1933 Act Registration No. 333-39907
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N- 14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [X] Post-Effective
Amendment No. Amendment No. 1
EVERGREEN INTERNATIONAL TRUST
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Rosemary D. Van Antwerp, Esq.
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025
Connecticut Avenue, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on __________pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a) (1)
[ ] on___________pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on___________pursuant to paragraph (a) (2) of Rule 485
Pursuant to Rule 414 under the Securities Act of 1933, by this
amendment to Registration Statement No. 333-39907 on Form N- 14 of Evergreen
Equity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen Global
Leaders Fund series thereof
<PAGE>
under
the Securities Act of 1933.
<PAGE>
EVERGREEN INTERNATIONAL TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Cross Reference Sheet; Cover
Statement and Outside Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary; Comparison
of Investment Objectives and
Policies; Risks
4. Information About the Summary; Reasons for the
Transaction Reorganization; Comparative
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
5. Information about the Cover Page; Summary; Risks;
Registrant Comparison of Investment
Objectives and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary; Risks;
Company Being Acquired Comparison of Investment
Objective and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
<PAGE>
7. Voting Information Cover Page; Summary; Voting
Information Concerning the
Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of Evergreen
Global Leaders Fund dated
March 3, 1997, as amended
13. Additional Information Statement of Additional
about the Company Being Information of Blanchard Funds
Acquired - Blanchard Global Growth Fund
dated November 30,
1997
14. Financial Statements Financial Statements dated
October 31, 1996 and April 30,
1997 of Evergreen Global
Leaders Fund; Financial
Statements of Blanchard Global
Growth Fund dated September
30, 1997; Pro Forma Financial
Statements
<PAGE>
Item of Part C of Form N-14 Incorporated by Reference to
Part A Caption - "Comparative
15. Indemnification Information on Shareholders'
Rights - Liability and
Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
BLANCHARD FUNDS
BLANCHARD GLOBAL GROWTH FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
January 5, 1998
Dear Shareholder,
As a result of the merger of Signet Banking Corporation with and into a
wholly-owned subsidiary of First Union Corporation effective November 28, 1997,
I am writing to shareholders of Blanchard Global Growth Fund (the "Fund") to
inform you of a Special Shareholders' meeting to be held on February 20, 1998.
Before that meeting I would like your vote on the important issues affecting
your Fund as described in the attached Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes three proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Evergreen Global Leaders Fund in exchange for Class A shares of Evergreen Global
Leaders Fund and the assumption by Evergreen Global Leaders Fund of certain
liabilities of the Fund. You will receive shares of Evergreen Global Leaders
Fund having an aggregate net asset value equal to the aggregate net asset value
of your Fund shares. Details about Evergreen Global Leaders Fund's investment
objective, portfolio management team, performance, etc. are contained in the
attached Prospectus/Proxy Statement. The transaction is a non-taxable event for
shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and Virtus
Capital Management, Inc.
The third and final proposal requests shareholder consideration of an Interim
Sub-Advisory Agreement between Virtus Capital Management, Inc. and Mellon
Capital Management, Inc.
Information relating to the Interim Investment Advisory Agreement and the
Interim Sub-Advisory Agreement is contained in the attached Prospectus/Proxy
Statement.
The Board of Trustees has approved the proposals and recommends that you vote
FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals presented and sign and
<PAGE>
return your proxy card in the enclosed postage-paid envelope today.
If we do not receive your completed proxy card after several weeks, you may be
contacted by our proxy solicitor, Shareholder Communications Corporation, who
will remind you to vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
Edward C. Gonzales
President
Blanchard Funds
<PAGE>
BLANCHARD FUNDS
BLANCHARD GLOBAL GROWTH FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Blanchard Global Growth Fund, a series of Blanchard Funds
("Global Growth"), will be held at the offices of the Evergreen Funds, 200
Berkeley Street, 26th Floor, Boston, Massachusetts 02116 on February 20, 1998 at
2:00 p.m.
for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of November 26, 1997, providing for the acquisition of all
of the assets of Global Growth by Evergreen Global Leaders Fund ("Evergreen
Global Leaders"), a series of the Evergreen International Trust, in exchange for
Class A shares of Evergreen Global Leaders and the assumption by Evergreen
Global Leaders of certain identified liabilities of Global Growth. The Plan also
provides for distribution of such shares of Evergreen Global Leaders to
shareholders of Global Growth in liquidation and subsequent termination of
Global Growth. A vote in favor of the Plan is a vote in favor of the liquidation
and dissolution of Global Growth.
2. To consider and act upon the Interim Management
Contract between Global Growth and Virtus Capital Management,
Inc.
3. To consider and act upon the Interim Sub-Advisory
Agreement between Virtus Capital Management, Inc. and Mellon
Capital Management Corporation.
4. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of Blanchard Funds on behalf of Global Growth have fixed
the close of business on December 26, 1997 as the record date for the
determination of shareholders of Global Growth entitled to notice of and to vote
at the Meeting or any adjournment thereof.
<PAGE>
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
John W. McGonigle
Secretary
January 5, 1998
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Sr. John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998
Acquisition of Assets of
BLANCHARD GLOBAL GROWTH FUND
a series of
Blanchard Funds
Federated Investors Tower
Pittsburgh, Pennsylvania, 15222-3779
By and in Exchange for Shares of
EVERGREEN GLOBAL LEADERS FUND
a series of
Evergreen International Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Blanchard Global Growth Fund ("Global Growth") in connection with a proposed
Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Global Growth for consideration at a Special Meeting of
Shareholders to be held on February 20, 1998 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and any
adjournments thereof (the "Meeting"). The Plan provides for all of the assets of
Global Growth to be acquired by Evergreen Global Leaders Fund ("Evergreen Global
Leaders") in exchange for shares of Evergreen Global Leaders and the assumption
by Evergreen Global Leaders of certain identified liabilities of Global Growth
(hereinafter referred to as the "Reorganization"). Evergreen Global Leaders and
Global Growth are sometimes hereinafter referred to individually as the "Fund"
and collectively as the "Funds." Following the Reorganization, shares of
Evergreen Global Leaders will be distributed to shareholders of Global Growth in
liquidation of Global Growth and such Fund will be terminated. Holders of shares
of Global Growth will receive Class A shares of Evergreen Global Leaders which
currently have lower Rule 12b-1 distribution-related fees than the shares of
Global Growth held by such holders prior to the reorganization. No initial sales
charges will be imposed in connection with the Class A shares of Evergreen
Global Leaders received by holders of shares of Global Growth. As a result of
the proposed Reorganization, shareholders of Global Growth will receive that
number of full and fractional shares of Evergreen Global Leaders having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of Global Growth. The Reorganization is being structured as
a tax-free reorganization for federal income tax purposes.
<PAGE>
Evergreen Global Leaders is a separate series of Evergreen
International Trust, an open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objective of Evergreen Global Leaders is to seek capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
The investment objective of Global Growth is to seek long-term capital growth by
following a global allocation strategy that contemplates shifts among strategic
market sectors, including U.S. Equities; U.S. Fixed Income; Foreign Equities;
Foreign Fixed Income; Precious Metals Securities; and Emerging Markets.
Shareholders of Global Growth are also being asked to approve the
Interim Management Contract with Virtus Capital Management, Inc., a subsidiary
of First Union Corporation ("Virtus") (the "Interim Advisory Agreement"), with
the same terms and fees as the previous advisory agreement between Global Growth
and Virtus and the Interim Sub-Advisory Agreement between Virtus and Mellon
Capital Management Corporation ("Mellon Capital") with the same terms and fees
as the previous sub- advisory agreement between Virtus and Mellon Capital. The
Interim Advisory Agreement and Interim Sub-Advisory Agreement will be in effect
for the period of time between November 28, 1997, the date on which the merger
of Signet Banking Corporation with and into a wholly-owned subsidiary of First
Union Corporation was consummated, and the date of the Reorganization (scheduled
for on or about February 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Global Leaders
that shareholders of Global Growth should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated January 5,
1998, relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen Global Leaders dated October 31,
1996 and April 30, 1997 and Global Growth dated September 30, 1997, has been
filed with the SEC and is incorporated by reference in its entirety into this
Prospectus/Proxy Statement. A copy of such Statement of Additional Information
is available upon request and without charge by writing to Evergreen Global
Leaders at 200 Berkeley Street, Boston, Massachusetts 02116, or by calling
toll-free 1- 800-343-2898.
<PAGE>
The Prospectus of Evergreen Global Leaders relating to Class A, Class B
and Class C shares dated March 3, 1997, as amended, and its Annual Report for
the fiscal year ended October 31, 1996 and its Semi-Annual Report for the six
month period ended April 30, 1997 are incorporated herein by reference in their
entirety, insofar as they relate to Evergreen Global Leaders relating to Class
A, Class B and Class C shares only, and not to any other fund described therein.
Shareholders of Global Growth will receive, with this Prospectus/Proxy
Statement, copies of the Prospectus of Evergreen Global Leaders. Additional
information about Evergreen Global Leaders is contained in its Statement of
Additional Information of the same date which has been filed with the SEC and
which is available upon request and without charge by writing to or calling
Evergreen Global Leaders at the address or telephone number listed in the
preceding paragraph.
The Prospectus of Global Growth dated November 30, 1997, insofar as it
relates to Global Growth only, and not to any other funds described therein, is
incorporated herein in its entirety by reference. Copies of the Prospectus and
related Statement of Additional Information dated the same date, are available
upon request without charge by writing to Global Growth at the address listed on
the cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-829-3863.
Included as Exhibits A, B and C to this Prospectus/Proxy Statement are
a copy of the Plan, the Interim Advisory Agreement and the Interim Sub- Advisory
Agreement respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk, including
possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES............................................6
SUMMARY ..................................................................8
Proposed Plan of Reorganization...................................8
Tax Consequences.................................................10
Investment Objectives and Policies
of the Funds........................................................... 11
Comparative Performance Information
for each Fund.............................................................11
Management of the Funds..........................................12
Investment Advisers and Sub- Advisers.....................12
Administrators................................................ 14
Portfolio Management.............................................14
Distribution of Shares...........................................14
Purchase and Redemption Procedures...............................16
Exchange Privileges..............................................16
Dividend Policy............................................... 17
Risks ........................................................17
REASONS FOR THE REORGANIZATION............................................19
Agreement and Plan of Reorganization.............................21
Federal Income Tax Consequences............................... 24
Pro-forma Capitalization.........................................25
Shareholder Information..........................................26
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................... 27
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS...........................29
Forms of Organization............................................29
Capitalization...................................................29
Shareholder Liability............................................30
Shareholder Meetings and Voting Rights...........................31
Liquidation or Dissolution.......................................31
Liability and Indemnification of Trustees........................32
INFORMATION REGARDING THE INTERIM ADVISORY
AGREEMENT.................................................................33
Introduction.....................................................33
Comparison of the Interim Advisory
Agreement and the Previous Advisory
Agreement.................................................................34
Information about Global Growth's Investment
Adviser.....................................................35
<PAGE>
INFORMATION REGARDING THE INTERIM SUB-
ADVISORY AGREEMENT........................................................36
Introduction.....................................................36
Comparison of the Interim Sub-Advisory
Agreement
and the Previous Sub-
Advisory Agreement........................................................37
ADDITIONAL INFORMATION....................................................38
VOTING INFORMATION CONCERNING THE MEETING.................................39
FINANCIAL STATEMENTS AND EXPERTS..........................................42
LEGAL MATTERS.............................................................42
OTHER BUSINESS............................................................42
APPENDIX A................................................................44
APPENDIX B................................................................46
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class A shares of Evergreen Global Leaders set forth in
the following tables and in the examples are based on the expenses of Evergreen
Global Leaders for the fiscal year ended October 31, 1996. The amounts for
shares of Global Growth set forth in the following tables and in the examples
are based on the expenses for Global Growth for the fiscal year ended September
30, 1997. The pro forma amounts for Class A shares of Evergreen Global Leaders
are based on what the combined expenses would have been for Evergreen Global
Leaders for the fiscal year ending April 30, 1997. All amounts are adjusted for
voluntary expense waivers.
The following tables show for Evergreen Global Leaders, Global Growth
and Evergreen Global Leaders pro forma, assuming consummation of the
Reorganization, the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A shares of Evergreen Global
Leaders and shares of Global Growth, as applicable.
<TABLE>
<CAPTION>
Comparison of Class A Shares
of Evergreen Global Leaders With
Shares of Global Growth
Evergreen Evergreen
Global Global Global
Leaders Growth Leaders
---------- ------ ------
Shareholder Pro Forma
Transaction Class A Shares Class A
Expenses ------- ------ ------
<S> <C> <C> <C>
Maximum Sales Load 4.75% None 4.75%
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
<PAGE>
Contingent Deferred None None None
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Exchange Fee None None None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.95% 1.00% 0.95%
12b-1 Fees (1) 0.25% 0.75% 0.25%
Other Expenses 0.55% 0.64% 0.55%
--------- -------- ---------
Annual Fund Operating 1.75% 2.39% 1.75%
Expenses (2) --------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(1) Class A shares of Evergreen Global Leaders can pay up to 0.75% of
average daily net assets as a 12b-1 fee. For the foreseeable future,
the Class A 12b-1 fees will be limited to 0.25% of average daily net
assets.
(2) Reflects voluntary expense waivers and/or reimbursements by the Fund's
investment adviser. Absent such waivers, total operating expenses for
Evergreen Global Leaders would have been 2.16%.
Examples. The following tables show for Evergreen Global Leaders and
Global Growth, and for Evergreen Global Leaders pro forma, assuming consummation
of the Reorganization, examples of the cumulative effect of shareholder
transaction expenses and annual fund operating expenses indicated above on a
$1,000 investment in each class of shares for the periods specified, assuming
(i) a 5% annual return, and (ii) redemption at the end of such period. In the
case of Evergreen Global Leaders pro forma, the example does not reflect the
imposition of the 4.75% maximum sales load on purchases because Global Growth
Shareholders who receive Class A shares of Evergreen Global Leasers in the
Reorganization or who purchase additional Class A shares of Evergreen Global
Leaders subsequent to the Reorganization will not incur any sales load.
<PAGE>
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Evergreen Global
Leaders, Class A $64 $100 $138 $244
Global Growth $24 $75 $273
$128
Evergreen Global
Leaders Pro Forma $18 $55 $95 $206
Class A
</TABLE>
The purpose of the foregoing examples is to assist Global Growth
shareholders in understanding the various costs and expenses that an investor in
Evergreen Global Leaders would bear directly and indirectly as a result of the
Reorganization as compared with the various direct and indirect expenses
currently borne by a shareholder in Global Growth. These examples should not be
considered a representation of past or future expenses or annual return. Actual
expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement
and, to the extent not inconsistent with such additional information, the
Prospectus of Evergreen Global Leaders dated March 3, 1997, as amended, and the
Prospectus of Global Growth dated November 30, 1997 (which are incorporated
herein by reference), the Plan, the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement, forms of which are attached to this Prospectus/Proxy
Statement as Exhibits A, B and C, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of Global
Growth in exchange for shares of Evergreen Global Leaders and the assumption by
Evergreen Global Leaders of certain identified liabilities of Global Growth. The
identified liabilities consist only of those liabilities reflected on the Fund's
statement of assets and liabilities determined immediately preceding the
Reorganization. The Plan also calls for the distribution of shares of Evergreen
Global Leaders to Global Growth shareholders in liquidation of Global Growth as
part of
<PAGE>
the Reorganization. As a result of the Reorganization, the shareholders of
Global Growth will become the owners of that number of full and fractional Class
A shares of Evergreen Global Leaders having an aggregate net asset value equal
to the aggregate net asset value of the shareholders' shares of Global Growth,
as of the close of business immediately prior to the date that Global Growth's
assets are exchanged for shares of Evergreen Global Leaders. See "Reasons for
the Reorganization - Agreement and Plan of Reorganization."
The Trustees of Blanchard Funds, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of Global Growth, and that the interests of the
shareholders of Global Growth will not be diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of Global Growth's shareholders.
THE BOARD OF TRUSTEES OF BLANCHARD FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF GLOBAL GROWTH
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Equity Trust, on behalf of Evergreen Global
Leaders, have also approved the Plan, and accordingly Evergreen Global Leaders'
participation in the Reorganization.
Approval of the Reorganization on the part of Global Growth will
require the affirmative vote of a majority of Global Growth's shares voted and
entitled to vote, with all classes voting together as a single class at a
Meeting at which a quorum of the Fund's shares is present. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, is
required to constitute a quorum at the Meeting. See "Voting Information
Concerning the Meeting."
The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
has been consummated and, as a result, by law the Merger terminated the
investment advisory agreement between Virtus and Global Growth and the
sub-advisory agreement between Virtus and Mellon Capital. Prior to consummation
of the Merger, Global Growth received an order from the SEC which permitted the
implementation, without formal shareholder approval, of a new investment
advisory agreement between the Fund and Virtus and a new sub-advisory agreement
between Virtus and Mellon Capital for a period of not more than 120 days
beginning on the date of the closing of the Merger and
<PAGE>
continuing through the date the Interim Advisory Agreement and Interim
Sub-Advisory Agreement are approved by the Fund's shareholders (but in no event
later than April 30, 1998). The Interim Advisory Agreement and the Interim
Sub-Advisory Agreement have the same terms and fees as the previous investment
advisory agreement between Global Growth and Virtus and the previous sub-
advisory agreement between Virtus and Mellon Capital, respectively. The
Reorganization is scheduled to take place on or about February 27, 1998.
Approval of the Interim Advisory Agreement and Interim Sub- Advisory
Agreement requires the affirmative vote of (i) 67% or more of the shares of
Global Growth present in person or by proxy at the Meeting, if holders of more
than 50% of the shares of Global Growth outstanding on the record date are
present, in person or by proxy, or (ii) more than 50% of the outstanding shares
of Global Growth, whichever is less. See "Voting Information Concerning the
Meeting."
If the shareholders of Global Growth do not vote to approve the
Reorganization, the Trustees will consider other possible courses of action in
the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, Global Growth will
have received an opinion of Sullivan & Worcester LLP that the Reorganization has
been structured so that no gain or loss will be recognized by the Fund or its
shareholders for federal income tax purposes as a result of the receipt of
shares of Evergreen Global Leaders in the Reorganization. The holding period and
aggregate tax basis of shares of Evergreen Global Leaders that are received by
Global Growth's shareholders will be the same as the holding period and
aggregate tax basis of shares of the Fund previously held by such shareholders,
provided that shares of the Fund are held as capital assets. In addition, the
holding period and tax basis of the assets of Global Growth in the hands of
Evergreen Global Leaders as a result of the Reorganization will be the same as
in the hands of the Fund immediately prior to the Reorganization, and no gain or
loss will be recognized by Evergreen Global Leaders upon the receipt of the
assets of the Fund in exchange for shares of Evergreen Global Leaders and the
assumption by Evergreen Global Leaders of certain identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Global Leaders and
Global Growth are similar in that both seek capital appreciation through
investments in both U.S. and foreign
<PAGE>
securities. There are, however, differences between the Funds'
objectives and policies.
The investment objective of Evergreen Global Leaders is to seek to
achieve capital appreciation by investing primarily in a diversified portfolio
of U.S. and non-U.S. equity securities of companies located in the world's major
industrialized countries. The investment adviser of Evergreen Global Leaders
attempts to screen the largest companies in the world's major industrialized
countries and invests, in the opinion of the investment adviser, in the 100 best
based on certain qualitative and quantitative criteria, including those with the
highest return on equity and consistent earnings growth.
The investment objective of Global Growth is to seek long-term capital
growth. Global Growth attempts to achieve its objective by following a global
allocation strategy that contemplates shifts among strategic market sectors,
including U.S. Equities, U.S. Fixed Income, Foreign Equities, Foreign Fixed
Income, Precious Metals Securities, and Emerging Markets. See "Comparison of
Investment Objectives and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectus and Statement of Additional Information of the
Funds. The total return of Global Growth for the one, five, and ten year periods
ended September 30, 1997, and for the period from inception through September
30, 1997 and for Evergreen Global Leaders for the one year period ended
September 30, 1997 and for the period from inception through September 30, 1997
are set forth in the table below. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year 5 Years 10 Years From
Ended Ended Ended Inception
September September September To
30, 30, 30, September Inception
1997 1997 1997 30, 1997 Date
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Evergreen
Global
Leaders
<PAGE>
Class A
shares 16.64% N/A N/A 15.19%
6/3/96
Global 13.20% 10.51% 6.44% 8.97% 6/1/86
Growth
- ---------
</TABLE>
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total return during the periods would have been lower.
Important information about Evergreen Global Leaders is also contained
in management's discussion of Evergreen Global Leaders' performance, attached
hereto as Exhibit D. This information also appears in the most recent Annual
Report of Evergreen Global Leaders.
Management of the Funds
The overall management of Evergreen Global Leaders and of Global Growth
is the responsibility of, and is supervised by, the Board of Trustees of
Evergreen International Trust and
Blanchard Funds, respectively.
Investment Advisers and Sub- Advisers
Evergreen Asset Management Corp. ("Evergreen Asset") serves as
investment adviser to Evergreen Global Leaders. Evergreen Asset has served as
investment adviser to the Evergreen mutual funds since 1971. Evergreen is a
wholly-owned subsidiary of First Union National Bank ("FUNB"). FUNB is a
subsidiary of First Union, the sixth largest bank holding company in the United
States based on total assets as of September 30, 1997. The Capital Management
Group of FUNB, Evergreen Asset and Keystone Investment Management Company manage
the Evergreen family of mutual funds with assets of approximately $40 billion as
of November 30, 1997. For further information regarding Evergreen, FUNB and
First Union, see "Management of the Funds Investment Advisers" in the Prospectus
of Evergreen Global Leaders.
Evergreen Asset manages investments, provides various administrative
services and supervises the daily business affairs of Evergreen Global Leaders
subject to the authority of the Evergreen International Trust's Board of
Trustees. Evergreen Global Leaders pays Evergreen Asset a fee for its services
at the annual rate of 0.95% of the Fund's average daily net assets.
<PAGE>
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on
Evergreen Global Leaders. Lieber & Company will be reimbursed by Evergreen Asset
in connection with the rendering of services on the basis of the direct and
indirect costs of performing such services. There is no additional charge to
Evergreen Global Leaders for the services provided by Lieber & Company. The
address of both Evergreen Asset and Lieber & Company is 2500 Westchester Avenue,
Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned
subsidiary of First Union.
Virtus serves as the investment adviser for Global Growth. As
investment adviser, Virtus is responsible for providing or providing for all
management and administrative services for the Fund. In carrying out its
obligations, Virtus provides or arranges for investment research and supervising
the Fund's investments, selects and evaluates the performance of the Fund's
sub-adviser, Mellon Capital, and conducts or arranges for a continuous program
of appropriate sale or other disposition of the Fund's assets, subject at all
times to the direction of the Board of Trustees. Virtus compensates Mellon
Capital from the advisory fee received from Global Growth. See "Information
Regarding the Interim Sub-Advisory Agreement." For its services as investment
adviser, Virtus receives a fee at the following annual rates: 1.00% of Global
Growth's first $150 million of average daily net assets, 0.875% of such assets
in excess of $150 million but not exceeding $300 million and 0.75% of assets in
excess of $300 million.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Administrators
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Evergreen Global Leaders. As administrator, EIS provides facilities, equipment
and personnel to Evergreen Global Leaders and is entitled to receive an
administration fee from the Fund based on the aggregate average daily net assets
of all the mutual funds advised by Evergreen Asset and its affiliates,
calculated in accordance with the following schedule: 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
<PAGE>
the next $5 billion and 0.010% on assets in excess of $30
billion.
Federated Administrative Services ("FAS") provides Global Growth with
certain administrative personnel and services including certain legal and
accounting services. FAS is entitled to receive a fee for such services at the
following annual rates: 0.15% on the first $250 million of average daily net
assets of the combined assets of the funds in the Blanchard/Virtus mutual fund
family, 0.125% on the next $250 million of such assets, 0.10% on the next $250
million of such assets, and 0.075% on assets in excess of $750 million.
Portfolio Management
The portfolio of Evergreen Global Leaders is managed by a committee
composed of portfolio management and analytical personnel employed by Evergreen
Asset. The members of this committee include Stephen A. Lieber, who is Chairman
and Co-Chief Executive Officer of Evergreen Asset, and Edwin D. Miska, who is an
analyst with Evergreen Asset. Messrs. Lieber and Miska are responsible for the
day-to-day operations of the Fund. Mr. Lieber is the founder of Evergreen Asset
and has been associated with Evergreen Asset and its predecessor since 1971. Mr.
Miska has been a quantitative analyst with Evergreen Asset and its predecessor
since 1986.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of the shares of Evergreen Global Leaders. EDI
distributes the Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Evergreen Global Leaders
offers four classes of shares: Class A, Class B, Class C and Class Y. Each class
has separate distribution arrangements. (See "Distribution-Related Expenses"
below.) No class bears the distribution expenses relating to the shares of any
other class.
In the proposed Reorganization, shareholders of Global Growth will
receive Class A shares of Evergreen Global Leaders. Class A shares of Evergreen
Global Leaders currently incur Rule 12b-1 fees of 0.25% per year, while shares
of Global Growth incur 12b-1 fees at the rate of 0.75% per year. Because the
Reorganization will be effected at net asset value without the imposition of a
sales charge, Evergreen Global Leaders shares acquired by shareholders of Global
Growth pursuant to the proposed Reorganization would not be subject to any
initial sales
<PAGE>
charge or contingent deferred sales charge as a result of the
Reorganization.
The following is a summary description of charges and fees for the
Class A shares of Evergreen Global Leaders which will be received by Global
Growth shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Evergreen Global Leaders Prospectus and the Global Growth
Prospectus and in each Fund's respective Statement of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the Prospectus for Evergreen Global Leaders.
Holders of shares of Global Growth who receive Class A shares of Evergreen
Global Leaders will be able to purchase additional Class A shares of Evergreen
Global Leaders and of any other Evergreen Fund at net asset value. No initial
sales charge will be imposed.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectus and Statement of Additional Information.
Distribution-Related Expenses. Evergreen Global Leaders has adopted a
Rule 12b-1 plan with respect to its Class A shares under which the Class may pay
for distribution-related expenses at an annual rate which may not exceed 0.75%
of average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.25% of average daily net assets
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
Global Growth has adopted a Rule 12b-1 plan with respect to its shares
under which such shares may pay for distribution- related expenses at an annual
rate of 0.75% of average daily net assets.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the
<PAGE>
Funds are not insured. The minimum initial purchase requirement for Evergreen
Global Leaders is $1,000 and the minimum investment for Global Growth is $3,000
($2,000 for qualified pension plans). Global Growth has a minimum investment
requirement of $200 for subsequent investments. There is no minimum for
subsequent purchases of shares of Evergreen Global Leaders. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectus for each Fund. Each
Fund may involuntarily redeem shareholders' accounts that have less than $1,000
of invested funds. All funds invested in each Fund are invested in full and
fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Global Growth currently permits shareholders to exchange such shares
for shares of another fund in the Blanchard Group of Funds or for Investment
shares of other funds managed by Virtus. In addition, such shares may be
exchanged for shares of Federated Emerging Markets Fund. Holders of shares of a
class of Evergreen Global Leaders generally may exchange their shares for shares
of the same class of any other Evergreen fund. Global Growth shareholders will
be receiving Class A shares of Evergreen Global Leaders in the Reorganization
and, accordingly, with respect to shares of Evergreen Global Leaders received by
Global Growth shareholders in the Reorganization, the exchange privilege is
limited to the Class A shares of other Evergreen funds. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in each Fund's respective Prospectus and Statement of Additional
Information.
Dividend Policy
Each Fund distributes its income dividends annually. Distributions of
any net realized gains of a Fund will be made at least annually. Dividends and
distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectus of each Fund for further information concerning dividends
and distributions.
After the Reorganization, shareholders of Global Growth who have
elected to have their dividends and/or distributions
<PAGE>
reinvested will have dividends and/or distributions received from Evergreen
Global Leaders reinvested in shares of Evergreen Global Leaders. Shareholders of
Global Growth who have elected to receive dividends and/or distributions in cash
will receive dividends and/or distributions from Evergreen Global Leaders in
cash after the Reorganization, although they may, after the Reorganization,
elect to have such dividends and/or distributions reinvested in additional
shares of Evergreen Global Leaders.
Each of Evergreen Global Leaders and Global Growth has qualified and
intends to continue to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). While so
qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are similar,
the risks involved in investing in each Fund's shares are similar. For a
discussion of each Fund's objectives and policies, see "Comparison of Investment
Objectives and Policies." There is no assurance that investment performances
will be positive and that the Funds will meet their investment objectives.
Both Funds may employ for hedging purposes the strategy of engaging in
options and futures transactions. The risks involved in these strategies are
described in the "Investment Practices and Restrictions - Options and Futures"
section in the Prospectus of Evergreen Global Leaders.
Both Funds invest in foreign securities. Securities markets of foreign
countries in which the Funds may invest are generally not subject to the same
degree of regulation as the U.S. markets and may be more volatile and less
liquid than the major U.S. markets. The differences between investing in foreign
and U.S. companies include: (1) less publicly available information about
foreign companies; (2) the lack of uniform financial accounting standards and
practices among countries which could impair the validity of direct comparisons
of valuations measures (such as price/earnings ratios) for securities in
different countries; (3) less readily available
<PAGE>
market quotations on foreign companies; (4) differences in government regulation
and supervision of foreign stock exchanges, brokers, listed companies, and
banks; (5) differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments; (6) generally lower foreign
stock market volume; (7) the likelihood that foreign securities may be less
liquid or more volatile, which may affect the Fund's ability to purchase or sell
large blocks of securities and thus obtain the best price; (8) transaction
costs, including brokerage charges and custodian charges associated with holding
foreign securities, may be higher; (9) the settlement period for foreign
securities, which are sometimes longer than those for securities of U.S.
issuers, may affect portfolio liquidity; (10) the possibility that foreign
securities held by a Fund may be traded on days that the Fund does not value its
portfolio securities, such as Saturdays and customary business holidays, and
accordingly, the Fund's net asset value may be significantly affected on days
when shareholders do not have access to the Fund; (11) political and social
instability, expropriation, and political or financial changes which adversely
affect investment in some countries.
Investing in securities of issuers in emerging markets countries
involves exposure to economic systems that are generally less stable than those
of developed countries. Investing in companies in emerging markets countries may
involve exposure to national policies that may restrict investment by foreigners
and undeveloped legal systems governing private and foreign investments and
private property. The typically small size of the markets for securities issued
by companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility for those securities.
When a Fund invests in foreign securities, they usually will be
denominated in foreign currencies, and the Fund temporarily may hold funds in
foreign securities. Thus, the value of a Fund's shares may be affected by
changes in exchange rates.
Neither Evergreen Global Leaders nor Global Growth may invest more than
5% of its assets in securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one issuer. However, because Global
Growth is a non-diversified portfolio for purposes of the 1940 Act, these
restrictions apply to 50% of the assets of Global Growth. As a diversified
portfolio under the 1940 Act, the same restrictions apply to 75% of the assets
of Evergreen Global
<PAGE>
Leaders . Nondiversification may increase investment risks.
REASONS FOR THE REORGANIZATION
On July 18, 1997, First Union entered into an Agreement and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with and into a wholly-owned subsidiary of First Union. The Merger was
consummated on November 28, 1997. As a result of the Merger it is expected that
FUNB and its affiliates will succeed to the investment advisory and
administrative functions currently performed for Global Growth by various units
of Signet and various unaffiliated parties. It is also expected that Signet will
no longer, upon completion of the Reorganization and similar reorganizations of
other funds in the Signet mutual fund family, provide investment advisory or
administrative services to investment companies.
At a meeting held on September 16, 1997, the Board of Trustees of
Blanchard Funds considered and approved the Reorganization as in the best
interests of shareholders of Global Growth and determined that the interests of
existing shareholders of Global Growth will not be diluted as a result of the
transactions contemplated by the Reorganization. In addition, the Trustees
approved the Interim Advisory Agreement and Interim Sub-Advisory Agreement with
respect to Global Growth.
As noted above, Signet has merged with and into a wholly-owned
subsidiary of First Union. Signet is the parent company of Virtus, investment
adviser to the mutual funds which comprise Blanchard Funds. The Merger caused,
as a matter of law, termination of the investment advisory agreement between
each series of Blanchard Funds and Virtus and the sub-advisory agreement between
Virtus and Mellon Capital with respect to the Fund. Blanchard Funds have
received an order from the SEC which permits Virtus and Mellon Capital to
continue to act as Global Growth's investment adviser and sub-adviser,
respectively, without shareholder approval, for a period of not more than 120
days from the date the Merger was consummated (November 28, 1997) to the date of
shareholder approval of a new investment advisory agreement and sub-advisory
agreement. Accordingly, the Trustees considered the recommendations of Signet in
approving the proposed Reorganization.
In approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen Global Leaders and Global Growth. Specifically, Evergreen
Global Leaders and Global Growth have substantially identical investment
objectives and
<PAGE>
policies and comparable risk profiles. See "Comparison of Investment Objectives
and Policies" below. At the same time, the Board of Trustees evaluated the
potential economies of scale associated with larger mutual funds and concluded
that operational efficiencies may be achieved upon the combination of Global
Growth with an Evergreen fund with a greater level of assets. As of September
30, 1997, Evergreen Global Leaders' net assets were approximately $213.6 million
and Global Growth's net assets were approximately $62.2 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Global Growth continue its existence and be separately
managed by Evergreen Asset or one of its affiliates, Global Growth would be
offered through common distribution channels with the similar Evergreen Global
Leaders. Global Growth would also have to bear the cost of maintaining its
separate existence. Signet and Evergreen Asset believe that the prospect of
dividing the resources of the Evergreen mutual fund organization between two
substantially similar funds could result in each Fund being disadvantaged due to
an inability to achieve optimum size, performance levels and the greatest
possible economies of scale. Accordingly, for the reasons noted above and
recognizing that there can be no assurance that any economies of scale or other
benefits will be realized, Signet and Evergreen Asset believe that the proposed
Reorganization would be in the best interests of each Fund and its shareholders.
The Board of Trustees of Blanchard Funds met and considered the
recommendation of Signet and Evergreen Asset and, in addition, considered among
other things, (i) the terms and conditions of the Reorganization; (ii) whether
the Reorganization would result in the dilution of shareholders' interests;
(iii) expense ratios, fees and expenses of Evergreen Global Leaders and Global
Growth; (iv) the comparative performance records of each of the Funds; (v)
compatibility of their investment objectives and policies; (vi) the investment
experience, expertise and resources of Evergreen Asset; (vii) the service and
distribution resources available to the Evergreen funds and the broad array of
investment alternatives available to shareholders of the Evergreen funds; (viii)
the personnel and financial resources of First Union and its affiliates; (ix)
the fact that FUNB will bear the expenses incurred by Global Growth in
connection with the Reorganization; (x) the fact that Evergreen Global Leaders
will assume certain identified liabilities of Global Growth; and (xi) the
expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Global Growth from the sale of its assets to Evergreen Global Leaders. In
this regard, the Trustees
<PAGE>
considered the potential benefits of being associated with a larger entity and
the economies of scale that could be realized by the participation in such an
entity by shareholders of Global Growth.
In addition, the Trustees considered that there are alternatives
available to shareholders of Global Growth, including the ability to redeem
their shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen International Trust, on behalf of Evergreen
Global Leaders, also concluded at a meeting on September 17, 1997 that the
proposed Reorganization would be in the best interests of shareholders of
Evergreen Global Leaders and that the interests of the shareholders of Evergreen
Global Leaders would not be diluted as a result of the transactions contemplated
by the Reorganization.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF GLOBAL GROWTH APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Evergreen Global Leaders will acquire all of the
assets of Global Growth in exchange for shares of Evergreen Global Leaders and
the assumption by Evergreen Global Leaders of certain identified liabilities of
Global Growth on or about February 27, 1998 or such other date as may be agreed
upon by the parties (the "Closing Date"). Prior to the Closing Date, Global
Growth will endeavor to discharge all of its known liabilities and obligations.
Evergreen Global Leaders will not assume any liabilities or obligations of
Global Growth other than those reflected in an unaudited statement of assets and
liabilities of Global Growth prepared as of the close of regular trading on the
NYSE, currently 4:00 p.m. Eastern time, on the business day immediately prior to
the Closing Date. The number of full and fractional shares of each class of
Evergreen Global Leaders to be received by the shareholders of Global Growth
will be determined by multiplying the respective outstanding class of shares of
Global Growth by a factor which shall be computed by dividing the net asset
value per share of the respective class of shares of Global Growth by the net
asset value per share of the respective class of shares of Evergreen Global
Leaders. Such
<PAGE>
computations will take place as of the close of regular trading on the NYSE on
the business day immediately prior to the Closing Date. The net asset value per
share of each class will be determined by dividing assets, less liabilities, in
each case attributable to the respective class, by the total number of
outstanding shares.
State Street Bank and Trust Company, the custodian for Evergreen Global
Leaders, will compute the value of each Fund's respective portfolio securities.
The method of valuation employed will be consistent with the procedures set
forth in the Prospectus and Statement of Additional Information of Evergreen
Global Leaders, Rule 22c-1 under the 1940 Act, and with the interpretations of
such Rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, Global Growth will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Global
Growth will liquidate and distribute pro rata to shareholders of record as of
the close of business on the Closing Date the full and fractional shares of
Evergreen Global Leaders received by Global Growth. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Fund's shareholders on the share records of Evergreen Global Leaders'
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Evergreen Global Leaders due to the Fund's
shareholders. All issued and outstanding shares of Global Growth, including
those represented by certificates, will be canceled. The shares of Evergreen
Global Leaders to be issued will have no preemptive or conversion rights. After
such distributions and the winding up of its affairs, Global Growth will be
terminated. In connection with such termination, Blanchard Funds will file with
the SEC an application for termination as a registered investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Global Growth's shareholders, accuracy
of various representations and
<PAGE>
warranties and receipt of opinions of counsel, including opinions with respect
to those matters referred to in "Federal Income Tax Consequences" below.
Notwithstanding approval of Global Growth's shareholders, the Plan may be
terminated (a) by the mutual agreement of Global Growth and Evergreen Global
Leaders; or (b) at or prior to the Closing Date by either party (i) because of a
breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
The expenses of Global Growth in connection with the Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the Reorganization is consummated. No portion of such expenses will be
borne directly or indirectly by Global Growth or its shareholders. There are no
liabilities or expected reimbursements in connection with the 12b-1 Plan of
Global Growth. As a result, no 12b-1 liabilities will be assumed by Evergreen
Global Leaders following the Reorganization.
If the Reorganization is not approved by shareholders of Global Growth,
the Board of Trustees of Blanchard Funds will consider other possible courses of
action in the best interests of shareholders.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of the Reorganization, Global Growth will receive an
opinion of Sullivan & Worcester LLP to the effect that, on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued thereunder,
current administrative rules, pronouncements and court decisions, for federal
income tax purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of Global Growth solely in
exchange for shares of Evergreen Global Leaders and the assumption by Evergreen
Global Leaders of certain identified liabilities, followed by the distribution
of Evergreen Global Leaders' shares by Global Growth in dissolution and
liquidation of Global Growth, will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code, and Evergreen Global Leaders and
Global Growth will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;
<PAGE>
(2) No gain or loss will be recognized by Global Growth on the transfer
of all of its assets to Evergreen Global Leaders solely in exchange for
Evergreen Global Leaders' shares and the assumption by Evergreen Global Leaders
of certain identified liabilities of Global Growth or upon the distribution of
Evergreen Global Leaders' shares to Global Growth's shareholders in exchange for
their shares of Global Growth;
(3) The tax basis of the assets transferred will be the same to
Evergreen Global Leaders as the tax basis of such assets to Global Growth
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Global Leaders will include the period during which
the assets were held by Global Growth;
(4) No gain or loss will be recognized by Evergreen Global Leaders upon
the receipt of the assets from Global Growth solely in exchange for the shares
of Evergreen Global Leaders and the assumption by Evergreen Global Leaders of
certain identified liabilities of Global Growth;
(5) No gain or loss will be recognized by Global Growth's shareholders
upon the issuance of the shares of Evergreen Global Leaders to them, provided
they receive solely such shares (including fractional shares) in exchange for
their shares of Global Growth; and
(6) The aggregate tax basis of the shares of Evergreen Global Leaders,
including any fractional shares, received by each of the shareholders of Global
Growth pursuant to the Reorganization will be the same as the aggregate tax
basis of the shares of Global Growth held by such shareholder immediately prior
to the Reorganization, and the holding period of the shares of Evergreen Global
Leaders, including fractional shares, received by each such shareholder will
include the period during which the shares of Global Growth exchanged therefor
were held by such shareholder (provided that the shares of Global Growth were
held as a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of Global Growth would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Evergreen Global
Leaders shares he or she received. Shareholders of Global Growth should consult
their tax advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. It is not anticipated that the
securities of the combined portfolio will be sold in significant
<PAGE>
amounts in order to comply with the policies and investment practices of
Evergreen Global Leaders. Since the foregoing discussion relates only to the
federal income tax consequences of the Reorganization, shareholders of Global
Growth should also consult their tax advisers as to the state and local tax
consequences, if any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen Global
Leaders and Global Growth as of September 30, 1997 and the capitalization of
Evergreen Global Leaders on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value. The pro forma data
reflects an exchange ratio of approximately 0.73758 Class A shares of Evergreen
Global Leaders issued for each share of Global Growth.
<TABLE>
<CAPTION>
Capitalization of Global Growth,
Evergreen Global Leaders and Evergreen
Global Leaders (Pro Forma)
Evergreen
Global
Evergreen Leaders
Global Global (After
Growth Leaders Reorgani-
--------- -------- zation)
------------
<S> <C> <C> <C>
Net Assets
Shares......................... $62,197,366 N/A N/A
Class A........................ N/A $ 39,205,199 $101,402,565
Class B........................ N/A $135,612,309 $135,612,309
Class C........................ N/A $ 2,420,914 $ 2,420,914
Class Y........................ _________ $ 36,351,166 $ 36,351,166
---
Total Net Assets $62,197,366 $213,589,588 $275,786,954
Net Asset Value Per
Share
Shares......................... $ 10.54 N/A N/A
Class A........................ N/A $ 14.29 $ 14.29
Class B........................ N/A $ 14.14 $ 14.14
Class C........................ N/A $ 14.13 $ 14.13
Class Y........................ N/A $ 14.33 $ 14.33
Shares Outstanding
Shares......................... 5,899,615 N/A N/A
Class A........................ N/A 2,743,650 7,096,051
<PAGE>
Evergreen
Global
Evergreen Leaders
Global Global (After
Growth Leaders Reorgani-
--------- -------- zation)
------------
Class B........................ N/A 9,588,110 9,588,110
Class C........................ N/A 171,342 171,342
Class Y........................ _________ 2,537,390 2,537,390
---
All Classes.................... 5,899,615 15,040,492 19,392,893
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.
Shareholder Information
As of December 26, 1997 (the "Record Date"), there were shares of
beneficial interest of Global Growth outstanding.
As of November 30, 1997, the officers and Trustees of Blanchard Funds
beneficially owned as a group less than 1% of the outstanding shares of Global
Growth. To Global Growth's knowledge, no person owned beneficially or of record
more than 5% of Global Growth's total outstanding shares as of November 30,
1997.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
While the investment objectives, policies, and restrictions of the two
Funds are similar, there are differences. In particular, Global Growth is
permitted to invest up to 65% of its assets in any one of the following: U.S.
equities, foreign equities, U.S. fixed income securities, or foreign fixed
income securities. By contrast, Evergreen Global Leaders will, under normal
conditions, invest at least 65% of its assets in equity securities. In addition,
Global Growth may invest up to 15% of its total assets in emerging market
securities. Evergreen Global Leaders generally will invest only in securities of
issuers in major industrial countries. Unlike the investment objective of Global
Growth, the investment objective of Evergreen Global Leaders is non-fundamental
and may be changed by the Trustees of Evergreen International Trust without
shareholder approval. Other differences between the
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investment objectives, policies and restrictions of the Funds are discussed
below. The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectus and Statement of Additional
Information of the Funds. The investment objective, policies and restrictions of
Evergreen Global Leaders can be found in the Prospectus of Evergreen Global
Leaders under the caption "Investment Objectives and Policies." The Prospectus
of Evergreen Global Leaders also offers additional funds advised by Evergreen
Asset or its affiliates. These additional funds are not involved in the
Reorganization, their investment objectives and policies are not discussed in
this Prospectus/Proxy Statement and their shares are not offered hereby. The
investment objective, policies and restrictions of Global Growth can be found in
the Prospectus of the Fund under the caption "The Funds' Investment Objectives
and Policies."
The investment objective of Evergreen Global Leaders is to achieve
capital appreciation by investing primarily in a diversified portfolio of U.S.
and non-U.S. equity securities of companies located in the world's major
industrialized countries. The Fund makes investments in no less than three
countries, which may include the United States. The investment adviser of
Evergreen Global Leaders attempts to screen the largest companies in the world's
major industrialized countries and invests, in the opinion of the investment
adviser, in the 100 best based on certain qualitative and quantitative criteria,
including those with the highest return on equity and consistent earnings
growth.
Evergreen Global Leaders primarily invests in:
Equity Securities. These include common and preferred stocks,
convertible securities and warrants of foreign and domestic corporations. Under
normal conditions at least 65% of the Fund's total assets will consist of global
equity securities.
Fixed Income Securities. These include obligations of foreign
governments and supranational organizations (such as the World Bank); corporate
and foreign government fixed income securities denominated in currencies other
than U.S. dollars rated, at the time of purchase Baa or higher by Moody's
Investors Service or BBB or higher by Standard & Poor's Ratings Group, or which,
if unrated, are considered to be of comparable quality by Evergreen Asset.
Strategic investments. These include options and futures contracts on
currency, securities options, and forward foreign currency exchange contracts.
<PAGE>
Securities of closed-end investment companies.
The investment objective of Global Growth is to seek long-
term capital growth by following a global allocation strategy
that contemplates shifts among six strategic market sectors. The
sectors are:
U.S. equity securities.
Foreign equity securities.
U.S. fixed income securities.
Foreign fixed income securities.
Precious metals securities.
Emerging market securities.
Global Growth invests, under normal market conditions, at least 65% of
the value of its total assets in securities of at least three different
countries. The Fund may invest up to 65% of its assets in any one sector, except
that its investment in precious metals securities is limited to 25% of assets
and its investment in emerging market securities is limited to 15% of assets.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectus and Statement of Additional
Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen International Trust and Blanchard Funds are both open-end
management investment companies registered with the
<PAGE>
SEC under the 1940 Act, which continuously offer shares to the public. Evergreen
International Trust is organized as a Delaware business trust, and Blanchard
Funds is organized as a Massachusetts business trust. Each Trust is governed by
a Declaration of Trust, By-Laws and a Board of Trustees. Each Trust is also
governed by applicable Delaware, Massachusetts and federal law. Evergreen Global
Leaders is a series of Evergreen International Trust, and Global Growth is a
series of Blanchard Funds.
As set forth in the Supplement to the Prospectus of Evergreen Global
Leaders, effective December 22, 1997, Evergreen Global Leaders Fund, a series of
Evergreen Equity Trust, a Massachusetts business trust was reorganized (the
"Delaware Reorganization")into a corresponding series of (Evergreen Global
Leaders) of Evergreen International Trust. In connection with the Delaware
Reorganization, the Fund's investment objectives were reclassified from
"fundamental" to "non- fundamental" and therefore may be changed without
shareholder approval; the Fund adopted certain standardized investment
restrictions; and the Fund eliminated or reclassified from fundamental to
non-fundamental certain of the Fund's other fundamental investment restrictions.
Capitalization
The beneficial interests in Evergreen Global Leaders are represented by
an unlimited number of transferable shares of beneficial interest, $.001 par
value per share. The beneficial interests in Global Growth are represented by an
unlimited number of transferable shares of beneficial interest without par
value. The respective Declaration of Trust under which each Fund has been
established permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued. Each Fund's shares
represent equal proportionate interests in the assets belonging to the Funds.
Shareholders of each Fund are entitled to receive dividends and other amounts as
determined by the Trustees. Shareholders of each Fund vote separately, by class,
as to matters, such as approval of or amendments to Rule 12b-1 distribution
plans, that affect only their particular class and by series as to matters, such
as approval of or amendments to investment advisory agreements or proposed
reorganizations, that affect only their particular series.
Shareholder Liability
<PAGE>
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the Declaration of Trust under which Global Growth was
established disclaims shareholder liability for acts or obligations of the
series and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
The Declaration of Trust provides for indemnification out of the series property
for all losses and expenses of any shareholder held personally liable for the
obligations of the series. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered remote since it is
limited to circumstances in which a disclaimer is inoperative and the series or
the trust itself would be unable to meet its obligations.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen International Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability. To guard
against this risk, the Declaration of Trust of Evergreen International Trust (a)
provides that any written obligation of the Trust may contain a statement that
such obligation may only be enforced against the assets of the Trust or the
particular series in question and the obligation is not binding upon the
shareholders of the Trust; however, the omission of such a disclaimer will not
operate to create personal liability for any shareholder; and (b) provides for
indemnification out of Trust property of any shareholder held personally liable
for the obligations of the Trust. Accordingly, the risk of a shareholder of
Evergreen International Trust incurring financial loss beyond that shareholder's
investment because of shareholder liability is limited to circumstances in
which: (i) the court refuses to apply Delaware law; (ii) no contractual
limitation of liability was in effect; and (iii) the Trust itself would be
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen International Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen International Trust on behalf of Evergreen Global
Leaders nor Blanchard Funds on behalf of Global Growth is required to hold
annual meetings of shareholders.
<PAGE>
However, a meeting of shareholders for the purpose of voting upon the question
of removal of a Trustee must be called when requested in writing by the holders
of at least 10% of the outstanding shares of Evergreen International Trust or
Blanchard Funds. In addition, each is required to call a meeting of shareholders
for the purpose of electing Trustees if, at any time, less than a majority of
the Trustees then holding office were elected by shareholders. Each Trust
currently does not intend to hold regular shareholder meetings. Neither Trust
permits cumulative voting. Except when a larger quorum is required by applicable
law, a majority of the outstanding shares entitled to vote of each Fund
constitutes a quorum for consideration of such matter. For Evergreen Global
Leaders and Global Growth, a majority of the votes cast and entitled to vote is
sufficient to act on a matter (unless otherwise specifically required by the
applicable governing documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen International Trust, each
share of Evergreen Global Leaders is entitled to one vote for each dollar of net
asset value applicable to each share. Under the voting provisions governing
Global Growth, each share is entitled to one vote. Over time, the net asset
values of the mutual funds which are each a series of Blanchard Funds have
changed in relation to one another and are expected to continue to do so in the
future. Because of the divergence in net asset values, a given dollar investment
in a fund which is a series of Blanchard Funds and which has a lower net asset
value will purchase more shares and, under the current voting provisions of
Blanchard Funds, have more votes, than the same investment in a series with a
higher net asset value. Under the Declaration of Trust of Evergreen
International Trust, voting power is related to the dollar value of a
shareholder's investment rather than to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Global Leaders and Global
Growth the shareholders are entitled to receive, when, and as declared by the
Trustees, the excess of the assets belonging to such Fund or attributable to the
class over the liabilities belonging to the Fund or attributable to the class.
In either case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
<PAGE>
The Declaration of Trust of Blanchard Funds provides that no Trustee
shall be liable for errors of judgment or mistakes of fact or law and that no
Trustee shall be subject to liability unless such Trustee is found to have acted
in bad faith, with willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
The Declaration of Trust of Blanchard Funds provides that a present or
former Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his or her position with the Trust,
provided that no indemnification shall be provided to a Trustee or officer
against any liability to the Trust or any series thereof or the shareholders of
any series by reasons of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Under the Declaration of Trust of Evergreen International Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's own
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declarations of Trust, By-Laws, Delaware and
Massachusetts
law directly for more complete information.
<PAGE>
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of Blanchard Funds recommends that shareholders of Global
Growth approve the Interim Advisory Agreement. The Merger became effective on
November 28, 1997. Pursuant to an order received from the SEC all fees payable
under the Interim Advisory Agreement will be placed in escrow and paid to Virtus
if shareholders approve the contract within 120 days of its effective date. The
Interim Advisory Agreement will remain in effect until the earlier of the
Closing Date for the Reorganization or two years from the effective date. The
terms of the Interim Advisory Agreement are essentially the same as the Previous
Advisory Agreement (as defined below). The only difference between the Previous
Advisory Agreement and the Interim Advisory Agreement, if approved by
shareholders, is the length of time each Agreement is in effect. A description
of the Interim Advisory Agreement pursuant to which Virtus continues as
investment adviser to Global Growth, as well as the services to be provided by
Virtus pursuant thereto is set forth below under "Advisory Services." The
description of the Interim Advisory Agreement in this Prospectus/Proxy Statement
is qualified in its entirety by reference to the Interim Advisory Agreement,
attached hereto as Exhibit B.
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management, is an indirect wholly-owned subsidiary of
First Union. The address of Virtus is 707 East Main Street, Suite 1300,
Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to an
Investment Advisory Contract dated July 12, 1995. As used herein, the Investment
Advisory Agreement for Global Growth is referred to as the "Previous Advisory
Agreement." At a meeting of the Board of Trustees of Blanchard Funds held on
September 16, 1997, the Trustees, including a majority of the Independent
Trustees, approved the Interim Advisory Agreement for Global Growth.
The Trustees have authorized Blanchard Funds, on behalf of Global
Growth, to enter into the Interim Advisory Agreement with Virtus. Such Agreement
became effective on November 28, 1997. If the Interim Advisory Agreement for
Global Growth is not approved by shareholders, the Trustees will consider
appropriate actions to be taken with respect to Global Growth's investment
advisory arrangements at that time. The Previous Advisory Agreement was last
approved by the Trustees, including a majority of the Independent Trustees, on
May 11, 1997.
<PAGE>
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by Virtus under the Interim Advisory Agreement are identical to those currently
provided by Virtus under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, Virtus is responsible for
managing the Fund and overseeing the investment of its assets, subject at all
times to the supervision of the Board of Trustees. Virtus selects, monitors and
evaluates the Fund's sub- adviser. Virtus periodically reviews the sub-adviser's
performance record and will make a change, if necessary, subject to approval of
the Board of Trustees and shareholders.
FAS currently acts as administrator of Global Growth. FAS will continue
during the term of the Interim Advisory Agreement as Global Growth's
administrator for the same compensation as currently received . An affiliate of
FAS currently performs transfer agency services for Global Growth's
shareholders. Commencing February 9, 1998 Evergreen Service Company will provide
such transfer agency services for the same fees charged by Global Growth's
current transfer agent.
Fees and Expenses. The investment advisory fees and expense limitations for
Global Growth under the Previous Advisory Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers and Sub- Advisers."
Expense Reimbursement. Virtus may, if it deems appropriate, assume
expenses of the Fund or a class to the extent that the Fund's or classes'
expenses exceed such lower expense limitation as Virtus may, by notice to the
Fund, voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, Blanchard Funds was required to pay or cause to be paid on
behalf of the Fund, all of the Fund's expenses and the Fund's allocable share of
Blanchard Funds' expenses.
The Interim Advisory Agreement contains an identical provision.
<PAGE>
Limitation of Liability. The Previous Advisory Agreement provided that
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Agreement on the part of Virtus,
Virtus was not liable to Blanchard Funds or to the Fund or to any shareholder
for any act or omission in the course of or connected in any way with rendering
services or for any losses that may be sustained in the purchase, holding or
sale of any security.
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of Global Growth (as defined in the 1940 Act) or by a vote of
the Trustees of Blanchard Funds on 60 days' written notice to Virtus or by
Virtus on 60 days' written notice to Blanchard Funds. Also, the Interim Advisory
Agreement will automatically terminate in the event of its assignment (as
defined in the 1940 Act). The Previous Advisory Agreement contained identical
provisions as to termination and assignment.
Information about Global Growth's Investment Adviser
Virtus, a registered investment adviser, manages, in addition to the
Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three
fixed income trust funds. The name and address of each executive officer and
director of Virtus is set forth in Appendix A to this Prospectus/Proxy
Statement.
For the fiscal year ended September 30, 1997 and the period from May 1,
1996 to September 30, 1996, Virtus received from Global Growth management fees
of $645,955 and $291,223, respectively. For the fiscal year ended April 30,
1996, the Fund's investment management fee paid to Virtus and the prior manager
was $783,420. Signet acts as custodian for Global Growth and received $10,132
for the fiscal year ended September 30, 1997. Commencing on or about January 20,
1998 FUNB will act as Global Growth's custodian during the term of the Interim
Advisory Agreement.
The Board of Trustees considered the Interim Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Reasons for the Reorganization."
The Board of Trustees also considered the fact that there were no material
differences between the terms of the Interim Advisory Agreement and the terms of
the Previous Advisory Agreement.
<PAGE>
THETRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE
SHAREHOLDERS OF GLOBAL GROWTH APPROVE THE INTERIM
ADVISORY AGREEMENT.
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of Blanchard Funds recommends that shareholders of Global
Growth approve the Interim Sub-Advisory Agreement. Such Agreement became
effective on November 28, 1997. Pursuant to an order from the SEC, all fees
payable under the Interim Sub-Advisory Agreement will be placed in escrow and
paid to Mellon Capital if shareholders approve the contract within 120 days of
its effective date. The Interim Sub-Advisory Agreement will remain in effect
until the earlier of the Closing Date for the Reorganization or two years from
its effective date. The terms of the Interim Sub-Advisory Agreement are
essentially the same as the Previous Sub-Advisory Agreement (as defined below).
The only difference between the Previous Sub-Advisory Agreement and the Interim
Sub-Advisory Agreement, if approved by shareholders, is the length of time the
Agreement is in effect. A description of the Interim Sub- Advisory Agreement
pursuant to which Mellon Capital continues as the investment sub-adviser to
Global Growth, as well as the services to be provided by Mellon Capital pursuant
thereto, is set forth below under "Sub-Advisory Services." The description of
the Interim Sub-Advisory Agreement in this Prospectus/Proxy Statement is
qualified in its entirety by reference to the Interim Sub-Advisory Agreement,
attached hereto as Exhibit C.
Mellon Capital Management Corporation, 595 Market Street, Suite 3000,
San Francisco, California 94105, has served as sub- adviser to Global Growth
since May 28, 1996 pursuant to a Sub- Advisory Agreement dated December 1, 1995
(the "Previous Sub- Advisory Agreement") and is responsible for the day-to-day
management of Global Growth's portfolio. See "Summary Investment Advisers and
Sub-rs." Mellon Capital was established in 1983 and provides investment advisory
services to investment companies, pension plans, foundations, endowments, and
other institutions located both in the United States and abroad. As of September
30, 1996, Mellon Capital had over $46.4 billion in assets under management.
The Trustees have authorized Blanchard Funds, on behalf of Global
Growth, to enter into the Interim Sub-Advisory Agreement with Virtus and Mellon
Capital. Such Agreement became effective on November 28, 1997. If the Interim
Sub-Advisory Agreement for Global Growth is not approved by shareholders, the
Trustees will consider appropriate actions to be taken with respect to
<PAGE>
Global Growth's investment sub-advisory arrangements at that time. The Previous
Sub-Advisory Agreement was last approved by the Trustees, including a majority
of the Independent Trustees, on December 1, 1995.
Comparison of the Interim Sub-Advisory Agreement and the Previous
Sub-Advisory Agreement
Sub-Advisory Services. The management and advisory services to be
provided by Mellon Capital under the Interim Sub-Advisory Agreement are
identical to those currently provided by Mellon Capital under the Previous
Sub-Advisory Agreement. Under the Previous Sub-Advisory Agreement, Mellon
Capital supervised the investment and reinvestment of the cash, securities or
other properties comprising the Fund's portfolio, subject at all times to the
direction of Virtus and the policies and control of Blanchard Funds' Board of
Trustees.
Fees and Expenses. The investment sub-advisory fees under the Previous
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical. As
compensation for its sub-advisory services under the Previous Sub-Advisory
Agreement Mellon Capital was paid by Virtus a monthly fee at the annual rate of
0.375% of the first $100 million of the Fund's average daily net assets; plus
0.35% of the Fund's average daily net assets in excess of $100 million but less
than $150 million; plus 0.325% of the Fund's average daily net assets in excess
of $150 million.
The fee paid to Mellon Capital by Virtus for the fiscal year ended
September 30, 1997 was $243,134. The fee paid to Mellon Capital by Virtus for
the period from May 1, 1996 through September 30, 1996 was $108,872. The fee
paid to the prior sub- adviser by the prior manager and by Virtus for the fiscal
year ended April 30, 1996 was $140,258.
The names and addresses of the principal executive officers and
directors of Mellon Capital are set forth in Appendix B to this Prospectus/Proxy
Statement.
Limitation of Liability. The Previous Sub-Advisory Agreement provided
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of Mellon Capital or its officers, directors, or employees or reckless
disregard by Mellon Capital of its duties under the Agreement, Mellon Capital
shall not be liable to Virtus, Blanchard Funds or to any shareholder of
Blanchard Funds for any act or omission in the course of, or connected with,
rendering services thereunder or for any losses that may be sustained in the
purchase, holding or
<PAGE>
sale of any security. The Interim Sub-Advisory Agreement
contains an identical provision.
Termination; Assignment. The Interim Sub-Advisory Agreement provides
that it may be terminated without penalty by vote of a majority of the
outstanding voting securities of Global Growth (as defined in the 1940 Act) or
by a vote of a majority of Blanchard Funds' entire Board of Trustees on 60 days'
written notice to Mellon Capital or by Virtus or Mellon Capital on 60 days'
written notice to the other party to the Agreement. Also, the Interim
Sub-Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act). The Previous Sub-Advisory Agreement
contained identical provisions as to termination and assignment.
The Board of Trustees considered the Interim Sub-Advisory Agreement as
part of its overall approval of the Plan. The Board of Trustees considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Trustees also considered the fact that there were
no material differences between the terms of the Interim Sub-Advisory Agreement
and the terms of the Previous Sub-Advisory Agreement.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND THAT THE
SHAREHOLDERS OF GLOBAL GROWTH APPROVE THE INTERIM
SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen Global Leaders. Information concerning the operation and
management of Evergreen Global Leaders is incorporated herein by reference from
the Prospectus dated March 3, 1997, as amended, a copy of which is enclosed, and
Statement of Additional Information dated March 3, 1997. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Evergreen Global Leaders at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800-343- 2898.
Global Growth. Information about the Fund is included in its current
Prospectus dated November 30, 1997 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectus and Statement of
Additional Information are available upon request and without charge by writing
to Global Growth at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
<PAGE>
Evergreen Global Leaders and Global Growth are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information, including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of Blanchard Funds to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts
02116 and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the meeting and a proxy card, is first being mailed to
shareholders of Global Growth on or about January 5, 1998. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to vote at, the Meeting or any adjournment thereof. The holders of a
majority of the outstanding shares entitled to vote, at the close of business on
the Record Date, present in person or represented by proxy, will constitute a
quorum for the Meeting. If the enclosed form of proxy is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will vote
the shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Reorganization, FOR the
Interim Advisory Agreement, FOR the Interim Sub-Advisory Agreement and FOR any
other matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will not be counted as shares voted and will have no effect on the vote
regarding the Plan. However, such "broker non-votes" will have the effect of
being counted as votes against the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement which must be approved by a percentage of the shares
present at the Meeting or a majority of the outstanding voting securities. A
proxy may be revoked at any time on or before the Meeting by written notice to
the Secretary of Blanchard Funds, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. Unless revoked, all valid proxies will be voted in
accordance
<PAGE>
with the specifications thereon or, in the absence of such specifications, FOR
approval of the Plan and the Reorganization contemplated thereby, FOR approval
of the Interim Advisory Agreement and FOR approval of the Interim Sub-Advisory
Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the shares voted and entitled to vote at the Meeting at which a quorum of the
Fund's shares is present. Approval of the Interim Advisory Agreement and Interim
Sub-Advisory Agreement will require the affirmative vote of (i) 67% or more of
the outstanding voting securities if holders of more than 50% of the outstanding
voting securities are present, in person or by proxy, at the Meeting, or (ii)
more than 50% of the outstanding voting securities, whichever is less. Each full
share outstanding is entitled to one vote and each fractional share outstanding
is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of Evergreen Asset or Signet, their
affiliates or other representatives of Global Growth (who will not be paid for
their soliciting activities). Shareholder Communications Corporation has been
engaged by Global Growth to assist in soliciting proxies.
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement or attend in person. Any
proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by February 20, 1998, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of Blanchard
Funds to demand payment for, or
<PAGE>
an appraisal of, his or her shares. However, shareholders should be aware that
the Reorganization as proposed is not expected to result in recognition of gain
or loss to shareholders for federal income tax purposes and that, if the
Reorganization is consummated, shareholders will be free to redeem the shares of
Evergreen Global Leaders which they receive in the transaction at their
then-current net asset value. Shares of Global Growth may be redeemed at any
time prior to the consummation of the Reorganization. Shareholders of Global
Growth may wish to consult their tax advisers as to any differing consequences
of redeeming Fund shares prior to the Reorganization or exchanging such shares
in the Reorganization.
Global Growth does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of Blanchard Funds
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of Evergreen Global Leaders are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Global Growth whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Global Leaders as of October 31,
1996, and the financial statements and financial highlights for the periods
indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of Price Waterhouse LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements and financial highlights of Global Growth
incorporated in this Prospectus/Proxy Statement by reference from the Annual
Report of the Blanchard Funds for the year ended September 30, 1997 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been
<PAGE>
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Global Leaders will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Blanchard Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF BLANCHARD FUNDS RECOMMEND APPROVAL OF THE PLAN, THE
INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM
SUB-ADVISORY AGREEMENT.
January 5, 1998
<PAGE>
APPENDIX A
The names and addresses of the principal executive officers
and directors of Virtus Capital Management, Inc. are as follows:
OFFICERS:
Name Address
- ---- -------
David C. First Union National Bank
Francis, Chief Investment 201 South College Street
Officer Charlotte, North Carolina 28288-
1195
Tanya Orr Bird, Vice Virtus Capital Management, Inc.
President 707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Virtus Capital Management, Inc.
Clemons Rosson, Vice 707 East Main Street
President, Assistant Suite 1300
Secretary Richmond, Virginia 23219
First Union National Bank
L. 201 South College
Robert Cheshire, Vice Street
President Charlotte, North
Carolina 28288-1195
John E. Gray, Vice First Union National Bank
President 201
South College Street
Charlotte, North Carolina 28288-
1195
Dillon S. Harris, Jr., Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
J. Kellie Allen, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
Ethel B. Sutton, Vice Evergreen Asset Management Corp.
President 2500 Westchester Avenue
Purchase, New York 10577
<PAGE>
DIRECTORS:
Name Address
- ---- -------
First Union National Bank
David C. 201 South College
Francis Street
Charlotte, North
Carolina 28288-1195
Donald A. McMullen First Union National Bank
201 South College
Street
Charlotte, North
Carolina 28288-1195
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
Barbara J. Colvin First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William D. Munn First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
<PAGE>
APPENDIX B
The names and addresses of the principal executive officers and
directors of Mellon Capital Management Corporation are as follows:
OFFICERS AND DIRECTORS:
Name Address
- ---- -------
William L. Fouse, Chairman, Mellon Capital Management Corp.
Executive Committee, 595 Market Street
Director Suite 3000
San Francisco, California 94105
Thomas F. Loeb, Chairman, Mellon Capital Management Corp.
Chief Executive Officer, 595 Market Street
Director Suite 3000
San Francisco, California 94105
Thomas B. Hazuka, Ph.D., Mellon Capital Management Corp.
Executive Vice President, 595 Market Street
Chief Financial Officer, Suite 3000
Director San Francisco, California 94105
Brenda J. Oakley, Executive Mellon Capital Management Corp.
Vice President, Chief 595 Market Street
Administrative Officer, Suite 3000
Director San Francisco, California 94105
Mary C. "Polly" Shouse, Mellon Capital Management Corp.
Executive Vice President, 910 Travis Street
Director Suite 2210
Houston, Texas 77002
James R. Tufts, Executive Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Bernadette L. Bolger, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Barbara W. Daugherty, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
<PAGE>
Name Address
- ---- -------
Douglas F. Dooley, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Susan M. Ellison, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Richard J. Forster, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Alexander c. Huberts, Senior Mellon Capital Management Corp.
Vice President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
Charles J. Jacklin, Ph.D., Mellon Capital Management Corp.
Senior Vice President, 595 Market Street
Director Suite 3000
San Francisco, California 94105
David C. Kwan, Senior Vice Mellon Capital Management Corp.
President, Director 595 Market Street
Suite 3000
San Francisco, California 94105
James P. Palermo, Senior Mellon Capital Management Corp.
Vice President, Director One Boston Place
8th Floor
Boston, Massachusetts 02108
<PAGE>
Name Address
- ---- -------
Roger A. Wharton, Senior Mellon Capital Management Corp.
Vice President, Director 1 Mellon Bank Center
Pittsburgh, Pennsylvania 15258
<PAGE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of November, 1997, by and between the Evergreen International
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to the
Evergreen Global Leaders Fund series (the "Acquiring Fund"), and Blanchard
Funds, a Massachusetts business trust, with its principal place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect to
its Blanchard Global Growth Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A shares of
beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of
beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of Blanchard Funds have determined that the
Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that
<PAGE>
the interests of the existing shareholders of the Selling Fund will not be
diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable time prior to the
Closing Date, furnish the Acquiring Fund with a list of its portfolio securities
and other investments. In the event that the Selling Fund holds any investments
that the Acquiring Fund may not hold, the Selling Fund, if requested by the
Acquiring Fund, will dispose of such securities prior to the Closing Date. In
addition, if it is determined that the Selling Fund and the Acquiring Fund
portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein shall require the Selling Fund to dispose of any investments or
securities if, in the reasonable judgment of the Selling Fund, such disposition
would adversely affect the tax-free nature of the Reorganization or would
violate the Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling
<PAGE>
Fund immediately prior to the Reorganization, in each case calculated in
accordance with such Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
<PAGE>
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of shares of
the Selling Fund will receive Class A shares of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about February 27, 1998 or such other date as the parties may agree to in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously immediately prior to the opening of business
on the Closing Date unless otherwise provided. The Closing shall be held as of
9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
<PAGE>
3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date; and (b) all necessary taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent as of the Closing Date, to
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of Blanchard Funds or provide
evidence satisfactory to the Selling Fund that such Acquiring Fund Shares have
been credited to the Selling Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts and other documents as
such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents
and warrants to the Acquiring Fund as follows:
<PAGE>
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Blanchard Funds' Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected on the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or
<PAGE>
governmental body that materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
(g) The financial statements of the Selling Fund at September
30, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
<PAGE>
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as
follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment
<PAGE>
company classified as a management company of the open-end type, and its
registration with the Commission as an investment company under the 1940 Act is
in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at October
31, 1996 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since October 31, 1996, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise
<PAGE>
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund shall
not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with
<PAGE>
federal securities and other laws and regulations applicable
thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and
warranties set forth in Section 4.2.1 shall be deemed to include, to the extent
applicable, representations and warranties made by and on behalf of Evergreen
Global Leaders Fund (the "Predecessor Fund"), a series of Evergreen Equity
Trust, a Massachusetts business trust, as of the date hereof. The Acquiring Fund
shall deliver to the Selling Fund a certificate of the Predecessor Fund of even
date making the representations set forth in Section 4.2.1 with respect to the
Predecessor Fund to the extent applicable to the Predecessor Fund as of the date
hereof.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. Blanchard Funds will call a meeting of
the Selling Fund Shareholders to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution
<PAGE>
thereof other than in accordance with the terms of this
Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by Price
Waterhouse LLP and certified by Blanchard Funds' President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause Price Waterhouse LLP to issue a letter addressed to the
Acquiring Fund and the Selling Fund, in form and substance satisfactory to the
Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
<PAGE>
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable. No shareholder
of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the
<PAGE>
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects its business, other than as previously disclosed in the
Registration Statement.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund at
which the contents of the Prospectus and Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the Trust's officers
and other representatives of the Acquiring Fund), no facts have come to their
attention that lead them to believe that the Prospectus and Proxy Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of Blanchard Funds and the Selling Fund. Such opinion shall contain such
other assumptions and limitations as shall be in the opinion of Sullivan &
Worcester LLP appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
6.4 The acquisition of the assets of the Predecessor Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
<PAGE>
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by Blanchard Funds'
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of Blanchard Funds.
7.3.1 The Acquiring Fund shall have received on the Closing Date an
opinion of Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or
<PAGE>
affecting creditors' rights generally and to general equity
principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of Blanchard Funds' Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of Reorganization," the Interim Advisory Agreement and the
Previous Advisory Agreement, as set forth under the caption "Information
Regarding the Interim Advisory Agreement," the Interim Sub- Advisory Agreement
and the Previous Sub-Advisory Agreement, as set forth under the caption
"Information Regarding the Interim Sub-Advisory Agreement" and the description
of voting requirements applicable to approval of the Interim Advisory Agreement
and Interim Sub-Advisory Agreement, as set forth under the caption "Voting
Information Concerning the Meeting," insofar as the latter constitutes a summary
of applicable voting requirements under the Investment Company Act of 1940, as
amended, are, in each case, accurate and fairly present the information required
to be shown by the applicable requirements of Form N-14.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
<PAGE>
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
7.3.2 The Acquiring Fund shall have received on the Closing Date an
opinion of C. Grant Anderson, Esq., Assistant Secretary of the Blanchard Funds,
in form satisfactory to the Acquiring Fund as follows: Assuming that a
consideration therefor of not less than the net asset value thereof has been
paid, and assuming that such shares were issued in accordance with the terms of
the Selling Fund's registration statement, or any amendment thereto, in effect
at the time of such issuance, all issued and outstanding shares of the Selling
Fund are legally issued and fully paid and non-assessable (except that, under
Massachusetts law, Selling Fund Shareholders could under certain circumstances
be held personally liable for obligations of the Selling Fund).
Mr. Anderson shall also state that he has reviewed and is familiar with
the contents of the Prospectus and Proxy Statement and, although he is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement on the basis of the foregoing, no facts have come to his attention
that lead him to believe that the Prospectus and Proxy Statement as of its date,
as of the date of the Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding the Selling Fund or
necessary, in the light of the circumstances under which they were made, to make
the statements therein regarding the Selling Fund not misleading. Such opinion
may state that he does not express any opinion or belief as to the financial
statements or any financial or statistical data, or as to the information
relating to the Acquiring Fund, contained in the Prospectus and Proxy Statement
or Registration Statement.
The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that
such opinions are solely for the benefit of the Acquiring Fund. Such opinions
shall contain such other assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable,
appropriate to render the opinions expressed therein, and shall indicate, with
respect to matters of Massachusetts law,
<PAGE>
that as Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson are not
admitted to the bar of Massachusetts, such opinions are based either upon the
review of published statutes, cases and rules and regulations of the
Commonwealth of Massachusetts or upon an opinion of Massachusetts counsel.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
7.4 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Blanchard Funds'
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary
<PAGE>
"no-action" positions of and exemptive orders from such federal and state
authorities) to permit consummation of the transactions contemplated hereby
shall have been obtained, except where failure to obtain any such consent,
order, or permit would not involve a risk of a material adverse effect on the
assets or properties of the Acquiring Fund or the Selling Fund, provided that
either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the
<PAGE>
assumption by the Acquiring Fund of certain stated liabilities of the Selling
Fund or upon the distribution (whether actual or constructive) of the Acquiring
Fund Shares to Selling Fund Shareholders in exchange for their shares of the
Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from Price Waterhouse LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the Blanchard Funds responsible for financial and accounting
matters, nothing came to their attention that caused them to believe that such
unaudited pro forma financial
<PAGE>
statements do not comply as to form in all material respects with the applicable
accounting requirement of the 1933 Act and the published rules and regulations
thereunder;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(d) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus and
Proxy Statement were prepared based on the valuation of the Selling Fund's
assets in accordance with the Trust's Declaration of Trust and the Acquiring
Fund's then current prospectus and statement of additional information pursuant
to procedures customarily utilized by the Acquiring Fund in valuing its own
assets;
(e) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from Price
Waterhouse LLP a letter addressed to the Acquiring Fund dated on the Closing
Date, in form and substance satisfactory to the Acquiring Fund, to the effect,
that on the basis of limited procedures agreed upon by the Acquiring Fund (but
not an examination in accordance with generally accepted auditing standards),
the calculation of net asset value per share of the Selling Fund as of the
Valuation Date was determined in accordance with generally accepted accounting
practices and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from Price Waterhouse LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
<PAGE>
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
<PAGE>
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, Blanchard Funds, the respective
Trustees or officers, to the other party or its Trustees or officers.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
<PAGE>
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
and the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of Blanchard Funds or the
Evergreen Equity Trust personally, but shall bind only the trust property of the
Selling Fund and the Acquiring Fund, as provided in the Declarations of Trust of
Blanchard Funds and the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees of Blanchard Funds on behalf of the Selling Fund
and the Trust on behalf of the Acquiring Fund and signed by authorized officers
of Blanchard Funds and the Trust, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of the Selling
Fund and the Acquiring Fund as provided in the Declarations of Trust of
Blanchard Funds and the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN INTERNATIONAL
TRUST
ON BEHALF OF EVERGREEN GLOBAL
LEADERS FUND
By:
Name:
Title:
BLANCHARD FUNDS
ON BEHALF OF BLANCHARD GLOBAL
GROWTH FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
BLANCHARD FUNDS
INTERIM MANAGEMENT CONTRACT
This Contract is made this 28th day of November, 1997 between Virtus
Capital Management, Inc., a Maryland corporation having its principal place of
business in Richmond, Virginia (the "Manager"), and Blanchard Funds, a
Massachusetts business trust having its principal place of business in
Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940, as amended, and
is registered as such with the Securities and Exchange Commission; and
WHEREAS Manager is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The Trust hereby appoints Manager as manager for each of the
portfolios ("Funds") of the Trust which executes an exhibit to this Contract,
and Manager accepts the appointments. Subject to the direction of the Trustees
of the Trust, Manager shall provide or procure on behalf of each of the Funds
all management and administrative services. In carrying out its obligations
under this paragraph, the Manager shall: (i) provide or arrange for investment
research and supervision of the investments of the Funds; (ii) select and
evaluate the performance of each Fund's Portfolio Sub-Adviser; (iii) select and
evaluate the performance of the Administrator; and (iv) conduct or arrange for a
continuous program of appropriate sale or other disposition and reinvestment of
each Fund's assets.
2. Manager, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statements and exhibits as may be
on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and
its allocable share of Trust expenses, including, without limitation, the
expenses of organizing the Trust and continuing its existence; fees and expenses
of Trustees and officers of the Trust; fees for management services and
<PAGE>
administrative personnel and services; expenses incurred in the distribution of
its shares ("Shares"), including expenses of administrative support services;
fees and expenses of preparing and printing its Registration Statements under
the Securities Act of 1933 and the Investment Company Act of 1940, as amended,
and any amendments thereto; expenses of registering and qualifying the Trust,
the Funds, and Shares of the Funds under federal and state laws and regulations;
expenses of preparing, printing, and distributing prospectuses (and any
amendments thereto) to shareholders; interest expense, taxes, fees, and
commissions of every kind; expenses of issue (including cost of Share
certificates), purchase, repurchase, and redemption of Shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing and mailing costs, auditing, accounting, and
legal expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Trustees and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise, including all losses and liabilities incurred
in administering the Trust and the Funds. Each Fund will also pay its allocable
share of such extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, and claims and the legal obligations of
the Trust to indemnify its officers and Trustees and agents with respect
thereto.
4. Each of the Funds shall pay to Manager, for all services rendered to
each Fund by Manager hereunder, the fees set forth in the exhibits attached
hereto.
5. If, for any fiscal year, the total of all ordinary business expenses
of the Fund, including all investment advisory fees but excluding distribution
fees, taxes, interest and extraordinary expenses and certain other excludable
expenses, would exceed the most restrictive expense limits imposed by any
statute or regulatory authority of any jurisdiction in which Shares of the Fund
are offered for sale Manager shall reduce its management fee in order to reduce
such excess expenses, but will not be required to reimburse the Fund for any
ordinary business expenses which exceed the amount of its management fee for
such fiscal year. The amount of any such reduction is to be borne by the Manager
and shall be deducted from the monthly management fee otherwise payable to the
Manager during such fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.
<PAGE>
6. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
7. The Manager may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Manger may, by notice to the Fund, voluntarily declare
to be effective.
8. This Contract shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit during the initial term of this Contract) until the earlier of the
Closing Date defined in the Agreement and Plan of Reorganization dated as of
November 26, 1997 with respect to each Fund or for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject to the provisions for termination and all of the other terms and
conditions hereof if: (a) such continuation shall be specifically approved at
least annually by the vote of a majority of the Trustees of the Trust, including
a majority of the Trustees who are not parties to this Contract or interested
persons of any such party cast in person at a meeting called for that purpose;
and (b) Manager shall not have notified a Fund in writing at least sixty (60)
days prior to the anniversary date of this Contract in any year thereafter that
it does not desire such continuation with respect to that Fund. If a Fund is
added after the first approval by the Trustees as described above, this Contract
will be effective as to that Fund upon execution of the applicable exhibit and
will continue in effect until the next annual approval of the Contract by the
Trustees and thereafter for successive periods of one year, subject to approval
as described above.
9. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by the
Trustees of the Trust or by a vote of the shareholders of that Fund on sixty
(60) days' written notice to Manager.
10. This Contract may not be assigned by Manager and shall
automatically terminate in the event of any assignment. Manager may employ or
contract with such other person, persons, corporation, or corporations at its
own cost and expense as it shall determine in order to assist it in carrying out
this Contract.
<PAGE>
11. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the obligations or duties under this Contract on the
part of Manager, Manager shall not be liable to the Trust or to any of the Funds
or to any shareholder for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security.
12. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees who
are not parties to this Contract or interested persons of any such party to this
Contract (other than as Trustees of the Trust) cast in person at a meeting
called for that purpose, and where required by Section 15(a)(2) of the Act, on
behalf of a Fund by a majority of the outstanding voting securities of such Fund
as defined in Section 2(a)(42) of the Act.
13. The Manager acknowledges that all sales literature for investment
companies (such as the Trust) is subject to strict regulatory oversight. The
Manager agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature, provided,
however, that nothing herein shall be construed so as to create any obligation
or duty on the part of the Manager to produce sales literature for the Trust (or
any Fund). The Trust agrees to cause its distributor to promptly review all such
sales literature to ensure compliance with relevant requirements, to promptly
advise Manager of any deficiencies contained in such sales literature, to
promptly file complying sales literature with the relevant authorities, and to
cause such sales literature to be distributed to prospective investors in the
Trust.
14. A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, or any of the officers,
employees, agents or shareholders of the Trust individually but are binding only
upon the assets and property of the Trust. Notice is also hereby given that the
obligations pursuant to this instrument of a particular Fund and of the Trust
with respect to that particular Fund shall be limited solely to the assets of
that particular Fund.
<PAGE>
15. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
16. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
<PAGE>
EXHIBIT A
to the
Management Contract
Blanchard Global Growth Fund
Blanchard Flexible Income Fund
Blanchard Short-Term Flexible Income Fund
Blanchard Flexible Tax-Free Bond Fund
Blanchard Growth & Income Fund
For all services rendered by Manager hereunder, the above-named Funds
of the Trust shall pay to Manager and Manager agrees to accept as full
compensation for all services rendered hereunder, an annual management fee equal
to the following percentage ("the applicable percentage") of the average daily
net assets of each Fund:
Name of Fund Percentage of Net Assets
Blanchard Global Growth Fund 1% of the first $150 million
of average daily net assets,
.875% of the Fund's
average daily net
assets in excess of
$150 million but not
exceeding $300
million and .75% of
the Fund's average
daily net assets in
excess of $300
million.
Blanchard Flexible Income Fund .75%
Blanchard Growth & Income Fund 1.10% of the Fund's average
daily net assets, .40% of
which, which would otherwise
be received by Manager and
paid to the Chase Manhattan
Bank, N.A. ("Chase") for
portfolio advisory services,
shall be paid to Chase
directly by the Fund under a
separate investment advisory
agreement between Chase and
the Fund.
Blanchard Short-Term .75%
Flexible Income Fund
Blanchard Flexible Tax-Free .75%
Bond Fund
The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of the applicable percentage
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Manager daily except for
the Blanchard Growth & Income Fund which shall be paid to Manager monthly.
Witness the execution hereof this 28th day of November, 1997.
Attest: Virtus Capital Management, Inc.
________________________ By: ___________________________
Secretary Executive Vice President
Attest: Blanchard Funds
________________________ By: ____________________________
Assistant Secretary Vice President
<PAGE>
EXHIBIT C
BLANCHARD FUNDS
INTERIM SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 28th day of November 1997 by and
between VIRTUS CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"),
and MELLON CAPITAL MANAGEMENT CORPORATION, a Delaware corporation (the
"Portfolio Manager" or "MCMC") with respect to the following recital of fact:
R E C I T A L
WHEREAS, Blanchard Funds (the "Trust") is registered as an open-end,
non-diversified, management investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations promulgated
thereunder; and
WHEREAS, the Portfolio Manager is registered as an investment manager
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment adviser; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
in separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust offers shares in one series called the Blanchard
Global Growth Fund (such series, being referred to as the "Fund"); and
WHEREAS, the Trust and the Manager have entered into an agreement of
even date herewith to provide for management services for the Fund on the terms
and conditions set forth therein (the "Interim Management Agreement"); and
WHEREAS, the Portfolio Manager proposes to render investment advisory
services to the Manager in connection with the Manager's responsibilities to the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Investment Management. MCMC shall act as a Portfolio
Manager for the Fund and shall, in such capacity, supervise the
investment and reinvestment of the cash, securities or other
properties comprising the Fund's portfolio, subject at all times
<PAGE>
to the direction of the Manager and the policies and control of the Trust's
Board of Trustees. MCMC shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its services as Portfolio Manager.
2. Investment Analysis and Implementation. In carrying
out its obligation under paragraph 1 hereof, the Portfolio
Manager shall:
(a) use the same skill and care in providing such service
as it uses in providing services to fiduciary
accounts for which it has investment
responsibilities;
(b) obtain and evaluate pertinent information about
significant developments and economics,
statistical and financial data, domestic, foreign
or otherwise, whether affecting the economy
generally or the Fund's portfolio and whether
concerning the individual issuers whose securities
are included in the Fund's portfolio or the
activities in which the issuers engage, or with
respect to securities which the Portfolio Manager
considers desirable for inclusion in the Fund's
portfolio;
(c) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly
report thereon to the Trust's Board of Trustees;
(d) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers
and regularly report thereon to the Trust's Board of
Trustees; and
(e) take, on behalf of the Fund, all actions which appear
to the Trust and the Manager necessary to carry into
effect such purchase and sale programs and
supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of
securities for the Fund and the prompt reporting to
the Manager of such purchases and sales.
3. Broker-Dealer Relationships. The Portfolio Manager is responsible
for decisions to buy and sell securities for the Fund's portfolio, broker-dealer
selection, and negotiation of brokerage commission rates. The Portfolio
Manager's primary consideration in effecting a security transaction will be its
best efforts to execute at the most favorable price. In selecting a
broker-dealer to execute each particular transaction,
<PAGE>
the Portfolio Manager will take the following into consideration: the net price
available, the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order, and the value
of the expected contribution of the broker-dealer to the investment performance
of the Fund on a continuing basis. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Trustees
may determine, the Portfolio Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Portfolio Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Portfolio Manager's overall responsibilities with respect to
the Fund and to its other clients as to which it exercises investment
discretion. Subject to the provisions of the Investment Company Act of 1940, the
Portfolio Manger is further authorized to allocate the orders placed by it on
behalf of the Fund to any affiliated broker-dealer or to such brokers and
dealers who also provide research or statistical material, or other services to
the Fund or the Portfolio Manager. Such allocation shall be in such amounts and
proportions as the Portfolio Manager shall determine and the Portfolio Manager
will report on said allocations regularly to the Board of Trustees of the Trust
indicating the brokers to whom such allocations have been made and the basis
therefor.
4. Control by Board of Trustees. Any investment program undertaken by
the Portfolio Manager pursuant to this Agreement, as well as any other
activities undertaken by the Portfolio Manger on behalf of the Fund pursuant
thereto, shall at all times be subject to any directives of the Board of
Trustees of the Trust. The Manager shall provide the Portfolio Manager with
written notice of all such directives, so long as this Agreement remains in
effect.
5. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, the Portfolio Manager
shall at all times conform to:
(a) all applicable provisions of the 1940 Act; and
<PAGE>
(b) the provisions of the Registration Statement of the
Trust under the Securities Act of 1933 and the 1940
Act; and
(c) any other applicable provisions of state and federal
law.
6. Expenses. The Portfolio Manager shall maintain, at its expense and
without cost to the Manager or the Fund, a trading function in order to carry
out its obligations under subparagraph (e) of paragraph 2 hereof to place orders
for the purchase and sale of portfolio securities for the Fund.
7. Delegation of Responsibilities. Upon request of the Manager and with
the approval of the Trust's Board of Trustees, the Portfolio Manager may perform
services on behalf of the Fund which are not required by this Agreement. Such
services will be performed on behalf of the Fund and the Portfolio Manager's
cost in rendering such services may be billed monthly to the Manager, subject to
examination by the Manager's independent accountants. Payment or assumption by
the Portfolio Manager of any Fund expense that the Portfolio Manager is not
required to pay or assume under this Agreement shall not relieve the Manager or
the Portfolio Manager of any of their obligations to the Fund or obligate the
Portfolio Manager to pay or assume any similar Fund expense on any subsequent
occasions.
8. Compensation. For the services to be rendered and the facilities
furnished hereunder, the Manager shall pay the Portfolio Manager a monthly fee
at the annual rate of .375% of the Fund's average daily net assets up to $100
million; .35% on net assets between $100 million and $150 million; and .325% on
net assets in excess of $150 million. Compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Payment of the
Portfolio Manager's compensation for the preceding month shall be made as
promptly as possible after the end of each month.
9. Non-Exclusivity. The services of the Portfolio Manager to the
Manager are not to be deemed to be exclusive, and the Portfolio Manager shall be
free to render investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its services
under this Agreement are not impaired thereby.
<PAGE>
10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall remain in force and effect until the
earlier of the Closing Date defined in the Agreement and Plan of Reorganization
to be dated as of November 26, 1997 with respect to the Fund or for two years
from the date of its execution, and shall remain in effect thereafter if
approved in the manner set forth in Section 11 hereof.
11. Renewal. Following the expiration of its initial two year term,
this Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by the
vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the
1940 Act), and
(b) by the affirmative vote of a majority of the trustees
who are not parties to this Agreement or interested
persons of a party to this Agreement (other than as a
trustee of the Trust), by votes cast in person at a
meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Trust's Board of Trustees or by vote
of a majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), by the Manager, or by the Portfolio Manager on sixty
(60) days' written notice to the other party. This Agreement shall automatically
terminate: (a) in the event of its assignment, the term "assignment" having the
meaning defined in Section 2(a)(4) of the 1940 Act, or (b) in the event that the
Interim Management Agreement between the Fund and the Manager shall terminate.
13. Liability of the Portfolio Manager. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Portfolio Manager
or its officers, directors or employees, or reckless disregard by the Portfolio
Manager of its duties under this Agreement, the Portfolio Manager shall not be
liable to the Manager, the Trust or to any shareholder of the Trust for any act
or omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
14. Notices. Any notice under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the
<PAGE>
other party at such address as such other party may designate for the receipt of
such notice. Until further notice to the other party, it is agreed that the
address of the Manager for this purpose shall be 707 East Main Street, Suite
1300, Richmond, Virginia 23219, that of the Trust for this purpose shall be
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and the address
of the Portfolio Manager for this purpose shall be 595 Market Street, San
Francisco, California 94105.
Attention: Charles Jacklin.
15. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange Commission
issued pursuant to said Act. In addition, where the effect of a requirement of
the 1940 Act reflected in the provision of this Agreement is revised by rule,
regulation or order of the Securities and Exchange Commission, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: MELLON CAPITAL MANAGEMENT
CORPORATION
By
Title: Senior Vice President President
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
By
Title: Senior Vice President Senior Vice President
<PAGE>
EXHIBIT D
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
EDWIN D. MISKA
We are pleased to present the first annual report for (Photo of
Evergreen Global Leaders Fund. For the twelve months ended Stephen A.
October 31, 1996, the Fund's total return was +19.6%* (Class Lieber appears
Y, no-load shares) which compares favorably with the global here)
indexes. For the same time period, the total return for the
MSCI World Index** was +16.3%, the MSCI EAFE Index** returned (Photo of
+10.5%, and the total return for the Lipper Global Funds Edwin D.
average of the 153 global funds tracked by Lipper during that Miska appears
time was 15.5%***. (For additional performance information, here)
please see page 17.) The Fund's strategy of seeking out what
we believe to be the 100 best companies in the world was
successfully implemented against a backdrop of an environment
that was generally amenable to equity investing within the
world's most industrialized nations. Our investment discipline
concentrated on companies which have been and are consistently
profitable, have a strong pattern of earnings growth, both
historical and prospective, and which have provided the
highest returns on shareholders' equity. These characteristics
when reviewed on a global, country and industry perspective
distinguish the true corporate "leaders" from the rest. We
also continually monitor global macroeconomic events and
financial conditions to optimize country allocations and
currency exposures. This strategy of a disciplined stock
selection process combined with a thorough macroeconomic
review has been the hallmark of your Fund, and will continue
to be so, as we utilize this diligent, structured approach
to seek maximized shareholder returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND'S CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES WITHIN THE FIRST
YEAR OF PURCHASE WERE NOT IN EXISTENCE FOR THE FULL 12 MONTHS UNDER REVIEW.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION REGARDING THESE CLASSES OF
SHARES AND THEIR APPLICABLE SALES CHARGES.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY
FEE. HAD FEE NOT BEEN WAIVED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER MAY
BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER, PLEASE SEE THE
PROSPECTUS.
** MSCI WORLD INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES.
MSCI EAFE INDEX IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX REPRESENTING
1,112 SECURITIES FROM 20 DEVELOPED COUNTRIES IN EUROPE, AUSTRALIA, AND THE FAR
EAST AS MONITORED BY MORGAN STANLEY CAPITAL INTERNATIONAL. ALL COUNTRY RETURNS
DIFFER FROM INDEX RETURNS BECAUSE THEY REPRESENT TOTAL STOCK MARKET RETURNS AS
CALCULATED BY MORGAN STANLEY CAPITAL INTERNATIONAL. AN INVESTMENT CAN NOT BE
MADE IN AN INDEX.
*** SOURCE: LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT MUTUAL FUNDS
PERFORMANCE MONITOR. LIPPER PERFORMANCE FIGURE DOES NOT INCLUDE SALES CHARGES,
AND IF INCLUDED, PERFORMANCE WOULD BE LOWER.
13
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
PERFORMANCE REVIEW
World equity markets managed solid gains during the period under review,
despite periods of volatility in March and July due to concerns over rising
interest rates and inflation. A concentrating effect took place during the year,
as investors became increasingly narrow in their focus, favoring a smaller group
of selective larger, high-quality, high-visibility investments with no liquidity
constraints. These companies, many of which are positions in your Fund, rose to
new highs, discarding any previous levels of undervaluation. This helped
contribute to a strong performance, particularly in the U.S. portion of the
portfolio which rose 31.5%.
Our U.S. allocation at fiscal year-end stood at 31.9% of the Fund's net
assets down from 33.6% at midyear. The broadly diversified U. S. portfolio of 36
issues had some notable performers: Gillette Co., +53.1%; General Electric Co.,
+52.2%; Intel Corp., +51.5%; Federal National Mortgage Association, +42.8%; Coca
Cola Co., +40.9%; Microsoft Corp., +37.1%; and Home Depot, Inc., +37.1%. While
our enthusiasm for these issues and for the U.S. market as a whole has been
somewhat tempered by their steep rise, the high quality and consistent
predictability of these companies' earnings flows should continue to result in
premium valuations relative to the market as a whole. We initiated new purchases
when significant opportunities arose. Our recent buying activity is indicative:
SunAmerica, Inc., purchased June 1996, +31.7%; Dover Corp., purchased September
1996, +19.6%; MBNA Corp., purchased September 1996, +13%; PPG Industries, Inc.,
purchased August 1996, +12.7% and Cisco Systems, Inc., purchased August 1996,
+12%.
We have also not been reluctant to take profits or realize small losses when
there have been any short-term negative catalysts or changes in fundamental
status or valuation. Sales during the fiscal year included the shares of Compaq
Computer Corp. for a gain of 16.2% (held 3 months); Emerson Electric Co. for a
gain of 5.1% (held 6 months); Albertson's, Inc., for a loss of 12.4% (held 7
months); and Quaker Oats Co. for a loss of 9.5% (held 8 months). In the coming
months, our focus will remain on the "leaders" in their respective categories,
as strongly positioned, growing, profitable companies should continue to
stimulate a positive response from investors. We will be vigilant to adjust our
asset allocation in response to changes in fundamentals or deterioration in
macroeconomic conditions.
For the rest of the world, our performance was acceptable relative to the
market averages but below that in absolute terms to our U.S. allocation. Our
international segment as a whole returned 14.8% which exceeded the return of the
MSCI EAFE Index. At fiscal year-end, our diversified international segment
totaled 73 different companies in 16 countries. Our overall foreign exposure
totaled 62.8% of the Fund's net assets. It should be noted that returns on
currency played a significant role in reducing investment performance, as the
U.S. dollar appreciated significantly against many of the world's major
currencies, most notably: 7% versus the German mark and 10% versus the Japanese
yen, our top two foreign exposures. Our most significant non-U.S. country
contribution came from Canada, (at 5.8% of net assets) which saw a rebound in
industrial production and benefited from low inflation. Our holdings saw
dramatic stock appreciation: Canadian Natural Resources, Ltd., a natural gas
producer, benefiting from strong cash flow, good acquisitions and improved
natural gas pricing, rose 27.5%; DuPont Canada, Inc., a manufacturer of
specialty chemicals, films and fibers rose 26.5%, and Bombardier, Inc. a diverse
global manufacturer in three growing areas: mass transit, motorized consumer
products and business aircraft, rose 16%.
14
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
Our largest non-U.S. country exposures: Germany at 7.9% of net assets and
Japan at 7.4% posted mostly disappointing returns. After several "false dawns",
Germany appears poised to start on an economic recovery aided by the advent of
corporate restructurings and the return of the German investor. For most of 1996
though, growth remained weak, consumer demand depressed, and unemployment high.
The barriers to restructure businesses and make them more profitable have only
begun to come down, and it will be some time before results will begin to be
seen at the bottom line. While German stock performance was uninspired, there
were some standouts: RWE AG, the large energy/utility conglomerate and the
Fund's largest overall holding, rose 14.2% since our initial investment in
November 1995. RWE has begun restructuring its vast holdings, and is a strong
candidate for a stock buy-back program. Pharmaceutical firm ALTANA AG likewise
rose 30.4%. Hugo Boss AG, a global designer, manufacturer and retailer of fine
men's fashions also posted strong performance, up 37.7% since our initial
investment in November 1995.
For Japan, despite low interest rates (discount rate of 0.50%), recovery
remains illusive, and the recent weakness in their markets has undermined
sentiment further, indicating that another dip into recession is not out of the
question. Our low relative weighting toward Japan reflects the weak fundamentals
and poor dollar exchange trends. Our two largest issues, Seven-Eleven Japan Co.,
Ltd., -10.5% and Nintendo Co., Ltd., -28.5%, despite good operating results and
new products have not been able to escape the markets negative bias. We are
confident that 1997 should bring a recovery, and will be vigilant to adjust
our allocation as evidence of an economic revival presents itself.
Much of the Fund's outperformance can be credited to the smaller countries of
the world, where innovative, well-managed companies have posted outstanding
results in the face of an ever competitive global marketplace. Strong
performance was achieved by our holdings in Sweden, United Kingdom, Hong Kong,
and the Netherlands from a broad array of companies and industries. In Sweden,
with a weighting of 3.3%, our allocation benefited from low interest rates and
higher consumer spending. Shares of clothing retailer Hennes & Mauritz AB rose
46.6%. Pharmaceutical giant Astra AB rose 33.3%, and industrial conglomerate ABB
AB ADS rose 27.8%. From the United Kingdom, where our weighting is 6.8%, our
financial-issue-tilted portfolio benefited from a strong economic upturn
stimulated by lower rates. Our positions in these interest-sensitive areas
benefited handsomely as demand for credit increased: Lloyds TSB Group Plc,
+17.7%; Legal & General Group Plc, +12.6% and Prudential Corp. Plc, +11.0%. From
Hong Kong, where our allocation is 4.7%, the strong performance arose from the
continued demand for real estate development in preparation for re-unification
with China. Shares of real estate plays Kumagai Gumi Ltd., realized 26.8%,
Henderson Land Development Co., Ltd., rose 16%, Tai Cheung Holdings Ltd.
realized 13.6%, Cheung Kong Holdings, Ltd. rose 12.7% and New Asia Realty Ltd.
realized 11.0%. The Netherlands (weighting: 3.8%) provided strong operating
results from the large specialty publishing firms which have a growing share of
the world's printed magazines, books and professional journals. Shares of
Wolters Kluwer NV, a scientific and legal publisher rose 41.0% since November
1995; Elsevier NV in which we own both ordinary shares and American Depositary
Receipts (ADRs) rose 13.7% and publishing and broadcasting company VNU, rose
11.6% since our purchase in May 1996.
15
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
OUTLOOK AND CONCLUSION
The world equity markets have managed solid gains despite bouts of increased
market volatility caused by rising valuations, uncertainties over globally
higher interest rates and re-emerging fears of inflation. Economic indicators
continue to point toward continued, yet perhaps sluggish, growth ahead for the
United States economy, with improving trends across Europe and the Far East.
This environment will be difficult, but may benefit those companies which are
able to react quickly and operate successfully in a more competitive,
multi-national marketplace. The focus of the Fund will continue to be on the
outstanding profit growth opportunities of the world's leading corporations.
Quality of the issues purchased will remain foremost, with holdings based
consistency of results and the ability to deliver continued bottom line
performance.
We welcome our new shareholders who have chosen to utilize our unique product
as part of their overall investment program. We believe our long-term approach
to global investing is sound, focusing on only the best the world's markets have
to offer, through a diversified portfolio. As technological advances, political
and economic reforms, and pro-business policies continue to bring the world
closer, heightening competition for products and services, only the finest
companies will be successful. Our disciplined approach will continue to
highlight those which are. We believe this will lead to continued long-term
capital appreciation.
We thank you for your support and appreciate the enthusiasm that greeted
Evergreen Global Leaders Fund in its inaugural year. We look forward to the
challenge of delivering quality long-term investment results for many years to
come.
16
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN GLOBAL LEADERS FUND
The graphs below compare a $10,000 investment in the Evergreen Global
Leaders Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the MSCI World Index ("Index").
[CHARTS TO FOLLOW FOR CLASS A, B, C AND Y SHARES. Customer to
provide plot points.]
<TABLE>
<CAPTION>
6/3/96* 6/30/96 9/30/96 10/31/96
<S> <C> <C> <C> <C>
CLASS A
TOTAL RETURN
SINCE INCEPTION=0.5%
Evergreen Global Leaders Fund
MSCI World Index
CLASS B
TOTAL RETURN
SINCE INCEPTION=0.1%
Evergreen Global Leaders Fund
MSCI World Index
CLASS C
TOTAL RETURN
SINCE INCEPTION=4.0%
Evergreen Global Leaders Fund
MSCI World Index
CLASS Y
TOTAL RETURN=19.6%
Evergreen Global Leaders Fund
MSCI World Index
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on October 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
17
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
BLANCHARD GLOBAL GROWTH FUND
a Series of
BLANCHARD FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(800) 829-3863
By and In Exchange For Shares of
EVERGREEN GLOBAL LEADERS FUND
a Series of
EVERGREEN INTERNATIONAL TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Blanchard Global Growth Fund
("Global Growth"), a series of Blanchard Funds, to Evergreen Global Leaders Fund
("Evergreen Global Leaders"), a series of Evergreen International Trust, in
exchange for Class A shares of beneficial interest, $.001 par value per share,
of Evergreen Global Leaders, consists of this cover page and the following
described documents, each of which is attached hereto and incorporated by
reference herein:
(1) The Statement of Additional Information of Evergreen Global
Leaders dated March 3, 1997 , as amended;
(2) The Statement of Additional Information of Global Growth dated
November 30, 1997;
(3) Annual Report of Global Growth for the year ended September
30, 1997;
(4) Annual Report of Evergreen Global Leaders for the year ended
October 31, 1996;
(5) Semi-Annual Report of Evergreen Global Leaders for the
<PAGE>
six months ended April 30, 1997;
(6) Pro Forma Combining Financial Statements (unaudited) dated
April 30, 1997.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen Global Leaders and Global Growth dated January 5, 1998. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Global Leaders or Global Growth at the telephone numbers
or addresses set forth above.
The date of this Statement of Additional Information is January 5,
1998.
STATEMENT OF ADDITIONAL INFORMATION
March 3, 1997
THE EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS 2500
Westchester Avenue, Purchase, New York 10577
800-807-2940
Evergreen Emerging Markets Growth Fund ("Emerging Markets")
Evergreen International Equity Fund ("International Equity")
Evergreen Global Real Estate Equity Fund ("Global")
Evergreen Global Leaders Fund ("Global Leaders")
This Statement of Additional Information pertains to all classes of shares of
the Funds listed above. It is not a prospectus and should be read in conjunction
with the Prospectus for the Fund in which you are making or contemplating an
investment. The Evergreen International/Global Growth Funds are offered through
two separate prospectuses: one offering Class A, Class B and Class C shares of
Emerging Markets, International Equity, Global and Global Leaders, and a
separate prospectus offering Class Y shares of Emerging Markets, International
Equity, Global, and Global Leaders. Copies of each Fund's Prospectus may be
obtained without charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies................................2
Investment Restrictions...........................................9
Certain Risk Considerations.......................................14
Management........................................................15
Investment Advisers...............................................23
Distribution Plans................................................29
Allocation of Brokerage...........................................32
Additional Tax Information........................................35
Net Asset Value...................................................39
Purchase of Shares................................................40
General Information About the Funds...............................52
Performance Information...........................................54
Financial Statements..............................................58
Appendix A - Description of Bond, Municipal Note and Commercial
Paper Ratings........................................58
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives
and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of Emerging Growth, International Equity, Global, and Global Leaders
are fundamental and may not be changed without the approval of a majority of the
outstanding voting securities of the Fund.
Types of Investments
Convertible Securities -- (All Funds)
Each Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allow convertible securities to be employed for a
variety of investment strategies.
Each Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment adviser or
sub-adviser, the investment characteristics of the underlying common shares will
assist a Fund in achieving its investment objective. A Fund may also elect to
hold or trade convertible securities. In selecting convertible securities, the
adviser or sub-adviser evaluates the investment characteristics of the
convertible security as a fixed-income instrument, and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the adviser or
sub-adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
Warrants (All Funds)
Each Fund may invest in warrants. Warrants are options to purchase common
stock at a specific price (usually at a premium above the market value of the
optioned common stock at issuance) valid for a specific period of time. Warrants
may have a life ranging from less than one year to twenty years, or they may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, a warrant is worthless if the market price of the common
stock does not exceed the warrant's exercise price during the life of the
warrant. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the
2
<PAGE>
percentage increase or decrease in the market price of the optioned common
stock.
Sovereign Debt Obligations (All Funds)
Each Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of Latin American nations
or other developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
Closed-End Investment Companies (All Funds)
Each Fund may purchase the equity securities of closed-end investment
companies to facilitate investment in certain countries. Equity securities of
closed-end investment companies generally trade at a discount to their net asset
value. Investments in closed-end investment companies involve the payment of
management fees to the advisers of such investment companies.
Strategic Investments (All Funds)
Foreign Currency Transactions; Currency Risks
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although a Fund values its assets daily
in U.S. dollars, a Fund generally does not convert its holdings to U.S. dollars
or any other currency. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies.
Each Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. A Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
Each Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (usually less than one year) from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
3
<PAGE>
currency traders (usually large commercial banks) and their customers. A forward
contract generally has a deposit requirement, and no commissions are charged at
any stage for trades. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the spread)
between the price at which they are buying and selling various currencies.
However, forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency relationships. The
advisers and the sub-advisers believe that it is important to have the
flexibility to enter into forward foreign currency exchange contracts whenever
they determine that it is in a Fund's best interest to do so. A Fund will not
speculate in foreign currency exchange.
Except for cross-hedges, a Fund will not enter into forward foreign
currency exchange contracts or maintain a net exposure in such contracts when it
would be obligated to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency
or, in the case of a "cross-hedge" denominated in a currency or currencies that
the adviser or sub-adviser believes will tend to be closely correlated with that
currency with regard to price movements. At the consummation of such a forward
contract, a Fund may either make delivery of the foreign currency or terminate
its contractual obligation to deliver the foreign currency by purchasing an
offsetting contract obligating it to purchase, at the same maturity date, the
same amount of such foreign currency. If a Fund chooses to make delivery of the
foreign currency, it may be required to obtain such currency through the sale of
portfolio securities denominated in such currency or through conversion of other
assets of the Fund into such currency. If a Fund engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been a change in forward contract prices.
It should be realized that this method of protecting the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase. Generally, a Fund will not enter into a forward foreign currency
exchange contract with a term longer than one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation, to sell the currency.
4
<PAGE>
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.
A call option on a foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if a Fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if a
Fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of purchase and
the settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed for
settlement.
Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign currency
options are relatively new, and a Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Funds will not purchase or write such options unless and
until, in the opinion of the advisers or sub-advisers, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
5
<PAGE>
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e, less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
a Fund may be able to achieve many of the same objectives as it would through
the use of forward foreign currency exchange contracts. The Funds may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the Fund,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a loss. Similarly, the closing out of a currency
futures contract purchase is effected by the Fund entering into a currency
futures contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the offsetting sale price is less than the
purchase price, the Fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on futures currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
6
<PAGE>
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Funds will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the advisers or the sub-advisers,
the market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection with
transactions in the underlying foreign currency futures contracts. Compared to
the purchase or sale of foreign currency futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Funds
because the maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss, such as when
there is no movement in the price of the underlying currency or futures
contract.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees ("Trustees") to determine the
liquidity of certain restricted securities is permitted under a Securities and
Exchange Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for sale
under the Rule. The Funds which invest in Rule 144A Securities believe that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under the Rule) for determination by
the Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
When-Issued and Delayed Delivery Securities (Emerging Markets, International
Equity and Global Leaders)
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of a Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
7
<PAGE>
and are maintained until the transaction has been settled. Emerging Markets and
International Equity do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the total value of their assets.
Lending of Portfolio Securities (All Funds)
The collateral received when a Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the lending Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Repurchase Agreements (All Funds)
The Funds or their custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Funds, the Funds could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Funds might be
delayed pending court action. The Funds believe that under the regular
procedures normally in effect for custody of a Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the adviser
or a sub-adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements (All Funds)
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
8
<PAGE>
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
investment adviser without shareholder approval, subject to review and approval
by the Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1. Diversification
No Fund may invest more than 5% of its total assets, at the time of the
investment in question, in the securities of any one issuer other than the U.S.
government and its agencies or instrumentalities and, with respect to Emerging
Markets and International Equity, repurchase agreements collateralized by such
securities except that up to 25% of the value of a Fund's total assets may be
invested without regard to such 5% limitation.
2. Ten Percent Limitation on Securities of Any One Issuer
Global and Global Leaders may not purchase more than 10% of any class
of securities of any one issuer other than the U.S. government and its agencies
or instrumentalities.
Neither Emerging Markets nor International Equity may purchase more
than 10% of the outstanding voting securities of any one issuer.
3. Investment for Purposes of Control or Management
Emerging Markets, International Equity, Global and Global Leaders may
not invest in companies for the purpose of exercising control or management.
4. Purchase of Securities on Margin
9
<PAGE>
No Fund may purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions. A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
5. Unseasoned Issuers
Emerging Markets*, International Equity*, Global and Global Leaders* may
not invest more than 15% of their net assets in securities of unseasoned issuers
that have been in continuous operation for less than three years, including
operating periods of their predecessors, except obligations issued or guaranteed
by the U.S. government and its agencies or instrumentalities (this limitation
does not apply to real estate investment trusts).
6. Underwriting
The Funds will not underwrite any issue of securities except as they
may be deemed an underwriter under the Securities Act of 1933, as amended (the
"1933 Act") in connection with the sale of securities in accordance with their
investment objectives, policies and limitations.
7. Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
Global and Global Leaders* may not purchase, sell or invest in
interests in oil, gas or other mineral exploration or development programs.
Neither Emerging Markets* nor International Equity* will purchase
interests in oil, gas or other mineral exploration or development programs or
leases, although each Fund may purchase the securities of other issuers which
invest in or sponsor such programs.
8. Concentration in Any One Industry
Global may not concentrate its investments in any one industry, except
that it will invest at least 65% of its total assets in securities of companies
engaged principally in the real estate industry.
Emerging Markets, International Equity and Global Leaders* will not
invest 25% or more of the value of their total assets in any one industry except
that they may invest more than 25% of their total assets in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. For
purposes of this restriction, utility companies, gas, electric, water and
telephone companies will be considered separate industries.
9. Warrants
Global and Global Leaders* may not invest more than 5% of their net
assets in warrants, and, of this amount, no more than 2% of the Fund's total net
10
<PAGE>
assets may be invested in warrants that are listed on neither the New York nor
the American Stock Exchanges.
Emerging Markets* and International Equity* will not invest more than
5% of their net assets in warrants, including those acquired in units or
attached to other securities. For purposes of this restriction, warrants
acquired by the Funds' in units or attached to securities may be deemed to be
without value.
10. Ownership by Trustees/Officers
None of Emerging Markets*, International Equity*, Global or Global
Leaders* may purchase or retain the securities of any issuer if (i) one or more
officers or Trustees of a Fund or its investment adviser or investment
sub-adviser individually owns or would own, directly or beneficially, more than
1/2 of 1% of the securities of such issuer, and (ii) in the aggregate, such
persons own or would own, directly or beneficially, more than 5% of such
securities.
11. Short Sales
Neither Emerging Markets nor International Equity will sell any
securities short.
Global and Global Leaders* may not make short sales of securities
unless, at the time of each such sale and thereafter while a short position
exists, either Fund owns an equal amount of securities of the same issue or owns
securities which, without payment by the Fund of any consideration, are
convertible into, or are exchangeable for, an equal amount of securities of the
same issue.
12. Lending of Funds and Securities
Global and Global Leaders* may not lend their funds to other persons,
except through the purchase of a portion of an issue of debt securities publicly
distributed or the entering into of repurchase agreements. Global and Global
Leaders* may not lend their portfolio securities, unless the borrower is a
broker-dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the U.S.
government having a value at all times not less than 100% of the current
market-value of the loaned securities, including accrued interest, provided that
the aggregate amount of such loans shall not exceed 30% of the Fund's net
assets.
Emerging Markets and International Equity will not lend any of their
assets, except portfolio securities up to one-third of the value of their total
assets. This does not prevent the Funds from purchasing or holding corporate or
government bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other transactions which are
11
<PAGE>
permitted by a Fund's investment objectives and policies or the Declaration of
Trust governing the Fund.
13. Commodities
Emerging Markets and International Equity will not invest in
commodities except that each Fund reserves the right to engage in transactions
including futures contracts, options and forward contracts with respect to
securities indices or currencies.
Global and Global Leaders will not purchase, sell or invest in
commodities or commodity contracts; provided, however, that this policy does not
prevent either Fund from purchasing and selling currency futures contracts and
entering into forward foreign currency contracts.
14. Real Estate
Neither Emerging Markets nor International Equity will purchase or sell
real estate, including limited partnership interests in real estate, although
each Fund may invest in securities of companies whose business involves the
purchase or sale of real estate or in securities which are secured by real
estate or interests in real estate.
Global and Global Leaders may not purchase or invest in real estate or
interests in real estate (although they may purchase securities secured by real
estate or interests therein or issued by companies or investment trusts which
invest in real estate or interests therein).
15. Borrowing, Senior Securities, Reverse Repurchase Agreements
Emerging Markets and International Equity will not issue senior
securities except that each Fund may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of its total
assets, including the amount borrowed and except to the extent that a Fund may
enter into futures contracts. The Funds will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary or emergency measure to facilitate management of their
portfolios by enabling them to, for example, meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding.
Global and Global Leaders may not borrow money, issue senior
securities or enter into reverse repurchase agreements, except for temporary or
emergency purposes, and not for leveraging, and then in amounts not in excess of
10% of the value of the Fund's total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of each Fund's total assets at the time of such
borrowing, provided that Global will not purchase any securities at times when
any borrowings (including reverse repurchase agreements) are outstanding. Global
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<PAGE>
and Global Leaders* will not enter into reverse repurchase agreements exceeding
5% of the value of its total assets.
16. Joint Trading
Global, Global Leaders*, Emerging Markets* and International Equity*
may not participate on a joint or joint and several basis in any trading account
in any securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with its investment adviser or accounts under its
management to reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in securities
for purposes of this restriction.)
17. Options
Global and Global Leaders*, may not write, purchase or sell put or
call options, or combinations thereof except as permitted under "Description of
Funds Investment Practices and Restrictions" in each Fund's Prospectus.
Emerging Markets* and International Equity* may write covered call
options and secured put options on up to 25% of their net assets and may
purchase put and call options provided that no more than 5% of the market value
of its net assets may be invested in premiums on such options.
18. Pledging Assets
Neither Emerging Markets nor International Equity will mortgage, pledge
or hypothecate any assets except to secure permitted borrowings. In these cases,
a Fund may pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets at the time of
borrowing. For purposes of this limitation, the following are not deemed to be
pledges: margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a
when-issued basis.
19. Investing in Securities of Other Investment Companies
Emerging Markets*, International Equity*, Global* and Global Leaders*
will limit their investment in other investment companies to no more than 3% of
the total outstanding voting stock of any investment company, will invest no
more than 5% of their total assets in any one investment company and will invest
no more than 10% of their total assets in investment companies in general. A
Fund will purchase securities of closed-end investment companies only in
open-market transactions involving customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation or acquisition of assets. It should be noted that investment
companies incur certain expenses such as management fees and
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<PAGE>
therefore any investment by a Fund in shares of another investment company would
be subject to such duplicate expenses. There is no present intention of making
such investments on behalf of Global Leaders.
20. Restricted Securities
Emerging Markets* and International Equity* will not invest more than
5% of their total assets in securities subject to restrictions on resale under
the 1933 Act, except for restricted securities which meet criteria for liquidity
established by the Trustees.
21. Illiquid Securities.
Global* and Global Leaders* may not invest more than 15% of their net
assets in illiquid securities and other securities which are not readily
marketable, including repurchase agreements which have a maturity of longer than
seven days, but excluding securities eligible for resale under Rule 144A of the
1933 Act, which the Trustees have determined to be liquid.
Emerging Markets* and International Equity* will not invest more than
15% of their net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice and certain
securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value of net assets will not result in a violation
of such restriction.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items".
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objective and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in each Fund's Prospectus.
While Global is technically diversified within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), because the
investment alternatives of the Fund are restricted by a policy of concentrating
at least 65% of its total assets in companies in the real estate industry,
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<PAGE>
investors should understand that investment in the Fund may be subject to
greater risk and market fluctuation than an investment in a portfolio of
securities representing a broader range of industry investment alternatives.
Borrowing.
Global has borrowings outstanding. It is in essence leveraged and,
therefore, share price fluctuations may be more pronounced than the market in
general. The table set forth below describes the extent to which Global entered
into borrowing transactions during the three fiscal periods ended Ocotber 31,
1996.
Global
Average
Amount of Debt Average Amount of Average Number of Amount of Debt
Outstanding Debt Outstanding Shares Outstanding Per-Share
Year Ended End of Year During the Year During the Year During Year
- ---------- ----------- ----------------- ------------------ --------------
9/30/94* $ 4,885,000 $ 2,090,861 10,670,806 $0.20
9/30/95 $ 0 $ 1,572,261 7,184,794 $0.22
10/31/95** $ 1,050,000 $ 283,871 5,474,147 $0.05
10/31/96 $ 0 $ 583,642 4,432,611 $0.13
* Nine Months
**One Month
MANAGEMENT
The Trustees and executive officers of the Trusts, their ages,
addresses and principal occupation during the past five years are set forth
below:
TRUSTEES
JAMESS. HOWELL (72), 4124 Crossgate Road, Charlotte, NC Chairman of the
Evergreen Group of Mutual Funds, and Trustee. Retired Vice President of
Lance Inc. (food manufacturing); Chairman of the Distribution Comm.
Foundation for the Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
Trustee. Medical Director, U.S. Healthcare of the Charlotte, NC Carolinas
since 1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all forty-four investment
companies:
GERALD M. MCcDONNELL (57), 821 Regency Drive, Charlotte, NC Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
15
<PAGE>
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation
from 1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources,
Rexham Corporation from 1979 to 1990.
WILLIAM WALT PETTIT*(41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC. Trustee. Partner in the law firm Holcomb and Pettit, P.A.
since 1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of forty-three of the
investment companies (excluded are those established within the Evergreen
Variable Trust).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL Trustee. Real
estate developer and construction consultant since 1980; President of
Centrum Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM* (70), Greenwich Plaza, Greenwich, CT Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of forty-two of the investment companies
(excluded are those established within the Evergreen Variable Trust and
Evergreen Investment Trust).
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL
Trustee Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven of the investment
companies since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust, as well as the Keystone Group of Funds).
ADVISORY COMMITTEE TO THE BOARDS OF TRUSTEES OF THE EVERGREEN FUNDS
F. RAY KEYSER, JR. (69) ), 200 Berkeley Street, Boston, MA
Counsel, Keyser, Crowley & Meub, P.C.; Member, Governor's (VT) Council of
Economic Advisers; Chairman of the Board and Director, Central Vermont
Public Service Corporation and Hitchcock Clinic; Director, Vermont Yankee
Nuclear Power Corporation, Vermont Electric Power Company, Inc., Grand Trunk
Corporation, Central Vermont Railway, Inc., S.K.I. Ltd., Sherburne
Corporation, Union Mutual Fire Insurance Company, New England Guaranty
Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
RICHARD J. SHIMA (57), 200 Berkeley Street, Boston, MA
Chairman, Environmental Warranty, Inc., and Consultant, Drake Beam Morin,
Inc. (executive out placement); Director of Connecticut Natural Gas
Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association, and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood- Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President, and Vice
Chairman of The Travelers Corporation.
EXECUTIVE OFFICERS
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<PAGE>
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel,
Alliance Capital Management from 1988 to 1995.
- ----------------------------------
*Messrs. Pettit and Bam may both be deemed to be an "interested person" within
the meaning of the Investment Company Act of 1940, as amended (the "1940 Act").
The officers of the Trusts are all officers and/or employees of BISYS Fund
Services. BISYS Fund Services is an affiliate of Evergreen Keystone Distributor,
Inc., the distributor of each Class of shares of each Fund.
The Funds do not pay any direct remuneration to any officer or Trustee who is
an "affiliated person" of either First Union National Bank of North Carolina,
Evergreen Asset Management Corp. or Keystone Investment Management Company or
their affiliates. See "Investment Advisers". Currently, none of the Trustees is
an "affiliated person" as defined in the 1940 Act. The Trusts pay each Trustee
who is not an "affiliated person" an annual retainer and a fee per meeting
attended, plus expenses, as follows:
Name of Trust/Fund
Annual Retainer Meeting Fee
Evergreen Equity Trust
$ 1,000*
Global
$100
Global Leaders
100
Evergreen Investment Trust
15,000** 2,000
Emerging Markets
International Equity
- --------------------
* The annual retainer paid by Evergreen Equity Trust is allocated among its
three series based on assets.
** The annual retainer and meeting fee paid by Evergreen Investment Trust to
each Trustee are allocated among its fourteen series based on assets.
In addition:
(1) The Chairman of the Board of the Evergreen group of mutual funds is paid an
annual retainer of $5,000, and the Chairman of the Audit Committee is paid an
annual retainer of $2,000. These retainers are allocated among all the funds in
the Evergreen group of mutual
17
<PAGE>
funds, based upon assets.
(2) Each member of the Audit Committee of the Evergreen group of mutual funds is
paid an annual retainer of $500.
(3) Each non-affiliated Trustee of the Evergreen group of mutual funds is paid a
fee of $500 for each special telephonic meeting in which he participates,
regardless of the number of Funds for which the meeting is called.
(4) Each non-affiliated Trustee of the Evergreen group of mutual funds is paid a
fee of $250 for each special Committee of the Board telephone conference call
meeting of one or more Funds in which he participates.
(5) The members of the Advisory Committee to the Boards of Trustees of the
Evergreen Funds are paid an annual retainer of $17,500 and a fee of $2,200 for
each meeting of the Boards of Directors or Trustees of the Evergreen Funds
attended.
(6) Any individual who has been appointed as a Trustee Emeritus of one or more
funds in the Evergreen group of mutual funds is paid one-half of the annual
retainer fees that are payable to regular Trustees, and one-half of the meeting
fees for each meeting attended.
18
<PAGE>
Set forth below for each of the Trustees is the aggregate compensation
(and expenses) paid to such Trustees by each Trust for the fiscal period ended
October 31, 1996.
TRUSTEES COMPENSATION TABLE
Total
Compensation
Aggregate Compensation From Each Trust From Trusts
Evergreen Evergreen and Fund
Name of Equity Trust Investment Complex Paid
Trustee Trust to Trustees
Laurence Ashkin $1,661 0 $26,475
Foster Bam $1,661 0 $26,475
James S. Howell $1,677 $22,029 $52,500
Robert J.
Jeffries $ 828 0 $15,238
Gerald M.
McDonnell $1,656 $19,916 $45,975
Thomas L.
McVerry $1,662 $20,456 $47,100
William Walt
Pettit $1,654 $19,737 $45,600
Russell A.
Salton, III, M.D. $1,654 $19,737 $48,750
Michael S.
Scofield $1,654 $19,737 $48,750
The number and percent of outstanding shares of each Fund owned
by officers and Trustees as a group on January 31, 1997, is as follows:
No. of Shares Owned
By Officers and Ownership by Officers and
Trustees Trustees as a % of
Name of Fund as a Group Shares Outstanding
Emerging Markets 1,812 .95% (Class A)
International Equity -0-
Global 11,074 .32% (Class Y)
Global Leaders 126,309 6.54% (Class Y)
19
<PAGE>
Set forth below is information with respect to each person, who, to
each Fund's knowledge, owned beneficially or of record more than 5% of a class
of each Fund's total outstanding shares and their aggregate ownership of the
Fund's total outstanding shares as of January 31, 1997.
Name of % of
Name and Address Fund/Class No. of Shares Class/Fund
- ---------------- ---------- ------------- ----------
Fubs & Co. Febo Emerging Markets/B 18,837 5.75%/.50%
Carol A. Bierbrauer
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 1,000 9.71%/.02%
Frances B. Goldstein
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
State Street Bank & Trust Co. Emerging Markets/C 2,181 21.18%/.05%
Cust for the SEP IRA of
Terrance W. Dancey
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 2,157 20.95%/.05%
Thomas J. McGuire Jr. and
Mary I. McGuire
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Emerging Markets/C 1,196 11.61%/.03%
M. Albert Carmichael and
Ann K. Carmichael
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank* Emerging Markets/Y 2,924,519 82.02%/71.41%
Trust Accounts
Attn: Ginny Batten
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<PAGE>
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank* Emerging Markets/Y 609,356 17.09%/14.88%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Merrill Lynch International/C 1,674 6.94%/.01%
Trade House Account-Aid Equity
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville, FL 32246-6484
Fubs & Co. Febo International/C 1,458 6.04%/.01%
Carol King Landscape Maint Inc Equity
Profit Sharing Plan
Gerald J. & Bruce G.Bachand
Co-TTees U/A/D 4-01-80
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo International/C 1,942 8.05%/.01%
Don F. Wiles Equity
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo International/C 1,494 6.19%/.01
Estate of Eddie Biola Hammond Equity
H D Hammond Executor
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Emery Jahnke International/C 4,660 19.32%/.03
C/O First Union National Bank Equity
301 S. Tryon Street
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Charlotte, NC 28288-0001
First Union National Bank** International/Y 7,470,399 55.00%/47.38%
Trust Accounts Equity
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank** International/Y 5,935,634 43.70%/37.65%
Trust Accounts Equity
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Charles Schwab & Co. Inc. Global/A 5,785 8.55%/.16%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
Charles Schwab & Co. Inc. Global/A 21,002 31.06%/.60%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
NFSC Febo #X02-095028 Global/A 4,082 6.04%/.12%
John W. Propst - IV
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Donaldson Lufkin Jenrette Global/A 7,945 11.75%/.22%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Merrill Lynch Global/B 813 5.08%/.03%
Trade House Account-Aid
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville FL 32246-6484
State Street Bank & Trust Co. Global/B 1,606 10.05%/.05%
Cust for the IRA of
22
<PAGE>
Patricia L. Corey
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Global/B 1,938 12.12%/.05%
Dr. Nsidibe Ikpe
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Global/B 801 5.01%/.02%
Robert M. Sherman MD PA
401K Profit Sharing Plan
DTD 1-1-94
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
NFSC FEBO # 0C8-628271 Global/B 801 5.01%/.02%
NFSC/FMTC IRA
FBO John Delee
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Donaldson Lufkin Jenrette Global/B 1,612 10.08%/.05%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
NFSC FEBO # OKS-628913 Global/B 1,213 7.58%/.03%
NFSC/FMTC IRA Rollover
FBO Theodore C. Fleming
c/o First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288
Donaldson Lufkin Jenrette Global/B 888 5.56%/.03%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Ameritrade Inc. Global/B 2,421 36.03%/.07%
PO Box 2226
Omaha NE 68103-2226
NFSC FEBO # 0C8-623873 Global/C 377 5.60%/.01%
Peter J. Healy
C/O First Union National Bank
301 S. Tryon St.
23
<PAGE>
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 2,793 41.57%/.08%
Painewebber CDN FBO
William R. Mack Jr.
301 S. Tryon St.
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 399 5.93%/.01%
Painewebber CDN FBO
Robert P. Little
301 S. Tryon St.
Charlotte, NC 28288-0001
Painewebber for the Benefit of Global/C 431 6.41%/.01%
Donald H. Fryslie TTEE for
The Donald H. Fryslie Trust
U/A DTD 11/24/95
301 S. Tryon St.
Charlotte, NC 28288-0001
Stephen A. Lieber*** Global/Y 1,164,329 33.70%/32.84%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Charles Schwab & Co. Inc. Global/Y 560,142 16.21%/15.80%
Special Custody Account For the
Exclusive Benefit of Customers
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104-4122
Merrill Lynch Global Leaders/C 12,125 12.07%/.14%
Trade House Account-Aid
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville, FL 32246-6484
Fubs & Co. Febo Global Leaders/C 8,157 8.12%/.0%
Leland Johansen
301 S. Tryon Street
Charlotte, NC 28288-0001
Stephen A. Lieber Global Leaders/Y 100,498 5.21%/1.14%
C/O Lieber & Co.
2500 Westchester Ave.
Purchase, NY 10577
24
<PAGE>
First Union National Bank/EB/INT Global Leaders/Y 978,567 50.72%/11.19%
Cash Account
Attn: Trust Operation Dept.
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT Global Leaders/Y 186,868 9.69%/ 2.14%
Cash Account
Attn: Trust Operation Dept.
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
- ---------------------------------
Global Real Estate Equity Fund
As a result of this direct and beneficial ownership of 32.84% of the shares of
Global Real Estate Equity Fund on January 31, 1997, Stephen A. Lieber may be
deemed to "control" the Fund as that term is defined in the 1940 Act.
Emerging Markets Growth Fund
First Union National Bank of North Carolina and its affiliates act in various
capacities for numerous accounts. As a result of its ownership on January 31,
1997, of 86.29% of the shares of Evergreen Emerging Markets Growth Fund, First
Union may be deemed to "control" the Fund as that term is defined in the 1940
Act.
International Equity Fund
First Union National Bank of North Carolina and its affiliates act in various
capacities for numerous accounts. As a result of its ownership on January 31,
1997, of 85.03% of the shares of Evergreen International Equity Fund, First
Union may be deemed to "control" the Fund as that term is defined in the 1940
Act.
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus)
The investment adviser of Global and Global Leaders is Evergreen Asset
Management Corp., a New York corporation, with offices at 2500 Westchester
Avenue, Purchase, New York ("Evergreen Asset" or the "Adviser"). Evergreen Asset
is owned by First Union National Bank of North Carolina ("FUNB" or the
"Adviser") which, in turn, is a subsidiary of First Union Corporation ("First
Union"), a bank holding company headquartered in Charlotte, North Carolina. The
investment adviser of Emerging Markets and International Equity is FUNB which
provides investment advisory services through its Capital Management Group.
Marvin & Palmer Associates, Inc. ("Marvin & Palmer") and Warburg, Pincus
Counselors,
25
<PAGE>
Inc. ("Warburg Pincus") are the sub-advisers for Emerging Markets and
International Equity, respectively, under the terms of Sub- Advisory Agreements
between FUNB and the respective sub-adviser. The Directors of Evergreen Asset
are Richard K. Wagoner and Barbara I. Colvin. The executive officers of
Evergreen Asset are Stephen A. Lieber, Chairman and Co-Chief Executive Officer,
Nola Maddox Falcone, President and Co-Chief Executive Officer and Theodore J.
Israel, Jr., Executive Vice President.
On June 30, 1994, Evergreen Asset and Lieber & Company ("Lieber") were
acquired by First Union through certain of its subsidiaries. Evergreen Asset was
acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying
shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned
an affiliate of FUNB. EAMC then assumed the name "Evergreen Asset Management
Corp." and succeeded to the business of Evergreen Asset. Contemporaneously with
the succession of EAMC to the business of Evergreen Asset and its assumption of
the name "Evergreen Asset Management Corp.", Global entered into a new
investment advisory agreement with EAMC. EAMC also entered into a new
sub-advisory agreement with Lieber pursuant to which Lieber provides certain
services to Evergreen Asset in connection with its duties as investment adviser.
Global and Global Leaders have also entered into a distribution agreement with
Evergreen Keystone Distributor, Inc.(formerly known as Evergreen Funds
Distributor, Inc.) (the "Distributor") an affiliate of BISYS Fund Services.
The partnership interests in Lieber, a New York general partnership,
were acquired by Lieber I Corp. and Lieber II Corp., which are both wholly-owned
subsidiaries of FUNB. The business of Lieber is being continued.
Under its Investment Advisory Agreement with each Fund, each Adviser
has agreed to furnish reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the 1933 Act, and the 1940
Act, printing prospectuses (for existing shareholders)as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, each Adviser will pay
the costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each of the Funds
for the three most recent fiscal periods, or the period from inception,
reflected in its registration statement are set forth below:
Year Ended
GLOBAL LEADERS 10/31/96
Advisory Fee $199,941
Waiver (138,323)
26
<PAGE>
--------
Net Advisory Fee $ 61,618
==========
One Month
GLOBAL Year Ended Ended Year Ended
10/31/96 10/31/95 9/30/95
Advisory Fee $580,089 $55,450 $869,965
Waiver ( 37,319) __ __
--------- -------- --------
Net Advisory Fee $542,770 $55,450 $869,965
========== ========== ==========
Expense
Reimbursement $ 27,960 $8,469 $ 39,432
--------- ---------- ---------
Period From
September 6, 1994
Ten Months (Commencement of
EMERGING Year Ended Ended operations) through
MARKETS 10/31/96 10/31/95 12/31/94
Advisory Fee $342,379 $130,542 $35,047
Waiver (326,122) (130,542) ($35,047)
--------- --------- ----------
Net Advisory Fee
$ 16,257 $ 0 $ 0
======== ======== ========
Expense
Reimbursement $79,746 $63,492 $15,890
------- -------- ---------
Period from
September 2, 1994
Ten Months (Commencement of
Year Ended Ended operations) through
10/31/96 10/31/95 12/31/94
INTERNATIONAL
EQUITY
Advisory Fee $891,137 $299,412 $60,885
Waiver (479,316) (212,295) ($44,928)
-------- --------- --------
Net Advisory Fee $411,821 $86,917 $15,957
========= ========= =========
Expense
Reimbursement $ 4,283 $24,528 $16,438
--------- --------- ---------
27
<PAGE>
Global changed its fiscal year end from September 30 to October 31,
during the periods covered by the foregoing table. Accordingly, the investment
advisory fees reported in the foregoing table reflect for Global, the fiscal
year ended September 30, 1995, the one month period ended October 31, 1995, and
the fiscal year ended October 31, 1996.
Emerging Markets and International Equity commenced operations on
September 6, 1994 and September 2, 1994, respectively. Therefore, the first
year's figures set forth in the table above reflect for Emerging Markets and
International Equity investment advisory fees paid for the period from
commencement of operations through December 31, 1994. Emerging Markets and
International Equity then changed their fiscal year-end from December 31 to
October 31 during the periods covered by the foregoing table. Accordingly, the
investment advisory fees reported in the foregoing table reflect for Emerging
Markets and International Equity, the period from January 1, 1995 through
October 31, 1995 and the fiscal year ended October 31, 1996.
Global Leaders commenced operations on November 1, 1995. Therefore, the
figures set forth above reflect for Global Leaders the investment advisory fee
paid for the fiscal year ended October 31, 1996.
Marvin & Palmer Associates, Inc. earned sub-advisory fees from Emerging
Markets for the period from September 6, 1994 (commencement of operations) to
December 31, 1994, the period from January 1, 1995 through October 31, 1995, and
the fiscal year ended October 31, 1996, of $23,133, $87,463, and $114,131,
respectively. Boston International Advisers, Inc. earned sub-advisory fees from
International Equity for the period from September 2, 1994 (commencement of
operations) to December 31, 1994, the period from January 1, 1995 through
October 31, 1995 and the period from November 1, 1995 through September 30,
1996, of $23,505, $116,844, and $247,367, respectively. Warburg, Pincus
Counselors, Inc., who was approved as the sub-adviser to the International
Equity effective October 1, 1996, earned sub-advisory fees from International
Equity for the period from October 1, 1996 through October 31, 1996 of $68,025.
As a result of the appointment of Warburg and the consequent shift investment
strategy, portfolio turnover for the most recent fiscal year was higher than
might otherwise be anticipated.
Expense Limitations
Each Adviser has in some instances voluntarily limited (and may in the
future limit) expenses of certain of the Funds. For further information, refer
to the expense information in the current Prospectus.
The Investment Advisory Agreements and Sub-Advisory Agreements are
terminable, without the payment of any penalty, on sixty days' written notice,
by a vote of the holders of a majority of each Fund's outstanding shares, or by
a vote of a majority of each Trust's Trustees or by the respective Adviser. The
Investment Advisory Agreements will automatically terminate in the event of
their assignment. Each Investment Advisory Agreement provides in substance that
the Adviser shall not be liable for any action or failure to act in accordance
with its duties thereunder in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser or of reckless disregard of its
obligations thereunder. The Investment Advisory Agreement with respect to Global
28
<PAGE>
was approved by the Fund's shareholders on June 23, 1994, became effective on
June 30, 1994, was last approved by the Trustees of the Evergreen Equity Trust
on February 8, 1996, for a one year period beginning May 1, 1996, and it will
continue in effect from year to year provided that its continuance is approved
annually by a vote of a majority of the Trustees of the Evergreen Equity Trust
including a majority of those Trustees who are not parties thereto or
"interested persons" (as defined in the 1940 Act) of any such party,
("disinterested Trustees") cast in person at a meeting duly called for the
purpose of voting on such approval or a majority of the outstanding voting
shares of the Fund. The Investment Advisory Agreement with respect to Global
Leaders was approved by the sole shareholder of Global Leaders on September 22,
1995. It became effective on September 29, 1995, and will continue in effect
until September 29, 1997, and thereafter, from year to year provided that its
continuance is approved annually by a vote of a majority of the Trustees of the
Evergreen Equity Trust including a majority of the disinterested Trustees cast
in person at a meeting duly called for the purpose of voting on such approval or
a majority of the outstanding voting shares of the Fund. With respect to
Emerging Markets and International Equity, the Investment Advisory Agreement
dated February 28, 1985 and amended from time to time thereafter, and the
Sub-Advisory Agreement dated July 28, 1994, between Emerging Markets and Marvin
and Palmer were last approved by the Trustees of Evergreen Investment Trust on
February 8, 1996, for a one year period commencing May 1, 1996. The Sub-Advisory
Agreement dated October 1, 1996 between International Equity and Warburg, Pincus
was approved by the Trustees of Evergreen Investment Trust on August 1, 1996,
for a two year period commencing September 30, 1996. Each Agreement will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees of
Evergreen Investment Trust including a majority of disinterested Trustees cast
in person at a meeting duly called for the purpose of voting on such approval or
by a vote of a majority of the outstanding voting securities of each Fund.
Certain other clients of each Adviser may have investment objectives
and policies similar to those of the Funds. Each Adviser (including the
sub-advisers) may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients simultaneously
with a Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of each Adviser and sub-adviser to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by the Adviser and sub-adviser to the accounts involved, including the Funds.
When two or more of the clients of the Adviser or sub-Adviser (including one or
more of the Funds) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
29
<PAGE>
security available to each Fund. If simultaneous transactions occur, each
Adviser and sub-adviser attempts to allocate the securities, both as to price
and quantity, in accordance with a method deemed equitable to each Fund and
consistent with their different investment objectives. In some cases,
simultaneous purchases or sales could have a beneficial effect, in that the
ability of one Fund to participate in volume transactions may produce better
executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit
purchase and sales transactions to be effected between each Fund and the other
registered investment companies for which either Evergreen Asset, FUNB or
Keystone Investment Management Company ("Keystone"), a wholly-owned subsidiary &
FUNB, act as investment adviser, or between the Fund and any advisory clients of
Evergreen Asset, FUNB, Keystone, Lieber, Marvin & Palmer or Warburg, Pincus.
Each Fund may from time to time engage in such transactions but only in
accordance with these procedures and if they are equitable to each participant
and consistent with each participant's investment objectives.
Prior to July 7, 1995, Federated Administrative Services, a subsidiary
of Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million average daily net assets of the Trust; .125% on the
next $250 million; .10% on the next $250 million and .075% on assets in excess
of $250 million. For the period from September 6, 1994 (commencement of
operations) to December 31, 1994, and from January 1, 1995 to July 7, 1995,
Emerging Markets incurred $15,890 and $3,922, respectively in administrative
service costs, all of which was voluntarily waived. From September 2, 1994
(commencement of operations) to December 31, 1994 and from January 1, 1995 to
July 7, 1995, International Equity incurred $16,438 and $16,062, respectively in
administrative service costs, all of which was voluntarily waived.
Effective March 11, 1997, Evergreen Investment Services ("EKIS") will
succeed Evergreen Asset in providing administrative services to each of the
Funds, for a fee based on the average daily net assets of each fund administered
by EKIS for which Evergreen Asset, Keystone or FUNB also serve as investment
adviser, calculated daily and payable monthly at the following annual rates:
.050% on the first $7 billion; .035% on the next $3 billion; .030% on the next
$5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and
.010% on assets in excess of $30 billion. For the administrative services
provided by Evergreen Asset from July 8, 1995 through October 31, 1995, Emerging
Markets and International Equity incurred $1,980 and $8,466, respectively in
administration service costs, all of which was voluntarily waived; and for the
fiscal year ended October 31, 1996, Emerging Markets, International Equity and
Global Leaders incurred $11,191, $55,875 and $8,409, respectively, in
administrative service costs.
30
<PAGE>
billion; and .0040% on assets in excess of $25 billion. The total assets of
mutual funds administered by Evergreen Asset for which Evergreen Asset, Keystone
or FUNB serve as investment adviser as of November 29, 1996 were approximately
$28.8 billion. For the fiscal year ended February 28, 1997, Emerging Markets,
International Equity and Global Leaders paid Evergreen Asset $6,786, $51,592,
and $9,998, respectively in administration service fees.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund offering Class A, Class B and Class C
shares for additional disclosure regarding the Funds' distribution arrangements.
Distribution fees are accrued daily and paid monthly on the Class A, Class B and
Class C shares and are charged as class expenses, as accrued. The distribution
fees attributable to the Class B shares and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, and, in the case of Class C shares,
without the assessment of a contingent deferred sales charge after the first
year following purchase, while at the same time permitting the Distributor to
compensate broker-dealers in connection with the sale of such shares. In this
regard the purpose and function of the combined contingent deferred sales charge
and distribution services fee on the Class B shares and the Class C shares, are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of their Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plan and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the disinterested
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
(the "SEC") make payments for distribution services to the Distributor; the
latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Global commenced offering Class A, Class B and Class C shares on
January 3, 1995. The Plan with respect to the Fund became effective on December
30, 1994 and was initially approved by the sole shareholder of each Class of
shares of the Fund with respect to which a Plan was adopted on that date and by
the unanimous voting vote of the Trustees of the Trust, including the
disinterested Trustees voting separately, at a meeting called for that purpose
and held on December 13, 1994. The Distribution Agreement between the Fund and
the Distributor, pursuant to which distribution fees are paid under the Plan by
the Fund with respect to its Class A,
31
<PAGE>
Class B and Class C shares was also approved at the December 13, 1994 meeting by
the unanimous vote of the Trustees, including the disinterested Trustees voting
separately.
Global Leaders commenced offering Class A, Class B and Class C shares
on May 17, 1996. The Plan with respect to the Fund became effective on February
8, 1996 and was initially approved by the sole shareholder of each Class of
shares of the Fund with respect to which a Plan was adopted on that date and by
the unanimous vote of the Trustees of the Trust, including the disinterested
Trustees voting separately, at a meeting called for that purpose and held on
February 8, 1996. The Distribution Agreement between the Fund and the
Distributor, pursuant to which distribution fees are paid under the Plan by the
Fund with respect to its Class A, Class B and Class C shares was also approved
at the February 8, 1996 meeting by the unanimous vote of the Trustees, including
the disinterested Trustees voting separately.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class,
and, in either case, by a majority of the disinterested Trustees of the Trust.
Prior to July 8, 1995, Federated Securities Corp., a subsidiary of
Federated Investors, served as the distributor for Emerging Markets and
International Equity as well as other portfolios of Evergreen Investment Trust.
The Distribution Agreements between each Fund and the Distributor pursuant to
which distribution fees are paid under the Plans by each Fund with respect to
its Class A, Class B and Class C shares were approved on June 15, 1995 by the
unanimous vote of the Trustees including the disinterested Trustees voting
separately.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to the Funds and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Funds and holders of Class A, Class B and Class C
shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to, providing office space, equipment, telephone facilities,
and various personnel including clerical, supervisory, and computer, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding Class A, Class B and Class C shares; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as the Fund reasonably requests for its Class A, Class B and Class C
shares.
In addition to the Plans, Emerging Markets and International Equity
have each adopted a Shareholder Services Plan whereby shareholder servicing
agents
32
<PAGE>
may receive fees from the Fund for providing services which include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemptions of Class B and Class C shares of the Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. With respect to Emerging
Markets and International Equity, amendments to the Shareholder Services Plan
require a majority vote of the disinterested Trustees but do not require a
shareholders vote. Any Plan, Shareholder Services Plan or Distribution Agreement
may be terminated (a) by a Fund without penalty at any time by a majority vote
of the holders of the outstanding voting securities of the Fund, voting
separately by Class or by a majority vote of the disinterested Trustees or (b)
by the Distributor. To terminate any Distribution Agreement, any party must give
the other parties 60 days' written notice; to terminate a Plan only, the Fund
need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment.
Emerging Markets incurred distributions fees on behalf of Class A,
Class B, and Class C shares, respectively, of $505, $2,294, and $163,
respectively, from September 6, 1994 (commencement of operations) through
December 31, 1994; $2,083, $10,858, and $240, respectively, for the period
January 1, 1995 through October 31, 1995 and $3,883, $19,319, and $493
respectively, for the fiscal year ended October 31, 1996.
International Equity incurred distribution fees on behalf on Class A,
Class B, and Class C shares, respectively, of $1,270, $8,718, and $281,
respectively, from September 2, 1994 (commencement of operations) through
December 31, 1994; $6,269, $40,874, and $1,422, respectively, for the period
January 1, 1995 through October 31, 1995; and $14,674, $86,432, and $1,589,
respectively, for the fiscal year ended October 31, 1996.
Global incurred distribution fees on behalf of Class A, Class B, and
Class C shares, of $165, $123, and $37, respectively, for the period February
10, 1995,
33
<PAGE>
February 8, 1995, and February 9, 1995, respectively, (commencement of class
operations) through September 30, 1995; $16, $73, and $4, respectively, for the
period October 1, 1995 through October 31, 1995 and $2,800, $765 and $78,
respectively for the fiscal year ended October 31, 1996.
Global Leaders incurred distribution fees on behalf of Class A, Class B
and Class C shares of $7,416, $64,024 and $837, respectively, for the period May
17, 1996 (commencement of class operations) through October 31, 1996.
Shareholder Services Plans - Emerging Markets and International Equity.
Emerging Markets incurred shareholder services fees on behalf of Class
B and Class C shares, of $975 and $54, respectively, from September 6, 1994
(commencement of operations) through December 31, 1994; $3,620 and $80,
respectively, for the period January 1, 1995 through October 31, 1995, and
$6,440 and $165, respectively, for the fiscal year ended October 31, 1996.
International Equity incurred shareholder services fees on behalf of
Classes B, and Class C shares, of $2,906 and $93, respectively, from September
2, 1994 (commencement of operations) through December 31, 1994; $13, 624 and
$474, respectively, for the period January 1, 1995 through October 31, 1995 and
$28,811 and $530, respectively, for the fiscal year ended October 31, 1996.
Global incurred shareholder services fees pursuant to its Rule 12b-1
Plan, on behalf of Class B, and Class C shares, of $41, and $12, respectively,
for the period February 10, 1995, February 8, 1995 and February 9, 1995,
respectively, (commencement of class operations) through September 30, 1995; $24
and $2, respectively, for the period October 1, 1995 through October 31, 1995;
and $255, and $26, respectively, for the fiscal year ended October 31, 1996.
Global Leaders incurred shareholder service fees pursuant to its Rule
12b-1 Plan on behalf of Class B and Class C shares of $21,341 and $279,
respectively, for the period from May 17, 1996 (commencement of class
operations) through October 31, 1996.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser or,
in the case of Emerging Markets and International Equity, the sub-advisers,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser or sub-advisers, all of whom, in the case of Evergreen Asset, are
associated with Lieber. In general, the same individuals perform the same
functions for the other funds managed by the Adviser or sub-advisers. A Fund
will not effect any brokerage transactions with any broker or dealer affiliated
directly or indirectly with the Adviser or sub-advisers unless such transactions
are fair and reasonable, under the circumstances, to the Fund's shareholders.
Circumstances that may indicate that such transactions are fair or reasonable
include the frequency of such transactions, the selection process
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and the commissions payable in connection with such transactions.
A substantial portion of the transactions in equity securities for each
Fund will occur on foreign stock exchanges. Transactions on stock exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are negotiated, whereas on many foreign
stock exchanges these commissions are fixed. In the case of securities traded in
the foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most purchase and sale transactions involving
fixed income securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between the bid and ask price.
In selecting firms to effect securities transactions, the primary
consideration of each Adviser or sub-adviser shall be prompt execution at the
most favorable price. An Adviser or sub-adviser will also consider such factors
as the price of the securities and the size and difficulty of execution of the
order. If these objectives may be met with more than one firm, the Adviser or
sub-adviser will also consider the availability of statistical and investment
data and economic facts and opinions helpful to the Adviser. The extent of
receipt of these services would tend to reduce the expenses for which the
Adviser, the sub-adviser or its affiliates might otherwise have paid.
Under Section 11(a) of the Securities Exchange Act of 1934, as amended,
and the rules adopted thereunder by the Securities and Exchange Commission,
Lieber may be compensated for effecting transactions in portfolio securities for
a Fund on a national securities exchange provided the conditions of the rules
are met. Each Fund advised by Evergreen Asset has entered into an agreement with
Lieber authorizing Lieber to retain compensation for brokerage services. In
accordance with such agreement, it is contemplated that Lieber, a member of the
New York and American Stock Exchanges, will, to the extent practicable, provide
brokerage services to such Funds with respect to substantially all securities
transactions effected on the New York and American Stock Exchanges. In such
transactions, the Adviser will seek the best execution at the most favorable
price while paying a commission rate no higher than that offered to other
clients of Lieber or that which can be reasonably expected to be offered by an
unaffiliated broker-dealer having comparable execution capability in a similar
transaction. However, no Fund will engage in transactions in which Lieber would
be a principal. While no Fund advised by Evergreen Asset contemplates any
ongoing arrangements with other brokerage firms, brokerage business may be given
from time to time to other firms. In addition, the Trustees have adopted
procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
brokerage
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transactions with Lieber, as an affiliated broker-dealer, are fair and
reasonable.
Any profits from brokerage commissions accruing to Lieber as a result
of portfolio transactions for Global and Global Leaders will accrue to FUNB and
to its ultimate parent, First Union. The Investment Advisory Agreements do not
provide for a reduction of the Adviser's fee with respect to any Fund by the
amount of any profits earned by Lieber from brokerage commissions generated by
portfolio transactions of the Fund.
The following chart shows: (1) the brokerage commissions paid by Global
during its last three fiscal years and for Global Leaders for the period from
November 1, 1995 (commencement of investment operations) through October 31,
1996; (2) the amount and percentage thereof paid to Lieber; and (3) the
percentage of the total dollar amount of all portfolio transactions with respect
to which commissions have been paid which were effected by Lieber:
Twelve Months One Month Twelve Months Nine Months
GLOBAL Ended 10/31/96 Ended Ended Ended
10/31/95 9/30/95 9/30/94
Total Brokerage $221,762 $8,314 $532,714 $917,989
Commissions
Dollar Amount and % $ 40,808 $2,374 $106,123 $174,137
paid to Lieber 18% 29% 20% 19%
% of Transactions
Effected by Lieber 25% 36% 31% 33%
Twelve Months
Ended
GLOBAL LEADERS 10/31/96
Total Brokerage $203,040
Commissions
Dollar Amount and % $ 54,074
paid to Lieber 27%
% of Transactions
Effected by Lieber 45%
Global changed its fiscal year end from December 31 to September 30,
and then from September 30 to October 31, during the periods covered by the
forgoing table. Accordingly, the commissions reported in the foregoing table
reflect for Global, the period from January 1, 1994 through September 30, 1994,
the fiscal year ended September 30, 1995, the one month period ended October 31,
1995 and the fiscal year ended October 31, 1996.
Emerging Markets and International Equity did not pay any commissions
to Lieber. Emerging Markets paid commissions on brokerage commissions for the
period from September 6, 1994 (commencement of operations) through December 31,
1994, the period from January 1, 1995 through October 31, 1995, and the fiscal
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year ended October 31, 1996 of $41,532, $60,543, and $242,847, respectively.
International Equity paid commissions on brokerage commissions for the period
from September 2, 1994 (commencement of operations) through December 31,
1994,the period from January 1, 1995 through October 1, 1995 and the fiscal year
ended October 31, 1996 of $16,438, $71,508, and $560,019, respectively.
ADDITIONAL TAX INFORMATION (See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and elect
the tax treatment applicable to regulated investment companies ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
(Such qualification does not involve supervision of management or investment
practices or policies by the Internal Revenue Service.) In order to qualify as a
regulated investment company, a Fund must, among other things, (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
proceeds from securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months; and (c) diversify its holdings so
that, at the end of each quarter of its taxable year, (i) at least 50% of the
market value of the Fund's total assets is represented by cash, U.S. government
securities and other securities limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
government securities and securities of other regulated investment companies).
By so qualifying, a Fund is not subject to Federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
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tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
what is in effect a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her Federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers to a
Fund and to certify as to its correctness and certain other shareholders may be
subject to a 31% Federal income tax backup withholding requirement on dividends,
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distributions of capital gains and redemption proceeds paid to them by the Fund.
If the withholding provisions are applicable, any such dividends or capital gain
distributions to these shareholders, whether taken in cash or reinvested in
additional shares, and any redemption proceeds will be reduced by the amounts
required to be withheld. Investors may wish to consult their own tax advisers
about the applicability of the backup withholding provisions. The foregoing
discussion relates solely to U.S. Federal income tax law as applicable to U.S.
persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). It does not reflect the special tax
consequences to certain taxpayers (e.g., banks, insurance companies, tax exempt
organizations and foreign persons). Shareholders are encouraged to consult their
own tax advisers regarding specific questions relating to Federal, state and
local tax consequences of investing in shares of a Fund. Each shareholder who is
not a U.S. person should consult his or her tax adviser regarding the U.S. and
foreign tax consequences of ownership of shares of a Fund, including the
possibility that such a shareholder may be subject to a U.S. withholding tax at
a rate of 31% (or at a lower rate under a tax treaty) on amounts treated as
income from U.S. sources under the Code.
Special Tax Considerations
Each Fund maintains accounts and calculates income in U.S. dollars. In
general, gains or losses on the disposition of debt securities denominated in a
foreign currency that are attributable to fluctuations in exchange rates between
the date the debt security is acquired and the date of disposition, gains and
losses attributable to fluctuations in exchange rates that occur between the
time the Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivable or pays such liabilities, and gains and losses from the
disposition of foreign currencies and foreign currency forward contracts will be
treated as ordinary income or loss. These gains or losses increase or decrease,
respectively, the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
Each Fund's transactions in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) are subject to special provisions of the Code that, among
other things, may affect the character of gains and losses of the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) require the Fund to mark-to-market
certain types of positions in its portfolio (i.e., treat them as if they were
closed out) and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding U.S. Federal income and
excise taxes. Each Fund will monitor its transactions, make appropriate tax
elections and make appropriate entries in its books and records when it acquires
any foreign currency, forward contract, option, futures contract or hedged
investment in order to mitigate the effect of these rules. The Funds anticipate
that their hedging activities will not adversely affect their regulated
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investment company status.
Income received by a Fund from sources within various foreign countries
may be subject to foreign income tax. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Fund may elect to "pass through" to the
Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required: (i) to treat a
proportionate share of dividends paid by the Fund which represent foreign source
income received by the Fund plus the foreign taxes paid by the Fund as foreign
source income; and (ii) either to deduct their pro-rata share of foreign taxes
in computing their taxable income, or to use it as a foreign tax credit against
Federal income taxes (but not both). No deduction for foreign taxes could be
claimed by a shareholder who does not itemize deductions.
Each Fund intends to meet for each taxable year the requirements of the
Code to "pass through" to its shareholders foreign income taxes paid if it is
determined by its Adviser to be beneficial to do so. There can be no assurance
that the Fund will be able to pass through foreign income taxes paid. Each
shareholder will be notified within 60 days after the close of each taxable year
of the Fund whether the foreign taxes paid by the Fund will "pass through" for
that year, and, if so, the amount of each shareholder's pro-rata share (by
country) of (i) the foreign taxes paid and (ii) the Fund's gross income from
foreign sources. Of course, shareholders who are not liable for Federal income
taxes, such as retirement plans qualified under Section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.
Each Fund may invest in certain entities that may qualify as "passive
foreign investment companies". Generally, the income of such companies may
become taxable to the Fund prior to the receipt of distributions, or,
alternatively, income taxes and interest charges may be imposed on the Fund on
"excess distributions" received by the Fund or on gain from the disposition of
such investments by the Fund. In addition, gains from the sale of such
investments held for less than three months will count toward the 30% of gross
income test described above. Each Fund will take steps to minimize income taxes
and interest charges arising form such investments, and will monitor such
investments to insure that the Fund complies with the 30% of gross income test.
Proposed tax regulations, if they become effective, will allow the Funds to mark
to market and recognize gains on such investments at each Fund's taxable year
end. The Funds would not be subject to income tax on these gains if they are
distributed subject to these proposed rules.
NET ASSET VALUE
The following information supplements that set forth in each Fund's
Prospectus under the subheading "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".
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The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
Alternative ". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class B
and Class C shares may be lower than the per share net asset value of the Class
A shares (and, in turn, that of Class A shares may be lower than Class Y shares)
as a result of the greater daily expense accruals, relative to Class A and Class
Y shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Emerging Market and International Equity shareholder
service fee) and, to the extent applicable, transfer agency fees and the fact
that Class Y shares bear no additional distribution, shareholder service or
transfer agency related fees. While it is expected that, in the event each Class
of shares of a Fund realizes net investment income or does not realize a net
operating loss for a period, the per share net asset values of the four classes
will tend to converge immediately after the payment of dividends, which
dividends will differ by approximately the amount of the expense accrual
differential among the Classes, there is no assurance that this will be the
case. In the event one or more Classes of a Fund experiences a net operating
loss for any fiscal period, the net asset value per share of such Class or
Classes will remain lower than that of Classes that incurred lower expenses for
the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
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The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. Such calculation does not
take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the Exchange will not be reflected in a Fund's
calculation of net asset value unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made. Securities transactions are accounted for on the trade date, the date
the order to buy or sell is executed. Dividend income and other distributions
are recorded on the ex-dividend date, except certain dividends and distributions
from foreign securities which are recorded as soon as the Fund is informed after
the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after purchase (the "level-load alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Distributor ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their affiliates, that have entered into selected agent agreements with the
Distributor ("selected agents"), or (iii) the Distributor. The minimum for
initial investments is $1,000; there is no minimum for subsequent investments.
The subscriber may use the Share Purchase Application available from the
Distributor for his or her initial investment. Sales personnel of selected
dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
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through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Alternative Purchase Arrangements
Each Fund issues four classes of shares: (i) Class A shares, which are
sold to investors choosing the front-end sales charge alternative; (ii) Class B
shares, which are sold to investors choosing the deferred sales charge
alternative; (iii) Class C shares, which are sold to investors choosing the
level-load sales charge alternative; and (iv) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Advisers and their affiliates, and (c) institutional investors. The four
classes of shares each represent an interest in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except that (I) Class A, Class B and Class C shares are subject to a Rule 12b-1
distribution fee, (II) Class B and Class C shares of Emerging Markets and
International Equity are subject to a shareholder service fee, (III) Class A
shares bear the expense of the front-end sales charge and Class B and Class C
shares bear the expense of the deferred sales charge, (IV) Class B shares and
Class C shares each bear the expense of a higher Rule 12b-1 distribution
services fee and shareholder service fee than Class A shares and, in the case of
Class B shares, higher transfer agency costs, (V) with the exception of Class Y
shares, each Class of each Fund has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its distribution services
(and, to the extent applicable, shareholder service) fee is paid which relates
to a specific Class and other matters for which separate Class voting is
appropriate under applicable law, provided that, if the Fund submits to a
simultaneous vote of Class A, Class B and Class C shareholders an amendment to
the Rule 12b-1 Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, the Class A shareholders and
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the Class B and Class C shareholders will vote separately by Class, and (VI)
only the Class B shares are subject to a conversion feature. Each Class has
different exchange privileges and certain different shareholder service options
available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, shareholder service) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
services (and, to the extent applicable, shareholder service) fee on Class C
shares, would be less than the front-end sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class B and Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge. For this reason, the Distributor will reject any order (except orders
for Class B shares from certain retirement plans) for more than $2,500,000 for
Class B shares.
Class A shares are subject to a lower distribution services fee and no
shareholder service fee and, accordingly, pay correspondingly higher dividends
per share than Class B shares or Class C shares. However, because front-end
sales charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their investment for an extended period of time
might consider purchasing Class A shares because the accumulated continuing
distribution (and, to the extent applicable, shareholder service) charges on
Class B shares or Class C shares may exceed the front-end sales charge on Class
A shares during the life of the investment. Again, however, such investors must
weigh this consideration against the fact that, because of such front-end sales
charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, shareholder service) fees
and, in the case of Class B shares, being subject to a contingent deferred sales
charge for a six-year period. For example, based on current fees and expenses,
an investor subject to the 4.75% front-end sales charge imposed by Evergreen
Equity and Long-Term Bond Funds (i.e. Emerging Markets, International Equity,
Global and Global Leaders) would have to hold his or her investment
approximately seven years for the Class B and Class C distribution services
(and, to the extent applicable, shareholders service) fees, to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B and Class C
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distribution services (and, to the extent applicable, shareholder service) fees
on the investment, fluctuations in net asset value or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent deferred sales charge may find
it more advantageous to purchase Class C shares.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-end Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund at the end of each Fund's latest fiscal
year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
Emerging
Markets $8.46 $.42 10/31/96 $8.88
International $10.43 $.52 10/31/96 $10.95
Equity
Global $12.28 $.61 10/31/96 $12.89
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Global
Leaders $11.91 $.59 10/31/96 $12.50
Prior to January 3, 1995, shares of Global were offered exclusively on
a no-load basis and, accordingly, no underwriting commissions were paid in
respect of sales of shares of the Fund or retained by the Distributor. In
addition, since Class B and Class C shares were not offered prior to January 3,
1995, contingent deferred sales charges have been paid to the Distributor with
respect to Class B or Class C shares only since January 3, 1995.
Prior to May 17, 1996, shares of Global Leaders were offered
exclusively on a no-load basis and, accordingly, no underwriting commissions
have been paid in respect of sale of shares of the Fund or retained by the
Distributor.
The commissions on behalf of Emerging Markets and International
Equity were paid to and retained by Federated Securities Corp, through July 7,
1995, which until such date was the principal underwriter of the portfolios of
Evergreen Investment Trust. For the period from July 8, 1995 through October 31,
1995, and the fiscal year ended October 31, 1996, commissions were paid to and
amounts were retained by Evergreen Keystone Distributor, Inc. (formerly known as
Evergreen Funds Distributor, Inc.) who effective July 7, 1995, became the
principal underwriter of the portfolios of Evergreen Investment Trust:
Fiscal Year Period From Period From
Ended July 7, 1995 January 1,
October 31, to October 31, 1995 to July
1996 1995 6, 1995
Emerging Markets:
Commissions Received $12,924 $4,835 $3,194
Commissions Retained 1,307 561 388
Fiscal Year Period From Period From
Ended July 7, 1995 January 1,
October 31, To October 31, 1995 to July
1996 1995 6, 1995
International Equity:
Commissions Received $40,927 $24,198 $12,195
Commissions Retained 6,190 2,958 1,470
With respect to Global, the following commissions were paid to and
amounts were retained by Evergreen Keystone Distributor, Inc. for the period
from February 10, 1995, February 8, 1995 and February 9, 1995 (the commencement
of operations of Class A, Class B and Class C shares, respectively) through
October 31, 1995, and the fiscal year ended October 31, 1996:
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Fiscal Year Period from Period from
Ended February 10, 1995 October 1, 1995
October 31, 1996 to September 30, to October 31,
1995 1995
Global
Commissions Received $5,823 $47 $514
Commissions Retained 664 6 59
Period from
June 3, 1996 to
October 31, 1996
Global Leaders
Commissions Received $221,285
Commissions Retained 23,449
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more of the
Evergreen Keystone mutual funds other than money market funds into a single
"purchase", if the resulting "purchase" totals at least $100,000. The term
"purchase" refers to: (i) a single purchase by an individual, or to concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his or her spouse and their children under the age of 21 years
purchasing shares for his, her or their own account(s); (ii) a single purchase
by a trustee or other fiduciary purchasing shares for a single trust, estate or
single fiduciary account although more than one beneficiary is involved; or
(iii) a single purchase for the employee benefit plans of a single employer. The
term "purchase" also includes purchases by any "company", as the term is defined
in the 1940 Act, but does not include purchases by any such company which has
not been in existence for at least six months or which has no purpose other than
the purchase of shares of a Fund or shares of other registered investment
companies at a discount. The term "purchase" does not include purchases by any
group of individuals whose sole organizational nexus is that the participants
therein are credit card holders of a company, policy holders of an insurance
company, customers of either a bank or broker-dealer or clients of an investment
adviser. A "purchase" may also include shares, purchased at the same time
through a single selected dealer or agent, of any Evergreen Keystone mutual
fund. Currently, the Evergreen Keystone mutual funds include:
Evergreen Trust:
Evergreen Fund
Evergreen Aggressive Growth Fund
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Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund) The
Evergreen American Retirement Trust:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
The Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Investment Trust:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
The Evergreen Lexicon Fund:
Evergreen Intermediate-Term Government Securities Fund
Evergreen Intermediate-Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax-Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
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Keystone America Hartwell Emerging Growth Fund
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Emerging Markets Fund
Keystone Fund for Total Return
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone Liquid Trust
Keystone Omega Fund
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund:
Florida Tax Free Fund
Massachusetts Tax Free Fund
Pennsylvania Tax Free Fund
New York Insured Tax Free Fund
Keystone State Tax Free Fund- Series II:
California Insured Tax Free Fund
Missouri Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
Prospectuses for the Evergreen Keystone mutual funds may be obtained
without charge by contacting the Distributor or the Advisers at the address or
telephone number shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C shares
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<PAGE>
of the Fund held by the investor and (b) all such shares of
any other Evergreen Keystone mutual fund held by the investor;
and
(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, Class B or Class C shares of
an Evergreen Keystone mutual fund worth $200,000 at their then current net asset
value and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the sales charge for the $100,000 purchase, in the case of any
Evergreen Equity or Long-Term Bond Fund (i.e., Emerging Markets, International
Equity, Global and Global Leaders) would be at the 2.50% rate applicable to a
single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Statement of Intention. Class A investors may also obtain the reduced
sales charges shown in the Prospectus by means of a written Statement of
Intention, which expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in Class A shares (or Class A, Class B
and/or Class C shares) of the Fund or any other Evergreen Keystone mutual fund.
Each purchase of shares under a Statement of Intention will be made at the
public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Statement of Intention.
At the investor's option, a Statement of Intention may include purchases of
Class A, Class B, or Class C shares of the Fund or any other Evergreen mutual
fund made not more than 90 days prior to the date that the investor signs a
Statement of Intention; however, the 13-month period during which the Statement
of Intention is in effect will begin on the date of the earliest purchase to be
included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone mutual funds under a single
Statement of Intention. For example, if at the time an investor signs a
Statement of Intention to invest at least $100,000 in Class A shares of the
Fund, the investor and the investor's spouse each purchase shares of the Fund
worth $20,000 (for a total of $40,000), it will only be necessary to invest a
total of $60,000 during the following 13 months in shares of the Fund or any
other Evergreen Keystone mutual fund, to qualify for the 3.75% sales charge
applicable to purchases in any Evergreen Equity or Long-Term Bond Fund (i.e.,
Emerging Markets, International Equity, Global and Global Leaders) on the total
amount being invested (the sales charge applicable to an investment of
$100,000).
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The Statement of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. Shares purchased with the first 5%
of such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Share Purchase Application. Current Class A
shareholders desiring to do so can obtain a form of Statement of Intention by
contacting a Fund at the address or telephone number shown on the cover of this
Statement of Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen Keystone mutual funds available to their participants. Investments
made by such employee benefit plans may be exempt from any applicable front-end
sales charges if they meet the criteria set forth in the Prospectus under "Class
A Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone mutual funds
available to their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
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Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; or their affiliate 0.9 Keystone, officers, directors
and present or retired, full-time employees of the Advisers, the Distributor,
and their affiliates; officers, directors and present and full-time employees of
selected dealers or agents; or the spouse, sibling, direct ancestor or direct
descendant (collectively "relatives") of any such person; or any trust,
individual retirement account or retirement plan account for the benefit of any
such person or relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not be resold
except to the Fund); (iii) certain employee benefit plans for employees of the
Advisers, the Distributor and their affiliates; (iv) persons participating in a
fee-based program, sponsored and maintained by a registered broker-dealer and
approved by the Distributor, pursuant to which such persons pay an asset-based
fee to such broker-dealer, or its affiliate or agent, for service in the nature
of investment advisory or administrative services. These provisions are intended
to provide additional job-related incentives to persons who serve the Funds or
work for companies associated with the Funds and selected dealers and agents of
the Funds. Since these persons are in a position to have a basic understanding
of the nature of an investment company as well as a general familiarity with the
Fund, sales to these persons, as compared to sales in the normal channels of
distribution, require substantially less sales effort. Similarly, these
provisions extend the privilege of purchasing shares at net asset value to
certain classes of institutional investors who, because of their investment
sophistication, can be expected to require significantly less than normal sales
effort on the part of the Funds and the Distributor.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B
shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee (and, with respect to Emerging Markets and International Equity,
the shareholder service fee) enables the Fund to sell the Class B shares without
a sales charge being deducted at the time of purchase. The higher distribution
services fee (and, with respect to Emerging Markets and International Equity,
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the shareholder service fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption it will be assumed that the redemption is first of any Class A shares
or Class C shares in the shareholder's Fund account, second of Class B shares
held for over six years or Class B shares acquired pursuant to reinvestment of
dividends or distributions and third of Class B shares held longest during the
six-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending six years after the
end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Emerging Markets and International Equity, the shareholder service fee) imposed
on Class B shares. Such conversion will be on the basis of the relative net
asset values of the two classes, without the imposition of any sales load, fee
or other charge. The purpose of the conversion feature is to reduce
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<PAGE>
the distribution services fee paid by holders of Class B shares that have been
outstanding long enough for the Distributor to have been compensated for the
expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Emerging Markets and International Equity, shareholder service fee) and transfer
agency costs with respect to Class B shares does not result in the dividends or
distributions payable with respect to other Classes of a Fund's shares being
deemed "preferential dividends" under the Code, and (ii) the conversion of Class
B shares to Class A shares does not constitute a taxable event under Federal
income tax law. The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time such conversion
is to occur. In that event, no further conversions of Class B shares would
occur, and shares might continue to be subject to the higher distribution
services fee (and, with respect to Emerging Markets and International Equity,
shareholder services fee)for an indefinite period which may extend beyond the
period ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after purchase. No charge is
imposed in connection with redemptions made more than one year from the date of
purchase. Class C shares are sold without a front-end sales charge so that the
Fund will receive the full amount of the investor's purchase payment and after
the first year without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset value of his or
her Class C shares. The Class C distribution services fee (and, with respect to
Emerging Markets and International Equity, shareholder service fee) enables the
Fund to sell Class C shares without either a front-end or contingent deferred
sales charge. However, unlike Class B shares, Class C shares do not convert to
any other class shares of the Fund. Class C shares incur higher distribution
services fees (and, with respect to Emerging Markets and International Equity,
shareholder service fees) than Class A shares, and will thus have a higher
expense ratio and pay correspondingly lower dividends than Class A shares.
Class Y Shares
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Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
The Evergreen Emerging Markets Growth Fund and Evergreen International
Equity Fund, which prior to July 7, 1995 were known as the First Union Emerging
Markets Growth Portfolio and First Union International Equity Portfolio, are
each separate series of Evergreen Investment Trust, a Massachusetts business
trust. On July 7, 1995, First Union Funds changed its name to Evergreen
Investment Trust. Evergreen Global Real Estate Equity Fund and Evergreen Global
Leaders Fund are each separate series of Evergreen Equity Trust, a Massachusetts
business trust. The above-named Trusts are individually referred to in this
Statement of Additional Information as the "Trust" and collectively as the
"Trusts". Each Trust is governed by a board of trustees. Unless otherwise
stated, references to the "Board of Trustees" or "Trustees" in this Statement of
Additional Information refer to the Trustees of all the Trusts.
Emerging Markets, International Equity, Global and Global Leaders may
issue an unlimited number of shares of beneficial interest with a $0.0001 par
value. All shares of these Funds have equal rights and privileges. Each share is
entitled to one vote, to participate equally in dividends and distributions
declared by the Funds and on liquidation to their proportionate share of the
assets remaining after satisfaction of outstanding liabilities. Shares of these
Funds are fully paid, nonassessable and fully transferable when issued and have
no pre-emptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees can elect
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100% of the Trustees if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more of the Trusts. Any issuance of shares of another series or class would be
governed by the 1940 Act and the law of the Commonwealth of Massachusetts. If
shares of another series of a Trust were issued in connection with the creation
of additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Trust may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the SEC permitting the issuance and
sale of multiple classes of shares representing interests in each Fund. In the
event a Fund were to issue additional classes of shares other than those
described herein, no further relief from the SEC would be required.
Distributor
Evergreen Keystone Distributor, Inc. (formerly known as Evergreen Funds
Distributor, Inc.)(the "Distributor"), 120 Clove Road, Little Falls, New Jersey
07424, serves as each Fund's principal underwriter, and as such may solicit
orders from the public to purchase shares of any Fund. The Distributor is not
obligated to sell any specific amount of shares and will purchase shares for
resale only against orders for shares. Under the Agreement between the Fund and
the Distributor, the Fund has agreed to indemnify the Distributor, in the
absence of its willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil liabilities,
including liabilities under the 1933 Act.
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Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors
of the Funds.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the SEC, the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. The Fund will include performance data
for Class A, Class B, Class C and Class Y shares in any advertisement or
information including performance data of the Fund.
The shares of Global outstanding prior to January 3, 1995, have been
reclassified as Class Y shares. Set forth in the table below is the average
annual compounded total return for each Class of shares offered by Global,
Global Leaders, Emerging Markets and International Equity for the most recently
completed one and five year fiscal periods and/or the period from inception
through October 31, 1996.
From
Global 1 Year 5 Years 2/1/89
Ended Ended (inception)
10/31/96 10/31/96 to 10/31/96
Class A 6.0% 8.34% 4.04%
Class B 5.3% 8.09% 3.89%
Class C 5.3% 8.09% 3.89%
Class Y 6.2% 8.39% 4.08%
Emerging One Year From 9/6/94
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Markets Ended (inception)
10/31/96 to 10/31/96
Class A 2.6% (9.3%)
Class B 1.9% (9.2%)
Class C 5.9% (7.9%)
Class Y 7.9% (7.0%)
International One Year From 9/6/94
Equity Ended (inception)
10/31/96 to 10/31/96
Class A 4.7% 0.2%
Class B 4.1% 0.5%
Class C 8.3% 1.9%
Class Y 10.3% 2.7%
Global Leaders From 11/1/95
(Inception)to
10/31/96
Class A 5.5%
Class B 5.1%
Class C 5.0%
Class Y 19.6%
The performance numbers for Global and Global Leaders for the Class A,
Class B and Class C shares are hypothetical numbers based on the performance for
Class Y shares as adjusted for any applicable front-end sales charge or
contingent deferred sales charge.
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
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the result (assuming compounding of income) in order to arrive at an annual
percentage rate.
The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of Global, Global Leaders, Emerging Markets and International
Equity for the thirty-day period ended October 31, 1996 for each Class of shares
offered by the Funds, is set forth in the table below:
Global
Class A .24%
Class B (.46%)
Class C (.50%)
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Class Y .49%
Emerging Markets
Class A ( .48%)
Class B (1.28%)
Class C (1.29%)
Class Y ( .25%)
International Equity Class A 1.95% Class B 1.31% Class C 1.30% Class Y 2.29%
Global Leaders
Class A .36%
Class B (.34%)
Class C (.34%)
Class Y .62%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, Europe, Australia and Far East index, Morgan Stanley Capital
International Equity Emerging Markets Free Index or any other commonly quoted
index of common stock prices, which are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
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All shareholder inquiries may be directed to the shareholder's broker
or to each Adviser at the address or telephone number shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statements filed by the Trusts with the SEC under the 1933 Act. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements appearing in their most current fiscal
year Annual Report to shareholders and the report thereon of the independent
auditors appearing therein, namely Price Waterhouse LLP are incorporated by
reference in this Statement of Additional Information. The Annual Reports to
Shareholders for each Fund, which contain the referenced statements, are
available upon request and without charge.
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate bond
rating is a current assessment of the credit worthiness of an obligor with
respect to a specific obligation. This assessment of credit worthiness may take
into consideration obligers such as guarantors, insurers or lessees. The debt
rating is not a recommendation to purchase, sell or hold a security, inasmuch as
it does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
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3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
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is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate issues. The ratings measure the credit
worthiness of the obligor but do not take into account currency exchange and
related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
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Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk,
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which may vary very slightly from time to time because of economic conditions;
A-- average credit quality with adequate protection factors, but with greater
and more variable risk factors in periods of economic stress. The indicators "+"
and "-" to the AA and A categories indicate the relative position of a credit
within those rating categories.
Fitch Investors Service LLP.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
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o MIG 2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service LLP.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1 -- very strong, with only slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
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SUPPLEMENT TO THE STATEMENTS
OF ADDITIONAL INFORMATION OF
Evergreen Aggressive Growth Fund, Evergreen American Retirement Fund, Evergreen
Emerging Markets Growth Fund, Evergreen Florida High Income Municipal Bond Fund,
Evergreen Foundation Fund, Evergreen Fund, Evergreen Georgia Municipal Bond
Fund, Evergreen Global Leaders Fund, Evergreen Growth and Income Fund, Evergreen
High Grade Tax Free Fund, Evergreen Income and Growth Fund, Evergreen
Intermediate Term Government Securities Fund, Evergreen International Equity
Fund, Evergreen Institutional Money Market Fund, Evergreen Institutional Tax
Exempt Money Market Fund, Evergreen Institutional Treasury Money Market Fund,
Evergreen Micro Cap Fund, Evergreen Money Market Fund, Evergreen North Carolina
Municipal Bond Fund, Evergreen Short-Intermediate Bond Fund, Evergreen
Short-Intermediate Municipal Fund, Evergreen Small Cap Equity Income Fund,
Evergreen South Carolina Municipal Bond Fund, Evergreen Tax Strategic Foundation
Fund, Evergreen U.S. Government Fund, Evergreen Utility Fund, Evergreen Value
Fund, Evergreen Virginia Municipal Bond Fund, Evergreen Capital Preservation and
Income Fund, Evergreen Fund for Total Return, Evergreen Natural Resources Fund,
Evergreen Omega Fund, Evergreen Strategic Income Fund, Evergreen California Tax
Free Fund, Evergreen Massachusetts Tax Free Fund, Evergreen Missouri Tax Free
Fund, Evergreen New York Tax Free Fund, Evergreen Pennsylvania Tax Free Fund,
Keystone Balanced Fund (K-1), Keystone Diversified Bond Fund (B-2), Keystone
High Income Bond Fund (B-4), Keystone Quality Bond Fund (B-1), Keystone Small
Company Growth Fund (S-4), Keystone Strategic Growth Fund (K- 2), Keystone
Growth and Income Fund (S-1), Evergreen Select Adjustable Rate Fund, Evergreen
Select Small Cap Growth Fund, Keystone International Fund, Keystone Precious
Metals Holdings, and Keystone Tax Free Fund (each a "Fund" and, collectively,
the "Funds")
The Statements of Additional Information of each of the Funds are
hereby supplemented as follows:
STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS
Each of the above Funds, except Keystone Balanced Fund (K-1), Keystone
Diversified Bond Fund (B-2), Keystone Small Company Growth Fund (S-4), and
Keystone Tax Free Fund, has adopted the following standardized fundamental
investment restrictions. These restrictions may be changed only by a vote of
Fund shareholders.
1. Diversification of Investments
The Fund may not make any investment inconsistent with the Fund's
classification as a diversified [non-diversified] investment company
under the Investment Company Act of 1940.
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<PAGE>
2. Concentration of a Fund's Assets in a Particular Industry. ([All Funds
other than those listed below.)
The Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities [or in the case of Money Market Funds domestic
bank money instruments]).
For Evergreen Utility Fund
The Fund will concentrate its investments in the utilities industry.
For Keystone Precious Metals Holdings
The Fund will concentrate its investments in industries related to the
mining, processing or dealing in gold or other precious metals and
minerals.
3. Issuance of Senior Securities
Except as permitted under the Investment Company Act of 1940, the Fund
may not issue senior securities.
4. Borrowing
The Fund may not borrow money, except to the extent permitted by
applicable law.
5. Underwriting
The Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
6. Investment in Real Estate
The Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, the Fund may invest in (a)
securities directly or indirectly secured by real estate, or (b)
securities issued by companies that invest in real estate.
7. Commodities
The Fund may not purchase or sell commodities or contracts on
commodities except to the extent that the Fund may engage in financial
futures contracts and related options and currency contracts and
related options and may otherwise do so in accordance with
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<PAGE>
applicable law and without registering as a commodity pool operator
under the Commodity Exchange Act.
8. Lending
The Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The
acquisition of investment instruments shall not be deemed to be the
making of a loan.
9. Investment in Federally Tax Exempt Securities
The following Funds have also adopted a standardized fundamental
investment restriction in regard to investments in federally tax-exempt
securities:
<TABLE>
<CAPTION>
<S> <C>
Evergreen Tax Strategic Foundation Fund Evergreen High Grade Tax Free Fund
Evergreen Georgia Municipal Bond Fund Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund Evergreen Virginia Municipal Bond Fund
Evergreen New York Tax Free Fund Evergreen Massachusetts Tax Free Fund
Evergreen California Tax Free Fund Evergreen Pennsylvania Tax Free Fund
Evergreen Institutional Tax Exempt Money Market Fund Evergreen Missouri Tax Free Fund
Evergreen Short-Intermediate Municipal Fund
</TABLE>
The Fund will, during periods of normal market conditions, invest its
assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning investment in tax-exempt securities
for Funds with the words tax exempt, tax free or municipal in their names.
ELIMINATION OF CERTAIN NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The nonfundamental investment restrictions described below have been
eliminated by each Fund listed under such restriction:
1. PROHIBITION ON INVESTMENT IN UNSEASONED ISSUERS
Evergreen Fund, Growth and Income Fund, Income and Growth Fund,
American Retirement Fund, Money Market Fund, Short-Intermediate
Municipal Fund, Growth and Income Fund (S-1), Omega Fund, Precious
Metals Holding, Strategic Growth Fund (K- 2), High Income Bond Fund
(B-4), Capital Preservation and Income Fund, Select Adjustable Rate
Fund, Strategic Income Fund, Fund for Total Return, International Fund
2. PROHIBITION ON INVESTMENT IN COMPANIES FOR THE PURPOSE OF EXERCISING
CONTROL OR MANAGEMENT
Evergreen Fund, Growth and Income Fund, Income and Growth Fund, Value
Fund, Intermediate Term Government Securities Fund, Foundation Fund,
American Retirement Fund, Emerging Markets Growth Fund, International
Equity Fund, Global Leaders Fund, Money Market Fund, Florida High
Income Municipal Bond Fund, Short-Intermediate Municipal Fund, Growth
and Income Fund (S-1), Precious Metals Holdings, Strategic Growth Fund
(K-2), High Income Bond Fund (B-4), Fund for Total Return,
International Fund
3. PROHIBITION ON INVESTMENT IN COMPANIES IN WHICH TRUSTEES OR OFFICERS OF
THE FUNDS ALSO HOLD SHARES ABOVE CERTAIN PERCENTAGE LEVELS
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Intermediate Term Government Securities Fund, Foundation
Fund, American Retirement Fund, Money Market Fund, Short-Intermediate
Municipal Fund, Precious Metals Holdings, Inc.
4. Prohibition on Investment of More Than 5% of a Fund's Net Assets in
Warrants, With No More Than 2% of Net Assets Being Invested in Warrants
That Are Listed NEW YORK NOR AMERICAN STOCK EXCHANGES
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Foundation Fund, American Retirement Fund,
Short-Intermediate Municipal Fund
5. PROHIBITION ON INVESTMENT IN OIL, GAS OR OTHER MINERAL EXPLORATION OR
DEVELOPMENT PROGRAMS
Evergreen Fund, MicroCap Fund, Aggressive Growth Fund, Growth and
Income Fund, Small Cap Equity Fund, Income and Growth Fund, Value Fund,
Intermediate Term Government Securities Fund, Foundation Fund, American
Retirement Fund, Money Market Fund, Florida High Income Municipal Bond
Fund, Short-Intermediate Municipal Fund, High Grade Tax Free Fund,
Precious Metals Holdings, Inc.
6. PROHIBITION ON JOINT TRADING ACCOUNTS
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<PAGE>
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Foundation Fund, American Retirement Fund, Florida High
Income Municipal Bond Fund
7. PROHIBITION ON INVESTMENT IN OTHER INVESTMENT COMPANIES. [Note: The
Funds may invest in such companies to the extent permitted by the
Investment Company Act of 1940 and the rules thereunder.]
Growth and Income Fund, Utility Fund, Small Cap Equity Income Fund,
Income and Growth Fund, Value Fund, Short-Intermediate Bond Fund,
Intermediate Term Government Securities Fund, Foundation Fund, Tax
Strategic Foundation Fund, American Retirement Fund, High Grade Tax
Free Fund, Growth and Income Fund (S-1), Omega Fund, Precious Metals
Holdings, Strategic Growth Fund (K-2), High Income Bond Fund (B-4),
Select Adjustable Rate Fund, Strategic Income Fund, Fund for Total
Return, Global Opportunities Fund, International Fund, Massachusetts
Tax Free Fund, New York Tax Free Fund, Pennsylvania Tax Free Fund,
California Tax Free Fund and Missouri Tax Free Fund.
RECLASSIFICATION OF ALL OTHER FUNDAMENTAL INVESTMENT RESTRICTIONS
All investment restrictions other than those described above as having been
standardized or eliminated have been reclassified from fundamental to
nonfundamental and, as, such, may be changed by the Funds' Boards of Trustees at
any time without a shareholder vote.
TRUSTEES
The Trustees and executive officers of each Trust, their ages, and
their principal occupations during the last five years are shown below:
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC-Chairman of
the Evergreen Group of Mutual Funds and Trustee. Retired Vice President
of Lance Inc. (food manufacturing); Chairman of the Distribution Comm.
Foundation for the Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park,
Charlotte, NC- Trustee. Medical Director, U.S. Healthcare of Charlotte,
North Carolina since 1996; President, Primary Physician Care from 1990
to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street, Suite 980, Charlotte,
NC-Trustee. Attorney, Law Offices of Michael S. Scofield since 1969.
GERALD M. MCDONNELL (57), 821 Regency Drive, Charlotte, NC - Trustee.
Sales Representative with Nucor-Yamoto Inc. (steel producer) since
1988.
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<PAGE>
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC - Trustee.
Director of Carolina Cooperative Federal Credit Union since 1990 and
Rexham Corporation from 1988 to 1990; Vice President of Rexham
Industries, Inc. (diversified manufacturer) from 1989 to 1990; Vice
President - Finance and Resources, Rexham Corporation from 1979 to
1990.
WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC - Trustee. Partner in the law firm Holcomb and Pettit,
P.A. since 1990.
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL -
Trustee. Real estate developer and construction consultant since 1980;
President of Centrum Equities since 1987 and Centrum Properties, Inc.
since 1980.
CHARLES A. AUSTIN III (61), Trustee. Investment counselor to Appleton
Partners, Inc.; former Managing Director, Seaward Management
Corporation (investment advice); and former Director, Executive Vice
President and Treasurer, State Street Research & Management Company
(investment advice).
K. DUN GIFFORD (57) Trustee. Chairman of the Board, Director, and
Executive Vice President, The London Harness Company; Managing Partner,
Roscommon Capital Corp.; Trustee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chief Executive
Officer, Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher &
Associates (environmental consulting); President, Oldways Preservation
and Exchange Trust (education); and former Director, Keystone
Investments, Inc. and Keystone Investment Management Company.
LEROY KEITH, JR. (57) Trustee. Director of Phoenix Total Return Fund
and Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund; and former
President, Morehouse College.
DAVID M. RICHARDSON (55) Trustee. Executive Vice President, DMR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc., and J&M Cumming Paper Co.
RICHARD J. SHIMA (57) Trustee and Advisor to the Boards of Trustees of
the Evergreen Group of Mutual Funds. Chairman, Environmental Warranty,
Inc., and Consultant, Drake Beam Morin, Inc. (executive outplacement);
Director of Connecticut Natural Gas Corporation, Trust Company of
Connecticut, Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; Chairman, Board of Trustees, Hartford
YMCA; former Director; Executive Vice President, and Vice Chairman of
The Travelers Corporation.
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EXECUTIVE OFFICERS
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY -
President and Treasurer. Consultant to BISYS Fund Services since 1996.
Senior Managing Director, Furman Selz LLC since 1992, Managing Director
from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH - Secretary.
Senior Vice President/Director of Administration and Regulatory
Services, BISYS Fund Services since April 1995. Vice
President/Assistant General Counsel, Alliance Capital Management from
1988 to 1995.
The officers of the Trusts are officers and/or employees of The BISYS
Group, Inc. ("BISYS Group"), except for Mr. Pileggi, who is a consultant to The
BISYS Group. The BISYS Group is an affiliate of Evergreen Distributor, Inc.
("EDI"), the distributor of each class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of any class
of shares of any of the Funds as of November 30, 1997.
DISTRIBUTION PLANS
The following is added to the disclosure under the caption "Distribution Plan"
Class A and B shares are made available to employer-sponsored retirement or
savings plans ("Plans") without a sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker/dealer
funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Services Agreement between Merrill Lynch
and the Fund's principal underwriter or distributor and in Funds advised or
managed by MLAM (collectively, the "Applicable Investments"); or
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or alliance
arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more
in assets, excluding money market funds, invested in Applicable Investments; or
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(iii) the Plan has 500 or more eligible employees, as determined by the Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares convert to Class A shares once the Plan has reached $5 million
invested in Applicable Investments. The Plan will receive a Plan level share
conversion.
The following is added to the Statement of Additional Information of each of
Keystone Balanced Fund (K-1), Keystone Diversified Bond Fund (B-2), Keystone
High Income Bond Fund (B-4), Keystone International Fund, Keystone Precious
Metals Holdings, Keystone Quality Bond Fund (B-1), Keystone Small Company Growth
Fund (S-4), Keystone Strategic Growth Fund (K-2), Keystone Growth and Income
Fund (S-1) and Keystone Tax Free Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B shares and Class C shares are
designed to permit an investor to purchase such shares through broker-dealers
without the assessment of a front-end sales charge, and, in the case of Class C
shares, without the assessment of a contingent deferred sales charge after the
first year following the month of purchase, while at the same time permitting
the Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares and
the Class C shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plans and the purposes for which such expenditures
were made to the Trustees of the Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the disinterested
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the
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latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
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<PAGE>
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan, Shareholder Services
Plan or Distribution Agreement may be terminated (i) by a Fund without penalty
at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
disinterested Trustees, or (ii) by the Distributor. To terminate any
Distribution Agreement, any party must give the other parties 60 days' written
notice; to terminate a Plan only, the Fund need give no notice to the
Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Funds' distributor,
broker-dealers that have entered into special agreements with the Funds'
distributor or certain other financial institutions. Each Fund offers four
classes of shares that differ primarily with respect to sales
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<PAGE>
charges and distribution fees. Depending upon the class of shares, you will pay
an initial sales charge when you buy a Fund's shares, a contingent deferred
sales charge (a "CDSC") when you redeem a Fund's shares or no sales charges at
all.
Purchase Alternatives
CLASS A SHARES
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Calculation of Contingent Deferred
Sales Charge" below.
CLASS B SHARES
The Funds offer Class B shares at net asset value (without a front-end
load). With certain exceptions, however, the Funds will charge a CDSC of 1.00%
on shares you redeem within 72 months after the month of your purchase. The
Funds will charge CDSCs at the following rate:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..........................5.00%
Second twelve-month period following the month of purchase...............4.00%
Third twelve-month period following the month of purchase................3.00%
Fourth twelve-month period following the month of purchase...............3.00%
Fifth twelve-month period following the month of purchase................2.00%
Sixth twelve-month period following the month of purchase................1.00%
Thereafter...............................................................0.00%
Class B shares that have been outstanding for seven years after the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificate to ESC.
CLASS C SHARES
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Underwriter. The Funds
offer Class C shares at net asset value (without an initial sales charge). With
certain exceptions, however, the Funds will charge a
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CDSC of 1.00% on shares you redeem within 12-months after the month of your
purchase. See "Contingent Deferred Sales Charge" below.
CLASS Y SHARES
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by
Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain institutional
investors and (3) investment advisory clients of the Capital Management Group of
First Union National Bank ("FUNB"), Evergreen Asset, Keystone Investment
Management Company, or their affiliates. Class Y shares are offered at net asset
value without a front-end or back-end sales charge and do not bear any Rule
12b-1 distribution expenses.
Contingent Deferred Sales Charge
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plan"). If imposed, the Funds
deduct the CDSC from the redemption proceeds you would otherwise receive. The
CDSC is a percentage of the lesser of (1) the net asset value of the shares at
the time of redemption or (2) the shareholder's original net cost for such
shares. Upon request for redemption, to keep the CDSC a shareholder must pay as
low as possible, a Fund will first seek to redeem shares not subject to the CDSC
and/or shares held the longest, in that order. The CDSC on any redemption is, to
the extent permitted by the National Association of Securities Dealers, Inc.
("NASD"), paid to the Principal Underwriter or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class a Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
COMBINED PURCHASES
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
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<PAGE>
RIGHTS OF ACCUMULATION
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
LETTER OF INTENT
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Shares That Are Not Subject to a Sales Charge or CDSC
WAIVER OF SALES CHARGES
The Funds may sell their shares at net asset value without an initial
sales charge to:
1. purchases of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
master accounts of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
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<PAGE>
7. employees of FUNB, its affiliates, Evergreen Distributor,
Inc., any broker-dealer with whom Evergreen Distributor, Inc.,
has entered into an agreement to sell shares of the Funds, and
members of the immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1.00% of the amount
invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
WAIVER OF CDSCS
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the account of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.00% per month of your initial account balance;
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<PAGE>
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
a Fund's prospectus. Before you make an exchange, you should read the prospectus
of the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
HOW THE FUNDS VALUE SHARES
How and When a Fund Calculates its Net Asset Value per Share ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the Prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each Fund is calculated by dividing the value of a Fund's
net assets attributable to that class by all of the shares issued for that
class.
How a Fund Values the Securities it Owns
Current values for a Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or on the NMS prior to
the time of the valuation, provided that a sale has occurred.
(2) Securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation.
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<PAGE>
(3) Short-term investments maturing in more than sixty days for which
market quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market.
(5) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market.
(6) Securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS if, in
the Fund's opinion, the last sales price does not reflect a current market value
or if no sale occurred; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of Trustees.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive his
or her dividends and capital gains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
December 22, 1997
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STATEMENT OF ADDITIONAL INFORMATION
BLANCHARD GLOBAL GROWTH FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
This Statement is not a prospectus but should be read in conjunction with the
current prospectus dated November 30, 1997 (the "Prospectus"), pursuant to which
Blanchard Global Growth Fund (the "FUND") is offered. Please retain this
document for future reference.
To obtain the Prospectus please call the FUND at 1-800-829-3863.
TABLE OF CONTENTS Page
Investment Objective and Policies 2
Investment Restrictions 13
Portfolio Transactions 15
Computation of Net Asset Value 16
Performance Information 17
Additional Purchase and Redemption Information 18
Tax Matters 18
Blanchard Funds Management 24
Management Services 28
Portfolio Management Services 28
Custodian 29
Administrative Services 29
Distribution Plan 29
Description of the FUND 30
Shareholder Reports 31
Appendix A A-32
Manager
Virtus Capital Management, Inc.
Portfolio Adviser
Mellon Capital Management Corporation
Distributor
Federated Securities Corp.
Custodian
Signet Trust Company
Transfer Agent
Federated Shareholder Services Company
Independent Accountants
Deloitte & Touche LLP
Dated: November 30, 1997
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the FUND are set forth in the FUND's
Prospectus which refers to the following investment strategies and additional
information:
Options and Futures Strategies
Through the writing and purchase of options and the purchase and sale
of stock index futures contracts, interest rate futures contracts, foreign
currency futures contracts and related options on such futures contracts, Mellon
Capital Management Corporation ("MCM") may at times seek to hedge against a
decline in the value of securities included in the FUND's portfolio or an
increase in the price of securities which it plans to purchase for the FUND or
to reduce risk or volatility while seeking to enhance investment performance.
Expenses and losses incurred as a result of such hedging strategies will reduce
the FUND's current return.
The ability of the FUND to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices, U.S.
Government securities and foreign currencies are relatively new and still
developing. Although a FUND will not enter into an option or futures position
unless a liquid secondary market exists for such option or futures contract is
believed by FUND management to exist. There is no assurance that the FUND will
be able to effect closing transactions at any particular time or at an
acceptable price. Reasons for the absence of a liquid secondary market on an
Exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; (v) the facilities
of an Exchange or the Options Clearing Corporation ("OCC") may not at all times
be adequate to handle current trading volume; or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market thereon would cease to exist,
although outstanding options on that Exchange that had been issued by the OCC as
a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
Low initial margin deposits made upon the opening of a futures position
and the writing of an option involve substantial leverage. As a result,
relatively small movements in the price of the contract can result in
substantial unrealized gains or losses. However, to the extent the FUND
purchases or sells futures contracts and options on futures contracts and
purchases and writes options on securities and securities indexes for hedging
purposes, any losses incurred in connection therewith should, if the hedging
strategy is successful, be offset, in whole or in part, by increases in the
value of securities held by the FUND or decreases in the prices of securities
the FUND intends to acquire. It is impossible to predict the amount of trading
interest that may exist in various types of options or futures. Therefore, no
assurance can be given that the FUND will be able to utilize these instruments
effectively for the purposes stated below. Furthermore, the FUND's ability to
engage in options and futures transactions may be limited by tax considerations.
Although the FUND will only engage in options and futures transactions for
limited purposes, it will involve certain risks which are described in the
Prospectus. The FUND will not engage in options and futures transactions for
leveraging purposes.
Writing Covered Options on Securities
The FUND may write covered call options and covered put options on
optionable securities (stocks, bonds, foreign exchange, related futures, options
and options on futures) of the types in which it is permitted to invest in
seeking to attain its objective. Call options written by the FUND give the
holder the right to buy the underlying securities from the FUND at a stated
exercise price; put options give the holder the right to sell the underlying
security to the FUND at a stated price.
<PAGE>
The FUND may write only covered options, which means that, so long as
the FUND is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the FUND will
maintain, in a segregated account, cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities or will hold a purchased put option with a higher strike price than
the put written. The FUND may also write combinations of covered puts and calls
on the same underlying security.
The FUND will receive a premium from writing a put or call option,
which increases the FUND's return in the event the option expires unexercised or
is closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, the FUND
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the FUND assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its market value at the
time it is exercised resulting in a potential capital loss if the purchase price
is greater than the underlying securities current market value minus the amount
of the premium received, unless the security subsequently appreciates in value.
The FUND may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The FUND will realize a
profit or loss from such transaction if the cost of such transaction is less or
more, respectively, than the premium received from the writing of the option. In
the case of a put option, any loss so incurred may be partially or entirely
offset by the premium received from a simultaneous or subsequent sale of a
different put option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by unrealized appreciation of the underlying security owned
by the FUND.
Options written by the FUND will normally have expiration dates not
more than one year from the date written. The exercise price of the options may
be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current market price of the underlying securities at
the times the options are written. The FUND may engage in buy-and-write
transactions in which the FUND simultaneously purchases a security and writes a
call option thereon. Where a call option is written against a security
subsequent to the purchase of that security, the resulting combined position is
also referred to as buy-and-write. Buy-and-write transactions using in-the-money
call options may be utilized when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. In such a transaction, the FUND's maximum gain will be the premium
received from writing the option reduced by any excess of the price paid by the
FUND for the underlying security over the exercise price. Buy-and-write
transactions using at-the-money call options may be utilized when it is expected
that the price of the underlying security will remain flat or advance moderately
during the option period. In such a transaction, the FUND's gain will be limited
to the premiums received from writing the option. Buy-and-write transactions
using out-of-the-money call options may be utilized when it is expected that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In any of the
foregoing situations, if the market price of the underlying security declines,
the amount of such decline will be offset wholly or in part by the premium
received and the FUND may or may not realize a loss.
To the extent that a secondary market is available on the Exchanges,
the covered call option writer may liquidate his position prior to the
assignment of an exercise notice by entering a closing purchase transaction for
an option of the same series as the option previously written. The cost of such
a closing purchase, plus transaction costs, may be greater than the premium
received upon writing the original option, in which event the writer will have
incurred a loss in the transaction.
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Purchasing Put and Call Options on Securities
The FUND may purchase put options to protect its portfolio holdings in
an underlying security against a decline in market value. Such hedge protection
is provided during the life of the put option since the FUND, as holder of the
put option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. In order
for a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the FUND will reduce any
profit it might otherwise have realized in the underlying security by the
premium paid for the put option and by transaction costs.
The FUND may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the FUND, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the FUND will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices
The FUND may purchase and sell options on stock indices and stock index
futures as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than on price movements in
particular stocks. Currently, index options traded include the S&P 100 Index,
the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the
National Over-the-Counter Index and other standard broadly based stock market
indices. Options are also traded in certain industry or market segment indices
such as the Oil Index, the Computer Technology Index and the Transportation
Index.
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made.
No physical delivery of securities is made.
If MCM, the FUND's portfolio adviser, expects general stock market
prices to rise, they might purchase a call option on a stock index or a futures
contract on that index as a hedge against an increase in prices on particular
equity securities they want ultimately to buy. If in fact the stock index does
rise, the price of the particular equity securities intended to be bought may
also increase, but that increase would be offset in part by the increase in the
value of the FUND's index option or futures contract resulting from the increase
in the index. If, on the other hand, MCM expects general stock market prices to
decline, the value of some or all of the equity securities in the FUND's
portfolio may also be expected to decline, but that decrease would be offset in
part by the increase in the value of the FUND's position in put options acquired
as a hedge against a potential decline.
Purchase and Sale of Interest Rate Futures
The FUND may purchase and sell U.S. dollar interest rate futures
contracts on U.S. Treasury bills, notes and bonds and non-U.S. dollar interest
rate futures contracts on foreign bonds for the purpose of hedging fixed income
and interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
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The FUND may purchase futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or entirely
offset an increase in the cost of securities it intends to purchase. The FUND
does not consider purchases of futures contracts to be a speculative practice
under these circumstances. In a substantial majority of these transactions, the
FUND will purchase securities upon termination of the futures contract.
The FUND may sell U.S. dollar and non-U.S. dollar interest rate futures
contracts in anticipation of an increase in the general level of interest rates.
Generally, as interest rates rise, the market value of the fixed income
securities held by the FUND will fall, thus reducing the net asset value of the
FUND. This interest rate risk can be reduced without employing futures as a
hedge by selling long-term fixed income securities and either reinvesting the
proceeds in securities with shorter maturities or by holding assets in cash.
This strategy, however, entails increased transaction costs to the FUND in the
form of dealer spreads and brokerage commissions.
The sale of U.S. dollar and non-U.S. dollar interest rate futures
contracts provides an alternative means of hedging against rising interest
rates. As rates increase, the value of the FUND's short position in the futures
contracts will also tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the FUND's investments which are being
hedged. While the FUND will incur commission expenses in entering and closing
out futures positions (which is done by taking an opposite position from the one
originally entered into, which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures Contracts
The FUND may purchase and write call and put options on stock index and
interest rate futures contracts. The FUND may use such options on futures
contracts in connection with its hedging strategies in lieu of purchasing and
writing options directly on the underlying securities or stock indices or
purchasing and selling the underlying futures. For example, the FUND may
purchase put options or write call options on stock index futures or interest
rate futures, rather than selling futures contracts, in anticipation of a
decline in general stock market prices or rise in interest rates, respectively,
or purchase call options or write put options on stock index or interest rate
futures, rather than purchasing such futures, to hedge against possible
increases in the price of equity securities or debt securities, respectively,
which the FUND intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options
In order to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement of securities
transactions, the FUND may buy or sell foreign currencies or may deal in forward
currency contracts. The FUND may also invest in currency futures contracts and
related options. If a fall in exchange rates for a particular currency is
anticipated, the FUND may sell a currency futures contract or a call option
thereon or purchase a put option on such futures contract as a hedge. If it is
anticipated that exchange rates will rise, the FUND may purchase a currency
futures contract or a call option thereon or sell (write) a put option to
protect against an increase in the price of securities denominated in a
particular currency the FUND intends to purchase. These futures contracts and
related options thereon will be used only as a hedge against anticipated
currency rate changes, and all options on currency futures written by the FUND
will be covered.
A currency futures contract sale creates an obligation by the FUND, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the FUND, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract or let the option expire.
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The FUND will write (sell) only covered put and call options on
currency futures. This means that the FUND will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. The FUND will, so long as it is
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by the FUND in cash, Treasury
bills, or other high-grade short-term obligations in a segregated account with
its custodian. If at the close of business on any day the market value of the
call purchased by the FUND falls below 100% of the market value of the call
written by the FUND, the FUND will so segregate an amount of cash, Treasury
bills or other high-grade short-term obligations equal in value to the
difference. Alternatively, the FUND may cover the call option through
segregating with the custodian an amount of the particular foreign currency
equal to the amount of foreign currency per futures contract option times the
number of options written by the FUND. In the case of put options on currency
futures written by the FUND, the FUND will hold the aggregate exercise price in
cash, Treasury bills, or other high-grade short-term obligations in a segregated
account with its custodian, or own put options on currency futures or short
currency futures, with the difference, if any, between the market value of the
put written and the market value of the puts purchased or the currency futures
sold maintained by the FUND in cash, Treasury bills or other high-grade
short-term obligations in a segregated account with its custodian. If at the
close of business on any day the market value of the put options purchased or
the currency futures sold by the FUND falls below 100% of the market value of
the put options written by the FUND, the FUND will so segregate an amount of
cash, Treasury bills or other high-grade short-term obligations equal in value
to the difference.
If other methods of providing appropriate cover are developed, the FUND
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements.
In connection with transactions in stock index options, stock index
futures, interest rate futures, foreign currency futures and related options on
such futures, the FUND will be required to deposit as "initial margin" an amount
of cash and short-term U.S. Government securities generally equal to from 5% to
10% of the contract amount. Thereafter, subsequent payments (referred to as
"variation margin") are made to and from the broker to reflect changes in the
value of the futures contract.
Options on Foreign Currencies
The FUND may purchase and write options on foreign currencies to
enhance investment performance and for hedging purposes in a manner similar to
that in which futures contracts on foreign currencies, or forward contracts,
will be utilized as described above. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the FUND may purchase put options on the foreign currency.
If the value of the currency does decline, the FUND will have the right to sell
such currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the FUND may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the FUND deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the FUND could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
Also, where the FUND anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received.
<PAGE>
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the FUND
could write a put option on the relevant currency which, if the currency moves
in the manner projected, will expire unexercised and allow the FUND to hedge
such increased cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the FUND would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the FUND also may be required to
forego all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
The FUND intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the FUND is "covered" if the FUND
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian, which acts as the FUND's custodian, or by a designated
sub-custodian) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the FUND has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
or the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the FUND in cash, U.S. Government
Securities and other high-grade liquid debt securities in a segregated account
with its custodian or with a designated sub-custodian.
Mortgage and Asset-Backed Securities
Subject to the approval of the Board of Trustees of the FUND, the FUND
may invest in foreign mortgage-backed and asset-backed securities. The FUND will
only purchase mortgage-backed and asset-backed securities which, in its opinion,
equate generally to U.S. standards of "investment grade" obligations.
Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including pass-through securities and collateralized mortgage
obligations. The yield and credit characteristics of mortgage-backed securities
differ in a number of respects from traditional debt securities.
Asset-backed securities have similar structural characteristics to
mortgage-backed securities. However, the underlying assets are not mortgage
loans or interests in mortgage loans but include assets such as motor vehicle
installment sales or installment loan contracts, leases of various types of real
and personal property, and receivables from revolving credit (credit card)
agreement.
Repurchase Agreements
Repurchase agreements are transactions by which the FUND purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven days) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked-to-market daily) of the underlying
security. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the FUND in
connection with bankruptcy proceedings) it is the policy of the FUND to limit
repurchase agreements to those member banks of the Federal Reserve System and
primary dealers in U.S. Government securities who are believed by the FUND's
Trustees to present minimum credit risk. Repurchase agreements maturing in more
than seven days are considered, for the purposes of the FUND's investment
restrictions, to be illiquid securities. No more than 10% of the FUND's net
assets may be held in illiquid securities (see "Investment Restrictions").
<PAGE>
Forward Foreign Currency Exchange Contracts
The value of the assets of the Foreign Securities, Precious Metals
Securities and Bullion, Emerging Markets and Foreign Fixed Income Securities
investment sectors of the FUND as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the FUND may incur costs in connection with
conversions between various currencies.
The FUND may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the FUND from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. The FUND may enter
into a forward contract, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security ("transaction hedge").
Additionally, for example, when the FUND believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of the FUND's securities denominated in such foreign
currency, or when the FUND believes that the U.S. dollar may suffer a
substantial decline against foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). In this situation, the FUND may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed U.S.
dollar amount where it believes that the U.S. dollar value of the currency to be
sold pursuant to the forward contract will fall whenever there is a decline in
the U.S. dollar value of the currency in which portfolio securities of the
sector are denominated ("cross-hedge"). If the FUND enters into a position
hedging transaction, cash not available for investment or U.S. Government
Securities or other high quality debt securities will be placed in a segregated
account in an amount sufficient to cover the FUND's net liability under such
hedging transactions. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the FUND's commitment
with respect to its position hedging transactions. As an alternative to
maintaining all or part of the separate account, the FUND may purchase a call
option permitting it to purchase the amount of foreign currency being hedged by
a forward sale contract at a price no higher than the forward contract price or
the FUND may purchase a put option permitting it to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the forward contract price. Unanticipated changes in currency prices would
result in lower overall performance for the FUND than if it had not entered into
such contracts.
While the pursuit of foreign currency gain is not a primary objective
of the FUND, the FUND may, from time to time, hold foreign currency to realize
such gains. (These gains constitute non-qualifying income that is subject to the
10% limitation with respect to the "Income Requirements" of Subchapter M of the
Internal Revenue Code of 1986, as amended, which is discussed herein under
"Dividends, Capital Gains Distributions and Tax Matters".)
The FUND will enter into forward foreign currency exchange contracts as
described hereafter. When the FUND enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to establish
the U.S. dollar cost or proceeds. By entering into a forward contract in U.S.
dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the FUND will be able to protect itself
against a possible loss between trade and settlement dates resulting from an
adverse change in the relationship between the U.S. dollar and such foreign
currency. However, this tends to limit potential gains which might result from a
positive change in such currency relationships.
When MCM believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell an amount of foreign currency approximating the value
of some or all of the FUND's portfolio securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and the successful execution of a short-term hedging strategy is
highly uncertain. Under normal circumstances consideration of the prospect for
currency parities will be incorporated into the longer term investment decisions
made with regard to overall strategies. However, the Trustees of the FUND
believe that it is important to have the flexibility to enter into such forward
contracts when MCM determines that the best interests of the FUND will be
served.
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Generally, the FUND will not enter into a forward foreign currency
exchange contract with a term of greater than one year. At the maturity of the
contract, the FUND may either sell the portfolio security and make delivery of
the foreign currency, or may retain the security and terminate the obligation to
deliver the foreign currency by purchasing an "offsetting" forward contract with
the same currency trader obligating the FUND to purchase, on the same maturity
date, the same amount of foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the FUND to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the FUND is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the FUND is obligated to
deliver.
If the FUND retains the portfolio security and engages in an offsetting
transaction, the FUND will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the FUND
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between entering into a forward contract for the sale of a
foreign currency and the date the FUND enters into an offsetting contract for
the purchase of the foreign currency, the FUND will realize a gain to the extent
the price of the currency the FUND has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the FUND
will suffer a loss to the extent the price of the currency the FUND has agreed
to purchase exceeds the price of the currency the FUND has agreed to sell.
The FUND's dealing in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, the FUND is not
required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Sector Managers. It also should be realized that this method of protecting
the value of the FUND's portfolio securities against the decline in the value of
a currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain which might result should
the value of such currency increase.
Additional Risks of Futures Contracts and Related Options, Forward Foreign
Currency Exchange Contracts and Options on Foreign Currencies
The market prices of futures contracts may be affected by certain
factors. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the securities
and futures markets. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions.
In addition, futures contracts in which the FUND may invest may be
subject to commodity exchange imposed limitations on fluctuations in futures
contract prices during a single day. Such regulations are referred to as "daily
price fluctuation limits" or "daily limits." During a single trading day no
trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has increased or decreased by an amount equal to the daily
limit, positions in those futures cannot be taken or liquidated unless both a
buyer and seller are willing to effect trades at or within the limit. Daily
limits, or regulatory intervention in the commodity markets, could prevent the
FUND from promptly liquidating unfavorable positions and adversely affect
operations and profitability.
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Options on foreign currencies and forward foreign currency exchange
contracts ("forward contracts") are not traded on contract markets regulated by
the Commodity Futures Trading Commission ("CFTC") and are not regulated by the
SEC. Rather, forward currency contracts are traded through financial
institutions acting as market-makers. Foreign currency options are traded on
certain national securities exchanges, such as the Philadelphia Stock Exchange
and the Chicago Board Options Exchange, subject to SEC regulation. In the
forward currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange may exist, potentially permitting the FUND to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, are subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, futures contracts and related options and forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of such positions also could be adversely affected by
(a) other complex foreign political and economic factors, (b) lesser
availability than in the United States of data on which to make trading
decisions, (c) delays in the FUND's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States and
the United Kingdom, (d) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (e)
lesser trading volume.
Illiquid Securities
The FUND has adopted the following investment policy, which may be
changed by the vote of the Board of Trustees. The FUND will not invest in
illiquid securities if immediately after such investment more than 10% of the
FUND's total assets (taken at market value) would be invested in such
securities. For this purpose, illiquid securities include (a) securities that
are illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale, (b) participation interests in loans that
are not subject to puts, (c) covered call options on portfolio securities
written by the FUND over-the-counter and the cover for such options and (d)
repurchase agreements not terminable within seven days.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities that have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
<PAGE>
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
During the coming year, the FUND may invest up to 10% of its total
assets in restricted securities issued under Section 4(2) of the Securities Act,
which exempts from registration "transactions by an issuer not involving any
public offering". Section 4(2) instruments are restricted in the sense that they
can only be resold through the issuing dealer and only to institutional
investors; they cannot be resold to the general public without registration.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. FUND management anticipates that
the market for certain restricted securities such as institutional commercial
paper will expand further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. (the "NASD").
FUND management will monitor the liquidity of restricted securities in
the FUND's portfolio under the supervision of the FUND's Trustees. In reaching
liquidity decision, FUND management will consider, inter alia, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
Regulatory Matters
In connection with its proposed futures and options transactions, the
FUND has filed with the Commodity Futures Trading commission ("CFTC") a notice
of eligibility for exemption from the definition of (and therefore from CFTC
regulation as) a "commodity pool operator" under the Commodity Exchange Act. The
FUND has represented in its notice of eligibility that:
(i) it will not purchase or sell futures or options on futures
contracts or stock indices if as a result the sum of the
initial margin deposits on its existing futures contracts and
related options positions and premiums paid for options on
futures contracts or stock indices would exceed 5% of the
FUND's assets; and
(ii) with respect to each futures contract purchased or long
position in an option contract, the FUND will set aside in a
segregated account cash or cash equivalents in an amount
equal to the market value of such contracts less the initial
margin deposit.
The Staff of Securities and Exchange Commission ("Commission") has
taken the position that the purchase and sale of futures contracts and the
writing of related options may involve senior securities for the purposes of the
restrictions contained in Section 18 of the Investment Company Act of 1940 on
investment companies issuing senior securities. However, the Staff has issued
letters declaring that it will not recommend enforcement action under Section 18
if an investment company:
(i) sells futures contracts to offset expected declines in the
value of the investment company's portfolio securities,
provided the value of such futures contracts does not exceed
the total market value of those securities (plus such
additional amount as may be necessary because of differences
in the volatility factor of the portfolio securities vis a
vis the futures contracts);
(ii) writes call options on futures contracts, stock indexes or
other securities, provided that such options are covered by
the investment company's holding of a corresponding long
futures position, by its ownership of portfolio securities
which correlate with the underlying stock index, or
otherwise;
<PAGE>
(iii) purchases futures contracts, provided the investment company
establishes a segregated account ("cash segregated account")
consisting of cash or cash equivalents in an amount equal to
the total market value of such futures contracts less the
initial margin deposited therefor; and
(iv) writes put options on futures contracts, stock indices or
other securities, provided that such options are covered by
the investment company's holding of a corresponding short
futures position, by establishing a cash segregated account
in an amount equal to the value of its obligation under the
option, or otherwise.
The FUND will conduct its purchases and sales of futures contracts and
writing of related options transactions in accordance with the foregoing.
Additional Information Regarding Precious Metals and Precious Metals Securities
The production and marketing of gold and precious metals may be
affected by the action of certain governments and changes in existing
governments. For example, the mining of gold is highly concentrated in a few
countries. In current order of magnitude of production of gold bullion, the five
largest producers of gold are the Republic of South Africa, certain republics of
the former Soviet Union, Canada, Brazil and the United States. Economic and
political conditions prevailing in these countries may have a direct effect on
the production and marketing of newly produced gold and sales of central bank
gold holdings. It is expected that a majority of gold mining companies in which
the FUND will invest will be located within the United States and Canada.
Prices of Precious Metals Securities can be volatile and tend to
experience greater volatility than the prices of physical precious metals. This
is due to the fact that the costs of mining precious metals remain relatively
fixed, so that an increase or decrease in the price of precious metals has a
direct and greater than proportional effect on the profitability of precious
metals mining companies. Investments tied to precious metals characteristically
involve high risk because of precious metals' price volatility. The price of
precious metals is affected by factors such as cyclical economic conditions,
political events and monetary policies of various countries. During periods of
rising precious metals prices, the FUND will tend to emphasize investments in
Precious Metals Securities.
Under South African law, the only authorized sales agent for gold
produced in South Africa is the Reserve Bank of South Africa, which through its
retention policies controls the time and place of any sale of South African
bullion. The South African Ministry of Mines determines gold mining policy.
South Africa depends predominantly on gold sales for the foreign exchange
necessary to finance its imports, and its sales policy is necessarily subject to
national economic and political developments.
Investments in Emerging Countries
The Emerging Markets sector of the FUND may invest indirectly in
securities of emerging country issuers through sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and other
types of Depository Receipts (which, together with ADRs and GDRs, are
hereinafter referred to as "Depository Receipts"). Depository Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depository Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depository Receipts.
Investing in emerging country securities involves certain
considerations not typically associated with investing in securities of U.S.
companies, including (1) restrictions on foreign investment and on repatriation
of capital invested in emerging countries, (2) currency fluctuations, (3) the
cost of converting foreign currency into U.S. dollars, (4) potential price
volatility and lesser liquidity of shares traded on emerging country securities
markets and (5) political and economic risks, including the risk of
nationalization or expropriation of assets and the risk of war. In addition,
accounting, auditing, financial and other reporting standards in emerging
countries are not equivalent to U.S. standards and, therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in emerging countries than in the United
States. There is also generally less governmental regulation of the securities
industry in emerging countries than in the United States.
<PAGE>
Moreover, it may be more difficult to obtain a judgment in a court outside the
United States. Interest and dividends paid on securities held by the FUND and
gains from the disposition of such securities may be subject to withholding
taxes imposed by emerging market countries. Historical experience indicates that
the markets of developing countries have been more volatile than the markets of
developed countries; however, securities traded in such markets often have
provided higher rates of return to investors. VCM believes that these
characteristics may be expected to continue in the future.
Portfolio Turnover
Generally, the FUND's portfolio turnover rate is not expected to exceed
100%. A 100% portfolio turnover rate would occur if 100% of the securities owned
by the FUND were sold and either repurchased or replaced by it within one year.
However, the FUND may experience a temporary increase in portfolio turnover and
incur some additional transaction costs as a result of the restructuring
approved by the FUND's shareholders on January 15, 1992 as the new portfolio
managers invest FUND assets transferred to their management. The FUND's
portfolio turnover rate is, generally, the percentage computed by dividing the
lesser of FUND's purchases or sales exclusive of short-term securities and
bullion, by the average value of the FUND's total investments exclusive of
short-term securities and bullion. The portfolio turnover rate for the fiscal
year ended September 30, 1997, and for the period from May 1, 1996 through
September 30, 1996 was 49% and 47%, respectivley. The portfolio turnover rates
for the fiscal years ended April 30, 1996 and 1995, were 91% and 221%,
respectively. The FUND's portfolio's turnover rate for the fiscal year ended
April 30, 1995, was higher than normal due to volatile foreign markets. High
Portfolio turnover involves correspondingly greater brokerage commissions, other
transaction costs, and a possible increase in short-term capital gains or
losses. Shareholders are taxed on any such net gains at ordinary income rates.
Because any capital gains realized would be distributed to shareholders at
year-end, shareholders should consider the impact of such distributions on their
own tax position.
INVESTMENT RESTRICTIONS
Investment restrictions are fundamental policies and cannot be changed
without approval of the holders of a majority (as defined in the Investment
Company Act of 1940, as amended) of the outstanding shares of the FUND. As used
in the Prospectus and the Statement of Additional Information, the term
"majority of the outstanding shares" of the FUND means, respectively, the vote
of the lesser of (i) 67% or more of the shares of the FUND present at a meeting,
if the holders of more than 50% of the outstanding shares of the FUND are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the FUND. The following are the FUND's investment restrictions set forth in
their entirety.
1. As a non-diversified management investment company, the FUND
has the following restrictions: (a) with respect to 50% of the
FUND's total assets, the FUND may not invest more than 5% of
its total assets, at market value, in the securities of one
issuer (except the securities of the U.S. Government, its
agencies and instrumentalities) and (b) with respect to the
other 50% of the FUND's total assets, the FUND may not invest
more than 25% of the market value of its total assets in a
single issuer (except the securities of the U.S. Government,
its agencies and instrumentalities). These two restrictions,
hypothetically, could give rise to the FUND having as few as
twelve issuers.
2. The FUND will not purchase a security if, as a result: (a) it
would own more than 10% of any class or of the outstanding
voting securities of any single company; (b) more than 5% of
its total assets would be invested in the securities of
companies (including predecessors) that have been in
continuous operation for less than 3 years; (c) more than 25%
of its total assets would be concentrated in companies within
any one industry as such industries are defined in the SIC/SEC
Industries Code; or (d) more than 5% of total assets would be
invested in warrants or rights.
3. The FUND may borrow money from a bank solely for temporary or
emergency purposes (but not in an amount equal to more than
10% of the market value of its total assets). The FUND will
not purchase additional securities while borrowing is in
excess of 5% of the market value of its total assets.
4. The FUND will not make loans of money or securities other than
(a) through the purchase of publicly distributed debt
securities in accordance with its investment objective and (b)
through repurchase agreements.
5. The FUND may not invest more than 5% of its total assets in
the securities of other investment companies or purchase more
than 3% of any other investment company's voting securities.
6. The FUND may not knowingly purchase or otherwise acquire
securities which are subject to legal or contractual
restrictions on resale or for which there is no readily
available market if, as a result thereof, more than 10% of the
net assets of the FUND (taken at market value) would be
invested in such securities, including repurchase agreements
in excess of 7 days.
7. The FUND may not pledge, mortgage or hypothecate its assets,
except that to secure borrowings permitted by Restriction 3
above, the FUND may pledge securities having a value at the
time of pledge not exceeding 10% of the market value of the
FUND's total assets.
8. The FUND may not purchase or sell commodity contracts, except
for stock, bond, currency and other financial futures
contracts. (see "Investment Objective and Policies- Forward
Foreign currency Exchange Contracts").
9. The FUND may not buy or sell any securities or other property
on margin, except for such short term credits as are necessary
for the clearance of transactions, and except for margin
payments in connection with the use of stock, bond, currency
and other financial futures contracts; and the FUND may not
engage in short sales.
10. The FUND may not invest in companies for the purpose of
exercising control or management.
11. The FUND may not underwrite securities issued by others except
to the extent that the FUND may be deemed an underwriter when
purchasing or selling portfolio securities.
12. The FUND may not purchase or retain securities of any issuer
(other than the shares of the FUND) if to the FUND's
knowledge, those officers and Trustees of the FUND and the
officers and directors of VCM, who individually own
beneficially more than 1/2 of 1% of the outstanding securities
of such issuer, together own beneficially more than 5% of such
outstanding securities.
13. The FUND may not purchase or sell real estate (although it may
purchase securities secured by real estate interests or
interests therein, or issued by companies or investment trusts
which invest in real estate or interests therein).
14. The FUND may not invest directly in oil, gas, or other mineral
exploration or development programs; provided, however, that
if consistent with the objective of the FUND, the FUND may
purchase securities of issuers whose principal business
activities fall within such areas.
15. The FUND may not issue senior securities.
In order to permit the sale of shares of the FUND in certain states,
the FUND may make commitments more restrictive than the restrictions described
above. Should the FUND determine that any such commitment is no longer in the
best interests of the FUND and its shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved. Pursuant to one such
commitment, the Trust has agreed that the FUND will not: (1) invest in warrants,
valued at the lower of cost or market, in excess of 5% of the value of the
FUND's net assets, and no more than 2% of such value may be warrants which are
not listed on the New York or American Stock Exchanges; and (2) make direct
investments in oil, gas or other mineral leases.
Percentage restrictions apply at the time of acquisition and any
subsequent change in percentages due to changes in market value of portfolio
securities or other changes in total assets will not be considered a violation
of such restrictions.
<PAGE>
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the FUND by MCM subject to the supervision of VCM and the Trustees
and pursuant to authority contained in the Investment Advisory Contract and the
Sub-Advisory Agreement between the FUND and VCM and VCM and MCM. In selecting
such brokers of dealers, MCM will consider various relevant factors, including,
but not limited to the best net price available, the size and type of the
transaction, the nature and character of the markets for the security to be
purchased or sold, the execution efficiency, settlement capability, financial
condition of the broker-dealer firm, the broker-dealer's execution services
rendered on a continuing basis and the reasonableness of any commissions.
In addition to meeting the primary requirements of execution and price,
brokers or dealers may be selected who provide research services, or statistical
material or other services to the FUND or to MCM for the FUND's use. Those
services may include economic studies, industry studies, security analysis or
reports, sales literature and statistical services furnished either directly to
the FUND or to MCM. Such allocation shall be in such amounts as VCM shall
determine and MCM shall report regularly to VCM who will in turn report to the
Trustees on the allocation of brokerage for such services. The Trustees must
determine that such services are reasonable and necessary to the FUND's normal
operations.
The receipt of research from broker-dealers may be useful to MCM in
rendering investment management services to their other clients, and conversely,
such information provided by brokers or dealers who have executed orders on
behalf of MCMs' other clients may be useful to MCM in carrying out their
obligations to the FUND.
MCM is authorized, subject to its best efforts to obtain best price and
execution, to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the FUND and are authorized
to use Federated Securities Corp. (the "Distributor"), and MCM or its affiliated
broker-dealers on an agency basis, to effect a substantial amount of the
portfolio transactions which are executed on the New York or American Stock
Exchanges, Regional Exchanges and Foreign Exchanges where relevant, or which are
traded in the Over-the Counter market. Any profits resulting from brokerage
commissions earned by the Distributor as a result of FUND transactions will
accrue to the benefit of the shareholders of the Distributor who are
shareholders of VCM. The Investment Advisory Contract does not provided for any
reduction in the advisory fee as a result of profits resulting from brokerage
commissions effected through the Distributor. In addition, the Sub-Advisory
Agreement between VCM and MCM does not provide for any reduction in the advisory
fee as a result of profits resulting from brokerage commissions effected through
MCM or its affiliated brokerage firms.
The Trustees have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the Investment Company Act of 1940 (the
"1940 Act") which requires that the commissions paid the Distributor or to MCM
or its affiliated broker-dealers must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." The Rule and the procedures also contain
review requirements and require VCM to furnish reports to the Trustees and to
maintain records in connection with such reviews.
Brokers or dealers who execute portfolio transactions on behalf of the
FUND may receive commissions which are in excess of the amount of commissions
which other brokers or dealers would have charged for effecting such
transactions; provided, VCM determines in good faith that such commissions are
reasonable in relation to the value of the brokerage and/or research services
provided by such executing brokers or dealers viewed in terms of a particular
transaction or VCM's overall responsibilities to the FUND. For the fiscal year
ended September 30, 1997, and for the period from May 1, 1996 through September
30, 1996, the FUND incurred brokerage commission expenses of $39,451 and
$43,997, respectively, from the purchase and sale of portfolio securities none
of which was paid to Shufro, Rose & Ehrman, a Former Sector Manager of the FUND.
For the years ended April 30, 1996, 1995 and 1994, the FUND incurred brokerage
commission expenses of $166,428, $488,175 and $583,706, respectively, from the
purchase and sale of portfolio securities, of which $40,660, $173,599 and
$121,292, respectively, or approximately 24%, 36% and 21%, respectively, was
paid to Shufro, Rose & Ehrman, a Sector Manager of the FUND, for effecting 10%,
46% and 27%, respectively, of the FUND's aggregate dollar amount of transactions
involving the payment of commissions. Shufro, Rose & Ehrman operates under
standards which would allow it to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker in a commensurate
arms-length transaction which is executed on the New York or
<PAGE>
American Stock Exchanges. Moreover, in effecting portfolio transactions through
Shufro, Rose & Ehrman, the cost of the brokerage commissions to the FUND in some
cases is less than that available from unaffiliated brokers. The reliability of
Shufro, Rose & Ehrman and the value of its expected contribution to the FUND,
viewed either in terms of a particular transaction or the portfolio manager's
overall responsibilities to the FUND, is also taken into consideration in
selecting Shufro, Rose & Ehrman to serve as the FUND's broker.
It may happen that the same security will be held by other clients of
VCM or of the portfolio managers. When the other clients are simultaneously
engaged in the purchase or sale of the same security, the prices and amounts
will be allocated in accordance with a formula considered by VCM to be equitable
to each, taking into consideration such factors as size of account,
concentration of holdings, investment objectives, tax status, cash availability,
purchase cost, holding period and other pertinent factors relative to each
account. In some cases this system could have a detrimental effect on the price
or volume of the security as far as the FUND is concerned. In other cases,
however, the ability of the FUND to participate in volume transactions will
produce better executions for the FUND.
COMPUTATION OF NET ASSET VALUE
The net asset value of the FUND is determined at 4:00 p.m. (Eastern
Time) on each day that the New York Exchange is open for business and on such
other days as there is sufficient trading in the FUND's securities to affect
materially the net asset value per share of the FUND. The FUND will be closed on
New Years Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determining Market Value of Securities
Market or fair values of the FUND's portfolio securities are determined
as follows:
o according to the last reported sales price on a recognized
securities exchange, if available. (If a security is traded on
more than one exchange, the price on the primary market for
that security, as determined by the Adviser or sub-adviser, is
used.);
o according to the last reported bid price, if no sale on the
recognized exchange is reported or if the security is traded
over-the-counter;
o for short-term obligations, according to the prices furnished
by an independent pricing service, except that short-term
obligations with remaining maturities of 60 days or less at
the time of purchase, may be valued at amortized cost; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider: institutional
trading in similar groups of securities; yield; quality ; coupon rate; maturity;
type of issue; trading characteristics; and other market data.
The FUND will value futures contracts, options and put options on
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Board of Trustees determine in good
faith that another method of valuing options positions is necessary to appraise
their fair value. Over-the-counter put options will be valued at the mean
between the bid and asked prices.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from
the closing of the New York Stock Exchange. In computing the net asset value,
the FUND values foreign securities at the latest closing price on the exchange
on which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates are determined when such rates
are made available to the FUND at times prior to the close of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into U.
S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the New York Stock Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Trustees, although the actual
calculation may be done by others.
<PAGE>
PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the FUND to
that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to Shareholders, performance will be stated in
terms of total return, rather than in terms of yield. The total return basis
combines principal and dividend income changes for the periods shown. Principal
changes are based on the difference between the beginning and closing net asset
values for the period and assume reinvestment of dividends and distributions
paid by the FUND. Dividends and distributions are comprised of net investment
income and net realized capital gains. Under the rules of the SEC, funds
advertising performance must include total return quotes calculated according to
the following formula:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods or at the end of the 1, 5 or 10 year periods
(or fractional portion thereof)
Under the foregoing formula the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five, and ten year periods or a shorter period dating from the
effectiveness of the FUND's registration statement. In calculating the ending
redeemable value, the pro rata share of the account opening fee is deducted from
the initial $1,000 investment and all dividends and distributions by the FUND
are assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. Total return, or "T" in
the formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value.
The FUND's average annual total rate of return, reflecting the initial
investment of $1,000 and reinvestment of all dividends and distributions, for
the one-year, five-year and ten-year periods ended September 30, 1997, was
13.20%, 10.51%, and 6.44%, respectively.
The FUND may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the FUND's performance with other measures of
investment return. For example, in comparing the FUND's total return with data
published by Lipper Analytical Services, Inc. or the Standard & Poor's 500 Stock
Index or the Dow Jones Industrial Average, the FUND calculates its aggregate
total return for the specified periods of time by assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment date.
Percentage increases are determined by subtracting the initial net asset value
of the investment from the ending net asset value and by dividing the remainder
by the beginning net asset value. The FUND does not, for these purposes, deduct
the pro rata share of the account opening fee, which was in effect until
December, 1994 from the initial value invested. The FUND will, however, disclose
the pro rata share of the account opening fee and will disclose that the
performance data does not reflect such non-recurring charge and that inclusion
of such charge would reduce the performance quoted. Such alternative total
return information will be given no greater prominence in such advertising than
the information prescribed under SEC rules and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The FUND reserves the right to close an account that has dropped below
$1,000 in value for a period of three months or longer other than as a result of
a decline in the net asset value per share. Shareholders are notified at least
60 days prior to any proposed redemption and are invited to add to their account
if they wish to continue as a shareholder of the FUND, however, the FUND does
not presently contemplate making such redemptions and the FUND will not redeem
any shares held in tax-sheltered retirement plans.
The FUND has elected to be governed by Rule 18f-1 of the 1940 Act,
under which the FUND is obligated to redeem the shares of any shareholder solely
in cash up to the lesser of 1% of the net asset value of the FUND or $250,000
during any 90-day period. Should any shareholder's redemption exceed this
limitation, the FUND can, at its sole option, redeem the excess in cash or in
portfolio securities. Such securities would be selected solely by the FUND and
valued as in computing net asset value. In these circumstances a shareholder
selling such securities would probably incur a brokerage charge and there can be
no assurance that the price realized by a shareholder upon the sale of such
securities will not be less than the value used in computing net asset value for
the purpose of such redemption.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the FUND and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the FUND or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The FUND has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the FUND is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Please note that the below-listed and
defined "Short-Short Gain Test" has been repealed pursuant to the Taxpayer
Relief Act of 1997, effective for taxable years beginning after the date of
enactment. For purposes of the FUND, the effective date of the repeal will be
October 1, 1997. Distributions by the FUND made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the FUND may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain
<PAGE>
Test will not prevent the FUND from disposing of investments at a loss, since
the recognition of a loss before the expiration of the three-month holding
period is disregarded for this purpose. Interest (including original issue
discount) received by the FUND at maturity or upon the disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of the
Short-Short Gain Test. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
In general, gain or loss recognized by the FUND on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the FUND at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued while the FUND held the debt obligation. In addition, under the rules of
Code Section 988, gain or loss recognized on the disposition of a debt
obligation denominated in a foreign currency or an option with respect thereto
(but only to the extent attributable to changes in foreign currency exchange
rates), and gain or loss recognized on the disposition of a foreign currency
forward contract, futures contract, option or similar financial instrument, or
of foreign currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless the FUND elects otherwise), will
generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the FUND on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by the FUND as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the FUND
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
FUND grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, the FUND may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the FUND on the lapse of, or any gain or loss
recognized by the FUND from a closing transaction with respect to, an option
written by the FUND will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the FUND will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the FUND
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Certain transactions that may be engaged in by the FUND (such as
regulated futures contracts, certain foreign currency contracts, and options on
stock indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The FUND, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the FUND that are
not Section 1256 contracts. The Internal Revenue Service (the "IRS") has held in
several private rulings (and Treasury Regulations now provide) that gains
arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
<PAGE>
The FUND may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the FUND invests in a PFIC, it may elect to
treat the PFIC as a qualifying electing fund (a "QEF") in which event the FUND
will each year have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
FUND receives distributions of any such ordinary earning or capital gain from
the PFIC. If the FUND does not (because it is unable to, chooses not to or
otherwise) elect to treat the PFIC as a QEF, then in general (i) any gain
recognized by the FUND upon sale or other disposition of its interest in the
PFIC or any "excess distribution" (as defined) received by the FUND from the
PFIC will be allocated ratably over the FUND's holding period of its interest in
the PFIC, (ii) the portion of such gain or excess distribution so allocated to
the year in which the gain is recognized or the excess distribution is received
shall be included in the FUND's gross income for such year as ordinary income
(and the distribution of such portion by the FUND to shareholders will be
taxable as an ordinary income dividend, but such portion will not be subject to
tax at the FUND level), (iii) the FUND shall be liable for tax on the portions
of such gain or excess distribution so allocated to prior years in an amount
equal to, for each such prior year, (A) the amount of gain or excess
distribution allocated to such prior year multiplied by the highest corporate
tax rate in effect for such prior year plus (B) interest on the amount
determined under clause (A) for the period from the due date for filing a return
for such prior year until the date for filing a return for the year in which the
gain is recognized or the excess distribution is received at the rates and
methods applicable to underpayments of tax for such period, and (iv) the
distribution by the FUND to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the FUND
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
Under recently proposed Treasury Regulations the FUND can elect to
recognize as gain the excess, as of the last day of its taxable year, of the
fair market value of each share of PFIC stock over the FUND's adjusted tax basis
in that share ("mark to market gain"). Such mark to market gain will be included
by the FUND as ordinary income, such gain will not be subject to the Short-Short
Gain Test, and the FUND's holding period with respect to such PFIC stock
commences on the first day of the next taxable year. If the FUND makes such
election in the first taxable year it holds PFIC stock, the FUND will include
ordinary income from any mark to market gain, if any, and will not incur the tax
described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year. As
of September 30, 1997, the FUND did not have foreign currency losses to defer.
At September 30, 1997, the FUND did not have a net capital loss carryover.
In addition to satisfying the requirements described above, the FUND
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the FUND's
taxable year, at least 50% of the value of the FUND's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the FUND has
not invested more than 5% of the value of the FUND's total assets in securities
of such issuer and as to which the FUND does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the FUND controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.
If for any taxable year the FUND does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the FUND's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The FUND intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the FUND may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND Distributions
The FUND anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
The FUND may either retain or distribute to shareholders its net
capital gain for each taxable year. The FUND currently intends to distribute any
such amounts. Net capital gain is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the FUND prior to the date on which the shareholder acquired
his shares. The Code provides, however, that under certain conditions only 50%
of the capital gain recognized upon the FUND's disposition of "small business"
stock will be subject to tax.
Ordinary income dividends paid by the FUND with respect to a taxable
year will qualify for the 70% dividends-received deduction generally available
to corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the FUND from domestic corporations for the taxable year.
A dividend received by the FUND will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the FUND has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c) (3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the FUND has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the FUND is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (i) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the FUND or (ii) by application of Code Section 246(b) which in
general limits the dividends-received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends-received deduction
and certain other items).
<PAGE>
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. In addition, under the Superfund Amendments and
Reauthorization Act of 1986, a tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of a corporate
taxpayer's AMTI (determined without regard to the deduction for this tax and the
AMT net operating loss deduction) over $2 million. For purposes of the corporate
AMT and the environmental super fund tax (which are discussed above), the
corporate dividends-received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the FUND into
account (without a dividends-received deduction) in determining its adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Investment income that may be received by the FUND from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the FUND to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the FUND's assets to be invested in various countries is not
known. If more than 50% of the value of the FUND's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
FUND may elect to "pass through" to the FUND's shareholders the amount of
foreign taxes paid by the FUND. If the FUND so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the FUND, but would be treated as having
paid his pro rate share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
FUND representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by the FUND that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the FUND will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the FUND (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the FUND reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the FUND, distributions of such
amounts will be taxable to the shareholder as dividends in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by the FUND
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the FUND) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The FUND will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the FUND that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
<PAGE>
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the FUND in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the FUND within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the FUND will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the FUND is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the FUND is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate, if any) upon the gross amount of the dividend. Furthermore, such a
foreign shareholder may be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) on the gross income resulting from the FUND's election to
treat any foreign taxes paid by it as paid by its shareholders, but may not be
allowed a deduction against this gross income or a credit against this U.S.
withholding tax for the foreign shareholder's pro rata share of such foreign
taxes which it is treated as having been paid. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of the FUND and capital gain dividends.
If the income from the FUND is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
FUND will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the FUND may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the FUND with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the FUND,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting an investment in the FUND under their particular
circumstances.
<PAGE>
BLANCHARD FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, and present
positions with Blanchard Funds, and principal occupations.
<TABLE>
<CAPTION>
<S> <C>
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA Chairman and Trustee of the Fund; Chairman and
Birthdate: July 28, 1924 Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research;
Chairman and Director, Federated Research Corp. and
Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and
Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive
Vice President of the Trust.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934 Trustee of the Fund; Chairman of the Board,
Children's Hospital of Pittsburgh formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000
Group, Inc.; Director, Member of Executive
Committee, University of Pittsburgh; Director or
Trustee of the Funds.
.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates,
Inc., Realtors
3255 Tamiami Trail North
Naples, FL Trustee of the Fund; President, Investment
Birthdate: June 23, 1937 Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or
Trustee in private real estate ventures in
Southwest Florida; formerly, President, Naples
Property Management, Inc. and Northgate Village
Development Corporation; Director or Trustee of the
Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA Trustee of the Fund; Director and Member of the
Birthdate: July 4, 1918 Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC
Bank Corp. and Director, Ryan Homes, Inc.; Director
or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA Trustee of the Fund; Attorney-at-law; Director, The
Birthdate: May 18, 1922 Emerging Germany Fund, Inc.; Director or Trustee of
the Funds.
<PAGE>
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111 Trustee of the Fund; Professor of Medicine, University of
Pittsburgh, PA Pittsburgh; Medical Director, University of Pittsburgh
Birthdate: October 11, 1932 Medical Center - Downtown; Member, Board of Directors,
University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller Ament Henny & Kochuba
205 Ross Street Trustee of the Fund; Attorney of Counsel, Miller,
Pittsburgh, PA Ament, Henny & Kochuba; Director, Eat'N Park
Birthdate: June 18, 1924 Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Director or
Trustee of the Funds. .
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA President, Treasurer and Trustee of the Fund; Vice
Birthdate: October 22, 1930 Chairman, Treasurer, and Trustee, Federated Investors;
Vice President, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., Federated
Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some
of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL Trustee of the Fund; Consultant; Former State
Birthdate: March 16, 1942 Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation;
Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA Trustee of the Fund; President, Law Professor,
Birthdate: December 20, 1932 Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA Trustee of the Fund; Professor, International Politics;
Birthdate: September 14, 1925 Management Consultant; Trustee, Carnegie Endowment for
International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, and
U.S. Space Foundation; President Emeritus, University of
Pittsburgh; Founding Chairman; National Advisory Council
for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center,
Prague; Director or Trustee of the Funds. .
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA Trustee of the Fund; Public
Birthdate: June 21, 1935 Relations/Marketing/Conference Planning; Director
or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA Executive Vice President of the Fund; President
Birthdate: April 11, 1949 and Trustee, Federated Investors, Federated
Advisers, Federated Management, and Federated
Research:; President and Director, Federated
Research Corp. and Federated Global Research Corp.;
President, Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated
Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some
of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA Executive Vice President, and Secretary of the Fund;
Birthdate: October 26, 1938 Executive Vice President, Secretary, and Trustee,
Federated Investors; Trustee, Federated Advisers,
Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and
Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
<PAGE>
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA Vice President of the Fund; Executive Vice
Birthdate: May 17, 1923 President and Trustee, Federated
Investors, Chairman and Director, Federated
Securities Corp.; President or Vice President of
some of the Funds; Director or Trustee of some of
the Funds.
Joeseph S. Machi
Federated Investors Tower
Pittsburgh, PA Vice President and Assistant Treasurer; Vice
Birthdate: May 22, 1962 President and Assistant Treasurer of some of the
Funds.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.;
Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for
U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
Fund Ownership
As of October 29, 1997, Officers and Trustees own less than 1% of the
outstanding shares of each Fund.
To the best knowledge of the FUND, as of October 29, 1997, no
shareholder owned 5% or more of the outstanding shares of the FUND.
<PAGE>
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Officers and Trustees Compensation
- -------------------------------------- ------------------------------------- -------------------------------------
AGGREGATE COMPENSATION FROM TOTAL COMPENSATION PAID TO TRUSTEES
NAME, POSITION THE TRUST* FROM THE FUND AND FUND COMPLEX**
WITH THE TRUST
- -------------------------------------- ------------------------------------- -------------------------------------
- -------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
John F. Donahue, Chairman and Trustee $0 $0 for the Fund Complex
Thomas G. Bigley, Trustee $1,011 $3,217 for the Fund Complex
John T. Conroy, Jr., Trustee $1,114 $3,538 for the Fund Complex
William J. Copeland, Trustee $1,114 $3,538 for the Fund Complex
James E. Dowd, Trustee $1,114 $3,538 for the Fund Complex
Lawrence D. Ellis, M.D., Trustee $1,011 $3,217 for the Fund Complex
Edward L. Flaherty, Jr., Trustee $1,114 $3,538 for the Fund Complex
Edward C. Gonzales, President and $0 $0 for the Fund Complex
Trustee
Peter E. Madden, Trustee $1,011 $3,217 for the Fund Complex
John E. Murray, Jr., J.D., S.J.D., $1,011 $3,217 for the Fund Complex
Trustee
Wesley W. Posvar, Trustee $1,011 $3,217 for the Fund Complex
Marjorie P. Smuts $1,011 $3,217 for the Fund Complex
Trustee
</TABLE>
* The aggregate compensation for the fiscal year ended 9/30/97 is provided for
the Trust which is comprised of five portfolios.
**The total compensation is provided for the Fund Complex, which consists of the
Blanchard Precious Metals Fund, The Virtus Funds, and the Trust. The
information is provided for Blanchard Funds and Blanchard Precious Metals
Fund, Inc. and The Virtus Funds for the fiscal year ended 9/30/97.
MANAGEMENT SERVICES
Manager to the Trust
The Trust's manager is Virtus Capital Management, Inc. ("VCM"), which
is a wholly-owned subsidiary of Signet Banking Corporation. Because of the
internal controls maintained by Signet Bank to restrict the flow of non-public
information, FUND investments are typically made without any knowledge of Signet
Bank's or its affiliates' lending relationships with an issuer.
The manager shall not be liable to the Trust, a Fund, or any
shareholder of any of the Funds for any losses that may be sustained in the
purchase, holding, or sale of any security or for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its contract
with the Trust.
Management Fees
For its services, VCM receives an annual management fee as described in
the prospectus. For the fiscal year ended September 30, 1997, and for the period
from May 1, 1996 through September 30, 1996, the aggregate amount paid or
accrued by the FUND to VCM was $645,955 and $291,223, respectively. For the
fiscal year ended April 30, 1996, the aggregate amount paid or accrued by the
FUND to VCM and the prior manager was $783,420. For the fiscal years ended April
30, 1995 and 1994, the aggregate amounts paid or accrued by the FUND to the
prior manager were $983,753 and $943,678, respectively.
PORTFOLIO MANAGEMENT SERVICES
Pursuant to a sub-advisory agreement which became effective on May 28,
1996, (the "Sub-Advisory Agreement") between VCM and MCM, VCM has delegated to
MCM the authority and responsibility to make and execute decisions for the FUND
within the framework of the FUND's investment policies, subject to review by VCM
and the Board of Trustees of the FUND. Under the terms of the Sub-Advisory
Agreement, MCM has discretion to purchase and sell securities, except as limited
by the FUND's investment objective, policies and restrictions.
The Sub-Advisory Agreement provides for the payment to MCM, by VCM, an
annual fee based on the FUND's daily net assets. For a detailed description of
the Sub-Advisory Agreement see "Portfolio Advisory Services" in the FUND's
prospectus.
For the fiscal year ended September 30, 1997, and for the period from
May 1, 1996 through September 30, 1996, the aggregate amount paid by VCM to MCM
under the Sub-Advisory Agreement was $243,134 and $108,872, respectively. For
the fiscal years ended April 30, 1996, 1995 and 1994, the aggregate amounts paid
by the prior manager to prior Portfolio Managers under prior Sub-Advisory
Agreements were as follows: Shufro Rose & Ehrman- $118,521, $90,508 $104,023,
respectively; Investment Advisers, Inc.- $15,149, $22,423 and $5,641,
respectively; and Cavelti Capital Management, Inc.- $11,507, $11,821 and
$10,556, respectively. For the fiscal years ended April 30, 1996 and 1995, the
aggregate amounts paid to Fiduciary International, Inc. were $140,258 and
$172,222, respectively. For the fiscal years ended April 30, 1996 and 1995, the
aggregate amounts paid to Martin Currie Inc. were $38,798 and $67,098,
respectively. For the fiscal year ended April 30, 1994, the aggregate amount
paid jointly to Fiduciary International, Inc. and Morgan Stanley Asset
Management, Inc. was $257,595. For the fiscal year ended April 30, 1994, the
aggregate amount paid jointly to Martin Currie Inc. and Morgan Stanley Asset
Management, Inc. was $49,870.
The Sub-Advisory Agreement provides that MCM's fee shall be reduced
proportionately based on the ratio of MCM's fee to VCM's fee in the event VCM's
fee is reduced as a result of a state expense limitation.
The Sub-Advisory Agreement, dated December 1, 1995, was approved by the
FUND's Trustees on November 14, 1995 and the FUND's shareholders on May 24,
1996. The Sub-Advisory Agreement provides that it may be terminated without
penalty by either the FUND or the MCM at any time by the giving of 60 days'
written notice to the other and terminates automatically in the event of
"assignment", as defined in the Investment Company Act. The Sub-Advisory
Agreement provides that, unless sooner terminated, it shall continue in effect
for an initial two year period and from year to year thereafter only so long as
such continuance is specifically approved at least annually by either the Board
of Trustees of the FUND or by a vote of the majority of the outstanding voting
securities of the FUND, provided, that in either event, such continuance is also
approved by the vote of the majority of the Trustees who are not parties to the
Sub-Advisory Agreement or "interested persons" of such parties cast in person at
a meeting called for the purpose of voting on such approval.
CUSTODIAN
Signet Trust Company is custodian for the securities and cash of the
Funds. Under the Custodian Agreement, Signet Trust Company holds the Funds'
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. The custodian receives a fee at an annual rate
of .05% on the first $10 million of average net assets of each of the six
respective portfolios and .025% on average net assets in excess of $10 million.
There is a $20 fee imposed on each transaction. The custodian fee received
during any fiscal year shall be at least $1,000 per Fund.
ADMINISTRATIVE SERVICES
Federated Administrative Services, which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for the
fees set forth in the prospectus. For the fiscal year ended September 30, 1997,
and for the period from May 1, 1996 through September 30, 1996, and for the
fiscal year ended April 30, 1996, Federated Administrative Services earned
$75,000, $31,438, and $70,488, respectively, in administrative services fees.
For the fiscal years ended April 30, 1995 and 1994, the administrative services
fees were included as part of the Management fee.
DISTRIBUTION PLAN
The Trust has adopted a Plan for Shares of the FUND pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission pursuant
to the Investment Company Act of 1940. The Plan provides that the FUNDs'
Distributor shall act as the Distributor of shares, and it permits the payment
of fees to brokers and dealers for distribution and administrative services and
to administrators for administrative services. The Plan is designed to (i)
stimulate brokers and dealers to provide distribution and administrative support
services to the FUND and its shareholders and (ii) stimulate administrators to
render administrative support services to the FUND and its shareholders. These
services are to be provided by a representative who has knowledge of the
shareholders' particular circumstances and goals, and include, but are not
limited to: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
FUNDs; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Trust reasonably requests.
For the fiscal year ended September 30, 1997, and for the period from May 1,
1996 through September 30, 1996, the FUND accrued payments under the Plan
amounting to $484,467 and $218,417, respectively. For the fiscal year ended
April 30, 1996, the FUND accrued payments under the Plan amounting to $586,707.
Other benefits which the FUND hopes to achieve through the Plan
include, but are not limited to the following: (1) an efficient and effective
administrative system; (2) a more efficient use of assets of shareholders by
having them rapidly invested in the FUND with a minimum of delay and
administrative detail; and (3) an efficient and reliable records system for
shareholders and prompt responses to shareholder requests and inquiries
concerning their accounts.
By adopting the Plan, the then Board of Trustees expected that the FUND
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the FUND in seeking to achieve its investment objectives.
By identifying potential investors in shares whose needs are served by the
FUND's objectives, and properly servicing these accounts, the FUND may be able
to curb sharp fluctuations in rates of redemptions and sales.
DESCRIPTION OF THE FUND
Shareholder and Trustee Liability. The FUND is a series of an entity of
the type commonly known as a "Massachusetts business trust". Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The FUND's Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations for the FUND and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the FUND
or the Trustees. The Declaration of Trust provides for indemnification out of
the FUND property of any shareholder held personally liable for the obligations
of the FUND.
The Declaration of Trust also provides that the FUND shall, upon
request, assume the defense of any claim made against any shareholders for any
act or obligation of the FUND and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the FUND itself would be unable to meet its
obligations. VCM believes that, in view of the above, the risk of personal
liability to shareholders is remote. The Declaration of Trust further provides
that the Trustees will not be liable for errors of judgment or mistakes of fact
or law, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Voting Rights. The FUND's capital consists of shares of beneficial
interest. Shares of the FUND entitle the holders to one vote per share. The
shares have no preemptive or conversion rights. The voting and dividend rights
and the right of redemption are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under "Shareholder and Trustee
Liability" above. The shareholders have certain rights, as set forth in the
Declaration of Trust, to call a meeting for any purpose, including the purpose
of voting on removal of one or more Trustees.
The FUND may be terminated upon the sale of its assets to another
open-end management company if approved by the vote of the holders of a majority
of the outstanding shares of the FUND. The FUND may also be terminated upon
liquidation and distribution of its assets, if approved by a majority
shareholder vote of the FUND. Shareholders of the FUND shall be entitled to
receive distributions as a class of the assets belonging to the FUND. The assets
of the FUND received for the issue or sale of the shares of the FUND and all
income earnings and the proceeds thereof, subject only to the rights of
creditors, are specially allocated to the FUND, and constitute the underlying
assets of the FUND.
SHAREHOLDER REPORTS
Shareholders will receive reports semi-annually showing the investments
of the FUND and other information. In addition, shareholders will receive annual
financial statements audited by the FUND's independent accountants.
The financial statements for the fiscal year ended September 30, 1997,
are incorporated herein by reference from the FUND's Annual Report dated
September 30, 1997. A copy of the FUND'S Annual Report may be obtained without
charge by contacting Signet Financial Services, Inc. at 1-800-829-3863.
<PAGE>
A-1
APPENDIX A
Description of Moody's Investors Service, Inc.'s
Bond Ratings:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
*Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
*A: Bond which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
*Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Description of Moody's Commercial Paper Ratings:
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
<PAGE>
Issuers rated Prime-1 or P-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations. Prime-1
or P-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 or P-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Description of Standard & Poor's Corporation's
Bond Ratings:
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
*AAA: Debt rated AAA have the highest rating assigned by S&P to a debt
obligation. capacity to pay interest and repay principal is extremely strong.
*AA: Debt rated AA have a very strong capacity to pay interest; and
repay principal and differ from the higher rated issues only in small degree.
*A: Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
*BBB: Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C: Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" Rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
<PAGE>
CCC: Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "C" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
CC: The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1: The rating "C1" is reserved for income bonds on which no interest
is being paid.
D: Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a S&P rating because no public rating has been
requested, because there is insufficient information on which to base a rating,
or because S&P does not rate a particular type of obligation as a matter of
policy.
Description of S&P's Commercial Paper Ratings:
S&P's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days.
A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Economic Overview......................................................... 1
(Art Picture Here) EMERGING MARKETS A Report From Your Portfolio Manager...................................... 2
GROWTH FUND Statement of Investments.................................................. 3
Industry Diversification.................................................. 5
Statement of Assets and Liabilities....................................... 6
Statement of Operations................................................... 7
Statements of Changes in Net Assets....................................... 8
Financial Highlights...................................................... 9
(Art Picture Here) GLOBAL LEADERS A Report From Your Portfolio Managers..................................... 11
FUND Statement of Investments.................................................. 15
Industry Diversification.................................................. 18
Statement of Assets and Liabilities....................................... 19
Statement of Operations................................................... 20
Statements of Changes in Net Assets....................................... 21
Financial Highlights...................................................... 22
(Art Picture Here) GLOBAL REAL A Report From Your Portfolio Manager...................................... 24
ESTATE EQUITY Statement of Investments.................................................. 28
FUND Statement of Assets and Liabilities....................................... 30
Statement of Operations................................................... 31
Statements of Changes in Net Assets....................................... 32
Financial Highlights...................................................... 33
(Art Picture Here) INTERNATIONAL A Report From Your Portfolio Manager...................................... 36
EQUITY FUND Statement of Investments.................................................. 38
Industry Diversification.................................................. 43
Statement of Assets and Liabilities....................................... 44
Statement of Operations................................................... 45
Statements of Changes in Net Assets....................................... 46
Financial Highlights...................................................... 47
Combined Notes to Financial Statements.................................... 49
Trustees and Officers...................................... Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS
ECONOMIC OVERVIEW
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
The U.S. and international markets in 1997 have
increasingly demonstrated a shift in focus from the
avoidance of inflation risk to strategies aimed at
obtaining sustained growth in a low inflation.
At the end of 1996, environment (Photo Here)
economic forecasters generally looked for a slowing growth rate in the United
States economy, with the possibility of reviving inflationary pressures. They
anticipated accelerating growth rates in Europe, with well maintained growth
rates in Southeast Asia, Latin America and other emerging markets; many of which
did not develop as expected. Instead, the United States has sustained rapid
growth, achieving a 5.8% rate of Gross Domestic Product (GDP) growth in the
first quarter of 1997, while inflation has remained at a lower level than seen
in more than a generation. Consumer prices in the U.S. are rising at a less than
2.5% level, even below the inflation rate of 1996. Europe has failed to produce
the projected economic upswing and Asian growth rates are modestly below most
forecasts, while even the Chinese have instituted policies to slow a too rapid
rate of economic growth.
Unexpected changes are causing widespread political and consequent investment
repositioning. The most dramatic shifts occurred in the British and French
political structures. The British elections are leading to a move away from the
Tory government's resistance to economic ties with Europe. The French elections
suggest a move away from economic policies aimed at facilitating a European
currency in 1999, by restricting possible inflationary growth of the economy.
Taking role model leadership, the United States, has become the country which is
negotiating a balanced budget pact aimed at stable growth and suppressed
inflation.
These economic conditions have sustained, and even increased, the willingness
of American savers to put money into the hands of equity mutual funds and to buy
stocks both in the U. S. and in the potentially growing nations abroad. Even the
bond market has, in the second quarter, begun to show sustained gains after more
than a year in which historically high real interest rates (returns above the
extraordinary level of inflation) contributed to a lower rate of inflation in
the United States. While the strength of the dollar began to fade in the early
months of 1997, there was little evidence of a broad retreat out of U.S.
equities from abroad, while there continued to be growth in U.S. investments
into the stocks of other nations.
The consensus view as we approach mid-year is that a continued low level of
inflation can be expected in the months ahead for most of the principal trading
and investing nations. Those which, over the last year, suffered from high rates
of inflation, such as Brazil, Chile, Indonesia, Mexico, Philippines, Thailand,
and Greece are seeing lower inflation rates in 1997. Greater stability should
allow less currency volatility and thereby facilitate investment transfers among
the nations. World economic activity is expected to accelerate only modestly
through the balance of this year. The United States, which has been a powerful
source of international demand and of growing importance in exports, is seen as
having a lower growth rate going into the second half of the year after the
blistering pace of the 5.6% GDP growth of the first quarter. New government
policies in Europe's high unemployment economies are anticipated to stimulate
demand, although it is quite clear that the goal of an integrated currency will
limit radical action. If currency volatility is reduced and interest rates
remain within a narrow band, conditions for the maintenance of profitable world
trade should be sustained.
The leadership of the United States stock market's powerful momentum, with
few interruptions to its upward trend, has encouraged investment participation
around the world. The 26% twelve-month advance of U.S. stock prices in the
period through May was, in fact, eclipsed by such gains (in local currencies) as
the 55% increase in Spain, 44% increase in Denmark, 43% in the Netherlands, and
46% in Switzerland. Even France, with its political uncertainties and high
unemployment, produced a 28% gain in the period. Among major nations, only Japan
had a negative market, with a fall of over 9%.
The evident need for selectivity, and focus on leadership enterprises, which
are the watchwords of our investment policies in the United States, are equally
relevant for investment internationally. The need for a long-term perspective, a
policy of taking advantage of declines in prices of quality stocks, purchasing
bonds during periods of exaggerated apprehensions over inflation, together with
systematic investing, should prove effective ways to capitalize on the
potentials of this investment environment, even after a long, sustained bull
market in stocks.
1
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
RICHARD WAGONER
We are pleased to present the Semiannual Report for
Evergreen Emerging Markets Growth Fund for the period ended
April 30, 1997. Evergreen Emerging Markets Growth Fund
completed the first half of its fiscal year with a net asset
value per share (Class Y, no-load shares) of $9.64. The Fund's
13.7%* total return (Class Y shares) for that time outperformed
the 9.8% total return for the MSCI Emerging Markets Global
Index**. The six-month total return for the Fund's Class A
shares at net asset value was 13.6%*.
The last six months were an extremely positive period for
the emerging markets. The combination of a positive interest (Photo Here)
rate environment and signs of economic recovery in many of
the markets attracted investors after two years of moderate performance. The
leading markets were Brazil, Greece, Turkey, Colombia, Israel, Argentina and
Taiwan, each of which was up over 25% during this period, as measured by their
respective MSCI country sub-indexes. The worst performing markets were Thailand,
South Korea and the Philippines, which declined 27%, 14% and 6% respectively.
As compared with the MSCI Emerging Markets Global Index, the Fund's
overweights in Brazil, Hong Kong and Portugal helped performance, as did the
Fund's underweights in Thailand and Korea. Strong stock selection in Brazil,
Chile and Portugal also contributed. Our major sector overweights were in the
financial and services sector, where our combined weighting was approximately
60%.
The near-term outlook remains bullish for the emerging markets. The developed
economies, particularly the U.S., are showing signs of strength, but a major
tightening of monetary policy does not seem imminent. We are particularly
positive on Latin America where the economies of Mexico and Argentina are
emerging from the after-effects of the Mexican peso devaluation of 1994, and
Brazil, the largest economy in the region, seems to finally be embracing market
reforms. The Pacific Rim markets, where we are substantially underweighted,
continue to underperform, but we remain positive on the long-term prospects for
this region. The Eastern European markets are still underdeveloped but are
becoming increasingly attractive.
Thank you for your investment in Evergreen Emerging Markets Fund.
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING INVOLVES INCREASED RISK AND VOLATILITY.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF DIVIDEND INCOME 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.
8.2% WAS THE 6-MONTH TOTAL RETURN ENDED 4/30/97, 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, 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 FUND'S CLASS Y SHARES ARE NOT SUBJECT TO SALES
CHARGES AND ARE AVAILABLE TO CERTAIN INSTITUTIONAL INVESTORS AND INVESTMENT
ADVISORY CLIENTS OF EVERGREEN ASSET AND ITS AFFILIATES.
** SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL. THE MSCI EMERGING MARKETS INDEX
IS AN UNMANAGED INDEX OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE MADE IN
AN INDEX.
2
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
STATEMENT OF INVESTMENTS
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
LONG TERM INVESTMENTS (90.9%)
COMMON STOCKS -- 86.9%
ARGENTINA -- 5.9%
20,000 Banco de Galicia y Buenos Aires
SA de CV, ADR....................... $ 486,563
17,000 Banco Frances del Rio de la
Plata SA, ADR....................... 516,375
14,900 Telefonica de Argentina, ADR,
Cl. B............................... 495,425
37,100 YPF SA, ADR......................... 1,024,887
2,523,250
BRAZIL -- 16.0%
10,700 Companhia Energetica de Minas
Gerais, ADR......................... 486,940
1,250,000* Companhia Paulista de Forca e Luz... 193,959
2,322,000 Eletrobras SA....................... 1,050,195
800,000* Light Participacoes SA.............. 255,007
570,000 Light Servicos de Electricidade SA.. 236,897
6,006,000 Petroleo Brasileiro SA.............. 1,262,192
25,200 Telecomunicacoes Brasileiras, ADR... 2,891,700
11,000,000 Unibanco Uniao de Bancos
Brasileiros SA...................... 406,384
6,783,274
CHILE -- 3.9%
51,600 Compania de Telecom de Chile SA..... 1,670,550
CHINA -- 0.5%
8,300* Huaneng Power Intl., Inc., ADR...... 201,275
COLOMBIA -- 0.5%
7,700 Banco Ganadero SA................... 212,712
CZECH REPUBLIC -- 2.6%
6,200 Komercni Banka AS................... 438,005
5,500* Skoda Plzen AS...................... 175,791
4,500* SPT Telekom AS...................... 475,552
1,089,348
HONG KONG -- 10.8%
107,520 Bank of East Asia Ltd............... 369,897
50,000 Cheung Kong Holdings, Ltd........... 438,908
360,000* Cheung Kong Infrastructure
Holdings............................ 1,020,074
1,048,000 China Overseas Land & Investment
Ltd................................. 591,880
18,400 HSBC Holdings Plc................... 465,552
118,000 Lai Sun Development Co., Ltd........ 143,949
23,683* Lai Sun Hotels, Warrants @ 2.20
HKD expiring 4/30/99................ 2,262
528,000 National Mutual Asia Ltd............ 545,279
51,000 Sun Hung Kai Properties Ltd......... 553,024
<CAPTION>
SHARES VALUE
HONG KONG -- 10.8% -- CONTINUED
1,035,000 Vanda Systems & Comm Hldgs.......... $ 434,228
4,565,053
HUNGARY -- 3.3%
10,400 EGIS Gyogyszergyar.................. 660,770
9,900 Richter Gedeon, GDR................. 748,295
1,409,065
INDIA -- 1.4%
7,400* EIH Ltd., GDR, 144A................. 121,138
8,200 Ranbaxy Laboratories Ltd., GDR,
144A................................ 205,000
12,500 Videsh Sanchar Nigam Ltd., GDR,
144A................................ 246,812
572,950
INDONESIA -- 1.6%
467,608 Bank International Indonesia........ 336,755
89,656* Bank International Indonesia,
Warrants @1000 IDR expiring
1/17/2000........................... 28,594
72,000 PT Gudang Garam..................... 302,222
667,571
ISRAEL -- 1.8%
20,800 ECI Telecommunications Ltd.......... 455,000
5,900 Teva Pharmaceutical Inds. Ltd.,
ADR................................. 299,425
754,425
LUXEMBOURG -- 0.8%
7,500* Millicom International Cellular SA 341,250
MALAYSIA -- 4.0%
35,000 AMMB Holdings Berhad................ 232,794
41,000* Arab Malaysian Finance Berhad....... 89,812
82,000* Arab Malaysian Finance Berhad,
Rights expiring 4/30/97............. 163
22,400 Commerce Asset Holding Berhad....... 133,822
70,000 Industrial Oxygen Inc., Berhad...... 86,984
68,000 Malayan Banking Berhad.............. 677,075
84,000 New Straits Times Press, Berhad..... 468,377
1,689,027
MEXICO -- 10.2%
51,000 Alfa SA de CV....................... 279,821
7,200* Bufete Industrial SA................ 137,700
8,080 Desc SA de CV, ADR.................. 208,060
70,000 Grupo Elektra SA de CV.............. 656,264
124,000 Grupo Finance Inbursa............... 424,439
23,100 Grupo Imsa SA De CV, ADR............ 496,650
</TABLE>
3
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 86.9% -- CONTINUED
MEXICO -- 10.2% -- CONTINUED
<C> <S> <C>
97,800 Grupo Modelo SA de CV............... $ 593,212
1,195,000* Grupo Posadas, SA de CV, Class A
Shares.............................. 550,393
17,800 Telefonos de Mexico SA, ADR......... 734,250
14,000* Tubos de Acero de Mexico SA, ADR.... 229,250
4,310,039
PERU -- 1.0%
18,000 Telefonica del Peru SA, ADR......... 432,000
POLAND -- 2.8%
9,700 Agros Holding SA.................... 276,004
11,700 Bank Rozwoju Eksportu SA............ 279,276
3,700 Bank Slaski SA...................... 314,085
36,100 Elektrim............................ 324,135
1,193,500
PORTUGAL -- 4.5%
21,000 Banco Comercial Portugues, ADR...... 322,875
35,000 Portugal Telecom SA, ADR............ 1,295,000
3,400* Telecel-Comunicacaoes Pessoais SA... 292,770
1,910,645
SINGAPORE -- 1.9%
21,000 City Developments Ltd............... 169,741
181,000 Datacraft Asia Ltd.................. 398,200
75,000 Genting International Plc........... 222,000
789,941
SOUTH AFRICA -- 2.3%
6,900 Anglo American Corp. Ltd............ 440,706
15,300 De Beers Centenary AG............... 550,546
991,252
SOUTH KOREA -- 0.6%
26,643 SK Telecom Ltd., ADR................ 253,108
TAIWAN -- 9.1%
480,000* Acer Inc............................ 1,223,427
10,440* Advanced Semiconductor Materials
International NV, GDR............... 223,155
5,000 China Steel Corp.................... 5,351
250,000 Chinatrust Commercial Bank.......... 469,993
200,000* President Enterprises............... 354,302
49,222* President Enterprises Corp.,
GDR, 144A........................... 885,996
125,000* Siliconware Precision Industries.... 451,916
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
TAIWAN -- 9.1% -- CONTINUED
<TABLE>
<C> <S> <C>
105,000* United Microelectronics Corp........ $ 254,339
3,868,479
USSR -- 0.9%
7,000 LUKoil Oil Co., ADR................. 397,807
VENEZUELA -- 0.5%
7,600 Compania Anonima Nacional
Telefonos de Venezuela.............. 228,000
TOTAL COMMON STOCKS
(COST $31,640,915)................ 36,854,521
PREFERRED STOCKS -- 4.0%
BRAZIL -- 4.0%
2,518,000* Eletrobras SA, Cl. B Shares......... 1,174,356
1,935,000* Telesp Telefonos Sao Paulo.......... 549,478
1,723,834
TOTAL PREFERRED STOCKS
(COST $1,269,843)................. 1,723,834
TOTAL LONG-TERM INVESTMENTS
(COST $32,910,758)................ 38,578,355
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
REPURCHASE AGREEMENT -- 8.2%
$3,468,000 State Street Bank & Trust Co.,
5.00% dated 4/30/97, due
5/1/97 -- collateralized by
$2,860,000 U.S.Treasury Bonds,
9.25%, due 2/15/16; maturity
value -- $3,542,420 (cost
$3,468,000)......................... 3,468,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $36,378,758)......... 99.1% 42,046,355
OTHER ASSETS AND
LIABILITIES -- NET......... 0.9% 363,963
NET ASSETS --................ 100.0% $42,410,318
</TABLE>
* Non-income producing securities
ADR -- American Depositary Receipts
GDR -- Global Depositary Receipts
144A -- securities are restricted as to resale to qualified institutional
investors.
See accompanying combined notes to financial statements.
4
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
INDUSTRY DIVERSIFICATION
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
Banks.............................................................................................................. 12.8%
Building, Construction & Furnishings............................................................................... 0.7
Business Equipment & Services...................................................................................... 3.9
Chemical & Agricultural Products................................................................................... 0.2
Communication Systems & Services................................................................................... 3.0
Consumer Products & Services....................................................................................... 0.7
Diversified Companies.............................................................................................. 2.3
Electrical Equipment & Services.................................................................................... 3.0
Energy............................................................................................................. 11.7
Finance & Insurance................................................................................................ 3.1
Food & Beverage Products........................................................................................... 5.0
Healthcare Products & Services..................................................................................... 4.5
Metal Products & Services.......................................................................................... 2.9
Leisure & Tourism.................................................................................................. 2.1
Oil................................................................................................................ 0.9
Publishing, Broadcasting & Entertainment........................................................................... 1.1
Real Estate........................................................................................................ 6.9
Retailing & Wholesale.............................................................................................. 1.6
Telecommunication Equipment & Services............................................................................. 22.4
Utilities.......................................................................................................... 2.1
Total Long-Term Investments.................................................................................. 90.9
Short-Term Investments............................................................................................. 8.2
Other Assets and Liabilities -- net................................................................................ 0.9
Net Assets................................................................................................... 100.0%
</TABLE>
5
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
STATEMENT OF ASSETS & LIABILITIES
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $36,378,758)............................................................. $42,046,355
Foreign currencies at value (identified cost $122,141)......................................................... 121,791
Cash........................................................................................................... 314,780
Receivable for investments sold................................................................................ 1,123,775
Dividends and interest receivable.............................................................................. 216,594
Receivable for Fund shares sold................................................................................ 59,431
Unamortized organization expense............................................................................... 23,070
Prepaid expenses and other assets.............................................................................. 39,089
Total assets............................................................................................. 43,944,885
LIABILITIES:
Payable for investments purchased.............................................................................. 1,401,016
Accrued advisory fee........................................................................................... 17,195
Payable for Fund shares repurchased............................................................................ 3,992
Distribution fee payable....................................................................................... 2,358
Accrued expenses............................................................................................... 110,006
Total liabilities........................................................................................ 1,534,567
NET ASSETS........................................................................................................ $42,410,318
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $39,812,764
Accumulated net investment income.............................................................................. 104,281
Accumulated net realized loss on investments and foreign currency related transactions......................... (3,173,071)
Net unrealized appreciation on investments and foreign currency related transactions........................... 5,666,344
Net assets.................................................................................................. $42,410,318
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($1,939,603/201,935 shares of beneficial interest outstanding).................................. $ 9.61
Sales charge -- 4.75% of offering price........................................................................ .48
Maximum offering price................................................................................... $ 10.09
Class B Shares ($3,290,935/346,153 shares of beneficial interest outstanding).................................. $ 9.51
Class C Shares ($890,005/93,671 shares of beneficial interest outstanding)..................................... $ 9.50
Class Y Shares ($36,289,775/3,763,456 shares of beneficial interest outstanding)............................... $ 9.64
</TABLE>
See accompanying combined notes to financial statements
6
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
STATEMENT OF OPERATIONS
(Art Icon Here)
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $47,913)........................................... $ 346,503
Interest.......................................................................................... 65,670
Total investment income........................................................................ 412,173
EXPENSES:
Advisory fee...................................................................................... $ 289,402
Custodian fee..................................................................................... 89,507
Registration and filing fees...................................................................... 45,340
Transfer agent fee................................................................................ 33,174
Distribution fees................................................................................. 19,168
Reports and notices to shareholders............................................................... 14,084
Professional fees................................................................................. 13,656
Administration personnel and service fees......................................................... 7,772
Amortization of organizational expense............................................................ 7,079
Insurance......................................................................................... 5,044
Miscellaneous..................................................................................... 1,157
Trustees' fees and expenses....................................................................... 772
Fee waivers and/or reimbursement from Investment Manager.......................................... (218,402)
Total expenses.............................................................................. 307,753
Less: Indirectly paid expenses.................................................................... (189)
Net expenses................................................................................ 307,564
Net investment income................................................................................ 104,609
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized loss on investments.................................................................. (1,281,480)
Net realized loss on foreign currency related transactions........................................ (44,570)
Net realized loss on investments and foreign currency related transactions........................ (1,326,050)
Net change in unrealized appreciation (depreciation) on investments and foreign currency related
transactions.................................................................................... 5,703,199
Net realized and unrealized gain on investments and foreign currency related transactions............ 4,377,149
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $4,481,758
</TABLE>
See accompanying combined notes to financial statements.
7
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Art Icon Here)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1997 OCTOBER 31, 1996
<S> <C> <C>
(UNAUDITED)
OPERATIONS:
Net investment income (loss)............................................................. $ 104,609 $ (4,321)
Net realized loss on investments and foreign currency related transactions (1,326,050) (96,636)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions................................................. 5,703,199 (38,536)
Net increase (decrease) in net assets resulting from operations....................... 4,481,758 (139,493)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares........................................................................... -- (6,742)
Class Y Shares........................................................................... -- (81,928)
Total distributions to shareholders from net investment income..................... -- (88,670)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 9,042,086 24,970,951
Proceeds from reinvestment of distributions.............................................. -- 22,693
Payment for shares redeemed.............................................................. (4,682,332) (3,663,950)
Net increase resulting from Fund share transactions................................... 4,359,754 21,329,694
Net increase in net assets............................................................ 8,841,512 21,101,531
NET ASSETS:
Beginning of period...................................................................... 33,568,806 12,467,275
End of period (including undistributed net investment income (accumulated net investment
loss) of $104,281 and ($328),
respectively)......................................................................... $ 42,410,318 $ 33,568,806
</TABLE>
See accompanying combined notes to the financial statements.
8
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS SEPTEMBER 6, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997+++ OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997+++ OCTOBER 31,
(UNAUDITED) 1996+++ 1995# 1994 (UNAUDITED) 1996+++
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $8.46 $7.90 $8.17 $10.00 $8.39 $7.85
Income from investment operations:
Net investment income (loss)........ .02 (.01) .05 -- (.02) (.08)
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions..... 1.13 .62 (.32) (1.83) 1.14 0.62
Total from investment
operations...................... 1.15 .61 (.27) (1.83) 1.12 0.54
Less distributions to shareholders
from net investment income.......... -- (.05) -- -- -- --
Net asset value, end of period........ $9.61 $8.46 $7.90 $8.17 $9.51 $8.39
TOTAL RETURN+......................... 13.6% 7.7% (3.3%) (18.3%) 13.4% 6.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $1,940 $1,645 $1,117 $867 $3,291 $2,881
Ratios to average net assets:
Expenses**.......................... 1.75%++ 1.74% 1.73%++ 1.78%++ 2.51%++ 2.50%
Net investment income (loss)**...... 0.38%++ (0.09%) 0.76%++ (0.12%)++ (0.38%)++ (0.87%)
Portfolio turnover rate............... 65% 107% 65% 17% 65% 107%
Average commission rate paid per
share............................... $.0059 $.0103 N/A N/A $.0059 $.0103
<CAPTION>
CLASS B SHARES
SEPTEMBER 6,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $8.16 $10.00
Income from investment operations:
Net investment income (loss)........ .01 (.02)
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions..... (.32) (1.82
Total from investment
operations...................... (.31) (1.84)
Less distributions to shareholders
from net investment income.......... -- --
Net asset value, end of period........ $7.85 $8.16
TOTAL RETURN+......................... (3.8%) (18.4%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $1,940 $1,589
Ratios to average net assets:
Expenses**.......................... 2.48%++ 2.53%++
Net investment income (loss)**...... 0.03%++ (0.84%)++
Portfolio turnover rate............... 65% 17%
Average commission rate paid per
share............................... N/A N/A
</TABLE>
* Commencement of class operations.
# The Fund changed its year end from December 31 to October 31.
+ 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 SHARES CLASS B SHARES
SIX MONTHS SEPTEMBER 6, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997 OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
Expenses.............................. 3.03% 3.58% 3.97% 3.96% 3.82% 4.34%
Net investment loss................... (0.91%) (1.93%) (1.48%) (2.30%) (1.69%) (2.71%)
<CAPTION>
CLASS B SHARES
SEPTEMBER 6,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
Expenses.............................. 4.72% 4.71%
Net investment loss................... (2.21%) (3.02%)
</TABLE>
See accompanying combined notes to financial statements.
9
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SIX MONTHS SEPTEMBER 6, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997+++ OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997+++ OCTOBER 31,
(UNAUDITED) 1996+++ 1995# 1994 (UNAUDITED) 1996+++
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $8.38 $7.84 $8.16 $10.00 $8.48 $7.92
Income from investment operations:
Net investment income (loss)........ .06 (.08) .02 (.02) .03 .01
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions..... 1.06 0.62 (.34) (1.82) 1.13 .62
Total from investment
operations...................... 1.12 0.54 (.32) (1.84) 1.16 .63
Less distributions to shareholders
from net investment income.......... -- -- -- -- -- (.07)
Net asset value, end of period........ $9.50 $8.38 $7.84 $8.16 $9.64 $8.48
TOTAL RETURN+......................... 13.4% 6.9% (3.9%) (18.4%) 13.7% 7.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $890 $85 $56 $89 $36,290 $28,959
Ratios to average net assets:
Expenses**.......................... 2.54%++ 2.51% 2.50%++ 2.53%++ 1.49%++ 1.50%
Net investment income (loss)**...... 1.32%++ (0.91%) 0.72%++ (0.82%)++ 0.63%++ 0.11%
Portfolio turnover rate............... 65% 107% 65% 17% 65% 107%
Average commission rate paid per
share............................... $.0059 $.0103 N/A N/A $.0059 $.0103
<CAPTION>
CLASS Y SHARES
SEPTEMBER 6,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $8.17 $10.00
Income from investment operations:
Net investment income (loss)........ .05 0.01
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions..... (.30) (1.84)
Total from investment
operations...................... (.25) (1.83)
Less distributions to shareholders
from net investment income.......... -- --
Net asset value, end of period........ $7.92 $8.17
TOTAL RETURN+......................... (3.1%) (18.3%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).......................... $9,355 $5,878
Ratios to average net assets:
Expenses**.......................... 1.48%++ 1.53%++
Net investment income (loss)**...... 0.94%++ 0.43%++
Portfolio turnover rate............... 65% 17%
Average commission rate paid per
share............................... N/A N/A
</TABLE>
* Commencement of class operations.
# The Fund changed its year end from December 31 to October 31.
+ 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 C SHARES CLASS Y SHARES
SIX MONTHS SEPTEMBER 6, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997 OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
Expenses.............................. 3.82% 4.31% 4.74% 4.71% 2.79% 3.27%
Net investment income (loss).......... 0.04% (2.71%) (1.52%) (3.00%) (0.67%) (1.66%)
<CAPTION>
CLASS Y SHARES
SEPTEMBER 6,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
Expenses.............................. 3.72% 3.71%
Net investment income (loss).......... (1.30%) (1.75%)
</TABLE>
See accompanying combined notes to financial statements.
10
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
EDWIN MISKA
We are pleased to present the Semiannual Report for (Photo Here)
Evergreen Global Leaders Fund for the six months ended
April 30, 1997. The total return for Evergreen Global
Leaders Fund (Class Y, no-load shares) for the period
under review was 5.4%*, slightly below the return for the
MSCI World Index**, 6.8%, and the average total return for
the Lipper Global Funds*** group of the 195 global funds
tracked by Lipper Analytical Services, Inc., during that
time, 6.8%, but comfortably ahead of the MSCI EAFE Index** (Photo Here)
return of 0.8%. For the 12-month period ended April 30, the
Fund (Class Y shares) returned 12.8%, which compares favorably
with the MSCI World Index return of 8.4%, the MSCI EAFE Index
return of 2.5%, and the Lipper Global Funds average return for
the 166 global funds tracked by Lipper during that time, of 8.8%.
The total returns for the Fund's Class A shares for the six-month
period and the period since their inception on June 3, 1996,
through April 30, 1997, were 0.2% and 5.7% respectively.
Despite a generally robust environment for equity investing, with
most major industrialized nations' stock markets at or near record highs, global
investors returns were hampered by the exceedingly strong performance generated
by the U.S. dollar vis-a-vis the world's currencies, which had the effect of
impeding local stock market appreciation. Most representative of this trend was
the decline of the Japanese yen and the German mark versus the U.S. dollar,
10.5% and 12.6%, respectively, for the six months under review. The Fund's
assets were still too low during much of this time to economically benefit from
currency risk management, given its high trading costs and inherent risks.
We maintained the intense focus of Evergreen Global Leaders Fund's investment
strategy on seeking out the "100 best companies in the world", whose synergies
of size and diversity, and strong financial resources made it possible for many
of them to meet or exceed the markets' expectations on consistency of revenue
and earnings growth despite the short-term challenging conditions for
international commerce. Recent growth in assets should permit such "hedging" of
currencies in future periods of extreme volatility.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INTERNATIONAL INVESTING
INVOLVES INCREASED RISK AND VOLATILITY.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE
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. THE
FUND'S CLASS Y SHARES ARE NOT SUBJECT TO SALES CHARGES AND ARE AVAILABLE TO
CERTAIN INSTITUTIONAL INVESTORS AND INVESTMENT ADVISORY CLIENTS OF EVERGREEN
ASSET AND ITS AFFILIATES. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE
DIFFERENT. DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS
ADVISORY FEE. HAD FEE NOT BEEN WAIVED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE
TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER, PLEASE SEE THE PROSPECTUS.
** MSCI EAFE INDEX IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX REPRESENTING
1,112 SECURITIES FROM 20 DEVELOPED COUNTRIES IN EUROPE, AUSTRALIA, AND THE FAR
EAST AS MONITORED BY MORGAN STANLEY CAPITAL INTERNATIONAL. ALL COUNTRY RETURNS
INCLUDING THAT OF THE U.S., DIFFER FROM INDEX RETURNS BECAUSE THEY REPRESENT
TOTAL STOCK MARKET RETURNS AS CALCULATED BY MORGAN STANLEY CAPITAL
INTERNATIONAL. MSCI WORLD INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES. AN
INVESTMENT CAN NOT BE MADE IN AN INDEX.
*** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL
SERVICES, INC., AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER
PERFORMANCE FIGURE DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED,
PERFORMANCE WOULD BE LOWER. 11
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
ECONOMIC ENVIRONMENT AND PORTFOLIO REVIEW
The last six months were ones of divergent paths for the world's equity
markets, as shown by the strong gains of the U.S. stock market relative to the
dismal returns of many of the international markets. The U.S. economy continued
its strong growth trend from the autumn of 1996. Aided by low unemployment, a
tight labor market, a strong currency worldwide and increasing consumer
confidence supported by the strongest sustained growth in corporate profits
since the 1950's, the U.S. equity markets saw all major market indexes move into
and remain in record territory. This "exuberance" led to a pre-emptive move by
the Federal Reserve on March 25, to raise the Federal Funds rate by 1/4%, in an
attempt to prevent the economy from "overheating" and put a damper on inflation
and the steep rise of the dollar. A subsequent negative revaluation of the bond
and equity markets followed during the concluding days of the calendar quarter.
Surprisingly strong first quarter profit results, though, and an equally
ebullient outlook by many of the market's benchmark companies followed, quickly
changing the negative sentiment which had set in. Governmental progress on
budgetary and taxation issues and continued optimism from strong reports on the
economy during April, helped the Dow Jones Industrials add another 6.5% during
the month, highlighting a 28.5% rise during the 12-month period.
Performance of your Fund's U.S. holdings reflected and even exceeded the
strong run of the Dow Jones Industrial Average, as the U.S. holdings of the
Fund, as a group, returned 8.9% for the month of April. The U.S. segment of the
Fund also performed well for the six- and 12-month periods ended April 30,
returning 17.5% and 37.2%, respectively. The markets' continued focus on
companies which have delivered consistent earnings results coupled with strong
outlooks and fundamental standing, helped your Fund to outperform. Given the
strong trading environment, our broadly diversified U.S. allocation increased to
38 issues and 33.3% of the Fund's net assets, from 36 issues and 31.9% of assets
at 1996 fiscal year-end on October 31. Notable performers were all familiar
names. Microsoft Corp. provided the largest dollar gain for the Fund during the
six-month period, rising 53.8%. Others included Charles Schwab & Co., +46.5%,
Student Loan Marketing Association, +39.8%, Intel Corp., +39.1%, Coca-Cola Co.,
+25.8% and The Walt Disney Co., +25.2%. We were not reluctant to take profits
and register gains in securities which had any negative catalysts or changes in
fundamental status or valuation. One company in particular illustrated our
active strategy. Shares of SunAmerica, Inc., originally purchased in June 1996,
were sold on earnings concerns, for a gain of 45.7%. After the shares had
declined over 20%, and the earnings issues had abated, shares were repurchased,
and now show a 14.2% unrealized gain on our new basis. Other notable sales
included shares of Gillette Co., +33.5%; Monsanto Co., +37.6% and Procter &
Gamble , +25.7%. Small gains or losses resulted from the sales of Dana Corp.,
Interpublic Group Cos., Lucent Technologies, PPG Industries and McDonald's Corp.
New purchases were made in shares of AlliedSignal, Inc., Carnival Corp., Dresser
Industries, EMC Corp., Gannett Co., Mattel Inc., Oracle Corp., and Parametric
Technologies.
Performance of your Fund's holdings in foreign securities was disappointing
both in terms of absolute and relative returns for the six-month period under
review and only marginally better during the trailing 12-month period. The
return for the Fund's international holdings, as a group, was up 0.5% for the
six-month period, reflecting the meager return of the MSCI EAFE Index which was
up only 0.8%. Performance was slightly better when measured relative to the
market benchmark for the 12-month period, returning +1.7% versus the MSCI EAFE
Index return of -2.5%. Currency translation was the main culprit behind these
weak numbers, as declines occurred in nearly every industrialized nations
currency vis-a-vis the U.S. dollar, ranging from a 0.4% drop for the British
pound to the 16.3% loss of the Swedish krone. Of the countries in
12
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
which we invest, only the Malayan ringitt managed a 0.7% gain versus the U.S.
dollar. As we had been totally unhedged during this period, our local gains were
ravaged. Despite this, the local climate for investing and general economic
outlook was fairly strong. Our commitment totaled 75 companies from 16 countries
representing 62.5% of the portfolio, in line with 62.8% at fiscal year-end.
In Europe, economic enthusiasm was the key element to a sustained rally in
stock prices. Germany, fueled by its slow but steady recovery, was aided in part
by the weak U.S. dollar/German mark exchange rate and the ensuing demand for
German products abroad. Government talk of structural reforms in taxation and
the onset of new capital investment after many years of neglect, helped rally
German equities to new highs and set the tone for much of the European markets.
The MSCI Europe Index+ climbed 10.7% for the six-month period under review. Our
largest European exposure was Germany at 9.1% of net assets. Our German
portfolio returned 7.0% for the six-month period, led by the shares of SAP AG,
the process control software giant, which rose 45.5% on strong continued growth.
Indicative of the mood to restructure occurring in German business and most of
continental Europe, was the merger of Rheinelektra AG, a fund holding, into
shares of Lahmeyer AG. Both companies were majority owned subsidiaries of mega
holding company RWE AG (also a Fund holding). They were consistently profitable
but were experiencing difficulties achieving growth in a highly competitive
environment, given their large corporate overheads. As both were involved in
electrical power distribution and engineering, the synergies and operating
benefits of consolidation were obvious. RWE in facilitating the link creates a
more competitive subsidiary, in turn making better use of its own capital, and
unlocking hidden value among its vast holdings. The dawning of a new period
focused on competitiveness and enhancing shareholders value has just begun in
Europe. After a strong run-up in price, from depressed pre-merger levels, we
opted to sell our shares of Lahmeyer for a modest gain, as a prolonged period of
restructuring still lay ahead.
Disappointing results were registered from France (7.0% of net assets), which
returned -3.4%. Despite solid performance from shares of grocery retailer
Promodes (sold during the period) +17.9, and new holdings: Technip S.A, +10%, a
firm involved in global engineering projects; and pharmaceutical firm
Synthelabo, +8.7%, weakness in shares of Television Francais, (sold during
period) -23.3%, Sagem, -19.1%, Castorama DuBois, -13.9% and SEB Group, -11.7%
reflected an underlying softness in the domestic French economy, which these
companies depended on for most of their profits. A weak French franc, -12.5%
versus the dollar, exacerbated the poor performance.
Also hurt by severe currency moves, was our performance in Sweden (period-end
weighting of 2.3%), which returned -8.2%. The move in the local currency, the
krone, versus the U.S. dollar was -16.3%. Surprise poor profit announcements
from two Swedish bellweathers, ABB Ag, the engineering giant and Astra AB, the
worldwide pharmaceutical company, accentuated the negative. Both had poor
returns, ABB, -2.8% (position was sold) and Astra, -14.6%. With these
disappointments notwithstanding, there were some bright spots in Europe. Shares
of Belgian chemical and pharmaceutical firm UCB, SA, rose 22.6%; Dutch systems
integrator Getronics rose 20.6%. In the U.K., shares of Lloyds TSB Group rose
44.3%, SmithKline Beacham rose 30.1%, and insurer Legal and General rose 24.5%.
From Spain, shares of Repsol rose 17.7% and Empresa Nacional de Electricdad rose
15.2%.
In contrast, Asian markets suffered at the hands of continued domestic
weakness in Japan, local interest rate and property price concerns, as well as
regional banking crises in Southeast Asia, all of which reverberated
+ UNMANAGED INDEX OF SELECTED SECURITIES.
13
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
throughout Hong Kong, Singapore and Malaysia. The surging U.S. dollar also
impacted Asian companies as much of its trade is U.S. dollar-denominated. The
MSCI Far East Index+ fell 12.0%. Despite these negatives, our shares in Japan
performed admirably, returning 0.7%. Convenience chain retailer Seven-Eleven
Japan, Ltd., the Fund's largest holding, rose 10.8% on strong-same store sales
gains, and electronic game manufacturer Nintendo, Ltd. rose 12% on continuing
worldwide acceptance of its new platform, the N64. Particularly weak were shares
of our Malaysian holdings, which declined 16.4%. Interest-sensitive issues,
reacting to the Bank Negara's (the Malayan Central Bank) raising of short-term
rates, were re-rated swiftly lower. Shares of AMMB Holdings fell 19.4%; Commerce
Asset Holding fell 24.6%; DCB Holdings fell 7.9% and Malayan Banking fell 6.0%.
Automobile maker Proton, despite robust car sales, fell 11.7% on the weakness of
the Japanese yen versus the Malayan ringitt. Much of its components originate
from Japan.
Finally, Canadian diversified manufacturer Bombardier, Class B shares, rose
24.3% on its continued success in its three main product categories: regional
jets; mass transit; and motorized consumer vehicles, such as snowmobiles and
water jetboats. It successfully launched its new commuter plane during the
quarter, the "Global Express" and garnered several large mass transit orders,
upping its order backlog to new highs.
CONCLUSION
The unwavering of the U.S. economic juggernaut and the continued improvement
in the world's other major economies should, we believe, make for a fertile
global investment climate for at least the immediate future. Companies' focus on
enhancement of competitiveness and profitability through restructurings, mergers
and new product innovations should help sustain strong growth. Our continued
focus for the Fund will be to position it to outperform in any economic
environment, and be proactive with respect to macro-economic, political and
social changes. We will maintain our emphasis on buying companies with the
strongest top and bottom line profit growth, strong financial balance sheets and
high returns on shareholders equity. Continued holdings in these undervalued
well-managed companies, we believe, will help to benefit the Fund handsomely and
generate strong long-term capital appreciation.
We appreciate your support and look forward to providing you with continued
updates on the progress of Evergreen Global Leaders Fund.
+ UNMANAGED INDEX OF SELECTED SECURITIES.
14
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
STATEMENT OF INVESTMENTS
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS (95.8%)
COMMON STOCKS -- 95.8%
AUSTRALIA -- 0.5%
139,924 Incitec, Ltd........................ $ 676,541
BELGIUM -- 2.9%
7,000* Barco NV............................ 1,192,447
2,880 Colruyt SA.......................... 1,192,280
600 UCB SA.............................. 1,646,434
4,031,161
CANADA -- 4.7%
140,000 Bombardier, Inc..................... 2,836,077
75,000* Canadian Natural Resources, Ltd..... 1,787,760
80,000 DuPont Canada, Inc.................. 2,004,295
6,628,132
FRANCE -- 7.0%
3,800 Carrefour SA........................ 2,372,518
7,000 Castorama Dubois Investisse......... 1,035,038
6,500 Hermes Internatonal................. 1,748,479
16,500 LAPEYRE SA.......................... 995,117
641 Sagem Co. SA........................ 326,074
7,700 SEB SA.............................. 1,357,543
12,500 Societe Technip..................... 1,321,426
6,000 Synthelabo.......................... 714,469
9,870,664
GERMANY -- 9.1%
2,500 ALTANA AG........................... 1,934,404
1,450 Hugo Boss AG........................ 1,724,795
106,300 RWE AG.............................. 4,419,448
17,200 SAP AG.............................. 3,131,516
3,500 Suedzucker AG....................... 1,664,309
12,874,472
HONG KONG -- 3.3%
117,000 Cheung Kong Holdings, Ltd........... 1,027,045
600,000 Giordano International, Ltd......... 325,308
52,400 Henderson China Holdings, Ltd....... 90,304
115,000 Henderson Land Development Co.,
Ltd................................. 968,663
60,000 Hong Kong Telecommunications, Ltd.
ADS................................. 1,027,500
700,000 National Mutual Asia Ltd............ 722,907
78,000 Wing Lung Bank...................... 426,928
4,588,655
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
ITALY -- 4.1%
60,000 Benetton Group SpA ADS.............. $ 1,552,500
25,000 Fila Holding SpA ADS................ 1,081,250
73,200 Industrie Natuzzi SpA ADS........... 1,628,700
25,000 Luxottica Group SpA ADS............. 1,509,375
5,771,825
JAPAN -- 6.7%
150,000 Mitsui Soko Co...................... 722,023
48,000 Nintendo Co., Ltd................... 3,509,198
69,000 Nippon Chemical..................... 385,945
75,400 Seven-Eleven Japan Co., Ltd......... 4,781,739
9,398,905
MALAYSIA -- 3.3%
76,000 AMMB Holdings Berhad................ 505,496
100,000 Commerce Asset Holding Berhad....... 597,419
155,000 DCB Holdings Berhad................. 503,126
100,000 Malayan Banking Berhad.............. 995,699
40,000 Malaysian Oxygen Berhad............. 197,547
61,000 Nestle Berhad....................... 476,183
100,000 Perusahaan Otomobil Nasional
Berhad.............................. 597,419
112,000 United Engineers Ltd. Berhad........ 794,010
4,666,899
NETHERLANDS -- 3.5%
14,000 Elsevier NV......................... 224,195
28,300 Elsevier NV ADS..................... 919,750
24,200 Getronics NV........................ 732,844
7,000 Nutricia Verenigde Bedrijven NV..... 1,062,054
45,000 VNU................................. 930,812
8,500 Wolters Kluwer NV................... 1,007,365
4,877,020
NEW ZEALAND -- 1.0%
40,200 Telecom Corp. of New Zealand Ltd.
ADS................................. 1,447,200
NORWAY -- 0.9%
15,000 Orkla ASA........................... 1,257,513
SINGAPORE -- 0.6%
50,000 Singapore Press Holdings, Ltd....... 925,734
</TABLE>
15
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 95.8% -- CONTINUED
<C> <S> <C>
SPAIN -- 4.7%
30,000 Centros Comerciales Pryca, SA....... $ 521,186
36,000 Empresa Nacional de Electricdad
ADS................................. 2,515,500
55,000 Prosegur, CIA de Seguridad SA....... 596,252
70,000 Repsol SA, ADS...................... 2,931,250
6,564,188
SWEDEN -- 2.3%
2,600 Astra AB............................ 106,390
55,500 Astra AB ADS........................ 2,275,500
6,200 Hennes & Mauritz AB Cl. B........... 897,039
3,278,929
UNITED KINGDOM -- 7.9%
34,560 Argos Plc........................... 361,284
30,000 Burmah Castrol Plc.................. 491,086
20,000 Carlton Communications Plc ADS...... 837,500
55,400 Granada Group Plc................... 800,023
57,750 Legal & General Group Plc........... 387,028
95,000 Lloyds TSB Group Plc................ 866,856
65,000 Morgan Crucible Company Plc......... 457,212
40,000 Next Plc............................ 422,366
80,000 Reckitt & Colman Plc................ 1,089,141
95,100 Rentokil Group Plc.................. 622,697
12,500 Reuters Holdings Plc ADS............ 770,312
16,100 SmithKline Beecham Plc ADS.......... 1,298,062
40,000 Smiths Industries Plc............... 488,817
85,000 TI Group Plc........................ 728,768
32,700 United News & Media Plc ADS......... 399,608
12,500 Vodafone Group Plc ADS.............. 553,125
26,000 Williams Holdings Plc............... 139,271
50,300 Wolseley Plc........................ 402,726
11,115,882
UNITED STATES -- 33.3%
19,000 AlliedSignal Inc.................... 1,372,750
14,100* Amgen, Inc.......................... 830,138
33,000 AT & T Corp......................... 1,105,500
10,500 Avon Products, Inc.................. 647,063
26,000 Callaway Golf Co.................... 776,750
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
UNITED STATES -- 33.3% -- CONTINUED
<TABLE>
<C> <S> <C>
30,000 Carnival, Corp...................... $ 1,106,250
27,000* Cisco Systems, Inc.................. 1,397,250
20,000 Coca Cola Co. (The)................. 1,272,500
31,750 Computer Associates International,
Inc................................. 1,651,000
43,250* CUC International, Inc.............. 913,656
20,000 Deere & Co.......................... 920,000
13,900 Disney Walt Co. (The)............... 1,139,800
15,000 Dover Corp.......................... 795,000
30,000 Dresser Inds Inc.................... 896,250
5,000* E M C Corp. Mass.................... 181,875
38,000 Federal National Mortgage
Association......................... 1,562,750
15,000 Gannett Inc......................... 1,308,750
25,000 Gap, Inc............................ 796,875
29,500 General Electric Co................. 3,270,812
16,500 Goodyear Tire & Rubber Co. (The).... 868,312
30,000 Home Depot, Inc. (The).............. 1,740,000
15,600 Intel Corp.......................... 2,388,750
26,500 Marriott International, Inc......... 1,464,125
5,700 Marsh & McLennan Co., Inc........... 686,850
35,000 Mattel, Inc......................... 975,625
35,000 MBNA Corp........................... 1,155,000
12,500 McGraw-Hill Cos., Inc............... 635,938
21,500 Merck & Co., Inc.................... 1,945,750
12,500 Merrill Lynch & Co., Inc............ 1,190,625
18,500* Microsoft Corp...................... 2,247,750
22,000 Norwest Corp........................ 1,097,250
35,000* Oracle Systems Corp................. 1,391,250
28,000* Parametric Technology Corp.......... 1,267,000
17,000 Schering-Plough Corp................ 1,360,000
15,000 Schwab (Charles) & Co., Inc......... 549,375
5,000 Student Loan Marketing Association.. 591,250
30,000 SunAmerica, Inc..................... 1,380,000
70,000 Wal-Mart Stores, Inc................ 1,977,500
46,857,319
TOTAL COMMON STOCKS (COST
$127,625,609).................. 134,831,039
</TABLE>
16
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 3.2%
$300,000 Federal Farm Credit Bank
5.36%, 5/23/97...................... $ 299,017
450,000 Federal Home Loan Mortgage Corp.
5.41%, 5/6/97....................... 449,662
100,000 Federal National Mortgage
Association
5.41%, 5/2/97....................... 99,985
300,000 Federal National Mortgage
Association
5.41%, 5/9/97....................... 299,639
3,000,000 Federal National Mortgage
Association
5.35%, 5/20/97...................... 2,991,529
350,000 Federal National Mortgage
Association
5.35%, 5/28/97...................... 348,596
TOTAL SHORT-TERM INVESTMENTS (COST
$4,488,428).................... 4,488,428
TOTAL INVESTMENTS --
(COST $132,114,037)..... 99.0% 139,319,467
OTHER ASSETS AND
LIABILITIES -- NET...... 1.0% 1,396,240
NET ASSETS --.............. 100.0% $140,715,707
</TABLE>
* Non-income producing securities
ADS -- American Depositary Shares
See accompanying combined notes to financial statements.
17
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
INDUSTRY DIVERSIFICATION
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF
NET ASSETS
<S> <C>
Automotive Equipment & Manufacturing............................................................................... 0.4%
Banks.............................................................................................................. 3.2
Building, Construction & Furnishings............................................................................... 3.0
Chemical & Agricultural Products................................................................................... 2.7
Consumer Products & Services....................................................................................... 8.4
Diversified Companies.............................................................................................. 4.2
Energy............................................................................................................. 7.1
Finance & Insurance................................................................................................ 6.2
Food & Beverage Products........................................................................................... 4.1
Healthcare Products & Services..................................................................................... 9.7
Industrial Specialty Products & Services........................................................................... 5.6
Information Systems & Technology................................................................................... 10.2
Leisure & Tourism.................................................................................................. 1.8
Publishing, Broadcasting & Entertainment........................................................................... 7.0
Real Estate........................................................................................................ 1.5
Retailing & Wholesale.............................................................................................. 11.7
Telecommunication Equipment & Services............................................................................. 2.1
Textile & Apparel.................................................................................................. 4.3
Utilities.......................................................................................................... 2.6
Total Long-Term Investments.................................................................................. 95.8
Short-Term Investments............................................................................................. 3.2
Other Assets and Liabilities -- net................................................................................ 1.0
Net Assets................................................................................................... 100.0%
</TABLE>
18
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
STATEMENT OF ASSETS AND LIABILITIES
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $132,114,037)........................................................... $139,319,467
Foreign currencies at value (identified cost $46,698)......................................................... 46,518
Cash.......................................................................................................... 71,780
Receivable for investments sold............................................................................... 1,922,429
Receivable for Fund shares sold............................................................................... 1,260,866
Dividends and interest receivable............................................................................. 392,717
Unamortized organization expense.............................................................................. 27,741
Prepaid expenses and other assets............................................................................. 47,846
Total assets............................................................................................ 143,089,364
LIABILITIES:
Payable for investments purchased............................................................................. 1,999,266
Payable for Fund shares repurchased........................................................................... 100,056
Accrued advisory fee.......................................................................................... 94,397
Distribution fee payable...................................................................................... 77,792
Accrued expenses.............................................................................................. 102,146
Total liabilities....................................................................................... 2,373,657
NET ASSETS....................................................................................................... $140,715,707
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $132,578,745
Accumulated net investment loss............................................................................... (148,148)
Accumulated net realized gain on investments and foreign currency related transactions........................ 1,080,260
Net unrealized appreciation on investments and foreign currency related transactions.......................... 7,204,850
Net assets.............................................................................................. $140,715,707
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($26,473,494/2,113,710 shares of beneficial interest outstanding).............................. $ 12.52
Sales charge -- 4.75% of offering price....................................................................... 0.62
Maximum offering price..................................................................................... $ 13.14
Class B Shares ($85,093,962/6,843,415 shares of beneficial interest outstanding).............................. $ 12.43
Class C Shares ($1,580,031/127,182 shares of beneficial interest outstanding)................................. $ 12.42
Class Y Shares ($27,568,220/2,197,831 shares of beneficial interest outstanding).............................. $ 12.54
</TABLE>
See accompanying combined notes to financial statements
19
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
STATEMENT OF OPERATIONS
(Art Icon Here)
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $93,292)......................................... $ 838,761
Interest........................................................................................ 143,917
Total investment income...................................................................... 982,678
EXPENSES:
Advisory fee.................................................................................... $ 500,177
Distribution fees............................................................................... 260,166
Transfer agent fee.............................................................................. 201,641
Custodian fee................................................................................... 90,430
Registration and filing fees.................................................................... 76,665
Administration personnel and service fees....................................................... 21,033
Professional fees............................................................................... 13,793
Trustees' fees and expenses..................................................................... 5,100
Insurance expense............................................................................... 4,225
Amortization of organizational expense.......................................................... 3,913
Miscellaneous................................................................................... 1,488
Fee waivers and/or reimbursement from Investment Manager........................................ (48,886)
Total expenses............................................................................... 1,129,745
Less: Indirectly paid expenses.................................................................. (1,218)
Net expenses................................................................................. 1,128,527
Net investment loss................................................................................ (145,849)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain on investments................................................................ 1,041,464
Net realized gain on foreign currency related transactions...................................... 60,123
Net realized gain on investments and foreign currency related transactions...................... 1,101,587
Net change in unrealized appreciation (depreciation) on investments and foreign currency related
transactions.................................................................................. 3,676,426
Net realized and unrealized gain on investments and foreign currency related transactions.......... 4,778,013
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $4,632,164
</TABLE>
See accompanying combined notes to financial statements.
20
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
<S> <C> <C>
(UNAUDITED)
OPERATIONS:
Net investment income (loss)............................................................. $ (145,849) $ 2,343
Net realized gain on investments and
foreign currency related transactions................................................. 1,101,587 77,271
Net change in unrealized appreciation on investments and
foreign currency related transactions................................................. 3,676,426 3,528,424
Net increase in net assets resulting from operations.................................. 4,632,164 3,608,038
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............................................................... 0 (2,343)
In excess of net investment income....................................................... 0 (17,247)
From capital gains....................................................................... (83,650) 0
Total distributions to shareholders................................................... (83,650) (19,590)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 66,688,481 72,602,018
Proceeds from reinvestment of distributions.............................................. 72,508 14,211
Payment for shares redeemed.............................................................. (4,676,980) (2,122,493)
Net increase resulting from Fund share transactions................................... 62,084,009 70,493,736
Net increase in net assets............................................................ 66,632,523 74,082,184
NET ASSETS:
Beginning of period...................................................................... 74,083,184 1,000
End of period (including undistributed net investment loss of ($148,148) and
distributions in excess of net investment income of ($2,299), respectively)............ $140,715,707 $ 74,083,184
</TABLE>
See accompanying combined notes to the financial statements.
21
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
CLASS A SHARES SHARES
SIX MONTHS JUNE 3, SIX MONTHS
ENDED 1996* ENDED
APRIL 30, THROUGH APRIL 30,
1997 OCTOBER 31, 1997
(UNAUDITED) 1996 (UNAUDITED)
<S> <C> <C> <C>
PER SHARE DATA:++
Net asset value, beginning of period............................................. $11.91 $11.29 $11.87
Income from investment operations:
Net investment income (loss)................................................... .01 -- (.04)
Net realized and unrealized gain on investments and foreign currency related
transactions................................................................. .61 .62 .61
Total from investment operations............................................. .62 .62 .57
Less distributions to shareholders from:
Net investment income.......................................................... -- -- --
Net realized gain on investments and foreign currency related transactions..... (.01) -- (.01)
Total distributions.......................................................... (.01) .00 (.01)
Net asset value, end of period................................................... $12.52 $11.91 $12.43
TOTAL RETURN+.................................................................... 5.2% 5.5% 4.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $26,473 $12,975 $85,094
Ratios to average net assets:+++
Expenses....................................................................... 1.76%** 1.75%** 2.50%**
Net investment income.......................................................... 0.12%** 0.10%** (0.63%)**
Portfolio turnover rate.......................................................... 8% 20%# 8%
Average commission rate paid per share........................................... $.0572 $.0659 $.0572
<CAPTION>
CLASS B SHARES
JUNE 3,
1996*
THROUGH
OCTOBER 31,
1996
<S> <C>
PER SHARE DATA:++
Net asset value, beginning of period............................................. $11.29
Income from investment operations:
Net investment income (loss)................................................... (.02)
Net realized and unrealized gain on investments and foreign currency related
transactions................................................................. .60
Total from investment operations............................................. .58
Less distributions to shareholders from:
Net investment income.......................................................... --
Net realized gain on investments and foreign currency related transactions..... --
Total distributions.......................................................... .00
Net asset value, end of period................................................... $11.87
TOTAL RETURN+.................................................................... 5.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $41,948
Ratios to average net assets:+++
Expenses....................................................................... 2.50%**
Net investment income.......................................................... (0.68%)**
Portfolio turnover rate.......................................................... 20%#
Average commission rate paid per share........................................... $.0659
</TABLE>
* Commencement of class operations.
** Annualized. Due to the recent commencement of their offering, the ratios for
Class A, Class B and Class C shares are not necessarily. comparable to that
of the Class Y shares and are not necessarily indicative of future ratios.
# Calculated for the twelve months ended October 31, 1996.
+ 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.
++ 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 operating expenses and net investment income (loss) to
average net assets would have been the following:
<TABLE>
<CAPTION>
CLASS B
CLASS A SHARES SHARES
SIX MONTHS JUNE 3, SIX MONTHS
ENDED 1996* ENDED
APRIL 30, THROUGH APRIL 30,
1997 OCTOBER 31, 1997
(UNAUDITED) 1996 (UNAUDITED)
<S> <C> <C> <C>
Expenses......................................................................... 1.85% 2.16% 2.60%
Net investment income (loss)..................................................... 0.02% (0.31%) (0.72%)
<CAPTION>
CLASS B SHARES
JUNE 3,
1996*
THROUGH
OCTOBER 31,
1996
<S> <C>
Expenses......................................................................... 2.93%
Net investment income (loss)..................................................... (1.11%)
</TABLE>
See accompanying combined notes to financial statements.
22
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS Y
CLASS C SHARES SHARES
SIX MONTHS JUNE 3, SIX MONTHS
ENDED 1996* ENDED
APRIL 30, THROUGH APRIL 30,
1997 OCTOBER 31, 1997
(UNAUDITED) 1996 (UNAUDITED)
<S> <C> <C> <C>
PER SHARE DATA:++
Net asset value, beginning of period............................................. $11.86 $11.29 $11.91
Income from investment operations:
Net investment income (loss)................................................... (.04) (.02) .02
Net realized and unrealized gain on investments and foreign currency related
transactions................................................................. .61 .59 .62
Total from investment operations............................................. .57 .57 .64
Less distributions to shareholders from:
Net investment income.......................................................... -- -- .00
Net realized gain on investments and foreign currency related transactions..... (.01) -- (.01)
Total distributions.......................................................... (.01) .00 (.01)
Net asset value, end of period................................................... $12.42 $11.86 $12.54
TOTAL RETURN+.................................................................... 4.8% 5.0% 5.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......................................... $1,580 $554 $27,568
Ratios to average net assets:+++
Expenses....................................................................... 2.51%** 2.50%** 1.50%**
Net investment income.......................................................... (0.63%)** (0.67%)** 0.35%**
Portfolio turnover rate.......................................................... 8% 20%# 8%
Average commission rate paid per share........................................... $.0572 $.0659 $.0572
<CAPTION>
CLASS Y SHARES
YEAR ENDED
OCTOBER 31,
1996
<S> <C>
PER SHARE DATA:++
Net asset value, beginning of period............................................. $10.00
Income from investment operations:
Net investment income (loss)................................................... .07
Net realized and unrealized gain on investments and foreign currency related
transactions................................................................. 1.88
Total from investment operations............................................. 1.95
Less distributions to shareholders from:
Net investment income.......................................................... (.04)
Net realized gain on investments and foreign currency related transactions..... --
Total distributions.......................................................... (.04)
Net asset value, end of period................................................... $11.91
TOTAL RETURN+.................................................................... 19.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......................................... $18,607
Ratios to average net assets:+++
Expenses....................................................................... 1.47%
Net investment income.......................................................... 0.62%
Portfolio turnover rate.......................................................... 20%#
Average commission rate paid per share........................................... $.0659
</TABLE>
* Commencement of class operations.
** Annualized. Due to the recent commencement of their offering, the ratios for
Class A, Class B and Class C shares are not necessarily. comparable to that
of the Class Y shares and are not necessarily indicative of future ratios.
# Calculated for the twelve months ended October 31, 1996.
+ 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.
++ 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 operating expenses and net investment income (loss) to
average net assets would have been the following:
<TABLE>
<CAPTION>
CLASS Y
CLASS C SHARES SHARES
SIX MONTHS SIX MONTHS
ENDED JUNE 3, 1996* ENDED
APRIL 30, THROUGH APRIL 30,
1997 OCTOBER 31, 1997
(UNAUDITED) 1996 (UNAUDITED)
<S> <C> <C> <C>
Expenses....................................................................... 2.61% 2.93% 1.60%
Net investment income (loss)................................................... (0.72%) (1.10%) 0.25%
<CAPTION>
CLASS Y SHARES
YEAR ENDED
OCTOBER 31,
1996
<S> <C>
Expenses....................................................................... 2.51%
Net investment income (loss)................................................... (0.42%)
</TABLE>
See accompanying combined notes to financial statements.
23
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
SAMUEL A. LIEBER
This Semiannual Report for Evergreen Global Real Estate
Equity Fund covers the six-month period ended April 30. The
Fund began the period under review with a net asset value
(NAV) per share (Class Y, no-load shares) of $12.31, declined
to a low of $11.22 on April 22, and ended the period at
$11.37. We believe that the April 22 low was the turning point
for the Fund in this period of underperformance which began
last year on June 28, when the Fund's NAV per share was
$13.51. This period of underperformance marks only the second
time since the Fund's inception in 1989, that it has
underperformed the GPR Global Real Estate Index* for a period
longer than (Photo Here)
three months. Significantly, subsequent to April 30, the Fund
returned to its levels of last October. With this report, we will discuss the
reasons for the Fund's underperformance, why we believe the performance has
recovered and where we believe the Fund will find opportunities over the near
and long-term periods.
PERIOD IN REVIEW
Evergreen Global Real Estate Equity Fund benefited from the excellent
performance of a number of property shares in Europe, but was adversely impacted
by poor performing markets in Asia. The Fund's performance suffered further as a
result of the U.S. dollar's appreciation against the average of all continental
European currencies, and the Japanese yen, of approximately 14% and 11%,
respectively. During this period, the dollar rose against virtually every
currency, and much of this appreciation took place in the first five weeks of
1997.
During the six months under review, the weakest property market was Thailand,
where the local Thai Property Developer Index** declined by 43%. Concerns over a
residential housing glut were exacerbated by an overall slowdown in the economy,
political instability and a decline in consumer and investor confidence. In
aggregate, these concerns have led to a banking crisis. The Fund's two largest
holdings in Thailand, Hemaraj Land & Development Public Co., Ltd. and Saha
Pathana Inter-Holdings Co., declined by only 18.1% and 0.8%, respectively, as
their focus is on industrial property, which has been the only healthy property
sector. The Philippines was the other major negative for the Fund, as two of our
larger holdings, Megaworld Properties and Holdings, Inc., and SM Development
Corp. fell by 41% and 31%, respectively. Philippines securities have been
affected by a scare that the Philippines may be the next Thailand. However, we
believe the country's property market, banking system and overall economy are
much stronger than Thailand's. Nonetheless, the Fund's position in the
Philippines was reduced from 13.3% at the beginning of the period to 5.4% by
April 30. Despite the slide in share prices, the Fund was still able to book
gains as positions were reduced. Among stocks sold, Megaworld and Filinvest Land
provided average gains of 60% and 50%, respectively. Another area of general
weakness in the Fund's portfolio was Japan, where smaller capitalization stocks
have underperformed those in the Nikkei 225 Index, which has only three real
estate stocks.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING INVOLVES INCREASED RISKS AND VOLATILITY.
* A GLOBAL MARKET CAPITALIZATION-WEIGHTED PERFORMANCE INDEX (IN U.S. DOLLARS) OF
LISTED PROPERTY/REAL ESTATE SECURITIES MEASURING TOTAL RETURN
** UNMANAGED INDEX OF SELECTED SECURITIES
AN INVESTMENT CAN NOT BE MADE IN AN INDEX
24
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
In Europe, the Fund enjoyed a number of superb gains, led by two of its
holdings in Spain, Sotogrande and Immobilaria Urbis SA, which rose 76% and 74%,
respectively. On average, the Fund's investments in France rose in line with the
SBF Real Estate Index**. The stellar performer in France was Societe du Louvre
which rose 55% in local currency. The Fund's principal holding in Germany, Kampa
Haus, rose almost 23%, as interest rates have come down and the German economy
is showing signs of improvement. Scandinavia was also a positive area for the
Fund. Notably, Norway's Steen and Strom ASA rose by more than 38% and Denmark's
Thorkild Kristensen rose 14.5%. The Fund also enjoyed a number of similar gains
from its holdings in Great Britain, Argentina and Canada. Currency depreciation
against the dollar, however, reduced much of the Fund's substantial gains in
local currencies.
PORTFOLIO CHANGES
In response to the weakening market sentiment, particularly in Southeast
Asia, a number of changes were made to the Fund with the intent to decrease the
potential volatility of the portfolio. The average market capitalization of the
portfolio was increased to help reduce the Fund's exposure to more volatile
"high beta"*** stocks. In particular, the Fund's weighting in stocks from North
American countries was increased from 22.1% to 27% of net assets, which
increased the Fund's dollar exposure. This was offset by a reduction in holdings
in Asia from 34.9% to 21%. Most of this decrease came from an almost 10%
reduction in the Fund's Southeast Asia holdings to nearly half of its 1996
fiscal year-end weighting. The other major change in country weightings was in
Europe, where holdings were increased from 33.1% to 40.8% of the Fund's net
assets. This included an increase in the exposure to Scandinavian countries from
6.8% to 9.5%, as the Fund initiated two positions in Sweden.
PROSPECTS FOR RECOVERY
A basic premise from which we operate is that real estate demand springs from
economic growth. The supply side of this equation is influenced by specific
market factors, as well as financial liquidity levels. The U.S. and Great
Britain were the first countries to bring liquidity back to the real estate
markets following the "Gulf War" recession. Economic growth started to pick up
at about the same time. The issue in the U.S., is how far along the curve of the
real estate cycle is the property market at present. Clearly, the easy money has
been made, as occupancies and rents are now high enough to make new development
feasible in many markets. Given the broad availability of significant capital to
supply new development, the critical variable will be the sustainability of
economic growth and, hence, demand by potential occupiers. Thus, we are
cautiously optimistic that attractive investments can still be found in the
property share markets of both the U.S. and Great Britain through attention to
share and market fundamentals.
Europe has been something of an enigma, as the effort to achieve
multi-national convergence to the standards of the European Monetary Union (EMU)
has in fact prevented a number of countries from emerging from their prolonged
recessions. Such enforced fiscal austerity has led to unemployment rates
averaging 10.9% for prospective EMU countries and ranging from 12% to 15% in
many neighboring countries. The outcome has been stalled economic recoveries and
anemic gross domestic product (GDP) growth levels. As a result, Continental
Europe is typically three to four years behind the U.S. in both its business and
real estate cycles.
** UNMANAGED INDEX OF SELECTED SECURITIES
***BETA IS A MEASURE OF THE MARKET RISK OF A SECURITY, ILLUSTRATING THE
VOLATILITY OF ITS NET ASSET PER SHARE (NAV) AS COMPARED WITH THE MARKET AS A
WHOLE (AS MEASURED BY S&P 500 REINVESTED INDEX WHICH IS ASSIGNED A BETA OF ONE).
A BETA OF LESS THAN ONE INDICATES THAT THE NAV WOULD FLUCTUATE LESS THAN THE
MARKET AND GREATER THAN ONE INDICATES IT WOULD FLUCTUATE MORE THAN THE MARKET.
25
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
Thus, while the U.S. and Great Britain have already enjoyed a rebound in rents
and property values, the property markets in Continental Europe are still in the
early stages of recovery. So called "vulture" investors from the U.S. and Great
Britain have made some acquisitions, bringing new investment capital back to
these property markets.
Japan has been plagued by its government's inability and unwillingness to
bail out its financial system as the U.S. did with the Resolution Trust
Corporation in the early 1990's. As a result, the stabilization of Japan's
property and financial markets has taken more than six years. Prime rents have
been increasing as vacancy rates have declined in major cities and new capital
has come into the market predominantly from other Asian investors seeking
premiere buildings and prime development locations. Several periods of solid GDP
growth have been posted over the past year, however, these have been primarily
the result of strong export growth and not domestic consumption. We believe that
domestic consumption will probably pick up within the next twelve months and
will lead to a more balanced recovery in the property sector.
The stock markets of Southeast Asia have followed different economic cycles
based on inter-ASEAN+ trade and the influence of economic patterns from the
major industrialized nations as well as their own domestic economies. The
strongest economic theme during the period under review has been the imminent
takeover of Hong Kong by mainland China on June 30. This has led to significant
cross-border inflows of funds into Hong Kong's stock and real estate markets.
Indeed, this proved very volatile for Hong Kong's residential market which
itself is a strong proxy for the stock market with regard to appreciation
potential and overall liquidity levels. We believe Hong Kong's stock market has
shown signs of speculative volatility and suspect that it has experienced a mini
bubble of "irrational exuberance" which will need time to gradually deflate.
Thailand, on the other hand, has seen its robust economy, which produced 10%
annual GDP growth for much of the last two decades, finally come back to earth
as stretched financial markets reacted to an economy that perhaps grew too
rapidly and with too little control. This will probably take a couple of years
to set right, during which time those companies with strong balance sheets
should have opportunities to reap potentially huge rewards. It is worth noting
that a number of regional investors from Singapore, Malaysia and Hong Kong have
begun to search for bargains in Thailand's property markets. The Philippines
appears to have followed a similar pattern, but we believe that this country,
which suffered a decade of stagnation before seeing its economy take off in
1994, is merely catching its breath as capital markets and economic demand get
realigned. Excesses should be absorbed by the country's expanding middle class,
within a reasonable period. Singapore has also slowed down and this is being
reflected in the flattening out of real estate prices across all sectors.
Malaysia, on the other hand, perhaps saw liquidity grow too quickly and we
believe that secondary locations and specific markets are being overbuilt and
may offer better opportunities next year. Australia and New Zealand have
experienced fairly anemic economic growth, however Sidney is enjoying its own
mini cycle as it prepares for the 2000 Olympics. Latin America, in general, has
recovered from the peso crisis of late 1994/early 1995 and we are beginning to
see new opportunities as domestic demand has gradually re-emerged, as have
foreign investors. While Canada is often seen as tailing the U.S., this time it
took several years to occur. After the rebound in share prices last fall, new
companies have been coming public and, thus, creating more potential investment
opportunities.
+ ASSOCIATION OF SOUTHEAST ASIAN NATIONS
26
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
FUTURE OPPORTUNITIES
In conclusion, we believe that the growth prospects and the opportunity to
invest at reasonable values is much greater abroad than in the U.S. Financial
markets abroad have stabilized and appear poised to grow with the prospect of
their economies' expanding. This bodes well for revived demand for property
which in turn should hasten the return of investment capital to the property
markets. We believe that the expansion of public equity markets' role in
providing such investment capital will rapidly expand the range of investment
opportunities for stock investors. Just as a ten-fold growth in the stock market
capitalization of publicly traded property shares occurred here from 1993 to the
present, we expect new investment to fuel share price performance.
Over the past three years, property stocks abroad (measured using the GPR
International Index - excluding the U.S.) produced a total return of 13.7% for
the entire 36 months. By comparison, the Wilshire Real Estate Securities Index++
measuring U.S. stocks rose by 51.1% for the same period. We believe that this
relative underperformance has set levels from which foreign property shares in
general appear historically cheaper in relative terms. This reflects our thesis
that many business cycles abroad are only in the early stages of economic
recovery. This is why we are optimistic about the Fund's opportunities for
profitable investment in foreign property shares. The six-month total returns
ended April 30, 1997, for the Fund's Class Y, no-load shares and Class A shares
at net asset value were -7.4%+++ and -7.5%+++, respectively.
We appreciate your support during this recent difficult period and look
forward to updating Evergreen Global Real Estate Equity Fund's progress in its
Annual Report.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
++ UNMANAGED INDEX OF SELECTED SECURITIES
+++ PERFORMANCE FIGURES INCLUDE REINVESTMENT OF DIVIDEND INCOME 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.
- -11.9% WAS THE 6-MONTH TOTAL RETURN ENDED 4/30/97 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, 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.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY FEE
AND ABSORBED A PORTION OF THE FUND'S OTHER EXPENSES. HAD THE FEE NOT BEEN WAIVED
OR EXPENSES ABSORBED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER AND EXPENSE
ABSORPTION MAY BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER
AND EXPENSE ABSORPTION, PLEASE SEE THE PROSPECTUS.
27
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
STATEMENT OF INVESTMENTS
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- (98.0%)
COMMON STOCKS -- 98.0%
ARGENTINA -- 5.6%
281,313 Inversiones y Representaciones SA..... $ 990,321
30,868 Inversiones y Representaciones
SA, GDR............................... 1,080,380
2,070,701
BELGIUM -- 0.9%
7,342 Bernheim-Comofi....................... 347,076
CANADA -- 1.9%
100,000* Gentra, Inc........................... 221,188
70,000 Monarch Development Corp.............. 484,789
705,977
DENMARK -- 4.5%
12,600* Nordicom AS........................... 182,575
20,525 Thorkild Kristensen................... 1,479,263
1,661,838
FRANCE -- 12.4%
6,576 Simco Registered Shares............... 571,238
20,000 Societe des Immeubles................. 1,261,030
51,078 Societe du Louvre..................... 1,916,573
8,450 Unibail............................... 817,999
4,566,840
GERMANY -- 3.6%
35,897 Kampa Haus AG......................... 1,336,965
JAPAN -- 10.2%
220 Chubu Sekiwa Real Estate, Ltd......... 1,889
52,000 Daibiru Corp.......................... 573,522
190,000 Diamond City Co., Ltd................. 1,047,781
133,100 Kansai Sekiwa Real Estate Co.,
Ltd................................... 968,877
47,000 Tachihi Enterprise Co., Ltd........... 1,140,426
3,732,495
MALAYSIA -- 0.9%
108,300 IOI Properties Berhad................. 258,802
39,200* IOI Properties Berhad
Warrants @ 2.75 MR expiring 5/18/98... 60,108
318,910
MEXICO -- 3.6%
930,000* Grupo Posadas, SA de CV, Class A
Shares............................... 428,339
1,930,000* Grupo Posadas, SA de CV, Class L
Shares............................... 888,920
1,317,259
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
NETHERLANDS -- 4.1%
110,500 German City Estates NV................ $ 1,508,649
NORWAY -- 2.4%
65,000 Steen & Strom ASA..................... 885,385
PHILIPPINES -- 5.4%
2,000,000* Guoco Holdings........................ 291,998
2,576,250* Megaworld Properties and
Holdings, Inc......................... 576,408
3,461,000* Robinson's Land Corp. Class B.......... 498,741
7,125,000* SM Development Corp.................... 621,445
1,988,592
SINGAPORE -- 0.3%
114,200 Hotel Grand Central, Ltd............... 94,674
SPAIN -- 5.3%
40,000 Inmobilaria Urbis SA................... 251,701
239,993 Sotogrande SA.......................... 709,121
40,000 Vallehermoso SA........................ 984,918
1,945,740
SWEDEN -- 2.6%
99,800* Anders Dioes AB........................ 502,518
62,000* NK Cityfastigheter AB.................. 434,688
937,206
THAILAND -- 4.2%
123,700 Hemaraj Land & Development
Public Co., Lt......................... 406,059
22,900 MK Real Estate Development
Corp., Ltd............................. 25,203
400,000 Saha Pathana Inter-Holdings Co......... 964,686
206,200 Sammakorn Public Co., Ltd.............. 153,925
1,549,873
UNITED KINGDOM -- 5.0%
500,000 Greycoat Plc.......................... 1,243,922
1,000,000 Hemingway Properties Plc.............. 607,780
1,851,702
</TABLE>
28
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 98.0% -- CONTINUED
<C> <S> <C>
UNITED STATES -- 25.1%
36,900* Alexander's, Inc...................... $ 2,453,850
20,000 CarrAmerica Realty Corp............... 557,500
97,600 Continental Homes Holding Corp........ 1,549,400
10,000 Crescent Real Estate Equities, Inc.... 262,500
89,516 Horizon Group, Inc ................... 1,152,518
28,100* Pacific Greystone Corp................ 414,475
15,000 Prentiss Properties Trust............. 354,375
258,100* Presley Companies (The), Class A...... 290,363
20,000 Santa Anita Realty Enterprises, Inc... 587,500
8,000 Starwood Lodging Trust................ 308,000
120,000* US Home Corp.,
Warrants @ $20 expiring 6/22/98....... 750,000
130,700* Washington Homes, Inc................. 522,800
9,203,281
TOTAL COMMON STOCKS
(COST $40,633,628)............... 36,023,163
TOTAL INVESTMENTS --
(COST $40,633,628).......... 98.0% $36,023,163
OTHER ASSETS AND
LIABILITIES -- NET.......... 2.0% 720,797
NET ASSETS --................. 100.0% $36,743,960
</TABLE>
* Non-income producing securities
GDR -- Global Depositary Receipts
See accompanying combined notes to financial statements.
29
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $40,633,628)............................................................. $36,023,163
Foreign currencies at value (identified cost $60,565).......................................................... 58,016
Cash........................................................................................................... 1,632
Receivable for investments sold................................................................................ 1,423,820
Dividends and interest receivable.............................................................................. 122,517
Receivable for Fund shares sold................................................................................ 31,703
Prepaid expenses and other assets.............................................................................. 45,191
Total assets............................................................................................. 37,706,042
LIABILITIES:
Payable for investments purchased.............................................................................. 849,315
Accrued advisory fee........................................................................................... 27,840
Payable for Fund shares repurchased............................................................................ 21,478
Distribution fee payable....................................................................................... 336
Payable for line of credit..................................................................................... 311
Accrued expenses............................................................................................... 62,802
Total liabilities........................................................................................ 962,082
NET ASSETS........................................................................................................ $36,743,960
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $46,848,544
Accumulated net investment loss................................................................................ (155,960)
Accumulated net realized loss on investments and foreign currency related transactions......................... (5,328,568)
Net unrealized depreciation on investments and foreign currency related transactions........................... (4,620,056)
Net assets............................................................................................... $36,743,960
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($850,874/74,895 shares of beneficial interest outstanding)..................................... $ 11.36
Sales charge -- 4.75% of offering price........................................................................ 0.57
Maximum offering price................................................................................... $ 11.93
Class B Shares ($180,529/16,139 shares of beneficial interest outstanding)..................................... $ 11.19
Class C Shares ($89,109/7,968 shares of beneficial interest outstanding)....................................... $ 11.18
Class Y Shares ($35,623,448/3,131,956 shares of beneficial interest outstanding)............................... $ 11.37
</TABLE>
See accompanying combined notes to financial statements.
30
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
STATEMENT OF OPERATIONS
(Art Icon Here)
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $22,054)......................................... $ 289,388
Interest........................................................................................ 6,955
Total investment income................................................................... 296,343
EXPENSES:
Advisory fee.................................................................................... $ 220,299
Custodian fee................................................................................... 92,439
Transfer agent fee.............................................................................. 44,822
Registration and filing fees.................................................................... 33,765
Professional fees............................................................................... 13,165
Reports and notices to shareholders............................................................. 8,600
Trustees' fees and expenses..................................................................... 5,031
Insurance....................................................................................... 4,245
Distribution fees............................................................................... 2,306
Miscellaneous................................................................................... 1,946
Fee waivers and/or reimbursement from Investment Manager........................................ (22,030)
Total operating expenses..................................................................... 404,588
Interest........................................................................................ 4,331
Less: Indirectly paid expenses.................................................................. (407)
Net expenses.............................................................................. 408,512
Net investment loss................................................................................ (112,169)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain on investments................................................................ 1,618,430
Net realized gain on foreign currency related transactions...................................... 908
Net realized gain on investments and foreign currency related transactions...................... 1,619,338
Net change in unrealized appreciation (depreciation) on investments and foreign currency related
transactions.................................................................................. (4,354,145)
Net realized and unrealized loss on investments and foreign currency related transactions.......... (2,734,807)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $(2,846,976)
</TABLE>
See accompanying combined notes to financial statements.
31
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1997 OCTOBER 31, 1996
<S> <C> <C>
(UNAUDITED)
OPERATIONS:
Net investment income (loss)............................................................... $ (112,169) $ 66,648
Net realized gain on investments and foreign currency related transactions................. 1,619,338 495,328
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions..................................................................... (4,354,145) 3,504,138
Net increase (decrease) in net assets resulting from operations......................... (2,846,976) 4,066,114
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class Y Shares............................................................................. (76,344) 0
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................. 1,241,105 16,042,743
Proceeds from reinvestment of distributions................................................ 43,582 0
Payment for shares redeemed................................................................ (9,982,783) (33,339,082)
Net decrease resulting from Fund share transactions..................................... (8,698,096) (17,296,339)
Net decrease in net assets.............................................................. (11,621,416) (13,230,225)
NET ASSETS:
Beginning of period........................................................................ 48,365,376 61,595,601
End of period (including accumulated net investment loss and undistributed net investment
income of ($155,960) and $32,553, respectively).......................................... $ 36,743,960 $ 48,365,376
</TABLE>
See accompanying combined notes to the financial statements.
32
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX MONTHS FEBRUARY 10, SIX MONTHS
ENDED ONE MONTH 1995* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997 OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA+++:
Net asset value, beginning of period..... $12.28 $11.58 $12.12 $11.46 $12.14 $11.53
Income from investment operations:
Net investment income (loss)........... (.06) .06 (.01) .07 (.10) (.13)
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions................. (.86) .64 (.53) .59 (.85) .74
Total from investment operations..... (.92) .70 (.54) .66 (.95) .61
Net asset value, end of period........... $11.36 $12.28 $11.58 $12.12 $11.19 $12.14
TOTAL RETURN+............................ (7.5%) 6.0% (4.5%) 5.8% (7.8%) 5.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $851 $721 $74 $66 $180 $134
Ratios to average net assets:
Expenses**............................. 2.11%++ 1.79% 1.73%++ 1.61%++ 2.86%++ 2.56%
Interest expense....................... 0.02%++ 0.03% 0.03%++ 0.01%++ 0.02%++ 0.03%
Net investment income (loss)**......... 0.74%++ 0.40% (1.26%)++ 0.98%++ 1.48%++ (1.03%)
Portfolio turnover rate.................. 17% 25% 1% 28%## 17% 25%
Average commission rate paid per share... $.0039 $.0037 N/A N/A $.0039 $.0037
<CAPTION>
CLASS B SHARES
FEBRUARY 8,
ONE MONTH 1995*
ENDED THROUGH
OCTOBER 31, SEPTEMBER 30,
1995# 1995
<S> <C> <C>
PER SHARE DATA+++:
Net asset value, beginning of period..... $12.08 $11.44
Income from investment operations:
Net investment income (loss)........... (.02) .08
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions................. (.53) .56
Total from investment operations..... (.55) .64
Net asset value, end of period........... $11.53 $12.08
TOTAL RETURN+............................ (4.6%) 5.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $100 $128
Ratios to average net assets:
Expenses**............................. 2.44%++ 2.42%++
Interest expense....................... 0.03%++ 0.03%++
Net investment income (loss)**......... (1.98%)++ 1.38%++
Portfolio turnover rate.................. 1% 28%##
Average commission rate paid per share... N/A N/A
</TABLE>
* Commencement of class operations.
# The Fund changed its year end from September 30 to October 31.
## Portfolio turnover is calculated for the year ended September 30, 1995.
+ 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 FEBRUARY 10, SIX MONTHS
ENDED ONE MONTH 1995* ENDED
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, YEAR ENDED
1997 OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1995 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
Expenses................................. 2.22% 2.97% 46.90% 21.59% 2.97% 14.45%
Net investment loss...................... (0.84%) (0.78%) (46.44%) (19.00%) (1.58%) (12.92%)
<CAPTION>
CLASS B SHARES
FEBRUARY 8,
ONE MONTH 1995*
ENDED THROUGH
OCTOBER 31, SEPTEMBER 30,
1995# 1995
<S> <C> <C>
Expenses................................. 31.39% 82.74%
Net investment loss...................... (30.94%) (79.94%)
</TABLE>
See accompanying combined notes to financial statements.
33
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C SHARES
SIX MONTHS
ENDED ONE MONTH
APRIL 30, YEAR ENDED ENDED
1997 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995#
<S> <C> <C> <C>
PER SHARE DATA+++:
Net asset value, beginning of period........................................... $12.14 $11.53 $12.08
Income from investment operations:
Net investment income (loss)................................................. (.10) (.13) (.02)
Net realized and unrealized gain (loss) on investments and foreign currency
related transactions....................................................... (.86) .74 (.53)
Total from investment operations........................................... (.96) .61 (.55)
Less distributions to shareholders from:
Net investment income........................................................ -- -- --
Net realized gain on investments and foreign currency related transactions... -- -- --
Total distributions........................................................ -- -- --
Net asset value, end of period................................................. $11.18 $12.14 $11.53
TOTAL RETURN+.................................................................. (7.8%) 5.3% (4.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $89 $8 $4
Ratios to average net assets:
Expenses**................................................................... 2.90%++ 2.54% 2.37%++
Interest expense............................................................. 0.02%++ 0.03% 0.02%++
Net investment income (loss)**............................................... (1.43%)++ (1.06%) (1.94%)++
Portfolio turnover rate........................................................ 17% 25% 1%
Average commission rate paid per share......................................... $.0039 $.0037 N/A
<CAPTION>
CLASS C SHARES
FEBRUARY 9,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA+++:
Net asset value, beginning of period........................................... $11.43
Income from investment operations:
Net investment income (loss)................................................. .06
Net realized and unrealized gain (loss) on investments and foreign currency
related transactions....................................................... .59
Total from investment operations........................................... .65
Less distributions to shareholders from:
Net investment income........................................................ --
Net realized gain on investments and foreign currency related transactions... --
Total distributions........................................................ --
Net asset value, end of period................................................. $12.08
TOTAL RETURN+.................................................................. 5.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $7
Ratios to average net assets:
Expenses**................................................................... 1.54%++
Interest expense............................................................. 0.01%++
Net investment income (loss)**............................................... .86%++
Portfolio turnover rate........................................................ 28%++++
Average commission rate paid per share......................................... N/A
</TABLE>
* Commencement of class operations.
# The Fund changed its fiscal year end from September 30 to October 31.
## The Fund changed its fiscal year end from December 31 to September 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. 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.
++++ Portfolio turnover is calculated for the year ended September 30, 1995.
** 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 C SHARES
SIX MONTHS
ENDED ONE MONTH
APRIL 30, YEAR ENDED ENDED
1997 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995#
<S> <C> <C> <C>
Expenses....................................................................... 3.00% 118.64% 570.26%
Net investment loss............................................................ (1.53%) (117.16%) (569.83%)
<CAPTION>
CLASS C SHARES
FEBRUARY 9,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
Expenses....................................................................... 269.60%
Net investment loss............................................................ (266.32%)
</TABLE>
See accompanying combined notes to financial statements.
34
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS Y SHARES
SIX MONTHS
ENDED ONE MONTH NINE MONTHS
APRIL 30, YEAR ENDED ENDED YEAR ENDED ENDED
1997+++ OCTOBER 31, OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996+++ 1995# 1995 1994##
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period...................... $12.31 $11.59 $12.13 $13.81 $14.75
Income from investment operations:
Net investment income (loss)............................ (.04) .01 (.01) .11 .07
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions............. (.88) .71 (.53) (1.17) (1.01)
Total from investment operations...................... (.92) .72 (.54) (1.06) (.94)
Less distributions to shareholders from:
Net investment income................................... (.02) -- -- (.10) --
Net realized gain on investments and foreign currency
related transactions.................................. -- -- -- (.52) --
Total distributions................................... (.02) -- -- (.62) --
Net asset value, end of period............................ $11.37 $12.31 $11.59 $12.13 $13.81
TOTAL RETURN+............................................. (7.4%) 6.2% (4.5%) (7.7%) (6.4%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $35,623 $47,502 $61,418 $67,645 $132,294
Ratios to average net assets:
Expenses................................................ 1.84%++** 1.62%** 1.62%++ 1.54% 1.46%++
Interest expense........................................ 0.02%++ 0.03% 0.03%++ 0.05% 0.08%++
Net investment income (loss)............................ (.50%)++** .11%** (1.14%)++ .92% .56%++
Portfolio turnover rate................................... 17% 25% 1% 28% 63%
Average commission rate paid per share.................... $.0039 $.0037 N/A N/A N/A
<CAPTION>
CLASS Y SHARES
YEAR ENDED
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period...................... $9.86
Income from investment operations:
Net investment income (loss)............................ --
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions............. 5.07
Total from investment operations...................... 5.07
Less distributions to shareholders from:
Net investment income................................... --
Net realized gain on investments and foreign currency
related transactions.................................. (.18)
Total distributions................................... (.18)
Net asset value, end of period............................ $14.75
TOTAL RETURN+............................................. 51.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $146,173
Ratios to average net assets:
Expenses................................................ 1.56%**
Interest expense........................................ --
Net investment income (loss)............................ .03%**
Portfolio turnover rate................................... 88%
Average commission rate paid per share.................... N/A
</TABLE>
* Commencement of class operations.
# The Fund changed its fiscal year end from September 30 to October 31.
## The Fund changed its fiscal year end from December 31 to September 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. 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 Y SHARES
SIX MONTHS
ENDED ONE MONTH NINE MONTHS
APRIL 30, YEAR ENDED ENDED YEAR ENDED ENDED
1997 OCTOBER 31, OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1996 1995# 1995 1994##
<S> <C> <C> <C> <C> <C>
Expenses.................................................. 1.95% 1.67% -- -- --
Net investment loss....................................... (.60%) .06% -- -- --
<CAPTION>
CLASS Y SHARES
YEAR ENDED
DECEMBER 31,
1993
<S> <C>
Expenses.................................................. 1.64%
Net investment loss....................................... (.05%)
</TABLE>
See accompanying combined notes to financial statements.
35
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
RICHARD WAGONER
We are pleased to present the Semiannual Report for
Evergreen International Equity Fund for the period ended April
30, 1997. Evergreen International Equity Fund completed the
first half of its fiscal year with a net asset value per share
(Class Y, no-load shares) of $11.06. The Fund's 7.4%* total
return (Class Y shares) for the six months ended April 30,
outperformed the average total return for the 397
International Funds tracked by Lipper Analytical Services,
Inc.,** of 6.2% The Fund also outperformed the 1.6% total
return for the MSCI EAFE Index***. The six-month total return
ended April 30, for the Fund's Class A shares at net asset
value was 7.2%*.
The past six months saw mixed performance for non-U.S.
stock markets. Most European markets advanced in local-currency terms despite
heightened speculation that European monetary union might be postponed. However,
due to the strong U.S. currency, these gains were somewhat tempered in dollar
terms. Asian markets, in general, rose while Latin American markets had mixed
performance. Japan's equity market struggled during the first quarter of 1997,
hurt by ongoing concerns over the banking sector and over the potential impact
that higher taxes might have on Japan's economic recovery (effective in April,
consumption taxes were raised to 5% from 3%). Among emerging markets, the most
noteworthy performance by region belonged to Latin America, led by Brazil, whose
market rose steadily in both local-currency and dollar terms.
During the first three months of 1997, several noteworthy adjustments were
made to the portfolio's country weightings. The Fund's European exposure was
raised through the addition of attractively-valued stocks in Germany, France,
Switzerland, the Netherlands and the United Kingdom. We grow increasingly
positive on the prospects for selected German companies, in particular, and, as
a result, the Fund's allocation to German stocks has grown steadily over the
past several quarters. While the trend is by no means universal, German
companies collectively are paying increasing heed to building shareholder value,
a U.S.-inspired development
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS
INTERNATIONAL INVESTING INVOLVES INCREASED RISK AND VOLATILITY.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2.1% WAS THE 6-MONTH TOTAL RETURN ENDED 4/30/97, 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, AND
CLASS C SHARES, WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE
WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE. THE FUND'S CLASS Y SHARES ARE
NOT SUBJECT TO SALES CHARGES AND ARE AVAILABLE TO CERTAIN INSTITUTIONAL
INVESTORS AND INVESTMENT ADVISORY CLIENTS OF EVERGREEN ASSET AND ITS AFFILIATES.
PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT.
** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES,
INC., AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER PERFORMANCE FIGURE
DOES NOT INCLUDE SALES CHARGES, AND IF INCLUDED, FIGURE WOULD BE LOWER.
*** MSCI EAFE INDEX IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX
REPRESENTING 1,112 SECURITIES FROM 20 DEVELOPED COUNTRIES IN EUROPE, AUSTRALIA,
AND THE FAR EAST AS MONITORED BY MORGAN STANLEY CAPITAL INTERNATIONAL. ALL
COUNTRY RETURNS INCLUDING THAT OF THE U.S., DIFFER FROM INDEX RETURNS BECAUSE
THEY REPRESENT TOTAL STOCK MARKET RETURNS AS CALCULATED BY MORGAN STANLEY
CAPITAL INTERNATIONAL. AN INVESTMENT CAN NOT BE MADE IN AN INDEX.
36
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Art Icon Here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
that clearly augurs well for the German equity market over the longer term. The
Fund's current holdings include companies whose prospects we view particularly
favorably, and we continue to find attractive opportunities, especially in the
industrial and engineering sector.
Another notable adjustment made to the portfolio was the reduction of its
exposure to Japan. This was achieved largely by profit-taking on stocks that had
met our target prices. Most of these were export-oriented, blue-chip issues,
which have been well-represented in the portfolio in recent months and have
performed strongly, belying the weakness shown by the broad-market averages. The
Fund's remaining stocks represent companies with what we believe to be strong
earnings-growth prospects and share-price-appreciation potential.
Our management team emphasizes a disciplined bottom-up stock-picking approach
which focuses on strong company fundamentals. We believe investment success
results from identifying long-term secular changes and unrecognized growth
opportunities that, based on fundamental intrinsic value, can be bought at
attractive prices.
Thank you for your investment in Evergreen International Equity Fund.
37
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF INVESTMENTS
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- (92.5%)
COMMON STOCKS -- 90.7%
ARGENTINA -- 3.4%
75,200 Telefonica de Argentina, ADR,
Cl. B............................. $ 2,500,400
138,400 YPF SA, ADR....................... 3,823,300
4,000 YPF SA, Cl. D..................... 111,211
6,434,911
AUSTRALIA -- 5.2%
330,600 Boral Ltd......................... 974,552
89,038 David Jones Limited............... 116,653
173,100 National Australia Bank Ltd....... 2,369,106
124,500 News Corp., Ltd................... 573,809
733,700 Orogen Minerals................... 1,691,349
1,126,200 Qantas Airways.................... 2,340,578
627,600 Woolworths Limited................ 1,850,057
9,916,104
AUSTRIA -- 1.4%
23,600 Boehler-Uddeholm AG............... 1,702,803
10,100 Vae Eisenbahnsysteme AG........... 977,460
2,680,263
BRAZIL -- 3.4%
65,600 Panamerican Beverages, Inc.,
ADR............................... 1,902,400
39,700* Telecomunicacoes Brasileiras,
ADR............................... 4,555,575
6,457,975
CHILE -- 1.0%
58,400 Enersis SA, ADR................... 1,839,600
DENMARK -- 1.0%
63,900* ISS Intl. Service System AS,
Cl. B............................. 1,890,619
FINLAND -- 1.7%
46,900 Huhtamaki Group................... 2,033,680
1,186 Rauma Oy.......................... 24,402
52,100 UPM-Kymmene Corp.................. 1,192,197
3,250,279
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
FRANCE -- 6.2%
4,339* Axime SA Ex Segin................. $ 521,884
33,850 BERTRAND FAURE.................... 1,621,019
96,900 Bouygues Offshore SA, ADR......... 1,211,250
25,300 Eaux Cie Generale................. 3,524,184
12,900 Marine-Wendel SA.................. 1,337,188
18,450 Rhone Poulenc SA.................. 620,532
23,900 Societe Generale.................. 2,678,078
4,760 Total SA, Cl. B................... 394,730
11,908,865
GERMANY -- 3.9%
4,500* AVA Allg Handels der Verbraucher
AG................................ 1,216,076
4,207 Bayer Motoren Werk AG............. 3,444,697
33,800 Deutsche Bank AG.................. 1,783,878
3,030 GEA AG............................ 1,032,278
7,476,929
HONG KONG -- 2.2%
1,572,000 First Pacific Ltd................. 1,877,105
179,335 Hongkong Land Holdings Ltd.,
ADR............................... 373,017
9,800* Hysan Development Co., Warrants
@ 25 HKD, expiring 4/30/98........ 3,384
352,600* Jardine Matheson Holdings Ltd..... 1,939,300
900 Swire Pacific Ltd................. 6,942
4,199,748
INDIA -- 2.2%
38,025 Hindalco Industries Ltd., GDR..... 1,230,869
91,200 State Bank of India, GDR.......... 2,218,440
1,500 Tata Engineering & Locomotive
Co., Ltd., GDR.................... 18,338
66,717 Tata Engineering & Locomotive
Ltd............................... 815,615
4,283,262
INDONESIA -- 1.9%
114,000 Bank International Indonesia...... 82,099
17,500 Indosat........................... 48,251
105,300 Indosat, ADR...................... 2,895,750
264,500 Semen Gresek...................... 644,923
3,671,023
ITALY -- 0.0%(A)
12,200 Grassetto SpA..................... 724
JAPAN -- 19.0%
69,000 Canon, Inc........................ 1,636,192
150* DDI Corp.......................... 996,179
</TABLE>
38
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 90.7% -- CONTINUED
JAPAN -- 19.0% -- CONTINUED
<C> <S> <C>
40,400 Fujitsu Denso..................... $ 1,222,169
185,000 Fujitsu Ltd....................... 1,923,819
45,000 Hankyu Realty Co.................. 313,743
35,000 Inabata & Co...................... 211,762
200,000 Isuzu Motors Ltd.................. 751,566
80,000* Japan Asia Investment Co., Ltd. 507,977
70,000 Japan Radio Co.................... 623,154
53,000 Jusco Co.......................... 1,628,393
225,000 Kawasaki Heavy Industries......... 888,053
189,000 Matsushita Electric Works Ltd..... 1,920,747
45,500* Meiwa Estate Co., Ltd............. 752,747
48,000 Mitsubishi Estate Co., Ltd........ 605,034
80,000 Mitsubishi Heavy Industries Ltd... 528,144
43,000 Mitsui Fudosan Co................. 491,196
55,000 Mycal Corp........................ 675,937
192,000 NEC Corp.......................... 2,344,507
40,100 Orix Corp......................... 2,024,981
41,000 Pioneer Electronic Co............. 733,210
15,000 Rohm Co........................... 1,162,800
75,000 Sankyo Co......................... 2,008,902
90,000 Sharp Corp........................ 1,169,890
9,500 Shohkoh Fund...................... 2,230,275
30,000 Sony Corp......................... 2,183,795
70,000 Sumitomo Electric Industries...... 948,517
30,000 Sumitomo Realty & Development
Co., Ltd.......................... 212,944
21,000 Takeda Chemical Industries Ltd.... 484,736
12,000 TDK Corp.......................... 865,010
250,000 Toray Industries, Inc............. 1,555,914
67,000 Toshiba Corp...................... 375,814
95,000 Yamanouchi Pharmaceutical......... 2,028,203
25,000 Yokogawa Electric Corp............ 175,090
36,181,400
KOREA -- 3.0%
196,100 Hanil Bank........................ 1,077,231
18,800 Korea Electric Power.............. 560,628
161,100 Korea Electric Power Corp., ADR... 2,738,700
62,700 LG Construction Co................ 927,847
56,700 Ssangyong Investments &
Securities Co..................... 362,321
5,666,727
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
NETHERLANDS -- 3.8%
20,600 ASM Lithography Holding NV, ADR... $ 1,637,700
5,600* ASM Lithography Holding NV........ 418,211
23,375 ING Groep NV...................... 917,819
81,950 Philips Electronics NV............ 4,277,737
7,251,467
NEW ZEALAND -- 3.8%
2,757,400 Brierley Investment Ltd........... 2,427,659
345,350 Carter Holt Harvey Ltd............ 766,114
743,800 Fletcher Challenge, Building
Shares............................ 2,088,312
1,270,400 Fletcher Challenge, Forest
Shares............................ 1,752,580
55,950 Fletcher Challenge, Paper Shares.. 124,118
7,158,783
NORWAY -- 1.8%
171,750 Den Norske Bank AS................ 619,836
7,000 Orkla ASA......................... 586,839
90,000 Smedvig AS........................ 2,116,918
2,300 Smedvig AS, ADR................... 53,763
3,377,356
PAKISTAN -- 0.1%
25,000* Dhan Fibres Ltd................... 3,669
76,000* Hub Power Co., Ltd................ 71,179
7,000* Nishat Textile Mills.............. 4,049
288* Packages Ltd...................... 365
1,230* Pakistan State Oil Co., Ltd....... 9,271
44,500* Pakistan Telecom Corp............. 27,453
33,925* Sui Southern Gas Co., Ltd......... 23,208
139,194
PHILIPPINES -- 1.3%
54,900* Millicom International Cellular
SA, GDR........................... 2,497,950
POLAND -- 0.2%
1,000 Bank Przemyslowo-Handlowy SA...... 51,217
1,200 Bank Rozwoju Eksportu SA.......... 28,644
900 Bank Slaski SA.................... 76,399
1,300* Debica SA, Series A............... 32,469
6,400 Elektrim.......................... 57,465
2,000 Rolimpex SA, Series A............. 11,698
6,500 Wielkopolski Bank Kredytowy SA.... 37,401
300 Zaklady Piwowarskiew Zywcu SA..... 19,633
314,926
</TABLE>
39
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 90.7% -- CONTINUED
<C> <S> <C>
PORTUGAL -- 1.6%
139,800 Cimpor Cimentos de Portugal SA.... $ 3,007,489
SINGAPORE -- 2.8%
525,600 DBS Land Ltd...................... 1,699,349
88,000 Development Bank of Singapore..... 1,045,665
320,000 Keppel Bank....................... 835,648
383,000* Keppel Corp., Ltd................. 1,666,943
5,247,605
SPAIN -- 2.5%
95,000 Iberdrola SA...................... 1,072,125
89,100 Repsol SA, ADS.................... 3,731,062
4,803,187
SWEDEN -- 1.5%
49,900 Electrolux AB, Series B........... 2,862,442
SWITZERLAND -- 3.9%
1,050 Julius Baer Holding AG............ 1,314,192
1,267 Novartis AG....................... 1,669,163
1,280 Novartis AG, Registered Shares.... 1,686,290
114 Roche Holding AG.................. 962,825
11,404 Tag Heuer......................... 1,601,403
12,600 Tag Heuer Intl SA, ADR............ 176,400
7,410,273
TAIWAN -- 1.6%
141,688* China Steel Corp., ADR............ 3,032,481
THAILAND -- 0.9%
2,700 Bangkok Bank Public Co., Ltd...... 17,778
68,400 Jasmine International Public Co.,
Ltd............................... 95,57
2,000 Land & House Public Co., Ltd...... 6,125
59,900 Land & House Public Co., Ltd.
Foreign Shares.................... 170,832
1,420* One Holding Public Co., Ltd.,
Warrants @ 44 THB, expire
10/14/01.......................... 92
17,700 PTT Exploration & Production
Public Co., Ltd................... 226,310
30,900 Siam Cement Public Co., Ltd.
Foreign Shares.................... 828,022
200,100 Thai Military Bank Public Co.,
Ltd............................... 291,082
1,635,814
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
UNITED KINGDOM -- 9.4%
823,400 Cookson Group Plc................. $ 2,895,913
230,660 Energy Group...................... 1,831,822
364,775 Hanson Plc........................ 1,770,666
32,700 HSBC Holdings Plc................. 858,044
184,200 Medeva Plc........................ 898,609
69,500 National Power Plc................ 599,254
297,000* Orange Plc........................ 1,039,741
692,600 Rolls- Royce Plc.................. 2,727,744
616,992 Thistle Hotels Plc................ 1,659,978
825,000 Vodafone Group Plc................ 3,690,438
17,972,209
TOTAL COMMON STOCKS
(COST $166,481,694).......... 172,569,605
PREFERRED STOCKS -- 0.5%
AUSTRALIA -- 0.3%
148,050 News Corp. Ltd.................... 564,583
GERMANY -- 0.2%
1,000 GEA AG............................ 352,234
TOTAL PREFERRED STOCKS
(COST $1,030,155)............ 916,817
PUT OPTIONS PURCHASED -- 0.0%
JAPAN -- 0.0%
61,557* Nikkei 225 Index expires
6/13/1997......................... 27,080
TOTAL PUT OPTIONS PURCHASED
(COST $652,408).............. 27,080
CALL OPTIONS PURCHASED -- 0.0%
SINGAPORE -- 0.0%
387* DBS 50 Index, expires 2/26/98 2,693
THAILAND -- 0.0%
549,019* Set 50 Index expires 1/30/1998 34,596
292,336* Set 50 Index expires 2/20/1998 35,020
69,616
TOTAL CALL OPTIONS PURCHASED
(COST $273,000).............. 72,309
</TABLE>
40
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS -- 1.3%
<C> <S> <C>
KOREA -- 0.7%
$ 1,160,000 Samsung Electronics
.25%, 12/31/2006.................. $ 1,302,100
THAILAND -- 0.6%
1,237,000 Bangkok Bank Public Co., Ltd.
3.25%, 3/3/2004................... 1,142,679
TOTAL CORPORATE BONDS
(COST $2,492,059)............ 2,444,779
TOTAL LONG-TERM INVESTMENTS
(COST $170,929,316).......... 176,030,590
REPURCHASE AGREEMENT -- 6.0%
11,457,000 State Street Bank & Trust Co.,
5.30%, dated 4/30/97, due
5/1/97 -- collateralized by
$11,655,000 U.S. Treasury
Notes, 5.25%, due 7/31/98;
maturity value -- $11,687,063,
(COST $11,457,000)............. 11,457,000
TOTAL INVESTMENTS --
(COST $182,386,316)... 98.5% 187,487,590
OTHER ASSETS AND
LIABILITIES -- NET..... 1.5% 2,847,118
NET ASSETS --............ 100.0% $190,334,708
</TABLE>
*Non-income producing securities
(a) Less than one tenth of one percent
ADR -- American Depositary Receipts
GDR -- Global Depositary Receipts
GDS -- Global Depositary Shares
41
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FORWARD CONTRACTS
UNREALIZED
FOREIGN CURRENCY CURRENCY AMOUNT VALUE ON APPRECIATION
BUY CONTRACTS PURCHASED TRADE DATE CURRENT VALUE (DEPRECIATION)
Deutsche Mark due 7/23/97 DM4,926,141 $ 2,944,275 $ 2,861,696 $ (82,579)
<S> <C> <C> <C> <C>
Japanese Yen due 10/24/97 2,477,045,000 21,994,405 20,036,728 (1,957,677)
Pound Sterling due 5/1/97 GBP 325,814 531,110 528,062 (3,048)
(2,043,304)
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY CURRENCY AMOUNT
SELL CONTRACTS SOLD
<S> <C> <C> <C> <C>
Deutsche Mark due 7/23/97 DM4,926,141 3,060,000 2,861,696 198,304
Japanese Yen due 10/24/97 3,845,215,000 35,300,000 31,103,807 4,196,193
4,394,497
$ 2,351,193
</TABLE>
See accompanying combined notes to the financial statements.
42
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
INDUSTRY DIVERSIFICATION
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
Automotive Equipment & Manufacturing....................................................... 6.1%
Banks...................................................................................... 8.7
Building, Construction & Furnishings....................................................... 4.9
Chemical & Agricultural Products........................................................... 1.1
Communication Systems & Services........................................................... 1.6
Consumer Products & Services............................................................... 1.4
Diversified Companies...................................................................... 6.4
Electrical Equipment & Services............................................................ 9.4
Electronics................................................................................ 1.3
Energy..................................................................................... 5.4
Energy Equipment........................................................................... 1.1
Engineering................................................................................ 0.5
Finance & Insurance........................................................................ 5.3
Food & Beverage Products................................................................... 2.0
Food Retailing & Distribution.............................................................. 0.4
Forest Products............................................................................ 1.1
Healthcare Products & Services............................................................. 5.3
Holding Companies.......................................................................... 2.5
Industrial Specialty Products & Services................................................... 1.2
Machinery -- Diversified................................................................... 0.3
Manufacturing & Distributing............................................................... 1.0
Metal Products & Services.................................................................. 4.1
Leisure & Tourism.......................................................................... 0.9
Office Equipment & Supplies................................................................ 1.9
Publishing, Broadcasting & Entertainment................................................... 0.6
Real Estate................................................................................ 2.5
Retailing & Wholesale...................................................................... 1.6
Telecommunication Equipment & Services..................................................... 7.8
Transportation............................................................................. 1.2
Utilities.................................................................................. 4.9
Total Long-Term Investments.......................................................... 92.5
Short-Term Investment...................................................................... 6.0
Other Assets & Liabilities................................................................. 1.5
Net Assets........................................................................... 100.0%
</TABLE>
43
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
(Art Icon Here)
APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $182,386,316)........................................................... $187,487,590
Foreign currencies at value (identified cost $1,222,252)...................................................... 1,222,122
Cash.......................................................................................................... 685
Unrealized appreciation on forward foreign currency exchange contracts........................................ 4,394,497
Receivable for investments sold............................................................................... 1,057,702
Dividends and interest receivable............................................................................. 724,034
Receivable for Fund shares sold............................................................................... 144,810
Unamortized organization expense.............................................................................. 20,980
Prepaid expenses and other assets............................................................................. 29,914
Total assets............................................................................................ 195,082,334
LIABILITIES:
Payable for investments purchased............................................................................. 2,284,376
Unrealized depreciation on forward foreign currency exchange contracts........................................ 2,043,304
Advisory fee payable.......................................................................................... 91,478
Payable for Fund shares repurchased........................................................................... 79,921
Accrued expenses.............................................................................................. 248,547
Total liabilities....................................................................................... 4,747,626...
NET ASSETS....................................................................................................... $190,334,708
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $174,500,624
Undistributed net investment income........................................................................... 382,893
Accumulated net realized gain on investments and foreign currency related transactions........................ 8,007,157
Net unrealized appreciation on investments and foreign currency related transactions.......................... 7,444,034
Net assets.............................................................................................. $190,334,708
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($7,861,326 712,723 shares of beneficial interest outstanding)................................. $ 11.03
Sales charge -- 4.75% of offering price....................................................................... 0.55
Maximum offering price.................................................................................. $ 11.58
Class B Shares ($18,064,855 1,642,521 shares of beneficial interest outstanding).............................. $ 11.00
Class C Shares ($244,143 22,075 shares of beneficial interest outstanding).................................... $ 11.06
Class Y Shares ($164,164,384 14,849,007 shares of beneficial interest outstanding)............................ $ 11.06
</TABLE>
See accompanying combined notes to financial statements.
44
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
(Art Icon Here)
SIX MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $211,989)........................................ $ 1,517,230
Interest........................................................................................ 350,879
Total investment income................................................................... 1,868,109
EXPENSES:
Advisory fee.................................................................................... $ 640,428
Custodian fee................................................................................... 212,400
Distribution fees............................................................................... 90,571
Transfer agent fee.............................................................................. 83,734
Registration and filing fees.................................................................... 34,664
Administration personnel and service fees....................................................... 34,010
Reports and notices to shareholders............................................................. 25,696
Professional fees............................................................................... 19,167
Amortization of organization expense............................................................ 7,220
Insurance expense............................................................................... 5,799
Trustees' fees and expenses..................................................................... 2,699
Miscellaneous................................................................................... 1,798
Fee waivers and/or reimbursement from Investment Manager........................................ (233,729)
Total expenses............................................................................ 924,457
Less: Indirectly paid expenses.................................................................. (2,930)
Net expenses.............................................................................. 921,527
Net investment income.............................................................................. 946,582
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain on investments................................................................ 9,071,145
Net realized loss on foreign currency related transactions...................................... (130,160)
Net realized gain on investments and foreign currency related transactions...................... 8,940,985
Net change in unrealized appreciation (depreciation) on investments and foreign currency related
transactions.................................................................................. 1,496,298
Net realized and unrealized gain on investments and foreign currency related transactions.......... 10,437,283
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $11,383,865
</TABLE>
See accompanying combined notes to financial statements.
45
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Art Icon Here)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
<S> <C> <C>
(UNAUDITED)
OPERATIONS:
Net investment income.................................................................... $ 946,582 $ 2,119,654
Net realized gain (loss) on investments and foreign currency related transactions........ 8,940,985 (823,687)
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions................................................................... 1,496,298 5,669,016
Net increase in net assets resulting from operations.................................. 11,383,865 6,964,983
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares........................................................................... (107,348) (39,834)
Class B Shares........................................................................... (116,095) (23,543)
Class C Shares........................................................................... (1,194) (59)
Class Y Shares........................................................................... (2,176,422) (645,172)
Total distributions to shareholders from net investment income........................ (2,401,059) (708,608)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 54,387,900 63,370,539
Proceeds from shares issued from acquisition of FFB Diversified International Growth
Fund................................................................................... -- 29,658,717
Proceeds from reinvestment of distributions.............................................. 1,238,781 365,798
Payment for shares redeemed.............................................................. (20,501,042) (14,067,718)
Net increase resulting from Fund share transactions................................... 35,125,639 79,327,336
Net increase in net assets............................................................ 44,108,445 85,583,711
NET ASSETS:
Beginning of period...................................................................... 146,226,263 60,642,552
End of period (including undistributed net investment income of $382,893 and $1,837,370,
respectively).......................................................................... $ 190,334,708 $146,226,263
</TABLE>
See accompanying combined notes to financial statements
46
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL EQUITY FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES CLASS B SHARES
SIX MONTHS SEPTEMBER 2, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED YEAR
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, ENDED
1997+++ OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997+++ OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
PER SHARE DATA:
Net asset value, beginning of period.... $10.43 $9.58 $9.50 $10.00 $10.37 $9.53
Income (loss) from investment
operations:
Net investment income................. .05 .17 .09 .02 .01 .11
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions....... .70 .78 -- (.52) .68 .76
Total from investment
operations...................... .75 .95 .09 (.50) .69 .87
Less distributions to shareholders from
Net investment income................. (.15) (.10) (.01) -- (.06) (.03)
Net asset value, end of period.......... $11.03 $10.43 $9.58 $9.50 $11.00 $10.37
TOTAL RETURN+........................... 7.2% 9.9% 1.1% (5.1%) 6.9% 9.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................ $7,861 $7,234 $3,594 $2,545 $18,065 $14,110
Ratios to average net assets:
Expenses**............................ 1.24%++ 1.24% 1.19%++ 1.26%++ 1.99%++ 2.00%
Net investment income**............... 0.95%++ 1.65% 1.38%++ 0.91%++ 0.23%++ 1.05%
Portfolio turnover rate................. 52% 113% 4% 1% 52% 113%
Average commission rate paid per
share................................. $.0296 $.0068 N/A N/A $.0296 $.0068
<CAPTION>
CLASS B SHARES
SEPTEMBER 2,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
PER SHARE DATA:
Net asset value, beginning of period.... $9.50 $10.00
Income (loss) from investment
operations:
Net investment income................. .06 --
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions....... (.03) (.50)
Total from investment
operations...................... .03 (.50)
Less distributions to shareholders from
Net investment income................. -- --
Net asset value, end of period.......... $9.53 $9.50
TOTAL RETURN+........................... 0.5% (5.2%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................ $7,728 $5,602
Ratios to average net assets:
Expenses**............................ 1.94%++ 2.02%++
Net investment income**............... 0.66%++ 0.10%++
Portfolio turnover rate................. 4% 1%
Average commission rate paid per
share................................. N/A N/A
<CAPTION>
</TABLE>
* Commencement of class operations.
# The Fund changed its year end from December 31 to October 31.
+ 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 SEPTEMBER 6, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED YEAR
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, ENDED
1997 OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
Expenses............................... 1.58% 1.66% 1.84% 2.09% 2.34% 2.42%
Net investment income (loss)........... 0.61% 1.23% 0.73% 0.08% (0.12%) 0.63%
<CAPTION>
CLASS B SHARES
SEPTEMBER 2,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
Expenses............................... 2.59% 2.85%
Net investment income (loss)........... 0.01% (0.73%)
</TABLE>
See accompanying combined notes to financial statements.
47
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL EQUITY FUND
(Art Icon Here)
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES CLASS Y SHARES
SIX MONTHS SEPTEMBER 2, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED YEAR
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, ENDED
1997+++ OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997+++ OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
PER SHARE DATA:
Net asset value, beginning of
period............................. $10.41 $9.53 $9.49 $10.00 $10.46 $9.60
Income (loss) from investment
operations:
Net investment income.............. .01 .12 .08 .03 .07 .20
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions.... .70 .76 (.04) (.54) .70 .78
Total from investment
operations................... .71 .88 .04 (.51) .77 .98
Less distributions to shareholders
from
Net investment income.............. (.06) (.0)(a) -- -- (.17) (.12)
Net asset value, end of period....... $11.06 $10.41 $9.53 $9.49 $11.06 $10.46
TOTAL RETURN+........................ 6.9% 9.3% 0.5% (5.2%) 7.4% 10.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)..................... $244 $188 $196 $163 $164,164 $124,695
Ratios to average net assets:
Expenses**......................... 1.99%++ 1.99% 1.94%++ 2.01%++ 0.99%++ 0.99%
Net investment income**............ 0.23%++ 1.16% 0.79%++ 0.85%++ 1.23%++ 1.95%
Portfolio turnover rate.............. 52% 113% 4% 1% 52% 113%
Average commission rate paid per
share.............................. $.0296 $.0068 N/A N/A $.0296 $.0068
<CAPTION> CLASS Y SHARES
SEPTEMBER 2,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
PER SHARE DATA:
Net asset value, beginning of
period............................. $9.50 $10.00
Income (loss) from investment
operations:
Net investment income.............. .08 .02
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions.... .03 (.51)
Total from investment
operations................... .11 (.49)
Less distributions to shareholders
from
Net investment income.............. (.01) (.01)
Net asset value, end of period....... $9.60 $9.50
TOTAL RETURN+........................ 1.3% (5.0%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)..................... $49,575 $23,830
Ratios to average net assets:
Expenses**......................... 0.94%++ 1.06%++
Net investment income**............ 1.58%++ 1.03%++
Portfolio turnover rate.............. 4% 1%
Average commission rate paid per
share.............................. N/A N/A
<CAPTION>
</TABLE>
(a) Less than one cent per share.
* Commencement of class operations.
# The Fund changed its year end from December 31 to October 31.
+ 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 C SHARES CLASS Y SHARES
SIX MONTHS SEPTEMBER 2, SIX MONTHS
ENDED TEN MONTHS 1994* ENDED YEAR
APRIL 30, YEAR ENDED ENDED THROUGH APRIL 30, ENDED
1997 OCTOBER 31, OCTOBER 31, DECEMBER 31, 1997 OCTOBER 31,
(UNAUDITED) 1996 1995# 1994 (UNAUDITED) 1996
<S> <C> <C> <C> <C> <C> <C>
EXPENSES............................. 2.33% 2.43% 2.59% 2.84% 1.33% 1.41%
NET INVESTMENT INCOME (LOSS)......... (.12%) .72% .14% .02% .89% 1.53%
<CAPTION>
CLASS Y SHARES
SEPTEMBER 2,
TEN MONTHS 1994*
ENDED THROUGH
OCTOBER 31, DECEMBER 31,
1995# 1994
<S> <C> <C>
EXPENSES............................. 1.59% 1.89%
NET INVESTMENT INCOME (LOSS)......... .93% .20%
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen International/Global 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 Funds consist of
Evergreen Emerging Markets Growth Fund ("Emerging Markets"), Evergreen Global
Leaders Fund ("Global Leaders"), Evergreen Global Real Estate Equity Fund
("Global Real Estate"), and Evergreen International Equity Fund
("International"), collectively referred to as the "Funds".
Emerging Market's investment objective is long-term appreciation through
investment in equity securities of issuers located in emerging markets. Global
Leaders' investment objective is to provide long-term capital growth by
investing in a diversified portfolio of U.S. and non-U.S. equity securities of
companies located in the world's major industrialized countries. Global Real
Estate's investment objective is long-term capital growth through investment
primarily in equity securities of domestic and foreign companies which are
principally engaged in the real estate industry or which own significant real
estate assets. International's investment objective is long-term capital
appreciation through investment in equity securities of non-U.S. issuers.
Effective January 1, 1996, First Fidelity Bancorporation ("First Fidelity")
merged with First Union National Bank of North Carolina ("First Union").
Effective at the close of business on January 19, 1996, International acquired
substantially all of the net assets of FFB Diversified International Growth
Fund, an open-end management investment company managed by a subsidiary of First
Fidelity registered under the Act, valued at $29,658,717. The net assets were
exchanged through a non-taxable transaction for 2,898,154 Class Y shares of
International valued at $10.23 per share. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $1,835,426.
The aggregate net assets of International after the acquisition were
$104,471,175.
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 -- Portfolio securities that are listed on a securities
exchange are valued at the last quoted sales price taken from the exchange where
the security is primarily traded. Securities listed on an exchange that are not
traded on the valuation date are valued at the mean between the bid and asked
price. Unlisted securities for which market quotations are readily available are
valued at a price quoted by one or more brokers. Other securities for which no
quotations are readily available are valued at fair value as determined in good
faith following procedures approved by the Board of Trustees. Short-term
obligations are stated 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.
FOREIGN CURRENCY TRANSLATION -- The Funds' accounting records are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the prevailing exchange
rates. Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rates on the dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains and losses are reflected as a component of such gains
and losses.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Funds may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date in order to hedge
its exposure to changes in foreign currency exchange rates. Forward currency
contracts are revalued daily at the prevailing rates of contracts of the same
maturity. Gains and losses on forward foreign currency exchange contracts are
reported as realized or unrealized
49
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
losses on foreign currency related transactions. Risks may arise upon entering
into these contracts from the potential inability of the counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on the Funds' behalf by its custodian under a book-entry system. The Funds
monitor 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. The Funds will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the Funds'
investment adviser to be creditworthy pursuant to guidelines established by the
Trustees.
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date, except certain dividends from foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date. Interest
income and expenses are accrued daily.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and from net capital gains on investments for the Funds are declared and paid
annually or more frequently as required. Income distributions and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from the amounts available under generally accepted accounting
principles. To the extent these differences are permanent in nature, such
amounts are reclassified within the components of net assets.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code (the "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 the Funds' policy not to distribute
such gains. During the year ended October 31, 1996, Global Real Estate utilized
$402,699 of its available capital loss carryforward to offset realized capital
gains for Federal income tax purposes. As of October 31, 1996, Emerging Markets,
Global Real Estate and International had capital loss carryforwards of
$1,796,534, $6,947,906 and $895,418, respectively. Pursuant to the Code, these
capital loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
2002 2003 2004
<S> <C> <C> <C>
Emerging Markets $69,824 $1,625,952 $100,758
Global Real Estate -- 6,947,906 --
International -- 255,531 639,887
</TABLE>
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on
the settlement date.
DEFERRED ORGANIZATIONAL EXPENSES -- The costs incurred by Emerging Markets,
Global Leaders and International with respect to their organization have been
deferred and are being amortized using the straight-line method not to exceed a
period of five years from each Fund's commencement of operations.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares or to a specific fund in a trust are charged to that class or trust.
Expenses common to the 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.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
REAL ESTATE INVESTMENT TRUSTS -- Global Real Estate 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 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 Emerging Markets' and
International's investment adviser, and is entitled to a fee based on a
percentage of each Fund's average daily net assets as shown in the table below.
For Emerging Markets and International, First Union voluntarily waived $218,402
and $233,729 respectively, of its advisory fee for the six months ended April
30, 1997. First Union can modify or terminate these voluntary waivers at any
time.
<TABLE>
<CAPTION>
AVERAGE DAILY
ADVISORY FEE NET ASSETS
<S> <C> <C>
EMERGING MARKETS
on the first $100
1.50% million
1.45% on the next $100 million
1.40% on the next $100 million
in excess of $300
1.35% million
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DAILY
ADVISORY FEE NET ASSETS
<S> <C> <C>
INTERNATIONAL
0.82% on the first $20 million
0.79% on the next $30 million
0.76% on the next $50 million
in excess of $100
0.73% million
</TABLE>
Under terms of a sub-advisory agreement with First Union, Marvin & Palmer
Associates, Inc. ("Marvin & Palmer") is entitled to the following annual fee
from First Union based on Emerging Markets' average daily net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY
SUB-ADVISORY FEE NET ASSETS
<S> <C> <C>
on the first $100
1.00% million
0.95% on the next $100 million
0.90% on the next $100 million
in excess of $300
0.85% million
</TABLE>
Under terms of a sub-advisory agreement with First Union, Warburg, Pincus
Counsellors, Inc. ("Warburg") is entitled to an annual fee from First Union of
.55% of 1% of International's average daily net assets.
Under the terms of Emerging Markets' and International's sub-advisory
agreements, Marvin & Palmer and Warburg are responsible for the investment
decisions for their respective funds.
Pursuant to an agreement with Global Leaders' and Global Real Estate's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union, is entitled to an annual fee of .95 of
1% and 1% of Global Leaders' and Global Real Estate's average daily net assets,
respectively.
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Evergreen Asset has voluntarily agreed to reimburse Global Leaders 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 servicing fees and
extraordinary expenses) exceed 1.50% of its average daily net assets for the
foreseeable future. For the six months ended April 30, 1997, Evergreen Asset
waived $31,437 of its advisory fee. In addition, for Global Real Estate,
Evergreen Asset voluntarily waived $22,030 of its advisory fee. Evergreen Asset
may revise or cease these voluntary expense waivers and expense reimbursements
at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Global Leaders and Global Real Estate and also provides brokerage
services with respect to substantially all security transactions of theses Funds
executed on the New York or American Stock Exchanges. For transactions executed
during the six months ended April 30, 1997, Global Leaders and Global Real
Estate incurred brokerage commissions of $55,931 and $13,731, 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 April 30, 1997, Stephen A. Lieber, Chairman of Evergreen Asset owned,
directly or beneficially, 29% of the outstanding shares of Global Real Estate.
ADMINISTRATION AGREEMENT -- For the period through March 10, 1997,
Evergreen Asset furnished Global Real Estate with administrative services as
part of its advisory agreement and accordingly, Global Real Estate 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 each of the Funds. For the period through December
31, 1996, Furman Selz LLC ("Furman Selz") was Global Real Estate's
sub-administrator. As sub-administrator, Furman Selz provided the officers of
the Fund. Effective January 1, 1997, The BISYS Group, Inc. ("BISYS") acquired
Furman Selz' mutual fund unit and accordingly, BISYS Fund Services became the
sub-administrator. For Global Real Estate, Furman Selz' or BISYS fee was paid by
Evergreen Asset or EKIS and is not a fund expense.
From November 1, 1996 to March 10, 1997 Evergreen Asset and from March 11,
1997, EKIS were Emerging Markets', Global Leaders' and International's
administrator. Effective January 1, 1997 BISYS became each Funds'
sub-administrator. Evergreen Asset and Furman Selz were Emerging Markets',
Global Leaders', International's administrator and sub-administrator for the
period November 1, 1996 through December 31, 1996. Evergreen Asset's/EKIS's and
Furman Selz'/BISYS' fees for these funds are based on the average daily net
assets of all of the funds administered by Evergreen Asset or EKIS for which
either First Union or Evergreen Asset is also the investment adviser. These fees
are calculated at the following annual rates:
<TABLE>
<CAPTION>
AVERAGE DAILY
ADMINISTRATION FEE 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
in excess of $30
0.010% billion
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DAILY
SUB-ADMINISTRATION FEE 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
in excess of $25
0.0040% billion
</TABLE>
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
At April 30, 1997, assets for which EKIS was the administrator for which
First Union, or its investment advisory subsidiaries, was investment adviser
totaled approximately $29 billion.
Evergreen Asset voluntarily waived $17,449 in administration fees for
Global Leaders.
PLAN OF DISTRIBUTION -- The Funds have adopted for each of their Class A,
Class B and Class C shares, Distribution Plans (the "Plans") pursuant to Rule
12b-1 under the Act. 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 an annual fee of 1% for Class B
and Class C shares. For each of these Funds, the payments for Class A shares
were voluntarily limited to .25 of 1% of average daily net assets.
In connection with its Plan, Global Leaders and Global Real Estate have
entered into a distribution agreement with Evergreen Keystone Distributor, Inc.
("EKD") (formerly Evergreen Funds Distributor, Inc.), a subsidiary of BISYS,
whereby they 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 annual
fee of 1% of Class B and Class C shares average daily net assets. A portion of
the payments of Class B and Class C shares, up to .25 of 1% may constitute a
shareholder services fee. In connection with their Plans, Emerging Markets and
International have entered into a distribution agreement with EKD whereby they
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 annual fee of
.75 of 1% of Class B and Class C shares average daily net assets. Emerging and
International have entered into a shareholder services agreement with First
Union Brokerage Services ("FUBS"), an affiliate of First Union, whereby they
will compensate FUBS up to .25 of 1% for certain services provided to
shareholders and or maintenance of shareholder accounts relating to these Funds'
Class B and Class C Shares.
During the six months ended April 30, 1997 amounts paid to EKD pursuant to
each Fund's Class A, Class B, and Class C Plans were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Emerging Markets $ 2,394 $ 15,221 $1,553
Global Leaders 24,345 308,917 5,511
Global Real Estate 1,028 917 361
International 9,354 80,080 1,137
</TABLE>
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 April 30, 1997:
<TABLE>
<S> <C>
Emerging Markets $ 531
Global Leaders 44,397
Global Real Estate 130
International 4,596
</TABLE>
OTHER SERVICES WITH AFFILIATES -- State Street Bank & Trust Company ("State
Street") is the transfer agent, dividend disbursing agent and shareholding
servicing agent for the Funds. For certain accounts in Global Real Estate,
Global Leaders, Emerging Markets, and International Equity, First Union has been
sub-contracted by State Street to maintain shareholder sub-account records, take
fund purchases and redemption orders and answer inquiries. For each account,
First Union is entitled to a monthly fee which totaled $461, $3,411, $217,
$2,603 for Global Real Estate, Global Leaders, Emerging Markets and
International Equity, respectively, for the six months ended April 30, 1997.
53
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the six months ended April 30, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Emerging Markets $ 25,894,686 $23,109,829
Global Leaders 74,535,336 8,118,457
Global Real Estate 7,521,157 15,549,422
International 120,027,225 82,098,899
</TABLE>
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par value shares of
beneficial interest authorized. The shares are divided into four classes which
are designated Class A, Class B, Class C and Class Y shares. Class A shares are
offered with a front-end sales charge of up to 4.75%. Class B shares are offered
with a contingent deferred sales charge payable when shares are redeemed which
declines from 5% to zero depending on the period of time the shares were 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 1% contingent deferred
sales charge 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. All classes
have identical voting, dividend, liquidation and other rights, except that
certain classes bear different distribution expenses (see Note 3) and have
exclusive voting rights with respect to their distribution plans.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
EMERGING MARKETS SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............................................................. 89,320 $ 887,854 108,210 $ 958,874
Shares issued on reinvestment of distributions........................... 0 0 817 6,713
Shares redeemed.......................................................... (81,831) (772,514) (55,942) (493,377)
Net increase..................................................... 7,489 115,340 53,085 472,210
CLASS B
Shares sold.............................................................. 52,723 501,693 147,629 1,317,529
Shares redeemed.......................................................... (49,892) (456,990) (51,462) (443,501)
Net increase..................................................... 2,831 44,703 96,167 874,028
CLASS C
Shares sold.............................................................. 83,610 809,672 8,040 72,696
Shares redeemed.......................................................... (28) (261) (5,067) (43,102)
Net increase..................................................... 83,582 809,411 2,973 29,594
CLASS Y
Shares sold.............................................................. 719,335 6,842,867 2,531,857 22,621,852
Shares issued on reinvestment of distributions........................... 0 0 1,942 15,980
Shares redeemed.......................................................... (369,189) (3,452,567) (301,830) (2,683,970)
Net increase..................................................... 350,146 3,390,300 2,231,969 19,953,862
Total net increase resulting from Fund share transactions................ 444,048 $ 4,359,754 2,384,194 $21,329,694
</TABLE>
54
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
GLOBAL LEADERS SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................ 1,141,213 $14,090,361 1,128,476 $12,914,033
Shares issued on reinvestment of distributions......................... 1,245 15,023 0 0
Shares redeemed........................................................ (118,269) (1,452,564) (38,955) (450,952)
Net increase................................................... 1,024,189 12,652,820 1,089,521 12,463,081
CLASS B
Shares sold............................................................ 3,509,985 43,047,717 3,561,481 40,763,569
Shares issued on reinvestment of distributions......................... 4,015 48,224 0 0
Shares redeemed........................................................ (205,357) (2,517,524) (26,709) (307,417)
Net increase................................................... 3,308,643 40,578,417 3,534,772 40,456,152
CLASS C
Shares sold............................................................ 87,937 1,080,862 48,546 557,221
Shares issued on reinvestment of distributions......................... 52 629 0 0
Shares redeemed........................................................ (7,501) (91,607) (1,852) (21,683)
Net increase................................................... 80,488 989,884 46,694 535,538
CLASS Y
Shares sold............................................................ 684,772 8,469,541 1,680,883 18,367,195
Shares issued on reinvestment of distributions......................... 715 8,632 1,378 14,211
Shares redeemed........................................................ (49,724) (615,285) (120,293) (1,342,441)
Net increase................................................... 635,763 7,862,888 1,561,968 17,038,965
Total net increase resulting from Fund share transactions.............. 5,049,083 $62,084,009 6,232,955 $70,493,736
</TABLE>
55
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
GLOBAL REAL ESTATE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................ 32,879 $ 409,385 208,609 $ 2,645,216
Shares redeemed........................................................ (16,707) (203,574) (156,309) (2,008,136)
Net increase................................................... 16,172 205,811 52,300 637,080
CLASS B
Shares sold............................................................ 8,439 104,212 7,284 91,539
Shares redeemed........................................................ (3,375) (40,952) (4,878) (59,333)
Net increase................................................... 5,064 63,260 2,406 32,206
CLASS C
Shares sold............................................................ 8,103 100,386 2,142 27,504
Shares redeemed........................................................ (811) (10,170) (1,782) (22,492)
Net increase................................................... 7,292 90,216 360 5,012
CLASS Y
Shares sold............................................................ 50,526 627,122 1,060,595 13,278,484
Shares issued on reinvestment of distributions......................... 3,475 43,582 0 0
Shares redeemed........................................................ (781,826) (9,728,087) (2,500,751) (31,249,121)
Net decrease................................................... (727,825) (9,057,383) (1,440,156) (17,970,637)
Total net decrease resulting from Fund share transactions.............. (699,297) $(8,698,096) (1,385,090) $(17,296,339)
</TABLE>
56
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
INTERNATIONAL EQUITY SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.......................................................... 209,094 $ 2,259,362 459,233 $ 4,772,348
Shares issued on reinvestment of distributions....................... 9,990 105,895 3,882 39,171
Shares redeemed...................................................... (199,802) (2,160,212) (144,771) (1,513,977)
Net increase................................................. 19,282 205,045 318,344 3,297,542
CLASS B
Shares sold.......................................................... 393,822 4,244,528 802,691 8,346,658
Shares issued on reinvestment of distributions....................... 11,207 118,865 2,297 23,175
Shares redeemed...................................................... (122,930) (1,325,154) (208,561) (2,169,847)
Net increase................................................. 282,099 3,038,239 596,427 6,199,986
CLASS C
Shares sold.......................................................... 10,008 108,041 11,595 120,774
Shares issued on reinvestment of distributions....................... 103 1,096 5 55
Shares redeemed...................................................... (6,075) (66,461) (14,095) (148,202)
Net increase (decrease)...................................... 4,036 42,676 (2,495) (27,373)
CLASS Y
Shares sold.......................................................... 4,398,577 47,775,969 4,796,183 50,130,759
Shares issued from acquisition of FFB Diversified International
Growth Fund........................................................ 0 0 2,898,154 29,658,717
Shares issued on reinvestment of distributions....................... 95,469 1,012,925 30,069 303,397
Shares redeemed...................................................... (1,561,049) (16,949,215) (972,043) (10,235,692)
Net increase................................................. 2,932,997 31,839,679 6,752,363 69,857,181
Total net increase resulting from Fund share transactions............ 3,238,414 $ 35,125,639 7,664,639 $ 79,327,336
</TABLE>
NOTE 6 -- FINANCING AGREEMENT
A financing agreement was in place with all of the Evergreen Funds and
their custodian, State Street Bank and Trust Company (the "Bank"). Under the
agreement, the Bank is providing an unsecured line of credit facility, in the
aggregate amount of $100 million ($50 million committed and $50 million
uncommitted), to be accessed by the Funds for temporary or emergency purposes
only and is subject to each participating Fund's borrowing restrictions.
Borrowings under this facility bear interest at .75% per annum above the Bank's
cost of funds as set periodically by the Bank. A commitment fee of .10% per
annum will be incurred on the unused portion of the committed facility which
will be allocated to all participating funds.
Prior to July 3, 1996, Global Real Estate had a financing agreement with
the Bank, which provided the Fund with a line of credit, in the aggregate amount
of the lesser of $5,000,000 or 5% of the value of the Fund's net assets, to be
accessed for temporary or emergency purposes. Borrowings under the line of
credit bore interest at 1% above the Bank's cost of funds as set periodically by
the Bank and were secured by securities pledged by the Fund.
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 and 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
57
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- FINANCING AGREEMENT -- continued
committed facility which would be allocated to all participating funds. State
Street acts as agent for the Banks, and as agent is entiled to a fee of $15,000
which is allocated to all participating funds.
During the six months ended April 30, 1997, Global Real Estate had
borrowings outstanding for 87 days under the lines of credit, and incurred
interest charges amounting to $4,679. Global Real Estate's average debt
outstanding during the year aggregated $311,732 at a weighted average interest
rate of 6.2%. Global Real Estate had an outstanding line of credit of $265,000
as of April 30, 1997.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Since Global 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' FEES
Each Trustee 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 deferral accounts, which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Keystone Funds. Any gains earned or
losses incurred in the deferral accounts are reported in each Fund's Trustees'
fees and expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their 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 April 30, 1997, Trustees had deferred $828, $6,362,
$8,725 and $3,961 for Emerging Markets, Global Leaders, Global Real Estate and
International, respectively.
NOTE 9 -- EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their
custodian. The assets deposited with the custodian under this expense offset
agreement could have been invested in income-producing assets. The custody fees
incurred, credits received and net custody expenses for the Funds are as follows
for the six months ended April 30, 1997:
<TABLE>
<CAPTION>
CUSTODY FEES CREDIT RECEIVED NET FEES
<S> <C> <C> <C>
Emerging Markets $ 89,507 $ 189 $ 89,318
Global Leaders 90,430 1,218 89,212
Global Real Estate 92,439 407 92,032
International 212,400 2,930 209,470
</TABLE>
NOTE 10 -- SUBSEQUENT EVENTS
Effective May 5, 1997, Evergreen Keystone Service Company, an affiliate of
First Union, became the Funds', transfer agent, dividend disbursement agent and
shareholder servicing agent.
58
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(This Page Left Blank Intentionally)
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
(This Page Left Blank Intentionally)
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
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
George O. Martinez
Secretary
* These individuals are not Trustees for Emerging
Markets or International.
+ Trustee Emeritus.
<PAGE>
This report was prepared primarily for the information of fund shareholders.
It is authorized for distribution if preceeded or accompanied by each fund's
current prospectus. The prospectus contains important information about
each 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.
BOXED COPY CONTAINING THE BELOW:
NOT FDIC INSURED May lose value
No bank guarantee
Evergreeen Keystone (Service Mark) is a Service Mark of Evergreen Keystone
Investment Services, Inc. Copyright 1997.
59609 541076
6/97
<PAGE>
EVERGREEN KEYSTONE FUNDS
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116-5034
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, D.C.
Attn: File Room
Re: The Evergreen Equity Trust (Evergreen Global Leaders Fund)
File No. 811-5684 (Evergreen Global Real Estate Fund)
CIK# 0000842436
CCC# 4#95hmya
The Evergreen Investment Trust (Evergreen Emerging Markets Fund)
File No. 811-4154 (Evergreen International Equity Fund)
CIK# 0000757440
CCC# 4apyfsr*
Commissioners:
Please be advised that the Semi-Annual Report for the above referenced Fund(s)
were submitted to your office on June 30, 1997, via electronic transmission
(EDGAR).
Any questions or comments about this document should be directed to the
undersigned at (617) 210-3570.
Very Truly Yours,
/s/ Liz Snee
Liz Snee
Assistant Vice President
- -------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
- -------------------------------------------------------------------------------
Dear Investor:
I'm pleased to present the Annual Report to Shareholders for the Blanchard Group
of Funds. This report covers the funds' fiscal year, which is the period from
October 1, 1996 through September 30, 1997.
For greater efficiency in printing and mailing, this report now combines
information for all funds. It begins with a commentary by the portfolio manager,
and follows with a complete list of holdings and financial statements for each
fund.
A fund-by-fund summary for the period follows:
. BLANCHARD GLOBAL GROWTH FUND
The fund's diversified portfolio of U.S. and foreign stocks and bonds+ produced
a solid total return of 13.20%* through dividends totaling $0.21 per share and
capital gains totaling $2.26 per share. Assets in the fund totaled more than $62
million at the end of the period.
. BLANCHARD PRECIOUS METALS FUND, INC.
Due to extremely weak market conditions, the fund's portfolio of precious metals
investments and securities of mining companies produced a negative total return
of (15.24%).* While the fund paid dividends totaling $0.30 per share and capital
gains totaling $2.25 per share, the fund's share price fell from $8.90 to $5.37
as prices of the fund's holdings declined with the market. The fund's assets
closed the period at $67 million.
. BLANCHARD FLEXIBLE INCOME FUND
The fund's diversified portfolio of fixed income securities paid monthly
dividends totaling $0.31 per share and recorded a $0.14 per share increase in
net asset value. As a result, the fund achieved a total return of 9.53%.* The
fund's assets reached $155 million.
. BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
The fund's conservative portfolio of fixed income securities produced a total
return of 7.24%* through monthly dividends totaling $0.17 per share, and a $0.04
per share increase in net asset value. Assets in the fund totaled more than $133
million.
. BLANCHARD FLEXIBLE TAX-FREE BOND FUND
Designed for tax-sensitive investors, this fund paid federally tax-free
dividends totaling $0.25 per share.** Through this income stream and a $0.25 per
share increase in net asset value, the fund achieved a total return of 9.59%.*
Assets reached $24 million.
- -------------------------------------------------------------------------------
PRESIDENT'S MESSAGE (CONTINUED)
- -------------------------------------------------------------------------------
Thank you for pursuing your financial goals through the Blanchard Group of
Funds. If you are not already doing so, consider reinvesting your earnings
automatically in additional shares. It's a convenient way to gain the advantage
of compounding--and increase your opportunity to participate in key financial
markets over time.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
November 15, 1997
+Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
*Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**Income may be subject to the federal alternative minimum tax and state and
local taxes.
Dear Shareholders,
Enclosed please find the Annual Report for your Blanchard Global Growth Fund
for the fiscal year ended September 30, 1997.
["Graphic representation A1 omitted. See Appendix."]
The Blanchard Global Growth Fund's total return (price change plus
reinvestment of distributions) for the year ending September 30, 1997 was
13.20%. By comparison, the Morgan Stanley World Index (MSCI World) rose 24.12%,
and the Salomon Brothers World Government Bond Index (WGBI) was up 2.41% for the
same period.*
During the past year, equity markets substantially outperformed bond markets
around the globe. It appears the markets have priced in a continued period of
strong economic growth with low inflation. Equity markets in Continental Europe
performed better than the rest of the world, mainly because corporate earnings
have increased. Corporate earnings increased due to a pick up in economic
growth, and an increase in exports (due to their weaker currencies), as well as
from gains in productivity. Among the major stock markets, only
*The Morgan Stanley World Index is based on the share prices of approximately
1,600 companies listed on the stock exchanges of 22 countries. The Salomon
Brothers World Government Bond Index is comprised of 17 Government bond markets
whose eligibility is determined based on market capitalization and investment
criteria; a market's issues must total at least US$20 billion, DM30 billion,
and 2.5 trillion for three consecutive months, after which it will be added to
the SBWGBI at the end of the following quarter. These indices are unmanaged.
Actual investment cannot be made in an index.
the Japanese stock market declined during the past year. The low interest rate
environment in Japan has yet to spur economic growth, as the deregulation of the
financial industry has been slow.
The Blanchard Global Growth Fund benefited from its exposure to equities,
since equities posted higher returns than bonds. However, our allocation across
equity markets did not help performance. We were overweighted in Continental
Europe and Japan and underweighted in the United States. Our currency hedging
strategy added value, since the U.S. Dollar strengthened against most currencies
in Continental Europe and Japan. We continue to hedge a portion of our Japanese
Yen, Swiss Franc, and Dutch Guilder exposure.
During the past year, the Blanchard Global Growth Fund sold equities in favor
of fixed income securities, as the result of strong equity performance during
the past year. We also shifted a portion of the fund out of U.S. equities and
into foreign equities. Continental Europe and Japan offer more attractive
values, since the U.S. equity market has appreciated substantially in the past
few years. We believe the gloom has been overdone in Japan, and the stock market
reflects attractive long-term value.
Thank you for your continued patronage.
Sincerely,
/s/ Thomas B. Hazuka
Thomas B. Hazuka, Ph.D.
Chief Investment Officer
Mellon Capital Management Corporation
Portfolio Manager of the
Blanchard Global Growth Fund
Dear Shareholders,
Enclosed please find the Annual Report for your Blanchard Precious Metals Fund
for the fiscal year ended September 30, 1997.
["Graphic representation A2 omitted. See Appendix."]
THE YEAR IN REVIEW
One year ago, gold was trading around the $380 level and concerns were
mounting that the International Monetary Fund, or IMF, was likely to sell 5
million ounces of gold to fund capital projects in developing countries. This
and other concerns, such as the strengthening U.S. dollar, moved us to adopt a
more defensive posture in the portfolio to reflect the increasing likelihood
that the gold price would come under pressure.
This turned out to be quite an understatement, as large sales of gold by
central banks, particularly the Dutch and Australians, drove the yellow metal
sharply lower. Central bank sales are almost impossible to forecast except for
the general expectation that they do occur every year, but generally in
quantities that don't disrupt the market. This is partly because other central
banks tend to buy about half of the gold sold by their sister institutions. In
the 1990's, central bank gold sales have netted out to about 7.5 million ounces
per year when central bank buying is accounted for.
Surprisingly, the past year has not been terribly out of the ordinary. About
15 million ounces of central bank gold has been sold, with perhaps 9 million of
this not taken up by other central bank purchases. Ordinarily, one would not
expect the price of gold to swoon by as much as 19% (from $380 to $308) in
response. However, this time was different in a very significant way.
Aggressive speculative short sales of gold accompanied every announcement of a
central bank sale. Large quantities of gold have been borrowed from central
banks at a borrowing cost of 2-3% per annum and sold in the marketplace in what
turned out to be a successful effort to drive the gold price lower. These
speculators have correctly assumed that gold buyers will be timid in the face of
a growing perception that some banks are less willing to hold onto their sizable
gold holdings.
Estimates of the quantity of gold borrowed and sold short range as high as
2,000 metric tons, which is about 65 million ounces! Clearly, this swamps the
actual amount of gold sold by the banks and amply explains the sharp gold price
decline, which has in turn pushed most gold equities dramatically lower. In line
with the gold price decline, the Blanchard Precious Metals Fund declined by
15.24% in the past year.
A LOOK AHEAD
The dominant theme of increasing and long-lasting central bank gold sales
continues to weigh heavily on the bullion price as 1997 draws to a close. In
recent days, the focal point of the issue has become the potential for sales of
Swiss gold reserves starting in the year 2000. These sales could come about in
response to a change in the Swiss constitution, which would eliminate or reduce
the requirement for a gold backstop in the money supply. Complicating the issue
is the proposal to create a Solidarity Foundation for charitable purposes, which
would be funded in part by gold bullion sales, perhaps as much as 800 metric
tons (about 26 million ounces).
These proposals would both require political approval, followed by popular
approval in a national referendum. If successful, the gold would be sold
gradually over a period of five to eight years. The worst-case scenario at
present seems to be the addition of 9 million ounces of gold to the annual
supply-demand equation, which would last 5 years. Putting this into perspective,
the annual gold market is currently sized at 130 million ounces of gold, so this
is a manageable quantity. However, the larger issue is whether a significant
change in central bank attitudes toward gold is at hand. If central banks are
more willing to part with their gold in the years ahead, then gold will settle
into a lower trading range than we have become accustomed to in the past ten
years. If instead, the net supply of
central bank gold remains at less than ten million ounces per year as in the
past, then we can look forward to an explosive rally in the gold market as the
huge outstanding short position is bought back.
We lean toward the latter scenario, particularly since gold is now trading
below the cost of production for about one quarter of the global gold mining
community! New mining projects are being canceled or deferred and the supply of
newly mined gold and scrap is now falling. Nonetheless, caution is the order of
the day until we discern a more predictable upward path for the gold price.
Thank you for your continued patronage.
Sincerely,
/s/ Peter C. Cavelti
Peter C. Cavelti
Chairman and CEO
Cavelti Capital Management Ltd.
Portfolio Manager of the
Blanchard Precious Metals Fund, Inc.
Dear Shareholders,
Enclosed please find the annual report for your Blanchard Flexible Income Fund
for the fiscal year ended September 30, 1997.
["Graphic representation A3 omitted. See Appendix."]
The past year has been one of relatively good economic growth and declining
inflation. The Federal Reserve Board (the "Fed") has continued its policy of
promoting price stability and the market has responded by pushing bonds yields
lower.
The fund has benefited from this environment as the investments in high yield
bonds* and mortgage backed securities have not only earned attractive yields,
but have also appreciated in price. The third allocation, U.S. Treasurys, has
provided the anchor to the portfolio.
Looking forward, we are increasingly concerned with the tight labor markets
and high resource utilization currently existing in the U.S. In order to relieve
these pressures, higher interest rates will probably be required. However, if
the Fed continues to be vigilant in its fight against inflation, significant
interest rate increases should not be in the offing.
*Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
While the markets will undoubtedly have bouts of volatility, relative
stability may remain the norm. In this environment, the fund should continue to
benefit from its prudent blend of financial assets.
Thank you for your continued patronage.
Sincerely,
/s/ Jack D. Burks
Jack D. Burks
Managing Director of OFFITBANK
Portfolio Manager of the
Blanchard Flexible Income Fund
Dear Shareholders,
Enclosed please find the annual report for your Blanchard Short-Term Flexible
Income Fund for the fiscal year ended September 30, 1997.
["Graphic representation A4 omitted. See Appendix."]
The past year has been one of relatively good economic growth and declining
inflation. The Federal Reserve Board (the "Fed") has continued its policy of
promoting price stability and the market has responded by pushing bond yields
lower.
The fund has benefited from this environment as the investments in high yield
bonds* and mortgage backed securities have not only earned attractive yields,
but have also appreciated in price. The third allocation, U.S. Treasurys, has
provided the anchor to the portfolio.
Looking forward, we are increasingly concerned with the tight labor markets
and high resource utilization currently existing in the U.S. In order to relieve
these pressures, higher interest rates will probably be required. However, if
the Fed continues to be vigilant in its fight against inflation, significant
interest rate increases should not be in the offing.
*Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
While the markets will undoubtedly have bouts of volatility, relative
stability may remain the norm. In this environment, the fund should continue to
benefit from its prudent blend of financial assets.
Thank you for your continued patronage.
Sincerely,
/s/ Jack D. Burks
Jack D. Burks
Managing Director of OFFITBANK
Portfolio Manager of the
Blanchard Short-Term Flexible Income Fund
Dear Shareholders,
Enclosed please find the Annual Report for your Blanchard Flexible Tax-Free
Bond Fund for the fiscal year ended September 30, 1997.
["Graphic representation A5 omitted. See Appendix."]
The past fiscal year was an excellent one for investors in the Blanchard
Flexible Tax-Free Bond Fund. Interest rates declined during the first fiscal
quarter, but rose sharply in early 1997 as the Federal Reserve Board raised
interest rates to slow an extremely strong economy and quell inflation fears.
Although the economy continued to grow at a 3.5% - 4% rate over the next two
quarters, inflation continued moderate with the consumer price index rising only
2.2% over the past 12 months. Consequently, interest rates declined during the
final two quarters of the fund's fiscal year.
The Blanchard Flexible Tax-Free Bond Fund was invested in a portfolio of
longer-term, high-quality tax exempt bonds, with a maturity of approximately 20
years for most of the year. During the latter part of the fiscal year, cash
reserves were raised to reduce the average maturity of the fund in anticipation
of possible interest rate increases.
Overall, the fund had an excellent year, posting a total return of 9.59%
versus 8.43% for the Lehman Brothers Current Municipal Bond Index.+
Additionally, the fund was ranked #31 by Lipper Analytical Services out of 233
funds in its category of general municipal debt funds for total cumulative
reinvested performance for the twelve month period ended 9/30/97. The fund also
outperformed the Lipper General Municipal Debt Fund average of 8.59%.++
Morningstar has awarded the Blanchard Flexible Tax-Free Bond Fund its 4-star
rating for risk-adjusted performance for the overall period ended 9/30/97 in its
category of 1,374 municipal funds.*
Naturally, past performance is no guarantee of future performance. As with any
fixed income fund, investment return, yield, and principal value will vary with
changing market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original purchase price.
Thank you for your continued patronage.
Sincerely,
/s/ Kenneth J. McAlley
Kenneth J. McAlley
Executive Vice President
United States Trust Company of New York
Portfolio Manager of the
Blanchard Flexible Tax-Free Bond Fund
+Lehman Brothers Municipal Index is an unmanaged broad market performance
benchmark for the tax-exempt bond market. To be included in the Lehman
Brothers Municipal Bond Index, bonds must have a minimum credit rating of at
least Baa. Actual investments cannot be made in an index.
++Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. Lipper rankings and figures do not
reflect sales charges.
*Morningstar proprietary ratings reflect risk-adjusted performance through
9/30/97. The ratings are subject to change every month. Past performance is
not a guarantee of future results. Morningstar ratings are calculated from the
fund's three-year returns in excess of 90-day Treasury bill returns, and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The fund received 4 stars for the three-year period. It was rated among 1,374
municipal funds for the three-year period. The top ten percent of the funds in
the category receive 5 stars, the next 22.5% receive 4 stars, and the next 35%
receive 3 stars. The rating shown does not reflect certain management fees
which were waived during the period. If reflected, they may have impacted the
rating.
BLANCHARD GLOBAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------ -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--29.8%
-------------------------------------
AUSTRIA--0.1%
------------------------------
BANKING--0.0%
------------------------------
100 Bank Austria, AG $ 4,865
------------------------------
100 (a)Bank Austria AG, Rights 226
------------------------------ -----------
Total 5,091
------------------------------ -----------
CHEMICALS--0.0%
------------------------------
200 Lenzing AG 11,821
------------------------------ -----------
FINANCIAL SERVICES--0.0%
------------------------------
100 Creditanstalt-Bankverein 6,298
------------------------------
200 Creditanstalt-Bankverein, Pfd. 10,422
------------------------------ -----------
Total 16,720
------------------------------ -----------
PETROLEUM--0.1%
------------------------------
150 OMV AG 22,375
------------------------------ -----------
RUBBER & MISC. MATERIALS--0.0%
------------------------------
200 Radex-Heraklith 8,299
------------------------------ -----------
STEEL--0.0%
------------------------------
100 Boehler-Uddeholm 8,403
------------------------------ -----------
UTILITIES--0.0%
------------------------------
100 Oest Elektrizitats, Class A 7,081
------------------------------ -----------
TOTAL AUSTRIA 79,790
------------------------------ -----------
BRAZIL--0.0%
------------------------------
7,481 Rhodia-Ster S.A., GDR 18,702
------------------------------ -----------
DENMARK--0.1%
------------------------------
BANKING--0.1%
------------------------------
200 Den Danske Bank 21,787
------------------------------
400 Unidanmark, Class A 25,978
------------------------------ -----------
Total 47,765
------------------------------ -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------ ------------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
-------------------------------------
DENMARK--CONTINUED
------------------------------
COMMUNICATIONS EQUIPMENT--0.0%
------------------------------
200 Tele Danmark AS, Class B $ 10,492
------------------------------ ------------
ENVIRONMENTAL SERVICES--0.0%
------------------------------
100 Danisco 5,662
------------------------------ ------------
INDUSTRIAL SERVICES--0.0%
------------------------------
100 Nkt Holding 7,728
------------------------------ ------------
MISCELLANEOUS--0.0%
------------------------------
300 Korn-Og Foderstof 9,363
------------------------------ ------------
TRANSPORTATION-AIR--0.0%
------------------------------
400 SAS Danmark AS 6,717
------------------------------ ------------
TOTAL DENMARK 87,727
------------------------------ ------------
FINLAND--0.2%
------------------------------
BANKING--0.0%
------------------------------
3,950 Merita Ltd, Class A 18,739
------------------------------ ------------
ELECTRICAL EQUIPMENT--0.1%
------------------------------
250 Nokia AB, Class K 23,672
------------------------------
500 Nokia AB-A 47,534
------------------------------ ------------
Total 71,206
------------------------------ ------------
MISCELLANEOUS--0.1%
------------------------------
36 Rauma Oy 748
------------------------------
1,300 UPM-Kymmene OY 36,118
------------------------------ ------------
Total 36,866
------------------------------ ------------
NON-FERROUS METALS--0.0%
------------------------------
500 Outokumpu Oy 9,119
------------------------------ ------------
TRADING COMPANY--0.0%
------------------------------
750 Kesko 10,560
------------------------------ ------------
TOTAL FINLAND 146,490
------------------------------ ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ---------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
-----------------------------------------------
FRANCE--0.7%
----------------------------------------
AUTOMOBILE--0.0%
----------------------------------------
150 Peugeot S.A. $ 19,772
---------------------------------------- -----------
BEVERAGE--0.2%
----------------------------------------
310 LVMH (Moet-Hennessy) 65,891
---------------------------------------- -----------
BROADCASTING--0.0%
----------------------------------------
150 Havas S.A. 10,182
---------------------------------------- -----------
BUILDING MATERIALS--0.1%
----------------------------------------
255 Compagnie de St. Gobain 39,329
----------------------------------------
280 Lafarge-Coppee 20,521
---------------------------------------- -----------
Total 59,850
---------------------------------------- -----------
CHEMICALS--0.1%
----------------------------------------
1,122 Rhone-Poulenc, Class A 44,633
---------------------------------------- -----------
FINANCIAL SERVICES--0.1%
----------------------------------------
260 AXA 17,442
----------------------------------------
230 Compagnie Financiere de Paribas, Class A 17,058
---------------------------------------- -----------
Total 34,500
---------------------------------------- -----------
MOTOR VEHICLE PARTS--0.0%
----------------------------------------
384 Michelin, Class B 21,813
---------------------------------------- -----------
PHARMACEUTICALS--0.2%
----------------------------------------
220 L'Oreal 88,072
----------------------------------------
290 Sanofi S.A. 26,934
---------------------------------------- -----------
Total 115,006
---------------------------------------- -----------
RETAILERS-BROADLINE--0.0%
----------------------------------------
60 Pinault-Printemps-Redoute S.A. 28,146
---------------------------------------- -----------
RETAILERS SPECIALTY--0.0%
----------------------------------------
275 Castorama Dubois Investisse 29,574
---------------------------------------- -----------
UTILITIES--0.0%
----------------------------------------
170 Lyonnaise des Eaux S.A. 18,970
---------------------------------------- -----------
TOTAL FRANCE 448,337
---------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ----------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
------------------------------------------------
GERMANY--2.6%
-----------------------------------------
AIRLINES--0.1%
-----------------------------------------
2,500 Deutsche Lufthansa AG $ 49,237
----------------------------------------- -----------
AUTOMOTIVE & RELATED--0.1%
-----------------------------------------
1,000 Daimler Benz AG 82,515
----------------------------------------- -----------
BANKING--0.4%
-----------------------------------------
2,250 Bayerische Hypotheken-Und Wechsel-Bank AG 96,140
-----------------------------------------
2,700 Deutsche Bank AG 190,090
----------------------------------------- -----------
Total 286,230
----------------------------------------- -----------
CHEMICALS--0.2%
-----------------------------------------
4,500 Bayer AG 179,165
----------------------------------------- -----------
ELECTRICAL EQUIPMENT--0.6%
-----------------------------------------
5,650 Siemens AG 381,634
----------------------------------------- -----------
HEALTHCARE-GENERAL--0.1%
-----------------------------------------
1,500 Merck KGAA 57,302
----------------------------------------- -----------
INSURANCE-LIFE--0.6%
-----------------------------------------
1,500 Allianz AG Holding 361,895
----------------------------------------- -----------
MULTI-INDUSTRY--0.2%
-----------------------------------------
218 Viag AG 97,566
----------------------------------------- -----------
STEEL--0.1%
-----------------------------------------
200 Thyssen AG 46,634
----------------------------------------- -----------
UTILITIES-ELECTRIC--0.2%
-----------------------------------------
2,050 RWE AG 99,254
----------------------------------------- -----------
TOTAL GERMANY 1,641,432
----------------------------------------- -----------
HONG KONG--1.1%
-----------------------------------------
BANKING--0.2%
-----------------------------------------
4,844 Bank Of East Asia 18,093
-----------------------------------------
6,000 Hang Seng Bank, Ltd. 73,856
-----------------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ---------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
-----------------------------------------
HONG KONG--CONTINUED
----------------------------------
BANKING--CONTINUED
----------------------------------
1,545 HSBC Holdings PLC $ 51,713
----------------------------------
1,200 Wing Lung Bank 7,118
---------------------------------- -----------
Total 150,780
---------------------------------- -----------
BROADCASTING--0.0%
----------------------------------
2,000 Television Broadcasting 7,082
---------------------------------- -----------
ENTERTAINMENT & RECREATION--0.0%
----------------------------------
3,000 Hong Kong & Shang Hot 3,644
----------------------------------
4,000 Shangri-La Asia 4,110
---------------------------------- -----------
Total 7,754
---------------------------------- -----------
FINANCIAL SERVICES--0.0%
----------------------------------
6,000 Peregrine Investment 10,196
---------------------------------- -----------
MULTI-INDUSTRY--0.2%
----------------------------------
9,000 Hutchison Whampoa 88,686
----------------------------------
3,000 Swire Pacific, Ltd. 22,971
---------------------------------- -----------
Total 111,657
---------------------------------- -----------
PROPERTY--0.1%
----------------------------------
2,000 Hysan Development Co., Ltd. 5,983
----------------------------------
5,033 New World Development Co., Ltd. 30,440
----------------------------------
4,000 Wharf Holdings Ltd. 14,732
---------------------------------- -----------
Total 51,155
---------------------------------- -----------
REAL ESTATE--0.3%
----------------------------------
5,000 Cheung Kong 56,216
----------------------------------
10,000 Sun Hung Kai Properties 117,601
---------------------------------- -----------
Total 173,817
---------------------------------- -----------
TELECOMMUNICATIONS--0.2%
----------------------------------
34,843 Hong Kong Telecommunications, Ltd. 78,800
---------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ --------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
----------------------------------------
HONG KONG--CONTINUED
---------------------------------
UTILITIES--0.1%
---------------------------------
9,000 China Light and Power Co., Ltd. $ 49,548
---------------------------------
12,000 Hong Kong and China Gas Co., Ltd. 24,735
--------------------------------- -----------
Total 74,283
--------------------------------- -----------
TOTAL HONG KONG 665,524
--------------------------------- -----------
IRELAND--0.3%
---------------------------------
BANKING--0.0%
---------------------------------
1 Bank of Ireland PLC 7
--------------------------------- -----------
BUILDING MATERIALS--0.3%
---------------------------------
14,329 CRH PLC 163,425
--------------------------------- -----------
TOTAL IRELAND 163,432
--------------------------------- -----------
ITALY--1.0%
---------------------------------
AUTOMOTIVE & RELATED--0.2%
---------------------------------
37,510 Fiat SPA 133,859
---------------------------------
4,180 Fiat SPA 7,434
--------------------------------- -----------
Total 141,293
--------------------------------- -----------
BANKING--0.1%
---------------------------------
5,300 Banca Commerciale Italiana 15,229
---------------------------------
600 Imi 6,437
--------------------------------- -----------
Total 21,666
--------------------------------- -----------
BROADCASTING--0.0%
---------------------------------
3,500 Mediaset SPA 18,046
--------------------------------- -----------
FINANCE-0.0%
---------------------------------
6,200 Credito Italiano 16,774
--------------------------------- -----------
PAPER PRODUCTS--0.0%
---------------------------------
1,000 Burgo (Cartiere) SPA 6,488
--------------------------------- -----------
PETROLEUM--0.3%
---------------------------------
26,000 Eni SPA 163,729
--------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ --------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
----------------------------------------------
ITALY--CONTINUED
---------------------------------------
RUBBER & MISC. MATERIALS--0.0%
---------------------------------------
2,300 Pirelli SPA $ 6,742
--------------------------------------- -----------
TELECOMMUNICATIONS--0.4%
---------------------------------------
46,000 Telecom Italia Mobile SPA 182,545
---------------------------------------
9,944 Telecom Italia SPA 66,249
--------------------------------------- -----------
Total 248,794
--------------------------------------- -----------
UTILITIES--0.0%
---------------------------------------
1,200 Edison SPA 6,458
--------------------------------------- -----------
TOTAL ITALY 629,990
--------------------------------------- -----------
JAPAN--10.3%
---------------------------------------
AIRLINES-0.0%
---------------------------------------
2,000 Japan Airlines Co. 7,276
--------------------------------------- -----------
AUTOMOTIVE & RELATED--1.0%
---------------------------------------
2,000 Denso Corp. 48,562
---------------------------------------
3,000 Honda Motor Co., Ltd. 104,666
---------------------------------------
5,000 Nissan Motor Co., Ltd. 29,833
---------------------------------------
15,000 Toyota Motor Credit Corp. 459,932
--------------------------------------- -----------
Total 642,993
--------------------------------------- -----------
BANKING--1.7%
---------------------------------------
9,000 Asahi Bank, Ltd. 52,208
---------------------------------------
18,000 Bank of Tokyo-Mitsubishi, Ltd. 343,084
---------------------------------------
9,000 Fuji Bank, Ltd., Tokyo 99,196
---------------------------------------
8,000 Industrial Bank of Japan, Ltd., Tokyo 99,445
---------------------------------------
6,000 Mitsubishi Trust & Banking Corp., Tokyo 93,478
---------------------------------------
4,000 Mitsui Trust & Banking 19,922
---------------------------------------
15,000 Sakura Bank, Ltd., Tokyo 71,725
---------------------------------------
10,000 Sumitomo Bank, Ltd., Osaka 150,825
---------------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ----------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
------------------------------------------
JAPAN--CONTINUED
-----------------------------------
BANKING--CONTINUED
-----------------------------------
8,000 Tokai Bank, Ltd., Nagoya $ 66,230
----------------------------------- -----------
Total 996,113
----------------------------------- -----------
BUILDING & CONSTRUCTION-0.0%
-----------------------------------
1,000 Obayashi Corp. 6,041
----------------------------------- -----------
BUILDING MATERIALS--0.0%
-----------------------------------
3,000 Takara Standard Co. 21,331
----------------------------------- -----------
CAPITAL GOODS--0.2%
-----------------------------------
13,000 Asahi Glass Co., Ltd. 101,052
----------------------------------- -----------
CHEMICALS & RELATED--0.4%
-----------------------------------
12,000 Daicel Chemical Industries 30,728
-----------------------------------
6,000 Sekisui Chemical Co. 45,198
-----------------------------------
1,000 Shin-Etsu Chemical Co. 27,513
-----------------------------------
6,000 Sumitomo Bakelite Co., Ltd. 42,562
-----------------------------------
2,000 Sumitomo Chemical Co. 7,342
-----------------------------------
3,000 Takeda Chemical Industries 89,998
----------------------------------- -----------
Total 243,341
----------------------------------- -----------
CHEMICAL-SPECIALTY--0.3%
-----------------------------------
2,000 Fuji Photo Film Co. 82,539
-----------------------------------
5,000 Shiseido Co. 80,385
----------------------------------- -----------
Total 162,924
----------------------------------- -----------
COMMUNICATION EQUIPMENT--0.3%
-----------------------------------
8,000 Matsushita Electric Industrial Co. 144,526
-----------------------------------
1 NTT Data Communications Systems Co. 45,330
----------------------------------- -----------
Total 189,856
----------------------------------- -----------
COMPUTERS--0.2%
-----------------------------------
6,000 Fujitsu, Ltd. 75,081
-----------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------- ---------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
------------------------------------------------
JAPAN--CONTINUED
----------------------------------------
COMPUTERS--CONTINUED
----------------------------------------
6,000 NEC Corp. $ 73,092
---------------------------------------- -----------
Total 148,173
---------------------------------------- -----------
CONSUMER ELECTRONIC--0.4%
----------------------------------------
1,000 Rohm Co. 117,676
----------------------------------------
6,000 Sharp Corp. 54,695
----------------------------------------
1,000 Sony Corp. 94,473
---------------------------------------- -----------
Total 266,844
---------------------------------------- -----------
ELECTRONICS & ELECTRICAL EQUIPMENT--0.9%
----------------------------------------
500 Advantest 49,308
----------------------------------------
2,000 Canon Sales Co., Inc. 39,446
----------------------------------------
5,000 Canon, Inc. 146,267
----------------------------------------
16,000 Hitachi, Ltd. 139,223
----------------------------------------
600 Kyocera Corp. 39,231
----------------------------------------
1,000 Mitsubishi Corp. 9,696
----------------------------------------
1,000 Murata Manufacturing 43,258
----------------------------------------
1,000 Tokyo Electron, Ltd. 61,076
----------------------------------------
4,000 Yamatake-Honeywell 56,352
---------------------------------------- -----------
Total 583,857
---------------------------------------- -----------
FINANCIAL SERVICES--0.8%
----------------------------------------
2,200 Credit Saison Co., Ltd. 59,799
----------------------------------------
4,000 Daiwa Securities Co., Ltd. 24,530
----------------------------------------
134,000 (a)Nikkei 300 Stock Index List Fund 304,268
----------------------------------------
7,000 Nomura Securities Co., Ltd. 91,075
----------------------------------------
3,000 Yamaichi Securities Co., Ltd. 6,166
---------------------------------------- -----------
Total 485,838
---------------------------------------- -----------
FOOD PROCESSING--0.1%
----------------------------------------
3,000 House Foods Corp. 50,965
---------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ----------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
------------------------------------------
JAPAN--CONTINUED
-----------------------------------
HOUSING & CONSTRUCTION--0.1%
-----------------------------------
13,000 Taisei Corp. $ 48,587
----------------------------------- -----------
INSURANCE--0.2%
-----------------------------------
11,000 Sumitomo Marine & Fire 76,117
-----------------------------------
4,000 Tokio Marine and Fire Insurance Co. 48,065
----------------------------------- -----------
Total 124,182
----------------------------------- -----------
MACHINERY--0.3%
-----------------------------------
14,000 Komatsu, Ltd. 78,313
-----------------------------------
4,000 Mori Seiki Co. 46,739
-----------------------------------
4,000 Takuma Co., Ltd. 39,778
----------------------------------- -----------
Total 164,830
----------------------------------- -----------
NON-RESIDENTIAL CONSTRUCTION--0.1%
-----------------------------------
7,000 Sekisui House, Ltd. 66,711
----------------------------------- -----------
OIL & RELATED--0.0%
-----------------------------------
8,000 Mitsubishi Oil Co. 21,480
----------------------------------- -----------
PAPER PRODUCTS--0.0%
-----------------------------------
2,000 Nippon Paper Industries Co. 10,972
----------------------------------- -----------
PHARMACEUTICALS--0.4%
-----------------------------------
6,000 Chugai Pharmaceutical Co. 51,711
-----------------------------------
4,000 Kaken Pharmaceutical 13,823
-----------------------------------
2,000 Sankyo Co., Ltd. 69,280
-----------------------------------
4,000 Shionogi and Co. 24,894
-----------------------------------
3,000 Yamanouchi Pharmaceutical Co., Ltd. 74,086
----------------------------------- -----------
Total 233,794
----------------------------------- -----------
PHOTO EQUIPMENT & SUPPLIES--0.0%
-----------------------------------
1,000 Nikon Corp. 15,745
----------------------------------- -----------
PRINTING-COMMERCIAL--0.0%
-----------------------------------
1,000 Dai Nippon Printing Co., Ltd. 21,381
----------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ---------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
-----------------------------------------
JAPAN--CONTINUED
----------------------------------
REAL ESTATE--0.2%
----------------------------------
8,000 Mitsubishi Estate Co., Ltd. $ 116,682
---------------------------------- -----------
RETAIL--0.3%
----------------------------------
1,000 Daiei, Inc. 5,519
----------------------------------
5,000 Hankyu Department Stores, Inc. 41,435
----------------------------------
1,000 Isetan Co. 9,613
----------------------------------
2,000 Ito Yokado Co., Ltd. 108,395
---------------------------------- -----------
Total 164,962
---------------------------------- -----------
RUBBER & MISC. MATERIALS--0.1%
----------------------------------
3,000 Bridgestone Corp. 72,097
---------------------------------- -----------
SHIPBUILDING--0.2%
----------------------------------
27,000 Mitsubishi Heavy Industries, Ltd. 147,899
---------------------------------- -----------
STEEL--0.1%
----------------------------------
44,000 NKK Corp. 59,070
----------------------------------
9,000 Nippon Steel Co. 19,839
---------------------------------- -----------
Total 78,909
---------------------------------- -----------
TELECOMMUNICATIONS--0.9%
----------------------------------
62 Nippon Telegraph & Telephone Corp. 570,316
---------------------------------- -----------
TEXTILE & APPAREL--0.1%
----------------------------------
6,000 Nisshinbo Industries 39,728
---------------------------------- -----------
TRADING COMPANY--0.3%
----------------------------------
15,000 Itochu Corp. 51,960
----------------------------------
22,000 Marubeni Corp. 72,926
----------------------------------
4,000 Onward Kashiyama Co., Ltd. 57,678
---------------------------------- -----------
Total 182,564
---------------------------------- -----------
TRANSPORTATION--0.4%
----------------------------------
12 East Japan Railway Co. 56,286
----------------------------------
35,000 (a)Kawasaki Kisen Kaisha, Ltd. 38,286
----------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
--------------------------------------
JAPAN--CONTINUED
-------------------------------
TRANSPORTATION--CONTINUED
-------------------------------
28,000 Kinki Nippon Railway $ 159,874
------------------------------- -----------
Total 254,446
------------------------------- -----------
UTILITIES--0.3%
-------------------------------
900 Kansai Electric Power Co., Inc. 16,035
-------------------------------
1,000 Sumitomo Electric Industries 14,337
-------------------------------
8,100 Tokyo Electric Power Co. 155,731
------------------------------- -----------
Total 186,103
------------------------------- -----------
TOTAL JAPAN 6,427,992
------------------------------- -----------
NETHERLANDS--0.7%
-------------------------------
BANKING--0.1%
-------------------------------
1,621 ABN-Amro Hldgs N.V. 32,822
------------------------------- -----------
CONSUMER & RELATED--0.0%
-------------------------------
200 Heineken N.V. 35,080
------------------------------- -----------
FOOD PROCESSING--0.1%
-------------------------------
200 Unilever N.V. 42,687
------------------------------- -----------
HOUSEHOLD DURABLES--0.1%
-------------------------------
600 Philips Electronics N.V. 50,766
------------------------------- -----------
INSURANCE--0.2%
-------------------------------
315 Aegon N.V. 25,228
-------------------------------
1,065 Ahold N.V. 28,788
-------------------------------
1,436 ING Groep N.V. 65,945
------------------------------- -----------
Total 119,961
------------------------------- -----------
PETROLEUM--0.2%
-------------------------------
2,600 Royal Dutch Petroleum 145,526
------------------------------- -----------
TOTAL NETHERLANDS 426,842
------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ --------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
----------------------------------------
NEW ZEALAND--0.1%
---------------------------------
BUILDING MATERIALS--0.0%
---------------------------------
5,552 Fletcher Challenge Energy $ 6,936
--------------------------------- -----------
FOREST PRODUCTS--0.1%
---------------------------------
8,300 Carter Holt Harvey 18,026
---------------------------------
222 Fletcher Challenge Forests 277
--------------------------------- -----------
Total 18,303
--------------------------------- -----------
TELECOMMUNICATIONS--0.0%
---------------------------------
3,900 Telecom Corp. of New Zealand 19,788
--------------------------------- -----------
TOTAL NEW ZEALAND 45,027
--------------------------------- -----------
NORWAY--0.2%
---------------------------------
ENERGY--0.1%
---------------------------------
1,000 Norsk Hydro AS 59,591
--------------------------------- -----------
FOREST PRODUCTS--0.1%
---------------------------------
300 Norske Skogindustrier AS, Class A 11,271
---------------------------------
200 Norske Skogindustrier AS, Class B 6,867
--------------------------------- -----------
Total 18,138
--------------------------------- -----------
INSURANCE-LIFE--0.0%
---------------------------------
1,300 (a)Storebrand ASA 9,329
--------------------------------- -----------
MULTI-INDUSTRY--0.0%
---------------------------------
200 Aker AS, Class A 3,743
---------------------------------
40 Aker AS, Class B 681
---------------------------------
100 Orkla Borregaard AS, Class A 8,837
--------------------------------- -----------
Total 13,261
--------------------------------- -----------
NON-FERROUS METALS--0.0%
---------------------------------
400 Elkem AS, Class A 7,092
--------------------------------- -----------
TOTAL NORWAY 107,411
--------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ -------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
---------------------------------------
SOUTH AFRICA--0.1%
--------------------------------
MINERAL PRODUCTS--0.1%
--------------------------------
20,000 Billiton PLC $ 77,030
-------------------------------- -----------
SPAIN--0.8%
--------------------------------
BANKING--0.1%
--------------------------------
300 Argentaria SA 17,947
--------------------------------
900 Banco Bilbao Vizcaya SA 27,705
--------------------------------
1,200 Banco Santander 39,311
-------------------------------- -----------
Total 84,963
-------------------------------- -----------
PETROLEUM--0.1%
--------------------------------
1,100 Repsol SA 47,531
-------------------------------- -----------
REAL ESTATE--0.3%
--------------------------------
6,000 Vallehermosa SA 165,405
-------------------------------- -----------
TELECOMMUNICATIONS--0.1%
--------------------------------
2,200 Telefonica de Espana 69,123
-------------------------------- -----------
UTILITIES--0.2%
--------------------------------
2,400 Endesa SA 51,209
--------------------------------
400 Gas Natural SDG SA 21,063
--------------------------------
2,200 Iberdrola SA 27,045
--------------------------------
600 Union Elec Fenosa 5,205
-------------------------------- -----------
Total 104,522
-------------------------------- -----------
TOTAL SPAIN 471,544
-------------------------------- -----------
SWEDEN--0.7%
--------------------------------
BANKING--0.0%
--------------------------------
1,500 Skand Enskilda BKN, Class A 18,188
--------------------------------
300 Svenska Handelsbanken, Stockholm 10,399
-------------------------------- -----------
Total 28,587
-------------------------------- -----------
COMMUNICATIONS--0.2%
--------------------------------
2,300 Telefonaktiebolaget LM Ericsson 110,491
-------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
---------------------------------------------------------
SWEDEN--CONTINUED
-------------------------------------------------
MISCELLANEOUS--0.2%
-------------------------------------------------
2,600 Scania AB, Class A 78,814
-------------------------------------------------
2,600 Scania AB, Class B $ 78,814
------------------------------------------------- -----------
Total 157,628
------------------------------------------------- -----------
PHARMACEUTICALS--0.3%
-------------------------------------------------
8,800 Astra AB, Class A 162,372
------------------------------------------------- -----------
TOTAL SWEDEN 459,078
------------------------------------------------- -----------
SWITZERLAND--7.6%
-------------------------------------------------
AIRLINES-0.1%
-------------------------------------------------
30 Sairgroup 40,120
------------------------------------------------- -----------
BANKING--1.2%
-------------------------------------------------
600 Credit Suisse Group 81,064
-------------------------------------------------
200 Schweizerische Bankgesellschaft (UBS) 46,755
-------------------------------------------------
300 Schweizerische Bankgesellschaft (UBS) 350,454
-------------------------------------------------
900 Schweizerischer Bankverein 243,193
------------------------------------------------- -----------
Total 721,466
------------------------------------------------- -----------
BUILDING PRODUCTS--0.1%
-------------------------------------------------
50 Holderbank Financiere Glaris AG, Class B 47,442
-------------------------------------------------
100 Holderbank Financiere Glaris AG, Class R 19,527
------------------------------------------------- -----------
Total 66,969
------------------------------------------------- -----------
COMMERCIAL SERVICES--0.0%
-------------------------------------------------
15 SGS Societe Generale de Surveillance Holding S.A. 26,248
------------------------------------------------- -----------
ELECTRICAL EQUIPMENT--0.3%
-------------------------------------------------
95 ABB AG 139,913
-------------------------------------------------
10 Schindler Holding AG 12,445
-------------------------------------------------
50 Sulzer AG 38,023
------------------------------------------------- -----------
Total 190,381
------------------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ -------------------------------------------------------- ------------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
---------------------------------------------------------------
SWITZERLAND--CONTINUED
--------------------------------------------------------
FOOD PROCESSING--1.1%
--------------------------------------------------------
500 Nestle SA $ 696,507
-------------------------------------------------------- ------------
HEALTHCARE-GENERAL--1.6%
--------------------------------------------------------
100 Roche Holding AG 1,015,677
-------------------------------------------------------- ------------
HOUSEHOLD PRODUCTS--0.4%
--------------------------------------------------------
600 Zurich Versicherungsgesellschaft 261,139
-------------------------------------------------------- ------------
HUMAN RESOURCES--0.1%
--------------------------------------------------------
200 Adecco S.A. 80,446
-------------------------------------------------------- ------------
INSURANCE-LIFE--0.5%
--------------------------------------------------------
190 Schw Rueckversicherungs 284,922
-------------------------------------------------------- ------------
METAL & MINING--0.1%
--------------------------------------------------------
75 Alusuisse Lonza Holding AG 73,002
-------------------------------------------------------- ------------
MISCELLANEOUS--2.0%
--------------------------------------------------------
790 Novartis AG 1,211,909
-------------------------------------------------------- ------------
RETAIL-RESTAURANTS--0.0%
--------------------------------------------------------
50 Valora Holding AG 10,640
-------------------------------------------------------- ------------
UNASSIGNED--0.1%
--------------------------------------------------------
50 Societe Suisse pour la Microelectronique et l'Horlogerie 29,772
--------------------------------------------------------
200 Societe Suisse pour la Microelectronique et l'Horlogerie 27,537
-------------------------------------------------------- ------------
Total 57,309
-------------------------------------------------------- ------------
TOTAL SWITZERLAND 4,736,735
-------------------------------------------------------- ------------
UNITED KINGDOM--3.2%
--------------------------------------------------------
AEROSPACE--0.1%
--------------------------------------------------------
1,900 British Aerospace PLC 50,307
-------------------------------------------------------- ------------
BANKING--0.6%
--------------------------------------------------------
7,100 Lloyds TSB Group PLC 95,311
--------------------------------------------------------
18,028 National Westminster Bank PLC, London 272,242
-------------------------------------------------------- ------------
Total 367,553
-------------------------------------------------------- ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------------------------- -----------
<C> <S> <C>
FOREIGN SECURITIES SECTOR--CONTINUED
--------------------------------------------------------
UNITED KINGDOM--CONTINUED
-------------------------------------------------
BROADCASTING--0.4%
-------------------------------------------------
900 British Sky Broadcasting Group PLC $ 6,809
-------------------------------------------------
27,500 Carlton Communications PLC 227,572
------------------------------------------------- -----------
Total 234,381
------------------------------------------------- -----------
DIVERSIFIED OPERATIONS--0.2%
-------------------------------------------------
19,334 Williams Holdings PLC 115,040
------------------------------------------------- -----------
FOOD PROCESSING--0.2%
-------------------------------------------------
14,300 Allied Domecq PLC 113,334
------------------------------------------------- -----------
HEALTH CARE--0.5%
-------------------------------------------------
33,224 Smithkline Beecham Corp. 324,121
------------------------------------------------- -----------
MACHINERY--0.3%
-------------------------------------------------
8,800 Siebe PLC 176,949
------------------------------------------------- -----------
MULTI-INDUSTRY--0.3%
-------------------------------------------------
7,500 Hanson PLC, ADR 180,938
------------------------------------------------- -----------
OIL & RELATED--0.2%
-------------------------------------------------
10,370 British Petroleum Co. PLC 156,347
------------------------------------------------- -----------
PHARMACEUTICALS--0.2%
-------------------------------------------------
4,800 Glaxo Wellcome PLC 107,036
------------------------------------------------- -----------
PUBLISHING--0.2%
-------------------------------------------------
12,722 EMI Group PLC 124,933
------------------------------------------------- -----------
RETAIL--0.0%
-------------------------------------------------
5,468 Thorn EMI 12,318
------------------------------------------------- -----------
TELECOMMUNICATIONS--0.0%
-------------------------------------------------
1,125 Cable & Wireless 9,578
------------------------------------------------- -----------
TOTAL UNITED KINGDOM 1,972,835
------------------------------------------------- -----------
TOTAL FOREIGN SECURITIES SECTOR (IDENTIFIED COST
$18,032,118) 18,605,918
------------------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
--------- --------------------------------------------------- ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--9.9%
-------------------------------------------------------------
ARGENTINA--0.3%
---------------------------------------------------
PETROLEUM--0.3%
---------------------------------------------------
21,385 Compania Naviera Perez Companc S.A., Class B $ 172,398
--------------------------------------------------- ------------
BRAZIL--1.4%
---------------------------------------------------
BANKING--0.1%
---------------------------------------------------
7,000,000 Banco Bradesco S.A., Pfd. 73,794
--------------------------------------------------- ------------
BASIC INDUSTRY--0.6%
---------------------------------------------------
4,387 (a)Cia Acos Especiais Itabira-Acesita, ADR 16,937
---------------------------------------------------
3,207 (a)Companhia Energetica de Minas Gerais, ADR 176,219
---------------------------------------------------
7,400 Companhia Vale Do Rio Doce, ADR 181,017
--------------------------------------------------- ------------
Total 374,173
--------------------------------------------------- ------------
INDUSTRIAL SERVICES--0.6%
---------------------------------------------------
2,750 Telecomunicacoes Brasileras, ADR 354,063
--------------------------------------------------- ------------
STEEL--0.0%
---------------------------------------------------
1,211,792 Cia Acos Especiais Itabira-Acesita, Pfd. 2,632
--------------------------------------------------- ------------
UTILITIES--0.1%
---------------------------------------------------
150,000 Centrais Eletricas Brasileiras S.A., Pfd., Series B 84,887
---------------------------------------------------
6,588 Light Servicos de Eletricidade S.A. 2,820
--------------------------------------------------- ------------
Total 87,707
--------------------------------------------------- ------------
TOTAL BRAZIL 892,369
--------------------------------------------------- ------------
CHILE--0.8%
---------------------------------------------------
CONSUMER DURABLES--0.2%
---------------------------------------------------
4,200 Compania Cervecerias Unidas S.A., ADR 120,750
--------------------------------------------------- ------------
ENGINEERING-BUSINESS SERVICES--0.3%
---------------------------------------------------
5,319 Chilgener S.A., ADR 145,940
--------------------------------------------------- ------------
TELECOMMUNICATIONS--0.1%
---------------------------------------------------
2,525 Compania Telecomunicacion Chile, ADR 81,747
--------------------------------------------------- ------------
UTILITIES--0.2%
---------------------------------------------------
3,750 (b)Chilectra S.A., ADR 118,378
--------------------------------------------------- ------------
TOTAL CHILE 466,815
--------------------------------------------------- ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------- ------------------------------------------------------ ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
--------------------------------------------------------------
COLOMBIA--0.4%
------------------------------------------------------
BANKING--0.3%
------------------------------------------------------
2,600 Banco Ganadero S.A., ADR, Class B $ 104,000
------------------------------------------------------
5,500 Banco Industrial Colombiano, ADR 98,313
------------------------------------------------------ ------------
Total 202,313
------------------------------------------------------ ------------
MISCELLANEOUS--0.1%
------------------------------------------------------
3,500 Cementos Diamante S.A., GDR 45,500
------------------------------------------------------ ------------
TOTAL COLOMBIA 247,813
------------------------------------------------------ ------------
GREECE--0.0%
------------------------------------------------------
BANKING--0.0%
------------------------------------------------------
422 Ergo Bank S.A. 28,267
------------------------------------------------------ ------------
INDIA--0.3%
------------------------------------------------------
CHEMICALS--0.1%
------------------------------------------------------
5,700 Indian Petrochemicals, GDR 58,397
------------------------------------------------------ ------------
STEEL--0.0%
------------------------------------------------------
5,500 Steel Authority of India, GDR 35,888
------------------------------------------------------ ------------
TEXTILES--0.2%
------------------------------------------------------
4,300 Reliance Industries, Ltd., GDR 98,631
------------------------------------------------------ ------------
TOTAL INDIA 192,916
------------------------------------------------------ ------------
INDONESIA--0.3%
------------------------------------------------------
BANKING--0.2%
------------------------------------------------------
275,626 (a)PT Bank Dagang Nasional 54,455
------------------------------------------------------
39,374 (a)PT Bank Dagang Nasional, Warrants 2/14/2000 2,274
------------------------------------------------------
260,814 (a)PT Bank International Indonesia 75,311
------------------------------------------------------
32,072 (a)PT Bank International Indonesia, Warrants 1/17/2000 2,720
------------------------------------------------------ ------------
Total 134,760
------------------------------------------------------ ------------
CAPITAL GOODS--0.1%
------------------------------------------------------
3,100 (a)PT Indosat, ADR 81,375
------------------------------------------------------ ------------
TOTAL INDONESIA 216,135
------------------------------------------------------ ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ --------------------------------------------- -----------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
----------------------------------------------------
KOREA--0.6%
---------------------------------------------
AUTOMOBILE--0.0%
---------------------------------------------
2,066 Hyundai Motor Service Co., Pfd. $ 13,999
--------------------------------------------- -----------
CAPITAL GOODS--0.1%
---------------------------------------------
3,284 (a)Anam Industrial Co., Ltd. 52,400
--------------------------------------------- -----------
COMPUTERS--0.1%
---------------------------------------------
5,750 Anam Industrial Co., Ltd., Pfd. 33,934
--------------------------------------------- -----------
ELECTRONICS & ELECTRICAL--0.0%
---------------------------------------------
2 (a)Samsung Electronics Co. 193
---------------------------------------------
18 (b)Samsung Electronics Co., GDR 968
--------------------------------------------- -----------
Total 1,161
--------------------------------------------- -----------
HOUSING & CONSTRUCTION--0.0%
---------------------------------------------
9,000 (a)Kumho Construction & Engineering Co., Pfd. 21,836
--------------------------------------------- -----------
MACHINERY--0.0%
---------------------------------------------
6,000 (a)(b)Daewoo Heavy Industries, Pfd. 23,213
--------------------------------------------- -----------
MULTI-INDUSTRY--0.2%
---------------------------------------------
2,283 (a)(b)Dong Bang Forwarding Co. 118,516
---------------------------------------------
913 (a)Dong Bang Forwarding Co., Rights 14,222
--------------------------------------------- -----------
Total 132,738
--------------------------------------------- -----------
PETROLEUM--0.1%
---------------------------------------------
2,571 (a)Yukong, Ltd. 47,767
--------------------------------------------- -----------
UTILITIES--0.1%
---------------------------------------------
3,200 (a)Korea Electric Power Corp. 70,995
--------------------------------------------- -----------
TOTAL KOREA 398,043
--------------------------------------------- -----------
MALAYSIA--0.9%
---------------------------------------------
AIRLINES--0.1%
---------------------------------------------
25,000 Malaysian Airline System 40,071
--------------------------------------------- -----------
BANKING--0.2%
---------------------------------------------
14,000 Commerce Asset Holdings Berhad 15,708
---------------------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ------------------------------------------------------ ----------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
-------------------------------------------------------------
MALAYSIA--CONTINUED
------------------------------------------------------
BANKING--CONTINUED
------------------------------------------------------
1,750 (a)Commerce Asset Holdings Berhad, Warrants 12/31/2002 $ 566
------------------------------------------------------
25,000 RHB Capital BHD 29,591
------------------------------------------------------
12,000 Malayan Banking Berhad 60,291
------------------------------------------------------ ----------
Total 106,156
------------------------------------------------------ ----------
BEVERAGES--0.1%
------------------------------------------------------
40,000 Guinness Anchor Berhad 61,648
------------------------------------------------------ ----------
FOREST PRODUCTS--0.0%
------------------------------------------------------
10,000 Jaya Tiasa Holdings 27,587
------------------------------------------------------ ----------
INDUSTRIAL COMPONENT--0.0%
------------------------------------------------------
9,000 United Engineers, Ltd. 28,851
------------------------------------------------------ ----------
LEISURE & RECREATION--0.1%
------------------------------------------------------
12,000 Genting Berhad 37,358
------------------------------------------------------ ----------
MULTI-INDUSTRY--0.1%
------------------------------------------------------
35,000 Sime Darby Berhad 72,821
------------------------------------------------------ ----------
NON RESIDENTIAL CONSTRUCTION--0.1%
------------------------------------------------------
47,000 Renong Berhad 46,359
------------------------------------------------------ ----------
TELECOMMUNICATIONS--0.1%
------------------------------------------------------
13,500 Telekom Malaysia Berhad 40,988
------------------------------------------------------ ----------
UTILITIES--0.1%
------------------------------------------------------
18,000 Petronas Gas Berhad 53,263
------------------------------------------------------ ----------
TOTAL MALAYSIA 515,102
------------------------------------------------------ ----------
MEXICO--1.4%
------------------------------------------------------
FINANCIAL SERVICES--0.3%
------------------------------------------------------
4,900 (a)Carso Global Telecom, ADR 41,592
------------------------------------------------------
4,900 (a)Grupo Carso S.A. de C.V., Class A1, ADR 78,898
------------------------------------------------------
16,000 (a)Grupo Financiero Banamex Accivel, Class B 50,450
------------------------------------------------------
1,140 (a)Grupo Financiero Banamex Accivel, Class L 3,345
------------------------------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------- ------------------------------------------------------ ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
--------------------------------------------------------------
MEXICO--CONTINUED
------------------------------------------------------
FINANCIAL SERVICES--CONTINUED
------------------------------------------------------
68 Grupo Financiero Inbursa, S.A. de C.V., Class B, ADR $ 1,504
------------------------------------------------------ ------------
Total 175,789
------------------------------------------------------ ------------
INDUSTRIAL & RELATED--0.1%
------------------------------------------------------
11,000 Apasco S.A. de C.V. 83,668
------------------------------------------------------ ------------
MULTI-INDUSTRY--0.2%
------------------------------------------------------
12,791 Alfa, S.A. de C.V., Class A 120,173
------------------------------------------------------ ------------
PAPER PRODUCTS--0.2%
------------------------------------------------------
25,000 Kimberly-Clark de Mexico 130,792
------------------------------------------------------ ------------
TELECOMMUNICATIONS--0.5%
------------------------------------------------------
110,000 Telefonos de Mexico 286,679
------------------------------------------------------ ------------
TELECOMMUNICATION SERVICES--0.1%
------------------------------------------------------
4,000 Grupo Televisa S.A. 71,094
------------------------------------------------------ ------------
TOTAL MEXICO 868,195
------------------------------------------------------ ------------
PHILIPPINES--0.1%
------------------------------------------------------
BANKING--0.0%
------------------------------------------------------
1,935 Metro Bank and Trust Co. 17,247
------------------------------------------------------ ------------
OIL & RELATED--0.1%
------------------------------------------------------
400,000 (a)Belle Corp. 52,174
------------------------------------------------------
80,000 (a)Belle Corp., warrants 10/6/2000 0
------------------------------------------------------ ------------
Total 52,174
------------------------------------------------------ ------------
TOTAL PHILIPPINES 69,421
------------------------------------------------------ ------------
PORTUGAL--0.6%
------------------------------------------------------
ENGINEERING-BUSINESS SERVICES--0.1%
------------------------------------------------------
Sonae Investimentos Sociedade Gestora de Participacoes
1,500 Sociais, S.A. 59,303
------------------------------------------------------ ------------
FINANCIAL SERVICES--0.2%
------------------------------------------------------
6,000 Banco Commercial Portugues, Class R 126,709
------------------------------------------------------ ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ---------------------------------------------------- ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
-----------------------------------------------------------
PORTUGAL--CONTINUED
----------------------------------------------------
FOOD & BEVERAGE--0.2%
----------------------------------------------------
1,399 Estabelecimentos Jeronimo Martins & Filho SGPS, S.A. $ 107,681
---------------------------------------------------- ------------
TELECOMMUNICATIONS--0.1%
----------------------------------------------------
2,000 Portugal Telecom S.A. 86,751
---------------------------------------------------- ------------
TOTAL PORTUGAL 380,444
---------------------------------------------------- ------------
SINGAPORE--0.3%
----------------------------------------------------
BANKING--0.1%
----------------------------------------------------
3,000 Development Bank of Singapore, Ltd. 30,598
----------------------------------------------------
6,000 Oversea-Chinese Banking Corp., Ltd. 41,582
---------------------------------------------------- ------------
Total 72,180
---------------------------------------------------- ------------
BROADCASTING--0.0%
----------------------------------------------------
1,000 Singapore Press Holdings, Ltd. 14,711
---------------------------------------------------- ------------
ENTERTAINMENT & RECREATION--0.0%
----------------------------------------------------
3,000 Hotel Properties, Ltd. 3,707
---------------------------------------------------- ------------
MACHINERY--0.0%
----------------------------------------------------
1,250 Keppel Corp. 4,985
----------------------------------------------------
2,000 Van Der Horst, Ltd. 2,733
---------------------------------------------------- ------------
Total 7,718
---------------------------------------------------- ------------
PROPERTY--0.1%
----------------------------------------------------
2,000 City Developments, Ltd. 12,945
----------------------------------------------------
3,000 DBS Land Ltd. 7,297
----------------------------------------------------
2,000 First Capital Corp., Ltd. 4,472
----------------------------------------------------
9,000 United Overseas Bank, Ltd. 35,829
---------------------------------------------------- ------------
Total 60,543
---------------------------------------------------- ------------
TELECOMMUNICATIONS--0.1%
----------------------------------------------------
13,000 Singapore Telecommunications 22,014
---------------------------------------------------- ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
------ ---------------------------------------- ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
-----------------------------------------------
SINGAPORE--CONTINUED
----------------------------------------
TRANSPORTATION-AIR--0.0%
----------------------------------------
3,000 Singapore Airlines, Ltd. $ 22,164
---------------------------------------- ------------
TOTAL SINGAPORE 203,037
---------------------------------------- ------------
SOUTH AFRICA--1.8%
----------------------------------------
BANKING--0.2%
----------------------------------------
7,186 Amalgamated Banks of South Africa 48,955
----------------------------------------
2,515 Nedcor, Ltd. 54,234
----------------------------------------
1,000 Standard Bank Investment Corp., Ltd. 44,523
---------------------------------------- ------------
Total 147,712
---------------------------------------- ------------
CHEMICAL--0.2%
----------------------------------------
9,000 Sasol, Ltd. 124,075
---------------------------------------- ------------
COAL--0.0%
----------------------------------------
419 Anglo American Coal Corp., Ltd. 24,454
---------------------------------------- ------------
ENTERTAINMENT--0.1%
----------------------------------------
62,743 Sun International (South Africa), Ltd. 38,503
---------------------------------------- ------------
FINANCIAL SERVICES--0.2%
----------------------------------------
312 (a)Dimension Data Holdings, Ltd. 1,305
----------------------------------------
4,500 Free State Consolidated Gold Mines, Ltd. 26,553
----------------------------------------
6,000 Malbak Limited 8,754
----------------------------------------
7,000 Rembrandt Group, Ltd. 63,384
---------------------------------------- ------------
Total 99,996
---------------------------------------- ------------
FOOD & BEVERAGE--0.0%
----------------------------------------
672 Foodcorp., Ltd. 4,326
---------------------------------------- ------------
HOUSEHOLD PRODUCTS--0.0%
----------------------------------------
837 Ellerine Holdings, Ltd. 6,645
----------------------------------------
81 (a)JD Group, Ltd. 613
---------------------------------------- ------------
Total 7,258
---------------------------------------- ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
--------- -------------------------------------------------- ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
------------------------------------------------------------
SOUTH AFRICA--CONTINUED
--------------------------------------------------
INDUSTRIAL MANUFACTURING--0.2%
--------------------------------------------------
6,045 Barlow Ltd. $ 69,069
--------------------------------------------------
1,030 Anglo American Industrial Corp., Ltd. 38,676
-------------------------------------------------- ------------
Total 107,745
-------------------------------------------------- ------------
INSURANCE--0.3%
--------------------------------------------------
27,826 LibLife Strategic Investments, Ltd. 96,127
--------------------------------------------------
3,000 Liberty Life Association of Africa, Ltd. 87,544
-------------------------------------------------- ------------
Total 183,671
-------------------------------------------------- ------------
LODGING & RESTAURANT--0.2%
--------------------------------------------------
4,068 South African Breweries, Ltd. 118,055
-------------------------------------------------- ------------
MEDICAL-DRUGS--0.0%
--------------------------------------------------
989 South African Druggists, Ltd. 6,451
-------------------------------------------------- ------------
METALS & MINING--0.4%
--------------------------------------------------
3,000 Anglo American Platinum Corp., Ltd. 51,979
--------------------------------------------------
1,500 Anglo American Corporation of South Africa Limited 76,762
--------------------------------------------------
3,300 De Beers Centenary AG 96,299
--------------------------------------------------
4,000 Gencor Ltd. 9,441
-------------------------------------------------- ------------
Total 234,481
-------------------------------------------------- ------------
RETAIL-DIVERSIFIED--0.0%
--------------------------------------------------
2,284 New Clicks Holdings, Ltd. 2,960
-------------------------------------------------- ------------
TOTAL SOUTH AFRICA 1,099,687
-------------------------------------------------- ------------
TAIWAN--0.4%
--------------------------------------------------
MISCELLANEOUS--0.1%
--------------------------------------------------
7,018 (a)Walsin Lihwa Wire, GDR 56,846
-------------------------------------------------- ------------
NON-RESIDENTIAL CONSTRUCTION--0.1%
--------------------------------------------------
10,902 (a)Tuntex Distinct Corp., GDR 62,414
-------------------------------------------------- ------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
---------- ------------------------------------------------ ------------
<C> <S> <C>
EMERGING MARKETS SECURITIES SECTOR--CONTINUED
-----------------------------------------------------------
TAIWAN--CONTINUED
------------------------------------------------
TECHNOLOGY--0.2%
------------------------------------------------
4,213 (a)Macronix International Co., Ltd., ADR $ 94,529
------------------------------------------------ ------------
TOTAL TAIWAN 213,789
------------------------------------------------ ------------
THAILAND--0.3%
------------------------------------------------
BANKING--0.1%
------------------------------------------------
27,000 Krung Thai Bank PLC 18,223
------------------------------------------------
13,500 Siam Commercial Bank 43,884
------------------------------------------------ ------------
Total 62,107
------------------------------------------------ ------------
BUILDING MATERIALS--0.0%
------------------------------------------------
2,000 Siam Cement Co., Ltd 32,837
------------------------------------------------ ------------
COMMUNICATIONS--0.1%
------------------------------------------------
35,000 (a)TelecomAsia Corp. 28,444
------------------------------------------------
9,000 United Communication Industry Public Co., Ltd. 26,777
------------------------------------------------ ------------
Total 55,221
------------------------------------------------ ------------
PETROLEUM--0.1%
------------------------------------------------
4,500 PTT Exploration and Production Public Co. 60,248
------------------------------------------------ ------------
TOTAL THAILAND 210,413
------------------------------------------------ ------------
TURKEY--0.0%
------------------------------------------------
MULTI-INDUSTRY--0.0%
------------------------------------------------
349 Koc Yatirim Ve Sanayi Mamulleri Pazarlama S.A. 132
------------------------------------------------ ------------
TOTAL EMERGING MARKETS SECURITIES SECTOR 6,174,976
(IDENTIFIED COST $6,248,756)
------------------------------------------------ ------------
COMMERCIAL PAPER--28.8%
-----------------------------------------------------------
FINANCE--28.8%
------------------------------------------------
$3,000,000 Ford Motor Credit Corp., 5.50%, 12/12/1997 2,969,670
------------------------------------------------
3,000,000 General Electric Capital Corp., 5.50%, 10/8/1997 2,996,792
------------------------------------------------
3,000,000 Hertz Corp., 5.50%, 12/12/1997 2,969,670
------------------------------------------------
3,000,000 Monte Rosa Capital Corp., 5.54%, 10/2/1997 2,999,538
------------------------------------------------
New Center Asset Trust, A1/P1 Series, 5.53%,
3,000,000 10/6/1997 2,997,696
------------------------------------------------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN VALUE
CURRENCY PAR IN U.S.
AMOUNT DOLLARS
------------ -------------------------------------------------- -----------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
---------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------
$ 3,000,000 Sheffield Receivables Corp., 5.54%, 10/2/1997 $ 2,999,538
-------------------------------------------------- -----------
TOTAL COMMERCIAL PAPER (IDENTIFIED COST
$17,927,564) 17,932,904
-------------------------------------------------- -----------
U.S. FIXED INCOME SECURITIES SECTOR--10.7%
---------------------------------------------------------------
GOVERNMENT/AGENCY--10.7%
--------------------------------------------------
1,500,000 United States Treasury Bill, 12/11/1997 1,485,591
--------------------------------------------------
325,000 United States Treasury Bond, 7.25%, 8/15/2022 355,427
--------------------------------------------------
500,000 United States Treasury Bond, 7.50%, 11/15/2016 556,730
--------------------------------------------------
1,200,000 United States Treasury Bond, 7.625%, 11/15/2022 1,368,528
--------------------------------------------------
1,430,000 United States Treasury Bond, 11.75%, 11/15/2014 2,076,432
--------------------------------------------------
400,000 United States Treasury Note, 6.25%, 2/15/2003 404,000
--------------------------------------------------
350,000 United States Treasury Receipt PO Strip, 8/15/2005 216,097
--------------------------------------------------
350,000 United States Treasury Receipt IO Strip, 2/15/2005 223,298
-------------------------------------------------- -----------
TOTAL U.S. FIXED INCOME SECURITIES SECTOR
(IDENTIFIED COST $6,431,631) 6,686,103
-------------------------------------------------- -----------
FOREIGN FIXED INCOME SECURITIES SECTOR--17.1%
---------------------------------------------------------------
DENMARK--0.9%
--------------------------------------------------
3,310,000 Denmark--Bullet, Bond, 8.00%, 3/15/2006 562,497
-------------------------------------------------- -----------
FRANCE--3.7%
--------------------------------------------------
10,500,000 France (Govt. of), 6.50%, 10/25/2006 1,909,509
--------------------------------------------------
2,150,000 France O.A.T., Bond, 7.25%, 4/25/2006 409,622
-------------------------------------------------- -----------
Total 2,319,131
-------------------------------------------------- -----------
GERMANY--3.4%
--------------------------------------------------
1,040,000 Republic of Germany, Bond, 6.25%, 4/26/2006 620,604
--------------------------------------------------
287,000 Republic of Germany, Deb., 7.125%, 12/20/2002 178,442
--------------------------------------------------
1,065,000 Germany (Fed. Republic), 6.50%, 7/15/2003 646,130
--------------------------------------------------
1,140,000 Germany (Fed. Republic), Bond, 6.00%, 1/5/2006 669,438
-------------------------------------------------- -----------
Total 2,114,614
-------------------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN VALUE
CURRENCY PAR IN U.S.
AMOUNT DOLLARS
------------ --------------------------------------------------- -----------
<C> <S> <C>
FOREIGN FIXED INCOME SECURITIES SECTOR--CONTINUED
----------------------------------------------------------------
ITALY--1.2%
---------------------------------------------------
$880,000,000 Buoni Poliennali Del Tes, Deb., 10.50%, 4/15/1998 $ 519,182
---------------------------------------------------
310,000,000 Italy (Republic of), Deb., 10.50%, 4/1/2005 227,162
--------------------------------------------------- -----------
Total 746,344
--------------------------------------------------- -----------
NETHERLANDS--3.1%
---------------------------------------------------
1,690,000 Dutch Government Bond, 5.75%, 2/15/2007 864,572
---------------------------------------------------
580,000 Netherlands Government Bond, 7.50%, 4/15/2010 337,602
---------------------------------------------------
880,000 Dutch Government Bond, 7.25%, 10/1/2004 493,875
---------------------------------------------------
410,000 Netherlands Government Bond, 7.00%, 2/15/2003 225,363
--------------------------------------------------- -----------
Total 1,921,412
--------------------------------------------------- -----------
SPAIN--1.3%
---------------------------------------------------
104,600,000 Kingdom of Spain, Deb., 12.25%, 3/25/2000 817,732
--------------------------------------------------- -----------
SWEDEN--0.4%
---------------------------------------------------
1,600,000 Sweden (Kingdom of), 10.25%, 5/5/2000 236,091
--------------------------------------------------- -----------
UNITED KINGDOM--3.1%
---------------------------------------------------
245,000 United Kingdom Treasury Bond, 8.00%, 12/7/2015 455,561
---------------------------------------------------
239,000 United Kingdom Treasury, 7.75%, 9/8/2006 417,789
---------------------------------------------------
400,000 United Kingdom Treasury, 8.50%, 7/16/2007 737,321
---------------------------------------------------
190,000 United Kingdom Treasury, 9.75%, 8/27/2002 346,591
--------------------------------------------------- -----------
Total 1,957,262
--------------------------------------------------- -----------
TOTAL FOREIGN FIXED INCOME SECURITIES SECTOR
(IDENTIFIED COST $10,804,770) 10,675,083
--------------------------------------------------- -----------
(C) REPURCHASE AGREEMENT--1.9%
----------------------------------------------------------------
1,176,958 CS First Boston, 6.05%, dated 9/30/1997, due
10/1/1997
(at amortized cost) 1,176,958
--------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $60,621,797)(D) $61,251,942
--------------------------------------------------- -----------
</TABLE>
BLANCHARD GLOBAL GROWTH FUND
- -------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At September 30, 1997, these securities
amounted to $261,075 which represents 0.4% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $60,689,138 The
net unrealized appreciation of investments on a federal tax basis amounts to
$562,804 which is comprised of $2,899,362 appreciation and $2,336,558
depreciation at September 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($62,197,366) at September 30, 1997.
The following acronyms are used throughout this portfolio:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
IO--Interest Only
PO--Principal Only
PLC--Public Limited Company
SPA--Standby Purchase Agreement
STRIP--Separate Trading of Registered Interest & Principal of Securities
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
--------- -------------------------------- -----------
<C> <S> <C>
EQUITIES--84.5%
------------------------------------------
METALS & MINING--84.5%
--------------------------------
AUSTRALIA--1.0%
--------------------------------
600,000 (a)Croesus Mining NL $ 152,449
--------------------------------
1,000,000 (a)Laverton Gold NL 148,820
--------------------------------
1,258,000 (a)(b)Lone Star Exploration NL 200,253
--------------------------------
1,300,000 (a)Lone Star Exploration NL 215,500
-------------------------------- -----------
Total 717,022
-------------------------------- -----------
CANADA--53.0%
--------------------------------
1,640,000 (a)Ariel Resources, Ltd. 367,859
--------------------------------
421,000 Cambior, Inc. 4,736,840
--------------------------------
229,600 (a)Dayton Mining Corp. 803,600
--------------------------------
1,405,500 (a)(b)Eldorado Gold Corp., Ltd. 3,823,798
--------------------------------
230,000 (a)First Silver Reserve, Inc. 183,061
--------------------------------
95,200 Franco-Nevada Mining Corp., Ltd. 2,242,148
--------------------------------
721,000 (a)Geomaque Explorations, Ltd. 1,930,249
--------------------------------
50,000 (a)Goldcorp, Inc., Class A 318,750
--------------------------------
401,500 (a)Golden Knight Resources, Inc. 1,191,093
--------------------------------
316,000 (a)Greenstone Resources, Ltd. 3,235,339
--------------------------------
510,000 (a)Kinross Gold Corp. 2,836,875
--------------------------------
194,300 (a)Philex Gold, Inc. 773,235
--------------------------------
135,000 Placer Dome, Inc. 2,581,875
--------------------------------
4,115,069 (a)Santa Cruz Gold, Inc. 1,488,755
--------------------------------
1,260,000 (a)TVX Gold, Inc. 7,840,527
--------------------------------
466,000 (a)Viceroy Resource Corp. 1,180,131
-------------------------------- -----------
Total 35,534,135
-------------------------------- -----------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
---------- ---------------------------------------------------- -----------
<C> <S> <C>
EQUITIES--CONTINUED
---------------------------------------------------------------
GHANA--4.8%
----------------------------------------------------
290,000 Ashanti Goldfields Co., GDR $ 3,190,000
---------------------------------------------------- -----------
SOUTH AFRICA--5.0%
----------------------------------------------------
551,700 East Rand Gold & Uranium Co., Ltd., ADR 764,325
----------------------------------------------------
200,000 Free State Consolidated Gold Mines Ltd., ADR 1,218,750
----------------------------------------------------
255,000 Vaal Reefs Explorations & Mining Co., Ltd., ADR 1,370,625
---------------------------------------------------- -----------
Total 3,353,700
---------------------------------------------------- -----------
UNITED STATES--20.7%
----------------------------------------------------
1,425,000 (a)Canyon Resources Corp. 3,918,750
----------------------------------------------------
260,000 Homestake Mining Co. 3,981,250
----------------------------------------------------
626,500 (a)Meridian Gold, Inc. 3,093,344
----------------------------------------------------
64,500 Newmont Mining Corp. 2,898,469
---------------------------------------------------- -----------
Total 13,891,813
---------------------------------------------------- -----------
TOTAL EQUITIES (IDENTIFIED COST $78,030,194) 56,686,670
---------------------------------------------------- -----------
WARRANTS--1.3%
---------------------------------------------------------------
227,500 (a)Atlas Corp., Warrants (expire 12/15/99) 1,138
----------------------------------------------------
75,000 (a)Canyon Resources Corp., Warrants (expire 3/20/99) --
----------------------------------------------------
(a)(b)Geomaque Explorations Ltd., Warrants (expire 870,084
325,000 3/19/99)
---------------------------------------------------- -----------
TOTAL WARRANTS (IDENTIFIED COST $827,565) 871,222
---------------------------------------------------- -----------
PREFERRED STOCK--0.8%
---------------------------------------------------------------
UNITED STATES--0.8%
----------------------------------------------------
25,000 Freeport-McMoRan Copper & Gold, Inc., Cumulative
Pfd., Series SILV (IDENTIFIED COST $432,868) 528,125
---------------------------------------------------- -----------
U.S. TREASURY SECURITIES--7.8%
---------------------------------------------------------------
U.S. TREASURY BILL--7.8%
----------------------------------------------------
$5,300,000 12/11/1997 (IDENTIFIED COST $5,248,217) 5,249,088
---------------------------------------------------- -----------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
---------- --------------------------------------------------- -----------
<C> <S> <C>
(C) REPURCHASE AGREEMENT--8.2%
--------------------------------------------------------------
$5,492,706 CS First Boston Corp., 6.05%, dated 9/30/1997, due
10/1/1997 (at amortized cost) $ 5,492,706
--------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $90,031,550)(D) $68,827,811
--------------------------------------------------- -----------
</TABLE>
(a) Non-income producing security.
(b) Certain of these securities are subject to restrictions on resale under
Federal Securities laws. At September 30, 1997, these securities amounted to
$4,894,135 with represents 7.3% of net assets.
(c) The repurchase agreements is fully collateralized by U.S.government and/or
agency obligations based on market prices at the date of the portfolio.
(d) The cost of investments for federal tax purposes amounts to $90,719,260. The
net unrealized depreciation of investments on a federal tax basis amounts to
$20,522,951 which is comprised of $1,599,113 appreciation and $22,122,064
depreciation at September 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($67,037,240) at September 30, 1997.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
GDR--Global Depository Receipt
(See Notes which are an integral part of the Financial Statements)
BLANCHARD FLEXIBLE INCOME FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--26.6%
---------------------------------------------------------------
AEROSPACE--1.1%
-------------------------------------------------
$ 1,700,000 Sequa Corp., Sr. Note, 8.75%, 12/15/2001 $ 1,738,250
------------------------------------------------- ------------
CONSUMER RELATED--1.3%
-------------------------------------------------
Host Marriot Travel Plaza, Sr. Note, 9.50%, 1,062,500
1,000,000 5/15/2005
-------------------------------------------------
John Q. Hammons Hotels, 1st Mtg. Bond, 8.875%, 1,015,000
1,000,000 2/15/2004
------------------------------------------------- ------------
Total 2,077,500
------------------------------------------------- ------------
FINANCE--3.5%
-------------------------------------------------
Americo Life, Inc., Sr. Sub. Note, 9.25%, 1,548,750
1,500,000 6/1/2005
-------------------------------------------------
1,000,000 Navistar Financial Corp. Owner Trust 1995-A , Sr.
Sub. Note, 8.875%, 11/15/1998 1,024,241
-------------------------------------------------
Presidential Life Corp., Sr. Note, 9.50%, 1,556,250
1,500,000 12/15/2000
-------------------------------------------------
Reliance Group Holdings, Inc., Sr. Note, 9.00%, 1,306,250
1,250,000 11/15/2000
------------------------------------------------- ------------
Total 5,435,491
------------------------------------------------- ------------
INDUSTRIAL SERVICES--0.6%
-------------------------------------------------
1,000,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 1,005,000
------------------------------------------------- ------------
OIL REFINING--1.5%
-------------------------------------------------
2,250,000 PDV America, Sr. Note, 7.25%, 8/1/1998 2,267,957
------------------------------------------------- ------------
PAPER/FOREST PRODUCTS/CONTAINERS--4.9%
-------------------------------------------------
Doman Industries, Ltd., Sr. Note, 8.75%, 995,000
1,000,000 3/15/2004
-------------------------------------------------
1,250,000 Fort Howard Corp., Sr. Sub. Note, 9.00%, 2/1/2006 1,358,749
-------------------------------------------------
1,000,000 Maxxam Group, Inc., Sr. Note, 11.25%, 8/1/2003 1,065,000
-------------------------------------------------
1,000,000 Repap New Brunswick, 1st Priority Sr. Secd. Note,
9.875%, 7/15/2000 1,012,500
-------------------------------------------------
1,000,000 Repap Wisconsin, Inc., 1st Priority Sr. Secd.
Note, 9.25%, 2/1/2002 1,058,750
-------------------------------------------------
2,000,000 (a)Stone Container Finance Co. CDA, Company
Guarantee, 11.50%, 8/15/2006 2,130,000
------------------------------------------------- ------------
Total 7,619,999
------------------------------------------------- ------------
</TABLE>
BLANCHARD FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
---------------------------------------------------------------
REAL ESTATE DEVELOPMENT--1.0%
-------------------------------------------------
Granite Development Partners, Sr. Note, Series B, $ 1,477,500
$ 1,500,000 10.83%, 11/15/2003
------------------------------------------------- ------------
RETAIL TRADE--0.7%
-------------------------------------------------
(a)Nine West Group, Inc., Sr. Note, 8.375%, 1,010,000
1,000,000 8/15/2005
------------------------------------------------- ------------
SERVICES--2.0%
-------------------------------------------------
1,000,000 (a)Calpine Corp., Sr. Note, 8.75%, 7/15/2007 1,022,500
-------------------------------------------------
HMH Properties, Inc., Sr. Note, Series B, 9.50%, 1,057,500
1,000,000 5/15/2005
-------------------------------------------------
Prime Hospitality Corp., Sr. Sub. Note, 9.75%, 1,060,000
1,000,000 4/1/2007
------------------------------------------------- ------------
Total 3,140,000
------------------------------------------------- ------------
STEEL--1.7%
-------------------------------------------------
1,500,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 1,552,500
-------------------------------------------------
Bethlehem Steel Corp., Sr. Note, 10.375%, 1,080,000
1,000,000 9/1/2003
------------------------------------------------- ------------
Total 2,632,500
------------------------------------------------- ------------
TELECOMMUNICATIONS/CABLE--2.0%
-------------------------------------------------
Centennial Cellular Corp., Sr. Note, 8.875%, 1,020,000
1,000,000 11/1/2001
-------------------------------------------------
Lenfest Communications Inc., Sr. Note, 8.375%, 1,007,500
1,000,000 11/1/2005
-------------------------------------------------
Teleport Communications Group, Inc., Sr. Note, 1,097,500
1,000,000 9.875%, 7/1/2006
------------------------------------------------- ------------
Total 3,125,000
------------------------------------------------- ------------
TRANSPORTATION--4.1%
-------------------------------------------------
Eletson Holdings, Inc., 1st Mtg. Note, 9.25%, 1,541,250
1,500,000 11/15/2003
-------------------------------------------------
1,389,000 Piedmont Aviation, 10.15%, 3/28/2003 1,451,505
-------------------------------------------------
852,000 Piedmont Aviation, 9.90%, 1/15/2001 862,650
-------------------------------------------------
1,500,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 1,552,500
-------------------------------------------------
896,000 USAir, Inc., 9.90%, 1/15/2001 885,920
------------------------------------------------- ------------
Total 6,293,825
------------------------------------------------- ------------
UTILITIES-ELECTRIC--2.2%
-------------------------------------------------
1,000,000 Cleveland Electric Illuminating Co., 1st Mtg.
Bond, 9.50%, 5/15/2005 1,090,000
-------------------------------------------------
</TABLE>
BLANCHARD FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
---------------------------------------------------------------
UTILITIES-ELECTRIC--CONTINUED
-------------------------------------------------
$ 2,218,808 (a)Tucson Electric Power Co., 10.21%, 1/1/2009 $ 2,307,561
------------------------------------------------- ------------
Total 3,397,561
------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST 41,220,583
$39,374,399)
------------------------------------------------- ------------
FOREIGN SECURITIES--1.0%
---------------------------------------------------------------
TELECOMMUNICATIONS--1.0%
-------------------------------------------------
CAD 2,000,000 Rogers Cablesystems, Ltd., Sr. Secd. Note, 9.65%,
1/15/2014 (IDENTIFIED COST $1,511,716) 1,545,948
------------------------------------------------- ------------
MORTGAGE BACKED SECURITIES--31.1%
---------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--31.1%
-------------------------------------------------
35,403 Pool E00434, 7.00%, 5/1/2011 35,809
-------------------------------------------------
975,488 Pool E00466, 7.00%, 1/1/2012 986,676
-------------------------------------------------
993,214 Pool E00497, 7.00%, 7/1/2012 1,004,139
-------------------------------------------------
1,627,552 Pool E20217, 7.00%, 1/1/2011 1,646,202
-------------------------------------------------
3,643,090 Pool E20271, 7.00%, 11/1/2011 3,684,872
-------------------------------------------------
702,239 Pool E64769, 7.00%, 7/1/2011 710,292
-------------------------------------------------
264,596 Pool E64891, 7.00%, 7/1/2011 267,631
-------------------------------------------------
1,498,267 Pool E65184, 7.00%, 8/1/2011 1,515,450
-------------------------------------------------
440,315 Pool E65186, 7.00%, 8/1/2011 445,365
-------------------------------------------------
58,006 Pool E65399, 7.00%, 9/1/2011 58,671
-------------------------------------------------
459,199 Pool E65450, 7.00%, 10/1/2011 464,466
-------------------------------------------------
283,376 Pool E65454, 7.00%, 10/1/2011 286,626
-------------------------------------------------
163,361 Pool E65468, 7.00%, 10/1/2011 165,235
-------------------------------------------------
2,208,871 Pool E65490, 7.00%, 10/1/2011 2,234,205
-------------------------------------------------
2,821,959 Pool E65503, 7.00%, 10/1/2011 2,854,324
-------------------------------------------------
304,766 Pool E65597, 7.00%, 10/1/2011 308,261
-------------------------------------------------
241,313 Pool E65645, 7.00%, 11/1/2011 244,080
-------------------------------------------------
643,716 Pool E65660, 7.00%, 11/1/2011 651,099
-------------------------------------------------
786,446 Pool E65690, 7.00%, 11/1/2011 795,466
-------------------------------------------------
1,523,500 Pool E65702, 7.00%, 11/1/2011 1,540,973
-------------------------------------------------
</TABLE>
BLANCHARD FLEXIBLE INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- --------------------------------------------- ------------
<C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
-----------------------------------------------------------
$ 945,741 Pool E65703, 7.00%, 11/1/2011 $ 956,588
---------------------------------------------
1,908,905 Pool E65712, 7.00%, 12/1/2011 1,930,799
---------------------------------------------
326,516 Pool E65717, 7.00%, 11/1/2011 330,261
---------------------------------------------
1,026,390 Pool E65723, 7.00%, 11/1/2011 1,038,161
---------------------------------------------
409,609 Pool E65750, 7.00%, 11/1/2011 414,307
---------------------------------------------
34,080 Pool E65759, 7.00%, 12/1/2011 34,471
---------------------------------------------
3,252,636 Pool E67171, 7.00%, 7/1/2012 3,288,412
---------------------------------------------
2,981,906 Pool E67276, 7.00%, 8/1/2012 3,014,704
---------------------------------------------
30,851 Pool G10524, 7.00%, 5/1/2011 31,205
---------------------------------------------
596,894 Pool G10556, 7.00%, 7/1/2011 603,740
---------------------------------------------
298,671 Pool G10590, 7.00%, 10/1/2011 302,097
---------------------------------------------
16,291,034 Pool G10690, 7.00%, 7/1/2012 16,470,219
--------------------------------------------- ------------
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED 48,314,806
COST $47,988,240)
--------------------------------------------- ------------
U.S. TREASURY--37.5%
-----------------------------------------------------------
U.S. TREASURY BONDS--13.7%
---------------------------------------------
20,000,000 7.25%, 5/15/2004 21,256,240
--------------------------------------------- ------------
U.S. TREASURY NOTES--23.8%
---------------------------------------------
35,000,000 7.00%, 7/15/2006 36,914,047
--------------------------------------------- ------------
TOTAL U.S. TREASURY (IDENTIFIED COST 58,170,287
$56,623,205)
--------------------------------------------- ------------
(B)REPURCHASE AGREEMENT--2.9%
-----------------------------------------------------------
4,512,438 CS First Boston, 6.05%, dated 9/30/1997, due
10/1/1997
(AT AMORTIZED COST) 4,512,438
--------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $153,764,062
$150,009,998)(C)
--------------------------------------------- ------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At September 30, 1997, these securities
amounted to $6,470,061 which represents 4.2% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(c) The cost of investments for federal tax purposes amounts to $150,009,998.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,754,064 which is comprised of $3,781,564 appreciation and
$27,500 depreciation at September 30, 1997.
BLANCHARD FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($155,222,701) at September 30, 1997.
The following acronyms are used throughout this portfolio:
CAD--Canadian Dollars
CDA--Community Development Administration
(See Notes which are an integral part of the Financial Statements)
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--4.5%
---------------------------------------------------------------
FINANCIAL SERVICES--0.4%
---------------------------------------------------
$ 4,796 CMC Securities Corp. 1993-A, Series 1993-A, Class
A2, 7.50%, 2/25/2023 $ 4,785
---------------------------------------------------
583,666 Merrill Lynch Mortgage Investors, Series 1990-I,
Class A, 9.20%, 1/15/2011 583,223
--------------------------------------------------- ------------
Total 588,008
--------------------------------------------------- ------------
GOVERNMENT/AGENCY--4.1%
---------------------------------------------------
1,892,678 (a)Resolution Trust Corp. Mtg. Pass-Thru 1992-3,
Series 1992-3, Class A2, 6.45%, 10/25/2019 1,896,823
---------------------------------------------------
1,283,183 (a)Resolution Trust Corp. Mtg. Pass-Thru 1992-3,
Series 1992-3, Class A3, 6.05%, 6/25/2021 1,287,200
---------------------------------------------------
1,412,944 (a)Resolution Trust Corp. Mtg. Pass-Thru 1992-6,
Series 1992-6, Class A4, 7.36%, 11/25/2025 1,423,542
---------------------------------------------------
774,275 Resolution Trust Corp. Mtg. Pass-Thru 1992-C1,
Series 1992-C1, Class A1, 8.80%, 8/25/2023 781,778
--------------------------------------------------- ------------
Total 5,389,343
--------------------------------------------------- ------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $5,841,278) 5,977,351
--------------------------------------------------- ------------
CORPORATE BONDS--29.3%
---------------------------------------------------------------
AEROSPACE/DEFENSE--0.4%
---------------------------------------------------
500,000 Sequa Corp., Sr. Note, 8.75%, 12/15/2001 511,250
--------------------------------------------------- ------------
AIRLINES--0.1%
---------------------------------------------------
200,000 USAir, Inc., 9.80%, 1/15/2000 208,250
--------------------------------------------------- ------------
CHEMICALS--1.9%
---------------------------------------------------
500,000 Borden Chemicals & Plastics Operating, Note, 9.50%,
5/1/2005 528,750
---------------------------------------------------
Harris Chemical North America, Inc., Sr. Note, 523,750
500,000 10.25%, 7/15/2001
---------------------------------------------------
300,000 ISP Holdings, Inc., Sr. Note, 9.00%, 10/15/2003 315,000
---------------------------------------------------
500,000 Kaiser Aluminum & Chemical Corp., Sr. Note, 9.875%,
2/15/2002 522,500
---------------------------------------------------
</TABLE>
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------------------------------------------- ------------
<C> <S> <C>
CHEMICALS--CONTINUED
-------------------------------------------------
$ 600,000 SIFTO Canada, Inc., Sr. Note, 8.50%, 7/15/2000 $ 612,000
------------------------------------------------- ------------
Total 2,502,000
------------------------------------------------- ------------
CONSUMER RELATED--4.0%
-------------------------------------------------
750,000 Chiquita Brands International Inc., Sr. Note,
9.625%, 1/15/2004 795,000
-------------------------------------------------
800,000 HMH Properties, Inc., Sr. Note, Series B, 9.50%,
5/15/2005 846,000
-------------------------------------------------
2,460,000 RJR Nabisco, Inc., Note, 8.75%, 7/15/2007 2,615,172
-------------------------------------------------
1,000,000 Revlon Consumer Products Corp., Note, 9.375%,
4/1/2001 1,037,500
------------------------------------------------- ------------
Total 5,293,672
------------------------------------------------- ------------
CONTAINERS-PAPER/PLASTIC--0.8%
-------------------------------------------------
500,000 Container Corp. of America, Sr. Note, 11.25%,
5/1/2004 555,000
-------------------------------------------------
500,000 Sea Containers Ltd., 9.50%, 7/1/2003 517,500
------------------------------------------------- ------------
Total 1,072,500
------------------------------------------------- ------------
ENERGY MINERALS--1.4%
-------------------------------------------------
2,000,000 USX Marathon Group, 5.75%, 7/1/2001 1,962,500
------------------------------------------------- ------------
ENTERTAINMENT--4.2%
-------------------------------------------------
1,000,000 Caesars World, Inc., Sr. Sub. Note, 8.875%,
8/15/2002 1,037,500
-------------------------------------------------
1,000,000 Harrah's Operations, Inc., Sr. Sub. Note, 8.75%,
3/15/2000 1,027,500
-------------------------------------------------
405,000 Host Marriot Travel Plazas Inc., Sr. Note, 9.50%,
5/15/2005 430,312
-------------------------------------------------
900,000 Station Casinos, Inc., Sr. Sub. Note, 9.625%,
6/1/2003 904,500
-------------------------------------------------
1,000,000 Time Warner Entertainment Co. LP, Note, 9.625%,
5/1/2002 1,116,927
-------------------------------------------------
600,000 Trump Atlantic City Associations, Company
Guarantee, 11.25%, 5/1/2006 584,250
-------------------------------------------------
500,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 500,000
------------------------------------------------- ------------
Total 5,600,989
------------------------------------------------- ------------
FINANCIAL SERVICES--1.9%
-------------------------------------------------
500,000 Navistar Financial Corp. Owner Trust 1995-A , Sr.
Sub. Note, 8.875%, 11/15/1998 512,120
-------------------------------------------------
500,000 Presidential Life Corp., Sr. Note, 9.50%,
12/15/2000 518,750
-------------------------------------------------
</TABLE>
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
---------------------------------------------------------------
FINANCIAL SERVICES--CONTINUED
---------------------------------------------------
$ 1,000,000 Reliance Group Holdings, Inc., Sr. Note, 9.00%,
11/15/2000 $ 1,045,000
---------------------------------------------------
500,000 Williams Scotsman, Inc., Sr. Note, 9.875%, 6/1/2007 512,500
--------------------------------------------------- ------------
Total 2,588,370
--------------------------------------------------- ------------
INDUSTRIAL RELATED--2.9%
---------------------------------------------------
850,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 879,750
---------------------------------------------------
350,000 Bethlehem Steel Corp., Sr. Note, 10.375%, 9/1/2003 378,000
---------------------------------------------------
500,000 Exide Corp., Sr. Note, 10.75%, 12/15/2002 531,250
---------------------------------------------------
500,000 Fort Howard Corp., Sr. Sub. Note, 9.00%, 2/1/2006 543,499
---------------------------------------------------
700,000 John Q. Hammon Hotels, 1st Mtg. Bond, 8.875%,
2/15/2004 710,500
---------------------------------------------------
500,000 Unisys Corp., Deb., 9.50%, 7/15/1998 503,750
---------------------------------------------------
300,000 Unisys Corp., Sr. Note, 10.625%, 10/1/1999 311,250
--------------------------------------------------- ------------
Total 3,857,999
--------------------------------------------------- ------------
OIL REFINING--1.1%
---------------------------------------------------
1,000,000 Clark Oil Refining and Corp. Del, Sr. Note, 10.50%,
12/1/2001 1,035,000
---------------------------------------------------
500,000 PDV America Inc., Sr. Note, 7.25%, 8/1/1998 503,991
--------------------------------------------------- ------------
Total 1,538,991
--------------------------------------------------- ------------
PAPER PRODUCTS--2.0%
---------------------------------------------------
500,000 Repap New Brunswick Inc., 1st Priority Sr. Secd.
Note, 9.875%, 7/15/2000 506,250
---------------------------------------------------
500,000 Repap New Brunswick Inc., Sr. Note, 9.0625%,
7/15/2000 495,000
---------------------------------------------------
700,000 Repap Wisconsin, Inc., 1st Priority Sr. Secd. Note,
9.25%, 2/1/2002 741,125
---------------------------------------------------
700,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 714,875
---------------------------------------------------
200,000 Stone Container Corp., Sr. Sub. Note, 11.00%,
8/15/1999 208,500
--------------------------------------------------- ------------
Total 2,665,750
--------------------------------------------------- ------------
PRINTING & PUBLISHING--0.5%
---------------------------------------------------
600,000 World Color Press Inc., Sr. Sub. Note, 9.125%,
3/15/2003 630,750
--------------------------------------------------- ------------
RETAIL TRADE--0.7%
---------------------------------------------------
1,000,000 Nine West Group, Inc., Sr. Note, 8.375%, 8/15/2005 1,010,000
--------------------------------------------------- ------------
</TABLE>
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
---------------------------------------------------------------
SERVICES--1.2%
---------------------------------------------------
$ 600,000 Fleming Cos., Inc., Sr. Note, 10.625%, 12/15/2001 $ 642,000
---------------------------------------------------
500,000 Marcus Cable Operating Co. LP, Sr. Disc. Note,
0/13.50%, 8/1/2004 453,750
---------------------------------------------------
500,000 Prime Hospitality Corp., 1st Mtg. Bond, 9.25%,
1/15/2006 526,875
--------------------------------------------------- ------------
Total 1,622,625
--------------------------------------------------- ------------
STEEL--0.6%
---------------------------------------------------
750,000 Wheeling Pittsburgh Corp., Sr. Note, 9.375%,
11/15/2003 774,375
--------------------------------------------------- ------------
TELECOMMUNICATIONS--4.0%
---------------------------------------------------
750,000 Centennial Cellular Corp., Sr. Note, 8.875%,
11/1/2001 765,000
---------------------------------------------------
750,000 Century Communications, Corp., Sr. Note, 9.75%,
2/15/2002 795,000
---------------------------------------------------
1,000,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 1,075,000
---------------------------------------------------
1,000,000 Videotron Group Ltd., Sr. Note, 10.625%, 2/15/2005 1,110,000
---------------------------------------------------
1,000,000 Lenfest Communications Inc., Sr. Note, 8.375%,
11/1/2005 1,007,500
---------------------------------------------------
500,000 Olympus Communications LP, Sr. Note, 10.625%,
11/15/2006 544,375
--------------------------------------------------- ------------
Total 5,296,875
--------------------------------------------------- ------------
TEXTILE PRODUCTS--0.4%
---------------------------------------------------
500,000 Dominion Textile USA Inc., Sr. Note, 8.875%,
11/1/2003 513,750
--------------------------------------------------- ------------
UTILITIES-ELECTRIC--1.2%
---------------------------------------------------
500,000 Jones Intercable, Inc., Sr. Note, 9.625%, 3/15/2002 537,500
---------------------------------------------------
1,000,000 Long Island Lighting Co., Deb., 7.30%, 7/15/1999 1,016,131
--------------------------------------------------- ------------
Total 1,553,631
--------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $37,300,571) 39,204,277
--------------------------------------------------- ------------
CORPORATE NOTE--0.8%
---------------------------------------------------------------
TELECOMMUNICATIONS--0.8%
---------------------------------------------------
1,000,000 Rogers Cablesystems Ltd., Note, 9.625%, 8/1/2002
(identified cost $1,006,758) 1,075,000
--------------------------------------------------- ------------
U.S. TREASURY OBLIGATIONS--61.8%
---------------------------------------------------------------
U.S. TREASURY NOTES--61.8%
---------------------------------------------------
15,000,000 5.75%, 12/31/1998 15,009,375
---------------------------------------------------
20,000,000 6.125%, 5/15/1998 20,075,000
---------------------------------------------------
</TABLE>
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
---------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
---------------------------------------------------
$20,000,000 6.25%, 3/31/1999 $ 20,143,740
---------------------------------------------------
27,000,000 6.875%, 8/31/1999 27,514,674
--------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST
$82,053,737) 82,742,789
--------------------------------------------------- ------------
(B)REPURCHASE AGREEMENT--2.9%
---------------------------------------------------------------
3,832,176 CS First Boston, 6.05%, dated 9/30/1997, due
10/1/1997 (at amortized cost) 3,832,176
--------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $130,034,520)(C) $132,831,593
--------------------------------------------------- ------------
</TABLE>
(a) Denotes variable rate securities which show current rate.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(c) The cost of investments for federal tax purposes amounts to $130,034,520.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,797,073 which is comprised of $2,812,462 appreciation and
$15,389 depreciation at September 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($133,877,535) at September 30, 1997.
The following acronym is used throughout this portfolio:
LP--Limited Partnership
(See Notes which are an integral part of the Financial Statements)
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
---------- --------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--94.5%
--------------------------------------------------------
ALASKA--4.1%
---------------------------------------------
$1,000,000 Valdez, AK Marine Terminal, Revenue Refunding
Bonds (Series B), 5.50% (BP Pipeline Inc.),
10/1/2028 AA $ 983,917
--------------------------------------------- -----------
CALIFORNIA--8.1%
---------------------------------------------
1,000,000 California State Department of Water
Resources, Revenue Refunding Bonds, 5.375%
(Original Issue Yield: 5.67%), 12/1/2027 AAA 994,002
---------------------------------------------
1,000,000 East Bay Municipal Utility District, CA,
Water System Subordinated Refunding Revenue
Bonds (Series 1996), 5.00% (FGIC
INS)/(Original Issue Yield: 5.39%), 6/1/2026 AAA 947,502
--------------------------------------------- -----------
Total 1,941,504
--------------------------------------------- -----------
FLORIDA--8.0%
---------------------------------------------
1,000,000 Dade County, FL Water & Sewer System, Revenue
Bonds, 5.25% (FGIC INS)/(Original Issue
Yield: 5.70%), 10/1/2026 AAA 979,577
---------------------------------------------
1,000,000 Florida State Board of Education Capital
Outlay, GO UT, (Series A), 5.00% (Original
Issue Yield: 5.40%), 6/1/2027 AA+ 948,163
--------------------------------------------- -----------
Total 1,927,740
--------------------------------------------- -----------
ILLINOIS--16.5%
---------------------------------------------
1,000,000 Cook County, IL, GO UT Refunding Bonds (Series B), 5.375% (MBIA
INS)/(Original Issue
Yield: 5.72%), 11/15/2018 AAA 1,001,236
---------------------------------------------
1,000,000 Illinois Health Facilities Authority, Revenue
Bonds Daily VRDNs (Healthcorp Affiliates) Aaa 1,000,000
---------------------------------------------
1,000,000 Illinois State Sales Tax, Refunding Revenue
Bonds (Series Q), 5.50% (Original Issue
Yield: 6.202%), 6/15/2020 AAA 1,000,000
---------------------------------------------
1,000,000 Metropolitan Pier & Exposition Authority, IL,
Revenue Refunding Bonds, 5.25% (McCormick
Plan Expansion Project)/(AMBAC INS)/(Original
Issue Yield: 5.90%), 6/15/2027 AAA 972,077
--------------------------------------------- -----------
Total 3,973,313
--------------------------------------------- -----------
</TABLE>
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
---------- --------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
--------------------------------------------------------
INDIANA--4.2%
---------------------------------------------
$1,000,000 Purdue University, IN, Student Fees Revenue
Bonds (Series H), Weekly VRDNs (Purdue
University, IN LOC) AA- $ 1,000,000
--------------------------------------------- -----------
MASSACHUSETTS--3.9%
---------------------------------------------
1,000,000 Massachusetts Water Resources Authority,
Water Revenue Bonds, 5.00% (Original Issue
Yield: 5.35%), 12/1/2025 AAA 942,362
--------------------------------------------- -----------
MICHIGAN--4.1%
---------------------------------------------
1,000,000 Michigan State Hospital Finance Authority, Revenue Refunding Bonds,
5.25% (Henry Ford Health System, MI)/(Original Issue Yield:
5.70%), 11/15/2025 AA 984,047
--------------------------------------------- -----------
NEVADA--4.1%
---------------------------------------------
1,000,000 Clark County, NV School District, GO UT,
5.25% (Original Issue Yield: 5.83%),
6/15/2017 AAA 996,268
--------------------------------------------- -----------
NEW JERSEY--4.2%
---------------------------------------------
1,000,000 New Jersey State Transportation Trust Fund
Agency, Revenue Bonds, 5.25% (Original Issue
Yield: 5.70%), 6/15/2016 A+ 1,004,261
--------------------------------------------- -----------
NEW YORK--20.8%
---------------------------------------------
1,000,000 New York City Municipal Water Finance
Authority, Revenue Bonds, 5.50% (Original
Issue Yield: 5.855%), 6/15/2027 AAA 1,003,925
---------------------------------------------
1,000,000 New York State Dormitory Authority, Revenue
Bonds, 5.25% (Monte Fiore Medical
Center)/(AMBAC and FHA INSs)/(Original Issue
Yield: 5.53%), 2/1/2015 AAA 1,006,724
---------------------------------------------
1,000,000 New York State Local Government Assistance
Corp., Refunding Revenue Bonds (Series B),
5.50% (Original Issue Yield: 5.97%), 4/1/2021 A 1,003,043
---------------------------------------------
1,000,000 New York State Medical Care Facilities
Finance Agency, Revenue Refunding Bonds,
5.375% (Presbyterian Hospital)/(Original
Issue Yield: 5.52%), 2/15/2025 AAA 995,669
---------------------------------------------
1,000,000 Port Authority of New York and New Jersey,
Revenue Bonds (104th Series), 5.20% (AMBAC
INS)/(Original Issue Yield: 5.35%), 7/15/2021 AAA 990,487
--------------------------------------------- -----------
Total 4,999,848
--------------------------------------------- -----------
</TABLE>
BLANCHARD FLEXIBLE TAX-FREE BOND FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
---------- --------------------------------------------- ------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
--------------------------------------------------------
TEXAS--8.2%
---------------------------------------------
$1,000,000 Coastal Bend Health Facilities Development
Corp., TX, Revenue Bonds Weekly VRDNs
(Incarnate World Health Systems)/(First
National Bank of Chicago LOC) Aa3 $ 1,000,000
---------------------------------------------
1,000,000 San Antonio, TX, Electric & Gas, Revenue Refunding Bonds, 5.00%
(Original Issue Yield:
5.275%), 2/1/2014 AA 980,250
--------------------------------------------- -----------
Total 1,980,250
--------------------------------------------- -----------
WASHINGTON--4.2%
---------------------------------------------
1,000,000 Port of Seattle, WA, Revenue Bonds, 5.50%
(FGIC INS)/(Original Issue Yield: 5.80%),
10/1/2022 AAA 1,008,212
--------------------------------------------- -----------
WISCONSIN--4.2%
---------------------------------------------
1,000,000 Wisconsin State Transportation, Revenue Bonds
(Series B), 5.50% (Original Issue Yield:
5.912%), 7/1/2022 AA- 1,004,466
--------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST
$21,420,079) 22,746,188
--------------------------------------------- -----------
MUTUAL FUND SHARES--4.2%
--------------------------------------------------------
999,900 Dreyfus Tax Exempt Cash Management (AT NET
ASSET VALUE) 999,900
--------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST
$22,419,979)(A) $23,746,088
--------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
(a) The cost of investments for federal tax purposes amounts to $22,419,979. The
unrealized appreciation of investments on a federal tax basis amounts to
$1,326,109 at September 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($24,076,686) at September 30, 1997.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation FGIC--Financial Guaranty
Insurance Company FHA--Federal Housing Administration GO--General Obligation
INS--Insured LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance
UT--Unlimited Tax VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROUP OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLANCHARD BLANCHARD
BLANCHARD BLANCHARD BLANCHARD SHORT -TERM FLEXIBLE
GLOBAL PRECIOUS METALS FLEXIBLE FLEXIBLE TAX-FREE
GROWTH FUND FUND, INC. INCOME FUND INCOME FUND BOND FUND
- ------------------------ ----------- --------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
- ------------------------
Investments in
repurchase agreements $ 1,176,958 $ 5,492,706 $ 4,512,438 $ 3,832,176 $ --
- ------------------------
Investments in
securities 60,074,984 63,335,105 149,251,624 128,999,417 23,746,088
- ------------------------ ----------- ----------- ------------ ------------ -----------
Total investments in
securities, at value $61,251,942 $68,827,811 $153,764,062 $132,831,593 $23,746,088
- ------------------------
Cash -- -- -- -- 72
- ------------------------
Income receivable 330,910 191,606 2,362,460 2,479,981 365,497
- ------------------------
Receivable for
investments sold 1,820,484 485,614 -- -- --
- ------------------------
Receivable for shares
sold 1,350 1,250,418 72,325 46,320 41,115
- ------------------------
Net receivable for
foreign currency
exchange contracts sold 150,030 -- -- -- --
- ------------------------
Deferred organizational
costs -- -- 15,094 17,490 16,399
- ------------------------ ----------- ----------- ------------ ------------ -----------
Total assets 63,554,716 70,755,449 156,213,941 135,375,384 24,169,171
- ------------------------ ----------- ----------- ------------ ------------ -----------
LIABILITIES:
- ------------------------
Payable for investments
purchased 1,024,123 2,114,799 -- -- --
- ------------------------
Payable for shares
redeemed 60,354 605,097 272,640 497,950 24,696
- ------------------------
Income distribution
payable -- -- 446,081 75,908 40,374
- ------------------------
Payable to Bank -- 803,519 -- 625,000 --
- ------------------------
Payable for forward
foreign currency
exchange contracts -- -- 7,439 -- --
- ------------------------
Payable for taxes
withheld 7,796 3,188 -- --
- ------------------------
Payable for daily
variation margin 63,340 -- -- -- --
- ------------------------
Accrued expenses 201,737 191,606 265,080 298,991 27,415
- ------------------------ ----------- ----------- ------------ ------------ -----------
Total liabilities 1,357,350 3,718,209 991,240 1,497,849 92,485
- ------------------------ ----------- ----------- ------------ ------------ -----------
NET ASSETS CONSIST OF:
- ------------------------
Paid in capital 53,368,473 92,377,394 168,418,381 140,351,915 23,120,612
- ------------------------
Net unrealized
appreciation
(depreciation) of
investments, translation
of assets and
liabilities in foreign
currency, and futures
contracts 821,161 (21,203,902) 3,746,717 2,798,583 1,326,109
- ------------------------
Accumulated net realized
gain (loss) on
investments, foreign
currency transactions,
and futures contracts 7,100,967 (5,605,824) (16,630,125) (9,171,223) (354,461)
- ------------------------
Distributions in excess
of/Undistributed net
investment income 906,765 1,469,572 (312,272) (101,740) (15,574)
- ------------------------ ----------- ----------- ------------ ------------ -----------
Total Net Assets $62,197,366 $67,037,240 $155,222,701 $133,877,535 $24,076,686
- ------------------------ ----------- ----------- ------------ ------------ -----------
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE: $ 10.54 $ 5.37 $ 4.98 $ 3.04 $ 5.56
- ------------------------ ----------- ----------- ------------ ------------ -----------
Shares Outstanding 5,899,615 12,486,361 31,152,932 44,036,295 4,328,344
- ------------------------ ----------- ----------- ------------ ------------ -----------
Investments, at
identified cost $60,621,797 $90,031,550 $150,009,998 $130,034,520 $22,419,979
- ------------------------ ----------- ----------- ------------ ------------ -----------
Investments, at tax cost $60,689,138 $90,719,260 $150,009,998 $130,034,520 $22,419,979
- ------------------------ ----------- ----------- ------------ ------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROUP OF FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLANCHARD BLANCHARD
BLANCHARD BLANCHARD BLANCHARD SHORT -TERM FLEXIBLE
GLOBAL PRECIOUS METALS FLEXIBLE FLEXIBLE TAX-FREE
GROWTH FUND FUND, INC. INCOME FUND INCOME FUND BOND FUND
- ------------------------ ----------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------
Dividends $ 376,712(a) $ 675,606(c) $ -- $ -- $ --
- ------------------------
Interest 2,434,670(b) 631,572 13,043,023 10,247,264 1,236,154
- ------------------------ ---------- ------------ ----------- ----------- ----------
Total income 2,811,382 1,307,178 13,043,023 10,247,264 1,236,154
- ------------------------ ---------- ------------ ----------- ----------- ----------
EXPENSES:
- ------------------------
Management fee 645,955 744,283 1,273,719 1,095,713 169,751
- ------------------------
Administrative personnel
and services fee 75,000 78,467 165,355 142,259 75,000
- ------------------------
Custodian fees 63,163 50,200 68,539 48,762 16,080
- ------------------------
Transfer and dividend
disbursing agent fees
and expenses 118,177 77,453 317,118 343,119 37,447
- ------------------------
Directors'/Trustees'
fees 2,098 2,544 3,267 3,420 1,598
- ------------------------
Auditing fees 20,726 21,698 20,688 12,277 26,804
- ------------------------
Legal fees 2,939 2,290 1,764 1,653 85
- ------------------------
Portfolio accounting
fees 49,714 54,606 57,885 49,725 43,386
- ------------------------
Distribution services
fee 484,467 558,212 424,573 365,238 56,584
- ------------------------
Share registration costs 11,775 21,568 12,098 13,477 11,706
- ------------------------
Printing and postage 61,840 28,849 33,894 48,635 7,825
- ------------------------
Insurance premiums 2,255 1,873 1,665 2,288 1,412
- ------------------------
Taxes 495 697 495 495 --
- ------------------------
Miscellaneous 2,018 1,786 34,211 18,580 17,258
- ------------------------ ---------- ------------ ----------- ----------- ----------
Total expenses 1,540,622 1,644,526 2,415,271 2,145,641 464,936
- ------------------------ ---------- ------------ ----------- ----------- ----------
WAIVERS--
- ------------------------
Waiver of management fee -- -- -- (129,528) (142,067)
- ------------------------
Waiver of administrative
personnel and services
fee -- -- -- -- (39,951)
- ------------------------
Waiver of distribution
services fee -- -- -- -- (56,584)
- ------------------------ ---------- ------------ ----------- ----------- ----------
Total waivers -- -- -- (129,528) (238,602)
- ------------------------ ---------- ------------ ----------- ----------- ----------
Net expenses 1,540,622 1,644,526 2,415,271 2,016,113 226,334
- ------------------------ ---------- ------------ ----------- ----------- ----------
Net investment income
(loss) 1,270,760 (337,348) 10,627,752 8,231,151 1,009,820
- ------------------------ ---------- ------------ ----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS, FOREIGN
CURRENCY, AND FUTURES
CONTRACTS:
- ------------------------
Net realized gain (loss)
on investments, foreign
currency transactions,
and futures contracts 8,407,403 (2,561,982) 2,191,827 483,971 285,298
- ------------------------
Net change in unrealized
appreciation
(depreciation) of
investments, translation
of assets and liablities
in foreign currency, and
futures contracts (1,721,197) (9,413,528) 2,926,980 1,694,128 784,728
- ------------------------ ---------- ------------ ----------- ----------- ----------
Net realized and
unrealized gain (loss)
on investments 6,686,206 (11,975,510) 5,118,807 2,178,099 1,070,026
- ------------------------ ---------- ------------ ----------- ----------- ----------
Change in net assets
resulting from
operations $7,956,966 $(12,312,858) $15,746,559 $10,409,250 $2,079,846
- ------------------------ ---------- ------------ ----------- ----------- ----------
</TABLE>
(a) Net of Foreign taxes withheld $33,962.
(b) Net of Foreign taxes withheld $4,228.
(c) Net of Foreign taxes withheld $47,201.
(See Notes which are an integral part of the Financial Statements)
THE BLANCHARD GROUP OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLANCHARD GLOBAL BLANCHARD PRECIOUS
GROWTH FUND METALS FUND, INC.
--------------------------------------- ----------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30, SEPTEMBER 30, SEPTEMBER 30, APRIL 30,
1997 1996 1996 1997 1996 1996
---------------- ------------- ------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSETS:
----------------
OPERATIONS--
----------------
Net investment
income/operating
(loss) $ 1,270,760 $ 465,544 $ 295,860 $ (337,348) $ (500,885) $ (1,069,928)
----------------
Net realized
gain (loss) on
investments,
foreign currency
transactions and
futures
contracts 8,407,403 6,148,207 8,019,815 (2,561,982) 10,615,594 13,950,013
----------------
Net change in
unrealized
appreciation/depreciation
of investments,
translation of
assets and
liablities in
foreign
currency, and
futures
contracts (1,721,197) (5,394,534) 5,636,916 (9,413,528) (19,953,719) 13,616,081
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Change in net
assets
resulting from
operations 7,956,966 1,219,217 13,952,591 (12,312,858) (9,839,010) 26,496,166
---------------- ----------- ----------- ----------- ----------- ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
----------------
Distributions
from net
investment
income (1,170,525) -- (295,860) (2,843,687) -- --
----------------
Distributions
from net
realized gains (12,602,965) (20,849,369) -- --
----------------
Distributions in
excess of net
investment
income -- -- (274,732) -- -- --
----------------
Tax return of
capital -- -- -- -- -- --
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Change in net
assets
resulting from
distributions
to shareholders (13,773,490) -- (570,592) (23,693,056) -- --
---------------- ----------- ----------- ----------- ----------- ----------- ------------
SHARE
TRANSACTIONS--
----------------
Proceeds from
sale of shares 10,109,624 8,636,590 5,765,409 60,617,474 35,684,735 103,376,874
----------------
Net asset value
of shares issued
to shareholders
in payment of
distributions
declared 13,095,694 -- 548,261 21,735,905 -- --
----------------
Cost of shares
redeemed (23,098,557) (13,130,249) (35,601,975) (67,198,114) (67,247,212) (75,865,525)
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Change in net
assets
resulting from
share
transactions 106,761 (4,493,659) (29,288,305) 15,155,265 (31,562,477) 27,511,349
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Change in net
assets (5,709,763) (3,274,442) (15,906,306) (20,850,649) (41,401,487) 54,007,515
----------------
NET ASSETS:
----------------
Beginning of
period 67,907,129 71,181,571 87,087,877 87,887,889 129,289,376 75,281,861
---------------- ----------- ----------- ----------- ----------- ----------- ------------
End of period $62,197,366 $67,907,129 $71,181,571 $67,037,240 $87,887,889 $129,289,376
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Undistributed
net investment
income included
in net assets at
end of period $ 906,765 $ 818,136 $ -- $ 1,469,572 $ 2,856,971 $ 1,904,789
---------------- ----------- ----------- ----------- ----------- ----------- ------------
Net gain (loss)
as computed for
federal tax
purposes $ 7,911,101 $ 6,561,362 $ 5,881,028 $ 76,050 $ 9,039,433 $ 12,174,374
---------------- ----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
BLANCHARD FLEXIBLE
INCOME FUND
--------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30,
1997 1996 1996
- --------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSETS:
- ---------------------------
OPERATIONS--
- ---------------------------
Net investment
income/operating
(loss) $10,627,752 $ 5,059,729 $ 14,539,300
- ---------------------------
Net realized
gain (loss) on
investments,
foreign currency
transactions and
futures
contracts 2,191,827 175,174 480,236
- ---------------------------
Net change in
unrealized
appreciation/depreciation
of investments,
translation of
assets and
liablities in
foreign
currency, and
futures
contracts 2,926,980 2,016,909 5,042,160
- --------------------------- -------------- -------------- --------------
Change in net
assets
resulting from
operations 15,746,559 7,251,812 20,061,696
- --------------------------- -------------- -------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ---------------------------
Distributions
from net
investment
income (10,302,558) (5,012,727) (15,359,777)
- ---------------------------
Distributions
from net
realized gains -- -- --
- ---------------------------
Distributions in
excess of net
investment
income -- -- --
- ---------------------------
Tax return of
capital (342,877) (48,762) --
- --------------------------- -------------- -------------- --------------
Change in net
assets
resulting from
distributions
to shareholders (10,645,435) (5,061,489) (15,359,777)
- --------------------------- -------------- -------------- --------------
SHARE
TRANSACTIONS--
- ---------------------------
Proceeds from
sale of shares 33,454,106 13,294,718 60,702,516
- ---------------------------
Net asset value
of shares issued
to shareholders
in payment of
distributions
declared 8,400,717 4,042,963 11,757,432
- ---------------------------
Cost of shares
redeemed (79,085,787) (38,410,603) (133,349,811)
- --------------------------- -------------- -------------- --------------
Change in net
assets
resulting from
share
transactions (37,230,964) (21,072,922) (60,889,863)
- --------------------------- -------------- -------------- --------------
Change in net
assets (32,129,840) (18,882,599) (56,187,944)
- ---------------------------
NET ASSETS:
- ---------------------------
Beginning of
period 187,352,541 206,235,140 262,423,084
- --------------------------- -------------- -------------- --------------
End of period $155,222,701 $187,352,541 $ 206,235,140
- --------------------------- -------------- -------------- --------------
Undistributed
net investment
income included
in net assets at
end of period $ -- $ -- $ --
- --------------------------- -------------- -------------- --------------
Net gain (loss)
as computed for
federal tax
purposes $ 1,771,520 $ (1,335,786) $ (3,223,064)
- --------------------------- -------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE BLANCHARD GROUP OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLANCHARD SHORT-TERM BLANCHARD FLEXIBLE
FLEXIBLE INCOME FUND TAX-FREE BOND FUND
------------------------------------------ -----------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30, SEPTEMBER 30, SEPTEMBER 30, APRIL 30,
1997 1996 1996 1997 1996 1996
- ------------------------ ------------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
- ------------------------
OPERATIONS--
- ------------------------
Net investment income $ 8,231,151 $ 3,640,476 $ 3,088,222 $ 1,009,820 $ 461,956 $ 960,342
- ------------------------
Net realized gain (loss)
on investments, foreign
currency transactions
and futures contracts 483,971 (42,344) 511,538 285,298 39,445 891,432
- ------------------------
Net change in unrealized
appreciation/
depreciation of
investments, translation
of assets and liablities
in foreign currency, and
futures contracts 1,694,128 526,658 767,013 784,728 594,290 (406,293)
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Change in net assets
resulting from
operations 10,409,250 4,124,790 4,366,773 2,079,846 1,095,691 1,445,481
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
- ------------------------
Distributions from net
investment income (8,210,879) (3,150,985) (3,088,222) (1,005,915) (445,952) (960,342)
- ------------------------
Distributions from net
realized gains (45,361) -- -- -- -- --
- ------------------------
Distributions in excess
of net investment income -- -- (4,918) -- -- (8,706)
- ------------------------
Tax return of capital -- (529,561) -- -- -- --
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Change in net assets
resulting from
distributions to
shareholders (8,256,240) (3,680,546) (3,093,140) (1,005,915) (445,952) (969,048)
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
SHARE TRANSACTIONS--
- ------------------------
Proceeds from sale of
shares 34,559,663 12,700,025 13,369,396 10,279,470 6,936,750 26,287,368
- ------------------------
Proceeds from shares
issued in connection
with the acquisition of
Blanchard Short-Term
Global Income Fund -- -- 174,188,041 -- -- --
- ------------------------
Net asset value of
shares issued to
shareholders in payment
of distributions
declared 7,218,527 3,194,311 2,652,603 919,487 411,088 750,232
- ------------------------
Cost of shares redeemed (68,087,183) (36,071,531) (37,161,711) (10,766,336) (8,149,963) (24,287,075)
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Change in net assets
resulting from share
transactions (26,308,993) (20,177,195) 153,048,329 432,621 (802,125) 2,750,525
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Change in net assets (24,155,983) (19,732,951) 154,321,962 1,506,552 (152,386) 3,226,958
- ------------------------
NET ASSETS:
- ------------------------
Beginning of period 158,033,518 177,766,469 23,444,507 22,570,134 22,722,520 19,495,562
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
End of period $133,877,535 $158,033,518 $177,766,469 $ 24,076,686 $22,570,134 $ 22,722,520
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Undistributed net
investment income
included in net assets
at end of period $ -- $ -- $ -- $ -- $ -- $ --
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
Net gain (loss) as
computed for federal tax
purposes $ 483,971 $ 87,710 $ 493,015 $ -- $ -- $ --
- ------------------------ ------------ ------------ ------------ ------------ ----------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
[This Page Intentionally Left Blank]
63
BLANCHARD GROUP OF FUNDS
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NET REALIZED AND DISTRIBUTIONS
UNREALIZED FROM NET
GAIN/(LOSS) REALIZED GAINS
NET ON INVESTMENTS, ON INVESTMENTS,
YEAR NET ASSET INVESTMENT FUTURES DISTRIBUTIONS DISTRIBUTIONS FUTURES
ENDED VALUE INCOME/ CONTRACTS, AND TOTAL FROM FROM NET IN EXCESS OF TAX CONTRACTS, AND
APRIL30/ BEGINNING OPERATING FOREIGN CURRENCY INVESTMENT INVESTMENT NET INVESTMENT RETURN FOREIGN CURRENCY
SEPTEMBER 30, OF PERIOD (LOSS) TRANSACTIONS OPERATIONS INCOME INCOME(E) OF CAPITAL TRANSACTIONS
- ------------- --------- ---------- ---------------- ---------- ------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BGGF
1993 $ 9.92 0.25 0.32 0.57 (0.30) -- -- (0.19)
1994 $10.00 0.03 1.29 1.32 -- -- -- (1.28)
1995 $10.04 0.08 (0.19) (0.11) -- -- -- --
1996 $ 9.71 0.04 1.86 1.90 (0.04) (0.04) -- --
1996(a) $11.53 0.08 0.13 0.21 -- -- -- --
1997 $11.74 0.23 1.04 1.27 (0.21) -- -- (2.26)
BPMF
1993 $ 5.04 (0.08)(h) 1.87(h) 1.79 -- -- -- --
1994 $ 6.83 (0.11)(h) 2.01(h) 1.90 -- -- -- --
1995 $ 8.73 (0.02) (0.41) (0.43) -- -- (0.09) (0.03)
1996 $ 7.12 (0.10) 2.75 2.65 -- -- -- --
1996(a) $ 9.77 (0.10) (0.77) (0.87) -- -- -- --
1997 $ 8.90 (0.02) (0.96) (0.98) (0.30) -- -- (2.25)
BFIF
1993(b) $ 5.00 0.21 0.09 0.30 (0.21) -- -- --
1994 $ 5.09 0.40 (0.17) 0.23 (0.36) -- (0.03) (0.08)
1995 $ 4.85 0.30 (0.13) 0.17 (0.00)(i) -- (0.31) --
1996 $ 4.71 0.28 0.10 0.38 (0.31) -- -- --
1996(a) $ 4.78 0.15 0.04 0.19 (0.13) -- (0.00)(i) --
1997 $ 4.84 0.30 0.15 0.45 (0.30) -- (0.01) --
BSTFIF
1993(c) $ 3.00 0.00(i) 0.00(i) 0.00(i) (0.00)(i) -- -- (0.00)(i)
1994 $ 3.00 0.17 (0.06) 0.11 (0.17) -- -- (0.01)
1995 $ 2.93 0.15 -- 0.15 (0.14) (0.00)(i) -- --
1996 $ 2.94 0.22 -- 0.22 (0.17) (0.00)(i) -- --
1996(a) $ 2.99 0.07 0.01 0.08 (0.06) (0.00)(i) (0.01) --
1997 $ 3.00 0.17 0.04 0.21 (0.17) -- -- (0.00)(i)
BFTFBF
1994(d) $ 5.00 0.18 (0.20) (0.02) (0.18) -- -- (0.03)
1995 $ 4.77 0.24 0.26 0.50 (0.23) (0.01) -- --
1996 $ 5.03 0.22 0.13 0.35 (0.22) -- -- --
1996(a) $ 5.16 0.11 0.15 0.26 (0.11) -- -- --
1997 $ 5.31 0.25 0.25 0.50 (0.25) -- -- --
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
NET REALIZED
GAINS ON
INVESTMENTS,
YEAR FUTURES
ENDED CONTRACTS, AND
APRIL30/ FOREIGN CURRENCY
SEPTEMBER 30, TRANSACTIONS(E)
- ------------- ----------------
<S> <C>
BGGF
1993 --
1994 --
1995 (0.22)
1996 --
1996(a) --
1997 --
BPMF
1993 --
1994 --
1995 (1.06)
1996 --
1996(a) --
1997 --
BFIF
1993(b) --
1994 --
1995 --
1996 --
1996(a) --
1997 --
BSTFIF
1993(c) --
1994 --
1995 --
1996 --
1996(a) --
1997 --
BFTFBF
1994(d) --
1995 --
1996 --
1996(a) --
1997 --
</TABLE>
* Computed on an annualized basis.
(a) The Funds have changed their fiscal year end from April 30 to September 30.
Reflects operations for the period from May 1, 1996 to September 30, 1996.
(b) Reflects operations for the period from November 2, 1992 (commencement of
operations) to April 30, 1993.
(c) Reflects operations for the period from April 16, 1993 (commencement of
operations) to April 30, 1993.
(d) Reflects operations for the period from August 12, 1993 (commencement of
operations) to April 30, 1994.
(e) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(f) Based on net asset value.
(g) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(h) Calculated based on average shares outstanding-prior years amounts restated
for comparative purposes.
(i) Less than one cent per share.
(j) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
------------------------------------
NET
INVESTMENT NET ASSETS,
NET ASSET INCOME/ EXPENSE END AVERAGE PORTFOLIO
TOTAL VALUE, AND TOTAL OPERATING WAIVER/ OF PERIOD COMMISSIONS TURNOVER
DISTRIBUTIONS OF PERIOD RETURN(F) EXPENSES (LOSS) REIMBURSEMENT(G) (000 OMITTED) RATE PAID(J) RATE
- ------------- ---------- --------- -------- ---------- ---------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(0.49) $10.00 6.08% 2.40% 1.72% -- $ 84,780 -- 138%
(1.28) $10.04 12.91% 2.61% 0.67% -- $109,805 -- 166%
(0.22) $ 9.71 (1.04%) 2.51% 0.76% -- $ 87,088 -- 221%
(0.08) $11.53 19.68% 2.54% 0.38% -- $ 71,182 -- 91%
-- $11.74 1.91% 2.52%* 1.60%* -- $ 67,907 $0.0040 47%
(2.47) $10.54 13.20% 2.39% 1.97% -- $ 62,197 $0.0049 49%
-- $ 6.83 35.50% 3.24% (1.46%) -- $ 32,636 -- 66%
-- $ 8.73 27.80% 2.46% (1.21%) -- $ 68,092 -- 174%
(1.18) $ 7.12 (4.39%) 2.49% (1.48%) -- $ 75,282 -- 116%
-- $ 9.77 37.03% 2.36% (1.27%) -- $129,289 -- 176%
-- $ 8.90 (8.90%) 2.32%* (1.13%)* -- $ 87,888 $0.0199 36%
(2.55) $ 5.37 (15.24%) 2.21% (0.45%) -- $ 67,037 $0.0125 97%
(0.21) $ 5.09 6.17% 0.20%* 9.02%* -- $315,845 -- 129%
(0.47) $ 4.85 4.11% 1.30% 7.10% -- $550,254 -- 346%
(0.31) $ 4.71 3.74% 1.58% 6.52% -- $262,423 -- 455%
(0.31) $ 4.78 8.06% 1.56% 6.06% -- $206,235 -- 347%
(0.13) $ 4.84 3.95% 1.59%* 7.38%* 0.01%* $187,353 -- 87%
(0.31) $ 4.98 9.53% 1.42% 6.26% -- $155,223 -- 101%
(0.00)(i) $ 3.00 0.15% 3.03%* 3.89%* -- $ 2,000 -- 36%
(0.18) $ 2.93 3.72% 0.63% 5.64% 1.42% $ 42,381 -- 212%
(0.14) $ 2.94 5.34% 1.38% 4.80% 0.75% $ 23,445 -- 84%
(0.17) $ 2.99 7.47% 1.44% 5.49% 0.40% $177,766 -- 291%
(0.07) $ 3.00 2.61% 1.39%* 5.26%* 0.25%* $158,034 -- 21%
(0.17) $ 3.04 7.24% 1.38% 5.63% 0.09% $133,878 -- 80%
(0.21) $ 4.77 (0.48%) 0.00%* 6.79%* 2.22%* $ 23,267 -- 190%
(0.24) $ 5.03 10.74% 1.00% 4.87% 1.17% $ 19,496 -- 170%
(0.22) $ 5.16 6.86% 1.05% 4.43% 1.25% $ 22,723 -- 275%
(0.11) $ 5.31 5.02% 1.01%* 4.83%* 1.23%* $ 22,570 -- 25%
(0.25) $ 5.56 9.59% 1.00% 4.46% 1.05% $ 24,077 -- 163%
</TABLE>
BLANCHARD GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
(1) ORGANIZATION
Blanchard Group of Funds consists of Blanchard Funds (the "Trust") and Blanchard
Precious Metals Fund, Inc. (the "Company") which are registered under the
Investment Company Act of 1940, as amended (the "Act"), as open-end management
investment companies. The Trust consists of six portfolios. The financial
statements of the following portfolios (individually referred to as the "Fund",
or collectively as the "Funds") are presented herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME DIVERSIFICATION INVESTMENT OBJECTIVE
-------------- --------------- --------------------
<S> <C> <C>
Blanchard Global Growth Fund diversified Long-term capital growth.
("BGGF")
Blanchard Precious Metal Fund, non- Long-term capital appreciation and
Inc. ("BPMF") diversified preservation of purchasing power
through investments in
physical precious metals,
such as gold, silver,
platinum and palladium, and
in securities of companies
involved in precious metals.
A secondary objective of the
Fund is to reduce the risk of
loss of capital and decrease
the volatility often
associated with precious
metals investments by
changing the allocation of
its assets from precious
metals securities to physical
precious metals and/or
investing in short-term
instruments and government
securities during periods
when the Fund's portfolio
manager believes the precious
metals markets may experience
declines.
Blanchard Flexible Income Fund diversified High current income while seeking
("BFIF") opportunities for capital appreciation.
Blanchard Short-Term Flexible diversified High current income while seeking
Income Fund ("BSTFIF") opportunities for capital appreciation.
Blanchard Flexible Tax-Free Bond diversified High level of current interest income
Fund ("BFTFBF") exempt from federal income tax,
consistent with the preservation of
capital.
</TABLE>
In addition, the Trust offers Blanchard Asset Allocation Fund which is presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed corporate
bonds, other fixed income and asset-backed securities, and unlisted securities
and private placement securities are generally valued at the mean of the
latest bid and asked price as furnished by an independent pricing service.
Listed equity foreign valued at the last sale price reported on a national
securities exchange. Short-term foreign and domestic securities are valued at
the prices provided by an independent pricing service. However, short-term
foreign or domestic securities purchased with remaining maturities of sixty
days or less may be valued at amortized cost, which approximates fair market
value. Investments in open-end regulated investment companies are valued at
net asset value. Foreign government and corporate bonds are valued at the last
sales price reported on a national exchange. If the last sales price is not
available the securities are valued at the mean of the latest bid and ask
price as furnished by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser to be creditworthy pursuant to guidelines and/or standards
reviewed or established by the Board of Trustees (the "Trustees"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Funds could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code").
Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a return
of capital for federal income tax purposes.
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions. In addition, BPMF and BFIF reclassed a tax
return of capital. The following reclassifications have been made to the
financial statements as of September 30, 1997.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT
FUND PAID-IN ACCUMULATED NET INCOME/ DISTRIBUTIONS IN EXCESS
NAME CAPITAL REALIZED GAIN/LOSS OF NET INVESTMENT INCOME
------------ --------- ------------------ -------------------------------
<S> <C> <C> <C>
BGGF -- $ 11,606 $ (11,606)
BPMF $ 120,846 (1,911,826) 1,790,980
BFIF (342,877) (258,682) 601,559
</TABLE>
Net investment income, net realized gain/losses, and net assets were not
affected by this change.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
At September 30, 1997, BFIF, BSTFIF, and BFTFBF, for federal tax purposes, had
capital loss carryforwards, as noted below, which will reduce the Funds
taxable income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Funds of any liability for federal tax.
<TABLE>
<CAPTION>
FUNDS TOTAL TAX LOSS CARRYFORWARD
------ ---------------------------
<S> <C>
BFIF $16,630,124
BSTFIF 9,125,862
BFTFBF 354,460
</TABLE>
Pursuant to the Code, such capital loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
BFIF BSTFIF
---------------------------------------------------------------------
EXPIRATION YEAR EXPIRATION AMOUNT EXPIRATION YEAR EXPIRATION AMOUNT
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
2002 $12,071,274 2003 $9,125,862
2003 3,223,064
2004 1,335,786
</TABLE>
<TABLE>
<CAPTION>
BFTFBF
------------------------------------
EXPIRATION YEAR EXPIRATION AMOUNT
--------------- -----------------
<S> <C> <C> <C>
2003 $354,460
</TABLE>
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
Additionally, net capital losses, as noted below, attributable to security
transactions incurred after October 31, 1996 are treated as arising on October
1, 1997 the first day of the Funds' next taxable year.
<TABLE>
<CAPTION>
FUND TOTAL TAX LOSS PUSHFORWARD
---- --------------------------
<S> <C>
BPMF $4,504,362
BFIF 157,286
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
FUTURES CONTRACTS--BGGF purchases stock index futures contracts to manage
cashflows, enhance yield, and to potentially reduce transaction costs. Upon
entering into a stock index futures contract with a broker, the Fund is
required to deposit in a segregated account a specified amount of cash or U.S.
government securities. Futures contracts are valued daily and unrealized gains
or losses are recorded in a "variation margin" account. Daily, the Fund
receives from or pays to the broker a specified amount of cash based upon
changes in the variation margin account. When a contract is closed, the Fund
recognizes a realized gain or loss. For the period ended September 30, 1997,
BGGF had realized gains on futures contracts of $5,426,009. Futures contracts
have market risks, including the risk that the change in the value of the
contract may not correlate with changes in the value of the underlying
securities.
At September 30, 1997, BGGF had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION APPRECIATION
DATE CONTRACTS TO RECEIVE POSITION (DEPRECIATION)
----------- -------------------- -------- --------------
<S> <C> <C> <C>
December 1997 20 S&P 500 Long $332,326
December 1997 4 Long Gilt Long 17,265
December 1997 5 Notional Long 3,412
December 1997 7 CAC 40 Long 773
December 1997 7 Bund Long 15,831
December 1997 3 DAX Long 28,979
December 1997 221 Nikkei 300 Long (195,176)
December 1997 12 T Bond Long 43,438
December 1997 11 T Note Long 20,875
December 1997 5 ALL--Ords Long 253
December 1997 5 FT-SE Long 81,577
--------
Net Unrealized Appreciation on
Futures Contracts $349,553
</TABLE>
FOREIGN EXCHANGE CONTRACTS--BGGF, BPMF, BFIF, and BSTFIF may enter into
foreign currency exchange contracts as a way of managing foreign exchange rate
risk. BGGF, BPMF, BFIF, and BSTFIF may enter into these contracts for the
purchase or sale of a specific foreign currency at a
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
fixed price on a future date as a hedge or cross hedge against either specific
transactions or portfolio positions. The objective of the Funds foreign
currency hedging transactions is to reduce the risk that the U.S. dollar value
of the Funds foreign currency denominated securities will decline in value due
to changes in foreign currency exchange rates. All foreign currency exchange
contracts are "marked to market" daily at the applicable translation rates
resulting in unrealized gains or losses. Realized gains or losses are recorded
at the time the foreign currency exchange contract is offset by entering into
a closing transaction or by the delivery or receipt of the currency. Risk may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. At
September 30, 1997, only BGGF and BFIF had outstanding foreign exchange
contracts as set forth below:
BGGF
<TABLE>
<CAPTION>
CONTRACTS TO IN UNREALIZED
SETTLEMENT DELIVER/ EXCHANGE CONTRACTS AT APPRECIATION
DATE RECEIVE FOR VALUE (DEPRECIATION)
---------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
CONTRACTS PURCHASED:
Australian Dollar 10/2/97 517,000 $ 388,913 $ 387,621 $ 1,292
Australian Dollar 1/5/98 330,000 240,059 240,195 (136)
Swiss Franc 10/2/97 7,812,500 5,368,856 5,372,931 (4,075)
Deutsche Mark 12/23/97 3,787,600 2,147,104 2,155,278 (8,174)
French Franc 10/2/97-1/5/98 15,903,400 2,662,152 2,687,859 (25,707)
British Pound 12/23/97 907,200 1,457,870 1,457,897 (27)
Netherlands Guilder 10/2/97 3,975,000 1,998,692 1,997,458 1,234
<CAPTION>
CONTRACTS SOLD:
<S> <C> <C> <C> <C> <C>
Swiss Franc 10/2/97-12/23/97 14,772,000 10,111,286 10,205,532 94,246
Deutsche Mark 12/23/97 971,000 552,489 552,533 44
French Franc 10/2/97 9,246,200 1,553,066 1,558,737 5,671
British Pound 12/23/97 127,000 204,286 204,093 (193)
Japanese Yen 12/18/97 414,228,700 3,460,752 3,472,727 11,975
Netherlands Guilder 10/2/97-12/23/97 7,950,000 3,931,396 4,005,276 73,880
--------
Net Unrealized Appreciation on Foreign Exchange Contracts $150,030
========
</TABLE>
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
BFIF
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS AT APPRECIATION
DATE DELIVER/RECEIVE FOR VALUE (DEPRECIATION)
---------- --------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Contracts Sold:
Canadian Dollar 12/15/97 2,200,000 $1,591,320 $1,598,759 ($7,439)
-------
Net Unrealized Depreciation on Foreign Exchange Contracts ($7,439)
-------
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and
collected or paid are adjusted when reported by the custodian bank. The Funds
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES--Restricted securities are securities that may only be
resold upon registration under federal or international securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities may
be resold in the secondary market in transactions exempt from registration.
Such restricted securities may be determined to be liquid under criteria
established by the Board of Trustees. The Fund will not incur any registration
costs upon such resales. The Funds' restricted securities are valued at the
price provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
Additional information on each restricted security held by BGGF at September
30, 1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
----------------------------- ---------------- ----------------
<S> <C> <C>
Chilectra S.A. ADR 7/19/96 $91,177
Daewoo Heavy Industries, Pfd. 2/3/95-4/12/95 49,952
Samsung Electronics Co., GDR 1/3/95 917
Dong Bang Forwarding Co. 2/3/95-5/29/95 74,380
</TABLE>
Additional information on each restricted security held by BPMF at September
30, 1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
--------------------------- ----------------- ----------------
<S> <C> <C>
Eldorado Gold Corp. Ltd. 04/08/96-08/14/97 $433,523
Geomaque Explorations Ltd.,
Warrants 3/11/97 827,565
Lone Star Exploration 2/26/96-3/26/97 587,746
</TABLE>
Additional information on each restricted security held by BFIF at September
30, 1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
--------------------------- ------------------ ----------------
<S> <C> <C>
Calpine Corp. 7/2/1997 $ 996,412
Nine West Group, Inc. 7/1/1997 999,012
Stone Container Finance Co. 8/9/1996 2,000,000
Tucson Electric Power Co. 2/10/1993-12/22/93 2,098,170
</TABLE>
CHANGE IN FISCAL YEAR--The Funds changed their fiscal year-end from April 30
to September 30 beginning May 1, 1996.
DEFERRED EXPENSES--The costs incurred by each Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being amortized
over a period not to exceed five years from each Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Articles of Incorporation permit the Directors to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
BGGF BPMF
--------------------------------------- ------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1997 1996 1996 1997 1996 APRIL 30, 1996
------------- ------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 973,160 748,872 559,635 9,876,823 3,728,778 11,891,108
Shares issued to
shareholders in payment
of distributions
declared 1,381,403 -- 52,311 3,428,378 -- --
Shares redeemed (2,237,898) (1,137,138) (3,413,086) (10,697,610) (7,081,402) (9,230,002)
----------- ----------- ----------- ----------- ----------- -----------
Net change resulting
from share transactions 116,665 (388,266) (2,801,140) 2,607,591 (3,352,624) 2,661,106
=========== =========== =========== =========== =========== ===========
<CAPTION>
BFIF BSTFIF
--------------------------------------- ------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30, SEPTEMBER 30, SEPTEMBER 30, APRIL 30,
1997 1996 1996 1997 1996 1996
------------- ------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 6,828,666 2,777,685 12,498,920 11,452,843 4,248,564 4,477,310
Shares issued in
connection with the
acquisition of Blanchard
Short-Term Global Income
Fund -- -- -- -- -- 57,869,781
Shares issued to
shareholders in payment
of distributions
declared 1,711,576 844,211 2,424,612 2,391,887 1,070,524 888,044
Shares redeemed (16,127,237) (8,034 ,939) (27,527,713) (22,560,468) (12,096,346) (11,691,202)
----------- ----------- ----------- ----------- ----------- -----------
Net change resulting
from share transactions (7,586,995) (4,413,043) (12,604,181) (8,715,738) (6,777,258) 51,543,933
=========== =========== =========== =========== =========== ===========
<CAPTION>
BFTFBF
---------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, APRIL 30,
1997 1996 1996
------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,901,018 1,341,280 5,015,985
Shares issued to
shareholders in payment
of distributions
declared 169,611 78,775 142,764
Shares redeemed (1,995,557) (1,571,250) (4,631,991)
----------- ----------- -----------
Net change resulting
from share transactions 75,072 (151,195) 526,758
=========== =========== ===========
</TABLE>
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
(4) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEE--Virtus Capital Management, Inc., the Trust's manger (the
"Manager"), receives for its services an annual management fee based on a
percentage of each Fund's average daily net assets (see below).
<TABLE>
<CAPTION>
FUND ANNUAL RATE
------ -----------------------------------------------------------------------
<C> <S>
BGGF 1.00% of the first 150 million, 0.875% of the excess of 150 million but
not exceeding 300 million, 0.75% in excess of 300 million
BPMF 1.00% of the first 150 million, 0.875% of the excess of 150 million but
not exceeding 300 million, 0.75% in excess of 300 million
BFIF 0.75%
BSTFIF 0.75%
BFTFBF 0.75%
</TABLE>
The Manager may voluntarily choose to waive a portion of its fee. The Manager
can modify or terminate this voluntary waiver at any time at its sole
discretion.
SUB-ADVISORY FEE--To provide portfolio advisory services for the Funds, the
Manager has entered into sub-advisory agreements with the sub-advisers listed
below. Under the terms of each sub-advisory agreement, the Manager will pay each
sub-adviser a fee based on a percentage of each Fund's average daily net assets
(see below).
<TABLE>
<CAPTION>
FUND SUB-ADVISER ANNUAL RATE
------ --------------------------------------- -------------------------------
<C> <C> <S>
BGGF Mellon Capital Mortgage Corp. 0.375% of the first $100
million, 0.350% of the excess
of $100 million but not
exceeding $150 million, 0.325%
of the excess of $150 million
BPMF Cavelti Capital Management, Ltd. 0.30% of the first $150
million, 0.2625% of the excess
of $150 million but less than
$300 million, and 0.255% in
excess of $300 million
BFIF OFFITBANK 0.30% of the first $25 million,
0.25% of the next $25 million,
and 0.20% in excess of $50
million
BSTFIF OFFITBANK 0.30% of the first $25 million,
0.25% of the next $25 million,
and 0.20% in excess of $50
million
BFTFBF United States Trust Company of New York 0.20%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Funds with administrative
personnel and services. The fee paid to FAS is based on the level of average
aggregate daily net assets of the Funds and The Virtus Funds for the period. FAS
may voluntarily choose to waive a portion of its fee. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $75,000 per portfolio. FAS can modify or terminate this voluntary waiver
at any time at its sole discretion.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, each
Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
result in the sale of the Fund's Investment Shares. The Plan provides that the
Funds may incur distribution expenses up to 0.25% of the average daily net
assets of the BFIF, BSTFIF, and BFTFBF and up to 0.75% of the average daily net
assets of BGGF and BPMF, annually, to reimburse FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Funds.
The fee paid to FSSC is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Funds' accounting records
for which it receives a fee. The fee is based on the level of each Fund's
average net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Signet Trust Company is the Funds' custodian for which it
receives a fee. The fee is based on the level of each Fund's average net assets
for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--The Funds' Manager paid the organization expenses of
the Funds listed below incurred prior to the public offering of its shares. The
Funds reimbursed the Manager for these expenses and has deferred and is
amortizing such expenses over five years from the date of commencement of the
Funds operations. Organizational expenses paid is as follows:
<TABLE>
<CAPTION>
FUND ORGANIZATIONAL EXPENSES
- ------ -----------------------
<S> <C>
BFIF $151,712
BSTFIF 80,724
BFTFBF 89,448
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ------ ------------ -----------
<S> <C> <C>
BGGF $ 44,853,363 $18,165,537
BPMF 63,481,368 66,049,224
BFIF 164,757,771 202,202,473
BSTFIF 109,275,828 128,141,491
BFTFBF 35,259,413 35,460,535
</TABLE>
BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------
(6) CONCENTRATION OF CREDIT RISK
BGGF, BPMF, and BFIF invest in securities of non-U.S. issuers. The political or
economic developments within a particular country or region may have an adverse
effect on the ability of domiciled issuers to meet their obligations.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency holdings.
(7) PROPOSED FUND MERGER
On July 18, 1997, Signet Banking Corporation ("Signet") entered into a
definitive Agreement and Plan of Reorganization whereby Signet was acquired by
First Union Corporation ("First Union"). It is anticipated that the merger will
be consummated on or about November 28, 1997.
As a result of this First Union merger, First Union will succeed to the
investment advisory and functions formerly performed for the Funds by various
units of Signet and various unaffiliated parties.
The Board of Trustees/Directors of the Funds has approved an Agreement and Plan
of Reorganization pursuant to which, on or about February 27, 1998, all of the
assets, and certain liabilities of the Funds would be acquired in exchange for
shares of similarly managed funds (the "Acquiring Funds") that is advised by
affiliates of First Union. The reorganization would result in the liquidation
and termination of the Funds. Pursuant to the reorganization, shareholders of
the Funds will receive, tax-free, the number of shares of the Acquiring Funds
having a value equal to the value of their shares immediately prior to the
reorganization. Consummation of the reorganization is subject to approval of the
shareholders of the Funds.
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of Blanchard Group of Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Blanchard Group of Funds (comprising the
following portfolios: Blanchard Global Growth Fund, Blanchard Precious Metals
Fund, Inc., Blanchard Flexible Income Fund, Blanchard Short- Term Flexible
Income Fund, Blanchard Flexible Tax-Free Bond Fund) as of September 30, 1997,
and the related statements of operations for the year then ended, the statements
of changes in net assets for the year ended September 30, 1997 and the period
ended September 30, 1996, and the financial highlights for the periods ended in
1997 and 1996. The financial highlights for the periods ended in 1993, 1994 and
1995 were audited by other auditors, whose reports thereon dated June 20, 1995,
expressed an unqualified opinion. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Blanchard Group of
Funds as of September 30, 1997, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
As more fully described in Note 7, in November, 1997 the Funds are expected to
enter into an Agreement and Plan of Reorganization, pursuant to which (subject
to Fund shareholder approval) on or about February 27, 1998, all of the assets,
and certain liabilities of the Funds would be acquired in exchange for shares of
similarly managed funds that are advised by affiliates of First Union
Corporation. The reorganization would result in the liquidation and termination
of the Funds.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
November 7, 1997
TRUSTEES/DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland President and Treasurer
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. John W. McGonigle
Edward C. Gonzales Executive Vice President and
Peter E. Madden Secretary
John E. Murray, Jr. Joseph S. Machi
Wesley W. Posvar Vice President and Assistant
Marjorie P. Smuts Treasurer
Richard B. Fisher
Vice President
C. Grant Anderson
Assistant Secretary
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contain facts concerning
its objective and policies, management fees, expenses and other information.
PORTFOLIO ADVISERS B L A N C H A R D
Global Growth Fund GLOBAL GROWTH FUND
Mellon Capital Management Corp.
Precious Metals Fund, Inc. PRECIOUS METALS FUND, INC.
Cavelti Capital Management Ltd.
Flexible Income Fund FLEXIBLE INCOME FUND
OFFITBANK
Short-Term Flexible Income Fund SHORT-TERM FLEXIBLE INCOME FUND
OFFITBANK
Flexible Tax-Free Bond Fund FLEXIBLE TAX-FREE BOND FUND
United States Trust Company of New York
The Blanchard Group of Funds are available through Signet(R) Financial Services,
Inc., member NASD, and are advised by an affiliate, Virtus Capital Management,
Inc., which is
compensated for this service.
- ---------------------------------------------
INVESTMENT PRODUCTS ARE NOT DEPOSITS,
OBLIGATIONS OF, OR GUARANTEED BY ANY
BANK. THEY ARE NOT INSURED BY THE FDIC.
THEY INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL INVESTED.
- ---------------------------------------------
Federated Securities Corporation is the ANNUAL REPORT
distributor of the Funds. SEPTEMBER 30, 1997
Managed by: Virtus Capital
Management, Inc.
G01684-12
CUSIP 093212603/093212405/093265106/093212306/093254100
(2431)AR1197
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Global Growth Fund (the "Fund") is represented by a broken line. The Standard &
Poor's 500 Index (the "S&P 500") is represented by a solid line. The line graph
is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the S&P 500. The "x" axis reflects
computation periods from 4/30/98 to 9/30/97. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500; the ending values were
$20,006 and $44,582, respectively. The legend in the upper middle quadrant of
the graphic presentation indicates the Fund's Average Annual Total Return for
the one-year, five-year, ten-year and the since inception (6/1/86) periods ended
9/30/97, which were 13.20%, 10.51%, 6.44% and 8.97%, respectively.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Precious Metals Fund (the "Fund") is represented by a broken line. The Toronto
Stock Exchange Gold & Silver Index is represented by a solid line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the Toronto Stock Exchange Gold & Silver
Index. The "x" axis reflects computation periods from 6/23/88 to 9/30/97. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
Toronto Stock Exchange Gold & Silver Index; the ending values were $11,167and
$13,936, respectively. The legend in the upper middle quadrant of the graphic
presentation indicates the Fund's Average Annual Total Return for the one-year,
five-year, and the since inception (6/23/88) periods ended 9/30/97, which were
(15.24%), 9.96%, and 1.27%, respectively.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Flexible Income Fund (the "Fund") is represented by a broken line. The Merrill
Lynch Aggregate Bond Index is represented by a solid line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the Merrill Lynch Aggregate Bond Index.
The "x" axis reflects computation periods from 11/2/92 to 9/30/97. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to the Merrill Lynch
Aggregate Bond Index; the ending values were $14,003 and $14,387, respectively.
The legend in the upper middle quadrant of the graphic presentation indicates
the Fund's Average Annual Total Return for the one-year, and the since inception
(11/2/92) periods ended 9/30/97, which were 9.53% and 7.25%, respectively.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Short-Term Flexible Income Fund (the "Fund") is represented by a broken line.
The Merrill Lynch Short-Term Govenment Index is represented by a solid line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Fund and the Merrill Lynch Short-Term
Govenment Index. The "x" axis reflects computation periods from 4/16/93 to
9/30/97. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the Merrill Lynch Short-Term Govenment Index; the ending values were $12,940
and $12,709, respectively. The legend in the upper middle quadrant of the
graphic presentation indicates the Fund's Average Annual Total Return for the
one-year, and the since inception (4/16/93) periods ended 9/30/97, which were
7.24% and 5.95%, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Flexible Tax-Free Bond Fund (the "Fund") is represented by a broken line. The
Lehman Brothers Current Municipal Bond Index is represented by a solid line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Fund and the Lehman Brothers Current
Municipal Bond Index. The "x" axis reflects computation periods from 8/12/93 to
9/30/97. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the Lehman Brothers Current Municipal Bond Index; the ending values were
$13,553 and $12,485, respectively. The legend in the upper middle quadrant of
the graphic presentation indicates the Fund's Average Annual Total Return for
the one-year, and the since inception (8/12/93) periods ended 9/30/97, which
were 9.59% and 7.63%, respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Blanchard
Asset Alocation Fund (the "Fund") is represented by a broken line. The Standard
& Poor's 500 Index (the "S&P 500") is represented by a solid line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the S&P 500. The "x" axis reflects
computation periods from 6/6/96 to 9/30/97. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the S&P 500; the ending values were
$14,534 and $14,571, respectively. The legend in the upper middle quadrant of
the graphic presentation indicates the Fund's Average Annual Total Return for
the one-year and the since inception (6/6/96) periods ended 9/30/97, which were
38.64%, 33.03%, respectively.
EVERGREEN
INTERNATIONAL/GLOBAL
GROWTH FUNDS
(Photo of Buddha statues (Photo of Global Leaders Fund
appears here) logo appears here)
(Photo of Globe appears (Photo of European flags
here) appears here)
(Photo of Asian city harbor appears here)
1996 ANNUAL REPORT
(Evergreen Fund logo appears here)
<PAGE>
EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
Economic Overview......................................................... 1
(Photo of Buddha statues EMERGING MARKETS A Report From Your Portfolio Manager...................................... 3
appears here) GROWTH FUND Results to Date........................................................... 4
Statement of Investments.................................................. 5
Industry Diversification.................................................. 7
Statement of Assets and Liabilities....................................... 8
Statement of Operations................................................... 9
Statement of Changes in Net Assets........................................ 10
Financial Highlights...................................................... 11
</TABLE>
<TABLE>
<C> <S> <C>
(Photo of Global Leaders Fund GLOBAL LEADERS A Report From Your Portfolio Managers..................................... 13
appears here) FUND Results to Date........................................................... 17
Statement of Investments.................................................. 18
Industry Diversification.................................................. 20
Statement of Assets and Liabilities....................................... 21
Statement of Operations................................................... 22
Statement of Changes in Net Assets........................................ 23
Financial Highlights...................................................... 24
</TABLE>
<TABLE>
<C> <S> <C>
(Photo of Globe GLOBAL REAL A Report From Your Portfolio Manager...................................... 25
appears here) ESTATE EQUITY Results to Date........................................................... 28
FUND Statement of Investments.................................................. 29
Statement of Assets and Liabilities....................................... 31
Statement of Operations................................................... 32
Statement of Changes in Net Assets........................................ 33
Financial Highlights...................................................... 34
</TABLE>
<TABLE>
<C> <S> <C>
(Photo of European flags INTERNATIONAL A Report From Your Portfolio Manager...................................... 36
appears here) EQUITY FUND Results to Date........................................................... 38
Statement of Investments.................................................. 39
Industry Diversification.................................................. 45
Statement of Assets and Liabilities....................................... 46
Statement of Operations................................................... 47
Statement of Changes in Net Assets........................................ 48
Financial Highlights...................................................... 49
</TABLE>
<TABLE>
<C> <S> <C>
Combined Notes to Financial Statements.................................... 51
Report of Independent Accountants -- Price Waterhouse LLP................. 60
Trustees and Officers...................................... Inside Back Cover
</TABLE>
<PAGE>
EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN,
STEPHEN A. LIEBER
The continued expansion of the United States (Photo of Stephen A.
economy and the persistence of inflation at 3% or Lieber appears here)
less, has evidently sent mixed signals to the
investment markets. The equity market this year has
gone from new high to new high. The willingness of
American savers to put money into the hands of equity mutual funds to buy stocks
in the United States and abroad is unprecedented. Even foreign investors, who
have long been skeptical of the rising prices of U.S. equities and the recent
relatively higher valuations than in many other industrial countries, have begun
to move heavily into U.S. equities. Only the bond market has suffered negative
trends this year. But, it showed no further losses when measured from the end of
the second quarter to the end of the third quarter, and has since recovered to
the levels of last February.
Evidence of slowed final demand in many sectors of the economy has begun to
reduce the fears of many investors over inflationary pressures. While confidence
increases that both producer and consumer price indices will remain in a narrow
range, around 3%, apprehensions of possibly renewed inflation are now focused on
the trend of hourly wages, which showed some strength earlier in the fall.
The apparent consensus among business economists currently is to expect a 2%
growth rate for the U.S. economy in the second half of 1996, with a similar
level to continue into 1997. These views are, in part, based on historical
trends, in which the late stage expansion cycle characteristics of the U.S.
economy typically show economic deceleration. Such a deceleration is not widely
feared, in view of the fact that real income growth is like to be sustained by a
2% to 2 1/2% employment growth, plus a 3% to 3 1/2% earnings growth, before a 3%
inflation. The appearance of such decelerating trends and their continuation
would likely bring bond yields down, as the inflation premium would be removed
from bond market expectations. Many who dissent from the consensus view that the
economy will slow, argue that the European economies and Japan's are likely to
revive in 1997, which will create more export demand for U.S. products and,
therefore, increase our growth rate. More pessimistic observers of the American
economy believe that the American consumer has overspent, as evidenced by the
rising rate of credit card delinquencies, and by the "wealth effect" of a stock
market achieving record highs.
The stock market has achieved its historic highs, based not only on a rising
valuation, but also on significantly increased corporate profitability. Any
slowing of the economy will reduce the stimulus to stock buying from the
momentum of earnings growth. It remains questionable though, whether the
incentive to invest in equities would be correspondingly reduced. It may simply
produce a more selective environment, crowding investment interest into a
smaller spectrum of the market. We believe this a likely outcome, so long as the
basic inclination of American investors is increasingly to put their long-term
savings funds into common stocks or common stock mutual funds. We see four areas
of sustained demand for common stocks in the balance of 1996: companies with
internal growth based on innovative products and services, companies which are
using their excess retained earnings to buy back their own stock, companies
which are restructuring their operations to achieve better returns and, finally,
companies whose undervaluation makes them attractive acquisition candidates for
larger enterprises. For the bond market, we expect that fairly stable, rather
than rising, inflation, and a somewhat declining overall business rate of
growth, together with a narrow range currency market, should enable a gradual
decline in interest rates. This would have the effect of supporting the stock
market alternative to fixed income investments.
These economic and market volatilities suggest the need for a long-term
perspective. Taking advantage of declines in prices of quality stocks,
purchasing bonds in periods of exaggerated apprehensions over inflation,
together with systematic investing, should prove the most effective way to
capitalize on the volatilities of a period where many investors are dominated by
their uncertainties. Record corporate profits and strong growth trends by
leaders in new products or services encourage a positive investment
1
<PAGE>
EVERGREEN INTERNATIONAL/GLOBAL GROWTH FUNDS
ECONOMIC OVERVIEW -- (CONTINUED)
response. The confidence of managements in their ability to generate substantial
and even excess cash flows is shown by the still rising trend of corporate stock
buy-backs. The rising business cycle of the last five years has greatly
strengthened the balance sheets of most American companies. Any decline in
interest rates, such as experienced in recent weeks, should tend to focus even
more attention on comparative returns of strongly positioned, well financed, and
highly profitable companies.
Internationally, the Organization for Economic Cooperation and Development
estimates that, in 1997, there will be an average 2.4% growth in gross domestic
product for its member countries. Looking to "robust and sustainable growth in
the United States, and a continuation of expansions in Japan and Europe",
inflationary forces are seen as a potential risk, but not a probability. The
head of the OECD Economics Department projects a slowdown of economic activity
in the U.S. which would, if confirmed, reduce the risk of a rise in inflation.
Further, with U.S. growth projected at only 2.2% in 1997, against 2.4% in 1996,
and with U.S. gross fixed investment expected to fall to a 3.3% rate from 6% in
1996, the U.S. is not viewed as an expected inflationary force in the world
economic picture. Similarly, Japan is anticipated to have its growth rate fall
to 1.6% from 3.6% in 1996. The major expected increase in growth is in the long
delayed recovery in Europe, where the OECD predicts a growth rate of 2.4%, up
from 1.6% in 1996. Yet, even with this recovery projected for Europe, the OECD
is still fearful of further rises in the already high levels of unemployment in
such principal European economies as Germany, France, and Italy.
Economic growth rates in Southeast Asia, Latin America, and other more rapidly
industrializing nations, are widely expected to exceed those of the major
industrial countries in 1997. Led by the indicated better than 9% 1996 rate of
growth in GDP of China, and sustained 8% rate of growth estimated for Indonesia,
Malaysia, and Thailand, improving economies are seen elsewhere such as the
Philippines which has, this year, grown its GDP at 5.9%, and South Korea at
6.4%. Argentina, Brazil, and Mexico reported comparable levels of growth.
Expectations for 1997 are that these economies will sustain their expansion,
particularly if worldwide interest rate levels remain in recent bands, which
will permit the availability of capital. Inflation rates are a continuing risk
factor in numerous emerging economies, led by a recent 7% in China, and 11.8% in
Brazil, while Mexico, still in its readjustment phase, most recently reported a
28.7% inflation rate. Trade balances in many of these countries, are, however,
are increasingly favorable, providing capital to sustain their expansions. This
is particularly evident in China, which has built up its foreign dollar reserves
in the last year (ending September) to $97.4 billion from $71.4 billion, and in
Brazil, whose reserves increased to $57.5 billion in August from $45.6 billion
the year before. Stock markets in the varying countries have varying trends and
high volatility, led in the last eleven months by that of Venezuela, up 195%,
followed by Russia, up 153%, Hungary, up 148%, Turkey, up 129%, and China, up
126%. The weakest market in the Asian group was Thailand, down 30.8%.
These contrasts between growth rates, growth expectations, and stock market
performance suggest the continuing need for both a longer term perspective and
an investment policy guided by current political and economic analysis on a
national basis, as well as a company and commodity basis. Investment focus on
multi-national companies which take advantage of long-term growth opportunities
in dynamic economies would seem, in 1997, to again be a cautious strategy to
bridge local uncertainties, and yet benefit by major growth potentials. The
selection of individual securities in the mature economies should continue to be
supported by improving liquidity, as markets among the major trading nations
broaden and the flows of capital continue to increase. For companies based in
the so-called emerging markets, policies of concentration on the strongest
enterprises with healthy equity capital levels and major positions in domestic
markets, together with export markets, would seem to still be an appropriate
focus. In short, 1997's initial economic outlook for international investment
continue to be positive within a framework of restrained inflation and
continuing modest growth among the major industrial nations.
2
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
RICHARD WAGONER
We are pleased to bring you the Annual Report for Evergreen (Photo of
Emerging Markets Growth Fund. For the twelve-month period Richard Wagoner
ended October 31, 1996, Evergreen Emerging Markets Growth appears here)
Fund's total return for its Class A shares at net asset value
was 7.7%* as compared with 3.5% for the Morgan Stanley Capital
International (MSCI) Emerging Markets Index**, the Fund's
benchmark index. Class A shares are subject to a maximum 4.75%
front end sales charge which is not reflected in the Fund's
performance figure. If reflected, performance would be lower.
(For additional performance information, please see page 4.)
Taiwan, Malaysia, Brazil, Argentina and Poland lead the
performance of the emerging markets during the year, with total returns in
excess of 25%, as measured by their respective MSCI country sub-indexes. The
worst performing markets during this period were South Korea, Thailand and South
Africa, which declined 36%, 31% and 10%, respectively. The global investment
environment was negative for the emerging markets during the last year. Signs of
growing economic strength in the United States caused uncertainty over future
direction of monetary policy in the major markets. Global financial liquidity
plays a strategic role in shaping emerging markets' equity performance.
The Fund's overweights in Hong Kong, Peru and Czech Republic, as compared
with the MSCI Emerging Markets Index, helped performance, as did our
underweights in Korea, Thailand and South Africa. Strong stock selection in
Brazil and Chile was a key contributor to outperformance despite being neutrally
weighted. Our major sector overweights were in the financial and services
sectors, where our combined weighting was approximately 51% of the portfolio.
We believe the near-term outlook for emerging markets equities is extremely
bullish. Investor focus has been on the strength of the major economies and the
outlook for interest rates. The threat of higher interest rates was deferred
following the Federal Reserve Board's decision not to increase rates at its
September meeting. This inaction along with reductions in official lending rates
in several overseas markets has led to a world-wide rally in bond prices. In
turn, this has fostered positive conditions for stock markets around the world,
particularly for the interest-rate-sensitive emerging markets. We continue to
emphasize Latin America and selected Pacific Rim markets, while the markets of
Eastern Europe are becoming increasingly attractive. We remain substantially
underweighted in South Africa.
Thank you for your support in Evergreen Emerging Markets Fund. We look
forward to reporting the Fund's results to you in our Semiannual Report.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT
DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT
DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE
CLASSES OF SHARES MAY BE DIFFERENT. THE FUND ALSO OFFERS CLASS Y SHARES WHICH
ARE NOT SUBJECT TO SALES CHARGES AND ARE AVAILABLE TO CERTAIN INSTITUTIONAL
INVESTORS AND INVESTMENT ADVISORY CLIENTS OF EVERGREEN ASSET AND ITS AFFILIATES.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY FEE
AND ABSORBED A PORTION OF THE FUND'S OTHER EXPENSES. HAD FEE NOT BEEN WAIVED OR
EXPENSES ABSORBED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER AND EXPENSE
ABSORPTION MAY BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER
AND EXPENSE ABSORPTION, PLEASE SEE THE PROSPECTUS.
** SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL. THE MSCI EMERGING MARKETS INDEX
IS AN UNMANAGED INDEX OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE MADE IN
AN INDEX.
3
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN EMERGING MARKETS GROWTH FUND
The graphs below compare a $10,000 investment in the Evergreen Emerging
Markets Growth Fund (Class A, Class B, Class C and Class Y Shares) with a
similar investment in the Morgan Stanley EAFE Index and the Morgan Stanley
Emerging Markets Index ("Indexes").
(The following are four graphs for Class A, B, C and Y Shares.
Customer to provide plot points)
<TABLE>
<CAPTION>
9/2/94* 12/31/94 10/31/95 4/30/96 10/31/96
<S> <C> <C> <C> <C> <C>
CLASS A
1-YEAR TOTAL RETURN=2.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=9.3%
Evergreen Emerging Markets Growth Fund
Morgan Stanley Eafe Index
Morgan Stanley Emerging Markets Index
CLASS B
1-YEAR TOTAL RETURN=1.8%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=9.2%
Evergreen Emerging Markets Growth Fund
Morgan Stanley Eafe Index
Morgan Stanley Emerging Markets Index
CLASS C
1-YEAR TOTAL RETURN=5.9%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=7.9%
Evergreen Emerging Markets Growth Fund
Morgan Stanley Eafe Index
Morgan Stanley Emerging Markets Index
CLASS Y
1-YEAR TOTAL RETURN=7.9%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=7.0%
Evergreen Emerging Markets Growth Fund
Morgan Stanley Eafe Index
Morgan Stanley Emerging Markets Index
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on October 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The indexes are unmanaged and include the reinvestment of income, but do
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
4
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
STATEMENT OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 93.4%
BRAZIL -- 15.5%
1,000,000 Cia Cervejaria Brahma............... $ 618,065
20,700 Companhia Energetica de Minas
Gerais, ADR......................... 656,629
33,700 Companhia Vale do Rio Doce,
ADR................................. 708,509
2,008,000 * Eletrobras SA, Cl. B Shares......... 650,831
2,322,000 Eletrobras SA....................... 720,964
20,000 * Multicanal Participacoes SA, ADR.... 280,000
3,506,000 Petroleo Brasileiros SA............. 453,862
14,900 Telecomunicacoes Brasileiras, ADR... 1,110,050
5,198,910
CHILE -- 4.9%
12,900 Compania de Telecomunicacione,
ADR................................. 1,272,262
6,500 Sociedad Quimica y Minera de
Chile SA, ADR....................... 373,750
1,646,012
CHINA -- .2%
190,000 Shanghai Post & Telecom............. 68,400
CZECH REPUBLIC -- 3.3%
8,600 Komercni Banka AS................... 638,741
4,500 * SPT Telekom AS...................... 481,116
1,119,857
HONG KONG -- 13.0%
37,000 Bank of East Asia Ltd............... 144,512
50,000 Cheung Kong Holdings Ltd............ 400,921
400,000 * Cheung Kong Infrastructure
Holdings............................ 744,937
400,000 China Hong Kong Photo Products...... 151,315
500,000 China Overseas Land
& Investment Ltd.................... 185,911
50,000 Citic Pacific Ltd................... 243,139
286,000 First Pacific Ltd................... 393,924
414,000 Goldlion Holdings Ltd............... 337,317
9,200 HSBC Holdings Plc................... 187,398
118,000 Lai Sun Development Co., Ltd........ 152,609
260,000 National Mutual Asia Ltd............ 218,566
84,000 New World Develelopment Co., Ltd.... 488,865
56,000 Sun Hung Kai Properties Ltd......... 637,335
50,000 Varitronix International Ltd........ 91,177
4,377,926
HUNGARY -- 3.5%
10,400 EGIS Gyogyszergyar.................. 641,529
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
HUNGARY -- 3.5% -- CONTINUED
<TABLE>
<C> <S> <C>
9,900 Richter Gedeon, GDR................. $ 532,320
1,173,849
INDIA -- 3.7%
32,900 * East India Hotels Ltd., GDR, 144A... 502,274
31,200 * Indian Hotels Co., Ltd., GDR........ 571,849
9,500 Ranbaxy Laboratories Ltd., GDR,
144A................................ 165,382
1,239,505
INDONESIA -- 1.9%
302,578 Bank International Indonesia........ 353,460
100,000 Kawasan Industri Jababeka........... 134,161
4,500 PT Telekomunikasi Indonesia, ADR.... 135,000
622,621
ISRAEL -- 2.2%
37,000 ECI Telecommunications Ltd.......... 740,000
KOREA -- 2.3%
7,000 Korea Electric Power Corp., ADR..... 126,000
39,600 * Korea Mobile Telecommunications,
GDR................................. 495,000
6,200 Pohang Iron & Steel Ltd., ADR....... 128,650
154 Samsung Electronics Ltd., GDR,
144A................................ 3,311
752,961
LUXEMBOURG -- .9%
7,500 * Millicom International Cellular
SA.................................. 298,125
MALAYSIA -- 11.8%
90,000 AMMB Holdings, Berhad............... 609,143
110,000 Industrial Oxygen Inc., Berhad...... 173,283
70,400 Kian Joo Can Factory, Berhad........ 384,532
45,000 Malayan Bank, Berhad................ 445,280
140,000 New Straits Times Press, Berhad..... 736,988
40,000 Pan Pacific Asia, Berhad............ 121,908
185,000 Public Bank, Berhad................. 342,811
170,000 Sime Darby, Berhad.................. 602,217
76,000 Sungei Way Holdings, Berhad......... 433,168
52,000 * Technology Resources Industries,
Berhad.............................. 124,520
3,973,850
MEXICO -- 6.7%
46,000 Grupo Elektra SA de CV.............. 313,630
160,000 * Grupo Finance Banamex Accival
SA de CV, Series B.................. 338,414
124,000 Grupo Finance Inbursa............... 401,120
62,800 Grupo Modelo SA de CV............... 325,427
</TABLE>
5
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 93.4% -- CONTINUED
MEXICO -- 6.7% -- CONTINUED
<C> <S> <C>
1,150,000 * Grupo Posadas SA de CV.............. $ 522,239
219,000 * Grupo Synkro SA de CV, ADR.......... 31,492
17,000 Kimberly Clark Corp.
de Mexico SA de CV.................. 327,838
2,260,160
PERU -- 1.1%
16,000 * Compania de Minas Buenaventura
SA, ADR............................. 268,000
12,288 * Minas Buenaventura.................. 95,714
363,714
PHILIPPINES -- 2.4%
500,000 * Pilipino Telephone Corp............. 442,352
30,000 Philippine National Bank............ 345,320
5,670 San Miguel Corp..................... 20,496
808,168
POLAND -- 4.0%
9,700 Agros Holdings SA................... 250,115
15,500 Bank Rozwoju Eksportu SA............ 460,309
3,700 Bank Slaski SA...................... 342,142
36,100 Elektrim............................ 301,721
1,354,287
PORTUGAL -- 2.7%
35,000 Portugal Telecom SA, ADR............ 905,625
SINGAPORE -- 2.2%
22,000 Cerebos Pacific Ltd................. 170,252
24,000 Fraser & Neave Ltd.................. 238,551
75,000 Genting International Plc........... 183,000
20,000 Keppel Corp., Ltd................... 149,095
740,898
SOUTH AFRICA -- 1.5%
3,000 Anglo American Corp., Ltd., ADR..... 180,750
27,000 Sasol Ltd........................... 329,409
510,159
TAIWAN -- 7.5%
10,440 * Advanced Semiconductor Materials
International NV, GDR............... 75,246
71,000 Cathay Life Insurance Co., Ltd...... 425,381
200,000 China Steel Corp.................... 177,923
SHARES VALUE
</TABLE>
TAIWAN -- 7.5% -- CONTINUED
<TABLE>
<C> <S> <C>
24,300 * China Steel Corp., ADR, 144A........ $ 432,351
250,000 Chinatrust Commercial Bank.......... 442,992
200,000 * President Enterprises............... 281,046
49,222 * President Enterprises Corp., GDR,
144A................................ 691,672
2,526,611
THAILAND -- 2.1%
5,200 Advanced Information Services Plc... 70,571
10,000 Bangkok Bank Public Co., Ltd........ 106,688
10,000 Land & House Public Co., Ltd........ 83,153
62,400 Total Access Communication
Plc, Ltd............................ 430,560
690,972
TOTAL COMMON STOCKS
(COST $31,407,381)................ 31,372,610
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
REPURCHASE AGREEMENT -- 5.1%
$ 1,701,000 State Street Bank & Trust Co.,
4.75% dated 10/31/96, due
11/1/96 -- collateralized by
$1,760,000 U.S. Treasury Notes,
5.875%, due 2/15/04; value,
including accrued interest --
$1,739,830
(COST $1,701,000).................. 1,701,000
TOTAL INVESTMENTS --
(COST $33,108,381)..... 98.5% 33,073,610
OTHER ASSETS AND
LIABILITIES -- NET..... 1.5 495,196
NET ASSETS --............. 100.0% $33,568,806
</TABLE>
* Non-income producing securities
ADR -- American Depositary Receipts
GDR -- Global Depositary Receipts
Rule 144A securities are restricted as to resale to qualified institutional
investors.
See accompanying notes to financial statements.
6
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
INDUSTRY DIVERSIFICATION
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
Banks.............................................................................................................. 12.5%
Beverages & Tobacco................................................................................................ 3.6
Building, Construction & Furnishings............................................................................... 1.3
Business Equipment & Services...................................................................................... .8
Chemical & Agricultural Products................................................................................... 2.1
Electrical Equipment & Services.................................................................................... 3.8
Energy............................................................................................................. 1.4
Finance & Insurance................................................................................................ 4.8
Food & Household Products.......................................................................................... 5.5
Health Care Products & Services.................................................................................... 5.0
Industrial Specialty Products & Services........................................................................... 2.0
Leisure & Tourism.................................................................................................. 5.3
Machinery -- Diversified........................................................................................... .4
Metal Products & Services.......................................................................................... 5.4
Mining............................................................................................................. .5
Multi-Industry..................................................................................................... 3.7
Publishing, Broadcasting & Entertainment........................................................................... 2.2
Real Estate........................................................................................................ 8.4
Retailing & Wholesale.............................................................................................. 1.0
Telecommunication Services & Equipment............................................................................. 17.2
Textile & Apparel.................................................................................................. .1
Utilities.......................................................................................................... 6.4
Total Long-Term Investments.................................................................................. 93.4
Short-Term Investment.............................................................................................. 5.1
Other Assets and Liabilities -- net................................................................................ 1.5
Net Assets................................................................................................... 100.0%
</TABLE>
7
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $33,108,381)............................................................. $33,073,610
Foreign currencies at value (identified cost $221,045)......................................................... 220,851
Cash........................................................................................................... 90,906
Receivable for investments sold................................................................................ 1,047,369
Receivable for Fund shares sold................................................................................ 62,091
Unamortized organization expense............................................................................... 28,976
Dividends and interest receivable.............................................................................. 13,666
Prepaid expenses and other assets.............................................................................. 6,936
Total assets............................................................................................. 34,544,405
LIABILITIES:
Payable for investments purchased.............................................................................. 816,035
Accrued expenses............................................................................................... 116,546
Payable for Fund shares repurchased............................................................................ 34,093
Accrued advisory fee........................................................................................... 5,924
Distribution fee payable....................................................................................... 3,001
Total liabilities........................................................................................ 975,599
NET ASSETS........................................................................................................ $33,568,806
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $35,453,010
Accumulated net investment loss................................................................................ (328)
Accumulated net realized loss on investment and foreign currency transactions.................................. (1,847,021)
Net unrealized depreciation of investments and foreign currencies.............................................. (36,855)
Net assets.................................................................................................. $33,568,806
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($1,644,735 194,446 shares of beneficial interest outstanding).................................. $ 8.46
Sales charge -- 4.75% of offering price........................................................................ .42
Maximum offering price................................................................................... $8.88
Class B Shares ($2,880,916 343,322 shares of beneficial interest outstanding).................................. $8.39
Class C Shares ($84,587 10,089 shares of beneficial interest outstanding)...................................... $8.38
Class Y Shares ($28,958,568 3,413,310 shares of beneficial interest outstanding)............................... $8.48
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $27,246)............................................ $ 255,316
Interest........................................................................................... 112,351
Total investment income......................................................................... 367,667
EXPENSES:
Advisory fee....................................................................................... $ 342,379
Administration personnel and services fees......................................................... 11,191
Distribution fee -- Class A Shares................................................................. 3,883
Distribution fee -- Class B Shares................................................................. 19,319
Shareholder services fee -- Class B Shares......................................................... 6,440
Distribution fee -- Class C Shares................................................................. 493
Shareholder services fee -- Class C Shares......................................................... 165
Custodian fee...................................................................................... 154,655
Registration and filing fees....................................................................... 77,173
Transfer agent fee................................................................................. 64,053
Professional fees.................................................................................. 42,550
Reports and notices to shareholders................................................................ 28,528
Deferred organizational expense.................................................................... 14,275
Insurance.......................................................................................... 3,576
Trustees' fees and expenses........................................................................ 1,692
Miscellaneous...................................................................................... 7,484
Total expenses................................................................................ 777,856
Less: Fee waivers and expense reimbursments........................................................ (405,868)
Net expenses................................................................................. 371,988
Net investment loss................................................................................... (4,321)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized loss on investment transactions....................................................... (71,875)
Net realized loss on foreign currency transactions................................................. (24,761)
Net change in unrealized appreciation (depreciation) of investments and foreign currencies......... (38,536)
Net loss on investments and foreign currencies........................................................ (135,172)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $(139,493)
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR TEN MONTHS*
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)............................................................. $ (4,321) $ 67,179
Net realized loss on investment transactions............................................. (71,875) (1,677,645)
Net realized gain (loss) on foreign currency transactions................................ (24,761) 33,753
Net change in unrealized appreciation (depreciation) of investments and
foreign currencies.................................................................... (38,536) 1,470,045
Net decrease in net assets resulting from operations.................................. (139,493) (106,668)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares........................................................................... (6,742) --
Class Y Shares........................................................................... (81,928) --
Total distributions to shareholders from net investment income..................... (88,670) --
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 24,970,951 5,594,810
Proceeds from reinvestment of distributions.............................................. 22,693 --
Payment for shares redeemed.............................................................. (3,663,950) (1,444,320)
Net increase resulting from Fund share transactions................................... 21,329,694 4,150,490
Net increase in net assets............................................................ 21,101,531 4,043,822
NET ASSETS:
Beginning of period...................................................................... 12,467,275 8,423,453
End of period (including undistributed net investment income (accumulated net investment
loss) of ($328) and $100,254, respectively)............................................ $ 33,568,806 $ 12,467,275
</TABLE>
* The Fund changed its fiscal year end from December 31 to October 31.
See accompanying notes to financial statements.
10
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SEPTEMBER 6,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996++ 1995# 1994 1996++ 1995#
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $7.90 $8.17 $10.00 $7.85 $8.16
Income (loss) from investment operations:
Net investment income (loss).......................... (.01) .05 -- (.08) .01
Net realized and unrealized gain (loss) on investments
and foreign currency transactions................... .62 (.32) (1.83) .62 (.32)
Total from investment operations.................... .61 (.27) (1.83) .54 (.31)
Less distributions to shareholders from net investment
income................................................ (.05) -- -- -- --
Net asset value, end of period.......................... $8.46 $7.90 $8.17 $8.39 $7.85
TOTAL RETURN+........................................... 7.7% (3.3%) (18.3%) 6.9% (3.8%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $1,645 $1,117 $867 $2,881 $1,940
Ratios to average net assets:
Expenses**............................................ 1.74% 1.73%++ 1.78%++ 2.50% 2.48%++
Net investment income (loss)**........................ (.09%) .76%++ (.12%)++ (.87%) .03%++
Portfolio turnover rate................................. 107% 65% 17% 107% 65%
Average commission rate paid............................ $ .0103 N/A N/A $ .0103 N/A
<CAPTION>
CLASS B SHARES
SEPTEMBER 6,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $10.00
Income (loss) from investment operations:
Net investment income (loss).......................... (.02)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions................... (1.82)
Total from investment operations.................... (1.84)
Less distributions to shareholders from net investment
income................................................ --
Net asset value, end of period.......................... $8.16
TOTAL RETURN+........................................... (18.4%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $1,589
Ratios to average net assets:
Expenses**............................................ 2.53%++
Net investment income (loss)**........................ (.84%)++
Portfolio turnover rate................................. 17%
Average commission rate paid............................ N/A
</TABLE>
++ Per share data is calculated based on average shares outstanding during the
period.
* Commencement of operations.
# The Fund changed its year end from December 31 to October 31.
+ 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 charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SEPTEMBER 6,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996 1995# 1994 1996 1995#
<S> <C> <C> <C> <C> <C>
Expenses............................................... 3.58% 3.97% 3.96% 4.34% 4.72%
Net investment loss.................................... (1.93%) (1.48%) (2.30%) (2.71%) (2.21%)
<CAPTION>
CLASS B SHARES
SEPTEMBER 6,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses............................................... 4.71%
Net investment loss.................................... (3.02%)
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
EVERGREEN EMERGING MARKETS GROWTH FUND
(Photo of Buddha statues appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SEPTEMBER 6,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996++ 1995# 1994 1996++ 1995#
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................... $7.84 $8.16 $10.00 $7.92 $8.17
Income (loss) from investment operations:
Net investment income (loss)......................... (.08) .02 (.02) .01 .05
Net realized and unrealized gain (loss) on
investments and foreign currency transactions...... .62 (.34) (1.82) .62 (.30)
Total from investment operations................... .54 (.32) (1.84) .63 (.25)
Less distributions to shareholders from net investment
income............................................... -- -- -- (.07) --
Net asset value, end of period......................... $8.38 $7.84 $8.16 $8.48 $7.92
TOTAL RETURN+.......................................... 6.9% (3.9%) (18.4%) 7.9% (3.1%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............. $85 $56 $89 $28,959 $9,355
Ratios to average net assets:
Expenses**........................................... 2.51% 2.50%++ 2.53%++ 1.50% 1.48%++
Net investment income (loss)**....................... (.91%) .72%++ (.82%)++ .11% .94%++
Portfolio turnover rate................................ 107% 65% 17% 107% 65%
Average commission rate paid........................... $.0103 N/A N/A $.0103 N/A
<CAPTION>
CLASS Y SHARES
SEPTEMBER 6,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period................... $10.00
Income (loss) from investment operations:
Net investment income (loss)......................... .01
Net realized and unrealized gain (loss) on
investments and foreign currency transactions...... (1.84)
Total from investment operations................... (1.83)
Less distributions to shareholders from net investment
income............................................... --
Net asset value, end of period......................... $8.17
TOTAL RETURN+.......................................... (18.3%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............. $5,878
Ratios to average net assets:
Expenses**........................................... 1.53%++
Net investment income (loss)**....................... .43%++
Portfolio turnover rate................................ 17%
Average commission rate paid........................... N/A
</TABLE>
++ Per share data is calculated based on average shares outstanding during the
period.
* Commencement of operations.
# The Fund changed its year end from December 31 to October 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SEPTEMBER 6,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996 1995# 1994 1996 1995#
<S> <C> <C> <C> <C> <C>
Expenses............................................... 4.31% 4.74% 4.71% 3.27% 3.72%
Net investment loss.................................... (2.71%) (1.52%) (3.00%) (1.66%) (1.30%)
<CAPTION>
CLASS Y SHARES
SEPTEMBER 6,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses............................................... 3.71%
Net investment loss.................................... (1.75%)
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
EDWIN D. MISKA
We are pleased to present the first annual report for (Photo of
Evergreen Global Leaders Fund. For the twelve months ended Stephen A.
October 31, 1996, the Fund's total return was +19.6%* (Class Lieber appears
Y, no-load shares) which compares favorably with the global here)
indexes. For the same time period, the total return for the
MSCI World Index** was +16.3%, the MSCI EAFE Index** returned (Photo of
+10.5%, and the total return for the Lipper Global Funds Edwin D.
average of the 153 global funds tracked by Lipper during that Miska appears
time was 15.5%***. (For additional performance information, here)
please see page 17.) The Fund's strategy of seeking out what
we believe to be the 100 best companies in the world was
successfully implemented against a backdrop of an environment
that was generally amenable to equity investing within the
world's most industrialized nations. Our investment discipline
concentrated on companies which have been and are consistently
profitable, have a strong pattern of earnings growth, both
historical and prospective, and which have provided the
highest returns on shareholders' equity. These characteristics
when reviewed on a global, country and industry perspective
distinguish the true corporate "leaders" from the rest. We
also continually monitor global macroeconomic events and
financial conditions to optimize country allocations and
currency exposures. This strategy of a disciplined stock
selection process combined with a thorough macroeconomic
review has been the hallmark of your Fund, and will continue
to be so, as we utilize this diligent, structured approach
to seek maximized shareholder returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND'S CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES WITHIN THE FIRST
YEAR OF PURCHASE WERE NOT IN EXISTENCE FOR THE FULL 12 MONTHS UNDER REVIEW.
PLEASE SEE THE PROSPECTUS FOR ADDITIONAL INFORMATION REGARDING THESE CLASSES OF
SHARES AND THEIR APPLICABLE SALES CHARGES.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY
FEE. HAD FEE NOT BEEN WAIVED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER MAY
BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER, PLEASE SEE THE
PROSPECTUS.
** MSCI WORLD INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES.
MSCI EAFE INDEX IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX REPRESENTING
1,112 SECURITIES FROM 20 DEVELOPED COUNTRIES IN EUROPE, AUSTRALIA, AND THE FAR
EAST AS MONITORED BY MORGAN STANLEY CAPITAL INTERNATIONAL. ALL COUNTRY RETURNS
DIFFER FROM INDEX RETURNS BECAUSE THEY REPRESENT TOTAL STOCK MARKET RETURNS AS
CALCULATED BY MORGAN STANLEY CAPITAL INTERNATIONAL. AN INVESTMENT CAN NOT BE
MADE IN AN INDEX.
*** SOURCE: LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT MUTUAL FUNDS
PERFORMANCE MONITOR. LIPPER PERFORMANCE FIGURE DOES NOT INCLUDE SALES CHARGES,
AND IF INCLUDED, PERFORMANCE WOULD BE LOWER.
13
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
PERFORMANCE REVIEW
World equity markets managed solid gains during the period under review,
despite periods of volatility in March and July due to concerns over rising
interest rates and inflation. A concentrating effect took place during the year,
as investors became increasingly narrow in their focus, favoring a smaller group
of selective larger, high-quality, high-visibility investments with no liquidity
constraints. These companies, many of which are positions in your Fund, rose to
new highs, discarding any previous levels of undervaluation. This helped
contribute to a strong performance, particularly in the U.S. portion of the
portfolio which rose 31.5%.
Our U.S. allocation at fiscal year-end stood at 31.9% of the Fund's net
assets down from 33.6% at midyear. The broadly diversified U. S. portfolio of 36
issues had some notable performers: Gillette Co., +53.1%; General Electric Co.,
+52.2%; Intel Corp., +51.5%; Federal National Mortgage Association, +42.8%; Coca
Cola Co., +40.9%; Microsoft Corp., +37.1%; and Home Depot, Inc., +37.1%. While
our enthusiasm for these issues and for the U.S. market as a whole has been
somewhat tempered by their steep rise, the high quality and consistent
predictability of these companies' earnings flows should continue to result in
premium valuations relative to the market as a whole. We initiated new purchases
when significant opportunities arose. Our recent buying activity is indicative:
SunAmerica, Inc., purchased June 1996, +31.7%; Dover Corp., purchased September
1996, +19.6%; MBNA Corp., purchased September 1996, +13%; PPG Industries, Inc.,
purchased August 1996, +12.7% and Cisco Systems, Inc., purchased August 1996,
+12%.
We have also not been reluctant to take profits or realize small losses when
there have been any short-term negative catalysts or changes in fundamental
status or valuation. Sales during the fiscal year included the shares of Compaq
Computer Corp. for a gain of 16.2% (held 3 months); Emerson Electric Co. for a
gain of 5.1% (held 6 months); Albertson's, Inc., for a loss of 12.4% (held 7
months); and Quaker Oats Co. for a loss of 9.5% (held 8 months). In the coming
months, our focus will remain on the "leaders" in their respective categories,
as strongly positioned, growing, profitable companies should continue to
stimulate a positive response from investors. We will be vigilant to adjust our
asset allocation in response to changes in fundamentals or deterioration in
macroeconomic conditions.
For the rest of the world, our performance was acceptable relative to the
market averages but below that in absolute terms to our U.S. allocation. Our
international segment as a whole returned 14.8% which exceeded the return of the
MSCI EAFE Index. At fiscal year-end, our diversified international segment
totaled 73 different companies in 16 countries. Our overall foreign exposure
totaled 62.8% of the Fund's net assets. It should be noted that returns on
currency played a significant role in reducing investment performance, as the
U.S. dollar appreciated significantly against many of the world's major
currencies, most notably: 7% versus the German mark and 10% versus the Japanese
yen, our top two foreign exposures. Our most significant non-U.S. country
contribution came from Canada, (at 5.8% of net assets) which saw a rebound in
industrial production and benefited from low inflation. Our holdings saw
dramatic stock appreciation: Canadian Natural Resources, Ltd., a natural gas
producer, benefiting from strong cash flow, good acquisitions and improved
natural gas pricing, rose 27.5%; DuPont Canada, Inc., a manufacturer of
specialty chemicals, films and fibers rose 26.5%, and Bombardier, Inc. a diverse
global manufacturer in three growing areas: mass transit, motorized consumer
products and business aircraft, rose 16%.
14
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
Our largest non-U.S. country exposures: Germany at 7.9% of net assets and
Japan at 7.4% posted mostly disappointing returns. After several "false dawns",
Germany appears poised to start on an economic recovery aided by the advent of
corporate restructurings and the return of the German investor. For most of 1996
though, growth remained weak, consumer demand depressed, and unemployment high.
The barriers to restructure businesses and make them more profitable have only
begun to come down, and it will be some time before results will begin to be
seen at the bottom line. While German stock performance was uninspired, there
were some standouts: RWE AG, the large energy/utility conglomerate and the
Fund's largest overall holding, rose 14.2% since our initial investment in
November 1995. RWE has begun restructuring its vast holdings, and is a strong
candidate for a stock buy-back program. Pharmaceutical firm ALTANA AG likewise
rose 30.4%. Hugo Boss AG, a global designer, manufacturer and retailer of fine
men's fashions also posted strong performance, up 37.7% since our initial
investment in November 1995.
For Japan, despite low interest rates (discount rate of 0.50%), recovery
remains illusive, and the recent weakness in their markets has undermined
sentiment further, indicating that another dip into recession is not out of the
question. Our low relative weighting toward Japan reflects the weak fundamentals
and poor dollar exchange trends. Our two largest issues, Seven-Eleven Japan Co.,
Ltd., -10.5% and Nintendo Co., Ltd., -28.5%, despite good operating results and
new products have not been able to escape the markets negative bias. We are
confident that 1997 should bring a recovery, and will be vigilant to adjust
our allocation as evidence of an economic revival presents itself.
Much of the Fund's outperformance can be credited to the smaller countries of
the world, where innovative, well-managed companies have posted outstanding
results in the face of an ever competitive global marketplace. Strong
performance was achieved by our holdings in Sweden, United Kingdom, Hong Kong,
and the Netherlands from a broad array of companies and industries. In Sweden,
with a weighting of 3.3%, our allocation benefited from low interest rates and
higher consumer spending. Shares of clothing retailer Hennes & Mauritz AB rose
46.6%. Pharmaceutical giant Astra AB rose 33.3%, and industrial conglomerate ABB
AB ADS rose 27.8%. From the United Kingdom, where our weighting is 6.8%, our
financial-issue-tilted portfolio benefited from a strong economic upturn
stimulated by lower rates. Our positions in these interest-sensitive areas
benefited handsomely as demand for credit increased: Lloyds TSB Group Plc,
+17.7%; Legal & General Group Plc, +12.6% and Prudential Corp. Plc, +11.0%. From
Hong Kong, where our allocation is 4.7%, the strong performance arose from the
continued demand for real estate development in preparation for re-unification
with China. Shares of real estate plays Kumagai Gumi Ltd., realized 26.8%,
Henderson Land Development Co., Ltd., rose 16%, Tai Cheung Holdings Ltd.
realized 13.6%, Cheung Kong Holdings, Ltd. rose 12.7% and New Asia Realty Ltd.
realized 11.0%. The Netherlands (weighting: 3.8%) provided strong operating
results from the large specialty publishing firms which have a growing share of
the world's printed magazines, books and professional journals. Shares of
Wolters Kluwer NV, a scientific and legal publisher rose 41.0% since November
1995; Elsevier NV in which we own both ordinary shares and American Depositary
Receipts (ADRs) rose 13.7% and publishing and broadcasting company VNU, rose
11.6% since our purchase in May 1996.
15
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGERS -- (CONTINUED)
OUTLOOK AND CONCLUSION
The world equity markets have managed solid gains despite bouts of increased
market volatility caused by rising valuations, uncertainties over globally
higher interest rates and re-emerging fears of inflation. Economic indicators
continue to point toward continued, yet perhaps sluggish, growth ahead for the
United States economy, with improving trends across Europe and the Far East.
This environment will be difficult, but may benefit those companies which are
able to react quickly and operate successfully in a more competitive,
multi-national marketplace. The focus of the Fund will continue to be on the
outstanding profit growth opportunities of the world's leading corporations.
Quality of the issues purchased will remain foremost, with holdings based
consistency of results and the ability to deliver continued bottom line
performance.
We welcome our new shareholders who have chosen to utilize our unique product
as part of their overall investment program. We believe our long-term approach
to global investing is sound, focusing on only the best the world's markets have
to offer, through a diversified portfolio. As technological advances, political
and economic reforms, and pro-business policies continue to bring the world
closer, heightening competition for products and services, only the finest
companies will be successful. Our disciplined approach will continue to
highlight those which are. We believe this will lead to continued long-term
capital appreciation.
We thank you for your support and appreciate the enthusiasm that greeted
Evergreen Global Leaders Fund in its inaugural year. We look forward to the
challenge of delivering quality long-term investment results for many years to
come.
16
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN GLOBAL LEADERS FUND
The graphs below compare a $10,000 investment in the Evergreen Global
Leaders Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the MSCI World Index ("Index").
[CHARTS TO FOLLOW FOR CLASS A, B, C AND Y SHARES. Customer to
provide plot points.]
<TABLE>
<CAPTION>
6/3/96* 6/30/96 9/30/96 10/31/96
<S> <C> <C> <C> <C>
CLASS A
TOTAL RETURN
SINCE INCEPTION=0.5%
Evergreen Global Leaders Fund
MSCI World Index
CLASS B
TOTAL RETURN
SINCE INCEPTION=0.1%
Evergreen Global Leaders Fund
MSCI World Index
CLASS C
TOTAL RETURN
SINCE INCEPTION=4.0%
Evergreen Global Leaders Fund
MSCI World Index
CLASS Y
TOTAL RETURN=19.6%
Evergreen Global Leaders Fund
MSCI World Index
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on October 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
17
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
STATEMENT OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 94.7%
AUSTRALIA -- 1.0%
139,924 Incitec, Ltd........................ $ 720,915
BELGIUM -- 3.5%
5,000* Barco NV............................ 822,379
2,380 Colruyt SA.......................... 1,026,323
350 UCB SA.............................. 771,481
2,620,183
CANADA -- 5.8%
110,000 Bombardier, Inc..................... 1,772,869
45,000* Canadian Natural Resources, Ltd..... 1,116,438
55,000 DuPont Canada, Inc.................. 1,374,795
4,264,102
DENMARK -- .7%
4,000 Sophus Berendsen A/S................ 494,125
FRANCE -- 6.1%
4,400 Castorama Dubois Investisse......... 753,056
6,500 LAPEYRE SA.......................... 318,103
4,600 Promodes, Inc....................... 1,241,663
800 Sagem Co. SA........................ 497,604
4,700 SEB SA.............................. 951,491
7,000 Television Francaise................ 744,841
4,506,758
GERMANY -- 7.9%
300 ALTANA AG........................... 239,699
550 Hugo Boss AG........................ 664,620
900 Rheinelektra AG..................... 725,039
68,300 RWE AG.............................. 2,811,557
7,200 SAP AG.............................. 974,643
1,000 Suedzucker AG....................... 449,023
5,864,581
HONG KONG -- 4.7%
92,000 Cheung Kong Holdings, Ltd........... 737,694
110,000 China Light & Power Co., Ltd........ 510,722
380,000 Giordano International, Ltd......... 383,332
52,400 Henderson China Holdings, Ltd....... 118,595
85,000 Henderson Land
Development Co., Ltd................ 755,768
55,000 Hong Kong Telecommunications, Ltd.
ADS................................. 969,375
3,475,486
ITALY -- 4.0%
29,000 Benneton Group SpA ADS.............. 674,250
3,000 Fila Holdings SpA ADS............... 216,000
17,100 Industrie Natuzzi SpA ADS........... 775,912
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
ITALY -- 4.0% -- CONTINUED
<TABLE>
<C> <S> <C>
21,000 Luxottica Group SpA ADS............. $ 1,333,500
2,999,662
JAPAN -- 7.4%
85,000 Mitsui Soko Co...................... 657,723
27,000 Nintendo Co., Ltd................... 1,726,406
68,000 Nippon Chemical..................... 645,031
42,400 Seven-Eleven Japan Co., Ltd......... 2,465,311
5,494,471
MALAYSIA -- 2.5%
36,000 AMMB Holdings Berhad................ 243,657
85,000 DCB Holdings Berhad................. 291,015
50,000 Malayan Banking Berhad.............. 494,756
10,000 Malaysian Oxygen Berhad............. 48,684
16,000 Nestle Berhad....................... 125,391
39,000 Resorts World Berhad................ 223,827
57,000 United Engineers Ltd. Berhad........ 451,217
1,878,547
NETHERLANDS -- 3.8%
14,000 Elsevier NV......................... 232,687
15,300 Elsevier NV ADS..................... 514,462
11,200 Getronics NV........................ 275,264
3,800 IHC Caland NV....................... 212,094
4,000 Nutricia Verenigde Bedrijven NV..... 561,089
26,000 VNU................................. 471,975
4,300 Wolters Kluwer NV................... 552,738
2,820,309
NEW ZEALAND -- 1.4%
12,400 Telecom Corp. of
New Zealand Ltd. ADS................ 1,032,300
SINGAPORE -- .8%
35,000 Singapore Press Holdings, Ltd....... 581,470
SPAIN -- 3.1%
25,000 Centros Comerciales Pryca, SA....... 574,082
17,500 Empresa Nacional de
Electricdad ADS..................... 1,076,250
18,700 Repsol, SA ADS...................... 610,088
2,260,420
SWEDEN -- 3.3%
6,000 ABB AB ADS.......................... 669,750
2,600 Astra AB............................ 119,409
31,500 Astra AB ADS........................ 1,445,062
1,700 Hennes & Mauritz AB................. 225,178
2,459,399
</TABLE>
18
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 94.7% -- CONTINUED
<C> <S> <C>
UNITED KINGDOM -- 6.8%
14,560 Argos Plc........................... $ 182,829
12,500 BAT Industries Plc ADS.............. 173,438
31,400 BTR Plc............................. 131,600
5,800 Carlton Communications Plc ADS...... 236,350
29,000 Chubb Security Plc.................. 148,682
20,400 Granada Group Plc................... 293,848
47,750 Legal & General Group Plc........... 251,807
75,000 Lloyds TSB Group Plc................ 475,464
65,000 Prudential Corp. Plc................ 491,943
55,100 Rentokil Group Plc.................. 369,934
8,000 Reuters Holdings Plc ADS............ 595,000
10,100 SmithKline Beecham Plc ADS.......... 632,512
40,000 TI Group Plc........................ 370,117
17,700 United News & Media Plc............. 194,170
8,500 Vodafone Group Plc ADS.............. 328,312
20,300 Wolseley Plc........................ 157,603
5,033,609
UNITED STATES -- 31.9%
7,600* Amgen, Inc.......................... 465,975
33,000 AT&T Corp........................... 1,150,875
5,800 Avon Products, Inc.................. 314,650
10,000 Callaway Golf Co.................... 306,250
16,500* Cisco Systems, Inc.................. 1,020,937
17,500 Coca Cola Co. (The)................. 883,750
11,750 Computer Associates
International, Inc.................. 694,719
17,750* CUC International, Inc.............. 434,875
12,000 Dana Corp........................... 355,500
10,000 Deere & Co.......................... 417,500
11,900 Disney Walt Co. (The)............... 783,912
9,500 Dover Corp.......................... 488,063
27,000 Federal National Mortgage
Association......................... 1,056,375
10,000 Gap, Inc............................ 290,000
22,500 General Electric Co................. 2,176,875
8,000 Gillette Co. (The).................. 598,000
8,800 Goodyear Tire & Rubber Co. (The).... 403,700
12,000 Home Depot, Inc. (The).............. 657,000
11,600 Intel Corp.......................... 1,274,550
10,694 Lucent Technologies, Inc............ 502,618
SHARES VALUE
UNITED STATES -- 31.9% -- CONTINUED
8,500 Marriott International, Inc......... $ 483,437
3,200 Marsh & McLennan Co., Inc........... 333,200
9,000 MBNA Corp........................... 339,750
15,000 McDonalds Corp...................... 665,625
19,500 Merck & Co., Inc.................... 1,445,437
3,200 Merrill Lynch & Co., Inc............ 224,800
6,000* Microsoft Corp...................... 823,500
9,000 Monsanto Co......................... 356,625
11,000 Norwest Corp........................ 482,625
8,500 PPG Industries, Inc................. 484,500
7,000 Procter & Gamble Co. (The).......... 693,000
10,000 Schering-Plough Corp................ 640,000
15,000 Schwab (Charles) & Co., Inc......... 375,000
3,400 Student Loan Marketing Corp......... 281,350
11,000 SunAmerica, Inc..................... 412,500
50,000 Wal-Mart Stores, Inc................ 1,331,250
23,648,723
TOTAL COMMON STOCKS
(COST $66,627,840)............. 70,155,060
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 6.2%
$3,650,000 Federal Home Loan Mortgage Corp.
5.16%-5.19%, 11/5/96-11/21/96....... 3,641,577
950,000 Federal National Mortgage
Association
5.18%, 11/26/96..................... 946,583
TOTAL SHORT-TERM INVESTMENTS
(COST $4,588,160).............. 4,588,160
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $71,216,000)....... 100.9% 74,743,220
OTHER ASSETS AND
LIABILITIES -- NET....... (.9) (660,036)
NET ASSETS --............... 100.0% $74,083,184
</TABLE>
* Non-income producing securities
ADS -- American Depositary Shares
See accompanying notes to financial statements.
19
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
INDUSTRY DIVERSIFICATION
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
Banks.............................................................................................................. 2.4%
Building, Construction & Furnishings............................................................................... 2.3
Chemicals.......................................................................................................... 5.2
Consumer Products & Services....................................................................................... 7.4
Diversified Companies.............................................................................................. 7.1
Electrical Equipment & Electronics................................................................................. 13.9
Energy............................................................................................................. 6.4
Finance & Insurance................................................................................................ 5.4
Food Products...................................................................................................... 3.6
Health Care Products & Services.................................................................................... 9.3
Industrial Specialty Products & Services........................................................................... 2.7
Publishing, Broadcasting & Entertainment........................................................................... 7.3
Real Estate........................................................................................................ 3.6
Retailing & Wholesale.............................................................................................. 12.7
Telecommunication Services & Equipment............................................................................. 5.4
Total Long-Term Investments.................................................................................. 94.7
Short-Term Investments............................................................................................. 6.2
Other Assets and Liabilities -- net................................................................................ (.9)
Net Assets................................................................................................... 100.0%
</TABLE>
20
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $71,216,000)............................................................. $74,743,220
Foreign currencies at value (identified cost $7,424)........................................................... 7,429
Cash........................................................................................................... 34,064
Receivable for Fund shares sold................................................................................ 1,488,265
Receivable for foreign currencies sold......................................................................... 129,449
Dividends receivable........................................................................................... 112,236
Prepaid expenses and other assets.............................................................................. 70,044
Unamortized organization expense............................................................................... 31,654
Total assets............................................................................................. 76,616,361
LIABILITIES:
Payable for investments purchased.............................................................................. 2,222,613
Payable for foreign currencies purchased....................................................................... 129,449
Accrued expenses............................................................................................... 87,418
Distribution fee payable....................................................................................... 45,036
Payable for Fund shares purchased.............................................................................. 34,087
Accrued advisory fee........................................................................................... 14,574
Total liabilities........................................................................................ 2,533,177
NET ASSETS........................................................................................................ $74,083,184
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $70,494,736
Distributions in excess of net investment income............................................................... (2,299)
Net realized gain on investment and foreign currency transactions.............................................. 62,323
Net unrealized appreciation of investments and foreign currencies.............................................. 3,528,424
Net assets............................................................................................... $74,083,184
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($12,975,171 1,089,521 shares of beneficial interest outstanding)............................... $ 11.91
Sales charge -- 4.75% of offering price........................................................................ .59
Maximum offering price...................................................................................... $ 12.50
Class B Shares ($41,947,533 3,534,772 shares of beneficial interest outstanding)............................... $ 11.87
Class C Shares ($553,875 46,694 shares of beneficial interest outstanding)..................................... $ 11.86
Class Y Shares ($18,606,605 1,562,068 shares of beneficial interest outstanding)............................... $ 11.91
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $30,108)........................................... $ 313,126
Interest.......................................................................................... 96,339
Total investment income........................................................................ 409,465
EXPENSES:
Advisory fee...................................................................................... $ 199,941
Administration personnel and services fees........................................................ 9,998
Distribution fee -- Class A Shares................................................................ 7,416
Distribution fee -- Class B Shares................................................................ 64,024
Shareholder services fee -- Class B Shares........................................................ 21,341
Distribution fee -- Class C Shares................................................................ 837
Shareholder services fee -- Class C Shares........................................................ 279
Custodian fee..................................................................................... 103,401
Registration and filing fees...................................................................... 50,207
Transfer agent fee................................................................................ 41,673
Professional fees................................................................................. 22,975
Reports and notices to shareholders............................................................... 12,925
Deferred organizational expense................................................................... 7,913
Insurance......................................................................................... 5,672
Trustees' fees and expenses....................................................................... 3,242
Miscellaneous..................................................................................... 2,010
Total expenses................................................................................. 553,854
Less: Fee waivers and expense reimbursements...................................................... (146,732)
Net expenses................................................................................... 407,122
Net investment income................................................................................ 2,343
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investment transactions...................................................... 105,791
Net realized loss on foreign currency transactions................................................ (28,520)
Net unrealized appreciation of investments and foreign currencies................................. 3,528,424
Net gain on investments and foreign currencies....................................................... 3,605,695
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $3,608,038
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................................ $ 2,343
Net realized gain on investment transactions................................................................. 105,791
Net realized loss on foreign currency transactions........................................................... (28,520)
Net unrealized appreciation of investments and foreign currencies............................................ 3,528,424
Net increase in net assets resulting from operations...................................................... 3,608,038
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................................................................... (2,343)
In excess of net investment income........................................................................... (17,247)
Total distributions to shareholders....................................................................... (19,590)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................................... 72,602,018
Proceeds from reinvestment of distributions.................................................................. 14,211
Payment for shares redeemed.................................................................................. (2,122,493)
Net increase from Fund share transactions................................................................. 70,493,736
Net increase in net assets................................................................................ 74,082,184
NET ASSETS:
Beginning of year............................................................................................ 1,000
End of year (including distributions in excess of net investment income of $2,299)........................... $ 74,083,184
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
(Photo of Global Leaders Fund logo appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JUNE 3, 1996* JUNE 3, 1996* JUNE 3, 1996*
THROUGH THROUGH THROUGH
OCTOBER 31,1996 OCTOBER 31, 1996 OCTOBER 31, 1996
<S> <C> <C> <C>
PER SHARE DATA:++
Net asset value, beginning of period.......................... $11.29 $11.29 $11.29
Income (loss) from investment operations:
Net investment income (loss)................................ -- (.02) (.02)
Net realized and unrealized gain on investments and foreign
currency transactions..................................... .62 .60 .59
Total income from investment operations................... .62 .58 .57
Less distributions to shareholders from net investment
income...................................................... -- -- --
Net asset value, end of period................................ $11.91 $11.87 $11.86
TOTAL RETURN+................................................. 5.5% 5.1% 5.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)..................... $ 12,975 $ 41,948 $554
Ratios to average net assets: ++
Expenses.................................................... 1.75%** 2.50%** 2.50%**
Net investment income (loss)................................ .10%** (.68%)** (.67%)**
Portfolio turnover rate#...................................... 20% 20% 20%
Average commission rate paid.................................. $.0659 $.0659 $.0659
<CAPTION>
CLASS Y SHARES
YEAR ENDED
OCTOBER 31, 1996
<S> <C>
PER SHARE DATA:++
Net asset value, beginning of period.......................... $10.00
Income (loss) from investment operations:
Net investment income (loss)................................ .07
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 1.88
Total income from investment operations................... 1.95
Less distributions to shareholders from net investment
income...................................................... (.04)
Net asset value, end of period................................ $11.91
TOTAL RETURN+................................................. 19.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)..................... $ 18,607
Ratios to average net assets: ++
Expenses.................................................... 1.47%
Net investment income (loss)................................ .62%
Portfolio turnover rate#...................................... 20%
Average commission rate paid.................................. $.0659
</TABLE>
* Commencement of class operations.
** Annualized. Due to the recent commencement of their offering, the ratios for
Class A, Class B and Class C shares are not necessarily comparable to that of
the Class Y shares and are not necessarily indicative of future ratios.
+ Total return is calculated for the periods indicated and is not annualized.
Initial sales charge or contingent deferred sales charges are not reflected.
++ Calculated based on average shares outstanding during the period.
# Calculated for the twelve months ended October 31, 1996.
++ Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment loss to average net assets,
exclusive of state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JUNE 3, 1996* JUNE 3, 1996* JUNE 3, 1996*
THROUGH THROUGH THROUGH
OCTOBER 31, 1996 OCTOBER 31, 1996 OCTOBER 31, 1996
<S> <C> <C> <C>
Expenses.................................................... 2.16% 2.93% 2.93%
Net investment loss......................................... (.31%) (1.11%) (1.10%)
<CAPTION>
CLASS Y SHARES
YEAR ENDED
OCTOBER 31, 1996
<S> <C>
Expenses.................................................... 2.51%
Net investment loss......................................... (.42%)
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
SAMUEL A. LIEBER
Evergreen Global Real Estate Equity Fund's total return for (Photo of
the fiscal year ended October 31, 1996, was 6.2%* (Class Y, Samuel A.
no-load shares). This figure contrasts with the Fund's 13.2% Lieber
return for the six months ended mid-year April 30, 1996. The appears here)
Fund's net asset value declined by $.91, or 6.7%, from July 3,
through July 30, and had not recovered by the end of
September. The events which caused this sudden, sharp reversal
in one month were largely a unique concurrence of rising
interest rates in both the United States and Europe, and
negative market expectations of possibly slow economic growth
in Southeast Asia. The total return for the Fund's Class A shares with the
maximum 4.75% front-end sales charge for the twelve months ended October 31,
was 1.0%, as compared with 7.8% for the six months ended April 30. (For
additional performance information, please see page 28.)
Today, interest rates have declined significantly from their summer peaks and
evidence of sustained growth for Southeast Asian economies continues to mount,
so we believe that this interruption in the Fund's performance trend is passing.
Beyond the month-to-month volatility of international stock markets, the Fund's
basic portfolio strategy continues to emphasize quality real estate companies
owning unique assets or development projects throughout the world. The
inherently long-term cycle of real estate development, construction, and
maturation argues against a short-term, growth momentum emphasis in investing.
We believe that undervalued investment situations and the greatest real estate
appreciation typically occur during the early stages of an economic recovery.
Thus, our emphasis is on an economy's business cycle and short-term swings in
market sentiment are viewed as opportunities to adjust, but not necessarily
alter the portfolio.
INVESTMENT PERFORMANCE
For much of the year, the Fund was extremely overweighted in the best
performing property share market, the Philippines Stock Exchange Property Index,
which rose 61% from the end of fiscal 1995, through the end of June. During the
summer, however, some investors grew increasingly concerned about the potential
for overbuilding and an anticipated economic slowdown; these concerns led to a
decline of 14% from June through October, leaving the Philippine Index up 38.7%
for the Fund's fiscal year. By contrast, in Hong Kong, the Hang Seng Property
Index, which had been relatively dull after surging in January, ended fiscal
1996 as the top performer, up 40% for the year as it gained 19.5% during the
Fund's fourth quarter. Much of these gains in Hong Kong were paced by large
capitalization index stocks trading at the top of or above
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS. INVESTMENT CONCENTRATION IN REAL ESTATE SECURITIES INCREASES RISKS
THAT WOULD NOT BE AS GREAT IN MORE DIVERSE INVESTMENTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF DIVIDEND INCOME AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT
DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT
DEFERRED SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE
CLASSES OF SHARES MAY BE DIFFERENT.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY FEE
AND ABSORBED A PORTION OF THE FUND'S OTHER EXPENSES. HAD FEE NOT BEEN WAIVED OR
EXPENSES ABSORBED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER AND EXPENSE
ABSORPTION MAY BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER
AND EXPENSE ABSORPTION, PLEASE SEE THE PROSPECTUS.
25
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
their normal valuation bands and not by the smaller capitalization companies,
which we believe are relatively undervalued. Our cautious stance on Hong Kong's
hand-over to China in mid 1997 led to the Fund's modest portfolio weighting.
Smaller capitalization stocks generally did fairly well in the beginning of
the year, whereas large cap stocks dominated most market's top performers in the
second half of the Fund's fiscal year. In terms of individual performances, the
Fund realized some significant gains in the Philippines in the second half of
the year. Notable gains were realized in SM Prime Holdings, Inc. (+61.7%) and
Megaworld Properties and Holdings, Inc., (+64.1%), in both cases where positions
were reduced after holding periods of roughly a year and a half. Filinvest Land,
Inc. gained 185% in less than a year and Belle Corp. provided a 69.7% gain in
less than a year. While Europe was generally dull, the Fund was able to realize
a 43.2% gain from selling some of its shares in Danish developer Thorkild
Kristensen. During the year, the Fund reduced its position slightly in
Argentina's Inversiones y Representaciones SA (IRSA), capturing a 74.9% gain. In
the U.S., the Fund realized gains at different times over the year averaging 45%
in Continental Homes Holding Corp., 58% in Chicago Dock and Canal Trust, and a
long-term gain of 162% in some of its shares in Alexander's, Inc.
The most disappointing area of the Fund's holdings in the fiscal year was in
Europe. Many of the Fund's longer-term holdings, including companies
distinguished by the ownership of properties with exceptional locations in major
commercial and trading centers, proved to be a drag on performance during the
quarter. Such outstanding companies include: Kampa Haus AG, a major German
residential builder which was voted Germany's best run company by MANAGER
MAGAZINE in 1994, sports a return-on-equity of 30%, yet trades at 11 times
earnings per share (EPS). Societe du Louvre, owner of Le Crillon, the top hotel
in Paris, is valued at a quarter of 1990's pre-recession level. These stocks
were negative performers, as were other recovery situations such as Sotogrande
SA in Spain, German City Estates NV, and Societe des Immeubles. Some European
stocks did rise in value, such as Steen & Strom Invest ASA in Norway and Spain's
Vallehermoso SA. However, the strength in the dollar also impacted the Fund's
European investments despite the benefit of a hedge against the German mark for
part of the year.
Similarly in Japan, the extraordinary rise of the dollar against the yen had
a negative impact on our Japanese investments. Uncertainty about both the pace
of Japan's economic growth and its newly elected government's political
commitment to increase liquidity in its real estate markets, depressed property
share prices since their June peak.
Thailand, which in recent years had a very powerful real estate economy, saw
its property shares collapse by 45% during the fiscal year as residential
overbuilding became evident. The Fund's primary commitment in Thailand remains
in industrial properties, such as Hemaraj Land and Development Public Co., Ltd.,
which posted a 13% return for the year and Saha Pathana Inter-Holdings Co., up
31%. The continued expansion of Thailand's industrial base, including new
factories moving from more expensive Asian, European, and North American
countries, was exemplified by General Motor's recent commitment to build a new
plant in one of Hemaraj's industrial parks.
In the Americas, our primary commitments have been in the United States. The
two largest holdings are Alexander's, Inc. and Continental Homes Holding Corp.
We have long believed these to be significantly undervalued and continue to
believe so, notwithstanding many sizable gains. Alexander's owns key retail
26
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
locations in the New York metropolitan area, anchored by its square block
between 58th and 59th Street at Lexington Avenue. Prime suburban retail sites
are also being developed -- the Sears store at Alexander's Rego Park center is
reported to be the #2 store in sales nationwide! We believe the true value of
the shares is yet to be realized by the share price. Continental Homes, the
largest builder of residential homes in Arizona, is spreading its highly
efficient operating methods across the Sun Belt by acquiring local builders,
thereby transforming itself into a national developer. Volatility in these
shares literally reflected the ups and downs of the bond market, which has from
time-to-time led us to take profits and to reestablish positions. Our basic view
is that the company remains undervalued, trading at less than 7X EPS (Street
consensus) versus 11X to 12X for the established national builders. Other
housing development companies have been added to the portfolio during periods of
market weakness caused by interest rate swings, notably Pacific Greystone Corp.,
a California homebuilder. Real Estate Investment Trusts (REITs) as a group have
been reduced as a proportion of the U.S. holdings, reflecting our judgment that
many are now overvalued relative to their underlying properties by 20% to 30%.
Among the few that we continue to hold is Chelsea GCA Realty Inc., the premier
specialist in high fashion factory outlet malls.
In Canada, our principal holding is Monarch Development Corp. a homebuilding
specialist in the Toronto region. In Latin America, Argentina's IRSA is becoming
multi-national by investing alongside other real estate companies in Brazil,
Chile, and Venezuela. Hotelier Grupo Posadas SA de CV is the Fund's only Mexican
holding, as its dollar-based revenues offset a creeping devaluation of the Peso,
and it has partnered with Morgan Stanley to acquire depressed hotel assets in
Mexico. The Fund's holdings in Great Britain have done well with Capital and
Regional Properties Plc (+33%) and Hemingway Properties Plc (+47%) outperforming
the Financial Times Property Share Index, while Greycoat Plc has been the
subject of several merger proposals.
PROSPECTS
Anticipating a moderated growth rate in the United States economy, modest
continuing acceleration in the European economies, sustained growth in Southeast
Asia, gradual recovery in Japan, and improvement in Latin America, we project a
more stable environment in 1997 for real estate investing worldwide. Our focus
will continue to be on the search for and commitment to extraordinary properties
in the best locations with an emphasis on their below market real estate
valuations. We will look for undervaluation with regard to present markets and
prospectively in terms of the potential for the properties. We anticipate
sufficient financial liquidity to sustain property development and demand, with
an increase in cross-border allocations from the U.S. to Europe and the emerging
markets. Where there is a risk of overbuilding, such as in the residential
sector in Thailand, high-end condominiums in Manila, or office buildings in
Shanghai and Jakarta, we will continue to exercise a cautious approach. Where
the dynamics of resurgent demand and long-term potential are not appreciated by
stock market valuations, we will continue to aggressively invest, positioning
part of the portfolio at the early stages of the real estate cycle.
The Fund's overall commitment is to seek long-term growth opportunities in the
dynamic worldwide real estate environment. The negative results during the
Fund's fiscal fourth quarter are, we believe, merely an interruption in what
should continue to be a very positive trend, combining post-recession recovery
in values and demand-induced capital growth opportunities. We appreciate the
continued support of our shareholders and look forward to seeking to provide you
with rewarding returns.
27
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
The graphs below compare a $10,000 investment in the Evergreen Global Real
Estate Equity Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the MSCI World, MSCI Global Real Estate and Wilshire Real Estate
Indexes ("Indexes").
(Graphs for Class A, B, C and Y shares appear below. Customer to provide plot
points.)
<TABLE>
<CAPTION>
2/10/95* 4/30/95 10/31/95 4/30/96 10/31/96
<S> <C> <C> <C> <C> <C>
CLASS A
TOTAL RETURN=1.0%
SINCE INCEPTION=1.2%
Evergreen Global Real Estate Fund
MSCI Global Real Estate Index
Wilshire Real Estate Index
MSCI World Index
CLASS B
TOTAL RETURN=0.3%
SINCE INCEPTION=1.2%
Evergreen Global Real Estate Fund
MSCI Global Real Estate Index
Wilshire Real Estate Index
MSCI World Index
CLASS C
TOTAL RETURN=4.3%
SINCE INCEPTION=3.6%
Evergreen Global Real Estate Fund
MSCI Global Real Estate Index
Wilshire Real Estate Index
MSCI World Index
</TABLE>
<TABLE>
<CAPTION>
2/1/89* 10/31/89 10/31/90 10/31/91 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y
1-YEAR TOTAL RETURN=6.2%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR=8.4%
SINCE INCEPTION=4.1%
Evergreen Global Real Estate Fund
MSCI Global Real Estate Index
Wilshire Real Estate Index
MSCI World Index
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on October 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The Indexes are unmanaged. MSCI World and Wilshire Real Estate Indexes
include the reinvestment of income, but do not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
28
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
STATEMENT OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 96.7%
ARGENTINA -- 4.0%
281,313 Inversiones y Representaciones SA..... $ 860,904
35,868 Inversiones y Representaciones
SA, GDR............................... 1,093,974
1,954,878
BELGIUM -- 1.6%
7,342 Bernheim-Comofi....................... 390,757
6,000* Immobiliere de Belgique............... 392,434
783,191
CANADA -- .9%
70,000 Monarch Development Corp.............. 436,129
DENMARK -- 5.3%
25,000* Nordicom AS........................... 367,755
30,525 Thorkild Kristensen................... 2,179,494
2,547,249
FRANCE -- 11.1%
10,358 Simco Registered Shares............... 879,290
20,000 Societe de Immeubles.................. 1,255,746
51,078 Societe du Louvre..................... 1,408,704
18,450 Unibail............................... 1,836,880
5,380,620
GERMANY -- 2.6%
35,897 Kampa Haus AG......................... 1,244,448
JAPAN -- 14.2%
11,200 Chubu Sekiwa Real Estate, Ltd......... 147,556
112,000 Daibiru Corp.......................... 1,268,982
190,000 Diamond City Co., Ltd................. 1,485,222
133,100 Kansai Sekiwa Real Estate Co., Ltd.... 1,882,140
26,000 Sawako Corp........................... 465,856
47,000 Tachihi Enterprise Co., Ltd........... 1,614,071
6,863,827
MALAYSIA -- 2.5%
168,300 IOI Properties Berhad................. 559,557
39,200* IOI Properties Berhad,
Warrants expiring 5/18/98 @MR 2.75.... 83,008
500,000 Metroplex Berhad...................... 575,895
1,218,460
MEXICO -- 2.5%
930,000 Grupo Posadas, SA de CV, Class A
Shares................................ 422,333
1,930,000 Grupo Posadas, SA de CV, Class L
Shares................................ 809,219
1,231,552
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
NETHERLANDS -- 3.6%
110,500 German City Estates NV................ $ 1,745,388
NORWAY -- 1.5%
65,000 Steen & Strom Invest ASA.............. 713,077
PHILIPPINES -- 13.3%
2,000,000* Belle Corp............................ 532,724
1,420,000* Empire East Land Holdings, Inc........ 688,927
2,249,999* Filinvest Land, Inc................... 761,986
3,500,000 Guoco Holdings........................ 665,906
4,701,250 Megaworld Properties and
Holdings, Inc......................... 1,788,908
5,461,000* Robinson's Land Corp. Class B......... 997,443
7,125,000 SM Development Corp................... 908,248
367,800 SM Prime Holdings, Inc................ 78,374
6,422,516
SINGAPORE -- .7%
386,200 Hotel Grand Central, Ltd.............. 331,773
SPAIN -- 3.3%
40,000 Inmobilaria Urbis SA.................. 164,897
327,993 Sotogrande SA......................... 629,792
40,000 Vallehermoso SA....................... 789,999
1,584,688
THAILAND -- 4.2%
123,700 Hemaraj Land & Development
Public Co., Ltd....................... 562,824
154,700 MK Real Estate Development
Corp., Ltd............................ 204,790
38,100 Property Perfect Public Co., Ltd...... 60,524
400,000 Saha Pathana Inter-Holdings Co........ 949,206
209,400 Sammakorn Public Co., Ltd............. 240,241
2,017,585
UNITED KINGDOM -- 4.1%
81,000 Capital and Regional Properties Plc... 271,582
500,000 Greycoat Plc.......................... 1,196,289
1,000,000 Hemingway Properties Plc.............. 537,109
65,000* Tops Estates Plc,
Warrants expiring 8/21/00 @
(pounds)240........................... 3,174
2,008,154
</TABLE>
29
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 96.7% -- CONTINUED
<C> <S> <C>
UNITED STATES -- 21.2%
36,900* Alexander's, Inc...................... $ 2,712,150
32,000 Chelsea GCA Realty, Inc............... 964,000
147,600 Continental Homes Holding Corp........ 2,398,500
89,516 Horizon Group, Inc.................... 1,891,025
28,100* Pacific Greystone Corp................ 319,638
258,100* Presley Companies..................... 290,363
13,800* US Home Corp.......................... 298,425
120,000* US Home Corp.,
Warrants expiring 6/22/98 @ $20....... 750,000
162,700* Washington Homes, Inc................. 630,462
10,254,563
OTHER SECURITIES -- .1% 39,643
TOTAL COMMON STOCKS
(COST $47,043,417)............... 46,777,741
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C> <C>
SHORT-TERM U.S. GOVERNMENT AGENCY
OBLIGATIONS -- .5%
$150,000 Federal Farm Credit Banks
5.18%, 11/15/96............... $ 149,698
100,000 Federal Home Loan Mortgage
Corp.
5.18%, 11/21/96............... 99,712
TOTAL SHORT-TERM U.S.
GOVERNMENT AGENCY
OBLIGATIONS
(COST $249,410).......... 249,410
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $47,292,827)....... 97.2% 47,027,151
OTHER ASSETS AND
LIABILITIES -- NET....... 2.8 1,338,225
NET ASSETS --............... 100.0% $48,365,376
</TABLE>
* Non-income producing securities
GDR -- Global Depositary Receipts
See accompanying notes to financial statements.
30
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $47,292,827)............................................................. $47,027,151
Foreign currencies at value (identified cost $101,414)......................................................... 100,977
Cash........................................................................................................... 51,843
Receivable for investments sold................................................................................ 1,284,810
Dividends receivable........................................................................................... 87,349
Prepaid expenses............................................................................................... 40,353
Receivable for foreign currency sold........................................................................... 37,977
Receivable for Fund shares sold................................................................................ 13,123
Total assets............................................................................................. 48,643,583
LIABILITIES:
Payable for Fund shares repurchased............................................................................ 103,549
Accrued expenses............................................................................................... 58,777
Payable for investments purchased.............................................................................. 39,642
Payable for foreign currency purchased......................................................................... 37,977
Accrued advisory fee........................................................................................... 38,001
Distribution fee payable....................................................................................... 261
Total liabilities........................................................................................ 278,207
NET ASSETS........................................................................................................ $48,365,376
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $55,546,640
Undistributed net investment income............................................................................ 32,553
Accumulated net realized loss on investment and foreign currency transactions.................................. (6,947,906)
Net unrealized depreciation of investments and foreign currencies.............................................. (265,911)
Net assets............................................................................................... $48,365,376
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($720,899 58,723 shares of beneficial interest outstanding)..................................... $ 12.28
Sales charge -- 4.75% of offering price........................................................................ .61
Maximum offering price................................................................................... $ 12.89
Class B Shares ($134,447 11,075 shares of beneficial interest outstanding)..................................... $ 12.14
Class C Shares ($8,205 676 shares of beneficial interest outstanding).......................................... $ 12.14
Class Y Shares ($47,501,825 3,859,781 shares of beneficial interest outstanding)............................... $ 12.31
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $92,662)......................................... $1,001,766
Interest........................................................................................ 22,889
Total investment income................................................................... 1,024,655
EXPENSES:
Advisory fee.................................................................................... $ 580,089
Distribution fee -- Class A Shares.............................................................. 2,800
Distribution fee -- Class B Shares.............................................................. 765
Shareholder services fee -- Class B Shares...................................................... 255
Distribution fee -- Class C Shares.............................................................. 78
Shareholder services fee -- Class C Shares...................................................... 26
Custodian fee................................................................................... 146,731
Transfer agent fee.............................................................................. 118,097
Registration and filing fees.................................................................... 79,312
Reports and notices to shareholders............................................................. 35,783
Professional fees............................................................................... 22,495
Insurance....................................................................................... 10,324
Trustees' fees and expenses..................................................................... 6,821
Miscellaneous................................................................................... 2,907
Total operating expenses..................................................................... 1,006,483
Interest........................................................................................ 16,803
Less: Fee waivers and expense reimbursments..................................................... (65,279)
Net expenses.............................................................................. 958,007
Net investment income.............................................................................. 66,648
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on investment transactions.................................................... 527,936
Net realized loss on foreign currency transactions.............................................. (32,608)
Net change in unrealized appreciation (depreciation) of investments and foreign currencies...... 3,504,138
Net gain on investments and foreign currencies..................................................... 3,999,466
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $4,066,114
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ONE MONTH*
YEAR ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)............................................................. $ 66,648 $ (63,653)
Net realized gain (loss) on investment transactions...................................... 527,936 (28,407)
Net realized loss on foreign currency transactions....................................... (32,608) (1,146)
Net change in unrealized appreciation (depreciation) of investments and foreign
currencies............................................................................. 3,504,138 (2,841,208)
Net increase (decrease) in net assets resulting from operations....................... 4,066,114 (2,934,414)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 16,042,743 640,465
Payment for shares redeemed.............................................................. (33,339,082) (3,957,113)
Net decrease resulting from Fund share transactions................................ (17,296,339) (3,316,648)
Net decrease in net assets......................................................... (13,230,225) (6,251,062)
NET ASSETS:
Beginning of period...................................................................... 61,595,601 67,846,663
End of period (including undistributed net investment income (accumulated net investment
loss) of $32,553 and ($13,834), respectively).......................................... $ 48,365,376 $ 61,595,601
</TABLE>
* The Fund changed its fiscal year end from September 30 to October 31.
See accompanying notes to financial statements.
33
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
ONE MONTH FEBRUARY 10, ONE MONTH
YEAR ENDED ENDED 1995* THROUGH YEAR ENDED ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1996 1995# 1995 1996 1995#
<S> <C> <C> <C> <C> <C>
PER SHARE DATA++:
Net asset value, beginning of period............................ $11.58 $12.12 $11.46 $11.53 $12.08
Income (loss) from investment operations:
Net investment income (loss).................................. .06 (.01) .07 (.13) (.02)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions............... .64 (.53) .59 .74 (.53)
Total from investment operations............................ .70 (.54) .66 .61 (.55)
Net asset value, end of period.................................. $12.28 $11.58 $12.12 $12.14 $11.53
TOTAL RETURN+................................................... 6.0% (4.5%) 5.8% 5.3% (4.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................... $721 $74 $66 $134 $100
Ratios to average net assets:
Operating expenses**.......................................... 1.79% 1.73%++ 1.61%++ 2.56% 2.44%++
Interest expense.............................................. .03% .03%++ .01%++ .03% .03%++
Net investment income (loss)**................................ .40% (1.26%)++ .98%++ (1.03%) (1.98%)++
Portfolio turnover rate......................................... 25% 1% 28%## 25% 1%
Average commission rate paid.................................... $ .0037 N/A N/A $ .0037 N/A
<CAPTION>
CLASS B SHARES
FEBRUARY 8,
1995* THROUGH
SEPTEMBER 30,
1995
<S> <C>
PER SHARE DATA++:
Net asset value, beginning of period............................ $11.44
Income (loss) from investment operations:
Net investment income (loss).................................. .08
Net realized and unrealized gain (loss) on
investments and foreign currency transactions............... .56
Total from investment operations............................ .64
Net asset value, end of period.................................. $12.08
TOTAL RETURN+................................................... 5.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)....................... $128
Ratios to average net assets:
Operating expenses**.......................................... 2.42%++
Interest expense.............................................. .03%++
Net investment income (loss)**................................ 1.38%++
Portfolio turnover rate......................................... 28%##
Average commission rate paid.................................... N/A
</TABLE>
* Commencement of class operations.
++ Calculated based on average shares outstanding during the period.
# The Fund changed its year end from September 30 to October 31.
+ 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 charge is not reflected.
++ Annualized.
## Portfolio turnover is calculated for the twelve months ended September 30,
1995.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
FEBRUARY 10,
ONE MONTH 1995* ONE MONTH
YEAR ENDED ENDED THROUGH YEAR ENDED ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1996 1995# 1995 1996 1995#
<S> <C> <C> <C> <C> <C>
Operating expenses............................................ 2.97% 46.90% 21.59% 14.45% 31.39%
Net investment loss........................................... (.78%) (46.44%) (19.00%) (12.92%) (30.94%)
<CAPTION>
CLASS B SHARES
FEBRUARY 8,
1995*
THROUGH
SEPTEMBER 30,
1995
<S> <C>
Operating expenses............................................ 82.74%
Net investment loss........................................... (79.94%)
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND
(Photo of Globe appears here)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C SHARES
FEBRUARY 9, CLASS Y SHARES
ONE MONTH 1995* ONE MONTH
YEAR ENDED ENDED THROUGH YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1996++ 1995#++ 1995++ 1996++ 1995# 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $11.53 $12.08 $11.43 $11.59 $12.13 $13.81
Income (loss) from investment
operations:
Net investment income (loss)........ (.13) (.02) .06 .01 (.01) .11
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions............. .74 (.53) .59 .71 (.53) (1.17)
Total from investment
operations...................... .61 (.55) .65 .72 (.54) (1.06)
Less distributions to shareholders
from:
Net investment income............... -- -- -- -- -- (.10)
Net realized gains.................. -- -- -- -- -- (.52)
Total distributions to
shareholders.................... -- -- -- -- -- (.62)
Net asset value, end of period........ $12.14 $11.53 $12.08 $12.31 $11.59 $12.13
TOTAL RETURN+......................... 5.3% (4.6%) 5.7% 6.2% (4.5%) (7.7%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)............................ $8 $4 $7 $47,502 $61,418 $67,645
Ratios to average net assets:
Operating expenses.................. 2.54%** 2.37%++** 1.54%++** 1.62%** 1.62%++ 1.54%
Interest expense.................... .03% .02%++ .01%++ .03% .03%++ .05%
Net investment income (loss)........ (1.06%)** (1.94%)++** .86%++** .11%** (1.14%)++ .92%
Portfolio turnover rate............... 25% 1% 28%++++ 25% 1% 28%
Average commission rate paid.......... $ .0037 N/A N/A $ .0037 N/A N/A
<CAPTION>
CLASS Y SHARES
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1994## 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.............................. $14.75 $9.86
Income (loss) from investment
operations:
Net investment income (loss)........ .07 --
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions............. (1.01) 5.07
Total from investment
operations...................... (.94) 5.07
Less distributions to shareholders
from:
Net investment income............... -- --
Net realized gains.................. -- (.18)
Total distributions to
shareholders.................... -- (.18)
Net asset value, end of period........ $13.81 $14.75
TOTAL RETURN+......................... (6.4%) 51.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted)............................ $132,294 $146,173
Ratios to average net assets:
Operating expenses.................. 1.46%++ 1.56%**
Interest expense.................... .08%++ --
Net investment income (loss)........ .56%++ .03%**
Portfolio turnover rate............... 63% 88%
Average commission rate paid.......... N/A N/A
</TABLE>
* Commencement of class operations.
++ Calculated based on average shares outstanding during the period.
# The Fund changed its fiscal year end from September 30 to October 31.
## The Fund changed its fiscal year end from December 31 to September 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
++++ Portfolio turnover is calculated for the year ended September 30, 1995.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS C SHARES
FEBRUARY 9, CLASS Y SHARES
ONE MONTH 1995* ONE MONTH
YEAR ENDED ENDED THROUGH YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1996 1995# 1995 1996 1995# 1995
<S> <C> <C> <C> <C> <C> <C>
Operating expenses.................... 118.64% 570.26% 269.60% 1.67% -- --
Net investment income (loss).......... (117.16%) (569.83%) (266.32%) .06% -- --
<CAPTION>
CLASS Y SHARES
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1994## 1993
<S> <C> <C>
Operating expenses.................... -- 1.64%
Net investment income (loss).......... -- (.05%)
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
A REPORT FROM YOUR
PORTFOLIO MANAGER
RICHARD WAGONER
Evergreen International Equity Fund completed its fiscal (Photo of
year on October 31, 1996, with a net asset value per share Richard Wagoner
(Class Y, no-load shares) of $10.46. The Fund's total return appears here)
for the twelve months ended October 31, was 10.3%*, versus
10.7% for the Lipper International Funds** average of the 324
international funds tracked by Lipper Analytical Services
during that time. The Fund slightly underperformed the MSCI
EAFE Index*** which had a total return of 10.5%. The total
return for the twelve-month period ended October 31, for the
Fund's Class A shares was 4.7%.
(For additional performance information, please see page 38.)
On October 1, 1996, after shareholder approval, the sub-adviser to Evergreen
International Fund was changed from Boston International Advisors to Warburg
Pincus Counsellors, Inc. Warburg Pincus was chosen after a thorough analysis of
a number of international managers. With $9.3 billion of institutional assets
under management and over $3 billion in international investments, Warburg has
extensive experience in international investing. Their seasoned investment team
utilizes is highly disciplined "business value" approach to investing.
The performance of foreign markets during the past fiscal year was
geographically mixed. European bourses, collectively, showed solid gains. In
Germany, for example, leading indicators of economic activity are calling for a
new spurt of growth due to contained inflation which allowed the Bundesbank to
lower its discount rate to one of the lowest levels in the post-war era.
Asian-Pacific markets generally fell. In Japan, government spending policies
aimed at stimulating the economy are wearing off and the pace of economic growth
has subsided. Latin American markets varied with Brazil, Mexico and Venezuela
advancing, Argentina and Chile lagging. In the United Kingdom, the equity market
has surged 9% since the end of July. Indicators suggest the growth is due to
resurgent consumer demand and an acceleration in the manufacturing sector.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS CURRENCY
FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN ACCOUNTING
STANDARDS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND
ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED
SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED
SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF
SHARES MAY BE DIFFERENT.
DURING THE PERIOD UNDER REVIEW, THE ADVISER WAIVED A PORTION OF ITS ADVISORY
FEE. HAD FEE NOT BEEN WAIVED, PERFORMANCE WOULD HAVE BEEN LOWER. FEE WAIVER MAY
BE REVISED AT ANY TIME. FOR ADDITIONAL INFORMATION ON FEE WAIVER, PLEASE SEE THE
PROSPECTUS.
** SOURCE: LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT MUTUAL FUNDS
PERFORMANCE MONITOR. LIPPER PERFORMANCE FIGURE DOES NOT INCLUDE SALES CHARGES,
AND IF INCLUDED, FIGURE WOULD BE LOWER.
*** MSCI EAFE INDEX IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX
REPRESENTING 1,112 SECURITIES FROM 20 DEVELOPED COUNTRIES IN EUROPE, AUSTRALIA,
AND THE FAR EAST AS MONITORED BY MORGAN STANLEY CAPITAL INTERNATIONAL. ALL
COUNTRY RETURNS DIFFER FROM INDEX RETURNS BECAUSE THEY REPRESENT TOTAL STOCK
MARKET RETURNS AS CALCULATED BY MORGAN STANLEY CAPITAL INTERNATIONAL. AN
INVESTMENT CAN NOT BE MADE IN AN INDEX.
36
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
Looking to the future, we are beginning to see clear, albeit small, signs of
economic recovery in Europe and Japan. Industrial production has increased as
has intra-regional trade in both Europe and Asia. European stock markets
continue to be very strong and many have reached new highs. Numerous
corporations have been revising up their full-year forecasts. Many analysts have
commented on a slowdown in Asia; while in the short term this has been true, we
feel this only a cyclical issue, as most of these economies are export led and
tied to economically sensitive areas (i.e., chemicals, autos, computers, and
consumer electronics). As global economic growth accelerates, so too should
these economies.
Warburg Pincus, upon becoming sub-adviser for International Equity Fund,
assessed the Fund's holdings and realigned the portfolio, making changes to
individual stocks as well as country weightings. Warburg Pincus' investment
advisory team emphasizes a disciplined bottom-up stock picking approach which
involves identifying solid companies in which to invest, rather than trying to
pick the best countries. The advisers believe it is much more difficult to
consistently pick the right countries and prefer to identify good businesses at
attractive prices as the first step in their analysis. Their approach is
conservative, and seeks to avoid exaggerated hopes and excessive risks by
focusing on secular trends and undervalued growth stocks. Thank you for your
support of Evergreen International Equity Fund.
37
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN INTERNATIONAL EQUITY FUND
The graphs below compare a $10,000 investment in the Evergreen
International Equity Fund (Class A, Class B, Class C and Class Y Shares) with a
similar investment in the Morgan Stanley EAFE Index ("Index").
[CHARTS TO FOLLOW of Class A, B, C and Y Shares. Customer to provide plot
points.]
<TABLE>
<CAPTION>
9/2/94* 12/31/94 10/31/95 4/30/96 10/31/96
<S> <C> <C> <C> <C> <C>
CLASS A
1-YEAR TOTAL RETURN=4.7%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=0.2%
Evergreen International Equity Fund
Morgan Stanley Eafe Index
CLASS B
1-YEAR TOTAL RETURN=4.1%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=0.5%
Evergreen International Equity Fund
Morgan Stanley Eafe Index
CLASS C
1-YEAR TOTAL RETURN=8.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=1.9%
Evergreen International Equity Fund
Morgan Stanley Eafe Index
CLASS Y
1-YEAR TOTAL RETURN=10.2%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=2.7%
Evergreen International Equity Fund
Morgan Stanley Eafe Index
</TABLE>
*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on October 31, 1996; (c) all
recurring fees (including investment advisory fees) were deducted; and (d) all
dividends and distributions were reinvested.
The Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
38
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- 87.3%
COMMON STOCKS -- 85.5%
ARGENTINA -- 2.7%
10,517 Banco de Galicia Buenos Aires..... $ 48,278
5,300 Banco Frances del Rio de
la Plata SA....................... 46,379
33,700* Disco SA, ADR..................... 758,250
15,000 Telecom Argentina, Cl. B.......... 56,631
5,100 Telefonica de Argentina, ADR,
Cl. B............................. 118,575
120,500 YPF SA, ADR....................... 2,741,375
4,000 YPF SA, Cl. D..................... 91,609
3,861,097
AUSTRALIA -- 3.6%
99,000 Australian & New Zealand
Banking Group Ltd................. 578,337
64,300 Commonwealth Bank
of Australia...................... 603,959
304,100 General Property Trust............ 571,272
41,700 National Australia Bank Ltd....... 457,788
124,500 News Corp., Ltd................... 708,552
582,100 Quantas Airways................... 848,973
312,600 Westfield Trust................... 587,240
165,900 Westpac Bank Corp., Ltd........... 946,798
5,302,919
CHILE -- .9%
45,100 Enersis SA, ADR................... 1,324,813
DENMARK -- 1.9%
12,330 Den Danske Bank AS................ 884,609
1,850 FLS Industries AS................. 236,216
3,250 Jyske Bank AS..................... 234,288
2,400 Novo Nordisk AS................... 399,704
8,640 Tele Danmark AS, Ser. B........... 435,545
13,000 Unidanmark AS,
Registered Shares................. 599,418
2,789,780
FRANCE -- 7.2%
1,550 Accor SA.......................... 194,641
17,900 Assurances Generales de France.... 527,984
15,500* Axime SA Ex Segin................. 1,658,386
16,300 Banque Nationale de Paris......... 609,915
9,100* Cerus Compagnies Europeenes
Reunies SA........................ 234,776
1,650 Christian Dior SA................. 219,462
2,360 Cie de Saint Gobain............... 318,513
3,400 Cie Fin de Paribas, Cl. A......... 218,797
2,626 Compagnie Bancaire SA............. 261,958
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
FRANCE -- 7.2% -- CONTINUED
<TABLE>
<C> <S> <C>
3,850 Credit National SA................ $ 203,325
2,000 Eridania Beghin-Say SA............ 318,435
905 EuraFrance........................ 395,633
5,300 Groupe Danone..................... 725,672
6,000 Pechiney SA....................... 257,604
5,125 Peugeot SA........................ 534,303
16,050 Renault Regie Nationale........... 342,191
18,450 Rhone Poulenc SA.................. 546,734
4,750 Schneider SA...................... 232,274
13,750 Elf Aquitaine..................... 1,099,462
2,000 Societe Generale.................. 215,550
12,200 Thomson-CSF SA.................... 380,616
4,760 Total SA, Cl. B................... 372,327
9,550 Uap Cie Uap....................... 198,379
12,100 Usinor Sacilor.................... 179,518
5,550 Worms & Cie....................... 284,421
10,530,876
GERMANY -- 7.8%
540 AMB Aachener & Muenchener
Beteiligungs AG, Bearer Shares.... 395,800
350 AMB Aachener & Muenchener
Beteiligungs AG,
Registered Shares................. 316,627
21,700 Bankgesellshaft Berlin AG......... 368,975
32,600 BASF AG........................... 1,041,891
18,650 Bayer AG.......................... 704,670
28,930 Bayerische Hypotheken - und
Wechsel-Bank AG................... 847,230
25,570 Bayerische Vereinsbank AG......... 961,577
1,920 Berl Kraft & Licht................ 567,987
18,830 BHF-Bank International AG......... 466,274
26,000 Commerzbank AG.................... 582,013
23,970 Continental AG.................... 419,443
32,820 Dresdner Bank AG.................. 877,714
1,710 Ikb Deutsche Industriebank AG..... 310,519
13,300 Phoenix AG........................ 171,256
26,700 Siemens AG........................ 1,379,606
20,670 Veba AG........................... 1,102,427
1,070 Viag AG........................... 395,668
1,110 Volkswagen AG..................... 437,030
11,346,707
HONG KONG -- 4.0%
160,000 Harbour Centre
Development Ltd................... 217,273
25,000 Henderson Land Development
Co., Ltd.......................... 222,285
</TABLE>
39
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 85.5% -- CONTINUED
HONG KONG -- 4.0% -- CONTINUED
<C> <S> <C>
278,281 Hongkong Land Holdings Ltd.,
ADR............................... $ 620,567
32,700 HSBC Holdings Plc................. 687,105
9,800* Hysan Development Co., Warrants
25 HKD, expire 4/30/98............ 4,721
254,000* Jardine Matheson Holdings Ltd.,
ADR............................... 1,435,100
164,000* Jardine Strategic Holdings Ltd.,
ADR............................... 534,640
58,000 New World Development
Co., Ltd.......................... 337,549
42,000 Sun Hung Kai Properties Ltd....... 478,001
72,500 Swire Pacific Ltd................. 639,938
228,000 Wheelock & Co..................... 513,075
632,000 Yue Yuen Industrial............... 187,993
5,878,247
INDIA -- 1.5%
42,225 Hindalco Industries Ltd., GDR..... 697,418
1,700 Reliance Industries Ltd., GDS..... 19,346
100,200 State Bank of India, GDR.......... 1,513,020
2,229,784
INDONESIA -- 1.4%
40,500 Astra International............... 84,328
81,030 Bank International Indonesia...... 94,656
41,500 Gudang Garam Perus................ 63,249
8,000 HM Sampoerna...................... 74,529
120,683 Indah Kiat Pulp & Paper........... 148,801
35,000 Indocement Tunggal Prakarsa....... 67,617
29,000 Indofood Sukses Makmur............ 51,045
17,500 Indosat........................... 53,154
32,900 Perusahaan Perseroan PE, ADR...... 991,113
23,500 Semen Gresek...................... 121,066
161,500 Telekomunikasi Indonesia.......... 239,203
1,988,761
ITALY -- .0% (A)
12,200* Grassetto SpA..................... 817
JAPAN -- 24.7%
84,000 Canon, Inc........................ 1,608,362
150* DDI Corp.......................... 1,126,433
40,400 Fujitsu Denso..................... 1,330,640
92,000 Fujitsu Ltd....................... 808,045
45,000 Hankyu Realty Co.................. 407,097
108,000 Hitachi Ltd....................... 958,061
65,000 Honda Motor Co., Ltd.............. 1,552,852
35,000 Inabata & Co...................... 236,705
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
JAPAN -- 24.7% -- CONTINUED
<TABLE>
<C> <S> <C>
200,000 Isuzu Motors Ltd.................. $ 988,977
80,000* Japan Asia Investment Co., Ltd.
.................................. 779,939
70,000 Japan Radio Co.................... 934,522
53,000 Jusco Co.......................... 1,573,405
225,000 Kawasaki Heavy Industries......... 1,029,599
71,000 Long-Term Credit Bank
of Japan Ltd...................... 470,818
59,000 Matsushita Electric Works Ltd. ... 570,023
35,000* Meiwa Estate Co., Ltd............. 1,079,004
108,000 Mitsubishi Estate Co., Ltd........ 1,346,976
100,000 Mitsubishi Heavy Industries
Ltd............................... 768,521
43,000 Mitsui Fudosan Co................. 532,519
75,000 Mycal Corp........................ 1,152,782
102,000 NEC Corp.......................... 1,110,887
84,000 Nippon Credit Bank Co............. 253,059
40,100 Orix Corp......................... 1,493,338
71,000 Pioneer Electronic Co............. 1,403,100
25,000 Rohm Co........................... 1,482,148
90,000 Sharp Corp........................ 1,367,529
6,500 Shohkoh Fund...................... 1,364,455
25,000 Sony Corp......................... 1,499,715
70,000 Sumitomo Electric Industries...... 922,226
30,000 Sumitomo Realty & Development
Co., Ltd.......................... 218,172
21,000 Takeda Chemical Industries Ltd.
.................................. 359,668
30,000 TDK Corp.......................... 1,760,134
250,000 Toray Industries, Inc............. 1,508,498
67,000 Toshiba Corp...................... 418,989
450 West Japan Railway................ 1,470,291
25,000 Yokogawa Electric Corp............ 221,773
36,109,262
KOREA -- .3%
28,000 Korea Fund, Inc................... 472,500
840 Pohang Iron & Steel Ltd., ADR..... 17,430
489,930
LUXEMBOURG -- .0% (A)
2,900* Raymond Woolen Mil Ltd., GDR...... 28,275
1,500 Tata Engineering &
Locomotive Co., Ltd., GDR......... 18,570
46,845
NETHERLANDS -- 2.5%
14,860 ABN-AMRO Holdings NV.............. 839,909
3,950 DSM NV............................ 378,308
1,750 Hollandsche Beton Groep NV........ 324,792
</TABLE>
40
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 85.5% -- CONTINUED
NETHERLANDS -- 2.5% -- CONTINUED
<C> <S> <C>
23,375 ING Groep NV...................... $ 728,790
8,700 Koninklijke Van Ommeren NV........ 361,496
9,950 Philips Electronics NV............ 350,687
3,700 Royal Dutch Petroleum Co.......... 611,033
3,595,015
NEW ZEALAND -- 3.6%
1,510,300 Brierley Investment Ltd........... 1,378,342
345,350 Carter Holt Harvey Ltd............ 776,946
570,200 Fletcher Challenge,
Building Shares................... 1,545,006
27,975 Fletcher Challenge,
Energy Shares..................... 79,759
474,100 Fletcher Challenge, Forest
Shares............................ 791,564
55,950 Fletcher Challenge, Paper
Shares............................ 101,331
242,400 Lion Nathan Ltd................... 625,936
5,298,884
NORWAY -- 2.9%
12,400 Aker AS, Series A................. 259,435
446,750 Den Norske Bank AS................ 1,484,312
12,600 Elkem AS.......................... 167,847
9,780 Kvaerner AS, Ser. A............... 369,386
7,040 Kvaerner AS, Ser. B............... 244,935
13,840 Norsk Hydro AS.................... 637,688
12,120 Norske Skogindustrier AS, Cl. A... 345,700
9,560 Norske Skogindustrier AS, Cl. B... 245,712
7,000 Orkla AS.......................... 447,593
4,202,608
PAKISTAN -- .2%
6,500* Al-Faysal Investment Bank Ltd. ... 1,622
6,500* Askari Commercial Bank............ 3,608
4,000* Bank of Punjab.................... 1,532
4,000* Cherat Cement Co., Ltd............ 2,071
10,000* Dewan Salman Fibre Ltd............ 8,259
11,500* DG Khan Cement.................... 2,511
25,000* Dhan Fibres Ltd................... 2,526
5,900 Engro Chemical.................... 20,167
21,500* Fauji Fertilizer Co., Ltd......... 42,110
10,000* Faysal Bank Ltd................... 5,664
76,000* Hub Power Co., Ltd................ 64,661
16,500* Ibrahim Fibres Ltd................ 2,779
15,700 ICI Pakistan...................... 7,149
51,025* ICI Pakistan, Rights
10 PKR, expire 12/4/96............ 8,912
15,000* Karachi Electric Supply Ltd....... 7,953
20,500* Lucky Cement...................... 4,910
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
PAKISTAN -- .2% -- CONTINUED
<TABLE>
<C> <S> <C>
12,500* Muslim Commercial Bank............ $ 11,851
1,000* National Developement............. 182
7,000* Nishat Textile Mills.............. 1,921
2,400* Packages Ltd...................... 2,994
5,400* Pakistan State Oil Co., Ltd....... 46,617
4,500 Pakistan Synthetic Ltd............ 1,448
44,500* Pakistan Telecom Corp............. 35,973
7,000* Pakland Cement Ltd................ 2,139
21,000* Sui Northern Gas Pipelines........ 21,875
29,500* Sui Southern Gas Co., Ltd......... 24,657
336,091
PHILIPPINES -- .5%
18,500* Millicom International Cellular
SA, GDR........................... 735,375
POLAND -- .2%
1,000 Bank Przemyslowo-
Handlowy SA....................... 69,353
1,200 Bank Rozwoju Eksportu SA.......... 35,637
900 Bank Slaski SA.................... 83,223
1,300* Debica SA, Ser. A................. 26,354
6,400 Elektrim.......................... 53,491
2,000 Rolimpex SA, Ser. A............... 15,649
6,500 Wielkopolski Bank
Kredytowy SA...................... 40,456
300 Zaklady Piwowarskiew
Zywcu SA.......................... 13,337
337,500
PORTUGAL -- 1.0%
300 Banco Internacional do Funchal.... 2,509
42 Banco Internacional do Funchal,
New Shares........................ 351
700 BCO Chemical Portugal............. 7,226
3,200 BCO Commerce Portugal............. 39,726
2,200 BCO Espir Santo................... 38,667
1,400 BCO Totta E Acores................ 25,420
1,700 BPI Society Gestora,
Registered Shares................. 20,238
56,300 Cimpor Cimentos
de Portugal SA.................... 1,183,385
400 Jeronimo Martins Sgps............. 36,485
1,100 Modelo Contin Sgps................ 34,168
1,800 Portucel Industria................ 11,090
1,200 Portugal Telecom SA............... 31,206
500 Seguros Tranquilid,
Registered Shares................. 10,291
1,400 Sonae Investimentos SA............ 41,035
</TABLE>
41
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 85.5% -- CONTINUED
PORTUGAL -- 1.0% -- CONTINUED
<C> <S> <C>
1,000* Soporcel Sociedad Porteguesa de
Celulose SA....................... $ 24,175
600 Unicer Uniao Cervjeira SA......... 10,820
1,516,792
SINGAPORE -- 1.2%
237,600 DBS Land Ltd...................... 748,984
64,000* Development Bank of Singapore..... 767,909
61,000 Prima Ltd......................... 216,543
1,733,436
SPAIN -- 3.6%
8,400* Corporacion Bancaria
de Espana SA...................... 329,166
3,300 Cristaleria Espanola SA........... 215,957
32,800 Europistas Concesionaria
Espanola SA....................... 278,914
58,800 Fuerzas Electricia Catal.......... 470,050
149,200 Iberdrola SA...................... 1,584,435
30,000 Repsol SA, ADR.................... 978,750
18,400 Sevillana de Electridad........... 175,932
34,500 Telefonica de Espana SA........... 692,190
82,400 Union Electrica Fenosa SA......... 534,717
5,260,111
SWEDEN -- 2.3%
2,870* Diligentia AB..................... 36,880
3,850 Electrolux AB, Ser. B............. 214,289
28,700 Skandinaviska Enskilda Banken,
Ser. B............................ 240,050
25,050 Sparbanken Sverige AB, Ser. A..... 396,186
16,900 Stadshypotek AB, Ser. A........... 443,337
36,500 Stora Kopparbergs Besgslogs,
Ser. A............................ 477,364
27,100 Stora Kopparbergs Besgslogs,
Ser. B............................ 348,244
29,150 Svenska Cellulosa AB (SCA)........ 611,752
15,450 Svenska Handelsbanken, Ser. A..... 380,629
8,550 Svenska Handelsbanken, Ser. B..... 204,138
4,500* Swedish Match Co.................. 13,413
2,735* Tornet Fastighet.................. 34,730
3,401,012
SWITZERLAND -- 2.7%
180 Ascom Holding AG,
Bearer Shares..................... 175,158
235 Baloise Holdings,
Registered Shares................. 490,823
1,930 Banque Cant Vaudoise.............. 522,199
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
SWITZERLAND -- 2.7% -- CONTINUED
<TABLE>
<C> <S> <C>
170 Pargesa Holding SA................ $ 196,361
500* Saurer Arbon AG................... 210,047
380* Schweizerische
Rueckversicherungs-Gesellschaft... 407,658
260 Schweizerische Bankgesellsch...... 247,658
3,340 Schweizerischer Bankverein........ 643,426
410* Swissair AG....................... 319,502
370 Winterthur Schweizerische
Versicherungs-Gesellschaft........ 220,419
1,890 Zurich Versicherun, Bearer
Shares............................ 517,358
3,950,609
TAIWAN -- .2%
25,900* ROC Taiwan Fund................... 252,525
THAILAND -- 1.6%
5,500 Advanced Information
Services Plc...................... 74,642
16,900 Bangchak Petroleum
Public Co., Ltd................... 34,801
2,700 Bangkok Bank Public Co., Ltd. .... 20,333
13,400 Bangkok Bank Public Co.,
Ltd. Foreign Shares............... 142,961
5,300 Dhana Siam Finance & Securities... 14,032
4,900 Finance One Public Co., Ltd....... 11,339
2,000 Finance One Public Co., Ltd.
Foreign Shares.................... 5,648
23,800 IND Finance Thailand.............. 70,014
2,600 Italian Thailand Development...... 18,357
68,400 Jasmine International
Public Co., Ltd................... 217,313
13,400 Krung Thailand Bank Plc........... 36,266
2,000 Land & House Public Co., Ltd. .... 13,258
59,900 Land & House Public Co.,
Ltd. Foreign Shares............... 498,090
4,600 National Finance & Securities Co.
Ltd............................... 8,751
3,300 National Finance & Securities
Co., Ltd. Foreign Shares.......... 6,245
7,100 One Holding Co., Ltd.............. 6,962
1,420 One Holding Public Co., Ltd.,
Warrants 44 THB, expire 11/2001... --
2,600 PTT Exploration & Production
Public Co., Ltd................... 37,325
1,200 Shinawatra Computer Co., Plc...... 17,227
700 Siam Cement Public Co., Ltd....... 23,063
12,700 Siam Cement Public Co., Ltd.
Foreign Shares.................... 434,375
1,600 Siam City Cement
Public Co., Ltd................... 9,414
</TABLE>
42
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- 85.5% -- CONTINUED
THAILAND -- 1.6% -- CONTINUED
<C> <S> <C>
16,200* Telecomasia....................... $ 30,818
14,100 Thai Airways International
Public Co., Ltd................... 27,653
200,100 Thai Military Bank
Public Co., Ltd................... 463,067
19,800 Thai Petrochemical Industry
Public Co., Ltd................... 19,416
6,900 Thai Telephone & Communication
Public Co., Ltd. ................. 11,908
8,000 Thailand Farmers Bank
Public Co., Ltd................... 61,188
1,700 UTD Communications................ 15,070
2,329,536
UNITED KINGDOM -- 7.0%
32,500 Anglian Water Plc................. 287,760
40,200 Associated British Foods Plc...... 276,113
13,800 Barclays Bank Plc................. 216,636
15,400 Bass British Plc.................. 197,513
30,600 British Airways Plc............... 275,420
155,800 British Gas....................... 484,339
83,900 British Petroleum Co., Plc........ 901,611
103,800 British Steel Plc................. 288,474
148,800 British Telecommunications Plc.... 845,234
36,000 Commercial Union Plc.............. 380,859
259,900 Cookson Group Plc................. 956,012
15,600 GKN Plc........................... 293,262
22,200 HSBC Holdings Plc................. 454,912
31,100 Imperial Chemical Industries
Plc............................... 399,380
69,500 National Power Plc................ 458,130
17,600 National Westminster Bank......... 200,951
13,375 Pilkington Plc.................... 37,225
29,342 Royal & Sun Alliance Insurance
Group Plc......................... 201,297
58,000 Severn Trent Water Plc............ 581,511
69,500 Thames Water Plc.................. 626,677
72,800 3I Group.......................... 572,897
65,500 United Utilities Plc.............. 607,666
23,700 Whitbread Plc..................... 277,734
36,700 Yorkshire Water Plc............... 369,150
10,190,763
TOTAL COMMON STOCKS
(COST $119,228,695).......... 125,040,095
<CAPTION>
SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS -- 1.0%
AUSTRALIA -- .5%
148,050 News Corp., Ltd................... $ 652,472
GERMANY -- .5%
1,870 Rheinmetall Berlin................ 190,161
1,960 Volkswagen AG..................... 594,704
784,865
TOTAL PREFERRED STOCKS
(COST $1,384,054)............ 1,437,337
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CORPORATE BOND -- .8%
KOREA -- .8%
$ 1,160,000 Samsung Electronics
.25%, 12/31/06
(COST $1,319,191)................. 1,249,900
TOTAL LONG-TERM INVESTMENTS
(COST $121,931,940).......... 127,727,332
REPURCHASE AGREEMENT -- 13.3%
19,400,000 State Street Bank & Trust Co.,
5.51% dated 10/31/96, due
11/1/96 -- collateralized by
$19,220,000 U.S. Treasury Notes,
6.00%, due 5/31/98; value,
including accrued
interest -- $19,789,143,
(COST $19,400,000).............. 19,400,000
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST
$141,331,940)........ 100.6% 147,127,332
OTHER ASSETS AND
LIABILITIES -- NET... (.6) (901,069)
NET ASSETS --.......... 100.0% $146,226,263
</TABLE>
* Non-income producing securities
ADR -- American Depositary Receipts
GDR -- Global Depositary Receipts
GDS -- Global Depositary Shares
(a) Less than one tenth of one percent.
43
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF INVESTMENTS -- (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
FORWARD CONTRACTS
FOREIGN CURRENCY CURRENCY AMOUNT VALUE ON UNREALIZED
BUY CONTRACTS PURCHASED TRADE DATE CURRENT VALUE APPRECIATION
<S> <C> <C> <C> <C>
Deutsche Mark due 11/1/96 DM2,110,520 $1,389,506 $ 1,394,003 $ 4,497
New Zealand Dollar due 11/1/96 NZ$ 1,794,189 1,263,647 1,271,122 7,475
11,972
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCY CURRENCY AMOUNT
SELL CONTRACTS SOLD
<S> <C> <C> <C> <C>
Japanese Yen due 10/24/97 (Yen) 2,368,740,000 22,000,000 21,865,735 134,265
$146,237
</TABLE>
<TABLE>
<CAPTION>
FOREIGN CURRENCIES
QUANTITY VALUE
DM 22,203 German Deutsche Mark $ 14,661
<S> <C> <C> <C>
HKD 1,392,385 Hong Kong Dollar 180,076
HJF 64,185,151 Hungarian Forint 413,072
IOR 5,247,542 Indonesian Rupiah 2,253
IEP 1,428 Irish Pound 2,325
YEN 1,023,417,444 Japanese Yen 8,988,779
MYR 3,991,349 Malaysian Ringgit 1,579,794
PEN 4,888 Peruvian Nouveau Sol 1,894
PHP 5,390,010 Philippine Peso 205,099
PKR 46,556 Pakistan Rupee 1,162
PLN 12,668 Polish Zolty 4,506
SGD 2,942,211 Singapore Dollar 2,088,897
THB 18,693 Thailand Baht 733
ZAR 2,057 South African Rand 438
TOTAL FOREIGN CURRENCIES
(COST $13,468,713)...... $13,483,689
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
INDUSTRY DIVERSIFICATION
OCTOBER 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
Aerospace & Defense........................................................................ .3%
Automotive Equipment & Manufacturing....................................................... 3.2
Banks...................................................................................... 14.6
Building, Construction & Furnishings....................................................... 2.8
Business Equipment & Services.............................................................. .5
Chemical & Agricultural Products........................................................... 3.5
Communication Systems & Services........................................................... 1.1
Consumer Products and Services............................................................. 1.4
Diversified Companies...................................................................... 2.6
Electrical Equipment & Services............................................................ 7.5
Energy..................................................................................... 4.9
Finance & Insurance........................................................................ 8.6
Food & Beverage Products................................................................... .9
Food Retailing & Distribution.............................................................. 2.0
Forest Products & Paper.................................................................... 2.1
Health Care Products & Services............................................................ .8
Holding Companies.......................................................................... 2.3
Industrial Commercial Goods & Services..................................................... .8
Information Services & Technology.......................................................... .1
Leisure & Tourism.......................................................................... .4
Machinery -- Diversified................................................................... 1.4
Manufacturing -- Distributing.............................................................. 1.2
Metal Products & Services.................................................................. 1.1
Office Equipment & Supplies................................................................ 1.7
Publishing, Broadcasting & Entertainment................................................... .9
Real Estate................................................................................ 5.3
Retailing & Wholesale...................................................................... 1.1
Telecommunication Services & Equipment..................................................... 4.1
Textile & Apparel.......................................................................... .2
Tobacco.................................................................................... .0(a)
Transportation............................................................................. 2.3
Utilities.................................................................................. 7.6
Total Long-Term Investments.......................................................... 87.3
Short-Term Investment...................................................................... 13.3
Other Assets and Liabilities -- net........................................................ (.6)
Net Assets........................................................................... 100.0%
</TABLE>
(a) Less than one tenth of one percent.
45
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities (identified cost $121,931,940)...................................................... $127,727,332
Repurchase agreements at value (identified cost $19,400,000).................................................. 19,400,000
Investments at value (identified cost $141,331,940)........................................................ 147,127,332
Foreign currency at value (identified cost $13,468,713)....................................................... 13,483,689
Receivable for forward currency contracts held at value....................................................... 24,665,125
Dividends and interest receivable............................................................................. 514,752
Receivable for Fund shares sold............................................................................... 415,745
Receivable for investments sold............................................................................... 160,900
Unamortized organization expense.............................................................................. 28,200
Prepaid expenses and other assets............................................................................. 6,941
Total assets............................................................................................ 186,402,684
LIABILITIES:
Due to custodian bank......................................................................................... 15,751
Payable for forward currency contracts held at value.......................................................... 24,518,888
Payable for investments purchased............................................................................. 15,367,358
Accrued expenses.............................................................................................. 82,178
Payable for Fund shares repurchased........................................................................... 68,342
Advisory fee payable.......................................................................................... 62,563
Withholding tax liability..................................................................................... 47,498
Distribution fee payable...................................................................................... 13,843
Total liabilities....................................................................................... 40,176,421
NET ASSETS....................................................................................................... $146,226,263
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $139,374,985
Undistributed net investment income........................................................................... 1,837,370
Accumulated net realized loss on investment transactions...................................................... (933,828)
Net unrealized appreciation of investments and foreign currencies............................................. 5,947,736
Net assets................................................................................................. $146,226,263
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($7,233,789 693,441 shares of beneficial interest outstanding)................................. $ 10.43
Sales charge -- 4.75% of offering price....................................................................... .52
Maximum offering price.................................................................................. $ 10.95
Class B Shares ($14,109,632 / 1,360,422 shares of beneficial interest outstanding)............................ $ 10.37
Class C Shares ($187,817 / 18,039 shares of beneficial interest outstanding).................................. $ 10.41
Class Y Shares ($124,695,025 / 11,916,010 shares of beneficial interest outstanding).......................... $ 10.46
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $526,363)........................................ $ 3,224,040
Interest........................................................................................ 170,860
Total investment income................................................................... 3,394,900
EXPENSES:
Advisory fee.................................................................................... $ 891,137
Administrative personnel and service fees....................................................... 55,875
Distribution fee -- Class A Shares.............................................................. 14,674
Distribution fee -- Class B Shares.............................................................. 86,432
Shareholder services fee -- Class B Shares...................................................... 28,811
Distribution fee -- Class C Shares.............................................................. 1,589
Shareholder services fee -- Class C Shares...................................................... 530
Custodian fee................................................................................... 356,622
Registration and filing fees.................................................................... 114,534
Transfer agent fee.............................................................................. 100,473
Reports and notices to shareholders............................................................. 42,391
Professional fees............................................................................... 35,454
Amortization of organization expense............................................................ 14,441
Insurance expense............................................................................... 8,493
Trustees' fees and expenses..................................................................... 6,084
Miscellaneous................................................................................... 1,305
Total expenses............................................................................ 1,758,845
Less: Fee waivers............................................................................... (483,599)
Net expenses.............................................................................. 1,275,246
Net investment income.............................................................................. 2,119,654
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized loss on investment transactions.................................................... (551,600)
Net realized loss on foreign currency transactions.............................................. (272,087)
Net change in unrealized appreciation of investments and foreign currencies..................... 5,669,016
Net gain on investments and foreign currencies..................................................... 4,845,329
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 6,964,983
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
TEN MONTHS*
YEAR ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 2,119,654 $ 524,164
Net realized gain (loss) on investment transactions.................................... (551,600) (255,993)
Net realized gain (loss) on foreign currency transactions.............................. (272,087) 107,669
Net change in unrealized appreciation (depreciation) of investments and foreign
currencies........................................................................... 5,669,016 (462,577)
Net increase (decrease) in net assets resulting from operations..................... 6,964,983 (86,737)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (39,834) (3,090)
Class B Shares......................................................................... (23,543) --
Class C Shares......................................................................... (59) --
Class Y Shares......................................................................... (645,172) (30,566)
Total distributions to shareholders from net investment income...................... (708,608) (33,656)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 63,370,539 33,765,660
Proceeds from shares issued from acquisition of FFB Diversified International Growth
Fund................................................................................. 29,658,717 --
Proceeds from reinvestment of distributions............................................ 365,798 19,562
Payment for shares redeemed............................................................ (14,067,718) (5,161,804)
Net increase resulting from Fund share transactions................................. 79,327,336 28,623,418
Net increase in net assets.......................................................... 85,583,711 28,503,025
NET ASSETS:
Beginning of period.................................................................... 60,642,552 32,139,527
End of period (including undistributed net investment income of $1,837,370 and
$616,692, respectively).............................................................. $146,226,263 $ 60,642,552
</TABLE>
* The Fund changed its fiscal year end from December 31 to October 31.
See accompanying notes to financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
CLASS A SHARES CLASS B SHARES
SEPTEMBER 2,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996++ 1995# 1994 1996++ 1995#
PER SHARE DATA:
Net asset value, beginning of period............. $9.58 $9.50 $10.00 $9.53 $9.50
Income (loss) from investment operations:
Net investment income.......................... .17 .09 .02 .11 .06
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions................................. .78 -- (.52 ) .76 (.03 )
Total from investment operations............. .95 .09 (.50 ) .87 .03
Less distributions to shareholders from
net investment income.......................... (.10 ) (.01 ) -- (.03 ) --
Net asset value, end of period................... $10.43 $9.58 $9.50 $10.37 $9.53
TOTAL RETURN+.................................... 9.9% 1.1% (5.1% ) 9.2% .5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $7,234 $3,594 $2,545 $14,110 $7,278
Ratios to average net assets:
Expenses**..................................... 1.24% 1.19% ++ 1.26% ++ 2.00% 1.94% ++
Net investment income**........................ 1.65% 1.38% ++ .91% ++ 1.05% .66% ++
Portfolio turnover rate.......................... 113% 4% 1% 113% 4%
Average commission rate paid..................... $.0068 N/A N/A $.0068 N/A
<CAPTION>
CLASS B SHARES
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
PER SHARE DATA:
Net asset value, beginning of period............. $10.00
Income (loss) from investment operations:
Net investment income.......................... --
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions................................. (.50 )
Total from investment operations............. (.50 )
Less distributions to shareholders from
net investment income.......................... --
Net asset value, end of period................... $9.50
TOTAL RETURN+.................................... (5.2% )
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $5,602
Ratios to average net assets:
Expenses**..................................... 2.02% ++
Net investment income**........................ .10% ++
Portfolio turnover rate.......................... 1%
Average commission rate paid..................... N/A
</TABLE>
* Commencement of operations.
# The Fund changed its year end from December 31 to October 31.
++ Per share data is calculated based on average shares outstanding during the
period.
+ 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 charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income (loss) to average net assets, exclusive
of any applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SEPTEMBER 2,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996 1995# 1994 1996 1995#
<S> <C> <C> <C> <C> <C>
Expenses....................................... 1.66% 1.84% 2.09% 2.42% 2.59%
Net investment income (loss)................... 1.23% .73% .08% .63% .01%
<CAPTION>
CLASS B SHARES
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses....................................... 2.85%
Net investment income (loss)................... (.73%)
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL EQUITY FUND
(Photo of European Flags appears here)
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
CLASS C SHARES CLASS Y SHARES
SEPTEMBER 2,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996++ 1995# 1994 1996++ 1995#
PER SHARE DATA:
Net asset value, beginning of period............. $9.53 $ 9.49 $10.00 $9.60 $9.50
Income (loss) from investment operations:
Net investment income.......................... .12 .08 .03 .20 .08
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions................................. .76 (.04 ) (.54 ) .78 .03
Total from investment operations............. .88 .04 (.51 ) .98 .11
Less distributions to shareholders from
net investment income.......................... (.0 )(a) -- -- (.12 ) (.01 )
Net asset value, end of period................... $10.41 $9.53 $9.49 $10.46 $9.60
TOTAL RETURN+.................................... 9.3% .5% (5.2% ) 10.3% 1.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $188 $196 $163 $124,695 $49,575
Ratios to average net assets:
Expenses**..................................... 1.99% 1.94% ++ 2.01% ++ .99% .94% ++
Net investment income**........................ 1.16% .79% ++ .85% ++ 1.95% 1.58% ++
Portfolio turnover rate.......................... 113% 4% 1% 113% 4%
Average commission rate paid..................... $.0068 N/A N/A $.0068 N/A
<CAPTION>
CLASS Y SHARES
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
PER SHARE DATA:
Net asset value, beginning of period............. $10.00
Income (loss) from investment operations:
Net investment income.......................... .02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions................................. (.51 )
Total from investment operations............. (.49 )
Less distributions to shareholders from
net investment income.......................... (.01 )
Net asset value, end of period................... $9.50
TOTAL RETURN+.................................... (5.0% )
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $23,830
Ratios to average net assets:
Expenses**..................................... 1.06% ++
Net investment income**........................ 1.03% ++
Portfolio turnover rate.......................... 1%
Average commission rate paid..................... N/A
</TABLE>
(a) Less than one cent per share.
* Commencement of operations.
# The Fund changed its year end from December 31 to October 31.
++ Per share data is calculated based on average shares outstanding during the
period.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SEPTEMBER 2,
YEAR TEN MONTHS 1994* YEAR TEN MONTHS
ENDED ENDED THROUGH ENDED ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31, OCTOBER 31, OCTOBER 31,
1996 1995# 1994 1996 1995#
<S> <C> <C> <C> <C> <C>
Expenses....................................... 2.43% 2.59% 2.84% 1.41% 1.59%
Net investment income.......................... .72% .14% .02% 1.53% .93%
<CAPTION>
CLASS Y SHARES
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses....................................... 1.89%
Net investment income.......................... .20%
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen International/Global 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 Funds consist of
Evergreen Emerging Markets Growth Fund ("Emerging Markets"), Evergreen Global
Leaders Fund ("Global Leaders"), Evergreen Global Real Estate Equity Fund
("Global Real Estate"), and Evergreen International Equity Fund
("International"), collectively referred to as the "Funds".
Emerging Market's investment objective is long-term appreciation through
investment in equity securities of issuers located in emerging markets. Global
Leaders' investment objective is to provide long-term capital growth by
investing in a diversified portfolio of U.S. and non-U.S. equity securities of
companies located in the world's major industrialized countries. Global Real
Estate's investment objective is long-term capital growth through investment
primarily in equity securities of domestic and foreign companies which are
principally engaged in the real estate industry or which own significant real
estate assets. International's investment objective is long-term capital
appreciation through investment in equity securities of non-U.S. issuers.
Effective January 1, 1996, First Fidelity Bancorporation ("First Fidelity")
merged with First Union National Bank of North Carolina ("First Union").
Effective at the close of business on January 19, 1996, International acquired
substantially all of the net assets of FFB Diversified International Growth
Fund, an open-end management investment company managed by a subsidiary of First
Fidelity registered under the Act, valued at $29,658,717. The net assets were
exchanged through a non-taxable transaction for 2,898,154 Class Y shares of
International valued at $10.23 per share. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $1,835,426.
The aggregate net assets of International after the acquisition were
$104,471,175.
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 -- Portfolio securities that are listed on a securities
exchange are valued at the last quoted sales price taken from the exchange where
the security is primarily traded. Securities listed on an exchange that are not
traded on the valuation date are valued at the mean between the bid and asked
price. Unlisted securities for which market quotations are readily available are
valued at a price quoted by one or more brokers. Other 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.
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.
FOREIGN CURRENCY TRANSLATION -- The Funds' accounting records are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the prevailing exchange
rates. Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rates on the dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains and losses are reflected as a component of such gains
and losses.
FORWARD FOREIGN CURRENCY CONTRACTS -- The Funds may enter into forward
foreign currency contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date in order to hedge its exposure to
changes in foreign
51
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
currency exchange rates. Forward currency contracts are revalued daily at the
prevailing rates of contracts of the same maturity. Gains and losses on forward
currency contracts are reported as realized or unrealized losses on foreign
currency transactions. Risks may arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on the Funds' behalf by its custodian under a book-entry system. The Funds
monitor 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. The Funds will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the Funds'
investment adviser to be creditworthy pursuant to guidelines established by the
Trustees.
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date, except certain dividends from foreign securities are recorded
as soon as the Fund is informed after the ex-dividend date. Interest income and
expenses are accrued daily.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and from net capital gains on investments for the Funds are declared and paid
annually or more frequently as required. Income distributions and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from the amounts available under generally accepted accounting
principles. To the extent these differences are permanent in nature, such
amounts are reclassified within the components of net assets.
As of October 31, 1996, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
UNDISTRIBUTED NET ACCUMULATED REALIZED
INVESTMENT INCOME GAIN/LOSS ON INVESTMENTS
<S> <C> <C>
Emerging Markets $ (7,591) $ 24,761
Global Leaders 14,948 (14,948)
Global Real Estate (20,261) 43,574
International (190,368) 145,852
</TABLE>
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code (the "Code") applicable to regulated investment companies
and to distribute substantially all of its taxable net income 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 the Funds' policy not to distribute such gains. During
the year, Global Real Estate utilized $402,699 of its available capital loss
carryforward to offset realized capital gains for Federal income tax purposes.
As of October 31, 1996, Emerging Markets, Global Real Estate and International
had capital loss carryforwards of $1,796,534, $6,947,906 and $895,418,
respectively. Pursuant to the Code, these capital loss carryforwards will expire
as follows:
<TABLE>
<CAPTION>
2002 2003 2004
<S> <C> <C> <C>
Emerging Markets $69,824 $1,625,952 $100,758
Global Real Estate -- 6,947,906 --
International -- 255,531 639,887
</TABLE>
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on
the settlement date.
52
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
DEFERRED ORGANIZATIONAL EXPENSES -- The costs incurred by Emerging Markets,
Global Leaders and International with respect to their organization have been
deferred and are being amortized using the straight-line method not to exceed a
period of five years from each Fund's commencement.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares or to a specific fund in a trust are charged to that class or trust.
Expenses common to the 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.
REAL ESTATE INVESTMENT TRUSTS -- Global Real Estate 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 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 Emerging Markets' and
International's investment adviser, and is entitled to a fee based on a
percentage of each Fund's average daily net assets as shown in the table below.
For Emerging Markets and International, First Union voluntary waived $326,122
and $479,316 respectively, of its advisory fee for the year ended October 31,
1996. In addition, First Union voluntarily reimbursed $75,341 in operating
expenses for Emerging Markets for the year ended October 31, 1996. First Union
can modify or terminate these voluntary waivers at any time.
<TABLE>
<CAPTION>
AVERAGE DAILY
ADVISORY FEE NET ASSETS
<S> <C> <C>
EMERGING MARKETS
on the first $100
1.50% million
1.45% on the next $100 million
1.40% on the next $100 million
in excess of $300
1.35% million
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DAILY
ADVISORY FEE NET ASSETS
<S> <C> <C>
INTERNATIONAL
0.82% on the first $20 million
0.79% on the next $30 million
0.76% on the next $50 million
in excess of $100
0.73% million
</TABLE>
Under terms of a sub-advisory agreement with First Union, Marvin & Palmer
Associates, Inc. ("Marvin & Palmer") is entitled to the following annual fee
from First Union based on Emerging Markets' average daily net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY
SUB-ADVISORY FEE NET ASSETS
<S> <C> <C>
on the first $100
1.00% million
0.95% on the next $100 million
0.90% on the next $100 million
in excess of $300
0.85% million
</TABLE>
53
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Through September 30, 1996, Boston International Advisers, Inc. ("BIA") was
the sub-advisor for International. Under terms of a sub-advisory agreement with
First Union, BIA was entitled to the following annual fee from First Union based
on International's average daily net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY
SUB-ADVISORY FEE NET ASSETS
<S> <C> <C>
0.32% on the first $20 million
0.29% on the next $30 million
0.26% on the next $50 million
0.23% in excess of $100 million
</TABLE>
Effective October 1, 1996, Warburg, Pincus Counsellors, Inc. ("Warburg")
became International's sub-advisor. Under the terms of the new sub-advisory
agreement, Warburg is entitled to an annual fee from First Union of .55 of 1% of
International's average daily net assets.
Under the terms of Emerging Markets' and International's sub-advisory
agreements, Marvin & Palmer and Warburg are responsible for the investment
decisions for their respective funds.
Pursuant to an agreement with Global Leaders' and Global Real Estate's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union, is entitled to an annual fee of .95 of
1% and 1% of Global Leaders' and Global Real Estate's average daily net assets,
respectively.
Evergreen Asset has voluntarily agreed to reimburse Global Leaders 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 servicing fees and
extraordinary expenses) exceed 1.50% of its average daily net assets for the
forseeable future. For the year ended October 31, 1996, Evergreen Asset waived
$138,323 of its advisory fee. In addition, for Global Real Estate, Evergreen
Asset voluntarily waived $37,319 of its advisory fee and reimbursed $27,960 in
expenses. Evergreen Asset may revise or cease these voluntary expense waivers
and expense reimbursements at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Global Leaders and Global Real Estate and also provides brokerage
services with respect to substantially all security transactions executed on the
New York or American Stock Exchanges. For transactions executed during the year
ended October 31, 1996, Global Leaders and Global Real Estate incurred brokerage
commissions of $54,074 and $40,808, 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 October 31, 1996, Stephen A. Lieber, Chairman of Evergreen Asset owned,
directly or beneficially, 30% of the outstanding shares of Global Real Estate.
ADMINISTRATIVE AGREEMENT -- Evergreen Asset furnishes Global Real Estate
with administrative services as part of its advisory agreement and accordingly,
Global Real Estate does not pay a separate administration fee. Furman Selz LLC
("Furman Selz") is the Fund's sub-administrator. As sub-administrator, Furman
Selz provides the officers of the Funds. For Global Real Estate, Furman Selz'
fee is paid by Evergreen Asset and is not a fund expense.
Evergreen Asset is also Emerging Markets', Global Leaders' and
International's administrator and Furman Selz is sub-administrator. Evergreen
Asset's and Furman Selz' fees for these funds are based on the average daily net
assets of all of the funds administered by Evergreen Asset for which either
First Union or Evergreen Asset is also the investment adviser. These fees are
calculated at the following annual rates:
54
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
<TABLE>
<CAPTION>
AVERAGE DAILY
ADMINISTRATION FEE NET ASSETS
<S> <C>
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
in excess of $30
0.010% billion
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DAILY
SUB-ADMINISTRATION FEE NET ASSETS
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
in excess of $25
0.0040% billion
</TABLE>
At October 31, 1996, assets for which Evergreen Asset was the administrator
for which either Evergreen Asset or First Union was the investment adviser
totaled approximately $16.3 billion.
Evergreen Asset voluntarily waived $4,405, $8,409 and $4,283 in
administration fees for Emerging Markets, Global Leaders and International,
respectively.
PLAN OF DISTRIBUTION AND SHAREHOLDER SERVICING -- The Funds have adopted
for each of their Class A, Class B and Class C shares, Distribution Plans (the
"Plans") pursuant to Rule 12b-1 under the Act. 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 an annual fee
of 1% for Class B and Class C shares. For each of these Funds, the payments for
Class A shares were voluntarily limited to .25 of 1% of average daily net
assets.
In connection with its Plan, Global Leaders and Global Real Estate have
entered into a distribution agreement with Evergreen Funds Distributor, Inc.
("EFD"), a subsidiary of Furman Selz, whereby they will compensate EFD for its
services at a rate which may not exceed an annual fee of .25 of 1% of Class A
shares average daily net assets and annual fee of 1% of Class B and Class C
shares average daily net assets. A portion of the payments of Class B and Class
C shares, up to .25 of 1% may constitute a shareholder services fee. In
connection with their Plans, Emerging Markets and International have entered
into a distribution agreement with EFD they will compensate EFD for its services
at a rate which may not exceed an annual fee of .25 of 1% of Class A shares
average daily net assets and annual fee of .75 of 1% of Class B and Class C
shares average daily net assets. Emerging and International have entered into a
shareholder services agreement with First Union Brokerage ("FUBS"), an affiliate
of First Union, whereby they will compensate FUBS up to .25 of 1% for certain
services provided to shareholders and or maintenance of shareholder accounts
relating to these Funds' Class B and Class C Shares.
SALES CHARGES -- EFD has advised the Funds that it has retained the
following amounts from front-end sales charges resulting from sales of Class A
shares during the year ended October 31, 1996:
<TABLE>
<S> <C> <C>
Emerging Markets $ 1,307
Global Leaders 23,499
Global Real Estate 117
International 6,190
</TABLE>
55
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Emerging Markets $ 42,280,735 $ 21,900,266
Global Leaders 70,764,667 4,136,827
Global Real Estate 14,068,987 33,425,935
International 182,042,212 121,969,888
</TABLE>
On October 31, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
FEDERAL TAX
APPRECIATION DEPRECIATION NET COST
<S> <C> <C> <C> <C>
Emerging Markets $1,481,985 $1,567,243 $ (85,258) $ 33,158,868
Global Leaders 5,080,021 1,571,851 3,508,170 71,235,050
Global Real Estate 6,929,126 7,232,330 (303,204) 47,330,355
International 9,137,427 3,621,380 5,516,047 141,611,285
</TABLE>
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par value shares of
beneficial interest authorized. The shares are divided into four classes which
are designated Class A, Class B, Class C and Class Y shares. Class A shares are
offered with a front-end sales charge of up to 4.75%. Class B shares are offered
with a contingent deferred sales charge payable when shares are redeemed which
declines from 5% to zero depending on the period of time the shares were held
(after which they will convert to Class A shares). Class C shares are offered
with a 1% contingent deferred sales charge on shares redeemed within the first
year 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.
All classes have identical voting, dividend, liquidation and other rights,
except that certain classes bear different distribution expenses (see Note 3)
and have exclusive voting rights with respect to their distribution plans.
56
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
EMERGING MARKETS SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............................................................. 108,210 $ 958,874 64,702 $ 496,478
Shares issued on reinvestment of distributions........................... 817 6,713 -- --
Shares redeemed.......................................................... (55,942) (493,377) (29,531) (228,199)
Net increase..................................................... 53,085 472,210 35,171 268,279
CLASS B
Shares sold.............................................................. 147,629 1,317,529 95,843 737,910
Shares redeemed.......................................................... (51,462) (443,501) (43,408) (335,151)
Net increase..................................................... 96,167 874,028 52,435 402,759
CLASS C
Shares sold.............................................................. 8,040 72,696 5,116 41,284
Shares redeemed.......................................................... (5,067) (43,102) (8,933) (64,678)
Net increase (decrease).......................................... 2,973 29,594 (3,817) (23,394)
CLASS Y
Shares sold.............................................................. 2,531,857 22,621,852 566,623 4,319,138
Shares issued on reinvestment of distributions........................... 1,942 15,980 -- --
Shares redeemed.......................................................... (301,830) (2,683,970) (105,109) (816,292)
Net increase..................................................... 2,231,969 19,953,862 461,514 3,502,846
Total net increase resulting from Fund share
transactions........................................................... 2,384,194 $21,329,694 545,303 $4,150,490
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996
GLOBAL LEADERS SHARES AMOUNT
<S> <C> <C>
CLASS A
Shares sold........................................................................................... 1,128,476 $12,914,033
Shares redeemed....................................................................................... (38,955) (450,952)
Net increase.................................................................................. 1,089,521 12,463,081
CLASS B
Shares sold........................................................................................... 3,561,481 40,763,569
Shares redeemed....................................................................................... (26,709) (307,417)
Net increase.................................................................................. 3,534,772 40,456,152
CLASS C
Shares sold........................................................................................... 48,546 557,221
Shares redeemed....................................................................................... (1,852) (21,683)
Net increase.................................................................................. 46,694 535,538
CLASS Y
Shares sold........................................................................................... 1,680,883 18,367,195
Shares issued on reinvestment of distributions........................................................ 1,378 14,211
Shares redeemed....................................................................................... (120,293) (1,342,441)
Net increase.................................................................................. 1,561,968 17,038,965
Total net increase resulting from Fund share transactions............................................. 6,232,955 $70,493,736
</TABLE>
57
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
GLOBAL REAL ESTATE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................ 208,609 $ 2,645,216 956 $ 11,527
Shares redeemed........................................................ (156,309) (2,008,136) -- --
Net increase................................................... 52,300 637,080 956 11,527
CLASS B
Shares sold............................................................ 7,284 91,539 197 2,360
Shares redeemed........................................................ (4,878) (59,333) (2,136) (25,616)
Net increase (decrease)........................................ 2,406 32,206 (1,939) (23,256)
CLASS C
Shares sold............................................................ 2,142 27,504 -- --
Shares redeemed........................................................ (1,782) (22,492) (248) (2,941)
Net increase (decrease)........................................ 360 5,012 (248) (2,941)
CLASS Y
Shares sold............................................................ 1,060,595 13,278,484 52,172 626,578
Shares redeemed........................................................ (2,500,751) (31,249,121) (329,743) (3,928,556)
Net decrease................................................... (1,440,156) (17,970,637) (277,571) (3,301,978)
Total net decrease resulting from Fund share transactions.............. (1,385,090) ($17,296,339) (278,802) ($3,316,648)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
INTERNATIONAL SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................ 459,233 $ 4,772,348 178,686 $ 1,741,458
Shares issued on reinvestment of distributions......................... 3,882 39,171 314 3,081
Shares redeemed........................................................ (144,771) (1,513,977) (71,833) (698,595)
Net increase................................................... 318,344 3,297,542 107,167 1,045,944
CLASS B
Shares sold............................................................ 802,691 8,346,658 339,054 3,280,684
Shares issued on reinvestment of distributions......................... 2,297 23,175 180 1,652
Shares redeemed........................................................ (208,561) (2,169,847) (165,193) (1,606,194)
Net increase................................................... 596,427 6,199,986 174,041 1,676,142
CLASS C
Shares sold............................................................ 11,595 120,774 12,504 116,208
Shares issued on reinvestment of distributions......................... 5 55 -- --
Shares redeemed........................................................ (14,095) (148,202) (9,102) (89,151)
Net increase (decrease)........................................ (2,495) (27,373) 3,402 27,057
CLASS Y
Shares sold............................................................ 4,796,183 50,130,759 2,935,478 28,627,310
Shares issued from acquisition of FFB Diversified International Growth
Fund................................................................. 2,898,154 29,658,717 -- --
Shares issued on reinvestment of distributions......................... 30,069 303,397 1,510 14,829
Shares redeemed........................................................ (972,043) (10,235,692) (282,738) (2,767,864)
Net increase................................................... 6,752,363 69,857,181 2,654,250 25,874,275
Total net increase resulting from Fund share transactions.............. 7,664,639 $79,327,336 2,938,860 $28,623,418
</TABLE>
58
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement was put in place with all of
the Evergreen Funds and their custodian, State Street Bank and Trust Company
(the "Bank"). Under the agreement, the Bank is providing an unsecured line of
credit facility, in the aggregate amount of $100 million ($50 million committed
and $50 million uncommitted), to be accessed by the Funds for temporary or
emergency purposes only and is subject to each participating Fund's borrowing
restrictions. Borrowings under this facility bear interest at .75% per annum
above the Bank's cost of funds as set periodically by the Bank. A commitment fee
of .10% per annum will be incurred on the unused portion of the committed
facility which will be allocated to all participating funds.
Prior to July 3, 1996, Global Real Estate had a financing agreement with
the Bank, which provided the Fund with a line of credit, in the aggregate amount
of the lesser of $5,000,000 or 5% of the value of the Fund's net assets, to be
accessed for temporary or emergency purposes. Borrowings under the line of
credit bore interest at 1% above the Bank's cost of funds as set periodically by
the Bank and were secured by securities pledged by the Fund.
During the year ended October 31, 1996, Global Real Estate had borrowings
outstanding for 162 days under the lines of credit and incurred interest charges
amounting to $16,803. Global Real Estate's average debt outstanding during the
year aggregated $583,642 at a weighted average interest rate of 6.4%. Global
Real Estate had no outstanding borrowings at October 31, 1996.
NOTE 7 -- CONCENTRATION OF CREDIT RISK
Since Global 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' FEES
Each Trustee 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 October 31, 1996, in its Statement of Assets and Liabilities. Any
gains earned or losses incurred in the Deferral Accounts are reported in each
Fund's Trustees' fees and expenses on the Statement of Operations. Trustees will
be paid either in one lump sum or in quarterly installments for up to ten years
at their 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 October 31,
1996, Trustees had deferred $328, $2,299, $5,041 and $1,769 for Emerging
Markets, Global Leaders, Global Real Estate and International, respectively.
59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
EVERGREEN EMERGING MARKETS GROWTH FUND, EVERGREEN GLOBAL LEADERS FUND,
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND, AND EVERGREEN INTERNATIONAL EQUITY
FUND
In our opinion, the accompanying Statements of Assets and Liabilities,
including the Statements of Investments, and the related Statements of
Operations and of Changes in Net Assets and the Financial Highlights present
fairly, in all material respects, the financial position of Evergreen Emerging
Markets Growth Fund (one of the Evergreen Investment Trust Portfolios),
Evergreen Global Leaders Fund and Evergreen Global Real Estate Equity Fund (two
of the Evergreen Equity Trust Portfolios), and Evergreen International Equity
Fund (one of the Evergreen Investment Trust Portfolios) (collectively, the
"Funds"), at October 31, 1996, the results of each of their operations for the
year then ended, the changes in net assets of Evergreen Emerging Markets Growth
Fund and of Evergreen Global Leaders Fund for the year ended October 31, 1996,
of Evergreen Global Real Estate Equity Fund for the year then ended and for the
one month period ended October 31, 1995, and of Evergreen International Equity
for the year ended October 31, 1996, and the financial highlights of Evergreen
Emerging Markets Growth Fund and of Evergreen Global Leaders Fund for the year
ended October 31, 1996, of Evergreen Global Real Estate Equity Fund for the
periods indicated, and of Evergreen International Equity Fund for the year ended
October 31, 1996, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above. The
financial highlights of Evergreen Emerging Markets Growth Fund and Evergreen
International Equity Fund for the ten month period ended October 31, 1995 and
the period ended December 31, 1994, and the statements of changes in net assets
for the ten month period ended October 31, 1995 were audited by other
independent accountants, whose opinion, dated December 8, 1995, was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
December 19, 1996
60
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
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
* These individuals are not Trustees for Emerging
Markets or International.
+ Trustee Emeritus.
PROXY VOTING RESULTS
A special meeting of shareholders of International
was held on October 1, 1996, to vote on the
selection of Warburg, Pincus Counsellors, Inc.
("Warburg") as the sub-advisor for the Fund, and
to approve the new sub-advisory agreement relating
to the Fund between Warburg and First Union
National Bank of North Carolina, the Fund's
investment advisor. The proposal was approved, as
follows:
For: 10,607,945
Against: 40,995
Abstain: 234,383
<PAGE>
This brochure must be preceeded or accompanied by a prospectus of an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing
or sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.
EvergreenSM is a Service Mark of Evergreen Asset Management Corp. Copyright
1996, Evergreen Asset Management Corp.
539749
46126 12/96
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 76.4%
Argentina - 0.0%
Perez Companc SA 19 156 19 156
------------ -----------
156 156
------------ -----------
Austria - 0.0%
Bank Austria AG 7 7
Boehler- Uddeholm AG 7 7
Creditanstalt-Bankverain 6 6
Lenzing Ag 11 11
Oester Elektrizita 7 7
OMV AG 16 16
Radex Heraklith 8 8
-------------- ------------ -----------
62 62
------------ -----------
Australia - 0.3%
Incitec, Ltd. 140 677 140 677
-------------- -----------
677 677
-------------- -----------
Belgium - 2.0%
* Barco NV 7 1192 7 1192
Colruyt SA 3 1192 3 1192
UCB SA 1 1646 1 1646
-------------- ------------ -----------
4030 4030
-------------- -----------
Brazil - 0.4%
Acesita Cia Acos Especisis Ita-ADR 4 18 4 18
BCO Bradesco SA 7000 58 7000 58
Companhia Energetica De Minas, ADR 3 146 3 146
Companhia Vale do Rio Doce, ADR 7 188 7 188
Rhodia Ster 7 23 7 23
Telecomunicacoes Brasileiras, ADR 3 316 3 316
-------------- ------------ -----------
749 749
------------ -----------
Canada - 3.3%
Bombardier, Inc. 140 2836 140 2836
* Canadian Natural Resources, Ltd. 75 1788 75 1788
DuPont Canada, Inc. 80 2004 80 2004
-------------- ------------ -----------
6628 6628
-------------- -----------
Chile - 0.2%
Chilectra SA, ADR 2 91 2 91
Chilgener SA, ADR 4 114 4 114
Compania Cervecerias Unidas SA, ADR 4 93 4 93
Compania de Telecom de Chile SA, ADR 3 82 3 82
-------------- ------------ -----------
380 380
------------ -----------
Colombia - 0.1%
Banco Ganadero S A, ADR 3 89 3 89
Banco Industrial Colombiano SA, ADR 6 101 6 101
Cementos Diamante 4 51 4 51
-------------- ------------ -----------
241 241
------------ -----------
Denmark - 0.0%
Danisco 6 6
Den Danske Bank AS 17 17
Korn Og Foderstof 9 9
Nkt 6 6
Sas Danmark A/S 4 4
Tele Danmark AS, Series B 10 10
Unidanmark AS, Registered Shares 20 20
-------------- ------------ -----------
72 72
------------ -----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
-------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Finland - 0.0%
Kesko 1 10 1 10
Merita Ltd. 4 13 4 13
Nokia Ab Oy 16 16
Outokumpu Oy 1 10 1 10
UPM-Kymmene Corp. 1 30 1 30
---------- -------- ----------
79 79
-------- ----------
France - 5.1%
Carrefour SA 4 2373 4 2373
Castorama Dubois Investisso 7 1035 40 7 1075
Cie de Saint Gobain 33 33
Cie Fin de Paribas, Class A 15 15
Havas 11 11
Hermes Internatonal 7 1748 7 1748
LAPEYRE SA 17 995 17 995
L Oreal 78 78
Lafargo 18 18
LVMH Moet Hennessy 76 76
Michelin 21 21
Peugeot SA 15 15
Pin Printemps Redo 25 25
Rhone Poulenc SA 1 37 1 37
Sagem Co. SA 1 326 1 326
Sanofi 27 27
SEB SA 8 1358 8 1358
Societe Technip 13 1321 13 1321
Suez Lyonn Eaux 15 15
Synthelabo 6 714 6 714
Uap Cie Uap 1 16 1 16
---------- -------- ----------
9870 427 10297
---------- -------- ----------
Germany - 7.0%
Allianz AG Hldg 2 291 2 291
ALTANA AG 3 1934 3 1934
Bayer AG 5 179 5 179
Bayerische Hypotheken - und Wechsel-Bank AG 2 70 2 70
Daimler Benz AG, Rights expire May 13, 1997 1 1
Daimler- Benz AG 1 74 1 74
Deutsche Bank AG 3 142 3 142
Hugo Boss AG 1 1725 1 1725
Lufthansa AG 3 35 3 35
Merck KGAA 2 60 2 60
RWE AG 106 4419 2 85 108 4504
SAP AG 17 3132 17 3132
Siemens AG 6 306 6 306
Suedzucker AG 4 1664 4 1664
Thyssen AG 44 44
Viag AG 97 97
---------- -------- ----------
12874 1383 14257
---------- -------- ----------
Greece - 0.0%
Ergo Bank 28 28
---------- -------- ----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong - 2.5%
Bank of East Asia Ltd. 5 17 5 17
Cheung Kong Holdings, Ltd. 117 1027 5 44 122 1071
China Light & Power Co., Ltd. 9 41 9 41
Giordano International, Ltd. 600 325 600 325
Hang Seng Bank 6 68 6 68
Henderson China Holdings, Ltd. 52 90 52 90
Henderson Land Development Co., Ltd. 115 969 115 969
Hong Kong & Shanghai Hotels Ltd.. 3 4 3 4
Hong Kong Telecomm 34 58 34 58
Hongkong-China Gas 12 19 12 19
Hong Kong Telecommunications, Ltd. ADS 60 1028 60 1028
Hutchison Whampoa, Ltd. 9 67 9 67
Hysan Development Co. 2 6 2 6
National Mutual Asia Ltd. 700 723 700 723
New World Development Co., Ltd. 5 29 5 29
Peregrine Invmtnt 6 9 6 9
Shangri La Asia Ltd 4 5 4 5
Sun Hung Kai Properties Ltd. 10 108 10 108
Swire Pacific Ltd. 3 23 3 23
Television Broadct 2 8 2 8
Wharf (Holdings) Ltd. (The) 4 15 4 15
Wing Lung Bank 78 427 1 7 79 434
-------- -------- --------
4589 528 5117
-------- -------- --------
India - 0.1%
Indian Petrochemic 6 74 6 74
Reliance Industries Ltd., GDS 4 84 4 84
Steel Authority Of 6 49 6 49
-------- --------
207 207
-------- --------
Indonesia - 0.2%
Bank International Indonesia 261 188 261 188
* Bank International Indonesia, Warrants expiring 1/17/2000 @ 1000 IDR 32 10 32 10
Bdni Bk Dagang Nas 20 7 20 7
Bank Dagang Nasional Indonesia 138 138 138 138
-------- --------
343 343
-------- --------
Ireland - 0.0%
Bank Of Ireland
CRH 14 140 14 140
-------- --------
140 140
-------- --------
Italy - 3.2%
BCA Comm Italiana 5 11 5 11
Burgo Cartiere SpA 1 6 1 6
Beneton Group SpA ADS 60 1553 60 1553
Credito Italiano SpA 6 9 6 9
Edison 1 6 1 6
Eni S.p.A. 26 132 26 132
Fiat Spa 34 113 34 113
Fiat Spa 4 7 4 7
Fila Holding SpA ADS 25 1081 25 1081
Imi 1 5 1 5
Industrie Natuzzi SpA ADS 73 1629 73 1629
Luxottica Group SpA ADS 25 1509 25 1509
Mediaset 4 15 4 15
Pirelli Spa 2 5 2 5
Telecom Italia 18 47 18 47
Telecom Italia Mob 91 286 91 286
-------- -------- --------
5772 642 6414
-------- -------- --------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Japan - 7.3%
Asahi Bank 10 61 10 61
Asahi Glass Co 14 127 14 127
Bank Of Tokyo Mits 16 253 16 253
Canon Sales Co., Inc. 3 56 3 56
Canon, Inc. 7 166 7 166
Chugai Pharm Co 6 44 6 44
Credit Saison Co 3 51 3 51
Daicel Chemical Industries, Ltd. 28 105 28 105
Daiwa Securities Co., Ltd. 4 27 4 27
Fuji Bank 13 146 13 146
Fuji Photo Film Co. 2 76 2 76
Hankyu Dept Stores 11 94 11 94
Hitachi Ltd. 18 163 18 163
Honda Motor Co., Ltd. 3 93 3 93
House Food Corp 4 59 4 59
Ind Bank Japan 11 117 11 117
Ito Yokado Co 2 96 2 96
Itochu Corp 15 71 15 71
Kaken Pharm 4 17 4 17
Kawasaki Kisen 40 69 40 69
Kinki Nippon Rlwy 31 172 31 172
Komatsu Ltd. 16 117 16 117
Marubeni Corp. 22 82 22 82
Matsushita Eleltric Industrial Co., Ltd. 10 160 10 160
Mitsubishi Estate Co., Ltd. 9 113 9 113
Mitsubishi Heavy Industries Ltd. 34 224 34 224
Mitsubishi Oil Co 10 41 10 41
Mitsubishi Tr+Bkg 6 64 6 64
Mitsui Trust & Banking 4 23 4 23
Mitsui Soko Co. 150 722 150 722
Mori Seiki Co. 4 58 4 58
Nikkei 134 293 134 293
Nintendo Co., Ltd. 48 3509 48 3509
Nippon Chemical 69 386 69 386
Nisshinbo Industries Inc. 11 73 11 73
Nkk Corporation 58 125 58 125
Nomura Securities International Inc. 7 78 7 78
Ntt Data Corp 58 58
Onward Kashiyama 6 77 6 77
Sakura Bank 17 90 17 90
Sankyo Co 3 80 3 80
Sekisui Chemical Co. 6 58 6 58
Sekisui House, Ltd. 11 98 11 98
Seven-Eleven Japan Co., Ltd. 75 4782 75 4782
Sharp Corp. 6 78 6 78
Shionogi + Co 4 27 4 27
Shiseido Co., Ltd. 6 86 6 86
Sony Corp. 1 73 1 73
Sumitomo Bakelite 10 67 10 67
Sumitomo Bank 14 160 14 160
Sumitomo Mar+Fire 15 92 15 92
Taisei Corp 13 48 13 48
Takara Standard Co 4 30 4 30
Takuma Co 5 54 5 54
Tokai Bank 9 67 9 67
Tokyo Elec Power 8 144 8 144
Toyota Motor Corp. 15 435 15 435
Yamaichi Securities Co., Ltd. 3 8 3 8
Yamanouchi Pharmaceutical 3 64 3 64
Yamatake Honeywell 6 89 6 89
------------- ----------- --------
9399 5497 14896
------------- ----------- --------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Korea - 0.2%
Anam Industrial Co 3 50 3 50
Dong Bang Forwrdng 2 138 2 138
Hyundai Motor Svcs 2 21 2 21
Korea Electric Power 3 95 3 95
Kumho Const - Eng 9 23 9 23
Samsung Electronic
Samsung Electronics Ltd., GDR 1 1
Yukong 3 46 3 46
---------- ---------
374 374
---------- ---------
Malaysia - 2.7%
AMMB Holdings Berhad 76 505 505
Commerce Asset Holding Berhad 100 597 7 42 107 639
DCB Holdings Berhad 155 503 25 81 180 584
Genting Berhad 12 64 12 64
Guinness Anchor Bd 40 88 40 88
Jaya Tiasa Hldgs 10 51 10 51
Malayan Banking Berhad 100 996 12 119 112 1115
Malaysian Oxygen Berhad 40 198 40 198
Malaysian Airline Systems 25 55 25 55
Nestle Berhad 61 476 61 476
Petronas Gas Berhad 18 62 18 62
Perusahaan Otomobil Nasional Berhad 100 597 100 597
Renong Berhad 47 64 47 64
Sime Darby, Berhad 35 108 35 108
Telekom Malaysia Berhad 9 63 9 63
United Engineers Ltd. Berhad 112 794 9 64 121 858
----------- ----------- -----------
4666 861 5527
----------- ----------- -----------
Mexico - 0.3%
Alfa SA de CV 13 70 13 70
Apasco SA 11 65 11 65
Carso Global Telecom Sa de CV, ADR 5 30 5 30
Grupo Carso Sa de CV, ADR 5 57 5 57
* Grupo Finance Banamex Accival SA de CV,
Series B 16 34 16 34
Grupo Finance Banamex Accival, SA de CV,
Series L 1 2 1 2
Grupo Financiero Inbursa SA De CV ADR 1 1
Grupo Televisa SA 4 46 4 46
Kimberly Clark Corp. de Mexico 25 93 25 93
Telefonos De Mexico 110 228 110 228
----------- ----------- -----------
626 626
----------- -----------
Netherlands - 2.9%
ABN-AMRO Holdings NV 27 27
AEGON NV 4 267 4 267
Ahold (Kon) NV 4 285 4 285
Elsevier NV 14 224 14 224
Elsevier NV ADS 28 920 28 920
Getronics NV 24 733 24 733
Heineken NV 1 168 1 168
ING Groep NV 1 55 1 55
Nutricia Verenigde Bedrijven NV 7 1062 7 1062
Philips Electronics NV 1 52 1 52
Royal Dutch Petroleum Co. 1 214 1 214
Unilever Nv 39 39
VNU 45 931 45 931
Wolters Kluwer NV 9 1007 9 1007
----------- ----------- -----------
4877 1107 5984
----------- ----------- -----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
New Zealand - 0.7%
Carter Holt Harvey Ltd. 8 18 8 18
Fletcher Challenge, Energy Shares 6 16 6 16
Telecom Corporation Of New Zealand 4 17 4 17
Telecom Corp. of New Zealand Ltd. ADS 40 1447 40 1447
------------ ----------- -----------
1447 51 1498
------------ ----------- -----------
Norway - 0.6%
Aker AS, Series A 5 5
Elkem AS 8 8
Norsk Hydro AS 1 49 1 49
Norske Skogindustrier AS, Class A 10 10
Norske Skogindustrier AS, Class B 6 6
Orkla ASA 15 1258 8 15 1266
Storebrand Asa 1 8 1 8
------------ ----------- -----------
1258 94 1352
------------ ----------- -----------
Peru - 0.0%
Indosat, ADR 3 85 3 85
------------ ----------- -----------
85 85
----------- -----------
Philippines - 0.1%
* Belle Corp. 400 96 400 96
Metro Bank & Trust Co. 2 40 2 40
------------ ----------- -----------
136 136
----------- -----------
Portugal - 0.1%
BCO Commerce Portugal 6 91 6 91
Jeronimo Martins Sgps 1 84 1 84
Portugal Telecom SA 2 74 2 74
Sonae Investimentos SA 2 49 2 49
------------ ----------- -----------
298 298
----------- -----------
Singapore - 0.6%
City Developments Ltd. 2 16 2 16
DBS Land Ltd. 3 10 3 10
Development Bank of Singapore 3 36 3 36
First Capital Corp 2 5 2 5
Hotel Properties 3 5 3 5
* Keppel Corp., Ltd. 1 5 1 5
O/Seas Chinese Bk 5 58 5 58
Singapore Airlines 3 27 3 27
Singapore Press Holdings, Ltd. 50 926 1 19 51 945
Singapore Telecomm 13 22 13 22
United O/Seas Bank 4 38 4 38
United OverSeas Land Ltd. 5 7 5 7
Van Der Horst 2 6 2 6
------------ ----------- -----------
926 254 1180
------------ ----------- -----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
South Africa - 0.6%
Amalgamated Bank South Africa 7 47 7 47
Anglo Amer Coal 27 27
Anglo Amer Indl Cp 1 44 1 44
Anglo American Corp. Ltd. 2 96 2 96
Barlow Ltd. 6 66 6 66
De Beers Centenary AG 3 119 3 119
Dimension Data Hld 1 1
Ellerine Hldgs 1 5 1 5
Foodcorp Ltd 1 5 1 5
Free State Consolidated Gold Mines Ltd. 5 30 5 30
Gencor Ltd. 20 84 20 84
JD Group Ltd. 1 1
Liberty Life Associates 3 84 3 84
Liberty Life Stgic 28 106 28 106
Malbak Ltd. 6 10 6 10
Nedcor Ltd. 3 51 3 51
New Clicks Hldgs 2 3 2 3
Rembrandt Group Ltd. 7 74 7 74
Rustenberg Platnum 3 48 3 48
S A Druggists 1 8 1 8
Sasol Ltd. 9 115 9 115
South Africa Brews 4 118 4 118
Standard Bank Invr1 1 46 1 46
Sun Intl South Africa 63 40 63 40
----------- -----------
1228 1228
----------- -----------
Spain - 3.4%
BCO Bilbao Vizcaya 20 20
BCO Santander SA 30 30
Centros Comerciales Pryca, SA 30 521 30 521
Corporacion Bancaria de Espana SA 13 13
Empresa Nacional de Electricdad 1 42 1 42
Empresa Nacional de Electricdad ADS 36 2516 36 2516
Gas Natural Sdg Sa 21 21
Iberdrola SA 2 25 2 25
Prosegur, CIA de Seguridad SA 55 596 55 596
Repsol SA 1 46 1 46
Repsol SA, ADS 70 2931 70 2931
Telefonica de Espana SA 2 56 2 56
Union Electrica Fenosa SA 1 5 1 5
Vallehermoso SA 6 148 6 148
------------ ----------- -----------
6564 406 6970
------------ ----------- -----------
Sweden - 1.9%
Astra AB 3 106 3 135 6 241
Astra AB ADS 56 2276 56 2276
Ericsson Lm Tel 2 73 2 73
Hennes & Mauritz AB Cl. B 6 897 6 897
Scania Ab 3 67 3 67
Scania Ab 3 67 3 67
Skandinaviska Enskilda Banken, Series B 2 15 2 15
Svedala Industri 7 128 7 128
Svenska Handelsbanken, Series A 8 8
------------ ----------- -----------
3279 493 3772
------------ ----------- -----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
------------ ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Switzerland - 0.6%
ABB AG 115 115
Adecco SA 33 33
Credit Suisse Group 1 68 1 68
Nestle SA 182 182
Novartis AG, Registered Shares 263 263
Roche Holding AG 253 253
Schweizerische Rueckversicherungs-Gesellschaft 116 116
Schweizerische Bankgesellsch 47 47
Schweizerischer Bankverein 55 55
Ubs Schw Bkgesell 38 38
Zurich Versicherun, Bearer Shares 33 33
------------ ----------- -----------
1203 1203
----------- -----------
Taiwan - 0.1%
Macronix Intl Co Ltd ADR 3 63 3 63
Tuntex Distinct 10 87 10 87
Walsin Lihwa Corp., GDR 6 61 6 61
----------- -----------
211 211
----------- -----------
Thailand - 0.2%
Krung Thailand Bank Plc 27 34 27 34
PTT Exploration & Production Public Co., Ltd. 5 58 5 58
Siam Cement Public Co., Ltd. Foreign Shares 2 54 2 54
Siam Commercial Bank Plc Ltd. 14 79 14 79
Telecomasia 35 53 35 53
United Communication Industry 9 52 9 52
----------- -----------
330 330
----------- -----------
Turkey - 0.0%
Koc Yatirim (a)
----------- -----------
----------- -----------
United Kingdom - 6.6%
Allied Domecq Plc 14 101 14 101
Argos Plc 35 361 35 361
British Aerospace 2 40 2 40
British Petroleum Co. Plc 10 118 10 118
British Sky Broadcast 1 8 1 8
Burmah Castrol Plc 30 491 30 491
Cable + Wireless 1 8 1 8
Carlton Communications Plc 28 226 28 226
Carlton Communications Plc ADS 20 838 20 838
Chubb Security Plc 29 210 29 210
EMI Group 6 127 6 127
Energy Group Plc 8 235 8 235
Glaxo Wellcome 5 94 5 94
Granada Group Plc 55 800 55 800
Hanson Plc, ADR 8 182 8 182
HSBC Holdings Plc 7 166 7 166
Legal & General Group Plc 58 387 58 387
Lloyds TSB Group Plc 95 867 7 65 102 932
Morgan Crucible Company Plc 65 457 65 457
National Westminster Bank 18 213 18 213
Next Plc 40 422 40 422
Reckitt & Colman Plc 80 1089 80 1089
Rentokil Group Plc 95 623 95 623
Reuters Holdings Plc ADS 13 770 13 770
Siebe 9 130 9 130
Smithkline Beecham Plc 17 267 17 267
SmithKline Beecham Plc ADS 16 1298 16 1298
Smiths Industries Plc 40 489 40 489
Thorn 6 17 6 17
TI Group Plc 85 729 85 729
United News & Media Plc ADS 33 400 33 400
Vodafone Group Plc ADS 13 553 13 553
Williams Holdings Plc 26 139 26 139
Wolseley Plc 50 403 50 403
------------ ----------- -----------
11116 2207 13323
------------ ----------- -----------
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Fund Global Growth Fund Combined
Market Market Market
Shares Value Shares Value Shares Value
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States - 23.1%
AlliedSignal Inc. 19 1373 19 1373
* Amgen, Inc. 14 830 14 830
AT & T Corp. 33 1106 33 1106
Avon Products, Inc. 11 647 11 647
Callaway Golf Co. 26 777 26 777
Carnival, Corp. 30 1106 30 1106
* Cisco Systems, Inc. 27 1397 27 1397
Coca Cola Co. (The) 20 1273 20 1273
Computer Associates International, Inc. 32 1651 32 1651
* CUC International, Inc. 43 914 43 914
Deere & Co. 20 920 20 920
Disney Walt Co. (The) 14 1140 14 1140
Dover Corp. 15 795 15 795
Dresser Inds Inc. 30 896 30 896
* E M C Corp. Mass. 5 182 5 182
Federal National Mortgage Association 38 1563 38 1563
Gannett Inc. 15 1309 15 1309
Gap, Inc. 25 797 25 797
General Electric Co. 30 3271 30 3271
Goodyear Tire & Rubber Co. (The) 17 868 17 868
Home Depot, Inc. (The) 30 1740 30 1740
Intel Corp. 16 2389 16 2389
Marriott International, Inc. 27 1464 27 1464
Marsh & McLennan Co., Inc. 6 687 6 687
Mattel, Inc. 35 976 35 976
MBNA Corp. 35 1155 35 1155
McGraw-Hill Cos., Inc. 13 636 13 636
Merck & Co., Inc. 22 1946 22 1946
Merrill Lynch & Co., Inc. 13 1191 13 1191
* Microsoft Corp. 19 2248 19 2248
Norwest Corp. 22 1097 22 1097
* Oracle Systems Corp. 35 1391 35 1391
* Parametric Technology Corp. 28 1267 28 1267
Schering-Plough Corp. 17 1360 17 1360
Schwab (Charles) & Co., Inc. 15 549 15 549
Student Loan Marketing Corp. 5 591 5 591
SunAmerica, Inc. 30 1380 30 1380
Wal-Mart Stores, Inc. 70 1978 70 1978
-------- --------
46860 46860
-------- --------
Total Common Stocks 134832 20898 155728
======== ======== ========
PREFERRED STOCKS - 0.1%
Austria - 0.0%
Creditanstalt-Bankverein 8 8
-------- --------
8 8
-------- --------
Brazil - 0.0%
Acos Espec Itabira 1212 3 1212 3
* Eletrobras SA, Cl. B Shares 150 70 150 70
-------- --------
73 73
-------- --------
Finland - 0.0%
Nokia (Ab) Oy 1 31 1 31
-------- --------
31 31
-------- --------
Korea - 0.0%
Anam Industrial Co 6 32 6 32
Daewoo Heavy Inds 6 20 6 20
-------- --------
52 52
-------- --------
Total Preferred Stocks 164 164
======== ========
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Global Growth Combined
Fund Fund
Principal Market Value Principal Market Value Principal Market Value
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS-10.3%
United States-10.3%
Abbey National 5.34%, 6/10/97 3000 2985 3000 2985
Associates First Capital Corporation 5.54%, 6/23/97 3000 2979 3000 2979
Ford Motor Credit Company 5.55%, 6/20/97 3000 2980 3000 2980
Halifax Building Society 5.31%, 6/9/97 3000 2985 3000 2985
Hertz Corporation 5.51%, 6/23/97 3000 2979 3000 2979
Repsol International Finance 5.32%, 6/9/97 3000 2985 3000 2985
Xerox Credit Corporation 5.32%, 6/5/97 3000 2987 3000 2987
------------ ------------
Total Corporate Bonds 20880 20880
============ ============
FOREIGN GOVERNMENT BONDS
Australia - 0.1%
Australian Commonwealth 7.50%, 7/15/05 165 AUD 127 165 AUD 127
------------ ------------
127 127
------------ ------------
Canada - 0.3%
Canada Government 11.00%, 6/1/09 645 CAD 617 645 CAD 617
------------ ------------
617 617
------------ ------------
Denmark - 0.3%
Denmark Kingdom 8.00%, 3/15/06 3,310 DKK 551 3,310 DKK 551
------------ ------------
551 551
------------ ------------
France - 0.6%
Government of France 7.25%, 4/25/06 2,150 FRF 410 2,150 FRF 410
Government of France 6.50%, 10/25/06 4,890 FRF 887 4,890 FRF 887
------------ ------------
1297 1297
------------ ------------
Germany - 0.7%
Germany Fed Rep 7.125%, 12/20/02 287 DEM 182 287 DEM 182
Germany Fed Rep 6.50%, 7/15/03 165 DEM 102 165 DEM 102
Germany Fed Rep 6.00%, 1/5/06 1,140 DEM 671 1,140 DEM 671
Germany Fed Rep 6.25%, 4/26/06 690 DEM 413 690 DEM 413
------------ ------------
1368 1368
------------ ------------
Italy - 0.4%
Republic of Italy 10.5%, 4/15/98 880,000 ITL 529 880,000 ITL 529
Republic of Italy 10.5%, 4/1/05 310,000 ITL 211 310,000 ITL 211
------------ ------------
740 740
------------ ------------
Spain - 0.4%
Spain(Kingdom Of) 12.25%, 3/25/00 104,600 ESP 839 104,600 ESP 839
------------ ------------
839 839
------------ ------------
Sweden - 0.1%
Sweden (Kingdom Of) 10.25%, 5/5/00 1,600 SDK 230 1,600 SDK 230
------------ ------------
230 230
------------ ------------
United Kingdom - 0.6%
Treasury 7.75%, 9/8/06 239 GBP 394 239 GBP 394
Treasury 9.75%, 8/27/02 190 GBP 341 190 GBP 341
Treasury 7.50% 12/7/06 370 GBP 595 370 GBP 595
------------ ------------
1330 1330
------------ ------------
Total Foreign Government Bonds 7099 7099
============ ============
</TABLE>
<PAGE>
Evergreen Global Leaders Fund
Pro Forma Schedule of Investments (unaudited)
April 30, 1997 (000's omitted)
<TABLE>
<CAPTION>
Evergreen Blanchard Pro Forma
Global Leaders Global Growth Combined
Fund Fund
Principal Market Value Principal Market Value Principal Market Value
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES GOVERNMENT & AGENCY OBLIGATIONS-4.4%
United States Treasury Bills 6/26/97 1850 1836 1850 1836
United States Tres Bond Strip Principal 8/15/05 350 201 350 201
United States Tres Strip Interest 2/15/05 350 208 350 208
United States Treasury Notes 6.25%, 2/15/03 400 394 400 394
United States Treasury Bonds 7.50%, 11/15/16 500 526 500 526
United States Treasury Bonds 7.25%, 8/15/22 2500 2558 2500 2558
United States Treasury Bonds 7.625%, 11/15/22 1200 1282 1200 1282
United States Treasury Bonds 11.75%, 11/15/14 1430 2003 1430 2003
------------ ------------
Total United States Government & Agency Obligations 9008 9008
============ ------------
SHORT-TERM INVESTMENTS - 3.6%
United States - 3.6%
Federal Farm Credit Bank
5.36%, 5/23/97 300 299 300 299
Federal Home Loan Mortgage Corp.
5.41%, 5/6/97 450 450 450 450
Federal National Mortgage Association
5.41%, 5/2/97 100 100 100 100
Federal National Mortgage Association
5.41%, 5/9/97 300 300 300 300
Federal National Mortgage Association
5.35%, 5/20/97 3000 2992 3000 2992
Federal National Mortgage Association
5.35%, 5/28/97 350 349 350 349
CS First Boston Repurchase Agreement,
5.35%, 5/1/97 2891 2891 2891 2891
------------ ------------ ------------
Total Short Term Investments 4488 2891 7381
============ ============ ============
------------
Total Investments 139320 60940 200260
------------ ------------ ------------
Other Assets and
Liabilities - net 1396 770 2166
Net Assets - 140716 61710 202426
------------ ------------ ------------
* Non-income producing securities
. Less than $1,000
ADS-American Depository Shares
</TABLE>
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
SCHEDULE OF INVESTMENTS - (continued)(000's omitted)
April 30, 1997
FUTURES CONTRACTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Unrealized
#of Initial Contract Appreciation
Expiration Contracts Description Amount (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June-97 7 Australian 10 yr Bond $ 902 $ (4)
June-97 6 CAC 40 Index 3,064 6
June-97 223 Nikkei 300 Index 578,105 437
June-97 11 German 10yr Treasury 2,820 (21)
September-97 8 DAX Index 2,742 23
June-97 15 UK 10-yr Gilt Bond 836 (15)
June-97 8 French 10-yr Bond 5,189 (6)
June-97 4 TSE 35 Index 670 (20)
September-97 2 TSE 35 Index 311 8
June-97 12 Canadian 10-yr Bond 1,389 (5)
June-97 17 S&P 500 Index 6,807 17
September-97 13 S&P 500 Index 5,196 74
September-97 4 FTSE 100 448 0
September-97 4 ORDS Index 251 0
$608,730 $494
</TABLE>
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
SCHEDULE OF INVESTMENTS - (continued) (000's omitted)
April 30, 1997
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Exchange U.S. Value at In Exchange Appreciation
Date April 30, 1997 for U.S. $ (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts to Buy:
Contracts to Receive
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/25/97 1200 Australian Dollars $935 $931 $4
3/5/97 80 British Pounds 129 129 0
4/9/97 2 British Pounds 3 3 0
6/25/97 890 British Pounds 1441 1429 12
7/2/97 6200 French Franc 1067 1112 (45)
6/25/97 1175 German Marks 681 682 (1)
10/25/96 1056 Japanese Yen 8 9 (1)
1/8/97 422 Portuguese Escudo 2 3 (1)
Forward Foreign Currency Exchange Contracts to Sell:
Contracts to Deliver
- ----------------------------------------------------------------------------------
4/10/97 283 British Pounds $459 $460 $1
6/25/97 810 Canadian Dollars 582 587 5
4/30/97 2900 French Franc 497 503 6
6/17/97 229550 Japanese Yen 1821 1969 148
6/25/97 1700 Netherlands Guilder 876 933 57
4/25/97 3 Portuguese Escudo 0 0 0
6/25/97 1600 Swiss Franc 1092 1141 49
</TABLE>
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities (000's omitted)
Year Ended April 30, 1997
<TABLE>
<CAPTION>
Evergreen Blanchard
Global Leaders Global Growth
Fund Fund
------------------ -----------------
<S> <C> <C>
Assets:
Investments at value (cost $193,194) $139,320 $60,940
Foreign currencies at value (cost $46) 47 -
Receivable for investments sold 1,922 551
Dividends and interest receivable 393 465
Unrealized appreciation on open forward foreign currency exchange contracts 0 282
Receivable for futures margin 0 267
Receivable for Fund shares sold 1,261 -
Unamortized organizational expenses 27 -
Prepaid expenses 47 -
------------------ -----------------
Total Assets 143,017 62,505
Liabilities:
Payable for investments purchased 1,999 58
Payable for Fund shares repurchased 100 -
Due to custodian (72) 518
Unrealized depreciation on open forward foreign currency exchange contracts 0 48
Accrued advisory fee 94 50
Distributions payable 78 54
Accrued expenses 102 67
------------------ -----------------
Total Liabilities 2,301 795
Net Assets 140,716 61,710
================== =================
Net Assets are comprised of:
Paid-in capital 132,579 58,265
Accumulated net realized (income or loss) (148) 1,092
Undistributed net realized gain on investments 1,080 1,792
Net unrealized appreciation on investments, futures and foreign currency transactions 7,205 561
------------------ -----------------
Net Assets 140,716 61,710
================== =================
Class A Shares
Net Assets $26,474 $61,710
Shares of beneficial interest outstanding 2,114 6,349
Net Asset Value $12.52 $9.72
Maximum Offer Price - 4.75% $13.14
Class B Shares
Net Assets $85,094 -
Shares of beneficial interest outstanding 6,843 -
Net Asset Value $12.43 -
Class C Shares
Net Assets $1,580 -
Shares of beneficial interest outstanding 127 -
Net Asset Value $12.42 -
Class Y Shares
Net Assets $27,568 -
Shares of beneficial interest outstanding 2,198 -
Net Asset Value $12.54 -
Pro Forma
Adjustment Combined
---------------
Assets:
Investments at value (cost $193,194) $200,260
Foreign currencies at value (cost $46) 47
Receivable for investments sold 2,473
Dividends and interest receivable 858
Unrealized appreciation on open forward foreign currency exchange contracts 282
Receivable for futures margin 267
Receivable for Fund shares sold 1,261
Unamortized organizational expenses 27
Prepaid expenses 47
---------------
Total Assets 205,522
Liabilities:
Payable for investments purchased 2,057
Payable for Fund shares repurchased 100
Due to custodian 446
Unrealized depreciation on open forward foreign currency exchange contracts 48
Accrued advisory fee 144
Distributions payable 132
Accrued expenses 169
---------------
Total Liabilities 3,096
Net Assets 202,426
===============
Net Assets are comprised of:
Paid-in capital 190,844
Accumulated net realized (income or loss) 944
Undistributed net realized gain on investments 2,872
Net unrealized appreciation on investments, futures and foreign currency transactions 7,766
---------------
Net Assets 202,426
===============
Class A Shares
Net Assets $88,184
Shares of beneficial interest outstanding (1,420)a 7,043
Net Asset Value $12.52
Maximum Offer Price - 4.75%
Class B Shares
Net Assets $85,094
Shares of beneficial interest outstanding 6,843
Net Asset Value $12.43
Class C Shares
Net Assets $1,580
Shares of beneficial interest outstanding 127
Net Asset Value $12.42
Class Y Shares
Net Assets $27,568
Shares of beneficial interest outstanding 2,198
Net Asset Value $12.54
</TABLE>
a Reflects impact of converting shares of the target fund into the survivor
fund
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
EVERGREEN GLOBAL LEADERS FUND
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations (000's omitted)
Year Ended April 30, 1997
<TABLE>
<CAPTION>
Evergreen Blanchard
Global Leaders Global Growth
Fund Fund
---------------- -------------------
<S> <C> <C>
Investment Income:
Dividend income (net of w/h taxes of $157) $1,110 $423
Interest income 229 2334
---------------- --------------------
Total income 1,339 2,757
Expenses:
Advisory fees 675 669
Administrative fees 30 75
Distribution fees 432 501
Transfer agent fees 159 111
Custodian fees 168 71
State registration and filing fees 112 17
Federal registration fees 0 0
Audit fees 26 49
Legal fees 2 8
Printing fees 6 72
Miscellaneous fees 26 70
Fee waivers and/or expense reimbursements by affiliates (138) (5)
---------------- --------------------
Total expenses 1,498 1,638
Less: Indirectly paid expenses (1) 0
---------------- --------------------
Net expenses 1,497 1,638
================ ====================
Net investment income (158) 1,119
Net realized gain (loss) on investments and foreign
currency related transactions 1,081 10,238
Net change in unrealized appreciation (depreciation)
of investments and foreign currency related transactions 4,778 (7,366)
---------------- -------------------
Net realized and unrealized gain on investments and
foreign currency related transactions 5,859 2,872
---------------- -------------------
Net increase in net assets resulting from operations $5,701 $3,991
---------------- -------------------
Pro
Forma
Adjustments Combined
-----------------
Investment Income:
Dividend income (net of w/h taxes of $157) $1,533
Interest income 2563
----------------------------------------
Total income 4,096
Expenses:
Advisory fees (33)a 1,311
Administrative fees (35)a 70
Distribution fees (334)a 599
Transfer agent fees (76)c 194
Custodian fees 87 b 326
State registration and filing fees (17)c 112
Federal registration fees 2 b 2
Audit fees (49)c 26
Legal fees (4)c 6
Printing fees (63)c 15
Miscellaneous fees (46)c 50
Fee waivers and/or expense reimbursements by affiliates 110 b (33)
----------------------------------------
Total expenses (458) 2,678
Less: Indirectly paid expenses 1 0
----------------------------------------
Net expenses (457) 2,678
========================================
Net investment income 457 1,418
Net realized gain (loss)on investments and foreign
currency related transactions 11,309
Net change in unrealized appreciation (depreciation)
of investments and foreign currency related transactions -2,578
-----------------
Net realized and unrealized gain on investments and
foreign currency related transactions 8,731
-----------------
Net increase in net assets resulting from operations 457 $10,149
-----------------
</TABLE>
a Reflects a decrease based on surviving fund's fee schedule and pro forma
combined assets
b Reflects an increase based on combined assets.
c Reflects expected cost savings when the fund's are combined.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Global Leaders Fund
Notes to Pro-Forma Combining Financial Statements (Unaudited)
April 30, 1997
1. Basis of Combination - The Pro-Forma Statement of Assets and Liabilities,
including the Pro-Forma Portfolio of Investments, and the related Pro-Forma
Statement of Operations ("Pro-Forma Statements") reflect the accounts of
Evergreen Global Leaders Fund (Evergreen) and Blanchard Global Growth Fund
(Blanchard) at April 30, 1997 and for the year then ended.
The Pro-Forma Statements give effect to the proposed transfer of all assets and
certain identified liabilities of Blanchard shares in exchange for shares of
Evergreen. The Pro-Forma Statements reflect the expense of each Fund in carrying
out its obligations under the Agreement and Plan of Reorganization (the
"Reorganization") as though the merger occurred at the beginning of the period
presented.
Under the Reorganization, Evergreen will acquire substantially all of the assets
and assume certain identified liabilities of Blanchard. Thereafter, there will
be a distribution of shares of Evergreen to shareholders of Blanchard in
liquidation and subsequent termination thereof. The information contained herein
is based on the experience of each Fund for the year ended April 30, 1997 and is
designed to permit shareholders of the consolidating mutual funds to evaluate
the financial effect of the proposed Reorganization. The expenses of Evergreen
and Blanchard in connection with the Reorganization (including the cost of any
proxy soliciting agents), will be borne by First Union National Bank of North
Carolina. It is not anticipated that the securities of the combined portfolio
will be sold in significant amounts in order to comply with the policies and
investment practices of Evergreen.
The Pro-Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statement of
Additional Information.
2. Shares of Beneficial Interest - The Pro-Forma net asset values per share
assumes the issuance of additional shares of Evergreen Class A which would have
been issued at April 30, 1997 in connection with the proposed Reorganization.
The amount of additional shares assumed to be issued was calculated based on the
net assets of Blanchard Class A as of April 30, 1997 of $61,710 (reported in
000's), and the net asset value per share of the respective share class of
Evergreen of $12.52.
The Pro-Forma shares outstanding of 7,043 for Class A (reported in 000's)
consists of 1,420 (reported in 000's) fewer shares of Class A to be issued in
the proposed reorganization, as calculated above, in addition to the shares of
Evergreen outstanding as of April 30, 1997.
3. Pro-Forma Operations - Pro-Forma operating expenses include the actual
expenses of each Fund and the combined Fund, with certain expenses adjusted to
reflect the expected expenses of the combined entity. The investment advisory,
administrative personnel and service fees have been calculated for the combined
Fund based on the fee schedule in effect for Evergreen at the combined level of
average net assets for the year ended April 30, 1997.
4. Futures contracts-Blanchard invests in futures contracts which are
inconsistent with the investment restrictions of Evergreen. Prior to the
Reorganization, Blanchard will effectively close out all futures contracts that
would be inconsistent with Evergreen's allowable investments.
5. Expense Offset Arrangement - The Fund has entered into an expense offset
arrangement with its custodian. The assets deposited with the custodian under
this expense offset arrangement could have been invested in income-producing
assets.
<PAGE>
EVERGREEN INTERNATIONAL TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed on December 12, 1997 - Registration
No. 333- 42195 ("Form N-1A Registration Statement").
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Trust Articles II., III.(6)(c), IV.(3), IV.(8), V., VI., VII.,
and VIII. and By-Laws Articles II., III.
and VIII.
6(a). Form of Investment Advisory Agreement between Evergreen Asset Management
Corp. and the Registrant. Incorporated by reference to the Form N-1A
Registration Statement.
6(b). Form of Interim Management Contract. Exhibit B to
Prospectus contained in Part A of this Registration Statement.
6(c). Form of Interim Sub-Advisory Agreement. Exhibit C to
Prospectus contained in Part A of this Registration Statement.
7(a). Distribution Agreement between Evergreen Distributor,
Inc. and the Registrant. Incorporated by reference to the Form N-
1A Registration Statement.
<PAGE>
7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used by
Evergreen Distributor, Inc. Incorporated by reference to the Form N-1A
Registration Statement.
8. Deferred Compensation Plan.
Incorporated by reference to the Form N-1A Registration
Statement.
9. Custody Agreement between State Street Bank and Trust Company and the
Registrant. Incorporated by reference to the Form N-1A Registration Statement.
10(a). Rule 12b-1 Distribution Plan. Incorporated by reference to the Form N-1A
Registration Statement.
10(b). Multiple Class Plan. Incorporated by reference to the
Form N-1A Registration Statement.
11. Opinion and consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester LLP. Filed herewith.
13. Not applicable.
14(a). Consent of Price Waterhouse LLP. Filed herewith.
14(b). Consent of Deloitte & Touche LLP. Filed herewith.
15. Not applicable.
16. Powers of Attorney. Previously filed.
17(a). Form of Proxy Card. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus that is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who
<PAGE>
may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of an amendment to
the Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, an opinion of counsel or copy of an Internal Revenue Service ruling
supporting the tax consequences of the proposed Reorganization within a
reasonable time after receipt of such opinion or ruling.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Post- Effective
Amendment No. 1 to the Registration Statement has been signed on behalf of the
Registrant, in the City of New York and State of New York, on the 22nd day of
December, 1997.
EVERGREEN INTERNATIONAL
TRUST
By: /s/ William J. Tomko
-----------------------
Name: William J. Tomko
Title: President
As required by the Securities Act of 1933, the following persons
have signed this Post-Effective Amendment No. 1 to the Registration Statement in
the capacities indicated on the 22nd day of December, 1997.
Signatures Title
- ---------- -----
/s/William J. Tomko President and
- --------------------- Treasurer
William J. Tomko
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin* Trustee
- ---------------------
Charles A. Austin
/s/K. Dun Gifford* Trustee
- ---------------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ---------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- ---------------------
<PAGE>
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ---------------------
Gerald M. McDonnell
/s/Thomas L. McVerry* Trustee
- ---------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ---------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- ---------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ---------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- ---------------------
Richard J. Shima
* By: /s/Martin J. Wolin
------------------
Martin J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and included as Exhibit 16 to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
11 Opinion and Consent of Sullivan & Worcester LLP
12 Tax opinion and consent of Sullivan & Worcester
LLP
14(a) Consent of Price Waterhouse LLP
14(b) Consent of Deloitte & Touche LLP
17 Form of Proxy
- --------------------
<PAGE>
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
December 23, 1997
Evergreen International Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen International Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 17, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen Global Leaders Fund (the "Acquiring Fund"), a series of the Trust. We
understand that the Trust is about to file Post- Effective Amendment No. 1 to
its Registration Statement on Form N-14 (Registration No. 333-39907) for the
purpose of registering shares of the Acquiring Fund under the Securities Act of
1933, as amended (the "1933 Act"), in connection with the proposed acquisition
by the Acquiring Fund of all of the assets of Blanchard Global Growth Fund (the
"Acquired Fund"), a series of a Massachusetts business trust with transferable
shares, in exchange solely for shares of the Acquiring Fund and the assumption
by the Acquiring Fund of certain identified liabilities of the Acquired Fund
pursuant to an Agreement and Plan of Reorganization, the form of which is
included in the Form N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware.
<PAGE>
To the extent that the conclusions based on the laws of the State of Delaware
are involved in the opinion set forth herein below, we have relied, in rendering
such opinions, upon our examination of Chapter 38 of Title 12 of the Delaware
Code Annotated, as amended, entitled "Treatment of Delaware Business Trusts"
(the "Delaware business trust law") and on our knowlege of interpretation of
analogous common law of The Commonwealth of Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on February 20, 1998, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
<PAGE>
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
December 22, 1997
Blanchard Global Growth Fund
Evergreen Global Leaders Fund
200 Berkeley Street
Boston, Massachusetts 02116
Re: Acquisition of Assets of Blanchard Global Growth
Fund by Evergreen Global Leaders Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions described below:
Parties to the Transaction. Blanchard Global Growth Fund ("Target Fund") is
a series of Blanchard Funds, a Massachusetts business trust.
Evergreen Global Leaders Fund ("Acquiring Fund") is a series of
Evergreen International Trust, a Delaware business trust.
Description of Proposed Transaction. Acquiring Fund will issue its
shares to Target Fund and assume certain stated liabilities of Target Fund, in
exchange for all of the assets of Target Fund. Target Fund will then immediately
dissolve and distribute all of the Acquiring Fund shares which it holds to its
shareholders pro rata in proportion to their shareholdings in Target Fund, in
complete redemption of all outstanding shares of Target Fund.
Scope of Review and Assumptions. In rendering our opinion, we have
reviewed and relied upon the form of Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Acquiring Fund and Target Fund dated as of
November 26, 1997 which is enclosed in a draft prospectus/proxy statement to be
dated January 5, 1998 which describes the proposed transaction, and on the
information provided in such prospectus/proxy statement. We have relied, without
independent verification, upon the factual statements made therein, and assume
that there will be no change in material facts disclosed therein between the
date of this letter and the date of the closing of the
<PAGE>
transaction. We further assume that the transaction will be carried out in
accordance with the Reorganization Agreement.
Representations. Written representations, copies of which are attached
hereto, have been made to us by the appropriate officers of Target Fund and of
Acquiring Fund, and we have without independent verification relied upon such
representations in rendering our opinions.
Opinions
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, we have the following opinions:
1. The acquisition by Acquiring Fund of all of the assets of Target
Fund solely in exchange for voting shares of Acquiring Fund and assumption of
certain specified liabilities of Target Fund followed by the distribution by
Target Fund of said Acquiring Fund shares to the shareholders of Target Fund in
exchange for their Target Fund shares will constitute a reorganization within
the meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund and Target Fund
will each be "a party to a reorganization" within the meaning of ss. 368(b) of
the Code.
2. No gain or loss will be recognized to Target Fund upon the transfer
of all of its assets to Acquiring Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain specified liabilities
of Target Fund, or upon the distribution of such Acquiring Fund voting shares to
the shareholders of Target Fund in exchange for all of their Target Fund shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of any liabilities of Target
Fund.
4. The basis of the assets of Target Fund acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund
immediately prior to the transfer, and the holding period of the assets of
Target Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Target Fund.
5. The shareholders of Target Fund will recognize no gain or loss upon
the exchange of all of their Target Fund shares solely for Acquiring Fund voting
shares.
<PAGE>
6. The basis of the Acquiring Fund voting shares to be received by the
Target Fund shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor.
7. The holding period of the Acquiring Fund voting shares to be
received by the Target Fund shareholders will include the period during which
the Target Fund shares surrendered in exchange therefor were held, provided the
Target Fund shares were held as a capital asset on the date of the exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of the Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in such
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Evergreen International Trust on Form N-14 of our report on the Blanchard Funds
dated November 7, 1997, appearing in the Annual Report of The Blanchard Funds
for the year ended September 30, 1997, and to the reference to us under the
heading "Financial Statements and Experts" in the Prospectus/Proxy Statement,
which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 22, 1997
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement (the "Prospectus/Proxy") and Statement of Additional Information
constituting parts of this Registration Statement on Form N-14 (the
"Registration Statement") of Evergreen International Trust of our report dated
December 19, 1996, relating to the financial statements and financial highlights
of Evergreen Global Leaders Fund (the "Fund") appearing in the Fund's October
31, 1996 Annual Report to Shareholders, which is also incorporated by reference
into the Registration Statement.
We also consent to the reference to us under the heading "Financial Statements
and Experts" in the Prospectus/Proxy and to the references to us under the
headings "Financial Highlights" in the Prospectus and "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information, both dated
March 3, 1997, for Evergreen Global Leaders Fund, which are also incorporated by
reference into the Prospectus/Proxy.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
December 22, 1997
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BLANCHARD GLOBAL GROWTH FUND
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
The undersigned, revoking all Proxies heretofore given, hereby appoints
C. Grant Anderson, Carol B. Kayworth, Patricia F. Conner, Ann M. Scanlon and
Catherine C. Ryan or any of them as Proxies of the undersigned, with full power
of substitution, to vote on behalf of the undersigned all shares of Blanchard
Global Growth Fund ("Global Growth") that the undersigned is entitled to vote at
the special meeting of shareholders of Global Growth to be held at 2:00 p.m. on
Friday, February 20, 1998 at the offices of the Evergreen Funds, 200 Berkeley
Street, Boston, Massachusetts 02116 and at any adjournments thereof, as fully as
the undersigned would be entitled to vote if personally present
.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
THIS PROXY. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a
minor, please give your full title. When signing on
behalf of a corporation or as a partner for a
partnership, please give the full corporate or
partnership name and your title, if any.
Date , 199
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
-1-
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF BLANCHARD
FUNDS. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO
BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY WILL BE VOTED
AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE BOARD OF
TRUSTEES OF BLANCHARD FUNDS RECOMMENDS A VOTE FOR THE PROPOSALS. PLEASE MARK
YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X ---
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Global Leaders Fund, a series of Evergreen Equity Trust, will (i) acquire all of
the assets of Global Growth in exchange for shares of Evergreen Global Leaders
Fund; and (ii) assume certain identified liabilities of Global Growth, as
substantially described in the accompanying Prospectus/Proxy Statement.
- ---- FOR ---- AGAINST ---- ABSTAIN
2. To approve the proposed Interim Management Contract with Virtus
Capital Management, Inc.
- ---- FOR ---- AGAINST ---- ABSTAIN
3. To approve the proposed Interim Sub-Advisory Agreement between Virtus
Capital Management, Inc. and Mellon Capital Management, Corporation.
- ---- FOR ---- AGAINST ---- ABSTAIN
4. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
