 $15.82 $17.31 $16.42 $17.38
Income (loss) from investment operations:
Net investment loss.......................... (.16) (.03) (.15) (.01) (.06)
Net realized and unrealized gain on
investments................................ 4.34 1.56 4.36 .90 4.41
Total from investment operations........... 4.18 1.53 4.21 .89 4.35
Less distributions to shareholders from net
realized gains............................... (.64) -- (.64) -- (.64)
Net asset value, end of period................. $20.89 $17.35 $20.88 $17.31 $21.09
TOTAL RETURN+.................................. 24.9% 9.7% 25.1% 5.4% 25.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $21,644 $2,858 $991 $416 $25,918
Ratios to average net assets:
Expenses..................................... 1.98% 2.09%++ 1.96% 2.09%++ .97%
Net investment loss.......................... (1.60%) (1.71%)++ (1.57%) (1.51%)++ (.60%)
Portfolio turnover rate........................ 33% 31% 33% 31% 33%
Average commission rate paid per share......... $.0582 N/A $.0582 N/A $.0582
<CAPTION>
JULY 11,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period........... $15.79
Income (loss) from investment operations:
Net investment loss.......................... (.01)
Net realized and unrealized gain on
investments................................ 1.60
Total from investment operations........... 1.59
Less distributions to shareholders from net
realized gains............................... --
Net asset value, end of period................. $17.38
TOTAL RETURN+.................................. 10.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $1,889
Ratios to average net assets:
Expenses..................................... 1.08%++
Net investment loss.......................... (.71%)++
Portfolio turnover rate........................ 31%
Average commission rate paid per share......... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charges are not
reflected.
++ Annualized.
See accompanying notes to financial statements.
28
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEPHEN A. LIEBER
EDWIN D. MISKA
Fiscal 1996 was a transitional year for Evergreen Limited (Photo of
Market Fund. The Fund re-oriented its investment strategy Steven A. Lieber
during the second fiscal quarter, and fully restructured its appears here)
portfolio in an attempt to improve performance and achieve
results consistent with the Fund's earlier years of
operations. The changes to the Fund's investment strategy (Photo of
centered on the effort to focus the portfolio on what we Edwin D. Miska
believe to be the "100 best opportunities" in the small to appears here)
micro-capitalization sectors of the market. Utilizing
extensive computer capabilities which allow the Fund's
management to screen large databases of information, and our
37,000+ company library of primary data, the Fund's overall
focus will be on the leading companies in this size category.
"Leadership" characteristics will include financial, product
and growth consistency; as well as undervaluation. The Fund's
goal remains the same: To seek capital appreciation from
investment in high-quality smaller companies which are
under-recognized and under-followed by the investment
community, and have a "limited market" (companies with market
capitalizations under $150 million). This will help the Fund
to uncover a variety of relatively unexploited investment
opportunities.
PERFORMANCE
Performance for the fiscal year as a whole was unfavorable,
but should be viewed in two separate categories: Prior
Strategy and New Strategy. The table below compares the
returns for Evergreen Limited Market Fund with those of the
Russell 2000*. The total returns below for the Fund's Class A
shares, Class B shares and Class C shares do not reflect,
respectively, the
maximum 4.75% front end sales charge, the maximum 5%
contingent deferred sales charge, and the 1% contingent
deferred sales charge within the first year of purchase. If
reflected, returns would be lower. (For additional performance information,
please see page 31.)
<TABLE>
<CAPTION>
THE FUND THE FUND THE FUND THE FUND
CLASS Y, CLASS A CLASS B CLASS C
NO-LOAD SHARES** SHARES** SHARES** RUSSELL
SHARES** AT NAV AT NAV AT NAV 2000*
<S> <C> <C> <C> <C> <C>
Fiscal Year -2.7% -2.9% -3.6% -3.6% +13.1%
Prior Strategy -8.1% -8.2% -8.5% -8.5% +5.6%
(10/1/95-3/19/96)
New Strategy+ +5.9% 5.7% 5.3% 5.4% +5.4%
(3/20/96-9/30/96)
</TABLE>
The Fund's return under the "prior strategy" was substantially below the
market and the Fund's own historical average. Several factors contributed to
this, and accelerated the decision to shift gears into a new direction. During
the first quarter of the fiscal year, the Fund was negatively impacted by
extensive tax-loss selling. The Fund's orientation toward very small companies
at that time (median market capitalization $49 million) lacked institutional
sponsorship, and were, therefore, more illiquid and, thus, vulnerable to selling
pressures. This was combined with a "value" portfolio strategy focused more on
the deep undervaluations given to issues which had declined significantly during
the year and less on current market catalysts, such as vigorous shorter term
operating trends or current earnings growth. The result was a quarter which saw
steep declines in some of the Fund's larger holdings, with at least 10 issues
declining 30% or more, and a major impact to overall portfolio performance.
When these issues failed to rally back during the Fund's second fiscal
quarter, which coincided with the traditional "January Effect" for smaller
issues, a decision was made to overhaul the Fund's makeup, and completely
restructure the portfolio. A majority of the Fund's issues were sold resulting
in a number of substantial gains. Among the best performing issues sold: KCS
Energy, Inc., +305.6%, held for three and one-half years; Susquehanna
Bankshares, Inc., +243.3% held two years and four months; and JLG Industries,
Inc., +197.9% held one year.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* UNMANAGED INDEX OF SELECTED SECURITIES AN INVESTMENT CAN NOT BE MADE IN AN
INDEX.
** PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND 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.
+ MARCH 20, 1996, IS THE DATE ON WHICH THE FUND'S "NEW STRATEGY" PORTFOLIO WAS
COMPLETELY IN EFFECT.
29
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
The Fund made a total of 100 new purchases between February and March, 1996.
Three key elements became the Fund's overall focus: Diversification -- holding a
large number of issues representing a broad range of economic sectors to enhance
market opportunity; Undervaluation -- following a strategy of buying and holding
issues whose growth potential is not fully realized, either because of market
sensitivity, adverse industry conditions or simple lack of sponsorship; and
Quality -- purchasing only those issues with a history of consistency, a strong
current earnings flow, and strong financials. Several of the new commitments
have already generated exceptional performance: Riser Foods, Inc., a grocery
retailer serving the Cleveland, Ohio area has risen 67.8%; Uniflex, Inc., an
innovative manufacturer of specialty bags rose 62.6%, and Computer Data Systems,
Inc., a provider of information technology services to the government and large
corporate clients rose 61.2%. These holdings shared the same characteristics at
the time of purchase. All three have a consistent record spanning many years,
were virtually unfollowed by the investment community, and traded at an
inexpensive comparative valuation. Further, they were characterized by recent or
prospective introductions of new products and services which brought in new
customers and enhanced their overall corporate profit performance. As this
unfolded to the investment community, the stocks rose to new valuations. Similar
types of issues in which we sold full or partial positions upon achieving fair
valuation objectives were: Mossimo, Inc., +133%, Wireless Telecom Group, Inc.,
+81%, Designer Holdings, Inc., +76%, Del Global Technologies Corp., partial
sale, +59%, Tech Ops Sevcon, Inc., partial sale, +42% and Seattle Filmworks,
Inc., +36%.
We believe a systematic approach -- using both quantitative and fundamental
analysis -- in identifying undervalued, undiscovered stock buys and then
implementing the same discipline for sells should validate this decision to
restructure the Fund and help enhance its performance.
MERGERS AND ACQUISITIONS
The Fund continued to benefit from the long-term trend where larger companies
seek to acquire smaller specialty businesses with strong franchises, markets, or
products and services. During the fiscal year, 11 companies received acquisition
offers while held in the Fund's portfolio, including five since the Fund's
restructuring. The total since inception, has grown to 77 mergers and
acquisitions (pending and completed) with an average gain of 61.1% on completed
mergers. Some of the best of the completed mergers during the year included:
American Electronic Components, Inc. (+49.1%) acquired by Echlin Corp.; Simmons
Outdoor Corp. (+59.3%) purchased by Blount International, Inc.; Orthopedic
Technology, Inc., (+96.4%) acquired by DePuy, Inc.; Brandon Systems Corp.
(+69.5%) merger with Interim Services, Inc., via stock; and Guardsman Products,
Inc., (+14.8%) acquired by Lilly Industries for cash. Three financial
institutions were acquired since the Fund's restructuring: Mercantile acquired
Today's Bancorp for stock (+42.2%); Summit Bancorp acquired Central Jersey
Financial (the Fund sold after the announcement for a gain of 25.6%); and
currently pending, the takeover of Allied Bankshares by Regions Financial Corp.
The Fund's broad list of holdings in undervalued, well-managed growth
opportunities, we believe, will help provide a continuation of this mergers and
acquisitions pace.
OUTLOOK AND CONCLUSION
The equity markets have managed solid gains despite bouts of increased market
volatility caused by rising valuations, uncertainties over higher interest rates
and re-emerging fears of inflation. Economic indicators continue to point toward
continued, yet perhaps sluggish growth ahead.
This environment will be difficult but may benefit smaller companies as they
often have the unique ability to react swiftly in a more competitive
environment. The focus of the Fund will be on outstanding profit growth
opportunities in the small to micro-capitalization segment. Quality of the
issues purchased will be foremost, as consistency of results and the ability to
deliver continued bottom line performance will be paramount. Acquisition
candidates will continue to get significant emphasis. As the economy slows and
corporate profit growth diminishes, larger companies will seek ways to enhance
their competitive position. Opportunities through acquisitions for successfully
managed producers of specialty or niche products and services will continue. We
believe we have positioned the Fund to benefit handsomely in this kind of
environment.
We appreciate the patience and support of our longtime investors during this
repositioning period. We are optimistic that the measures undertaken will
improve upon the short-term disappointments of the last year and will
demonstrate the continuing validity of an investment program which aims to hold
the best issues in the very small capitalization market. This should help return
the Fund to producing solid long-term performance results.
30
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN LIMITED MARKET FUND
The graphs below compare a $10,000 investment in the Evergreen Limited
Market Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Russell 2000 and NASDAQ OTC Indexes ("Indexes").
CLASS A 1 YEAR TOTAL RETURN = 7.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.5%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Limited Market Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
CLASS B 1 YEAR TOTAL RETURN = 8.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.5%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Limited Market Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
CLASS C 1 YEAR TOTAL RETURN = 4.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 6.7%
(graph appears here)
1/3/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen Limited Market Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
<TABLE>
<CAPTION>
CLASS Y 1 YEAR TOTAL RETURN = 2.7%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR = 6.5% 10-YEAR = 9.2%
(graph appears here)
<S> <C>
9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
Evergreen Limited Market Fund
NASDAQ QTC Index
Russell 2000
(Customer to provide plot points)
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on September 30, 1996; (c) all
recurring fees (including investment advisory fees), net of fee waivers and
reimbursements, were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
31
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 100.2%
BANKS -- 13.6%
34,500 Allied Bankshares, Inc................. $ 353,625
17,600 BT Financial Corp...................... 599,500
20,000 First Oak Brook Bancshares, Inc. Cl.
A...................................... 440,000
19,500 Independent Bank Corp.................. 570,375
25,000 Mainstreet Bankgroup, Inc.............. 462,500
2,700 Northern States Financial Corp......... 206,550
25,000 Norwich Financial Corp................. 434,375
17,500 Pinnacle Financial Services, Inc....... 415,625
20,000 Premier Bankshares Corp................ 345,000
15,000 Second Bancorp, Inc.................... 476,250
11,400 Today's Bancorp, Inc................... 376,200
14,100 Washington Trust Bancorp, Inc.......... 556,950
25,000 West Coast Bancorp, Inc................ 490,625
5,727,575
BUILDING, CONSTRUCTION &
FURNISHINGS -- 4.3%
15,000 Cavalier Homes, Inc.................... 277,500
35,000* Cavco Industries, Inc.................. 682,500
30,000* Mestek, Inc............................ 435,000
30,000 Republic Group, Inc.................... 431,250
1,826,250
BUSINESS EQUIPMENT &
SERVICES -- 6.2%
26,500 American List Corp..................... 718,813
10,000* Boca Research, Inc..................... 116,250
55,000 Graphic Industries, Inc................ 481,250
13,500* Right Management Consultants, Inc...... 327,375
20,000 StaffMark, Inc......................... 282,500
28,200* Uniflex, Inc........................... 405,375
13,000 Uniforce Services, Inc................. 281,125
2,612,688
CHEMICAL & AGRICULTURAL
PRODUCTS -- 3.4%
37,000 Aceto Corp............................. 494,875
8,300 Balchem Corp........................... 68,475
38,875 Hawkins Chemical, Inc.................. 301,281
24,500 Tuscarora, Inc......................... 545,125
1,409,756
CONSUMER PRODUCTS &
SERVICES -- 10.0%
25,000* Benihana, Inc.......................... 375,000
17,000 Bush Industries, Inc. Cl. A............ 312,375
30,000 Cooker Restaurant Corp................. 356,250
21,500* Custom Chrome, Inc..................... 395,062
25,000* Educational Development Corp........... 125,000
40,000 First Years, Inc. (The)................ 560,000
110,000* Gotham Apparel Corp.**+................ 5,500
22,000* Guest Supply, Inc...................... 291,500
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
CONSUMER PRODUCTS &
SERVICES -- CONTINUED
<TABLE>
<C> <S> <C>
30,000* Kleinert's, Inc........................ $ 510,000
20,000* Motorcar Parts and Accessories, Inc.... 265,000
25,500 National Sanitary Supply Co............ 357,000
10,000* Quiksilver, Inc........................ 250,000
31,000 Stephan Co. (The)...................... 379,750
4,182,437
ELECTRICAL EQUIPMENT &
SERVICES -- 6.6%
27,000* Aseco Corp............................. 246,375
24,000 Badger Meter, Inc...................... 765,000
46,865* Del Global Technologies Corp........... 398,353
32,500* IFR Systems, Inc....................... 503,750
25,000 Tech/Ops Sevcon, Inc................... 421,875
21,000 Todd-AO Corp. (The), Cl. A............. 273,000
5,000* Zygo Corp.............................. 148,125
2,756,478
FINANCE & INSURANCE -- 6.5%
21,600* CorVel Corp............................ 656,100
16,500 First Financial Caribbean Corp......... 354,750
20,000* FPIC Insurance Group, Inc.............. 265,000
56,804* Grand Premier Financial, Inc........... 582,241
28,500* Penn Treaty American Corp.............. 676,875
12,000* R & G Financial Corp................... 213,000
2,747,966
HEALTHCARE PRODUCTS &
SERVICES -- 7.6%
30,500* Alcide Corp............................ 655,750
21,500 Del Laboratories, Inc.................. 588,562
37,800* Exactech, Inc.......................... 269,325
15,000* Laser Industries Ltd................... 206,250
16,100 Meridian Diagnostics, Inc.............. 215,338
60,000* Mesa Laboratories, Inc................. 397,500
42,000* Natural Alternatives
International, Inc..................... 338,625
20,000* Nutramax Products, Inc................. 185,000
10,000* Summit Care Corp....................... 220,000
10,000* Utah Medical Products, Inc............. 115,000
3,191,350
INDUSTRIAL SPECIALTY PRODUCTS
& SERVICES -- 19.3%
15,000* AG Services of America, Inc............ 174,375
34,900 American Precision Industries, Inc..... 431,887
35,000* Autocam Corp........................... 319,375
25,000 Bairnco Corp........................... 159,375
33,000* CEM Corp............................... 367,125
15,000* Chemfab Corp........................... 202,500
37,500 CPAC, Inc.............................. 426,563
</TABLE>
32
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS
& SERVICES -- CONTINUED
<C> <S> <C>
30,000 Culp, Inc.............................. $ 420,000
15,000 Falcon Products, Inc................... 215,625
10,000 Kysor Industrial Corp.................. 268,750
3,000* Lynch Corp............................. 207,750
53,250 Met-Pro Corp........................... 652,312
20,400 Penn Engineering &
Manufacturing Corp..................... 357,000
6,800 Penn Engineering &
Manufacturing Corp. Cl. A.............. 120,700
5,000 Pitt-Des Moines, Inc................... 213,125
20,000 Raven Industries, Inc.................. 415,000
45,000* RPC, Inc............................... 511,875
17,500* Special Devices, Inc................... 258,125
31,500* Steel of West Virginia, Inc............ 208,688
44,000 Steel Technologies, Inc................ 550,000
65,000 TSI, Inc............................... 552,500
30,800 Valley Forge Corp...................... 408,100
20,000 Woodhead Industries, Inc............... 252,500
26,000 World Fuel Services Corp............... 435,500
8,128,750
INFORMATION SERVICES &
TECHNOLOGY -- 7.3%
60,000* Analytical Surveys, Inc................ 660,000
17,000* BARRA, Inc............................. 437,750
22,500* Comarco, Inc........................... 390,937
20,000 Computer Data Systems, Inc............. 480,000
32,000* Norstan, Inc........................... 552,000
900 Software 2000, Inc..................... 8,586
63,750 Timberline Software Corp............... 541,875
3,071,148
REAL ESTATE -- 2.4%
22,500* FRP Properties, Inc.................... 461,250
45,000 United Mobile Homes, Inc............... 540,000
1,001,250
<CAPTION>
SHARES VALUE
<C> <S> <C>
RETAILING & WHOLESALE -- 3.6%
41,700* Harold's Stores, Inc................... $ 594,225
34,500 Riser Foods, Inc....................... 897,000
1,491,225
THRIFT INSTITUTIONS -- 5.8%
14,600 Iroquois Bancorp, Inc.................. 231,775
13,655 Parkvale Financial Corp................ 392,581
21,500 People's Savings Financial Corp........ 612,750
40,000 Virginia First Financial Corp.......... 550,000
30,000* WSFS Financial Corp.................... 251,250
23,000 York Financial Corp.................... 405,375
2,443,731
UTILITIES -- ELECTRIC -- 1.3%
1,545 Eselco, Inc............................ 38,432
25,000 UNITIL Corp............................ 518,750
557,182
UTILITIES -- GAS -- 2.3%
39,000 Chesapeake Utilities Corp.............. 682,500
14,200 EnergyNorth, Inc....................... 271,575
954,075
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $41,073,660)............ 100.2% 42,101,861
OTHER ASSETS AND
LIABILITIES -- NET............ (.2) (88,426)
NET ASSETS...................... 100.0% $42,013,435
</TABLE>
* Non-income producing securities.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Fund's Board of Directors.
** Investment in non-controlled affiliate-holdings over 5% of outstanding voting
securities. During the year ended September 30, 1996, the Fund received no
dividend income from this security.
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $41,073,660)............................................................. $42,101,861
Cash........................................................................................................... 3,285
Receivable for securities sold................................................................................. 1,210,282
Prepaid expenses............................................................................................... 45,380
Dividends receivable........................................................................................... 38,706
Receivable for Fund shares sold................................................................................ 5,685
Total assets............................................................................................. 43,405,199
LIABILITIES:
Short-term borrowings.......................................................................................... 280,000
Payable for Fund shares redeemed............................................................................... 581,390
Payable for securities purchased............................................................................... 424,156
Accrued expenses............................................................................................... 72,028
Accrued advisory fee........................................................................................... 31,685
Distribution fee payable....................................................................................... 2,505
Total liabilities........................................................................................ 1,391,764
NET ASSETS........................................................................................................ $42,013,435
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $41,596,543
Accumulated net investment loss................................................................................ (3,915)
Accumulated net realized loss on investment transactions....................................................... (607,394)
Net unrealized appreciation of investments..................................................................... 1,028,201
Net assets............................................................................................... $42,013,435
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($903,189 52,190 shares outstanding)............................................................ $ 17.31
Sales charge -- 4.75% of offering price........................................................................ .86
Maximum offering price................................................................................... $ 18.17
Class B Shares ($1,461,375 85,594 shares outstanding).......................................................... $ 17.07
Class C Shares ($26,811 1,569 shares outstanding).............................................................. $ 17.09
Class Y Shares ($39,622,060 2,283,629 shares outstanding)...................................................... $ 17.35
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,041)......................................... $ 485,782
Interest....................................................................................... 124,447
Total investment income..................................................................... 610,229
EXPENSES:
Advisory fee...................................................................................... $510,421
Distribution fee -- Class A Shares................................................................ 2,471
Distribution fee -- Class B Shares................................................................ 12,608
Shareholder services fee -- Class B Shares........................................................ 4,203
Distribution fee -- Class C Shares................................................................ 310
Shareholder services fee -- Class C Shares........................................................ 103
Transfer agent fee................................................................................ 94,010
Custodian fee..................................................................................... 93,215
Registration and filing fees...................................................................... 69,594
Professional fees................................................................................. 32,928
Reports and notices to shareholders............................................................... 25,908
Insurance expense................................................................................. 12,472
Directors' fees and expenses...................................................................... 5,478
Miscellaneous..................................................................................... 9,049
Total operating expenses....................................................................... 872,770
Interest expense.................................................................................. 11,126
Less: Fee waivers and expense reimbursements...................................................... (64,388)
Net expenses................................................................................... 819,508
Net investment loss.................................................................................. (209,279)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investment transactions...................................................... (378,317)
Net change in unrealized appreciation of investments.............................................. (1,769,027)
Net loss on investments.............................................................................. (2,147,344)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. ($2,356,623)
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
(Photo of architectural relief appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................................................... $ (209,279) $ (704,746)
Net realized gain (loss) on investment transactions......................................... (378,317) 2,480,633
Net change in unrealized appreciation of investments........................................ (1,769,027) (99,059)
Net increase (decrease) resulting from operations........................................ (2,356,623) 1,676,828
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS:
Class A Shares.............................................................................. (32,318) --
Class B Shares.............................................................................. (61,166) --
Class C Shares.............................................................................. (1,952) --
Class Y Shares.............................................................................. (1,796,283) (15,681,527)
Total distributions to shareholders...................................................... (1,891,719) (15,681,527)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 6,715,931 30,951,369
Proceeds from reinvestment of distributions................................................. 1,739,216 14,048,986
Payment for shares redeemed................................................................. (30,085,341) (62,443,458)
Net decrease resulting from Fund share transactions...................................... (21,630,194) (17,443,103)
Net decrease in net assets............................................................... (25,878,536) (31,447,802)
NET ASSETS:
Beginning of year........................................................................... 67,891,971 99,339,773
End of year (including accumulated net investment loss of $3,915 at September 30, 1996)..... $42,013,435 $ 67,891,971
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
CLASS A, CLASS B AND CLASS C SHARES
(Photo of architectural relief appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $ 18.41 $15.76 $18.30 $15.76 $18.31
Income (loss) from investment operations:
Net investment loss................................ (.10) (.10) (.25) (.20) (.36)
Net realized and unrealized gain (loss) on
investments...................................... (.44) 2.75 (.42) 2.74 (.30)
Total from investment operations................. (.54) 2.65 (.67) 2.54 (.66)
Less distributions to shareholders from net realized
gains.............................................. (.56) -- (.56) -- (.56)
Net asset value, end of period....................... $ 17.31 $18.41 $17.07 $18.30 $17.09
TOTAL RETURN+........................................ (2.9%) 16.8% (3.6%) 16.1% (3.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............ $903 $1,089 $1,461 $2,020 $27
Ratios to average net assets:
Expenses#.......................................... 1.73% 1.51%++ 2.47% 2.26%++ 2.44%
Interest expense................................... .02% -- .02% -- .02%
Net investment loss#............................... (.52%) (1.03%)++ (1.28%) (1.77%)++ (1.35%)
Portfolio turnover rate.............................. 160% 84% 160% 84% 160%
Average commission rate paid per share............... $.0497 N/A $.0497 N/A $ .0497
<CAPTION>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $15.76
Income (loss) from investment operations:
Net investment loss................................ (.20)
Net realized and unrealized gain (loss) on
investments...................................... 2.75
Total from investment operations................. 2.55
Less distributions to shareholders from net realized
gains.............................................. --
Net asset value, end of period....................... $18.31
TOTAL RETURN+........................................ 16.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............ $62
Ratios to average net assets:
Expenses#.......................................... 2.25%++
Interest expense................................... --
Net investment loss#............................... (1.76%)++
Portfolio turnover rate.............................. 84%
Average commission rate paid per share............... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated for the periods indicated and is not annualized.
Initial sales charge or contingent deferred sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Expenses......................................... 3.08% 4.33% 3.26% 3.66% 32.28%
Net investment loss.............................. (1.87%) (3.85%) (2.07%) (3.18%) (31.19%)
<CAPTION>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
Expenses......................................... 41.34%
Net investment loss.............................. (40.85%)
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
EVERGREEN LIMITED MARKET FUND, INC.
CLASS Y SHARES
(Photo of architectural relief appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR YEAR FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, MAY 31,
1996 1995 1994* 1994
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.............................. $18.42 $21.74 $21.20 $20.87
Income (loss) from investment operations:
Net investment loss............................................. (.08) (.23) (.05) (.07)
Net realized and unrealized gain (loss) on investments.......... (.43) .59 .59 1.67
Total income from investment operations....................... (.51) .36 .54 1.60
Less distributions to shareholders from:
Net realized gains.............................................. (.56) (3.68) -- (1.27)
Net asset value, end of period.................................... $17.35 $18.42 $21.74 $21.20
TOTAL RETURN+..................................................... (2.7%) 4.8% 2.6% 7.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................... $39,622 $64,721 $99,340 $96,357
Ratios to average net assets:
Expenses........................................................ 1.55%# 1.36% 1.37%++ 1.26%
Interest expense................................................ .02% -- -- --
Net investment income (loss).................................... (.38%)# (.87%) (.70%)++ (.33%)
Portfolio turnover rate........................................... 160% 84% 36% 89%
Average commission rate paid per share............................ $.0497 N/A N/A N/A
<CAPTION>
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.............................. $21.02
Income (loss) from investment operations:
Net investment loss............................................. (.03)
Net realized and unrealized gain (loss) on investments.......... 1.57
Total income from investment operations....................... 1.54
Less distributions to shareholders from:
Net realized gains.............................................. (1.69)
Net asset value, end of period.................................... $20.87
TOTAL RETURN+..................................................... 7.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................... $80,605
Ratios to average net assets:
Expenses........................................................ 1.24%
Interest expense................................................ --
Net investment income (loss).................................... (.07%)
Portfolio turnover rate........................................... 29%
Average commission rate paid per share............................ N/A
</TABLE>
* The Fund changed its fiscal year end from May 31 to September 30.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets would have been the
following:
<TABLE>
<CAPTION>
CLASS Y
SHARES
YEAR ENDED
SEPTEMBER 30,
1996
<S> <C>
Expenses..................................... 1.60%
Net investment loss.......................... (.43%)
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
SAMUEL A. LIEBER
As of September 30, 1996, Evergreen U.S. Real Estate Equity (Photo of
Fund's 12-month total return (Class Y, No-load shares) was Samuel A. Lieber
13.6%*. The 12-month total returns ended September 30, for the appears here)
Fund's Class A shares were 7.8%, 7.5%, and 11.5%,
respectively*. These figures reflect, respectively, the
maximum 4.75% front end sales charge, the maximum 5%
contingent deferred sales charge, and the 1% contingent
deferred sales charge within the first year of purchase. (For
additional performance information, please see page 41.)
Compared with other U.S.-oriented real estate funds, the Fund
had a very good calendar fourth quarter of 1995, a relatively
weak first quarter of this year, followed by a strong April through June
quarter, which in turn led to notable underperformance in the summer months,
particularly in July.
While the Fund's 13.6% total return for its 1996 fiscal year lagged behind the
18.5% return of the Morgan Stanley Real Estate Securities Index**, it is
important to note that Evergreen U.S. Real Estate Equity Fund is not designed to
mimic the returns of any index and thus, it may have greater volatility and a
different distribution of returns, both on the upside and the downside. We
believe that over the three-year history of the Fund, such volatility on the
downside has been more than offset by superior upside performance. Specifically,
for the three-year period ended September 30, 1996, the Fund's total return
(Class Y, No-load shares) ranked #1 among all eight other Real Estate Funds
tracked by Lipper Analytical Services during that time+. For the 12 months ended
September 30, the total return for the Fund's Class Y shares ranked #35 out of
the 44 Real Estate Funds tracked by Lipper during that time. The 12-month total
returns ended September 30, for the Fund's Class A, Class B and Class C shares
ranked #36, #38, and #37, respectively.
The stock market has recently not favored the value-driven approach utilized
in our investment strategy. Rather, the stock market has rewarded momentum
investing, which has spread from technology stocks to embrace real estate
securities. In a number of situations, the link between stock market valuations
and underlying real estate values has become historically tenuous. We have
chosen to maintain the discipline of investment in real estate securities, we
believe to be undervalued, with growth potential. Recently, the decline of
long-term interest rates below the 6.5% level, for the first time since March,
has renewed investor interest in interest sensitive issues, which is a positive
for the Fund's portfolio.
PORTFOLIO ACTIVITY
The 1996 fiscal year saw a major shift in the allocation of Fund holdings
between Real Estate Investment Trusts (REITs) and diversified real estate common
stocks. The REIT allocation of the portfolio has been reduced from 68.4% at the
beginning of the fiscal year, to 50.3% currently. The major increase within the
non-REIT holdings was in the hotel industry, reflecting positions in both
investment and management companies. These holdings increased to 17.7% of the
Fund's net assets, from 2.9%. In aggregate, the hotel sector, comprised of both
hotel REITs and lodging companies, grew to 25.9% of net assets from 18.9% at the
beginning of the year. Shopping center companies, comprised of community
shopping centers, shopping malls and factory outlet centers, were increased by
mid-year to 31.1% of net assets from 26.3%, and were subsequently reduced to
18.2% by September. Conversely, apartments fluctuated from 15.6% to 11.7% in
March before rising to the current level of 16.2%. Homebuilders increased
slightly to 25.4% from 23.2%.
These changes in portfolio allocation reflects our belief that the greatest
growth opportunity in U.S. real estate is occurring in the hotel sector. Our
analysis suggests that even in a slower growing economy, upscale urban hotels
will still have solid growth potentials, as will some of the newer,
value-oriented lodging concepts. While the hotel sector does encompass REITs,
many of the Fund's portfolio holdings are owner/operators. The trade-offs
between tax benefits and operational flexibility in the hotel business makes the
typical REIT structure less advantageous.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INVESTMENT CONCENTRATION IN ONE INDUSTRY MAY INCREASE THE RISKS THAT WOULD
OTHERWISE BE DECREASED IN MORE DIVERSE INVESTMENTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND 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.
** UNMANAGED INDEX OF SELECTED SECURITIES
+ SOURCE: LANA -- LIPPER ANALYTICAL NEW APPLICATIONS. LIPPER ANALYTICAL
SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER
RANKINGS DO NOT INCLUDE SALES CHARGES, AND IF INCLUDED, RANKINGS MAY BE
DIFFERENT.
39
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
The homebuilding sector was a significant underperformer through the latter
half of the fiscal year, particularly when bond market yields rose sharply in
anticipation of renewed inflation. We held to the view that the inflation rate
was not likely to have a meaningful rise, and that bond market interest rate
increases would in fact soon result in a slowing economy, which in turn would
bring mortgage interest rates down and re-stimulate investor interest in
homebuilding. With this prospect, we increased our homebuilding commitment. We
believe that new holdings were made on a depressed, undervalued basis.
Shopping centers provided another opportunity to purchase shares on an
undervalued basis when, in the first half of the fiscal year, investor unease
with the situation of retailers, such as Kmart and The Limited, in turn put
pressure on the shares of such companies' landlords. The subsequent rebound in
share prices during the summer months provided the Fund with an opportunity to
realize attractive capital gains in the sector and to reduce our weighting to
what we considered an appropriate long-term level. Similar swings in market
appraisal occurred in the apartment sector, where during the first half of the
year, investors' emphasis on rising rentals pushed the group to relatively full
valuations, so we took profits. More recently, when investor enthusiasm cooled,
we again added to our holdings in the sector. The meticulous concern for
underlying property valuation is a central focus of our long-term investment
strategy. Even in the office and industrial sectors, where we believe that most
stocks in the group are quite overvalued, we have been able to invest in a few
quality companies at reasonable valuations.
MERGERS AND ACQUISITIONS
In view of the Fund's primary focus on making investments in the shares of
real estate companies which trade near or below underlying property values, it
is reasonable to expect that a number of these holdings will be the object of
merger and acquisition offers. During the fiscal year, two of our holdings
benefited from such offers. Chicago Dock and Canal Trust (purchased March, 1996)
agreed to be acquired by Newsweb Corp., on September 30, providing a 35% return
to the Fund. The Fund sold these shares subsequent to the fiscal year-end. Santa
Anita Realty Enterprises (first purchased in January, 1996) is currently in
merger discussions with Colony Capital, Inc. and Koll/Arcadia Investors L.P.,
and has provided a 28% return for the Fund++. We anticipate that greater
attention will be paid to the acquisition and merger opportunities with
undervalued companies, and therefore expect this to be beneficial to the Fund in
the future.
PERFORMANCE
The Fund benefited with strong gains realized in a number of its holdings.
Prominent gains in the apartment sector from the Fund's holdings in Bay
Apartment Communities (+30% in six months), Gables Residential Properties (+30%
over twelve months), Essex Residential Properties (+17% over eight months), and
Irvine Apartment Communities (+38% over the twelve to thirteen-month holding
period), reflects the Fund's strategy of buying real estate at a discount via
the stock market and holding in anticipation of a market re-rating. Each of the
companies mentioned above except for Gables Residential, are based in California
and as the California economic recovery has become more visible, the stock
market has pushed their prices higher. Another "California play" was shopping
center owner Alexander Hagen Properties, which the Fund acquired in June of 1995
after the stock collapsed from $18 to around $11 due to earnings
disappointments. This investment was made based on the 10% yield and the
prospect for improved leasing in a number of new mall developments. This
investment produced a 28% total return for the Fund in a little more than a
year.
The hotel sector is where we found growth at reasonable valuations. The Fund
benefited from a number of companies, including Bristol Hotel Corp. (+24%),
Interstate Hotel Corporation (+19%), Patriot American Corp. (+26%), Prime
Hospitality Corp. (+56%), and Starwood Hotel Investors (+34%).
PROSPECTS
The fundamental reason for our continued adherence to the Fund's value
orientation in spite of unfavorable market conditions has been our overriding
economic analysis that inflation will not be problematic during 1996 and into
the new year, and that the economy would grow at a modest pace that would be
neither detrimental to the economy, nor particularly expansionary. In such a
scenario, we believe mortgage rates will have to come down while personal income
and accumulated net worth should grow with the economy. We have structured the
portfolio based on these assumptions. We appreciate your continued support and
look forward to reporting on Evergreen U.S. Real Estate Equity Fund's progress
over the next six months.
++ SHOULD THE ACQUISITION NOT BE COMPLETED, THE FUND COULD SUFFER A LOSS ON
THE POSITION.
40
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN U.S. REAL ESTATE EQUITY FUND
The graphs below compare a $10,000 investment in the Evergreen U.S. Real
Estate Equity Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Wilshire Real Estate and S&P 500 Indexes ("Indexes").
CLASS A 1 YEAR TOTAL RETURN = 7.8%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 20.4%
(graph appears here)
3/10/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen U.S. Real Estate Fund
Wilshire Real Estate
S & P 500
(Customer to provide plot points)
CLASS B 1 YEAR TOTAL RETURN = 7.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 21.1%
(graph appears here)
3/7/95* 3/31/95 9/30/95 3/31/96 9/30/96
Evergreen U.S. Real Estate Fund
Wilshire Real Estate
S & P 500
(Customer to provide plot points)
CLASS C 1 YEAR TOTAL RETURN = 11.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 14.5%
(graph appears here)
7/95* 9/30/95 3/31/96 9/30/96
Evergreen U.S. Real Estate Fund
Wilshire Real Estate
S & P 500
(Customer to provide plot points)
CLASS Y 1 YEAR TOTAL RETURN = 13.6%
AVERAGE ANNUAL COMPOUND RETURN
SINCE INCEPTION = 10.3%
(graph appears here)
9/1/93* 9/30/93 9/30/94 9/30/95 9/30/96
Evergreen U.S. Real Estate Fund
Wilshire Real Estate
S & P 500
(Customer to provide plot points)
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on September 30, 1996; (c) all
recurring fees (including investment advisory fees), net of fee waivers and
reimbursements, were deducted; and (d) all dividends and distributions were
reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
41
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
EQUITY SECURITIES -- 97.8%
Real Estate Investment Trusts -- 50.3%
APARTMENTS -- 16.1%
19,000 Apartment Investment &
Management Co.......................... $ 399,000
10,000 Chicago Dock & Canal Trust (The)....... 202,656
18,000 Columbus Realty Trust.................. 366,750
5,000 Gables Residential Trust............... 121,875
16,300 Oasis Residential, Inc................. 356,563
20,000 Summit Properties, Inc................. 395,000
1,841,844
COMMUNITY SHOPPING CENTERS -- .5%
4,000 Kranzco Realty Trust................... 60,500
FACTORY OUTLET CENTERS -- 10.1%
17,500 Chelsea GCA Realty, Inc................ 535,937
29,680 Horizon Group, Inc..................... 612,150
1,148,087
HOTELS -- 8.2%
10,000 Patriot American Hospitality, Inc...... 336,250
367 Starwood Lodging Trust................. 15,368
58,000 Sunstone Hotel Investors, Inc.......... 587,250
938,868
OFFICE-INDUSTRIAL BUILDINGS -- 9.5%
87,000 American Industrial Property........... 163,125
20,000 CarrAmerica Realty Corp................ 500,000
8,000 Crescent Real Estate Equities, Inc..... 329,000
6,000* Koger Equity, Inc...................... 93,750
1,085,875
SHOPPING MALLS -- 5.9%
20,000 Crown American Realty Trust............ 157,500
16,900 Glimcher Realty Trust.................. 331,663
10,000 Santa Anita Realty Enterprises, Inc.... 182,500
671,663
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $5,137,364)................. 5,746,837
Common Stocks -- 47.5%
HOMEBUILDERS -- 25.4%
20,000* Beazer Homes USA, Inc.................. 287,500
19,300 Continental Homes Holding Corp......... 344,988
54,000 D.R. Horton, Inc....................... 526,500
13,800* M/I Schottenstein Homes, Inc........... 120,750
58,500* Pacific Greystone Corp................. 606,937
103,300* Presley Cos............................ 129,125
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
Common Stocks -- continued
<TABLE>
<C> <S> <C>
30,000* Toll Brothers, Inc..................... $ 498,750
71,200* US Home Corp. warrants Cl. B --
expiring 6/21/98....................... 382,700
2,897,250
LODGING -- 17.7%
11,100* CapStar Hotel Co....................... 187,312
10,000* Host Marriott Corp..................... 145,000
8,000* Interstate Hotels Co................... 221,000
25,000* John Q. Hammons Hotels, Inc............ 246,875
15,000* Prime Hospitality Corp................. 247,500
4,800* Renaissance Hotel Group N.V............ 96,000
8,200* Servico, Inc........................... 133,250
28,500* Studio Plus Hotels, Inc................ 470,250
15,000* Wyndham Hotel Corp..................... 273,750
2,020,937
REAL ESTATE SERVICES -- 2.6%
9,400* Grubb & Ellis Co....................... 44,650
10,000* Insignia Financial Group, Inc.......... 255,000
299,650
SHOPPING MALLS -- 1.8%
3,000* Alexander's, Inc....................... 207,750
TOTAL COMMON STOCKS
(COST $5,690,285)................. 5,425,587
TOTAL EQUITY SECURITIES
(COST $10,827,649)................ 11,172,424
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 1.8%
U.S. AGENCY OBLIGATIONS -- 1.8%
$200,000 Federal Home Loan Mortgage Corp.
5.21%, 10/28/96
(COST $199,219)................... 199,219
TOTAL INVESTMENTS (COST
$11,026,868).............. 99.6% 11,371,643
OTHER ASSETS AND
LIABILITIES -- NET........ .4 48,410
NET ASSETS................... 100.0% $11,420,053
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements.
42
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $11,026,868)............................................................. $11,371,643
Cash........................................................................................................... 13,678
Receivable for securities sold................................................................................. 873,813
Prepaid expenses............................................................................................... 36,643
Dividends and interest receivable.............................................................................. 36,263
Due from Adviser............................................................................................... 23,761
Unamortized organization expenses.............................................................................. 12,965
Receivable for Fund shares sold................................................................................ 599
Total assets................................................................................................ 12,369,365
LIABILITIES:
Payable for securities purchased............................................................................... 884,320
Accrued expenses............................................................................................... 64,257
Distribution fee payable....................................................................................... 735
Total liabilities........................................................................................... 949,312
NET ASSETS........................................................................................................ $11,420,053
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $ 9,775,729
Undistributed net investment income............................................................................ 197,030
Undistributed net realized gain on investment transactions..................................................... 1,102,519
Net unrealized appreciation of investments..................................................................... 344,775
Net assets.................................................................................................. $11,420,053
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($263,055 21,053 shares of beneficial interest outstanding).................................. $ 12.49
Sales charge -- 4.75% of offering price..................................................................... .62
Maximum offering price................................................................................... $ 13.11
Class B Shares ($430,719 34,708 shares of beneficial interest outstanding).................................. $ 12.41
Class C Shares ($125,013 10,050 shares of beneficial interest outstanding).................................. $ 12.44
Class Y Shares ($10,601,266 844,133 shares of beneficial interest outstanding).............................. $ 12.56
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends.................................................................................... $ 361,565
Interest..................................................................................... 6,998
Total investment income................................................................... 368,563
EXPENSES:
Advisory fee.................................................................................... $ 104,850
Distribution fee -- Class A Shares.............................................................. 307
Distribution fee -- Class B Shares.............................................................. 2,250
Shareholder services fee -- Class B Shares...................................................... 750
Distribution fee -- Class C Shares.............................................................. 328
Shareholder services fee -- Class C Shares...................................................... 109
Registration and filing fees.................................................................... 80,995
Custodian fee................................................................................... 62,624
Transfer agent fee.............................................................................. 54,833
Professional fees............................................................................... 33,010
Reports and notices to shareholders............................................................. 10,817
Amortization of organization expense............................................................ 6,778
Insurance expense............................................................................... 5,145
Trustees' fees and expenses..................................................................... 3,788
Miscellaneous................................................................................... 2,311
Total operating expenses..................................................................... 368,895
Interest expense............................................................................. 4,255
Less: Fee waivers and expense reimbursements.................................................... (212,198)
Net expenses.............................................................................. 160,952
Net investment income.............................................................................. 207,611
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................................................ 1,211,270
Net decrease in unrealized appreciation of investments.......................................... (117,123)
Net gain on investments............................................................................ 1,094,147
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $1,301,758
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(Photo of American Flag appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 207,611 $ 209,406
Net realized gain on investment transactions........................................... 1,211,270 113,161
Net change in unrealized appreciation of investments................................... (117,123) 1,146,688
Net increase resulting from operations.............................................. 1,301,758 1,469,255
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME:
Class A Shares...................................................................... (2,161) --
Class B Shares...................................................................... (2,282) --
Class C Shares...................................................................... (113) --
Class Y Shares...................................................................... (161,622) (183,475)
Total distributions to shareholders from net investment income................... (166,178) (183,475)
NET REALIZED GAINS ON INVESTMENTS:
Class A Shares...................................................................... (2,640) --
Class B Shares...................................................................... (3,174) --
Class C Shares...................................................................... (144) --
Class Y Shares...................................................................... (170,850) (106,651)
Total distributions to shareholders from net realized gain on investments........ (176,808) (106,651)
Total distributions to shareholders........................................... (342,986) (290,126)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 1,954,850 1,706,148
Proceeds from reinvestments of distributions........................................... 326,476 273,657
Payment for shares redeemed............................................................ (1,443,869) (2,165,200)
Net increase (decrease) resulting from Fund share transactions...................... 837,457 (185,395)
Net increase in net assets.......................................................... 1,796,229 993,734
NET ASSETS:
Beginning of year...................................................................... 9,623,824 8,630,090
End of year (including undistributed net investment income of $197,030 and $113,558,
respectively)........................................................................ $11,420,053 $ 9,623,824
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
CLASS A, CLASS B, AND CLASS C SHARES
(Photo of American Flag appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
MARCH 10, MARCH 7, SHARES
YEAR ENDED 1995* THROUGH YEAR ENDED 1995* THROUGH YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996| 1995 1996| 1995 1996|
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........... $11.42 $9.21 $ 11.37 $9.19 $ 11.41
Income from investment operations:
Net investment income........................ .20 .18 .13 .05 .13
Net realized and unrealized gain on
investments................................ 1.28 2.03 1.27 2.13 1.28
Total from investment
operations............................... 1.48 2.21 1.40 2.18 1.41
Less distributions to shareholders from:
Net investment income........................ (.20) -- (.15) -- (.17)
Net realized gains........................... (.21) -- (.21) -- (.21)
Total distributions........................ (.41) -- (.36) -- (.38)
Net asset value, end of period................. $12.49 $ 11.42 $ 12.41 $ 11.37 $ 12.44
TOTAL RETURN+.................................. 13.1% 24.0% 12.5% 23.7% 12.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $263 $5 $431 $160 $125
Ratios to average net assets:
Expenses..................................... 1.72%# 1.78%++# 2.46%# 2.51%++# 2.47%#
Interest expense............................. .04% -- .04% -- .04%
Net investment income........................ 1.60%# 3.13%++# 1.05%# 2.00%++# 1.08%#
Portfolio turnover rate........................ 169% 115% 169% 115% 169%
Average commission rate paid per share......... $.0619 N/A $.0619 N/A $.0619
<CAPTION>
JULY 12,
1995* THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period........... $ 10.87
Income from investment operations:
Net investment income........................ .08
Net realized and unrealized gain on
investments................................ .46
Total from investment
operations............................... .54
Less distributions to shareholders from:
Net investment income........................ --
Net realized gains........................... --
Total distributions........................ --
Net asset value, end of period................. $ 11.41
TOTAL RETURN+.................................. 5.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)...... $3
Ratios to average net assets:
Expenses..................................... 2.49%++#
Interest expense............................. --
Net investment income........................ 2.55%++#
Portfolio turnover rate........................ 115%
Average commission rate paid per share......... N/A
</TABLE>
| Per share data is calculated based on average shares outstanding during the
period.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
MARCH 10, MARCH 7, JULY 12,
YEAR ENDED 1995* THROUGH YEAR ENDED 1995* THROUGH YEAR ENDED 1995* THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Expenses......... 9.65% 364.74% 6.19% 28.70% 18.82% 421.54%
Net investment
loss........... (6.33%) (359.83%) (2.68%) (24.19%) (15.27%) (416.50%)
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
CLASS Y SHARES
(Photo of American Flag appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS Y SHARES
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996| 1995 1994**
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................... $11.44 $ 10.07 $ 10.71
Income (loss) from investment operations:
Net investment income................................................ .24 .23 .11
Net realized and unrealized gain (loss) on investments............... 1.29 1.46 (.75)
Total from investment
operations....................................................... 1.53 1.69 (.64)
Less distributions to shareholders from:
Net investment income................................................ (.20) (.20) --
In excess of net investment income................................... -- -- --
Net realized gains................................................... (.21) (.12) --
Total distributions................................................ (.41) (.32) --
Net asset value, end of period......................................... $12.56 $ 11.44 $ 10.07
TOTAL RETURN+.......................................................... 13.6% 17.6% (6.0%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............................. $10,601 $ 9,456 $ 8,630
Ratios to average net assets:
Expenses............................................................. 1.46%# 1.50%# 1.49%++#
Interest expense..................................................... .04% -- --
Net investment income................................................ 2.02%# 2.45%# 1.60%++#
Portfolio turnover rate................................................ 169% 115% 102%
Average commission rate paid per share................................. $.0619 N/A N/A
<CAPTION>
SEPTEMBER 1, 1993*
THROUGH
DECEMBER 31, 1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................................... $10.00
Income (loss) from investment operations:
Net investment income................................................ .04
Net realized and unrealized gain (loss) on investments............... .72
Total from investment
operations....................................................... .76
Less distributions to shareholders from:
Net investment income................................................ (.04)
In excess of net investment income................................... (.01)
Net realized gains................................................... --
Total distributions................................................ (.05)
Net asset value, end of period......................................... $10.71
TOTAL RETURN+.......................................................... 7.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............................. $4,610
Ratios to average net assets:
Expenses............................................................. .44%++#
Interest expense..................................................... --
Net investment income................................................ 1.93%++#
Portfolio turnover rate................................................ 17%
Average commission rate paid per share................................. N/A
</TABLE>
| Per share data is calculated based on average shares outstanding during the
period.
* Commencement of class operations.
** The Fund changed its fiscal year end from December 31 to September 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment 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 the following:
<TABLE>
<CAPTION>
CLASS Y SHARES
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED SEPTEMBER 1, 1993*
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, THROUGH
1996 1995 1994 DECEMBER 31, 1993
<S> <C> <C> <C> <C>
Expenses................................... 2.25% 2.70% 2.65% 3.59%
Net investment income (loss)............... 1.23% 1.25% .44% (1.21%)
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Domestic Equity Funds (the "Funds") are separate series of
open-end management companies registered under the Investment Company Act of
1940, as amended (the "Act"). The Evergreen Domestic Equity Funds consist of
Evergreen Fund, Evergreen Aggressive Growth Fund ("Aggressive Growth"),
Evergreen Limited Market Fund, Inc. ("Limited Market") and Evergreen U.S. Real
Estate Equity Fund ("U.S. Real Estate"), known collectively as the Funds.
Evergreen Fund's investment objective is to seek capital appreciation
principally through investments in common stock and securities convertible into
or exchangeable for common stock of companies which are little-known, relatively
small or represent special situations which, in the opinion of the Fund's
investment adviser, offer potential for capital appreciation. Aggressive Growth
seeks to achieve long-term capital appreciation by investing primarily in common
stocks of emerging growth companies and larger, more well established companies,
all of which are viewed by its investment adviser as having above-average
appreciation potential. Limited Market seeks to achieve capital appreciation
principally through investing in the common stock of companies for which there
is a relatively limited trading market; income is not a factor in the selection
of portfolio securities. U.S. Real Estate's investment objective is long-term
capital growth which it seeks to achieve through investment primarily in equity
securities of domestic companies which are principally engaged in the real
estate industry or which own significant real estate assets.
Effective January 1, 1996, First Fidelity Bancorporation ("First Fidelity")
merged with First Union National Bank of North Carolina ("First Union").
Effective on the close of business on January 19, 1996, Evergreen Fund acquired
substantially all of the net assets of FFB Lexicon Small Company Growth Fund, an
open-end investment company, managed by a subsidiary of First Fidelity, valued
at $27,158,980. The net assets were exchanged through a non-taxable merger for
1,752,546 Class Y shares of Evergreen Fund valued at $15.50 per share. The
acquired net assets consisted primarily of portfolio securities with unrealized
appreciation of $2,905,682. The aggregate net assets of Evergreen Fund after the
acquisition were $824,140,509.
Effective June 30, 1995, Aggressive Growth, a new series of the Evergreen
Trust formed for the purpose of acquiring substantially all of ABT Emerging
Growth Fund's net assets, issued 4,209,767 of its Class A shares at $15.53 per
share in exchange for Emerging Growth's net assets valued at $65,368,158. The
acquired net assets, in this non-taxable transaction, primarily consisted of
portfolio securities with unrealized appreciation of $27,072,969. ABT Emerging
Growth Fund's fiscal year ended October 31. Because ABT Emerging Growth Fund
contributed substantially all of Aggressive Growth's net assets and
shareholders, its basis of accounting for assets and liabilities and its
operating results for prior periods are carried forward in the accompanying
financial statements and financial highlights as the accounting survivor.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS") are
valued at the last reported sale price. Securities traded on an exchange or NMS
for which there has been no sale and securities traded in the over-the-counter
market are valued at the mean between the last reported bid and asked price.
Securities for which market quotations are not readily available are valued at
their respective fair value as determined in good faith under procedures
established by the Board of Trustees/Directors. Short-term investments are
valued at amortized cost, which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date. Interest income and expenses are accrued daily.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis, and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the
Trustees/Directors.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income and net
realized capital gains on investments, if any, will be distributed at least
annually. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from the amounts available for
distribution under generally accepted accounting principles. To the extent these
differences are permanent in nature, such amounts are reclassified within the
components of net assets.
As of September 30, 1996, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT REALIZED GAIN (LOSS)
INCOME ON INVESTMENTS
<S> <C> <C>
Aggressive Growth $919,882 --
Limited Market 205,364 --
U.S. Real Estate 42,039 $(42,039)
</TABLE>
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable net income and net realized capital
gains to its shareholders. Accordingly, no provisions for Federal income or
excise taxes are necessary. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is each Fund's policy not to distribute
such gains.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the Fund's following fiscal year.
Aggressive Growth, Limited Market and U.S. Real Estate incurred in the fiscal
year and have elected to defer $2,992,429, $516,710 and $205,513, respectively,
of such capital losses.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Investment income, net of expenses (other
than class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Aggressive Growth and
U.S. Real Estate incurred in connection with their organization are being
deferred and amortized over a period of benefit not to exceed 60 months from the
date they commenced operations.
REAL ESTATE INVESTMENT TRUSTS -- U.S. Real Estate owns shares of real
estate investment trusts ("REITs") which report information on the source of
their distributions annually. A portion of distributions received from REITs
during the year is estimated to be a return of capital and is recorded as a
reduction of their cost.
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
USE OF ESTIMATES -- The preparation of the financial statements is in
accordance with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union is entitled to an annual fee
of .60 of 1% of Aggressive Growth's average daily net assets pursuant to the
Fund's investment advisory agreement.
Pursuant to an agreement with Evergreen Fund's, Limited Market's and U.S.
Real Estate's investment adviser, Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee
based on each of Evergreen Fund's, Limited Market's and U.S. Real Estate's
average daily net assets, in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million 1.00%
Next $250 million 0.90%
Over $1 billion 0.80%
</TABLE>
Evergreen Asset has agreed to reimburse U.S. Real Estate to the extent that
the Fund's operating expenses (including the investment advisory fee and
amortization of organization expenses but excluding interest, taxes, brokerage
commissions, 12b-1 distribution and shareholder services fees and extraordinary
expenses) exceed 1.50% of its average daily net assets until the Fund's net
assets reach $15 million. For the year ended September 30, 1996, Evergreen Asset
waived all of its advisory fee and reimbursed $107,348 in expenses under this
limitation. In addition, for the year ended September 30, 1996, Evergreen Asset
voluntarily reimbursed expenses amounting to $9,740 and $64,388 respectively,
for Evergreen Fund and Limited Market. Evergreen Asset can modify or terminate
these voluntary waivers at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Evergreen Fund, Limited Market and U.S. Real Estate and also
provides brokerage services with respect to substantially all security
transactions executed on the New York or American Stock Exchanges. For
transactions executed during the year ended September 30, 1996, Evergreen Fund,
Limited Market and U.S. Real Estate incurred brokerage commissions of $515,522,
$153,569 and $109,262, respectively, with Lieber & Company. Lieber & Company is
reimbursed by Evergreen Asset, at no additional expense to the Funds, for its
cost of providing investment advisory services.
At September 30, 1996, Stephen A. Lieber, Chairman of Evergreen Asset
owned, directly or beneficially, 38% of the outstanding shares of U.S. Real
Estate.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes Evergreen Fund,
Limited Market and U.S. Real Estate with administrative services as part of
their advisory agreements and accordingly, these Funds do not pay a separate
administration fee. Furman Selz LLC ("Furman Selz") is each of the Funds'
sub-administrator. As sub-administrator, Furman Selz provides the officers of
the Funds. For Evergreen Fund, Limited Market and U.S. Real Estate, Furman Selz'
fee is paid by Evergreen Asset and is not a fund expense.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Evergreen Asset is also Aggressive Growth's administrator and Furman Selz
is sub-administrator. Evergreen Asset's and Furman Selz' fees for Aggressive
Growth are based on the average daily net assets of all the funds administered
by Evergreen Asset for which First Union or Evergreen Asset is also investment
adviser. These fees are calculated at the following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% in excess of $30 billion
</TABLE>
<TABLE>
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>
At September 30, 1996, assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was investment
adviser totaled approximately $16.0 billion.
PLANS OF DISTRIBUTION -- The Funds have adopted Distribution Plans (the
"Plans") pursuant to Rule 12b-1 under the Act for their Class A Shares, Class B
Shares, and Class C Shares (see Note 4). Under the terms of the Plans, the Funds
may incur distribution-related and shareholder servicing expenses which may not
exceed an annual fee of .75 of 1% for Class A Shares and 1% for Class B and
Class C Shares. For each of the Funds, the payments for Class A Shares were
voluntarily limited to .25 of 1% of average daily net assets.
In connection with their plans, the Funds have entered into distribution
agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of
Furman Selz, whereby the Funds will compensate EFD for its services at a rate
which may not exceed an annual fee of .25 of 1% of Class A Shares' average daily
net assets and an annual fee of 1% of Class B and Class C Share's average daily
net assets, respectively. A portion of the payments for Class B and C Shares, up
to .25 of 1% constitutes a shareholder services fee. EFD has entered into a
Shareholder Services Agreement with First Union Brokerage ("FUBS"), an affiliate
of First Union, whereby they will compensate FUBS for certain services provided
to shareholders and/or maintenance of shareholder accounts relating to each of
the Fund's Class B and Class C Shares.
SALES CHARGES -- EFD has advised the Funds that it has retained the
following amounts from front-end sales charges resulting from sales of Class A
Shares during the year ended September 30, 1996:
<TABLE>
<CAPTION>
FRONT-END
SALES
CHARGES
<S> <C>
Aggressive Growth $ 22,742
Evergreen Fund 157,233
Limited Market 188
U.S. Real Estate 543
</TABLE>
OTHER SERVICES WITH AFFILIATES -- State Street Bank & Trust Company ("State
Street") is the transfer agent, dividend disbursing agent and shareholder
servicing agent for the Funds. For certain benefit plan accounts in Evergreen
Fund, Aggressive Growth and Limited Market, First Union has been sub-contracted
by State Street to maintain shareholder sub-account records, take fund purchase
and redemption orders and answer inquiries. For each account, First Union is
entitled to a monthly fee which amounted to a total of $66,303 for the Evergreen
Fund for the year ended September 30, 1996. Aggressive Growth and Limited Market
did not incur any fees pursuant to this agreement for the year ended September
30, 1996.
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
Aggressive Growth, Evergreen Fund and U.S. Real Estate have an unlimited
number of shares of beneficial interest authorized. Limited Market has 25
million common shares authorized allocated equally to each of its classes of
shares sold. The par value of the Fund's shares are $.001, $.001, $.10 and
$.0001 for Evergreen Fund, Aggressive Growth, Limited Market and U.S. Real
Estate, respectively. The shares are divided into classes which are designated
Class A, Class B, Class C and Class Y shares. Class A shares are sold with a
front-end sales charge of up to 4.75%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares seven years after the date of purchase. Class C shares are sold with a
contingent deferred sales charge of 1% for shares redeemed during the first year
after the date of purchase. Class Y shares are sold without a sales charge and
are available only to investment advisory clients of First Union and its
affiliates, certain institutional investors or Class Y shareholders of record of
certain other funds managed by First Union and its affiliates as of December 30,
1994. The classes have identical voting, dividend, liquidation and other rights,
except that Class A, Class B and Class C shares bear distribution expenses (see
Note 3) and have exclusive voting rights with respect to their distribution
plans.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED*
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
EVERGREEN FUND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................ 6,095,487 $ 99,948,887 2,116,988 $ 30,255,833
Shares issued on reinvestment of distributions......... 94,388 1,472,450 -- --
Shares redeemed........................................ (3,137,366) (52,080,445) (223,365) (3,375,528)
Net increase........................................... 3,052,509 49,340,892 1,893,623 26,880,305
CLASS B
Shares sold............................................ 10,528,707 171,559,260 4,886,698 69,361,586
Shares issued on reinvestment of distributions......... 230,476 3,588,103 -- --
Shares redeemed........................................ (1,033,495) (16,934,353) (94,896) (1,403,566)
Net increase........................................... 9,725,688 158,213,010 4,791,802 67,958,020
CLASS C
Shares sold............................................ 253,398 4,102,332 138,560 1,992,663
Shares issued on reinvestment of distributions......... 6,180 96,026 -- --
Shares redeemed........................................ (43,233) (711,575) (12,818) (190,022)
Net increase........................................... 216,345 3,486,783 125,742 1,802,641
CLASS Y
Shares sold............................................ 87,374,014 1,420,506,634 89,763,450 1,249,272,141
Shares issued in acquisition of
FFB Lexicon Small Company Growth Fund................ 1,752,546 27,158,980 -- --
Shares issued on reinvestment of distributions......... 1,402,844 21,926,423 5,626,158 66,336,031
Shares redeemed........................................ (82,347,414) (1,341,450,072) (92,075,790) (1,284,726,648)
Net increase........................................... 8,181,990 128,141,965 3,313,818 30,881,524
Total net increase resulting from Fund share
transactions......................................... 21,176,532 $ 339,182,650 10,124,985 $ 127,522,490
</TABLE>
* For Class A, B, and C shares, the Fund share transaction activity is for the
period January 3, 1995 (commencement of class operations) through September
30, 1995.
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN MONTHS ENDED*
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
AGGRESSIVE GROWTH SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................... 1,486,503 $28,206,250 495,784 $ 7,228,522
Shares issued on reinvestment of distributions................. 125,571 2,164,153 -- --
Shares redeemed................................................ (1,100,349) (20,468,235) (1,083,263) (15,863,245)
Net increase (decrease)........................................ 511,725 9,902,168 (587,479) (8,634,723)
CLASS B
Shares sold.................................................... 1,012,639 18,916,487 165,945 2,799,908
Shares issued on reinvestments of distributions................ 9,125 156,717 -- --
Shares redeemed................................................ (150,663) (2,835,175) (1,193) (19,616)
Net increase................................................... 871,101 16,238,029 164,752 2,780,292
CLASS C
Shares sold.................................................... 44,926 857,932 24,064 422,094
Shares issued on reinvestments of distributions................ 420 7,213 -- --
Shares redeemed................................................ (21,948) (396,890) -- --
Net increase................................................... 23,398 468,255 24,064 422,094
CLASS Y
Shares sold.................................................... 1,385,748 25,808,879 111,806 1,882,102
Shares issued on reinvestments of distributions................ 8,611 148,623 -- --
Shares redeemed................................................ (273,910) (5,080,669) (3,091) (52,855)
Net increase................................................... 1,120,449 20,876,833 108,715 1,829,247
Total net increase (decrease) resulting from Fund share
transactions................................................. 2,526,673 $47,485,285 (289,948) ($ 3,603,090)
</TABLE>
* For Class B, Class C and Class Y shares, the Fund Share transaction
activity reflects the periods from commencement of class operations July 7,
1995, August 3, 1995 and July 11, 1995, respectively, through September 30,
1995.
53
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED*
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
LIMITED MARKET
CLASS A
Shares sold.................................................. 44,104 $ 755,204 68,006 $ 1,122,391
Shares issued on reinvestments of distributions.............. 1,829 31,166 -- --
Shares redeemed.............................................. (52,912) (905,676) (8,837) (150,079)
Net increase (decrease)...................................... (6,979) (119,306) 59,169 972,312
CLASS B
Shares sold.................................................. 15,418 265,257 132,239 2,169,679
Shares issued on reinvestments of distributions.............. 3,263 55,180 -- --
Shares redeemed.............................................. (43,481) (724,243) (21,845) (382,430)
Net increase (decrease)...................................... (24,800) (403,806) 110,394 1,787,249
CLASS C
Shares sold.................................................. 134 2,393 4,195 68,235
Shares issued on reinvestments of distributions.............. 112 1,899 -- --
Shares redeemed.............................................. (2,040) (33,276) (832) (15,092)
Net increase (decrease)...................................... (1,794) (28,984) 3,363 53,143
CLASS Y
Shares sold.................................................. 332,812 5,693,077 1,558,531 27,591,064
Shares issued on reinvestment of distributions............... 96,831 1,650,971 901,732 14,048,986
Shares redeemed.............................................. (1,659,712) (28,422,146) (3,515,593) (61,895,857)
Net decrease................................................. (1,230,069) (21,078,098) (1,055,330) (20,255,807)
Total net decrease resulting from Fund share transactions.... (1,263,642) ($21,630,194) (882,404) ($17,443,103)
</TABLE>
* For Class A, Class B and Class C shares, the Fund share transaction
activity is for the period January 3, 1995 (commencement of class operations)
through September 30, 1995.
54
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED*
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
U.S. REAL ESTATE
CLASS A
Shares sold........................................................... 50,221 $ 600,589 1,923 $ 18,771
Shares issued on reinvestment of distributions........................ 352 4,164 -- --
Shares redeemed....................................................... (29,953) (356,039) (1,490) (14,411)
Net increase.......................................................... 20,620 248,714 433 4,360
CLASS B
Shares sold........................................................... 21,611 258,923 14,116 147,171
Shares issued on reinvestment of distributions........................ 459 5,421 -- --
Shares redeemed....................................................... (1,478) (17,892) -- --
Net increase.......................................................... 20,592 246,452 14,116 147,171
CLASS C
Shares sold........................................................... 11,216 136,531 242 2,509
Shares issued on reinvestment of distributions........................ 22 258 -- --
Shares redeemed....................................................... (1,430) (17,003) -- --
Net increase.......................................................... 9,808 119,786 242 2,509
CLASS Y
Shares sold........................................................... 79,674 958,807 161,434 1,537,697
Shares issued on reinvestment of distributions........................ 26,720 316,633 30,172 273,657
Shares redeemed....................................................... (88,998) (1,052,935) (222,266) (2,150,789)
Net increase (decrease)............................................... 17,396 222,505 (30,660) (339,435)
Total net increase (decrease) resulting from Fund share
transactions........................................................ 68,416 $ 837,457 (15,869) ($ 185,395)
</TABLE>
* For Class A, Class B and Class C shares, the Fund share transaction
activity reflects the periods from commencement of class operations, March 10,
1995, March 7, 1995 and July 12, 1995, respectively, through September 30, 1995.
55
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the year ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Evergreen Fund........................................ $321,713,053 $112,987,144
Aggressive Growth..................................... 81,193,529 37,727,809
Limited Market........................................ 79,113,322 101,019,265
U.S. Real Estate...................................... 18,607,227 16,536,365
</TABLE>
On September 30, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
NET APPRECIATION/ FEDERAL TAX
APPRECIATION DEPRECIATION (DEPRECIATION) COST
<S> <C> <C> <C> <C>
Evergreen Fund............. $435,711,946 $ 22,362,256 $ 413,349,690 $776,394,047
Aggressive Growth.......... 60,528,569 34,375 60,494,194 86,239,682
Limited Market............. 4,000,320 3,062,802 937,518 41,164,343
U.S. Real Estate........... 871,341 556,207 315,134 11,056,509
</TABLE>
NOTE 6 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement is in place with all the
Evergreen Funds and the custodian, State Street Bank and Trust Company (the
"Bank"). Under the agreement, the Bank is providing an unsecured line of credit
facility, in the aggregate amount of $100 million ($50 million committed and $50
million uncommitted), to be accessed by the Funds for temporary or emergency
purposes only and is subject to each participating Fund's borrowing
restrictions. Borrowings under this facility bear interest at .75% per annum
above the Bank's cost of funds as set periodically by the Bank. A commitment fee
of .10% per annum will be incurred on the unused portion of the committed
facility which will be allocated to all participating funds.
Prior to July 3, 1996, Evergreen Fund and Limited Market had a financing
agreement with their custodian Bank, which provided the Funds with lines of
credit, in the aggregate amount of the lesser of $25,000,000 or 5% of the value
of the Fund's net assets for the Evergreen Fund and a line of credit in the
aggregrate amount of $2,500,000 or 5% of the value of the Fund's net assets for
Limited Market, to be accessed for temporary or emergency purposes. Borrowings
under the lines of credit bore interest at 1% above the Bank's cost of funds as
set periodically by the Bank and were secured by securities pledged by the Fund.
During the year ended September 30, 1996, the Evergreen Fund had no borrowings.
Limited Market had borrowings outstanding for 118 days under its lines of credit
and incurred $11,126 in interest charges related to these borrowings. Limited
Market's average amount of debt outstanding during the period aggregated
$171,371 at the weighted interest rate of 6.72%. Limited Market had $280,000
outstanding borrowings at September 30, 1996.
U.S. Real Estate incurred interest expense totalling $4,255 related to
other short-term borrowings with the Bank.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Since U.S. Real Estate invests a substantial portion of its assets in
REITs, it may be more affected by economic developments in the real estate
industry than would a general equity fund.
NOTE 8 -- DEFERRED TRUSTEES' (DIRECTORS') FEES
Each Trustee/Director (referred to as Trustees) may defer any or all of his
compensation related to performance of his duties as a Trustee of the Funds.
Deferred balances are allocated to a "Deferral Account", which is included in
the accrued
56
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 8 -- DEFERRED TRUSTEES' (DIRECTORS') FEES -- continued
expenses for each Fund at September 30, 1996, in its Statement of Assets and
Liabilities. Any gains earned or losses incurred in the Deferral Accounts are
reported in each Fund's Trustees' fees and expenses on the Statement of
Operations. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at his election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000. As of September 30, 1996, Trustees had deferred $23,317,
$3,661, $3,915 and $2,306 for Evergreen Fund, Aggressive Growth, Limited Market
and U.S. Real Estate, respectively.
57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES OR DIRECTORS, AND SHAREHOLDERS OF EVERGREEN FUND,
EVERGREEN AGGRESSIVE GROWTH FUND, EVERGREEN U.S. REAL ESTATE EQUITY FUND,
AND EVERGREEN LIMITED MARKET FUND, INC.
In our opinion, the accompanying Statements of Assets and Liabilities,
including the Statements of Investments, and the related Statements of
Operations and of Changes in Net Assets and the Financial Highlights present
fairly, in all material respects, the financial position of Evergreen Fund and
Evergreen Aggressive Growth Fund (constituting the Evergreen Trust), Evergreen
Limited Market Fund, Inc. and Evergreen U.S. Real Estate Equity Fund (one of the
Evergreen Real Estate Equity Trust Portfolios) (collectively, the "Funds"), at
September 30, 1996, the results of each of their operations for the year then
ended, the changes in the net assets of Evergreen Fund for each of the two years
in the period then ended, the changes in the net assets of Evergreen Aggressive
Growth Fund for the year then ended and for the eleven months in the period
ended September 30, 1995, the changes in the net assets of Evergreen Limited
Market Fund, Inc. for the year ended September 30, 1996, the changes in the net
assets of Evergreen U.S. Real Estate Equity Fund for each of the two years in
the period then ended, and the financial highlights of Evergreen Fund for the
periods indicated, of Evergreen Aggressive Growth Fund for the year then ended
and for the eleven months in the period ended September 30, 1995, of Evergreen
Limited Market Fund, Inc. for the year ended September 30, 1996, and of
Evergreen U.S. Real Estate Equity Fund for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above. The financial highlights of
Evergreen Aggressive Growth Fund for each of the three years in the period ended
October 31, 1994, and the statement of changes in net assets for the year ended
September 30, 1995 and the financial highlights for the year ended September 30,
1995, the four month period ended September 30, 1994 and for the two years in
the period ended May 31, 1994, of Evergreen Limited Market Fund, Inc. were
audited by other independent accountants, whose opinions, dated November 29,
1994 and November 16, 1995, respectively, were unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
November 18, 1996
58
<PAGE>
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<PAGE>
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<PAGE>
TRUSTEES/DIRECTORS AND OFFICERS
TRUSTEES/DIRECTORS:
Laurence B. Ashkin
Foster Bam
James S. Howell, Chairman
Robert J. Jeffries+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
+ Trustee Emeritus
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
During the fiscal year ended September 30, 1996 the Evergreen,
Aggressive Growth and Limited Market paid $24,006,429, $2,947,466 and
$1,426,849, respectively, of net long-term capital gain distributions.
For corporate taxpayers, 100%, 8.22% and 24.49% of the ordinary income
distributions paid during the fiscal year ended September 30, 1996 by
Evergreen, Limited Market and U.S. Real Estate, respectively, qualified
for corporate dividends received deduction.
<PAGE>
This brochure must be preceeded or accompanied by a prospectus for an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing or
sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Asset Management Corp. Copyright
1996, Evergreen Asset Management Corp.
539748
45644 11/96
<PAGE>
