EVERGREEN
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U.S. REAL ESTATE
EQUITY FUND
SEMI-ANNUAL REPORT [LOGO]
MARCH 31, 1995
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DEAR FELLOW SHAREHOLDER: May 9, 1995
We are pleased to bring you the Semi-Annual Report for Evergreen U.S.
Real Estate Equity Fund. During the past two weeks, the bond market has enjoyed
a significant rally. Yields on 30-year U.S. Treasury bonds have fallen from
7.43% on March 31, to 6.94% currently, which has sparked a notable recovery in
many of the Fund's investments. The Fund's NAV per share has increased
significantly, as interest sensitive stocks, such as real estate investment
trusts (REITs) and, more notably, homebuilders have rallied strongly. The
homebuilding sector is finally being revalued upward by Wall Street. We also
believe that the Fund's other investments in undervalued or misunderstood
sectors of the commercial real estate market, such as apartments and outlet
centers, will continue the relative outperformance from which the Fund has
recently benefitted. We believe that a positive change in the trend has taken
hold.
The favorable contrast in performance between the first quarter of 1995
and the fourth quarter of 1994 reflects the impact of the decline in interest
rates in early 1995, upon equities in general and real estate stocks in
particular, and most prominently upon homebuilding stocks. Long-term mortgage
rates increased from 8.5%* in September, to 9.3% near year-end, before falling
back to 8.0% in recent weeks.
CURRENT PROPERTY SHARE PRICES
As we have stated in prior reports, the Fund's orientation is to look
initially for growth situations within a value investing context. We believe
that the Federal Reserve's actions to restrain inflation will limit growth
somewhat over the balance of this year, and in fact have already had an impact.
Share prices of both homebuilders and many REITs have been affected. We believe
the continued underperformance, despite the recent fall in interest rates, stems
partly from various technical market factors relating to either the inability to
absorb the number of initial public offerings (IPOs) during the past two years
or to several stocks failing to meet earnings expectations. This
underperformance also reflects the market's concern with the potential for an
economic slowdown and the ensuing limitations it may impose on rental demand and
growth. While this has put some pressure on the Fund's current REIT holdings
(which by the way, have met earnings expectations), it has also enabled us to
take advantage of market inefficiencies and acquire shares of a number of
excellent companies at lower prices. These fallen or mispriced companies, which
the Fund has been buying at discounts to their underlying real estate values,
may well be the objects of a limited number of future REIT mergers and
acquisitions.
PORTFOLIO CHANGES
On a sector basis, the Fund has been re-directed somewhat over the past
six months. Most notable was a reduction in its proportionate holdings in
homebuilders from 30.5% to 26.1% of the Fund's net assets, and an increase in
apartment REIT shares from 16.0% to 24.3%. Shopping centers and shopping malls
have been increased from 7.8% to 13.3% and hotel REITs and other lodging stocks
have increased slightly from 8.6% to 9.3%. Slight reductions in the percentage
of factory outlet centers from 16.7% to 15.2%, and office and industrial
holdings from 10.3% to 8.0%, represent the balance of the overall adjustments in
the portfolio. It should be noted that these changes do not simply reflect a
strategic shift in the portfolio, but also a response to opportunities in the
marketplace to acquire assets at attractive relative prices.
MARKET REVIEW
OFFICE PROPERTIES
There has been some discussion in the REIT press that the best plays now
are in office and industrial properties because they have not yet seen the sort
of rebound in prices that apartments, for example, have enjoyed. On the surface,
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FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
Investment concentration in one sector of the market increases risks that would
otherwise be decreased in more diverse investments.
* Source: Fannie Mae commitment rate for 30-year fixed rate mortgages. 5/95
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we agree that over the long-term (3 to 5 years) this sector can appreciate the
most in value. However, there are a number of issues which Wall Street
misunderstands. First, with regard to appreciation potential, it is most
important to realize that values will not improve significantly without the
near-term promise of rental growth. Since we believe economic growth will be
modest for most markets over the next couple of years, rental growth and
appreciation should also be modest. Second, because the long-term nature of
office leases means that typically no more than 10% to 25% of the rent roll
expires annually, it takes time to raise rents. Thirdly, long leases result in
some tenants who are paying rents set when leases were at the top of the market,
often well above today's renewal level. Thus, some buildings' income may still
decline. The fourth issue is that office buildings normally require a
significant amount of new capital expenditures to keep them up-to-date,
therefore many older buildings will need significant investment to maintain
their market appeal, leading to lower potential returns. Finally, a number of
publicly traded companies which invest in offices are trading at price levels
which in fact represent a premium to the underlying market value of their real
estate. Hence, the ability to participate in the future appreciation of these
properties is limited.
For the Fund's portfolio we have been very careful in selecting office
investments where the underlying real estate is either well along in its
cyclical rebound (Highwoods) or can be acquired at a significant discount to the
underlying assets (Lexington Corp. Properties), and which boasts superior
location and should command a premium when the local market fully recovers (Carr
Realty).
INDUSTRIAL PROPERTIES
The industrial market is generally doing fairly well. However, most of
the industrial plays in the REIT market are trading at significant premiums to
their underlying real estate. A further concern is that if the economy does
moderate over the next year or two, so too may the demand for industrial
property. The Fund's major industrial investment is in Liberty Property Trust,
whose cost conscious, seasoned management team has significant financial
capability to acquire excellent long-term values.
RESIDENTIAL PROPERTIES
The apartment sector was the first area to recover and continues to show
good growth in rents, although one must be selective in choosing markets. Among
the top markets, Atlanta, Nashville and Phoenix are represented in the Fund's
holdings, while softening markets such as Denver, Houston and San Antonio are
minimal. Shares of Oasis Residential, (located in Las Vegas) were sold at
calendar year-end after an average four-month holding period for an average gain
of 14.7%. We are particularly attracted to companies with development expertise
because they can build property at a 20% discount to what others would pay to
acquire an existing apartment complex. Since this is still the early stage of
the cycle where the amount of new construction is small compared to levels of
ten years ago, the risk to development from overbuilding is minimal. The key
issue with development companies is for analysts to assess the future
profitability of development projects in order to separate the wheat from the
chaff. However, inexperienced real estate stock investors, unsure about
evaluating new apartment construction, have sold down many of these stocks to
very attractive prices, allowing the Fund to make a number of significant
investments in shares of companies such as Amli, Columbus, Gables and Irvine.
RETAIL PROPERTIES
On the retail front, we are cautious on the prospects for mall sales.
While malls have attractive stable cashflows, we find that only a few offer
strong growth, and a number are still trading at premiums to their underlying
property valuations. The Fund has acquired a position in Taubman Centers, the
owner of a number of the country's top performing regional malls, at levels that
provide a significant discount to the underlying asset value. Similarly, we have
added Tucker Properties, a medium-sized Chicago-based strip center and mall
owner, at a significant discount to its valuation levels and some 35% below its
IPO price.
HOMEBUILDERS
Homebuilders continue to have the largest representation in the Fund.
Notably, we have added to the Fund's position in California-based U.S. Home
Corp., which we believe to be one of the cheapest of the national builders. Our
view is that California is in the process of turning, although natural disasters
have been a major problem for the state economy and, hence, homebuilding. We
continue to be impressed by Toll Brothers' ability to increase its market share
and maintain high margins in the tough northeastern markets, while Continental
Homes has continued along its path of geographic diversification, buying local
homebuilders in markets with excellent demographic trends. If the bond market
trend of the last few weeks remains stable, with long-term Treasury bond yields
under 7.0%, then mortgage rates should continue to hold well below 8.5%, leading
to a reasonably strong spring home buying season.
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PORTFOLIO HIGHLIGHT: HORIZON OUTLET CENTERS AND
MCARTHUR GLEN REALTY CORP.
The proposed merger of Horizon Outlet Centers and McArthur Glen Realty
Corp., which together comprise approximately 8.8% of the Fund's portfolio of
investments, should create the largest outlet center company in the country. It
will own many fine properties, spread nationwide. However, we believe that the
stock market's pessimism regarding the prospects of the outlet sector and,
hence, associated development risks, is unwarranted. Much of the negativity
surrounds the fact that in 1993 at its IPO, McArthur Glen's old management
over-estimated how much it would grow in its first year by an order of magnitude
of over five times. This resulted in a high offering price and the shares rose
as high as $28. We started buying the stock after the bad news came out and,
thus, our cost is in the mid-teens. Our analysis shows that outlet centers are
the highest yielding sector in the REIT universe, even though they also have the
highest earnings growth according to Wall Street estimates.
With regard to the growth prospects of the industry, it is clear to us
that the outlet sector is one that did not receive a lot of funding during the
1980s and, hence, was not overbuilt at that time. In fact, the current level of
demand has been led not by the investment community, but rather by the tenants
themselves - the manufacturers of household products and apparel who want to
control an avenue of distribution for their goods. According to industry
sources, the number of manufacturers with outlet stores has increased from under
30 in 1986, to almost 600 today. It should be pointed out that the current six
public outlet center companies account for an estimated 70% of all projected
development and, thus, they control the level and location of competition. In
essence, accountability to the public markets will prevent these companies from
shooting themselves in their own foot by overbuilding. As a point of reference,
outlet center occupancy rates are superior to those of conventional strip
centers.
Finally, research of retailing trends suggests that apparel sales and soft
good sales tend to strengthen after the initial economic rebound following a
recession. That is, households that have already made their investment in new
homes, cars and washer/dryers tend to buy in the mid-to-later years of the
economic cycle, more of the kinds of products that outlet centers sell. We
expect outlet centers to be major beneficiaries of this trend.
SUMMARY
While the past fourteen months have been difficult for this Fund's
investment universe, we see signs that the environment has begun to improve. We
believe Evergreen U.S. Real Estate Equity Fund is well positioned to benefit. We
appreciate your support and interest and look forward to communicating with you
in our next shareholder report.
Very truly yours,
/s/Stephen A. Lieber /s/Samuel A. Lieber
Stephen A. Lieber Samuel A. Lieber
Chairman Portfolio Manager
Evergreen Asset
Management Corp.
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PERFORMANCE AT A GLANCE
as of March 31, 1995
CLASS Y CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES
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6-month Total Return -4.4% -8.9% -9.1% -5.3%
12-month Total Return -11.3% -15.5% -15.6% -12.1%
Average Annual Compounded
Return Since Inception on 9/1/93 -2.1% -5.0% -4.5% -2.1%
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FIGURES REPRESENT PAST PERFORMANCE WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance figures include reinvestment of income dividends and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
Effective 1/3/95, the Fund adopted a multi-class distribution arrangement to
issue additional classes of shares, designated as Class A, Class B and Class C.
The Fund's performance for its Class A shares (subject to a maximum front-end
sales charge of 4.75%), and its Class B shares (subject to a maximum contingent
deferred sales charge of 5%) prior to commencement of class operations on
3/10/95 and 3/7/95, respectively, has been calculated based on the performance
of the existing no-load (Class Y) shares as adjusted for any front-end or
back-end sales charges. Performance data prior to commencement of class
operations does not reflect any 12b-1 fees, and if reflected the returns would
be lower. Performance data beginning from commencement of class operations
reflects actual performance.
As of 3/31/95, the Fund did not commence operations of its Class C shares
(subject to a 1% contingent deferred sales charge within the first year of
purchase) thus, the performance for those shares through 3/31/95 has been
calculated based on the performance of the existing no-load (Class Y) shares as
adjusted for any sales charges. Performance data does not reflect any 12b-1
fees, and if reflected the returns would be lower.
The Fund (except for Class Y shares) may incur 12b-1 expenses up to an annual
maximum of .75 of 1% of its aggregate average daily net assets attributable to
Class A shares, 1% of its aggregate average daily net assets attributable to
Class B shares and 1% of its aggregate average daily net assets attributable to
its Class C shares. For the foreseeable future, however, management intends to
limit such payments on the Class A shares to .25 of 1% of the Fund's aggregate
average daily net assets.
The Adviser is currently waiving its advisory fee and absorbing a portion of the
Fund's other expenses. Had the fee not been waived and expenses not been
absorbed, the Fund's returns would have been lower. Fee waiver may be revised at
anytime.
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STATEMENT OF INVESTMENTS
March 31, 1995 (unaudited)
SHARES/
PRINCIPAL
AMOUNT VALUE
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EQUITY SECURITIES--100.2%
REAL ESTATE INVESTMENT TRUSTS--70.4%
APARTMENTS--24.3%
America First REIT, Inc. 10,000 $ 210,000
Amli Residential Properties Trust 12,700 225,425
Apartment & Investment
Management Co. 5,800 105,850
Associated Estates Realty Corp. 10,000 187,500
Columbus Realty Trust 21,000 393,750
Evans Withycombe
Residential, Inc. 7,500 150,000
Gables Residential Trust 20,000 372,500
Irvine Apartment Communities, Inc. 10,000 156,250
Post Properties, Inc. 4,000 118,500
Smith (Charles E.) Residential
Realty, Inc. 4,000 92,500
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2,012,275
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FACTORY OUTLET CENTERS--15.2%
Chelsea GCA Realty, Inc. 11,500 297,562
Horizon Outlet Centers, Inc. 15,000 333,750
McArthur/Glen Realty Corp. 28,000 392,000
Tanger Factory Outlet Centers, Inc. 9,700 230,375
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1,253,687
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OFFICE/INDUSTRIAL BUILDINGS--8.0%
*American Industrial Property 65,000 97,500
Carr Realty Corp. 15,000 260,625
Highwoods Properties, Inc. 5,000 109,375
Lexington Corporate Properties, Inc. 10,900 100,825
Liberty Property Trust Exchangeable
Subordinated Debentures
8.00% Due 07/01/01 $100,000 97,500
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665,825
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COMMUNITY SHOPPING CENTERS--7.0%
Bradley Real Estate Trust 11,050 180,944
Kranzco Realty Trust 7,000 124,250
Tucker Properties Corp. 23,000 276,000
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581,194
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SHOPPING MALLS--6.3%
* Alexander's, Inc. 4,500 236,250
Arbor Property Trust 8,700 75,038
Taubman Centers, Inc. 22,000 211,750
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523,038
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HOTELS--5.7%
Equity Inns, Inc. 10,000 106,250
FelCor Suite Hotels, Inc. 10,000 238,750
*Starwood Lodging Trust 32,000 124,000
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469,000
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SHARES VALUE
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MINI-STORAGE--2.0%
Storage Equities, Inc. 10,000 $ 170,000
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MIXED-USE--1.9%
Pacific Gulf Properties Inc. 10,000 158,750
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TOTAL REAL ESTATE
INVESTMENT TRUSTS
(COST $5,879,355) 5,833,769
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COMMON STOCKS--29.8%
HOMEBUILDERS--26.1%
*Brewer (C.) Homes, Inc. Cl. A 10,000 60,000
Continental Homes Holding Corp. 20,700 253,575
Engle Homes, Inc. 17,200 126,850
*M/I Schottenstein Homes, Inc. 20,000 135,000
*Presley Companies 87,300 174,600
*Redman Industries, Inc. 10,000 193,750
*Southern Energy Homes, Inc. 19,000 218,500
Standard Pacific Corp. 32,000 208,000
*Toll Brothers, Inc. 13,000 151,125
* U.S. Home Corp. 17,000 295,375
*U.S. Home Corp.
Warrants Cl. B 32,000 196,000
Washington Homes, Inc. 23,400 81,900
Webb (Del) Corp. 4,000 75,000
----------
2,169,675
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LODGING--3.6%
*Host Marriott Corp. 15,000 178,125
Kahler Realty Corp. 15,000 116,250
----------
294,375
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OTHER SECURITIES--0.1% 8,625
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TOTAL COMMON STOCKS
(COST $3,293,707) 2,472,675
----------
TOTAL INVESTMENTS
(COST $9,173,062) 100.2% 8,306,444
OTHER ASSETS AND LIABILITIES--NET (0.2) (15,849)
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TOTAL NET ASSETS 100.0% $8,290,595
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*Non-income producing.
See accompanying notes to financial statements.
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STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995 (UNAUDITED)
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ASSETS:
Investments at market value (identified cost $9,173,062) $8,306,444
Cash 213,702
Receivable for investment securities sold 628,816
Receivable for Fund shares sold 2,229
Dividends and interest receivable 70,895
Prepaid expenses 61,632
Unamortized organization expenses 23,132
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Total assets 9,306,850
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LIABILITIES:
Payable for investment securities purchased 937,203
Payable to Adviser 49,416
Accrued expenses 29,636
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Total liabilities 1,016,255
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NET ASSETS:
Paid-in capital 9,430,623
Undistributed net investment income 31,939
Accumulated net realized loss on investment transactions (305,349)
Net unrealized depreciation of investments (866,618)
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Net assets $8,290,595
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CALCULATION OF NET ASSET VALUE PER SHARE:
CLASS A SHARES
Net asset value per share
($10,313/1,109 shares of beneficial interest outstanding) $9.30
Sales charge--4.75% of offering price .46
----
Maximum offering price $9.76
====
CLASS B SHARES
Net asset value per share
($51,761/5,571 shares of beneficial interest outstanding) $9.29
====
CLASS C SHARES
Net asset value per share
($9/1 shares of beneficial interest outstanding) $9.30
====
CLASS Y SHARES
Net asset value per share
($8,228,512/884,712 shares of beneficial interest outstanding) $9.30
====
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See accompanying notes to financial statements.
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STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
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INVESTMENT INCOME:
Income:
Dividends $183,123
Interest 6,458
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Total income 189,581
EXPENSES:
Advisory fee $ 41,216
Distribution fee-Class A shares 1
Distribution and shareholder services
fees-Class B shares 32
Custodian fee 19,505
Registration and filing fees 13,124
Professional fees 12,219
Transfer agent fee 9,148
Reports and notices to shareholders 5,083
Trustees' fees and expenses 4,063
Insurance 3,432
Amortization of organization expense 3,371
Other 455
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111,649
Less: Advisory fee waiver (41,216)
Expense reimbursement (8,639)
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Total expenses 61,794
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Net investment income 127,787
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NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (302,284)
Net increase in unrealized depreciation of investments (181,828)
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Net loss on investments (484,112)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(356,325)
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See accompanying notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NINE MONTHS
MARCH 31, 1995 ENDED
(UNAUDITED) SEPTEMBER 30, 1994
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INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 127,787 $ 91,947
Net realized gain (loss) on investments (302,284) 83,042
Net increase in unrealized depreciation of investments (181,828) (870,461)
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Net decrease in net assets resulting from operations (356,325) (695,472)
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - Class Y shares (183,475) --
Net realized gains on investments - Class Y shares (106,651) --
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Total distributions to shareholders (290,126) --
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FUND SHARE TRANSACTIONS (NOTE 7):
Net increase resulting from Fund share transactions 306,956 4,715,169
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Net increase (decrease) in net assets (339,495) 4,019,697
NET ASSETS:
Beginning of year 8,630,090 4,610,393
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End of period (including undistributed net
investment income of $31,939 and $87,627, respectively) $8,290,595 $8,630,090
===================================================================================================================
See accompanying notes to financial statements.
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED)
NOTE 1--CHANGE IN ACCOUNTING AND TAX YEAR
The Evergreen U.S. Real Estate Equity Fund (the "Fund") is one of two portfolios
of The Evergreen Real Estate Equity Trust (the "Trust"). The Trust was organized
as a Massachusetts business trust on October 26, 1988. The Fund is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified open-end management investment company. The Fund commenced
investment operations on September 1, 1993. On September 21, 1994, the Fund's
Trustees approved a change in the Fund's accounting year-end from December 31 to
September 30 and tax year-end from November 30 to September 30.
NOTE 2--APPROVAL AND ISSUANCE OF MULTIPLE CLASSES OF SHARES
On December 13, 1994, the Fund's shareholders, among other things, approved
amendments to the Declaration of Trust to permit the issuance of additional
classes of shares. On December 27, 1994, the Securities and Exchange Commission
approved the application to issue additional classes of shares. In connection
with the adoption of the multiple class distribution program, the Trustees have
designated the existing shares of the Fund as Class Y (no-load) shares and have
created three new classes of shares designated Class A, Class B and Class C
shares. Class A shares are offered with a front-end sales charge of 4.75% which
will be reduced on purchases in excess of $100,000. Class B shares are offered
with a contingent deferred sales charge payable when shares are redeemed which
would decline from 5% to zero over a seven year period. Class C shares are
offered with a contingent deferred sales charge of 1% on shares redeemed during
the first year of purchase. All four classes of shares have identical voting,
dividend, liquidation and other rights, except that certain classes bear
different distribution expenses (see Note 5) and have exclusive voting rights
with respect to their distribution plan. Through March 31, 1995, there were no
transactions in Class C shares other than the purchase of one share at a price
of $9.22 on December 30, 1994, by Stephen A. Lieber, the Chairman of Evergreen
Asset Management Corp. (the "Adviser").
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION: Portfolio securities that are listed on a securities
exchange are valued at the last quoted sales price on the day the valuation is
made. Price information on listed securities is taken from the exchange where
the security is primarily traded. Such securities not traded on the valuation
date are valued at the mean between the bid and asked prices. Unlisted
securities for which market quotations are readily available are valued at a
price quoted by one or more brokers. Debt securities (other than short-term
obligations) are normally valued on the basis of valuations provided by a
pricing service when such prices are believed to reflect the market value of
such securities. Securities for which no quotations are readily available, are
valued at fair value as determined in good faith by the Trustees. Short-term
obligations are stated at amortized cost which approximates market value. Cost
of securities is determined and gains and losses are based upon the specific
identification method for both financial statement and Federal income tax
purposes.
FEDERAL TAXES: The Fund complied with and intends to continue compliance with
the requirements of the Internal Revenue Code applicable to regulated investment
companies, and to distribute timely all of its taxable income and net capital
gains to its shareholders. Therefore, no Federal income or excise tax provision
is required.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-distribution date. The amount of distributions from net investment income and
net realized capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their Federal tax-basis
treatment; temporary differences do not require reclassification. Distributions
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in capital.
ALLOCATION OF EXPENSES: Expenses specifically identifiable to the Fund or to a
class of shares are charged to the Fund or class. Other expenses common to the
Fund or the Trust as a whole, including the compensation of all non-affiliated
Trustees of the Trust, are primarily allocated to the Funds in the Trust or to
the classes in the Fund in proportion to net assets.
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NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED) (CONTINUED)
UNAMORTIZED ORGANIZATION EXPENSES: The expenses of the Fund incurred in
connection with its organization and initial registration which aggregated
approximately $33,800 were paid by Evergreen Asset Management Corp. on behalf of
the Fund. These expenses are being deferred and amortized by the Fund over a
period of benefit not to exceed 60 months from the date the Fund commenced
investment operations.
OTHER: Security transactions are accounted for on the trade date, the date the
order to buy or sell is executed. Dividend income is recorded on the ex-dividend
date and interest income is recognized on the accrual basis. The Fund owns
shares of real estate investment trusts which report information on the source
of their distributions annually. A portion of their distributions received
during the year is estimated to be a return of capital and is recorded by the
Fund as a reduction of their cost. After the information regarding the source of
distributions is received by the Fund, these return of capital estimates may be
adjusted with a corresponding adjustment to dividend income and/or net realized
gains or losses.
NOTE 4--ADVISORY FEE AND RELATED PARTY TRANSACTIONS
The Adviser, an affiliate of Lieber & Company, is the investment adviser to the
Fund and also furnishes the Fund with administrative services. The Adviser,
which is an indirect, wholly-owned subsidiary of First Union Corporation,
succeeded on June 30, 1994 to the advisory business of the same name but under
different ownership. The Adviser is entitled to a fee, accrued daily and paid
monthly, for the performance of its services at an annual rate of 1% of the
daily net assets of the Fund.
Total operating expenses of the Fund, exclusive of taxes, interest, brokerage
fees, 12b-1 distribution and shareholder services fees and extraordinary
expenses are subject to the most restrictive of state expense limitations, as
may be amended from time to time, under the rules and regulations of states
where the Fund is authorized to sell its shares. If in any fiscal year such
operating expenses exceed the most restrictive limitation then in effect, the
Adviser will reimburse the Fund for the amount of such excess. The Adviser has
agreed to a more restrictive expense limitation of 1.50% of average net assets
until the Fund's net assets reach $15 million.
For the six months ended March 31, 1995, in accordance with the more restrictive
expense limitation referred to above, the Adviser waived its entire advisory fee
and reimbursed the Fund for certain of its other expenses including certain
class specific expenses.
Lieber & Company is the investment sub-adviser to the Fund and also provides
brokerage services with respect to substantially all security transactions of
the Fund effected on the New York or American Stock Exchanges. For transactions
executed during the six months ended March 31, 1995, the Fund incurred brokerage
commissions of $40,871 with Lieber & Company. For the six months ended March 31,
1995, Lieber & Company was reimbursed by the Adviser, at no additional expense
to the Fund, for its cost of providing investment advisory services to the
Adviser.
NOTE 5--DISTRIBUTION AND SHAREHOLDER SERVICES FEES
The Fund has adopted for each if its Class A, Class B and Class C shares, a
Distribution Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the
terms of the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which may not exceed, as a percentage of average
daily net assets on an annual basis, .75 of 1% of Class A shares and 1% for both
Class B and Class C shares. The payments under the Class A Plan will be
voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution agreement
with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz
Incorporated, whereby the Fund will compensate EFD for its services at a rate
which may not exceed, as a percentage of average daily net assets on an annual
basis, .25 of 1% for Class A shares and .75 of 1% for both Class B and Class C
shares. Such fees are accrued daily and paid monthly. The Agreement provides
that EFD will use such fees to finance activities that promote the sale of Class
A, Class B and Class C shares.
A portion of the payments under the Class B and Class C Plans, up to .25 of 1%
of average daily net assets may constitute a shareholder services fee. The Fund
has entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of the Adviser, whereby the Fund will compensate
FUBS for certain services provided to shareholders and/or for the maintenance of
shareholders' accounts relating to the Fund's Class B and Class C shares. Such
fees are accrued daily and paid monthly.
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments other than short-term
obligations aggregated $5,610,480 and $5,182,147, respectively, for the six
months ended March 31, 1995.
The aggregate cost of investments owned at March 31, 1995, for Federal income
tax purposes is $9,188,971 due to sales of certain portfolio securities on which
losses are deferred for Federal income tax purposes. Gross unrealized
appreciation and depreciation of securities was $189,532 and $1,072,059,
respectively, resulting in net unrealized depreciation for Federal income tax
purposes of $882,527.
NOTE 7--SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.0001 par value shares of beneficial interest
authorized, divided into four classes, designated Class A, Class B, Class C and
Class Y shares. Transaction in shares of beneficial interest were as follows:
SIX MONTHS ENDED
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS A*
Net increase from
shares sold 1,109 $10,200
========================================================
CLASS B*
Net increase from
shares sold 5,571 $51,209
========================================================
CLASS C**
Net increase from
shares sold 1 $9
========================================================
CLASS Y
Shares sold 130,018 $1,213,550
Shares issued on
reinvestments of
distributions 30,203 273,942
Shares redeemed (132,907) (1,241,954)
- --------------------------------------------------------
Net increase 27,314 $ 245,538
========================================================
TOTAL NET INCREASE
RESULTING FROM FUND
SHARE TRANSACTIONS 33,995 $ 306,956
========================================================
NINE MONTHS ENDED
SEPTEMBER 30, 1994
- --------------------------------------------------------
SHARES DOLLARS
- --------------------------------------------------------
CLASS Y
Shares sold 666,009 $7,218,876
Shares redeemed (238,930) (2,503,707)
- --------------------------------------------------------
Net increase 427,079 $4,715,169
========================================================
* For Class A and Class B shares, the Fund share transaction activity reflects
the period from commencement of class operations March 10, 1995 and March 7,
1995, respectively, through March 31, 1995.
** For Class C shares, the Fund share transaction activity reflects the initial
purchase of one share on December 30, 1994. Through March 31, 1995 there were
no further transactions.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE PERIOD
MARCH 10, 1995* MARCH 7, 1995*
THROUGH THROUGH
MARCH 31, 1995 MARCH 31, 1995
(UNAUDITED) (UNAUDITED)
-------------------------------------
PER SHARE DATA CLASS A CLASS B
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.21 $ 9.19
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .04
Net realized and unrealized gain on
investments .05 .06
- --------------------------------------------------------------------------------
Total from investment operations .09 .10
- --------------------------------------------------------------------------------
Net asset value, end of period $ 9.30 $ 9.29
================================================================================
TOTAL RETURN+ 1.0% 1.1%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 10 $ 52
Ratios to average net assets:
Expenses++ 1.75% 2.50%
Net investment income++ 9.49% 6.94%
Portfolio turnover rate** 62% 62%
================================================================================
*Commencement of class operations.
**Portfolio turnover rate is calculated for the six month period ended March
31, 1995.
+Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales and contingent deferred sales
charges are not reflected.
++Annualized. Due to the recent commencement of their offering, the ratios for
class A and Class B shares are not necessarily comparable to that of the
Class Y shares, and are not necessarily indicative of future ratios.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED NINE MONTHS SEPTEMBER 1, 1993*
MARCH 31, 1995 ENDED THROUGH
PER SHARE DATA (UNAUDITED) SEPTEMBER 30, 1994** DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $10.07 $10.71 $10.00
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .13 .11 .04
Net realized and unrealized gain (loss)
on investments (.58) (.75) .72
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.45) (.64) .76
- ---------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income (.12) -- (.04)
Net realized gains (.20) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.32) -- (.05)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.30 $10.07 $10.71
=====================================================================================================================
TOTAL RETURN+ (4.4)% (6.0)% 7.6%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $8,229 $8,630 $4,610
Ratios to average net assets:
Expenses++ 1.50% 1.49% .44%
Net investment income++ 3.10% 1.60% 1.93%
Voluntary expense reimbursement++(a) -- .01% 1.16%
Portfolio turnover rate 62% 102% 17%
=====================================================================================================================
</TABLE>
*Commencement of operations.
**On September 21, 1994, the Fund's Trustees approved a change in the Fund's
fiscal year end from December 31 to September 30. + Total return is
calculated for the periods indicated and is not annualized.
++Annualized.
(a)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN FAMILY OF FUNDS
GROWTH FUNDS ____________________________________
EVERGREEN FUND seeks capital appreciation by investing in securities of little
known or relatively small companies and companies with entrepreneurial
management.
GLOBAL REAL ESTATE EQUITY FUND seeks capital appreciation by investing in
securities of companies involved in various aspects of the real estate industry
throughout the world.
LIMITED MARKET FUND seeks capital appreciation by investing in securities of
little-known, small or special situation companies.
U.S. REAL ESTATE EQUITY FUND seeks long-term capital growth by investing in
equity securities of U.S. companies which are principally engaged in the real
estate industry or which own significant real estate assets.
GROWTH & INCOME FUNDS _________________________
AMERICAN RETIREMENT FUND seeks conservation of capital, reasonable income and
capital growth by investing in a diversified and balanced portfolio of equity
and fixed income securities.
EVERGREEN FOUNDATION FUND seeks reasonable income, conservation of capital and
growth by investing in common and preferred stocks, convertibles and fixed
income securities.
GROWTH & INCOME FUND seeks capital appreciation and current income by investing
in securities of companies undervalued in the marketplace due to temporary
adverse circumstances or misperceptions of underlying values.
SMALL CAP EQUITY INCOME FUND seeks a return consisting of current income and
capital appreciation by investing primarily in companies with market
capitalizations of less than $500 million.
TAX STRATEGIC FOUNDATION FUND seeks to maximize the after tax total return on
its portfolio investments by investing in common and preferred stocks and
securities convertible into or exchangeable for common stocks, and municipal
securities.
GROWTH & INCOME FUNDS (continued)
TOTAL RETURN FUND seeks a total return consisting of current income and capital
appreciation by investing in common and preferred stocks, securities convertible
or exchangeable for common stocks and fixed income securities.
INCOME FUND _____________________________________
U.S. GOVERNMENT SECURITIES FUND seeks a high level of return from a combination
of current income and capital appreciation through investment in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
TAX-FREE FUNDS___________________________________
NATIONAL TAX-FREE FUND seeks a high level of current income, exempt from Federal
income tax, by investing at least 80% of its portfolio in insured long-term
municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income,
exempt from Federal income tax (other than the alternative minimum tax), as is
consistent with preserving capital and providing liquidity by investing in short
and intermediate-term municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current
income, exempt from Federal and California state income taxes, as is consistent
with preserving capital and providing liquidity by investing in short and
intermediate-term municipal securities.
MONEY MARKET FUNDS _________________________
MONEY MARKET TRUST seeks as high a level of current income as is consistent with
preserving capital and providing liquidity.
TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from
Federal income taxes as is consistent with preserving capital and providing
liquidity.
THE PROSPECTUS(ES) CONTAIN MORE COMPLETE INFORMATION AND SHOULD BE READ
CAREFULLY PRIOR TO INVESTING.
<PAGE>
[This page left blank intentionally]
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment adviser to the Evergreen Funds is
Evergreen Asset Management Corp., which is wholly owned
by First Union National Bank of North Carolina.
Investments in the Evergreen Funds are not endorsed or
guaranteed by First Union, are not deposits or other
obligations of First Union, are not insured or
otherwise protected by the U.S. Government, the FDIC or
any other government agency, and involve investment
risks, including possible loss of principal.
The Evergreen Funds are sponsored and distributed by
Evergreen Funds Distributor, Inc., which is independent
of Evergreen and First Union.
The financial information included herein is taken from
the records of the Fund without examination by the
Fund's independent accountants, who do not express an
opinion thereon.
EVERGREEN U.S. REAL ESTATE EQUITY FUND
2500 Westchester Avenue
Purchase, New York 10577 #536051
