<PAGE>
EVERGREEN
DOMESTIC GROWTH
FUNDS
(Four photos: street sign, beakers, building and U.S. flag)
SEMIANNUAL
REPORT
MARCH 31, 1997
Evergreen Keystone
(Logo) FUNDS(SM) (Logo)
<PAGE>
EVERGREEN DOMESTIC GROWTH FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Economic Overview......................................................... 1
(photo of street sign) EVERGREEN A Report From Your Portfolio Manager...................................... 2
FUND Statement of Investments.................................................. 4
Statement of Assets and Liabilities....................................... 10
Statement of Operations................................................... 11
Statements of Changes in Net Assets....................................... 12
Financial Highlights...................................................... 13
(photo of beakers) EVERGREEN A Report From Your Portfolio Manager...................................... 16
AGGRESSIVE GROWTH Statement of Investments.................................................. 19
FUND Statement of Assets and Liabilities....................................... 20
Statement of Operations................................................... 21
Statements of Changes in Net Assets....................................... 22
Financial Highlights...................................................... 23
EVERGREEN A Report From Your Portfolio Managers..................................... 26
LIMITED MARKET Statement of Investments.................................................. 29
(photo of building) FUND Statement of Assets and Liabilities....................................... 31
Statement of Operations................................................... 32
Statements of Changes in Net Assets....................................... 33
Financial Highlights...................................................... 34
EVERGREEN A Report From Your Portfolio Manager...................................... 37
U.S. REAL ESTATE Statement of Investments.................................................. 40
(photo of U.S. flag) EQUITY FUND Statement of Assets and Liabilities....................................... 41
Statement of Operations................................................... 42
Statements of Changes in Net Assets....................................... 43
Financial Highlights...................................................... 44
Combined Notes to Financial Statements.................................... 47
Trustees and Officers...................................... Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN DOMESTIC GROWTH FUNDS
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN
STEPHEN A. LIEBER
The dynamic United States economy during the first
third of 1997 has almost overwhelmed the expectations (photo of Stephen Lieber)
of the experts. The achievement of a gross domestic
product increase of 5.6% in the first quarter,
together with a core inflation rate
of 2.2% and little indicated pressure for wage inflation, dramatically contrasts
with the predictions of economists who anticipated slower growth and a trend of
rising wages as the number of unemployed shrank as a percentage of the labor
force. Even more confounding, is the contrast with expectations of the business
cycle. If the economy were to be following the pattern evident in most post-war
years, it would now be deep in a recession, not in an impressively sustained
expansion. The investor, as well as the economist, must ask whether this is a
significantly different era for the American economy, suggesting different
responses and strategies.
Several major differences from recent experience are evident. Comparatively
stable wage costs are foremost, and are the subject of much debate. Some argue
that U.S. wage costs are held down by international competition, especially as a
result of the rise of the dollar, and the consequent cheapening of imports.
Others hold that the bargaining power of labor has been diminished by the
downsizing of corporations with its emphasis on productivity gains. Another view
is that industry emphasis on cost control and flexibility on relocation has
served to reduce the bargaining power of the work force. Irrespective of which
one of the factors is decisive, the evidence does indicate that wage pressures
have unexpectedly not mirrored the rise in employment. The issue of increased
productivity is also debated as an important factor, but there is very little
agreement on the statistical evidence.
The prospects for increasing productivity are enhanced by sustained capital
spending, up at a rate of 11.9% in the first quarter. Raw materials have also
played a role in reducing cost pressures, especially with the decline in oil and
petroleum products during the first quarter. Seldom have commodity price
pressures been so few during a period of significantly increased demand.
Notwithstanding these favorable trends, the Federal Reserve Open Market
Committee chose to make a "pre-emptive" 0.25% increase in the discount rate
during March, with a view toward containing the pressures for too rapid economic
growth. In this environment of favorable trends, it is understandable that
consumer spending has risen to record levels, up 6.4% in the first quarter, that
consumer savings rose to 5.3% in March, and that polls of consumer confidence
show a diminished anticipation of recession.
Investment implications of this economic strength are, as usual, subject to
widespread debate. The most obvious implication is that the strong economy is
producing a broad, sustained growth in corporate profits, which translates into
higher dividends and, to-date, in higher stock prices. It has also brought
higher bond yields and a decline in bond prices as the anticipation of Federal
Reserve growth restraining policies become more widespread. The higher bond
yields, in turn, also tend to put competitive pressures against the higher stock
prices achieved because of rising corporate earnings. The challenge for
investors is, in fact, an unusual one; responding to what many economists and,
perhaps, the Federal Reserve regulators view as a too successful economy. How
does one invest in an economy which appears to be too successful?
The approach to this challenge favored by the Evergreen Keystone Funds is to
concentrate investment on long-term values. Those values include corporations
with strong financial condition, long-term records of outstanding achievement,
effective management which enhances its business franchise with new and improved
products and services, and well-grounded innovators who can create new demand
and, thus, rapidly growing businesses. A cautious and patient approach which
takes into account the volatility of the securities markets generated by this
unexpected strength and "pre-emptive" monetary moves, seems to us the best
long-term approach. Patient accumulation with purchases during periods of market
weakness, and judicious sales during those periods so aptly named by Federal
Reserve Chairman, Alan Greenspan, as "irrational exuberance", are the strategies
of our equity management. Important, too, is the use of appropriate balance
between equities and fixed income, with a careful adjustment of the allocation
of assets, including the maturities of obligations in an effort to both minimize
risk and maximize return. International investing presents yet another
opportunity for asset allocation, based on the search for the most comparatively
undervalued and well-grounded long-term growth opportunities.
Recognizing the multiplicity of choices, the complexity of asset allocation,
and the necessity for constant evaluation in order to take advantage of shifting
opportunities, the Evergreen Keystone Funds provide a wide variety of investing
options and an investment management group oriented toward long-term results.
1
<PAGE>
EVERGREEN FUND
(photo of street sign)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEPHEN A. LIEBER
In the first half of fiscal 1997, Evergreen Fund's total
return (Class Y, no-load shares) was +4.9%*, comparing with (photo of
- -0.2% for the Russell 2000 Index**, and -0.4% for the NASDAQ Stephen Lieber)
Composite Index**. The six-month total return ended March 31,
1997, for the Fund's Class A shares at net asset value was
4.8%*.
This six-month period started strongly with Evergreen Fund's
total return (Class Y shares) +12.9% through the middle of
February. But, the growth sectors of the stock market
experienced a reversal at the end of February, and through
March, which brought the gain for the period down to +4.9%. Nonetheless, the
portfolio demonstrated a breadth and balance which permitted
outperformance of its traditional emphasis -- the smaller entrepreneurial
company sectors.
Notwithstanding an environment of underperformance of smaller companies, the
Fund's performance leaders were in this category. Each represented an
exceptional corporate profits growth trend in a modestly, even undervalued
company. The top ten performers in the Fund were: United Carolina Bancshares
Corp., +84.1%, Hvide Marine, Inc., +75.1%, Herman Miller, Inc., +74.2%, Bank of
Yorba Linda, +72.4%, Bank of Commerce San Diego, +58.3%, Seaway Food Town, Inc.,
+57.8%, American Federal Bank, FSB, +53.2%, SC Bancorp, +51.3%, Tosco Corp.,
+51.0%, and Intel Corp., +45.4%.
After an excellent five-month performance, the March interruption to the
portfolio's growth in value particularly affected the larger capitalization
group of holdings, especially financial and pharmaceutical companies. These
major company holdings have generally been held by the Fund over long periods,
and are analyzed as having continuing exceptional growth potentials. Included in
this group are shares of Merck & Co., Inc., held since 1986, Johnson & Johnson,
held since 1987, Barnett Banks, Inc., and BankBoston Corp., held since 1990, and
Federal National Mortgage Association, held since 1991.
Corporate merger and acquisition activity provided significant gains during
the half year, as is consistent with our long-term experience. Nineteen
companies in the Fund's portfolio received merger or acquisition offers, or
completed previously announced offers, during the period. Gains on these issues
to March 31, ranged up to 247.2% for United Carolina Bancshares Corp., and
averaged 59.8% for all completed transactions. The pace of such transactions
increased through the period, with nine announced during the fiscal second
quarter. A few occurred very shortly after initial purchases to the Fund.
Illustratively, a bid for Kysor Industrial Corp. was made in just five months
after our purchase, with a gain of 58.7% on the completed acquisition one month
after the announcement. Even more striking was the 43.2% gain in American
Medical Response, Inc., held just two months. The total number of companies
merged or acquired among Evergreen holdings have now reached 312 since the
Fund's inception in 1971. We see the maintenance of the trend as demonstrating
an effective selection of undervalued investment opportunities.
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* -0.2% WAS THE 6-MONTH TOTAL RETURN FOR THE FUND'S CLASS A SHARES WITH THE
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 AFTER THE MONTH OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF
SHARES MAY BE DIFFERENT. PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL
VALUE AND YIELD WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
** THE RUSSELL 2000 IS AN UNMANAGED INDEX OF SELECTED SMALL CAP SECURITIES. THE
NASDAQ OTC COMPOSITE INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES. AN
INVESTMENT CAN NOT BE MADE IN AN INDEX.
+ THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CAPITAL APPRECIATION PRINCIPALLY
THROUGH INVESTMENT IN SECURITIES LITTLE-KNOWN, OR RELATIVELY SMALL COMPANIES
OR COMPANIES UNDERGOING CHANGES WHICH THE FUND'S INVESTMENT ADVISER BELIEVES
WILL HAVE FAVORABLE CONSEQUENCES.
2
<PAGE>
EVERGREEN FUND
(photo of street sign)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Profits were taken in a number of holdings which we viewed as having
comparatively limited promise. Portions of holdings in a number of banks were
most prominent among sales. Holdings were reduced in Barnett Banks, Inc., First
Michigan Bank Corp., North Fork Bancorp, Inc., ONBANCorp, Inc., Old Kent
Financial Corp., and BankBoston Corp., with gains ranging from 1,212.5% to
44.6%. The largest held position in this group was First Michigan Bank Corp.,
realizing a 514.8% gain since 1985.
Losses realized were predominantly in shares of very small, specialized
companies, where modest initial positions were held pending the confirmation of
growth potential. When these were deemed less promising than anticipated, the
position were sold. Such losses involved a 58.9% fall in value for computer
software producer, Broderbund Software, Inc., a 25.0% loss in global positioning
system manufacturer, Trimble Navigation Ltd., and a 19.3% loss in specialty
retailer, Harold's Stores, Inc. We view such losses as a consequence of the risk
factor in our search for early positioning in entrepreneurial growth
opportunities.
The Fund's basic purchasing strategy was a focus on issues considered
undervalued, either for intrinsic reasons, or because of what we viewed as
temporary market factors. A total of 137 equity purchases were made. Of these,
54 were new holdings and 83 were additions to positions. Illustratively, the
largest percentage gain of any issue bought during the period was in the shares
of Herman Miller, Inc. representing an addition to the position. These shares
rose 46.8% from purchase on November 20, 1996, through March 31. Our analysis of
this company's prospects for increased sales and profit margins under new
management leadership suggested that it was undervalued. In contrast to this
rather neglected issue, we added to our holding of Intel Corp. with a purchase
on October 8, which returned 32.3% by March 31. We saw an opportunity brought on
by a widespread fear that the computer and semiconductor industries were in a
free fall of product prices. We saw this reasoning as short-term, and
particularly inappropriate for Intel Corp., and, thus, used it as an
opportunity.
Not all purchases went as well as Herman Miller, Inc. and Intel Corp. In the
case of Harman International Industries, Inc., we added to holdings in October,
and then saw the shares fall 30.8% by the end of March. We had not anticipated
an inventory build up by customers which, in the latest quarter, led the company
to lower-than-projected sales, and consequent profit margins. Viewing this as a
temporary interruption of trend, we not only continue to hold, but have further
added to this position.
In looking at the investment outlook for the balance of the fiscal year, and
for calendar 1997, we are reminded of the conclusion of a semiannual report at
the beginning of this decade, when we wrote, "We expect the stock market to
revert toward its long historical emphasis on selectivity among growth
companies, especially those with a conservative valuation of both growth trends
and assets. That emphasis provided the environment for Evergreen Fund's greatest
gains. We are optimistic that our sustained research and strategic effort will
provide capital appreciation..." Recent market volatility illustrates an
increasingly selective trend in the markets, with a recognition that many issues
had become fully valued, some overvalued, while others are ignored. The
intensity of our search for undervalued growth opportunities should continue to
produce significant gains notwithstanding a volatile and often uncertain market.
The power of valuable corporate franchises, strong financials, vigorous research
and marketing programs, and, above all, able managements, is evident in a great
many companies which we regularly analyze and visit. We expect this
research-intensive effort to be rewarding in the months ahead with further
likelihood of gains from revealed growth trends, mergers and acquisitions, and
profits generated through innovative leadership. We have carefully maintained
sizable cash reserves to be able to buy shares on weakness, and have done so
during each period of stock market uncertainty. Our goal is capital growth with
a minimization of risk, and we will continue to shape Evergreen Fund's strategy
to these purposes. We welcome the many new shareholders who have joined us in
the first half of this fiscal year.
3
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
SHARES VALUE
COMMON STOCKS -- 85.0%
BANKS -- 16.9%
60,300 Amcore Financial, Inc........... $ 1,703,475
100,000 * American Bancshares, Inc........ 890,625
100,000 American Federal Bank, FSB...... 2,700,000
28,300 AmSouth Bancorp................. 1,365,475
115,767 Arrow Financial Corp............ 2,821,821
532,240 BankBoston Corp................. 35,660,080
9,000 Bank of Commerce/San Diego...... 267,750
25,000 Bank of Yorba Linda California.. 453,125
516,640 Barnett Banks, Inc.............. 24,023,760
30,000 BNH Bancshares, Inc............. 367,500
161,625 BSB Bancorp, Inc................ 4,909,359
63,000 Cape Cod Bank & Trust Co........ 1,701,000
45,000 Central Fidelity Banks, Inc..... 1,248,750
230,015 Chittenden Corp................. 6,210,405
77,000 Comerica, Inc................... 4,340,875
12,800 Compass Bancshares, Inc......... 569,600
99,380 Cornerstone Bank **............. 1,627,348
70,000 Corus Bankshares, Inc........... 2,327,500
57,400 Crestar Financial Corp.......... 1,987,475
14,800 Cullen/Frost Bankers, Inc....... 527,250
127,000 First Empire State Corp......... 40,640,000
200,017 First Michigan Bank Corp........ 6,050,514
185,100 First Palm Beach Bancorp, Inc... 5,136,525
396,022 1st Source Corp................. 9,108,506
62,500 First State Bancorp............. 953,125
50,000 1st United Bancorp.............. 725,000
150,350 Fort Wayne National Corp........ 6,427,462
36,602 Glacier Bancorp. Inc............ 896,749
105,000 * Gold Banc Corp., Inc............ 1,128,750
889,540 Hibernia Corp. Cl. A............ 11,675,212
24,200 Hudson Chartered Bancorp,
Inc............................. 635,250
30,000 Independent Bancshares, Inc..... 483,750
7,000 Letchworth Independent
Bancshares Corp................. 246,750
10,000 * Letchworth Independent
Bancshares Corp. warrants....... 128,750
94,000 Liberty Bancorp, Inc............ 4,371,000
67,779 Magna Group, Inc................ 1,931,702
11,000 Merchants Bancorp, Inc.......... 402,875
50,000 North Fork Bancorp, Inc......... 1,806,250
95,403 Old Kent Financial Corp......... 4,495,866
91,000 ONBANCorp, Inc.................. 4,254,250
26,875 One Valley Bancorp of West
Virginia, Inc................... 964,141
130,000 Reliance Acceptance Group,
Inc............................. 1,267,500
SHARES VALUE
BANKS -- CONTINUED
56,000 Sandwich Co-operative Bank...... $ 1,568,000
100,000 SC Bancorp...................... 1,062,500
34,700 Seacoast Banking Corp. of
Florida Cl. A................... 980,275
113,760 State Financial Services
Corp............................ 2,033,460
455,200 * Surety Capital Corp. **......... 2,532,050
76,900 United Carolina Bancshares
Corp............................ 3,297,087
97,405 * United Security Bancorp......... 1,424,548
39,285 Univest Corp. of Pennsylvania... 1,556,865
10,000 USBancorp, Inc.................. 445,000
36,000 West Coast Bancorp, Inc.
(Fla.).......................... 700,875
40,425 West Coast Bancorp, Inc.
(Ore.).......................... 874,191
36,000 Westamerica Bancorp............. 2,286,000
218,193,951
BUILDING, CONSTRUCTION &
FURNISHINGS -- 3.5%
30,000 * Castle & Cooke, Inc............. 446,250
151,250 Cavalier Homes, Inc............. 1,701,563
431,625 Clayton Homes, Inc.............. 5,503,219
125,700 Continental Homes Holding
Corp............................ 2,089,762
206,360 D.R. Horton, Inc................ 2,218,370
80,000 * Furniture Brands International,
Inc............................. 1,200,000
135,900 Interface Systems, Inc.......... 3,405,994
95,800 Juno Lighting, Inc.............. 1,520,825
105,000 La-Z-Boy Inc.................... 3,596,250
80,000 Lennar Corp..................... 1,960,000
159,700 * M/I Schottenstein Homes, Inc.... 1,636,925
40,000 Miller (Herman), Inc............ 2,730,000
230,000 * Pacific Greystone Corp.......... 2,875,000
55,000 Ryland Group, Inc............... 646,250
90,000 * Southern Energy Homes, Inc...... 933,750
158,200 Standard Pacific Corp........... 988,750
90,000 * Sundance Homes, Inc............. 213,750
449,600 * Toll Brothers, Inc.............. 8,205,200
121,500 * US Home Corp.................... 3,083,062
44,954,920
BUSINESS EQUIPMENT &
SERVICES -- 2.5%
118,125 * Boole & Babbage, Inc............ 2,805,469
297,130 First Data Corp................. 10,065,278
104,800 * Gradco Systems, Inc............. 350,425
140,000 * Hvide Marine Inc................ 3,185,000
70,000 * In Focus Systems, Inc........... 1,207,500
4
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
SHARES VALUE
COMMON STOCKS -- CONTINUED
BUSINESS EQUIPMENT & SERVICES -- CONTINUED
93,000 * Input/Output, Inc............... $ 1,348,500
59,700 * Lumisys Inc..................... 417,900
100,000 * Macromedia, Inc................. 906,250
99,400 * Medic Computer Systems, Inc..... 1,590,400
57,000 * Metromail Corp.................. 976,125
110,000 Sensormatic Electronics Corp.... 1,856,250
117,000 * Verifone Inc.................... 3,831,750
140,800 * Zebra Technologies Corp......... 3,238,400
31,779,247
CHEMICAL & AGRICULTURAL
PRODUCTS -- 2.0%
35,000 Delta & Pine Land Co............ 1,085,000
150,000 H.B. Fuller Co.................. 7,312,500
40,000 Nalco Chemical Co............... 1,495,000
16,500 OM Group, Inc................... 464,063
359,568 Schulman (A.), Inc.............. 6,831,792
290,000 Sigma-Aldrich Corp.............. 8,953,750
26,142,105
COMMUNICATION SYSTEMS &
SERVICES -- 2.5%
206,250 * Andrew Corp..................... 7,450,781
158,000 * Aspect Telecommunications
Corp............................ 3,081,000
85,000 * Boston Technology, Inc.......... 1,604,375
110,000 * Cisco Systems, Inc.............. 5,293,750
50,000 * Coherent Communications System
Corp............................ 862,500
108,000 * Coherent, Inc................... 5,163,750
50,000 * DSP Group, Inc.................. 462,500
60,000 * Inter-Tel, Inc.................. 682,500
165,000 * InterCel Inc.................... 1,650,000
35,000 * Level One Communications,
Inc............................. 962,500
90,200 * Loral Space & Communications.... 1,274,075
29,000 * U.S. Robotics Corp.............. 1,605,875
140,000 * Vertex Communications Corp...... 2,975,000
33,068,606
SHARES VALUE
CONSUMER PRODUCTS & SERVICES --
4.5%
140,000 Aaron Rents, Inc. Cl. B......... $ 1,610,000
130,000 * American Business Information,
Inc............................. 2,535,000
165,300 Crown Crafts, Inc............... 1,900,950
339,795 * CUC International, Inc.......... 7,645,388
65,000 Fila Holdings SpA ADS........... 3,534,375
80,300 * Franklin Electronic Publishers,
Inc............................. 943,525
40,000 * Gaylord Container Corp. Cl. A... 242,500
89,000 Gucci Group..................... 6,419,125
339,350 Harman International Industries,
Inc............................. 11,368,225
201,030 * K2, Inc......................... 5,000,621
177,777 Lancaster Colony Corp........... 8,177,742
75,000 * LoJack Corp..................... 740,625
80,000 * Nautica Enterprises, Inc........ 2,010,000
20,000 * North Face, Inc. (The).......... 332,500
250,000 * Prime Hospitality Corp.......... 3,906,250
60,000 * Recovery Engineering, Inc....... 442,500
53,800 Toro Co. (The).................. 1,829,200
58,638,526
ELECTRICAL EQUIPMENT &
SERVICES -- 1.8%
27,900 * 3Com Corp....................... 913,725
285,400 * Atmel Corp...................... 6,831,763
299,000 Baldor Electric Co.............. 7,512,375
50,000 * Computer Products, Inc.......... 731,250
50,000 * Electro Scientific Industries,
Inc............................. 1,262,500
32,000 * Franklin Electric Co., Inc...... 1,424,000
60,000 Hadco Corp...................... 2,325,000
80,000 * IFR Systems, Inc................ 1,200,000
50,000 * SMART Modular Technologies,
Inc............................. 1,187,500
23,388,113
5
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
SHARES VALUE
COMMON STOCKS -- CONTINUED
FINANCE & INSURANCE -- 8.8%
172,200 Allmerica Property & Casualty
Cos., Inc....................... $ 5,381,250
184,400 AMBAC, Inc...................... 11,893,800
50,000 * Automobile Protection Corp...... 171,875
28,000 CapMAC Holdings Inc............. 745,500
111,900 Countrywide Credit Industries,
Inc............................. 2,769,525
131,000 Edwards (A.G.), Inc............. 4,028,250
19,100 Enhance Financial Services
Group, Inc...................... 754,450
20,500 Equitable of Iowa Companies..... 1,025,000
100,000 Executive Risk, Inc............. 4,637,500
507,600 Federal Home Loan Mortgage
Corp............................ 13,832,100
678,000 Federal National Mortgage
Association..................... 24,492,750
68,000 First American Financial Corp... 2,533,000
50,000 * First Enterprise Financial
Group........................... 362,500
85,000 * FPIC Insurance Group, Inc....... 1,455,625
29,700 Interra Financial, Inc.......... 1,032,075
50,000 Itla Capital Corp............... 743,750
93,100 John Nuveen Co. (The) Cl. A..... 2,758,088
37,400 * Leasing Solutions Inc........... 701,250
15,000 Legg Mason, Inc................. 633,750
30,900 MBIA, Inc....................... 2,962,537
75,000 * Mego Mortgage Corp.............. 937,500
253,800 MGIC Investment Corp............ 17,956,350
15,000 Ohio Casualty Corp.............. 616,875
16,600 PennCorp Financial Group,
Inc............................. 531,200
54,692 Providian Corp.................. 2,926,022
43,000 ReliaStar Financial Corp........ 2,542,375
71,531 Resource Bancshares Mortgage
Group, Inc...................... 1,126,613
30,000 State Auto Financial Corp....... 513,750
59,500 Trenwick Group, Inc............. 2,945,250
14,100 Vesta Insurance Group, Inc...... 502,313
113,512,823
FOOD RETAILING &
DISTRIBUTION -- 0.5%
16,500.... Coca-Cola Bottling Co. Cl. B
Consolidated+................... 783,750
11,600 Earthgrains Co.................. 580,000
134,000 Seaway Food Town, Inc.**........ 4,020,000
40,000 Wendy's International, Inc...... 825,000
6,208,750
SHARES VALUE
HEALTHCARE PRODUCTS &
SERVICES -- 11.3%
50,000 Arbor Drugs, Inc................ $ 875,000
60,000 Arrow International, Inc........ 1,815,000
55,000 * Arterial Vascular Engineering,
Inc............................. 962,500
52,000 Beckman Instruments, Inc........ 2,184,000
130,000 * Beverly Enterprises, Inc........ 1,852,500
18,750 * Bio-Rad Laboratories, Inc.
Cl. A........................... 478,125
190,000 Biomet, Inc..................... 3,206,250
68,298 * Boston Scientific Corp.......... 4,217,401
72,400 * Chad Therapeutics, Inc.......... 787,350
205,300 Columbia / HCA Healthcare
Corp............................ 6,903,212
112,800 * Exactech, Inc................... 786,075
40,000 * Express Scripts, Inc............ 1,430,000
28,974 * Foundation Health Corp.......... 1,057,551
110,000 HBO & Co........................ 5,225,000
47,050 * Health Management Associates,
Inc............................. 1,117,438
15,000 * Health Management Systems,
Inc............................. 97,500
30,000 * Health Systems International,
lnc............................. 843,750
23,600 * HEALTHSOUTH Corp................ 451,350
20,000 * Heartstream, Inc................ 212,500
300,000 * Idexx Laboratories, Inc......... 4,200,000
30,000 * Interneuron Pharmaceuticals,
Inc............................. 528,750
30,000 Invacare Corp................... 705,000
390,000 Johnson & Johnson............... 20,621,250
69,100 * Laser Industries, Ltd........... 829,200
13,400 * Lincare Holdings, Inc........... 552,750
145,600 * Living Centers of America,
Inc............................. 5,023,200
30,000 * Maxxim Medical, Inc............. 431,250
117,900 McKesson Corp................... 7,545,600
144,361 * MedPartners, Inc................ 3,067,671
500,000 Merck & Co., Inc................ 42,125,000
35,000 Meridian Diagnostics, Inc....... 385,000
1,446 * Pacificare Health Systems, Inc.
Cl. A........................... 119,476
4,545 * Pacificare Health Systems, Inc.
Cl. B........................... 392,006
125,000 * Regency Health Services, Inc.... 1,328,125
50,000 * Regeneron Pharmaceuticals,
Inc............................. 400,000
45,000 * Salick Health Care, Inc......... 1,856,250
107,500 * St. Jude Medical, Inc........... 3,587,812
6
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
SHARES VALUE
COMMON STOCKS -- CONTINUED
HEALTHCARE PRODUCTS & SERVICES -- CONTINUED
468,000 Stryker Corp.................... $ 11,641,500
90,000 * Sun Healthcare Group, Inc....... 1,293,750
35,600 Superior Surgical Manufacturing
Co., Inc........................ 462,800
75,750 * Tecnol Medical Products, Inc.... 1,193,063
72,950 * Tenet Healthcare Corp........... 1,796,394
45,600 West Co., Inc. (The)............ 1,236,900
145,825,249
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 8.1%
90,000 * ADFlex Solutions, Inc........... 1,068,750
90,500 AptarGroup, Inc................. 3,461,625
30,000 BHA Group, Inc.................. 547,500
77,500 * Brooks Automation, Inc.......... 1,152,813
40,500 * Chemfab Corp.................... 734,063
90,000 Commonwealth Aluminum Corp...... 1,541,250
145,000 * Dionex Corp..................... 6,597,500
78,600 Dover Corp...................... 4,126,500
149,200 Fisher Scientific International,
Inc............................. 6,583,450
82,700 Furon Co........................ 1,757,375
54,200 Garan, Inc...................... 975,600
43,200 * Global Industrial Technologies,
Inc............................. 745,200
70,000 * Global Industries, Inc.......... 1,496,250
70,000 Kaydon Corp..................... 2,931,250
43,800 Keystone International, Inc..... 777,450
92,900 * Lear Corp....................... 3,100,537
180,800 Leggett & Platt, Inc............ 5,876,000
61,900 Medusa Corp..................... 2,321,250
43,400 Nacco Industries, Inc. Cl. A.... 2,137,450
66,000 * Osmonics, Inc................... 1,204,500
126,700 Park Electrochemical Corp....... 2,898,262
193,358 * Paxar Corp...................... 3,746,311
19,500 Roanoke Electric Steel Corp..... 287,625
133,200 Robbins & Myers, Inc............ 3,529,800
40,000 * Simula, Inc..................... 625,000
234,500 Snap-on, Inc.................... 9,086,875
185,000 Spartech Corp................... 2,081,250
20,000 * Special Devices, Inc............ 340,000
35,800 Superior Industries
International, Inc.............. 809,975
147,200 Tecumseh Products Co. Cl. A..... 8,390,400
SHARES VALUE
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- CONTINUED
57,800 Tecumseh Products Co. Cl. B..... $ 3,142,875
115,000 Teleflex, Inc................... 6,080,625
20,000 * U.S. Rentals, Inc............... 362,500
202,400 * UCAR International, Inc......... 8,020,100
50,000 Wescast Industries, Inc......... 1,225,000
104,000 Woodward Governor Co............ 2,808,000
100,000 Zero Corp....................... 1,875,000
104,445,911
INFORMATION SERVICES &
TECHNOLOGY -- 7.4%
89,850 * Analytical Surveys, Inc......... 954,656
120,000 Autodesk, Inc................... 3,720,000
50,000 Computer Associates
International, Inc.............. 1,943,750
11,750 * Data Translation, Inc........... 32,313
120,000 * Dialogic Corp................... 2,325,000
92,500 Fair Issac & Co., Inc........... 3,341,562
185,000 * Gateway 2000, Inc............... 9,481,250
250,000 Hewlett-Packard Co.............. 13,312,500
214,000 Intel Corp...................... 29,772,750
85,000 * Intel Corp. warrants............ 8,425,625
30,000 * Intersolv, Inc.................. 251,250
77,437 Molex, Inc...................... 2,749,013
25,000 * Mylex Corp...................... 281,250
22,500 * National Instruments Corp....... 725,625
70,000 * NetManage, Inc.................. 199,063
30,000 * Optical Data Systems, Inc....... 375,000
115,000 * Parametric Technology Corp...... 5,189,375
406,000 * Sun Microsystems, Inc........... 11,723,250
83,000 * Trimble Navigation, Ltd......... 975,250
95,778,482
OIL -- 0.6%
100,000 * COHO Energy, Inc................ 725,000
30,000 KN Energy, Inc.................. 1,185,000
80,000 Ranger Oil Ltd.................. 760,000
30,000 * Stolt Comex Seaway, S.A......... 607,500
118,590 Tosco Corp...................... 3,379,815
13,050 Williams Companies., Inc.
(The)........................... 580,725
7,238,040
PAPER & PACKAGING -- 0.5%
30,400 Avery Dennison Corp............. 1,170,400
18,000 St. Joe Corp.................... 1,329,750
186,662 Wausau Paper Mills Co........... 3,418,248
5,918,398
7
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
SHARES VALUE
COMMON STOCKS -- CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 4.9%
252,000 Belo (A.H.) Corp................ $ 9,324,000
135,000 Cadmus Communications Corp...... 1,906,875
30,000 * Cellularvision USA, Inc......... 270,000
857,000 * Clear Channel Communications,
Inc............................. 36,743,875
22,500 * Evergreen Media Corp. Cl. A..... 656,719
50,000 * EZ Communications, Inc.
Cl. A........................... 1,975,000
30,000 Gaylord Entertainment Co.
Cl. A........................... 645,000
205,800 * Jacor Communications, Inc....... 5,685,225
125,000 * Obie Media Corp................. 968,750
190,000 Wiley (John) & Sons, Inc.
Cl. A........................... 5,747,500
63,922,944
REAL ESTATE -- 2.7%
138,960 * Alexander's, Inc................ 9,622,980
46,200 Apartment Investment &
Management Co. REIT............. 1,345,575
303,100 * Champion Enterprises, Inc....... 4,508,613
54,000 Chelsea GCA Realty, Inc. REIT... 1,937,250
47,400 * FRP Properties, Inc............. 1,190,925
128,300 * HFS, Inc........................ 7,553,662
118,000 * Homegate Hospitality, Inc....... 818,625
50,000 Horizon Group, Inc. REIT........ 643,750
140,000 * Host Marriott Corp.............. 2,380,000
20,000 Irvine Apartment Communities,
Inc............................. 567,500
130,000 * Renaissance Hotel Group N.V..... 3,883,750
30,500 Wellsford Residential Property
Trust........................... 884,500
35,337,130
RETAILING & WHOLESALE -- 3.6%
140,000 Avnet, Inc...................... 7,892,500
35,600 Blair Corp...................... 565,150
140,000 * Cole National Corp.............. 4,445,000
204,200 Dillard Department Stores, Inc.
Cl. A........................... 6,432,300
268,800 Fingerhut Companies, Inc........ 3,763,200
50,000 * Footstar, Inc................... 1,481,250
198,000 Heilig-Meyers Co................ 3,143,250
SHARES VALUE
RETAILING & WHOLESALE -- CONTINUED
119,600 * Jones Apparel Group, Inc........ $ 4,440,150
179,236 * Leslie's Poolmart............... 2,509,304
111,000 Lowe's Companies., Inc.......... 4,148,625
117,900 Mercantile Stores Co., Inc...... 5,467,612
49,500 * Payless Shoesource, Inc......... 2,072,813
46,361,154
THRIFT INSTITUTIONS -- 0.8%
70,000 Collective Bancorp, Inc......... 2,703,750
275,000 Dime Financial Corp.**.......... 4,950,000
73,500 * Hawthorne Financial Corp........ 753,375
50,000 Maryland Federal Bancorp, Inc... 1,762,500
20,000 People's Savings Financial
Corp............................ 640,000
10,809,625
TRANSPORTATION -- 1.9%
125,000 ASA Holdings, Inc............... 2,593,750
98,000 Delta Air Lines, Inc............ 8,244,250
217,465 * Heartland Express, Inc.......... 4,131,835
40,000 * Offshore Logistics, Inc......... 640,000
13,000 Pittston Brink's Group.......... 328,250
75,000 Skywest, Inc.................... 975,000
239,000 Southwest Airlines Co........... 5,287,875
120,000 U.S. Freightways Corp........... 3,105,000
25,305,960
OTHER SECURITIES -- 0.2% 2,306,025
TOTAL COMMON STOCKS
(COST $644,649,132)........ 1,099,135,959
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 14.9%
Commercial Paper -- 9.9%
$ 3,500,000 American Home Food Products,
Inc.
5.27%, 4/4/97................... 3,498,463
1,400,000 B.I. Funding, Inc.
5.28%, 4/16/97.................. 1,396,920
8,100,000 Bell Atlantic Financial
Services, Inc.
5.30%, 4/16/97.................. 8,082,113
8
<PAGE>
EVERGREEN FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
PRINCIPAL
AMOUNT VALUE
SHORT-TERM INVESTMENTS -- CONTINUED
Commercial Paper -- continued
Columbia/HCA Healthcare Corp.
$ 400,000 5.52%, 5/9/97................... $ 397,669
8,400,000 5.58%, 5/27/97.................. 8,327,088
2,500,000 Compagnie Bancaire USA Finance
Corp.
5.27%, 4/17/97.................. 2,494,144
1,600,000 Finova Capital Corp.
5.32%, 4/10/97.................. 1,597,872
21,900,000 Gannett Co.
5.28%, 4/25/97.................. 21,822,912
18,700,000 General Electric Capital Corp.
5.52%, 5/12/97.................. 18,582,439
10,100,000 Great Lakes Chemical Corp.
5.32%, 4/25/97.................. 10,064,179
7,450,000 H.J. Heinz Co.
5.24%, 4/3/97................... 7,447,831
6,000,000 Lucent Technologies, Inc.
5.27%, 4/16/97.................. 5,986,825
3,500,000 Norfolk Southern Corp.
5.27%, 4/24/97.................. 3,488,216
Transamerica Corp.
5,000,000 5.32%, 4/8/97................... 4,994,828
9,950,000 5.32%, 4/30/97.................. 9,907,358
4,000,000 Virginia Electric & Power Co.
5.25%, 4/14/97.................. 3,992,417
16,600,000 Xerox Credit Corp.
5.30%, 4/21/97.................. 16,551,122
TOTAL COMMERCIAL PAPER
(COST $128,632,396)........ 128,632,396
U.S. Government & Agency
Obligations -- 5.0%
38,600,000 Federal Home Loan Bank
5.41%, 4/28/97.................. 38,443,381
12,600,000 Federal Home Loan Mortgage Corp.
5.29%, 4/18/97.................. 12,568,524
13,500,000 Federal National Mortgage
Association
5.20%, 4/10/97.................. 13,482,450
VALUE
U.S. Government & Agency
Obligations -- continued
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(COST $64,494,355)............ $ 64,494,355
TOTAL SHORT-TERM INVESTMENTS
(COST $193,126,751)........... 193,126,751
TOTAL INVESTMENTS --
(COST $837,775,883)... 99.9% $1,292,262,710
OTHER ASSETS AND
LIABILITIES -- NET.... 0.1 1,937,746
NET ASSETS.............. 100.0% $1,294,200,456
ADS -- American Depository Shares
REIT -- Real Estate Investment Trust
* 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 Trustees.
** Investment in non-controlled affiliate-holding over 5% of outstanding voting
securities. At March 31, 1997, the Fund held investments in the following
securities:
DIVIDENDS
SECURITY NAME SHARES COST VALUE EARNED
Cornerstone
Bank........ 99,380 $1,089,310 $1,627,348 $15,787
Dime Financial
Corp........ 275,000 3,184,375 4,950,000 46,750
Seaway Food
Town,
Inc......... 134,000 1,563,474 4,020,000 29,480
Surety Capital
Corp........ 455,200 1,728,888 2,532,050 --
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $837,775,883)......................................................... $1,292,262,710
Cash........................................................................................................ 1,860,543
Receivable for investment securities sold................................................................... 2,428,295
Receivable for Fund shares sold............................................................................. 4,651,704
Dividends receivable........................................................................................ 917,143
Prepaid expenses............................................................................................ 66,865
Total assets.......................................................................................... 1,302,187,260
LIABILITIES:
Payable for investment securities purchased................................................................. 3,713,766
Payable for Fund shares repurchased......................................................................... 1,976,760
Advisory fee payable........................................................................................ 1,076,141
Distribution fee payable.................................................................................... 485,130
Accrued expenses............................................................................................ 735,007
Total liabilities..................................................................................... 7,986,804
NET ASSETS..................................................................................................... $1,294,200,456
NET ASSETS CONSISTS OF:
Paid-in capital............................................................................................. 826,522,339
Accumulated undistributed net investment income............................................................. 1,743,438
Accumulated undistributed net realized gain on investment transactions...................................... 11,447,852
Net unrealized appreciation of investments.................................................................. 454,486,827
Net assets............................................................................................ $1,294,200,456
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A shares ($109,620,352/6,095,019 shares of beneficial interest outstanding)........................... $ 17.99
Sales charge -- 4.75% of offering price..................................................................... 0.90
Maximum offering price................................................................................ $ 18.89
Class B shares ($340,963,231/19,101,109 shares of beneficial interest outstanding).......................... $ 17.85
Class C shares ($6,920,154/388,268 shares of beneficial interest outstanding)............................... $ 17.82
Class Y shares ($836,696,719/46,344,336 shares of beneficial interest outstanding).......................... $ 18.05
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(photo of street sign)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding taxes of $1,410)...................................... $ 6,039,164
Interest.................................................................................... 5,706,419
Total investment income..................................................................... 11,745,583
EXPENSES:
Advisory fee................................................................................... $6,012,819
Distribution fees -- Class A Shares............................................................ 127,520
Distribution fees -- Class B Shares............................................................ 1,142,353
Shareholder services fees -- Class B Shares.................................................... 380,784
Distribution fees -- Class C Shares............................................................ 24,824
Shareholder services fees -- Class C Shares.................................................... 8,274
Transfer agent fee............................................................................. 770,000
Reports and notices to shareholders............................................................ 425,950
Custodian fee.................................................................................. 226,000
Registration and filing fees................................................................... 87,265
Professional fees.............................................................................. 31,927
Trustees' fees and expenses.................................................................... 25,377
Insurance expenses............................................................................. 10,000
Miscellaneous.................................................................................. 15,083
Total expenses.............................................................................. 9,288,176
Net investment income............................................................................. 2,457,407
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions................................................... 14,101,251
Net change in unrealized appreciation of investments........................................... 40,495,339
Net realized and unrealized gain on investments................................................... 54,596,590
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $57,053,997
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN FUND
STATEMENTS OF CHANGES IN NET ASSETS
(photo of street sign)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................... $ 2,457,407 $ 6,883,572
Net realized gain on investment transactions........................................ 14,101,251 26,342,145
Net change in unrealized appreciation of investments................................ 40,495,339 127,948,227
Net increase in net assets resulting from operations............................. 57,053,997 161,173,944
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares...................................................................... (454,970) (140,066)
Class B Shares...................................................................... -- (104,944)
Class C Shares...................................................................... -- (3,361)
Class Y Shares...................................................................... (5,477,171) (3,380,345)
Total distributions from net investment income................................... (5,932,141) (3,628,716)
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares...................................................................... (2,174,311) (1,345,646)
Class B Shares...................................................................... (6,505,988) (3,481,371)
Class C Shares...................................................................... (143,970) (94,635)
Class Y Shares...................................................................... (18,647,833) (21,876,223)
Total distributions from net realized gains on investments....................... (27,472,102) (26,797,875)
Total distributions to shareholders.............................................. (33,404,243) (30,426,591)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold........................................................... 935,720,211 1,696,117,113
Proceeds from acquisition of FFB Lexicon Small Company Growth Fund.................. -- 27,158,980
Proceeds from reinvestment of distributions......................................... 28,701,825 27,083,002
Payment for shares redeemed......................................................... (881,577,652) (1,411,176,445)
Net increase resulting from Fund share transactions.............................. 82,844,384 339,182,650
Net increase in net assets....................................................... 106,494,138 469,930,003
NET ASSETS:
Beginning of period................................................................. 1,187,706,318 717,776,315
End of period (including undistributed net investment income of $1,743,438 and
$5,218,172, respectively)......................................................... $1,294,200,456 $ 1,187,706,318
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN FUND
CLASS A AND CLASS B SHARES
FINANCIAL HIGHLIGHTS
(photo of street sign)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS JANUARY 3, SIX MONTHS
ENDED 1995* ENDED
MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................. $17.64 $15.55 $11.97 $17.49 $15.48
Income (loss) from investment operations:
Net investment income (loss)....................... .04 .12 .01 (.03) (.03)
Net realized and unrealized gain on investments.... .81 2.61 3.57 .80 2.64
Total from investment operations................. .85 2.73 3.58 .77 2.61
Less distributions to shareholders from:
Net investment income.............................. (.09) (.06) -- -- (.02)
Net realized gains................................. (.41) (.58) -- (.41) (.58)
Total distributions.............................. (.50) (.64) -- (.41) (.60)
Net asset value, end of period....................... $17.99 $17.64 $15.55 $17.85 $17.49
TOTAL RETURN+........................................ 4.8% 18.1% 29.9% 4.4% 17.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions).............. $110 $87 $29 $341 $254
Ratios to average net assets:
Expenses........................................... 1.43%++ 1.45% 1.70%#++ 2.17%++ 2.18%
Interest expense................................... -- -- .01%++ -- --
Net investment income (loss)....................... .40%++ .63% .13%#++ (.34%)++ (.10%)
Portfolio turnover rate.............................. 5% 15% 19% 5% 15%
Average commission rate paid per share............... $ .0588 $ .0603 N/A $ .0588 $ .0603
</TABLE>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
PER SHARE DATA:
Net asset value, beginning of period................. $11.97
Income (loss) from investment operations:
Net investment income (loss)....................... (.02)
Net realized and unrealized gain on investments.... 3.53
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).............. $74
Ratios to average net assets:
Expenses........................................... 2.32%#++
Interest expense................................... .01%++
Net investment income (loss)....................... (.48%)#++
Portfolio turnover rate.............................. 19%
Average commission rate paid per share............... N/A
* 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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 would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 3, JANUARY 3,
1995* 1995*
THROUGH THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1995 1995
<S> <C> <C>
Expenses.................................................................................. 1.75% 2.34%
Net investment income (loss).............................................................. .08% (.50%)
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
(photo of street sign)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................... $ 17.47 $ 15.48
Income (loss) from investment operations:
Net investment loss.......................................................................... (.03) --
Net realized and unrealized gain on investments.............................................. .79 2.61
Total from investment operations........................................................... .76 2.61
Less distributions to shareholders from:
Net investment income........................................................................ -- (.04)
Net realized gains........................................................................... (.41) (.58)
Total distributions........................................................................ (.41) (.62)
Net asset value, end of period................................................................. $ 17.82 $ 17.47
TOTAL RETURN+.................................................................................. 4.3% 17.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)........................................................ $7 $6
Ratios to average net assets:
Expenses..................................................................................... 2.18%++ 2.14%#
Interest expense............................................................................. -- --
Net investment loss.......................................................................... (.35%)++ (.07%)#
Portfolio turnover rate........................................................................ 5% 15%
Average commission rate paid per share......................................................... $ .0588 $ .0603
<CAPTION>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................... $ 11.97
Income (loss) from investment operations:
Net investment 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 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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>
JANUARY 3,
1995*
YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Expenses.................................................................................. 2.38% 5.31%
Net investment loss....................................................................... (.31%) (3.50%)
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN FUND
CLASS Y SHARES
FINANCIAL HIGHLIGHTS
(photo of street sign)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1997+++ YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................ $17.71 $15.59 $14.62 $14.46 $13.10
Income from investment operations:
Net investment income............................................................. .06 .24 .10 .07 .09
Net realized and unrealized gain on investments................................... .81 2.55 3.10 .79 1.96
Total from investment operations................................................ .87 2.79 3.20 .86 2.05
Less distributions to shareholders from:
Net investment income............................................................. (.12) (.09) (.07) (.09) (.07)
Net realized gains (.41) (.58) (2.16) (.61) (.62)
Total distributions............................................................. (.53) (.67) (2.23) (.70) (.69)
Net asset value, end of period...................................................... $18.05 $17.71 $15.59 $14.62 $14.46
TOTAL RETURN+....................................................................... 4.9% 18.4% 26.8% 6.2% 15.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)............................................. $837 $841 $612 $526 $657
Ratios to average net assets:
Expenses.......................................................................... 1.19%++ 1.15% 1.16% 1.13% 1.11%
Interest expense.................................................................. -- -- .06% .09% .01%
Net investment income............................................................. .64%++ .93% .53% .40% .60%
Portfolio turnover rate............................................................. 5% 15% 19% 19% 21%
Average commission rate paid per share.............................................. $.0588 $.0603 N/A N/A N/A
<CAPTION>
1992
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................ $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 period...................................................... $13.10
TOTAL RETURN+....................................................................... 5.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (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 is not annualized.
++ Annualized.
+++ Per share data is calculated based on average shares outstanding during the
period.
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(photo of beakers)
A REPORT FROM YOUR
PORTFOLIO MANAGER
HAROLD J. IRELAND
We are pleased to present this Semiannual Report for
Evergreen Aggressive Growth Fund for the period ended March
31, 1997. The past six months have been a volatile period for
the stock market, for capital appreciation funds and for your (photo of Mr.
Fund. Evergreen Aggressive Growth Fund's Class A shares at net Ireland here)
asset value (NAV) began the period under review with a price
per share of $21.04, and reached an all time high of $22.41 on
January 22, 1997. However, the Fund closed on March 31, 1997,
at a price per share $18.43, a decline of 12.4%* for the
six-month period. By way of comparison, for this six-month
period, the NASDAQ Industrial Index** was down 8.1%, the
Russell 2000 Index** was down 0.2%, and the average of the Lipper
Capital Appreciation Funds group of the 214 capital appreciation funds tracked
by Lipper Analytical Services, Inc., during that time, was down 0.7%***. There
were three general trends that impacted Fund performance during this period: 1)
small company stocks, as represented by the NASDAQ Industrial Index, have been
severely out of favor, and even within the larger capitalization S&P 500 Index+,
the 100 smallest companies have underperformed the 100 largest companies by
12.8% during the past six months and underperformed 25.9% during the past twelve
months; 2) technology stocks have been undergoing one of their periodic sharp
corrections; and 3) comments and actions by Federal Reserve Board Chairman, Alan
Greenspan, have triggered a general market correction and a short-term flight to
larger and less economically sensitive companies. Regarding the first point,
slightly over two-thirds of the Fund's holdings were invested in NASDAQ-OTC
listed companies. These same three factors also impacted the Fund's trailing
twelve-month performance. For the twelve months ended March 31, 1997, the Funds
Class A shares at NAV declined 2.6%. This compares to the average of the Lipper
Capital Appreciation Funds group of the 202 capital appreciation Funds tracked
by Lipper during that time, which increased 6.2%.
The table below illustrates the Fund's longer-term returns as of March 31,
1997.
<TABLE>
<CAPTION>
SIX-MONTH(A) ONE-YEAR(A) THREE-YEAR(B) FIVE-YEAR(B)
<S> <C> <C> <C> <C>
Evergreen Aggressive
Growth Fund Class A at NAV* -12.4% -2.6% 10.2% 12.4%
NASDAQ Industrial Index -8.1% -0.7% 9.3% 8.5%
Russell 2000 Index -0.2% 5.1% 12.7% 12.8%
Lipper Capital Appreciation
Funds average -0.7% 6.2% 13.4% 12.1%
<CAPTION>
TEN-YEAR(B)
<S> <C>
Evergreen Aggressive
Growth Fund Class A at NAV* 10.7%
NASDAQ Industrial Index 8.4%
Russell 2000 Index 9.4%
Lipper Capital Appreciation
Funds average 9.8%
</TABLE>
(a) cumulative return
(b) average annual compound return
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* -16.6%, -7.2%, 8.4%, 11.3%, AND 10.2% WERE THE 6-MONTH AND ONE-YEAR TOTAL
RETURNS, AND THE THREE-YEAR, FIVE-YEAR, AND TEN-YEAR AVERAGE ANNUAL
COMPOUND RETURNS, RESPECTIVELY, ENDED 3/31/97, FOR THE FUND'S CLASS A
SHARES WITH THE 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, CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES
CHARGE WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE, AND CLASS Y,
NO-LOAD SHARES. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT.
PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL
GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD
WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
** THE NASDAQ INDUSTRIAL INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES.
THE RUSSELL 2000 IS AN UNMANAGED INDEX OF SELECTED SMALL CAP SECURITIES.
*** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE
DOES NOT INCLUDE SALES CHARGES AND IF INCLUDED, AVERAGE MAY BE LOWER.
+ 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. AN INVESTMENT CAN NOT
BE MADE IN AN INDEX.
16
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(photo of beakers)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
ECONOMIC AND INVESTMENT BACKGROUND
In many respects this period is reminiscent of 1994 when the Federal Reserve,
concerned with an overly strong economy and the threat of inflation, pushed
interest rates higher in an effort to slow the economy. The economy today
appears much stronger than many expected, yet the inflation rate is no higher
than three years ago and overseas economies in Europe and Japan are much weaker.
In fact, the U. S. has just entered the seventh year of its current economic
expansion with the lowest inflation rates for this stage of the business cycle
in two generations. This is a very favorable background for stocks in general
and should bode well for aggressive growth stocks in particular. Now, as then,
your portfolio manager is remaining fully invested and sticking with the Fund's
investment disciplines and focus on aggressive growth companies with dominant
positions in their industries.
INDUSTRY WEIGHTINGS AND PORTFOLIO CHANGES
During the past six months, the retail industry weighting was reduced from
25% to 14.5% of the Fund's net assets. Much of the proceeds was used to increase
the technology weightings, as the computers sector was increased from 8.1% to
16.6% of the Fund's net assets, and information services and technology from
13.6% to 16.3%. The position in AutoZone was sold as well as the positions in
Bed, Bath & Beyond; The Home Depot, Office Depot and Tommy Hilfiger were
reduced. Within the information services and technology, and computers
groupings, shares of American Power Conversion, Gateway 2000 and BMC Software
were acquired and our position in Adaptec was substantially increased. The
Healthcare sector was reduced from 13.9% to 9.3% with the sale of the positions
in Ivax, Matrix Pharmaceuticals and Respironics and the reduction of holdings in
HBO & Co. and Mylan Labs. The Oil/Gas industry weighting was increased from 5.1%
to 8.7% through the addition of a new position in Petroleum Geo-Services, ADR++.
There was a small net reduction in the financial services weighting. Mercury
Finance was eliminated from the portfolio, with some of the proceeds used to
increase the position in Green Tree Financial. A new position was established in
Staples, Inc. in the specialty retail sector. The position in Network General
was significantly reduced and a large addition was made to the position in Medic
Computer Systems. Slight increases were made to the positions in APAC
Teleservices, HEALTHSOUTH, Medtronic, Viking Office Products, and Sterling
Commerce.
PORTFOLIO PROFILE
The Fund continues to concentrate its holdings in financially strong
companies whose five-year record of business momentum in sales and earnings
exceeds 20% per year. These companies have low debt, strong insider ownership
and show, through their products and services, leadership in their respective
industries. The profile below lists some of the current characteristics that
have been most important in selecting the companies owned. At March 31, 1997,
the Fund's 30 holdings had the following positions-weighted average profile.
<TABLE>
<S> <C>
Sales Growth (five years, compounded) 41%
Sales Growth (last twelve months) 43%
Earnings per Share Growth (five years, compounded) 38%
Earnings per Share Growth (last twelve months) 37%
Return on Equity (last twelve months) 23%
Net Profit Margin (after tax) 9.0%
Median Market Value (capitalization) $ 3.2 billion
Long-Term Debt as a percent of total capital 22%
Beta+++ 1.21
Average Daily Trading volume (calendar year-to-date) 2.369 million
Price/Earnings (P/E) Ratio (past twelve months' earnings per share) 28.0
</TABLE>
++ INTERNATIONAL INVESTING MAY INVOLVE ADDITIONAL RISKS.
+++ BETA IS A MEASURE OF MARKET RISK. IT ILLUSTRATES THE VOLATILITY OF THE NET
ASSET VALUE PER SHARE OF A SECURITY AS COMPARED WITH THE MARKET AS A WHOLE,
AS MEASURED BY THE S&P 500 REINVESTED INDEX, WHICH IS ASSIGNED A BETA OF
ONE. GENERALLY, A BETA OF LESS THAN ONE INDICATES THAT THE SECURITY WOULD
FLUCTUATE LESS THAN THE MARKET, AND GREATER THAN ONE INDICATES IT WOULD
FLUCTUATE MORE THAN THE MARKET. A BETA IS SUBJECT TO CHANGE.
17
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
(photo of beakers)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Of course, a company's past performance is no guarantee of future operating
or stock performance, but it is probably the best available guidepost for
assessing the excellence of a company, its products, services and its
management. Even though stock price performance of many of the Fund's holdings
has lagged for the past six and twelve months, the average company operating
performance has not deteriorated at all. For example, as can be seen from this
profile, revenue growth has even accelerated slightly from 41% to 43%.
OUTLOOK
There are several reasons to expect that smaller companies could outperform
their larger counterparts going forward. First, they have higher expected
earnings growth than the stock market as a whole, as represented by the large
company S&P 500. Second, they have less international business and, thus, less
exposure to the revenue and earnings dampening effects of the strong dollar.
Third, the poor performance of small stocks since their peak last May has led to
less issuance of new stock, decreasing the potential supply. Finally, at present
prices, aggressive growth stocks appear to have reached bargain levels seen only
three other times in the past eighteen years.
The stock market oscillates between cycles of overvaluation and
undervaluation of small companies and large companies. Smith Barney's Emerging
Growth Stock Index has receded to a price earnings multiple premium of 13% above
that of the large company S&P 500 stock index. This relative multiple is down
from a level of a 100% premium just one year ago, and it has been this low only
in 1987 and 1990. The index has averaged about 60% P/E premium to the S&P 500
P/E for the whole eighteen years. The decline in the past year has been the
worst one-year decline in the entire eighteen years of the Emerging Growth
Index. A substantial premium for smaller emerging growth companies has been
historically justified because they inherently grow faster than the larger, more
mature S&P 500 companies.
Based on another important valuation measure, the PEG ratio, (price earnings
multiple divided by estimated five-year future earnings growth) investors today
are paying a price earnings multiple 2.9 times the projected earnings growth for
the S&P 500. In contrast, for the stocks in the portfolio of the Evergreen
Aggressive Growth Fund, we are paying a price earnings multiple only 0.8 times
their projected growth. In the past, discrepancies this wide have been followed
by outperformance and it has paid handsomely to own smaller, aggressive growth
stocks rebounding from such a depressed level.
Despite a difficult past six months, it is worth noting that the Fund has
outperformed the average of its Lipper Capital Appreciation Fund peer group 11
out of 13 calendar years, the exceptions being 1987 and 1994. Our long-term
strategy of holding onto quality, high-performing, aggressive growth companies
has rewarded investors as the Fund has outperformed its Lipper peer group by an
average of 3.9 percentage points per year for that 13-year period. For taxable
investors, our comparatively low portfolio turnover has led to an even higher
tax-adjusted positive performance differential. We are working hard to continue
that long-term record and to benefit current shareholders.
18
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
(photo of beakers)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 98.0%
BUSINESS SERVICES -- 18.6%
280,000* APAC TeleServices, Inc............... $ 7,280,000
140,000 Danka Business Systems, ADR.......... 4,401,250
170,000 First Data Corporation............... 5,758,750
25,000* Fiserv, Inc.......................... 931,250
200,000* Medic Computer Systems, Inc.......... 3,200,000
200,000* Sterling Commerce, Inc............... 5,800,000
27,371,250
COMPUTERS -- 16.6%
175,000* Adaptec, Inc......................... 6,256,250
250,000* American Power Conversion Corp....... 5,406,250
160,000* Cisco Systems, Inc................... 7,700,000
100,000* Gateway 2000, Inc.................... 5,125,000
24,487,500
CONSUMER/DIVERSIFIED -- 9.4%
400,000* Republic Industries, Inc............. 13,875,000
FINANCIAL SERVICES -- 4.6%
200,000 Green Tree Financial Corporation..... 6,750,000
HEALTHCARE -- 9.3%
35,000 HBO & Company........................ 1,662,500
100,000* Health Management Associates, Inc.... 2,375,000
60,000* HEALTHSOUTH Corporation.............. 1,147,500
125,000 Medtronic, Inc....................... 7,781,250
50,000 Mylan Laboratories, Inc.............. 731,250
13,697,500
INFORMATION SERVICES & TECHNOLOGY --
16.3%
106,000* BMC Software, Inc.................... 4,889,250
100,000* Microsoft Corporation................ 9,168,750
150,000* Network General Corporation.......... 3,225,000
150,000* Parametric Technology Corp........... 6,768,750
24,051,750
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
OIL/GAS -- 8.7%
140,000* Petroleum Geo-Services, ADR.......... $ 6,020,000
120,000 Transocean Offshore, Inc............. 6,735,000
12,755,000
RETAILING (SPECIALTY) -- 14.5%
75,000* Bed Bath & Beyond, Inc............... 1,814,063
80,000 Fastenal Company..................... 2,800,000
50,000 Home Depot, Inc...................... 2,675,000
150,000* Office Depot, Inc.................... 3,056,250
150,000* Staples, Inc......................... 3,018,750
40,000* Tommy Hilfiger Corporation........... 2,090,000
300,000* Viking Office Products, Inc.......... 5,812,500
21,266,563
TOTAL COMMON STOCKS
(COST $104,540,467)............. 144,254,563
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
REPURCHASE AGREEMENT -- 2.6%
$3,826,000 State Street Bank &
Trust Co., 5.25%, purchased
3/31/97, maturing 4/1/97
(Collaterized by $4,060,000
U.S. Treasury Bonds, 5.25%
due 1/31/01) (cost
$3,826,000)................. 3,826,000
TOTAL INVESTMENTS --
(COST $108,366,467).... 100.6% 148,080,563
OTHER ASSETS AND
LIABILITIES -- NET..... (0.6) (893,763)
NET ASSETS................ 100.0% $147,186,800
</TABLE>
* Non-income producing securities.
ADR -- American Depositary Receipt.
See accompanying notes to financial statements.
19
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
(photo of beakers)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $108,366,467)........................................................... $148,080,563
Cash.......................................................................................................... 4,064
Receivable for Fund shares sold............................................................................... 757,131
Dividends and interest receivable............................................................................. 7,035
Prepaid expenses.............................................................................................. 43,520
Unamortized organization expenses............................................................................. 16,575
Total assets............................................................................................... 148,908,888
LIABILITIES:
Payable for investment securities purchased................................................................... 1,167,520
Payable for Fund shares repurchased........................................................................... 265,409
Distribution fee payable...................................................................................... 92,106
Advisory and administration fees payable...................................................................... 84,299
Accrued expenses.............................................................................................. 112,754
Total liabilities.......................................................................................... 1,722,088
NET ASSETS....................................................................................................... $147,186,800
NET ASSETS CONSISTS OF:
Paid-in capital............................................................................................... 110,628,401
Accumulated net investment loss............................................................................... (863,278)
Accumulated net realized loss on investment transactions...................................................... (2,292,419)
Net unrealized appreciation of investments.................................................................... 39,714,096
Net assets................................................................................................. $147,186,800
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A shares ($80,425,563/4,364,581 shares of beneficial interest outstanding).............................. $18.43
Sales charge -- 4.75% of offering price....................................................................... 0.92
Maximum offering price.................................................................................. $19.35
Class B shares ($26,827,157/1,474,110 shares of beneficial interest outstanding).............................. $18.20
Class C shares ($1,999,708/110,006 shares of beneficial interest outstanding)................................. $18.18
Class Y shares ($37,934,372/2,052,317 shares of beneficial interest outstanding).............................. $18.48
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(photo of beakers)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Income:
Dividends (net of foreign withholding taxes of $2,263)................................... $ 101,319
Interest................................................................................. 87,470
Total investment income............................................................... 188,789
EXPENSES:
Advisory and administration fees............................................................ $ 498,245
Distribution fees -- Class A Shares......................................................... 117,627
Distribution fees -- Class B Shares......................................................... 96,669
Shareholder services fees -- Class B Shares................................................. 32,223
Distribution fees -- Class C Shares......................................................... 5,043
Shareholder services fees -- Class C Shares................................................. 1,681
Transfer agent fee.......................................................................... 122,324
Registration and filing fees................................................................ 56,672
Reports and notices to shareholders......................................................... 49,707
Custodian fee............................................................................... 44,803
Professional fees........................................................................... 14,241
Insurance................................................................................... 10,604
Trustees' fees and expenses................................................................. 4,596
Amortization of organization expense........................................................ 2,550
Miscellaneous............................................................................... 2,851
Total expenses........................................................................ 1,059,836
Less: Expenses paid indirectly........................................................ (11,430)
Net expenses.......................................................................... 1,048,406
Net investment loss............................................................................ (859,617)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized gain on investment transactions................................................ 700,010
Net change in unrealized appreciation of investments........................................ (20,780,097)
Net realized and unrealized loss on investments................................................ (20,080,087)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... ($ 20,939,704)
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
(photo of beakers)
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss....................................................................... $ (859,617) $ (923,543)
Net realized gain (loss) on investment transactions....................................... 700,010 (2,456,367)
Net change in unrealized appreciation of investments...................................... (20,780,097) 27,981,236
Net increase (decrease) in net assets resulting from operations........................ (20,939,704) 24,601,326
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares............................................................................ -- (2,568,867)
Class B Shares............................................................................ -- (157,682)
Class C Shares............................................................................ -- (7,213)
Class Y Shares............................................................................ -- (213,704)
Total distributions from net realized gains on investments.......................... -- (2,947,466)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................. 70,392,570 73,789,548
Proceeds from reinvestment of distributions............................................... -- 2,476,706
Payment for shares redeemed............................................................... (47,427,318) (28,780,969)
Net increase resulting from Fund share transactions.................................... 22,965,252 47,485,285
Net increase in net assets............................................................. 2,025,548 69,139,145
NET ASSETS:
Beginning of period....................................................................... 145,161,252 76,022,107
End of period (including accumulated net investment loss of
$863,278 and $3,661 respectively)...................................................... $ 147,186,800 $ 145,161,252
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
CLASS A SHARES
FINANCIAL HIGHLIGHTS
(photo of beakers)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED ELEVEN MONTHS
MARCH 31, YEAR ENDED ENDED
1997+++ SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995*#
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $21.04 $17.37 $13.85
Income (loss) from investment operations:
Net investment loss......................................... (.11) (.15) (.16)
Net realized and unrealized gain (loss) on investments...... (2.50) 4.46 3.68
Total from investment operations.......................... (2.61) 4.31 3.52
Less distributions to shareholders from net realized gains.... -- (.64) --
Net asset value, end of period................................ $18.43 $21.04 $17.37
TOTAL RETURN+................................................. (12.4%) 25.6% 25.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...................... $80,426 $96,608 $70,858
Ratios to average net assets:
Expenses**.................................................. 1.28%++ 1.22% 1.47%++
Expenses, excluding indirectly paid expenses................ 1.27%++ N/A N/A
Net investment loss......................................... (1.03%)++ (.86%) (1.12%)++
Portfolio turnover rate....................................... 14% 33% 31%
Average commission rate paid per share........................ $.0600 $.0582 N/A
<CAPTION>
YEAR ENDED OCTOBER 31,
1994#+++ 1993#+++
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $14.44 $11.76
Income (loss) from investment operations:
Net investment loss......................................... (.13) (.12)
Net realized and unrealized gain (loss) on investments...... (.22) 3.06
Total from investment operations.......................... (.35) 2.94
Less distributions to shareholders from net realized gains.... (.24) (.26)
Net asset value, end of period................................ $13.85 $14.44
TOTAL RETURN+................................................. (2.4%) 25.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...................... $64,635 $58,053
Ratios to average net assets:
Expenses**.................................................. 1.25% 1.31%
Expenses, excluding indirectly paid expenses................ N/A N/A
Net investment loss......................................... (.92%) (.92%)
Portfolio turnover rate....................................... 59% 48%
Average commission rate paid per share........................ N/A N/A
<CAPTION>
1992#+++
PER SHARE DATA:
Net asset value, beginning of period.......................... $12.22
Income (loss) from investment operations:
Net investment loss......................................... (.10)
Net realized and unrealized gain (loss) on investments...... 1.84
Total from investment operations.......................... 1.74
Less distributions to shareholders from net realized gains.... (2.20)
Net asset value, end of period................................ $11.76
TOTAL RETURN+................................................. 17.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...................... $29,302
Ratios to average net assets:
Expenses**.................................................. 1.44%
Expenses, excluding indirectly paid expenses................ N/A
Net investment loss......................................... (.93%)
Portfolio turnover rate....................................... 46%
Average commission rate paid per share........................ N/A
</TABLE>
* The Fund changed its fiscal year end from October 31 to September 30.
** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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.
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
CLASS B AND CLASS C SHARES
FINANCIAL HIGHLIGHTS
(photo of beakers)
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
SIX MONTHS JULY 7, SIX MONTHS
ENDED 1995* ENDED
MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $20.89 $17.35 $15.82 $20.88 $17.31
Income (loss) from investment operations:
Net investment loss......................... (.18) (.16) (.03) (.17) (.15)
Net realized and unrealized gain (loss) on
investments............................... (2.51) 4.34 1.56 (2.53) 4.36
Total from investment operations.......... (2.69) 4.18 1.53 (2.70) 4.21
Less distributions to shareholders from net
realized gains.............................. -- (.64) -- -- (.64)
Net asset value, end of period................ $18.20 $20.89 $17.35 $18.18 $20.88
TOTAL RETURN+................................. (12.9%) 24.9% 9.7% (12.9%) 25.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $26,827 $21,644 $2,858 $2,000 $991
Ratios to average net assets:
Expenses**.................................. 2.05%++ 1.98% 2.09%++ 2.05%++ 1.96%
Expenses, excluding indirectly paid
expenses.................................. 2.04%++ N/A N/A 2.04%++ N/A
Net investment loss......................... (1.79%)++ (1.60%) (1.71%)++ (1.78%)++ (1.57%)
Portfolio turnover rate....................... 14% 33% 31% 14% 33%
Average commission rate paid per share........ $.0600 $.0582 N/A $.0600 $.0582
<CAPTION>
AUGUST 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $16.42
Income (loss) from investment operations:
Net investment loss......................... (.01)
Net realized and unrealized gain (loss) on
investments............................... 0.90
Total from investment operations.......... 0.89
Less distributions to shareholders from net
realized gains.............................. --
Net asset value, end of period................ $17.31
TOTAL RETURN+................................. 5.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $416
Ratios to average net assets:
Expenses**.................................. 2.09%++
Expenses, excluding indirectly paid
expenses.................................. N/A
Net investment loss......................... (1.51%)++
Portfolio turnover rate....................... 31%
Average commission rate paid per share........ N/A
</TABLE>
* Commencement of class operations.
** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN AGGRESSIVE GROWTH FUND
CLASS Y SHARES
FINANCIAL HIGHLIGHTS
(photo of beakers)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $21.09 $17.38
Income (loss) from investment operations:
Net investment loss.................................................................... (.08) (.06)
Net realized and unrealized gain (loss) on investments................................. (2.53) 4.41
Total from investment operations..................................................... (2.61) 4.35
Less distributions to shareholders from net realized gains............................... -- (.64)
Net asset value, end of period........................................................... $18.48 $21.09
TOTAL RETURN+............................................................................ (12.4%) 25.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................................................. $37,934 $25,918
Ratios to average net assets:
Expenses**............................................................................. 1.03%++ .97%
Expenses, excluding indirectly paid expenses........................................... 1.02%++ N/A
Net investment loss.................................................................... (.78%)++ (.60%)
Portfolio turnover rate.................................................................. 14% 33%
Average commission rate paid per share................................................... $.0600 $.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 (loss) 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 (in thousands)................................................. $1,889
Ratios to average net assets:
Expenses**............................................................................. 1.08%++
Expenses, excluding indirectly paid expenses........................................... N/A
Net investment loss.................................................................... (.71%)++
Portfolio turnover rate.................................................................. 31%
Average commission rate paid per share................................................... N/A
</TABLE>
* Commencement of class operations.
** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
+++ Per share data is calculated based on average shares outstanding during the
period.
See accompanying notes to financial statements.
25
<PAGE>
EVERGREEN LIMITED MARKET FUND
(photo of building)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
EDWIN H. MISKA
We are pleased to present the Semiannual Report for
Evergreen Limited Market Fund for the period ended March 31,
1997. Strong outperformance during the six months under review
was achieved despite a generally depressed and volatile small (photo of Stephen
capitalization market environment, with limited amplitude for Lieber here)
the very small to "micro" capitalization issues in which your
Fund invests. For the six months ended March 31, 1997,
Evergreen Limited Market Fund's total return (Class Y, no-load (photo of
shares) was 7.3%*. This was striking in that it provided a Mr. Miska here)
strong absolute and relative return well in excess of some of
the representative small capitalization indexes: the Russell
2000 returned -0.2%**, and the Lipper Micro Capitalization Funds
average return of the 26 micro-cap funds tracked by Lipper
Analytical Services, Inc., during that time, was -0.6%***.
These strong comparisons are also reflected in the twelve
months returns. Your Fund (Class Y shares) returned 11.4%
versus 5.1% for the Russell 2000 and 8.6% for the Lipper Micro
Cap Funds average of the 23 micro-cap funds tracked by Lipper
during that time. The results are of note, in that they
represent a full twelve-month time period in which to evaluate
the Evergreen Limited Market Fund portfolio in light of last
year's restructuring efforts. We are optimistic that our
efforts during fiscal 1996, have sown the seeds for a
prosperous fiscal 1997 and beyond. We are extremely encouraged
by the results to date. The five- and ten-year average annual
compound returns ended March 31, for the Fund's Class Y shares were
3.9% and 7.9%, respectively. The twelve-month total return,
and the average annual compound return since inception on January 3, 1995,
through March 31, 1997, for the Fund's Class A shares were 5.7% and 6.7%,
respectively.
ECONOMIC ENVIRONMENT AND PORTFOLIO REVIEW
The United States economy continued its strong growth trend from the fall of
1996. Aided by low unemployment, a tight labor market, a strong currency
worldwide, and the strongest sustained growth in corporate profits since the
1950's, the stock market during the six months under review saw the Dow Jones
Industrial average rise above the 7000 level for the very first time. This
"exuberance" was tempered only by the Federal Reserve's resolve to keep
inflation and an "overheating" of the economy at bay. The specter of the onset
of rising interest rates, culminating with the 25 basis point increase of the
Federal Funds rate on March 25, sat heavily on the markets, and created the only
real dampening to an otherwise prosperous environment. This had the effect of
increasing volatility, and placing a paramount value on trading
liquidity -- causing
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL
FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
THE FUND'S 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 AFTER THE MONTH
OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT.
** THE RUSSELL 2000 IS AN UNMANAGED REINVESTED INDEX OF 2000 SELECTED SMALL-CAP
SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
*** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES
INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE
DOES NOT INCLUDE SALES CHARGES AND IF INCLUDED, AVERAGE MAY BE LOWER.
26
<PAGE>
EVERGREEN LIMITED MARKET FUND
(photo of building)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
most of the small-to-micro-capitalization issues to go largely overlooked, if
not totally forgotten. The comparative fundamental advantage smaller
capitalization stocks have enjoyed over the years was also being negated: Profit
growth for the largest capitalization issues was surprisingly better than
expected, increasing investors focus and drawing attention away from the
traditionally faster growing areas of small-cap stocks. Compounding the
small-cap "malaise" was the seasonal tax-loss selling period during the fourth
quarter of 1996, and the overall poor showing during the typically seasonally
strong "January effect" period in the first quarter of calendar 1997.
Despite these obstacles, your Fund performed admirably. As noted in our
previous reports, a focus on careful stock selection, through a strong
fundamental and valuation review, coupled with a discipline to sell issues which
no longer meet the investment criteria, helped the Fund outperform. An
acceleration of firms receiving takeover or merger offers also helped
contribute, as the Fund saw eight merger announcements during the period.
Sectors that contributed to the strong performance were: Banks +25.3%, Thrift
Institutions +16.6%, Building, Construction and Furnishings +14.5% and
Industrial Specialty Products and Services, +12.9%. Disappointing results came
from Consumer Products and Services, -3.6% and Healthcare Products and Services,
- -0.5%. Among individual securities, the continued focus on well-managed, high
quality issues with a consistent record of profitability and earnings growth
served the fund well, as twenty issues held currently rose in excess of 25% for
the six months. Among the best performing: Zygo Corp., a high technology maker
of electro-optical measuring devices for the semiconductor industry, rose 53.8%;
Badger Meter, Inc., a manufacturer of meters and flow measurement tools to the
utility and industrial markets worldwide, rose 45.5%; American Precision
Industries, a growing diversified maker of miniature motors, heat transfer
equipment and electronic components, rose 39.2%; and AG Services of America, a
provider of credit to the agricultural industry was up 38.9%. Among bank holding
companies, West Coast Bancorp (Oregon) rose 37.5%, WSFS Financial Corp.
(Delaware) rose 37.3% and Independent Bank Corp. (Michigan) rose 36.9%.
An active strategy to sell issues upon achieving investment objectives or
upon failing to maintain fundamental standing also served the Fund well. Despite
an overall low portfolio turnover rate of 22% (annualized), The Fund was able to
enhance performance contribution brought on by increased market volatility by
locking in capital gains or by avoiding extensive capital losses. Sales of the
shares of Barra, Inc., (45.4% gain), Exactech, Inc., (12.5% gain), R&G Financial
Corp. (5.9% gain) Control Devices, Inc., (17.7% gain), Timberline Software,
Inc., (21.1% gain) and FRP Properties, Inc., (20.8% gain) were representative of
stocks meeting our investment valuation targets. Sales of the shares of Aceto
Corp., Aseco Corporation, Chesapeake Utilities, Custom Chrome, Inc., National
Sanitary Supply, Utah Medical Products and Tuscarora, Inc., for small gains or
losses, were representative of issues sold upon identifying their failure to
maintain investment merit due to poor earnings releases, or a deterioration of
fundamental factors. Through the methodical use of both quantitative and
fundamental analysis, sensitive to daily changing financial conditions, the Fund
has benefited from the identifying of undervalued, undiscovered companies,
initially as buys and subsequently as sells, in an effort to enhance gains and
minimize losses.
27
<PAGE>
EVERGREEN LIMITED MARKET FUND
(photo of building)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
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 period under review, eight companies in the
Fund's portfolio received acquisition offers. The total since the Fund's
inception on June 1, 1983, has grown to 85 mergers and acquisitions (pending and
completed) for an average gain of 59.9% on those completed. The companies
receiving and/or completing offers during the six months were: Premier
Bankshares Corp., (+52.0% since purchase February 1996), offer to be acquired by
First Virginia Bank via stock; Kysor Industrial Corp. (realized gain +74.6%)
acquired by Scotsman Industries for cash; Cavco Industries, Inc., (+88.5% since
purchase February 1996) offer to be acquired by Centex Corp. for cash; ESELCO
Inc., (+58.8% since purchase March 1996) offer to be acquired by Wisconsin
Energy via stock; Peoples Savings Financial (+60.0% since purchase February
1996) merger offer from Webster Financial via the exchange of stock; American
List Corp. (-18.9% since purchase February 1996) has agreed to be merged into
Snyder Communications via the exchange of stock; Calnetics Corp. (-5.3% since
purchase October 1996) has agreed to be acquired by Summa Industries via a
combination of cash and stock worth $7.50 per share; and Steel of West Virginia,
Inc, has received but has not agreed to a merger offer from CPT Holdings for
$9.00 cash per share. It has been our belief that the acquisitions of relatively
undervalued, well-managed and consistently profitable small companies will
continue, as larger entities seek ways to continue enhancing their overall
bottom lines in an evermore competitive environment. Our focus on these small
growth opportunities should help provide a continuation of this mergers and
acquisitions pace for your Fund.
The equity markets have managed solid gains despite bouts of increased market
volatility caused by rising valuations, uncertainties over higher interest rates
and fears over the re-emerging signs of inflation. The continued focus of the
Fund will be to position itself to outperform in any economic environment, by
emphasizing investment in companies with consistently strong top and bottom line
profit growth opportunities in the small to micro-capitalization segment.
Acquisition candidates will continue to get significant emphasis. As the current
economic cycle slows and organic corporate profit growth diminishes, larger
companies will seek ways to enhance their competitive position. Opportunities
through acquisitions and takeovers of successfully managed producers of
profitable niche products and services will continue. As many of the Fund's
holdings fit this profile, 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 and are
optimistic of the outlook for your Fund. We have made great strides in enhancing
the overall returns both on an absolute and relative basis during the past six
months and look forward to providing you with continued updates on the Fund's
progress.
28
<PAGE>
EVERGREEN LIMITED MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
(photo of building)
SHARES VALUE
COMMON STOCKS -- 99.6%
AEROSPACE & DEFENSE -- 0.6%
9,900* Ducommun, Inc.......................... $ 241,313
BANKS -- 16.4%
17,600 BT Financial Corp...................... 754,600
10,000 CNB Financial Corp..................... 215,000
20,000 First Oak Brook Bancshares Inc.
Cl. A.................................. 500,000
20,475 Independent Bank Corp.................. 783,169
15,000 Mainstreet Bankgroup, Inc.............. 301,875
2,700 Northern States Financial Corp......... 244,350
25,000 Norwich Financial Corp................. 468,750
5,000 Peoples Bancorp, Inc................... 151,250
17,500 Pinnacle Financial Services, Inc....... 470,312
20,000 Premier Bankshares Corp................ 570,000
15,000 Second Bancorp, Inc.................... 551,250
21,150 Washington Trust Bancorp, Inc.......... 592,200
31,250 West Coast Bancorp, Inc. (Ore.)........ 675,781
6,278,537
BUILDING, CONSTRUCTION & FURNISHINGS --
5.4%
28,750 Cavalier Homes, Inc.................... 323,438
25,000* Cavco Industries, Inc.................. 659,375
20,000* Mestek, Inc............................ 325,000
22,000 Republic Group, Inc.................... 335,500
12,000 Schult Homes Corp...................... 202,500
20,000* Southern Energy Homes, Inc............. 207,500
2,053,313
BUSINESS EQUIPMENT & SERVICES -- 8.8%
26,500 American List Corp..................... 649,250
22,000* Equitrac Corp.......................... 286,000
45,800 General Employment Enterprises,
Inc.................................... 403,612
40,000 Graphic Industries, Inc................ 460,000
23,500* Right Management Consultants,
Inc.................................... 226,188
10,000* StaffMark, Inc......................... 131,250
1,630* Stevens International, Inc.
Warrants A +........................... 0
40,000* TEAM America Corp...................... 380,000
42,300* Uniflex, Inc........................... 306,675
20,000 Uniforce Services, Inc................. 316,250
10,000* Union Corp. (The)...................... 215,000
3,374,225
SHARES VALUE
CHEMICAL & AGRICULTURAL PRODUCTS --
2.2%
18,300 Balchem Corp........................... $ 155,550
40,000* Calnetics Corp......................... 265,000
10,000 Chase Corp............................. 72,500
51,319 Hawkins Chemical, Inc.................. 362,439
855,489
CONSUMER PRODUCTS & SERVICES -- 7.7%
10,000* Benihana, Inc.......................... 80,000
17,000 Bush Industries, Inc. Cl. A............ 340,000
15,000* Conso Products Co...................... 208,125
30,000 Cooker Restaurant Corp................. 315,000
25,000* Educational Development Corp........... 128,125
45,000 First Years, Inc. (The)................ 720,000
110,000* Gotham Apparel Corp.**+................ 5,500
20,000* Guest Supply, Inc...................... 287,500
20,000* Motorcar Parts and Accesories,
Inc.................................... 282,500
12,000 Oneida, Ltd............................ 237,000
31,600 Stephan Co. (The)...................... 347,600
2,951,350
ELECTRICAL EQUIPMENT & SERVICES -- 8.8%
25,000* Ault, Inc.............................. 190,625
24,000 Badger Meter, Inc...................... 1,116,000
48,270* Del Global Technologies Corp........... 404,261
27,500* IFR Systems, Inc....................... 412,500
6,400 L.S. Starrett, Co. Cl. A............... 183,200
20,000* SBS Technologies, Inc.................. 305,000
25,000 Tech/OPS Sevcon, Inc................... 334,375
21,000 Todd-AO Corp. (The) Cl. A.............. 204,750
10,000* Zygo Corp.............................. 227,500
3,378,211
FINANCE & INSURANCE -- 5.1%
21,600* CorVel Corp............................ 540,000
11,500 First Financial Caribbean Corp......... 304,750
20,000* FPIC Insurance Group, Inc.............. 342,500
21,804 Grand Premier Financial, Inc........... 242,569
20,000* Penn Treaty American Corp.............. 520,000
1,949,819
FOOD RETAILING & DISTRIBUTION -- 0.5%
10,000 Worthington Foods, Inc................. 195,000
HEALTHCARE PRODUCTS & SERVICES -- 7.7%
30,500* Alcide Corp............................ 663,375
16,000 Biosource International, Inc........... 115,000
33,666 Del Laboratories, Inc.................. 698,569
29
<PAGE>
EVERGREEN LIMITED MARKET FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(photo of building)
SHARES VALUE
COMMON STOCKS -- CONTINUED
HEALTHCARE PRODUCTS & SERVICES -- CONTINUED
10,000 Kewaunee Scientific Corp............... $ 61,250
20,000* Laser Industries, Ltd.................. 240,000
26,100 Meridian Diagnostics, Inc.............. 287,100
60,000* Mesa Laboratories, Inc................. 300,000
27,000* Natural Alternatives International,
Inc.................................... 219,375
30,000* Nutramax Products, Inc................. 360,000
2,944,669
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 17.4%
20,000* AG Services of America, Inc............ 325,000
24,900 American Precision Industries,
Inc.................................... 423,300
26,750 Autocam Corp........................... 300,938
33,000* CEM Corp............................... 276,375
20,000* Chemfab Corp........................... 362,500
37,500 CPAC, Inc.............................. 445,312
40,000 Culp, Inc.............................. 690,000
25,000 Falcon Products, Inc................... 378,125
20,000* Genlyte Group, Inc..................... 217,500
53,250 Met-Pro Corp........................... 672,281
15,000 Modern Controls, Inc................... 146,250
22,000 Raven Industries, Inc.................. 503,250
35,000* RPC, Inc............................... 503,125
17,500* Special Devices, Inc................... 297,500
26,500* Steel of West Virginia, Inc............ 172,250
24,000 Steel Technologies, Inc................ 270,000
30,000 TSI, Inc............................... 285,000
21,000 World Fuel Services Corp............... 372,750
6,641,456
INFORMATION SERVICES & TECHNOLOGY --
5.2%
60,000* Analytical Surveys, Inc................ 637,500
22,500* Comarco, Inc........................... 393,750
15,000 Computer Data Systems, Inc............. 451,875
32,000* Norstan, Inc........................... 496,000
1,979,125
METAL PRODUCTS & SERVICES -- 0.7%
10,000* Sinter Metals, Inc. Cl. A.............. 275,000
SHARES VALUE
REAL ESTATE -- 1.9%
10,000 Crossmann Communities, Inc............. $ 197,500
45,000 United Mobile Homes, Inc............... 540,000
737,500
RETAILING & WHOLESALE -- 3.2%
25,000* Bowlin Outdoor Advertising &
Travel Centers, Inc.................... 168,750
5,000* Buckle, Inc. (The)..................... 133,750
43,785* Harold's Stores, Inc................... 536,366
12,000 Riser Foods, Inc....................... 397,500
1,236,366
THRIFT INSTITUTIONS -- 7.8%
14,600 Iroquois Bancorp, Inc.................. 313,900
24,568 Parkvale Financial Corp................ 669,478
21,500 People's Savings Financial Corp........ 688,000
40,000 Virginia First Financial Corp.......... 590,000
30,000* WSFS Financial Corp.................... 345,000
20,000 York Financial Corp.................... 367,500
2,973,878
UTILITIES -- ELECTRIC -- 0.2%
1,545 Eselco, Inc............................ 61,028
TOTAL INVESTMENTS --
(COST $35,165,241)............ 99.6% 38,126,279
OTHER ASSETS AND
LIABILITIES -- NET............ 0.4 147,087
NET ASSETS...................... 100.0% $38,273,366
* 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-holding over 5% of outstanding voting
securities. This investment was acquired by the Fund at a cost of $665,880.
During the six month period ended March 31, 1997, the Fund recognized no
dividend income from this security.
See accompanying notes to financial statements.
30
<PAGE>
EVERGREEN LIMITED MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
(photo of building)
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $35,165,241)............................................................. $38,126,279
Cash........................................................................................................... 201,043
Receivable for investment securities sold...................................................................... 99,597
Receivable for Fund shares sold................................................................................ 390
Dividends receivable........................................................................................... 28,440
Prepaid expenses............................................................................................... 35,027
Total assets............................................................................................. 38,490,776
LIABILITIES:
Payable for Fund shares repurchased............................................................................ 109,710
Distribution fee payable....................................................................................... 2,195
Advisory fee payable........................................................................................... 31,595
Accrued expenses............................................................................................... 73,910
Total liabilities........................................................................................ 217,410
NET ASSETS........................................................................................................ $38,273,366
NET ASSETS CONSISTS OF:
Paid-in capital................................................................................................ $34,846,208
Accumulated net investment loss................................................................................ (88,806)
Accumulated undistributed net realized gain on investment transactions......................................... 554,926
Net unrealized appreciation of investments..................................................................... 2,961,038
Net assets............................................................................................... $38,273,366
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A shares ($754,357/40,677 shares of beneficial interest outstanding)..................................... $ 18.55
Sales charge -- 4.75% of offering price........................................................................ 0.93
Maximum offering price................................................................................... $ 19.48
Class B shares ($1,299,946/71,311 shares of beneficial interest outstanding)................................... $ 18.23
Class C shares ($28,607/1,568 shares of beneficial interest outstanding)....................................... $ 18.24
Class Y shares ($36,190,456/1,943,943 shares of beneficial interest outstanding)............................... $ 18.62
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
EVERGREEN LIMITED MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(photo of building)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding taxes of $719)............................................ $ 265,869
Interest........................................................................................ 1,405
Total investment income...................................................................... 267,274
EXPENSES:
Advisory fee....................................................................................... $205,771
Distribution fees -- Class A Shares................................................................ 1,111
Distribution fees -- Class B Shares................................................................ 5,392
Shareholder services fees -- Class B Shares........................................................ 1,797
Distribution fees -- Class C Shares................................................................ 107
Shareholder services fees -- Class C Shares........................................................ 35
Registration and filing fees....................................................................... 38,996
Custodian fee...................................................................................... 33,550
Transfer agent fee................................................................................. 32,715
Reports and notices to shareholders................................................................ 17,533
Professional fees.................................................................................. 16,463
Insurance expenses................................................................................. 4,755
Trustees' fees and expenses........................................................................ 4,001
Miscellaneous...................................................................................... 6,932
Total expenses.................................................................................. 369,158
Less: Fee waivers and expense reimbursements....................................................... (16,993)
Net expenses.................................................................................... 352,165
Net investment loss................................................................................... (84,891)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 1,162,320
Net change in unrealized appreciation of investments............................................... 1,932,837
Net realized and unrealized gain on investments....................................................... 3,095,157
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $3,010,266
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
EVERGREEN LIMITED MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
(photo of building)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................................................... $ (84,891) $ (209,279)
Net realized gain (loss) on investment transactions......................................... 1,162,320 (378,317)
Net change in unrealized appreciation of investments........................................ 1,932,837 (1,769,027)
Net increase (decrease) in net assets resulting from operations.......................... 3,010,266 (2,356,623)
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares.............................................................................. -- (32,318)
Class B Shares.............................................................................. -- (61,166)
Class C Shares.............................................................................. -- (1,952)
Class Y Shares.............................................................................. -- (1,796,283)
Total distributions from net realized gains on investments............................... -- (1,891,719)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 1,263,739 6,715,931
Proceeds from reinvestment of distributions................................................. -- 1,739,216
Payment for shares redeemed................................................................. (8,014,074) (30,085,341)
Net decrease resulting from Fund share transactions...................................... (6,750,335) (21,630,194)
Net decrease in net assets............................................................... (3,740,069) (25,878,536)
NET ASSETS:
Beginning of period......................................................................... 42,013,435 67,891,971
End of period (including accumulated net investment loss of $88,806 and $3,915,
respectively)............................................................................. $38,273,366 $ 42,013,435
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN LIMITED MARKET FUND
CLASS A AND CLASS B SHARES
FINANCIAL HIGHLIGHTS
(photo of building)
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS JANUARY 3, SIX MONTHS
ENDED 1995* ENDED
MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................. $17.31 $18.41 $15.76 $17.07 $18.30
Income (loss) from investment operations:
Net investment loss................................. (.06) (.10) (.10) (.12) (.25)
Net realized and unrealized gain (loss) on
investments....................................... 1.30 (.44) 2.75 1.28 (.42)
Total from investment operations.................. 1.24 (.54) 2.65 1.16 (.67)
Less distributions to shareholders from net realized
gains............................................... -- (.56) -- -- (.56)
Net asset value, end of period........................ $18.55 $17.31 $18.41 $18.23 $17.07
TOTAL RETURN+......................................... 7.1% (2.9%) 16.8% 6.8% (3.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............. $754 $903 $1,089 $1,300 $1,461
Ratios to average net assets:
Expenses#........................................... 1.92%++ 1.73% 1.51%++ 2.67%++ 2.47%
Interest expense.................................... -- .02% -- -- .02%
Net investment loss#................................ (.61%)++ (.52%) (1.03%)++ (1.37%)++ (1.28%)
Portfolio turnover rate............................... 24% 160% 84% 24% 160%
Average commission rate paid per share................ $.0545 $.0497 N/A $.0545 $.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....................................... 2.74
Total from investment operations.................. 2.54
Less distributions to shareholders from net realized
gains............................................... --
Net asset value, end of period........................ $18.30
TOTAL RETURN+......................................... 16.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............. $2,020
Ratios to average net assets:
Expenses#........................................... 2.26%++
Interest expense.................................... --
Net investment loss#................................ (1.77%)++
Portfolio turnover rate............................... 84%
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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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 A CLASS B
SIX MONTHS JANUARY 3, SIX MONTHS
ENDED 1995* ENDED
MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED
1997 SEPTEMBER 30, SEPTEMBER 30, 1997 SEPTEMBER 30,
(UNAUDITED) 1996 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
Expenses...................................... 2.00% 3.08% 4.33% 2.75% 3.26%
Net investment loss........................... (.69%) (1.87%) (3.85%) (1.45%) (2.07%)
<CAPTION>
JANUARY 3,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
Expenses...................................... 3.66%
Net investment loss........................... (3.18%)
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN LIMITED MARKET FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
(photo of building)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period........................................................... $17.09 $18.31
Income (loss) from investment operations:
Net investment loss.......................................................................... (.13) (.36)
Net realized and unrealized gain (loss) on investments....................................... 1.28 (.30)
Total from investment operations........................................................... 1.15 (.66)
Less distributions to shareholders from net realized gains..................................... -- (.56)
Net asset value, end of period................................................................. $18.24 $17.09
TOTAL RETURN+.................................................................................. 6.7% (3.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................................................... $29 $27
Ratios to average net assets:
Expenses#.................................................................................... 2.68%++ 2.44%
Interest expense............................................................................. -- .02%
Net investment loss#......................................................................... (1.38%)++ (1.35%)
Portfolio turnover rate........................................................................ 24% 160%
Average commission rate paid per share......................................................... $.0545 $ .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 (in thousands)....................................................... $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 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
Expenses..................................................................................... 2.76% 32.28%
Net investment loss.......................................................................... (1.46%) (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.
35
<PAGE>
EVERGREEN LIMITED MARKET FUND
CLASS Y SHARES
FINANCIAL HIGHLIGHTS
(photo of building)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
MARCH 31, ENDED
1997+++ YEAR ENDED SEPTEMBER 30, MAY 31,
(UNAUDITED) 1996 1995 1994* 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................ $17.35 $18.42 $21.74 $21.20 $20.87
Income (loss) from investment operations:
Net investment loss............................................... (.03) (.08) (.23) (.05) (.07)
Net realized and unrealized gain (loss) on investments............ 1.30 (.43) .59 .59 1.67
Total from investment operations................................ 1.27 (.51) .36 .54 1.60
Less distributions to shareholders from net realized gains.......... -- (.56) (3.68) -- (1.27)
Net asset value, end of period...................................... $18.62 $17.35 $18.42 $21.74 $21.20
TOTAL RETURN+....................................................... 7.3% (2.7%) 4.8% 2.6% 7.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................ $36,190 $39,622 $64,721 $99,340 $96,357
Ratios to average net assets:
Expenses.......................................................... 1.67%#++ 1.55%# 1.36% 1.37%++ 1.26%
Interest expense.................................................. -- .02% -- -- --
Net investment loss............................................... (.37%)#++ (.38%)# (.87%) (.70%)++ (.33%)
Portfolio turnover rate............................................. 24% 160% 84% 36% 89%
Average commission rate paid per share.............................. $.0545 $.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 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 (in thousands)............................ $80,605
Ratios to average net assets:
Expenses.......................................................... 1.24%
Interest expense.................................................. --
Net investment 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, effective
Septmeber 30, 1994.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
Expenses.................................................... 1.75% 1.60%
Net investment loss......................................... (.45%) (.43%)
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(photo of U.S. flag)
A REPORT FROM YOUR
PORTFOLIO MANAGER
SAMUEL A. LIEBER
We are pleased to provide this Semiannual Report for
Evergreen U.S. Real Estate Equity Fund for the period ended
March 31, 1997. The price per share of $13.09, (Class Y, no-load
shares) on March 31, reflects total returns of 3.0%* and 19.7%* (photo of Samuel
for the three- and six-month periods, respectively. The three- Lieber)
and six-month total returns ended March 31, for the Fund's Class
A shares at net asset value were 2.9% and 19.9%, respectively.
These figures compare with the returns for the Morgan Stanley
REIT (Real Estate Investment Trust) Index** of 0.2% and 20.2%,
for the same periods. While REIT's, as measured by the Morgan Stanley Index,
was the top stock group for the fourth calendar quarter, your Fund performed
nearly as well as this group during the six months through March 31, despite
only a 50% exposure to REITs. The Fund benefited from its emphasis on investing
in undervalued, quality assets, as four companies of Fund holdings received and
accepted takeover bids.
REIT RESURGENCE?
After two years of relatively modest performance (averaging 16.4% versus
21.8% for the S&P 500 Index*** per year), REIT shares surged 20% during the
fourth quarter of calendar 1996, outperforming all other stock market sectors.
The impetus and significance of the surge of enthusiasm for REIT's has
implications for both short-term and long-term investment opportunities. The
rationale behind the flood of new investment into REIT's stems, in large part,
from last summer's weakness in the S&P 500 and, specifically, the technology
sector. The stock market focused on the high visibility of current predictable
earnings growth that is generally evident for real estate companies at this
mature stage of the real estate cycle. There is greater predictability for REIT
earnings today than for many other potentially faster growing business sectors,
since real estate generally performs well in the latter part of the economic
cycle. Earnings visibility is especially critical when the economic cycle has
the risk of slowing. Many investors were also attracted to the historic
defensive quality of REIT shares which, in large part, is due to their
relatively high dividend yield. This was very apparent during the mid-summer
stock market slump, and helped fuel the fourth quarter rally. In sharp contrast,
the first quarter of calendar 1997 was rather anemic for REIT's. We believe that
this anemic performance and subsequent negative performance reflected the high
valuations of many REIT shares by year-end. During the first quarter, many REIT
shares exhibited unusually high share price volatility, which we believe is
correlated with the atypically low dividend yields (in many cases under 5%) of
many REIT's, which, in turn, eroded some of the defensive characteristics of
these stocks. In other words, one of the characteristics which led investors to
REIT's was partially negated.
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
INVESTMENT CONCENTRATION IN ONE SECTOR OF THE MARKET INVOLVES ADDITIONAL RISKS
THAN WITH MORE DIVERSE INVESTMENTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL
FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
-2.0%, and 14.2% WERE THE RESPECTIVE 3- AND 6-MONTH TOTAL RETURNS ENDED
MARCH 31, FOR THE FUND'S CLASS A SHARES WITH THE 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 AFTER THE MONTH OF
PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT.
** THE MORGAN STANLEY REIT INDEX IS A CAPITALIZATION-WEIGHTED INDEX WITH
DIVIDENDS REINVESTED OF THE MOST ACTIVELY TRADED REAL ESTATE INVESTMENT
TRUSTS AND DESIGNED TO BE A MEASURE OF REAL ESTATE EQUITY PERFORMANCE.
*** 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.
AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
37
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(photo of U.S. flag)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
The most significant positive from the new REIT investors and subsequent high
valuations is that many companies were able to raise investor's awareness of
REIT's and elevate the profile of real estate stocks in the market. New equity
issuance and rising market capitalizations during the six months under review,
increased REIT capitalization of the Russell 2000 Index to 8% and even led to
discussion of the possibility of at least one stock entering the S&P 500 this
year. The long-term positive implication is a wider spectrum of investors and
enhanced access to public capital for real estate in the future. The
implications for the short-term, however, is relatively modest performance as
share prices either have to recede toward their historic valuation norms or wait
until earnings growth catches up to the share price performance.
PORTFOLIO ACTIVITY
The Fund's portfolio changed considerably during the past six months, with a
number of holdings sold in response to the high valuations discussed above. Many
of these were replaced with companies with superior growth prospects and/or more
modest valuations. For example, positions in Patriot American Hospitality,
Crescent Real Estate, CapStar Hotels and Host Marriott Corporation were replaced
with companies such as Kilroy Realty Corp., Brandywine Realty Trust, Bristol
Hotels and Homegate Hospitality. A result of the Fund's value orientation is
that the portfolio held a number of stocks of companies that were recipients of
merger or acquisition proposals during the first half of the fiscal year. Studio
Plus Hotels was acquired in a share swap with Extended Stay America, and
Renaissance Hotel Group was acquired by Marriott International. The Fund's
position in Wyndham Hotels (held six months) appreciated in anticipation of its
early April acquisition by Patriot American Hospitality, as did the Fund's
holdings in Santa Anita Realty Enterprises which accepted an offer from
Meditrust in early April. The fact that three of these four companies were in
the lodging business reflects the real estate community's positive assessment of
prospects for the hotel sector.
Major shifts on a sector basis occurred, as exposure to apartments was
reduced from 16% of the Fund's net assets at September 30, to 9% at March 31,
and shopping centers exposure was reduced from 18.3% to 9.8%. The proceeds from
these sales were used to fuel additional investments in the office/industrial
buildings sector, which increased from 9.5% to 18.6%, as well as in hotel REIT's
and lodging corporations which, combined, increased from 25.9% to 28.3% of net
assets. These two groups constitute the Fund's largest sector exposure.
HOMEBUILDERS, A CONTRARIAN PLAY
The Fund's second largest sector concentration is homebuilders. These stocks
trade at share prices which, on average, are below book value and at estimates
of nine times earnings per share. By contrast, the S&P 500 Index is currently
trading at a price earnings (P/E) ratio of 20.8X and 3.4X book value. Such low
valuations for homebuilders usually occur only during a recession. However, the
near-record performance of the homebuilders sector in 1996 was reflected in the
highest annual level of new home sales since 1986 and the highest annual level
of existing single family home sales since 1978. Not only was demand strong, but
supply was and still is modest. The current inventory of new homes for sale has
been this low for only a few years since 1982. When combined with historically
low unemployment rates, historically modest interest rates and only moderate
home price inflation, the resulting affordability ratios are very attractive.
38
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
(photo of U.S. flag)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
We believe that Wall Street is patterning its valuation of these "early
cyclicals" as if the boom/bust economic cycles of the 1970's through 1980's
still applied. Our belief that the current homebuilding cycle has not only been
extended, but has also moderated in its amplitude as it follows the economic
cycle. This economic cycle has been modified by restrictive central bank
monetary policies, constrained government fiscal policies and less confluence of
global business cycles. As a result, we believe that homebuilding stocks are
mispriced by the stock market in this current economic environment, and
sustained, solid earnings should eventually be recognized by higher stock
prices.
LOOKING AHEAD
With the American economy roughly six years into the current expansion of the
business cycle with still no obvious sign of either overheating or fatigue, we
believe the possibility exists that we may enjoy another three to five years of
moderate, sustainable growth. Since the real estate cycle follows the business
cycle, we believe the prospects are still positive, although significant
availability of capital for new development may lead to scattered periods of
oversupply in certain locations. This will be tempered by relatively few
uneconomic subsidies such as the tax incentives which pushed real estate too far
and too fast in the 1980's.
Even though the easy money has been made during the rebound of real estate
values during the past few years, we believe excellent growth prospects remain
in several parts of the lodging sector and more selectively in the office
sector, particularly in major urban centers for both property types. Top line
revenue growth at the rate of inflation should be easily achievable for
distribution space, apartments, and self storage facilities. The American dream
of homeownership and high affordability should continue to produce a rising
percentage of homeowners. We believe the greatest selectivity will be required
in the competitive retail sector, where shoppers will continue to spend on the
extremes of value or service and quality.
Finally, we expect that the growth of the securitization of real estate will
continue and with it so will Wall Street's valuation of real estate
fundamentals. Already, we have seen the stock market evolve from favoring owners
of properties in narrow geographic regions with a property type focus, to
companies with a super regional or national scope, and a focus that could
include more than one or two types of property. The market now realizes there
are more ways to find and assess real estate opportunity and this, in turn, has
created more opportunities for investors. Evergreen U.S. Real Estate Equity Fund
will continue to search for such opportunities in this ever growing universe of
real estate securities and we appreciate your support in so doing.
39
<PAGE>
EVERGREEN U.S. REAL ESTATE FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
(photo of U.S. flag)
SHARES VALUE
EQUITY SECURITIES -- 96.5%
Real Estate Investment Trusts -- 43.3%
APARTMENTS -- 8.7%
19,000 Apartment Investment &
Management Co.......................... $ 553,375
12,000 Columbus Realty Trust.................. 241,500
12,500 Gables Residential Trust............... 318,750
8,300 Oasis Residential, Inc................. 186,750
1,300,375
HOTELS -- 6.2%
6,001 Starwood Lodging Trust................. 234,039
53,000 Sunstone Hotel Investors, Inc.......... 695,625
929,664
OFFICE-INDUSTRIAL BUILDINGS -- 18.6%
87,000* American Industrial Property........... 228,375
24,333 Brandywine Realty Trust................ 492,743
10,000 Cali Realty Corp....................... 320,000
6,000 CarrAmerica Realty Corp................ 184,500
30,000 Kilroy Realty Corp..................... 798,750
12,000 Koger Equity, Inc...................... 207,000
5,000 Parkway Properties, Inc................ 120,000
10,000 Prentiss Properties Trust.............. 253,750
5,000 Spieker Properties, Inc................ 195,000
2,800,118
SHOPPING CENTERS -- 9.8%
6,000* Alexander's, Inc....................... 415,500
64,680 Horizon Group, Inc..................... 832,755
8,100 Santa Anita Realty Enterprises,
Inc.................................... 220,725
1,468,980
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $6,137,031)................. 6,499,137
Common Stocks -- 53.2%
HOMEBUILDERS -- 23.9%
20,000* Beazer Homes USA, Inc.................. 295,000
12,000* Castle & Cooke, Inc.................... 178,500
18,750 Cavalier Homes, Inc.................... 210,937
19,300 Continental Homes Holding Corp......... 320,862
SHARES VALUE
Common Stocks -- continued
HOMEBUILDERS -- CONTINUED
56,000 D.R. Horton, Inc....................... $ 602,000
10,000* M/I Schottenstein Homes, Inc........... 102,500
52,500* Pacific Greystone Corp................. 656,250
111,300* Presley Companies (The) Cl. A.......... 125,213
30,000* Toll Brothers, Inc..................... 547,500
73,200* US Home Corp.,
warrants Cl. B $20 -- expiring
6/22/98................................ 539,850
3,578,612
LODGING -- 22.1%
5,000 Bristol Hotel Co....................... 217,500
52,000* Homegate Hospitality, Inc.............. 360,750
20,000* Homestead Village Properties, Inc...... 337,500
15,100* Interstate Hotels Co................... 426,575
56,000* John Q. Hammons Hotels, Inc............ 504,000
5,000 Marriott International, Inc............ 248,750
26,300* Prime Hospitality Corp................. 410,938
10,500* Studio Plus Hotels, Inc................ 181,125
35,000* Vistana, Inc........................... 393,750
8,000* Wyndham Hotel Corp..................... 236,000
3,316,888
MISC. REAL ESTATE COMPANIES -- 4.5%
48,400* Grubb & Ellis Co....................... 459,800
3,000 St. Joe Corp........................... 221,625
681,425
OTHER SECURITIES -- 2.7%............... 409,000
TOTAL COMMON STOCKS
(COST $7,445,465)................. 7,985,925
TOTAL INVESTMENTS
(COST $13,582,496)......... 96.5% 14,485,062
OTHER ASSETS AND
LIABILITIES -- NET......... 3.5 522,501
NET ASSETS.................... 100.0% $15,007,563
* Non-income producing security.
See accompanying notes to financial statements.
40
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
(photo of U.S. flag)
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $13,582,496)............................................................. $14,485,062
Receivable for investment securities sold...................................................................... 939,948
Receivable for Fund shares sold................................................................................ 53,669
Dividends and interest receivable.............................................................................. 37,226
Prepaid expenses............................................................................................... 30,259
Unamortized organization expenses.............................................................................. 6,210
Total assets................................................................................................ 15,552,374
LIABILITIES:
Due to Custodian............................................................................................... 67,050
Payable for investment securities purchased.................................................................... 401,259
Payable for Fund shares repurchased............................................................................ 28,694
Distribution fee payable....................................................................................... 2,173
Accrued expenses............................................................................................... 45,635
Total liabilities........................................................................................... 544,811
NET ASSETS........................................................................................................ $15,007,563
NET ASSETS CONSISTS OF:
Paid-in capital................................................................................................ 12,792,067
Accumulated undistributed net investment income................................................................ 56,552
Accumulated undistributed net realized gain on investment transactions......................................... 1,256,378
Net unrealized appreciation of investments..................................................................... 902,566
Net assets.................................................................................................. $15,007,563
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A shares ($837,693/64,435 shares of beneficial interest outstanding).................................. $ 13.00
Sales charge -- 4.75% of offering price..................................................................... .65
Maximum offering price................................................................................... $ 13.65
Class B shares ($1,121,253/86,811 shares of beneficial interest outstanding)................................ $ 12.92
Class C shares ($515,893/39,993 shares of beneficial interest outstanding).................................. $ 12.90
Class Y shares ($12,532,724/958,442 shares of beneficial interest outstanding).............................. $ 13.08
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(photo of U.S. flag)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends....................................................................................... $ 213,466
Interest........................................................................................ 3,438
Total investment income...................................................................... 216,904
EXPENSES:
Advisory fee....................................................................................... $ 67,021
Distribution fees -- Class A Shares................................................................ 626
Distribution fees -- Class B Shares................................................................ 2,918
Shareholder services fees -- Class B Shares........................................................ 973
Distribution fees -- Class C Shares................................................................ 1,510
Shareholder services fees -- Class C Shares........................................................ 503
Custodian fee...................................................................................... 35,323
Registration and filing fees....................................................................... 32,392
Transfer agent fee................................................................................. 25,844
Professional fees.................................................................................. 14,668
Reports and notices to shareholders................................................................ 5,010
Insurance.......................................................................................... 4,058
Trustees' fees and expenses........................................................................ 2,658
Miscellaneous...................................................................................... 1,001
Total expenses.................................................................................. 194,505
Less: Fee waivers and expense reimbursements....................................................... (85,556)
Expenses paid indirectly..................................................................... (1,835)
Net expenses.................................................................................... 107,114
Net investment income................................................................................. 109,790
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 1,609,538
Net change in unrealized appreciation of investments............................................... 557,791
Net realized and unrealized gain on investments....................................................... 2,167,329
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $2,277,119
</TABLE>
See accompanying notes to financial statements
42
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(photo of U.S. flag)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997 SEPTEMBER 30,
(UNAUDITED) 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 109,790 $ 207,611
Net realized gain on investment transactions........................................... 1,609,538 1,211,270
Net change in unrealized appreciation of investments................................... 557,791 (117,123)
Net increase in net assets resulting from operations................................ 2,277,119 1,301,758
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares...................................................................... (6,261) (2,161)
Class B Shares...................................................................... (9,714) (2,282)
Class C Shares...................................................................... (6,723) (113)
Class Y Shares...................................................................... (227,570) (161,622)
Total distributions from net investment income................................... (250,268) (166,178)
FROM NET REALIZED GAINS ON INVESTMENTS:
Class A Shares...................................................................... (38,196) (2,640)
Class B Shares...................................................................... (78,704) (3,174)
Class C Shares...................................................................... (45,396) (144)
Class Y Shares...................................................................... (1,293,383) (170,850)
Total distributions from net realized gains on investments....................... (1,455,679) (176,808)
Total distributions to shareholders........................................... (1,705,947) (342,986)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 2,473,662 1,954,850
Proceeds from reinvestment of distributions............................................ 1,419,029 326,476
Payment for shares redeemed............................................................ (876,353) (1,443,869)
Net increase resulting from Fund share transactions................................. 3,016,338 837,457
Net increase in net assets.......................................................... 3,587,510 1,796,229
NET ASSETS:
Beginning of period.................................................................... 11,420,053 9,623,824
End of period (including undistributed net investment income of $56,552 and $197,030,
respectively)........................................................................ $15,007,563 $11,420,053
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
CLASS A AND CLASS B SHARES
FINANCIAL HIGHLIGHTS
(photo of U.S. flag)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS MARCH 10, SIX MONTHS
ENDED 1995* ENDED
MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30,
(UNAUDITED) 1996+++ 1995 (UNAUDITED) 1996+++
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $12.49 $11.42 $9.21 $12.41 $11.37
Income from investment operations:
Net investment income....................... .08 .20 .18 .04 .13
Net realized and unrealized gain on
investments............................... 2.27 1.28 2.03 2.25 1.27
Total from investment operations.......... 2.35 1.48 2.21 2.29 1.40
Less distributions to shareholders from:
Net investment income....................... (.26) (.20) -- (.20) (.15)
Net realized gains.......................... (1.58) (.21) -- (1.58) (.21)
Total distributions....................... (1.84) (.41) -- (1.78) (.36)
Net asset value, end of period................ $13.00 $12.49 $11.42 $12.92 $12.41
TOTAL RETURN+................................. 19.9% 13.1% 24.0% 19.4% 12.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $838 $263 $5 $1,121 $431
RATIOS TO AVERAGE NET ASSETS:
Expenses**.................................. 1.77%#++ 1.72%# 1.78%#++ 2.52%#++ 2.46%#
Expenses, excluding indirectly
paid expenses............................. 1.75%#++ N/A N/A 2.50%#++ N/A
Interest expense............................ -- .04% -- -- .04%
Net investment income....................... 1.30%#++ 1.60%# 3.13%#++ .67%#++ 1.05%#
Portfolio turnover rate....................... 86% 169% 115% 86% 169%
Average commission rate paid per share........ $.0609 $.0619 N/A $.0609 $.0619
<CAPTION>
MARCH 7,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.......... $9.19
Income from investment operations:
Net investment income....................... .05
Net realized and unrealized gain on
investments............................... 2.13
Total from investment operations.......... 2.18
Less distributions to shareholders from:
Net investment income....................... --
Net realized gains.......................... --
Total distributions....................... --
Net asset value, end of period................ $11.37
TOTAL RETURN+................................. 23.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)...... $160
RATIOS TO AVERAGE NET ASSETS:
Expenses**.................................. 2.51%#++
Expenses, excluding indirectly
paid expenses............................. N/A
Interest expense............................ --
Net investment income....................... 2.00%#++
Portfolio turnover rate....................... 115%
Average commission rate paid per share........ N/A
</TABLE>
* Commencement of class operations.
** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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 would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, YEAR ENDED MARCH 10, 1995* MARCH 31, YEAR ENDED
1997 SEPTEMBER 30, THROUGH 1997 SEPTEMBER 30,
(UNAUDITED) 1996 SEPTEMBER 30, 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C>
Expenses**.......................... 2.97% 9.65% 364.74% 3.77% 6.19%
Expenses, excluding indirectly paid
expenses.......................... 2.95% N/A N/A 3.75% N/A
Net investment income (loss)........ .10% (6.33%) (359.83%) (.58%) (2.68%)
<CAPTION>
MARCH 7,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
Expenses**.......................... 28.70%
Expenses, excluding indirectly paid
expenses.......................... N/A
Net investment income (loss)........ (24.19%)
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
CLASS C SHARES
FINANCIAL HIGHLIGHTS
(photo of U.S. flag)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
1997+++ SEPTEMBER 30,
(UNAUDITED) 1996+++
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................... $12.44 $11.41
Income from investment operations:
Net investment income................................................................. .04 .13
Net realized and unrealized gain on investments....................................... 2.23 1.28
Total from investment operations.................................................... 2.27 1.41
Less distributions to shareholders from:
Net investment income................................................................. (.23) (.17)
Net realized gains.................................................................... (1.58) (.21)
Total distributions................................................................. (1.81) (.38)
Net asset value, end of period.......................................................... $12.90 $12.44
TOTAL RETURN+........................................................................... 19.4% 12.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)................................................ $516 $125
RATIOS TO AVERAGE NET ASSETS:
Expenses**............................................................................ 2.52%#++ 2.47%#
Expenses, excluding indirectly paid
expenses............................................................................ 2.50%#++ N/A
Interest expense...................................................................... -- .04%
Net investment income................................................................. .60%#++ 1.08%#
Portfolio turnover rate................................................................. 86% 169%
Average commission rate paid per share.................................................. $.0609 $.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 (in thousands)................................................ $3
RATIOS TO AVERAGE NET ASSETS:
Expenses**............................................................................ 2.49%#++
Expenses, excluding indirectly paid
expenses............................................................................ N/A
Interest expense...................................................................... --
Net investment income................................................................. 2.55%#++
Portfolio turnover rate................................................................. 115%
Average commission rate paid per share.................................................. N/A
</TABLE>
* Commencement of class operations.
** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ 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.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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>
SIX MONTHS
ENDED JULY 12,
MARCH 31, YEAR ENDED 1995* THROUGH
1997 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995
<S> <C> <C> <C>
Expenses**................................................... 3.79% 18.82% 421.54%
Expenses, excluding indirectly paid expenses................. 3.77% N/A N/A
Net investment loss.......................................... (.67%) (15.27%) (416.50%)
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
EVERGREEN U.S. REAL ESTATE EQUITY FUND
CLASS Y SHARES
FINANCIAL HIGHLIGHTS
(photo of U.S. flag)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH YEAR ENDED SEPTEMBER 30,
31, 1997+++
(UNAUDITED) 1996+++ 1995
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................. $12.56 $11.44 $10.07
Income from investment operations:
Net investment income............................................... .11 .24 .23
Net realized and unrealized gain on investments..................... 2.27 1.29 1.46
Total from investment operations.................................. 2.38 1.53 1.69
Less distributions to shareholders from:
Net investment income............................................... (.28) (.20) (.20)
In excess of net investment income.................................. -- -- --
Net realized gains.................................................. (1.58) (.21) (.12)
Total distributions............................................... (1.86) (.41) (.32)
Net asset value, end of period........................................ $13.08 $12.56 $11.44
TOTAL RETURN+......................................................... 20.1% 13.6% 17.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................. $12,533 $10,601 $9,456
RATIOS TO AVERAGE NET ASSETS:
Expenses***......................................................... 1.52%#++ 1.46%# 1.50%#
Expenses, excluding indirectly paid
expenses.......................................................... 1.50%#++ N/A N/A
Interest expense.................................................... -- .04% --
Net investment income............................................... 1.75%#++ 2.02%# 2.45%#
Portfolio turnover rate............................................... 86% 169% 115%
Average commission rate paid per share................................ $.0609 $.0619 N/A
<CAPTION>
NINE MONTHS SEPTEMBER 1,
ENDED 1993* THROUGH
SEPTEMBER 30, DECEMBER 31,
1994** 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................. $10.71 $10.00
Income from investment operations:
Net investment income............................................... .11 .04
Net realized and unrealized gain on investments..................... (.75) 0.72
Total from investment operations.................................. (.64) 0.76
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........................................ $10.07 $10.71
TOTAL RETURN+......................................................... (6.0%) 7.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................. $8,630 $4,610
RATIOS TO AVERAGE NET ASSETS:
Expenses***......................................................... 1.49%++# (.44%)++#
Expenses, excluding indirectly paid
expenses.......................................................... N/A N/A
Interest expense.................................................... -- --
Net investment income............................................... 1.60%++# 1.93%++#
Portfolio turnover rate............................................... 102% 17%
Average commission rate paid per share................................ N/A N/A
</TABLE>
* Commencement of class operations.
** The Fund changed its fiscal year end from December 31 to September 30.
*** The ratio of total expenses to average net assets for the six months ended
March 31, 1997 includes indirectly paid expenses (Note 9).
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
+++ Per share data is calculated based on average shares outstanding during the
period.
# 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 would have been the following:
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED MARCH YEAR ENDED ENDED SEPTEMBER 1, 1993*
31, 1997 SEPTEMBER 30, SEPTEMBER 30, THROUGH
(UNAUDITED) 1996 1995 1994** DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
Expenses***............................... 2.80%++ 2.25% 2.70% 2.65% 3.59%
Expenses, excluding indirectly paid
expenses................................ 2.78%++ N/A N/A N/A N/A
Net investment income (loss).............. .47%++ 1.23% 1.25% .44% (1.21%)
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Domestic Growth Funds (the "Funds") are separate series of
open-end management investment companies registered under the Investment Company
Act of 1940, as amended (the "Act"). The Evergreen Domestic Growth 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.
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 maturing
in less than sixty days 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.
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. The tax treatment
of income and capital gain distributions paid during the calendar year will be
reported to shareholders prior to February 1, 1998.
47
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
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.
At September 30, 1996, net capital losses of $2,992,429, $516,710 and
$205,513 attributable to security transactions after October 31, 1995 were
incurred by Aggressive Growth, Limited Market and U.S. Real Estate,
respectively. The Funds have elected to defer these losses for Federal income
tax purposes, which will be treated as arising on the first business day of the
Fund's current fiscal year.
ALLOCATION OF INCOME AND 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.
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, Limited Market and U.S. Real
Estate, 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 six months ended March 31, 1997, Evergreen
Asset waived all of its advisory fee and reimbursed $18,535 in expenses under
this limitation. In addition, for the six months ended March 31, 1997, Evergreen
Asset voluntarily reimbursed expenses amounting to $16,993 for Limited Market.
Evergreen Asset can modify or terminate these voluntary waivers at any time.
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
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 six months ended March 31, 1997, Evergreen
Fund, Limited Market and U.S. Real Estate incurred brokerage commissions of
$222,703, $27,999 and $56,333, 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 March 31, 1997, Stephen A. Lieber, Chairman of Evergreen Asset owned,
directly or beneficially, 19.7% of the outstanding shares of U.S. Real Estate.
ADMINISTRATION AGREEMENT -- For the period through March 10, 1997,
Evergreen Asset furnished Evergreen Fund, Limited Market and U.S. Real Estate
with administrative services as part of their advisory agreements and
accordingly, these Funds did not pay a separate administration fee. Effective
March 11, 1997, Evergreen Keystone Investment Services (EKIS), a subsidiary of
First Union, began providing administrative services to the Funds. For the
period through December 31, 1996, Furman Selz LLC ("Furman Selz") was each of
the Funds' sub-administrator. As sub-administrator, Furman Selz provided the
officers of the Funds. Effective January 1, 1997, The BISYS Group, Inc.
("BISYS") acquired Furman Selz' mutual fund unit and accordingly, BISYS Fund
Services became sub-administrator. For Evergreen Fund, Limited Market and U.S.
Real Estate, Furman Selz'/BISYS fee was paid by Evergreen Asset/EKIS and is not
a fund expense.
Evergreen Asset/EKIS was also Aggressive Growth's administrator and Furman
Selz/BISYS was sub-administrator during the six month period ended March 31,
1997. Evergreen Asset's/EKIS's and Furman Selz'/BISYS fees for Aggressive Growth
are based on the average daily net assets of all the funds administered by
Evergreen Asset or EKIS for which First Union or its investment advisory
subsidiaries is also investment adviser. These fees were 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 March 31, 1997, assets for which EKIS was the administrator and which
First Union or its investment advisory subsidiaries was investment adviser
totaled approximately $28.6 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.
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
In connection with the Plans, the Funds have entered into distribution
agreements with Evergreen Keystone Distributors, Inc. ("EKD") (formerly
Evergreen Funds Distributor, Inc. ("EFD")), a subsidiary of BYSIS, where by the
Funds will compensate EKD 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 Shares' 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. EKD has entered into a Shareholder
Services Agreement with First Union Brokerage Services ("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 -- EKD 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 six months ended March 31, 1997: Aggressive Growth ($20,791),
Evergreen Fund ($90,584), Limited Market ($8) and U.S. Real Estate ($706).
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 $85,206 for the Evergreen
Fund and $2,766 for Aggressive Growth for the six months ended March 31, 1997.
Limited Market did not incur any fees pursuant to this agreement for the six
months ended March 31, 1997.
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
Evergreen Fund, Aggressive Growth, 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 month 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.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
EVERGREEN FUND SHARES AMOUNT SHARES DOLLARS
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............................................. 3,925,843 $ 72,511,813 6,095,487 $ 99,948,887
Shares issued on reinvestment of distributions........... 141,871 2,555,095 94,388 1,472,450
Shares redeemed.......................................... (2,918,827) (53,982,929) (3,137,366) (52,080,445)
Net increase............................................. 1,148,887 21,083,979 3,052,509 49,340,892
CLASS B
Shares sold.............................................. 5,073,036 92,657,473 10,528,707 171,559,260
Shares issued on reinvestment of distributions........... 359,016 6,426,556 230,476 3,588,103
Shares redeemed.......................................... (848,433) (15,480,015) (1,033,495) (16,934,353)
Net increase............................................. 4,583,619 83,604,014 9,725,688 158,213,010
CLASS C
Shares sold.............................................. 92,687 1,687,456 253,398 4,102,332
Shares issued on reinvestment of distributions........... 7,595 135,795 6,180 96,026
Shares redeemed.......................................... (54,101) (984,797) (43,233) (711,575)
Net increase............................................. 46,181 838,454 216,345 3,486,783
CLASS Y
Shares sold.............................................. 41,717,662 768,863,469 87,374,014 1,420,506,634
Shares issued in acquisition of
FFB Lexicon Small Company Growth Fund.................. -- -- 1,752,546 27,158,980
Shares issued on reinvestment of distributions........... 1,085,007 19,584,379 1,402,844 21,926,423
Shares redeemed.......................................... (43,922,476) (811,129,911) (82,347,414) (1,341,450,072)
Net increase (decrease).................................. (1,119,807) (22,682,063) 8,181,990 128,141,965
Total net increase resulting from Fund share
transactions........................................... 4,658,880 $ 82,844,384 21,176,532 $ 339,182,650
</TABLE>
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
AGGRESSIVE GROWTH SHARES AMOUNT SHARES DOLLARS
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................... 1,051,624 $21,666,933 1,486,503 $ 28,206,250
Shares issued on reinvestment of distributions................. -- -- 125,571 2,164,153
Shares redeemed................................................ (1,278,980) (26,222,020) (1,100,349) (20,468,235)
Net increase (decrease)........................................ (227,356) (4,555,087) 511,725 9,902,168
CLASS B
Shares sold.................................................... 569,193 11,707,165 1,012,639 18,916,487
Shares issued on reinvestment of distributions................. -- -- 9,125 156,717
Shares redeemed................................................ (130,936) (2,677,031) (150,663) (2,835,175)
Net increase................................................... 438,257 9,030,134 871,101 16,238,029
CLASS C
Shares sold.................................................... 74,852 1,501,903 44,926 857,932
Shares issued on reinvestment of distributions................. -- -- 420 7,213
Shares redeemed................................................ (12,308) (248,392) (21,948) (396,890)
Net increase................................................... 62,544 1,253,511 23,398 468,255
CLASS Y
Shares sold.................................................... 1,705,952 35,516,569 1,385,748 25,808,879
Shares issued on reinvestment of distributions................. -- -- 8,611 148,623
Shares redeemed................................................ (882,799) (18,279,875) (273,910) (5,080,669)
Net increase................................................... 823,153 17,236,694 1,120,449 20,876,833
Total net increase resulting from Fund share
transactions................................................. 1,096,598 $22,965,252 2,526,673 $ 47,485,285
</TABLE>
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
SHARES AMOUNT SHARES DOLLARS
<S> <C> <C> <C> <C>
LIMITED MARKET
CLASS A
Shares sold...................................................... 430 $ 7,922 44,104 $ 755,204
Shares issued on reinvestment of distributions................... -- -- 1,829 31,166
Shares redeemed.................................................. (11,943) (226,123) (52,912) (905,676)
Net decrease..................................................... (11,513) (218,201) (6,979) (119,306)
CLASS B
Shares sold...................................................... 1,653 29,715 15,418 265,257
Shares issued on reinvestment of distributions................... -- -- 3,263 55,180
Shares redeemed.................................................. (15,935) (292,054) (43,481) (724,243)
Net decrease..................................................... (14,282) (262,339) (24,800) (403,806)
CLASS C
Shares sold...................................................... -- -- 134 2,393
Shares issued on reinvestment of distributions................... -- -- 112 1,899
Shares redeemed.................................................. (1) (20) (2,040) (33,276)
Net decrease..................................................... (1) (20) (1,794) (28,984)
CLASS Y
Shares sold...................................................... 65,450 1,226,102 332,812 5,693,077
Shares issued on reinvestment of distributions................... -- -- 96,831 1,650,971
Shares redeemed.................................................. (405,139) (7,495,877) (1,659,712) (28,422,146)
Net decrease..................................................... (339,689) (6,269,775) (1,230,069) (21,078,098)
Total net decrease resulting from Fund share
transactions................................................... (365,485) $(6,750,335) (1,263,642) $(21,630,194)
</TABLE>
53
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
SHARES AMOUNT SHARES DOLLARS
<S> <C> <C> <C> <C>
U.S. REAL ESTATE
CLASS A
Shares sold.................................................................. 43,688 $ 568,101 50,221 $ 600,589
Shares issued on reinvestment of distributions............................... 3,065 37,276 352 4,164
Shares redeemed.............................................................. (3,371) (44,515) (29,953) (356,039)
Net increase................................................................. 43,382 560,862 20,620 248,714
CLASS B
Shares sold.................................................................. 47,059 613,365 21,611 258,923
Shares issued on reinvestment of distributions............................... 7,088 85,699 459 5,421
Shares redeemed.............................................................. (2,044) (27,606) (1,478) (17,892)
Net increase................................................................. 52,103 671,458 20,592 246,452
CLASS C
Shares sold.................................................................. 31,902 406,429 11,216 136,531
Shares issued on reinvestment of distributions............................... 1,542 18,793 22 258
Shares redeemed.............................................................. (3,501) (47,435) (1,430) (17,003)
Net increase................................................................. 29,943 377,787 9,808 119,786
CLASS Y
Shares sold.................................................................. 67,383 885,767 79,674 958,807
Shares issued on reinvestment of distributions............................... 104,600 1,277,261 26,720 316,633
Shares redeemed.............................................................. (57,674) (756,797) (88,998) (1,052,935)
Net increase................................................................. 114,309 1,406,231 17,396 222,505
Total net increase resulting from Fund share
transactions............................................................... 239,737 $3,016,338 68,416 $ 837,457
</TABLE>
54
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the six months ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Evergreen Fund.......................................... $140,007,131 $54,727,044
Aggressive Growth....................................... 40,606,635 20,543,833
Limited Market.......................................... 9,625,960 16,696,720
U.S. Real Estate........................................ 12,699,885 11,537,526
</TABLE>
On March 31, 1997, 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............. $488,608,902 $ 34,122,075 $ 454,486,827 $837,775,883
Aggressive Growth.......... 46,639,715 6,925,619 39,714,096 108,366,467
Limited Market............. 5,813,979 2,852,941 2,961,038 35,165,241
U.S. Real Estate........... 1,632,698 730,132 902,566 13,582,496
</TABLE>
NOTE 6 -- FINANCING AGREEMENT
A financing agreement was in place with all the Evergreen Funds and the
custodian, State Street Bank and Trust Company (the "Bank"). Under the
agreement, the Bank provided 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.
Effective October 31, 1996, a new financing agreement was put in place
between all of the Evergreen Funds and State Street, Societe Generale and ABN
AMRO Bank N.V. (collectively, the "Banks"). Under this agreement, the Banks
provide an unsecured line of credit facility in the aggregate amount of $225
million ($112.5 million committed and $112.5 million uncommitted) allocated
evenly between the Banks. Borrowings under these facilities bear interest at
.75% per annum above the Federal Funds rate. A commitment fee of .10% per annum
will be incurred on the unused portion of the committed facility which would be
allocated to all participating funds. During the six months ended March 31,
1997, the Funds had no significant borrowings.
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 expenses for each Fund at March 31, 1997, 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 March 31, 1997, Trustees had
55
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- DEFERRED TRUSTEES' (DIRECTORS') FEES -- continued
deferred $41,682, $6,953, $7,217 and $4,312 for Evergreen Fund, Aggressive
Growth, Limited Market and U.S. Real Estate, respectively.
NOTE 9 -- EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their
custodian. For the six months ended March 31, 1997, Aggressive Growth and U.S.
Real Estate incurred total custody expenses of $44,803 and $35,323,
respectively, and received credits of $11,430 and $1,835, respectively,
resulting in net custody expenses of $33,373 and $33,488, respectively. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income producing assets. Evergreen Fund and Limited Market
did not earn a significant amount of credits during the period.
NOTE 10 -- SUBSEQUENT EVENTS
Effective May 5, 1997, Evergreen Keystone Services Company, an affiliate of
First Union, became the Funds' transfer agent, dividend disbursement agent and
shareholder servicing agent.
56
<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
<PAGE>
This report was prepared primarily for the information of fund shareholders.
It is authorized for distribution if preceded or accompanied by the fund's
current prospectus. The prospectus contains important information about the
fund, including fees and expenses. Read it carefully before you invest or
send money. For a free prospectus on other Evergreen Keystone Funds, contact
your financial adviser or call Evergreen Keystone.
[box containing NOT FDIC INSURED & May lose value No bank guarantee]
Evergreen Keystone Distributor, Inc.
Evergreen Keystone(sm) is a Service Mark of Evergreen Keystone Investment
Services, Inc. Copyright 1997.
49344 540979
5/97
