-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N5Gn7+i1qo7jPVluNarlYvIYirJVFdZzyaZUnjJyYKQoMlRm35E3wIxxXrv7mJM7 RCfd4PWTfWOTuSVvlYx8XQ== 0000950168-95-001096.txt : 19951211 0000950168-95-001096.hdr.sgml : 19951211 ACCESSION NUMBER: 0000950168-95-001096 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951208 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN FUND CENTRAL INDEX KEY: 0000082693 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132682545 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02193 FILM NUMBER: 95600350 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146942020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVENUE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: EVERGREEN FUND INC/NY/ DATE OF NAME CHANGE: 19870527 FORMER COMPANY: FORMER CONFORMED NAME: EVERGREEN FUND INC CALIFORNIA DATE OF NAME CHANGE: 19600201 N-30D 1 EVERGREEN N30D #40611.1 EVERGREEN DOMESTIC GROWTH FUNDS (Photos of the side of a building, bottles with liquid in them, the American flag, Wall St. sign, and mountains appear on this page) 1995 Annual Report (EVERGREEN TREE LOGO) EVERGREEN FUNDS EVERGREEN DOMESTIC GROWTH FUNDS TABLE OF CONTENTS (Photo of bottles) A Review of the Past Year and Prospects for the Future.............................................. 1 EVERGREEN AGGRESSIVE A Report From Your Portfolio Manager...................................... 3 GROWTH FUND Results to Date........................................................... 5 Statement of Investments.................................................. 6
Statement of Assets and Liabilities....................................... 7 Statement of Operations................................................... 8 Statement of Changes in Net Assets........................................ 9 Financial Highlights...................................................... 10
(Photo of Wall St.) EVERGREEN FUND A Report From Your Portfolio Manager...................................... 11 Results to Date........................................................... 13 Statement of Investments.................................................. 14
Statement of Assets and Liabilities....................................... 18 Statement of Operations................................................... 19 Statement of Changes in Net Assets........................................ 20 Financial Highlights...................................................... 21
(Photo of side of building) EVERGREEN LIMITED A Report From Your Portfolio Manager...................................... 22 MARKET FUND, INC. Results to Date........................................................... 24 Statement of Investments.................................................. 25
Statement of Assets and Liabilities....................................... 28 Statement of Operations................................................... 29 Statement of Changes in Net Assets........................................ 30 Financial Highlights...................................................... 31
(Photo of American Flag) EVERGREEN U.S. A Report From Your Portfolio Manager...................................... 32 REAL ESTATE Results to Date........................................................... 34 EQUITY FUND Statement of Investments.................................................. 35
B Statement of Assets and Liabilities....................................... 36 Statement of Operations................................................... 37 Statement of Changes in Net Assets........................................ 38 Financial Highlights...................................................... 39
Combined Notes to Financial Statements.................................... 40 Report of Independent Accountants -- Price Waterhouse LLP...................................................... 49 Report of Ernst & Young LLP, Independent Auditors...................................................... 50 Trustees/Directors and Officers........................................... IBC
EVERGREEN DOMESTIC GROWTH FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE BY STEPHEN A. LIEBER, CHAIRMAN OF EVERGREEN ASSET MANAGEMENT CORP. In projecting the outlook for the United States economy in the final months of 1995, one central fact dominates the discussion; inflation is being held to (Photo of Stephen A. the very low single digits. For a nation which has, Lieber) for over twenty-five years, been preoccupied in all economic forecasting with apprehension over the outlook for inflation, this is a period of remarkable calm. Instead of concerns over inflation, the dominant anxiety with which investors look to the future, is now that of the price level of securities; stocks and bonds. That price level, however, is a reflection of changing perceptions of the inflation risk. Comparison of inflation rates, interest rates, and equity valuation, at the beginning of the long-bull market which began in the summer of 1982, clarifies these points. The inflation rate fell from 7.2% in the second quarter of 1982, to 2.5% in the third quarter of 1995. Thirty-year U.S. Treasury Bond yields fell from 12.97% to 6.52%, and 90-day U.S. Treasury Bill rates from 11.91% to 5.31%, while price/earnings ratios have risen (on the S&P 500 Stock Index) from 7.8 times to 16.6 times. Clearly, both bonds and stocks are worth more in this environment of lowered inflation and reduced inflationary expectations. Thus far, in 1995, the hoped for "soft landing" of the economy into a slower, non-inflationary expansion has been achieved. The issue of its future course is, however, open to analysis and debate. There can be little debate over today's cautious policies. There is a broad acceptance of the need to sustain low leverage financial policies; minimizing the build-up of debt by both government and industry, accelerating productivity gains, and economizing resources. This is not only an anti-inflationary mentality, but it is also a conservative, counter-expansionary economic growth policy. Politicians are prouder of cut-backs than of expansion in public services. Businessmen boast of "re- engineering" which results in lay-offs, rather than of hiring. When new facilities are built, they are described as enhancers of productivity, not just as producers of products or services. Business and labor alike think of their pricing as competing in the world market. Industry wants to sell in the world markets, and labor does not want to be outpriced by alternative manufacturing sources in low labor cost countries. These policies push productivity, price-restraint, and wage-restraint. Policies of restraint, evident in so many sectors of the economy, lead some observers to apprehensions that they will be over-done. If consumer demand slows and business inventories build, it is argued, then a cycle of manufacturing cutbacks will lead to accelerating lay-offs and another recessionary period. The counter-argument holds that there are enough dynamic growth potentials on the horizon for consumer products and services, and for increasing exports, so that this negative prediction will not be realized. This positive point of view looks to the increasing demand for American products, particularly technologically sophisticated consumer and capital goods products, and the output of our multi-national corporations which sell products in developing countries to accelerate demand for our exports. It holds that the rapid technological change, notably in electronics and communications, is bringing enough new demand from both the industrial and the consumer sectors to act as the catalyst for overall consumer and industrial goods demand growth. Whether the "soft landing" scenario continues in the next few months, and the economy shows modest expansion, or a slowdown begins to emerge, the likelihood is that inflation will remain under control. This provides for a continuing pattern of the recently lowered interest rate levels. Whether long-term and short-term interest rates move significantly lower than today's 6.3%, 30-year U.S. Treasury Bonds, and 5.5%, 1-year U. S. Treasury Bills, depends not only on the strengthening or weakening of the domestic economy, but also on the comparative interest rates being paid by other major industrial nations, and the stability of the dollar. Our interest rates must be in equilibrium with others, when adjusted for their inflation rates and the values of our currency. Presently, the trends in 1 EVERGREEN DOMESTIC GROWTH FUNDS A REVIEW OF THE PAST YEAR AND PROSPECTS FOR THE FUTURE -- (CONTINUED) the major industrial countries, Germany and Japan, suggest continued slower growth than that recently experienced by the American economy, with prospective declining inflationary trends. This should enable the United States Federal Reserve to retain sufficient flexibility, so that rates can be brought down if the economy slows too rapidly and, thus, to sustain our economic strength without being externally pressured toward unreasonably high interest rates. We believe that the general level of valuation of both stocks and bonds is likely to be sustained. Individual equity issues will, of course, reflect prevailing business conditions. Emphasis in owning equities, we believe, should be on powerful business franchises, companies with both leadership and dynamic growth characteristics, providing vital services or products. On average, the level of equities valuation is in line with current interest rate trends, but, it is apparent that large sectors of the market are priced on highly optimistic growth expectations. These sectors and issues are subject to quick and major downward revaluation to the extent that their businesses fail to show strong evidence of continued high growth rates. As the economy remains slower than over the past two years, it will evidently be more difficult to show extraordinary growth rates. Therefore, we anticipate a renewed interest in those businesses which are undervalued in terms of their growth potential, especially those beginning, or, in process of, programs for profit margin improvement and profits growth. We continue to believe that the merger and acquisition trend will continue, as larger companies seek to capitalize on opportunities for economies of scale and synergies through mergers and acquisitions. This movement, already strong, is expected to broaden as a deregulatory atmosphere continues to develop through new legislative initiatives. In summary, we anticipate an environment where careful selection of equities and careful analysis of current economic trends in fixed income investing will combine to sustain rewarding long-term investment programs. 2 EVERGREEN AGGRESSIVE GROWTH FUND (Photo of bottles) A REPORT FROM YOUR PORTFOLIO MANAGER HAROLD R. IRELAND, JR. We are pleased to present you with the annual report for Evergreen Aggressive Growth Fund (formerly known as ABT Emerging (Photo of Growth Fund) for the fiscal year ended September 30, 1995. The Harold R. Fund's fiscal year-end changed from October 31, to September 30, Ireland, Jr.) so that it would coincide with those of Evergreen's other domestic growth funds. For this period under review, the eleven months since October 31, 1994, the Fund's total return was 25.4%*, (Class A shares at NAV), as compared with 21.7% for the Russell 2000 Index**. The table below compares the Fund's average annual compound returns with those of the Lipper Capital Appreciation Funds' Average*** and the Russell 2000 Index:
EVERGREEN AGGRESSIVE LIPPER PERIOD ENDED GROWTH FUND CAPITAL APPRECIATION 9/30/95 (CLASS A, NAV) FUNDS AVERAGE RUSSELL 2000 INDEX 1-Year 28.2% 25.2% 23.4% 3-Year 17.6% 15.9% 19.0% 5-Year 25.8% 17.9% 21.7% 10-Year 17.0% 14.6% 12.8%
The Fund's Class A shares are subject to a 4.75% front end sales charge, which is not reflected in the performance figures above. If reflected, performance would be lower. The Fund's 1-, 3-, 5-, and 10-year average annual returns as of September 30, 1995, for its Class A shares with the maximum 4.75% front-end sales charge, were 22.1%, 15.7%, 24.5%, and 15.6%, respectively. (For additional performance information, please see page five.) We are concentrating the Fund's sector weightings in four industries whose prospects we believe to be dynamic. The Fund continued to be heavily weighted in the technology and computer sectors. We think these industries continue to be an area that show dynamic increases in sales and earnings. Together, these two sectors comprised 28.7% of the Fund's net assets at its fiscal year-end. Of the Fund's six current holdings in these sectors, four appreciated dramatically, while the two others each lost about one-third of their value, for the eleven months through September 30, 1995. Cisco Systems +129% Atmel Corp. + 83% Parametric Technology + 71% Microsoft Corporation + 43% Sensormatic Electronics - 39% American Power Conversion - 34%
Restructuring and downsizing of large mature companies to get costs in line with a slowdown in business being booked, favors technology over people. The efficiencies related to this restructuring is fueling corporate profits. On the consumer side, both new purchases of PCs and upgrades are at growth trends double those of the recent past. While some believe that these trends will be short-lived, we believe that technology will continue to be the place to be in the 1990s. The reason being greater top and bottom line growth as compared with other industries. FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. ALL PERFORMANCE FIGURES INCLUDE 12B-1 EXPENSES, UP TO AN ANNUAL MAXIMUM OF .75 OF 1% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR CLASS A SHARES. FOR THE FORSEEABLE FUTURE, HOWEVER, MANAGEMENT INTENDS TO LIMIT SUCH PAYMENTS ON THE CLASS A SHARES TO .25 OF 1%. ** AN UNMANAGED REINVESTED INDEX. *** SOURCE: LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. PERFORMANCE FIGURES FOR THE LIPPER AVERAGE INCLUDE THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, BUT DO NOT INCLUDE ANY SALES CHARGES. AS OF 9/30/95 THERE WERE 153 CAPITAL APPRECIATION FUNDS IN THIS AVERAGE. 3 EVERGREEN AGGRESSIVE GROWTH FUND (Photo of bottles) We believe that specialty retail, the Fund's most weighted sector, at 22.1% of net assets, continues to show promise. Of the five issues in the portfolio, four rose in price and one declined during the past eleven months. Danka Business Systems, ADR* + 85% Fastenal Company + 62% Office Depot + 22% AutoZone + 6% Home Depot - 12%
The theme here is offering the consumer a better value. The companies involved are consolidating their respective industries, taking market share away from weaker corporate entities. Office products, building products, do-it-yourself auto parts, construction fasteners, and copying and office equipment are businesses included in this area. The health sector, at 19.9% of net assets, includes the world's first and second largest generic drug companies, a prominent HMO, a hospital management company and the world's leading pacemaker company. SCREENING CRITERIA Evergreen Aggressive Growth Fund's stock selection process is unusually rigorous. The criterion that we use in this selection process is both quantitative and qualitative and favors those companies that have historically produced, and that we believe will continue to produce, superior business momentum -- both top and bottom line. For example, the sales growth of a company during any five-year period, along with earnings growth, must be at least 20% annually. Also, return on equity should be in the 20% range, and long-term debt must be less than one-third of capitalization. The company must have inside ownership and a top-notch management team that has a business plan. We are looking for companies that show leadership with regard to the management and the products or services offered. Mid-cap to larger companies are favored over small cap issues. Lastly, we want these stocks to be liquid and priced at fair value in relationhip to their projected rate. CONCENTRATION Many investors ask if 24 issues, the number of issues we currently own, is ample diversification for a capital appreciation fund. We would agree that investment in 24 securities would not be prudent if a portfolio manager were to lower the selection criteria so as to include third, fourth or fifth-rate companies. A concentrated portfolio forces the portfolio manager to maintain the quality of issues owned. We believe that the companies in the Fund's portfolio are the best in their respective businesses. STYLE In the investment world, there is much discussion about betas, P/E ratios, price-to-book, and other measurements of investment risk. We generally hear less about the integrity of a company, with regard to its products and management, or how many economic cycles it has withstood or weathered successfully. It is our belief that holding quality growth stocks over the long term, staying fully invested through stock market swings, while weeding out those entities that are not true "marathoners", is a viable investment style. Our low portfolio turnover rate, 31%, which resulted in having less realized gain to pay to shareholders, is a reflection of this strategy. STRATEGY Our investment strategy is not one of trying to predict future interest rates or economic conditions that may affect the business cycle. Rather, our investment strategy, for the most part, focuses on those companies with superior 5-year performance records. We believe that these companies' growth characteristics and business momentum should carry them through any economic expansion or contraction. Stock market leadership is generally by those companies or industries who have or are expected to produce the most profit growth. Specialty retail includes companies that are consolidating their respective fields, taking consumer dollars away from weaker entities. Thank you for investing in Evergreen Aggressive Growth Fund. * INVESTMENT IN NON-U.S. SECURITIES INVOLVE ADDITIONAL RISKS SUCH AS CURRENCY FLUCTUATIONS AND POLITICAL INSTABILITY. 4 EVERGREEN AGGRESSIVE GROWTH FUND (Photo of bottles) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN AGGRESSIVE GROWTH FUND The graphs below compare a $10,000 investment in the Evergreen Aggressive Growth Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the NASDAQ Industrials Index ("Index"). CLASS A AVERAGE ANNUAL TOTAL RETURN ONE YEAR=22.1% FIVE YEAR=24.5% SINCE INCEPTION=16.5% (Class A Average Annual Total Return chart appears here, plot points are as follows)
9/30/85 9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 NASDAQ INDUSTRIALS 10,000 12,276 11,908 13,313 15,736 14,257 23,480 25,453 28,293 26,466 34,466 AGGRESSIVE GROWTH FUND 9,525 13,831 15,494 13,342 18,074 14,583 24,481 28,195 37,362 35,767 45,851
CLASS B AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=4.7% (Class B Average Annual Total Return chart appears here, plot points are as follows) 7/7/95* 7/31/95 8/31/95 9/30/95 NASDAQ INDUSTRIALS 10,000 10,771 10,856 11,092 AGGRESSIVE GROWTH FUND 10,000 10,518 10,506 10,467 CLASS C AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=4.4% (Class C Average Annual Total Return chart appears here, plot points are as follows) 8/3/95* 8/31/95 9/30/95 NASDAQ INDUSTRIALS 10,000 10,079 10,298 AGGRESSIVE GROWTH FUND 10,000 10,128 10,442 CLASS Y AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=10.1% (Class Y Average Annual Total Return chart appears here, plot points are as follows) 7/11/95* 7/31/95 8/31/95 9/30/95 NASDAQ INDUSTRIALS 10,000 10,771 10,856 11,092 AGGRESSIVE GROWTH FUND 10,000 10,545 10,538 11,007 *Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on September 30, 1995; (c) all recurring fees (including investment advisory fees) were deducted; and (d) all dividends and distributions were reinvested. The Index is an unmanaged index 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. 5 EVERGREEN AGGRESSIVE GROWTH FUND (SUCCESSOR TO ABT EMERGING GROWTH FUND) (Photo of Bottles) STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS -- 96.8% AIRLINES -- 3.0% 70,000* ValueJet Airlines, Inc.............. $ 2,283,750 BUSINESS SERVICES -- 5.3% 55,000 First Data Corp..................... 3,410,000 22,500* Fiserv, Inc......................... 649,688 4,059,688 COMPUTERS -- 10.0% 165,000* American Power Conversion Corp...... 2,103,750 80,000* Cisco Systems, Inc.................. 5,520,000 7,623,750 ENTERTAINMENT -- 2.2% 33,000* Viacom, Inc......................... 1,641,750 ENVIRONMENTAL CONTROL -- 6.1% 200,000* Republic Waste Industries, Inc...... 4,625,000 FINANCIAL SERVICES -- 9.5% 70,000 Green Tree Financial Corp........... 4,270,000 120,000 Mercury Financial Co................ 2,925,000 7,195,000 HEALTH -- 19.9% 42,000* Health Management Associates, Inc..................... 1,349,250 120,000 IVAX Corp........................... 3,615,000 88,000 Medtronic, Inc...................... 4,730,000 130,000 Mylan Labs, Inc..................... 2,600,000 25,000 Surgical Care Affiliates, Inc....... 581,250 46,900 United Healthcare Corp.............. 2,292,237 15,167,737 SPECIAL RETAIL -- 22.1% 110,000* AutoZone, Inc....................... 2,805,000 100,000 Danka Business Systems-ADR.......... 3,600,000 80,000 Fastenal Co......................... 2,920,000 81,000 Home Depot, Inc..................... 3,229,875 140,000* Office Depot, Inc................... 4,217,500 16,772,375 TECHNOLOGY -- 18.7% 100,000* Atmel Corp.......................... 3,375,000 42,000* Microsoft Corp...................... 3,801,000 75,000* Parametric Technology Corp.......... 4,612,500 105,000 Sensormatic Electronics Corp........ 2,415,000 14,203,500 TOTAL COMMON STOCKS (COST $41,059,593).................. 73,572,550 WARRANTS -- 0% 806 Sound Advice, Inc.** $8.70, expire 6/14/1999 --
PRINCIPAL AMOUNT VALUE REPURCHASE AGREEMENT -- .5% $392,000 State Street Bank & Trust, 5.25%, dated 9/29/95, due 10/2/95 Collateral -- $397,700 U.S. Treasury Bond, 8.78%, 2/15/19 (cost $392,000).......... $ 392,000 TOTAL INVESTMENTS (COST $41,451,593)....... 97.3% 73,964,550 OTHER ASSETS AND LIABILITIES -- NET....... 2.7 2,057,557 NET ASSETS................. 100.0% $76,022,107
ADR-American Depository Receipts. * Non-income producing security. ** No market quotation available, valued at fair value as determined in good faith by the Fund's Trustees. See accompanying notes to financial statements. 6 EVERGREEN AGGRESSIVE GROWTH FUND (SUCCESSOR TO ABT EMERGING GROWTH FUND) (Photo of Bottles) STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995
ASSETS: Investments at value (identified cost $41,451,593)............................................................. $73,964,550 Cash........................................................................................................... 6,609 Receivable for securities sold................................................................................. 1,783,069 Receivable for Fund shares sold................................................................................ 378,956 Unamortized organization expenses and other assets............................................................. 25,205 Dividends and interest receivable.............................................................................. 13,527 Total assets................................................................................................ 76,171,916 LIABILITIES: Accrued expenses............................................................................................... 75,669 Accrued advisory fee........................................................................................... 35,817 Payable for organization expense............................................................................... 25,500 Distribution fee payable....................................................................................... 6,728 Payable for Fund shares redeemed............................................................................... 6,095 Total liabilities........................................................................................... 149,809 NET ASSETS........................................................................................................ $76,022,107 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $41,097,746 Accumulated net realized gain on investment transactions....................................................... 2,411,404 Net unrealized appreciation of investments..................................................................... 32,512,957 Net assets............................................................................................... $76,022,107 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($70,858,207 4,080,212 shares of beneficial interest outstanding)............................... $17.37 Sales charge -- 4.75% of offering price........................................................................ .87 Maximum offering price................................................................................... $18.24 Class B Shares ($2,858,023 164,752 shares of beneficial interest outstanding).................................. $17.35 Class C Shares ($416,489 24,064 shares of beneficial interest outstanding)..................................... $17.31 Class Y Shares ($1,889,388 108,715 shares of beneficial interest outstanding).................................. $17.38
See accompanying notes to financial statements. 7 EVERGREEN AGGRESSIVE GROWTH FUND (SUCCESSOR TO ABT EMERGING GROWTH FUND) (Photo of Bottles) STATEMENT OF OPERATIONS ELEVEN MONTHS ENDED SEPTEMBER 30, 1995
INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $1,052)....................................... $ 115,662 Interest..................................................................................... 94,070 Total investment income................................................................ 209,732 EXPENSES: Advisory fee................................................................................. $ 354,856 Administrative personnel and service fees.................................................... 41,585 Distribution fee -- Class A Shares........................................................... 144,414 Distribution fee -- Class B Shares........................................................... 1,989 Shareholder services fee -- Class B Shares................................................... 609 Distribution fee -- Class C Shares........................................................... 87 Shareholder services fee -- Class C Shares................................................... 29 Transfer agent fee........................................................................... 133,552 Registration and filing fees................................................................. 53,043 Custodian fee................................................................................ 47,270 Professional fees............................................................................ 39,387 Insurance expense............................................................................ 24,723 Trustees' fees and expenses.................................................................. 16,570 Reports and notices to shareholders.......................................................... 9,233 Amortization of organization expense......................................................... 1,548 Miscellaneous................................................................................ 5,713 Total expenses......................................................................... 874,608 Net investment loss............................................................................. (664,876) NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments............................................................. 2,713,044 Net change in unrealized appreciation of investments......................................... 12,941,978 Net gain on investments......................................................................... 15,655,022 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $ 14,990,146
See accompanying notes to financial statements. 8 EVERGREEN AGGRESSIVE GROWTH FUND (SUCCESSOR TO ABT EMERGING GROWTH FUND) (Photo of Bottles) STATEMENT OF CHANGES IN NET ASSETS
ELEVEN MONTHS ENDED SEPTEMBER 30, YEAR ENDED 1995 OCTOBER 31, 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss...................................................................... $ (664,876) $ (561,495) Net realized gain (loss) on investments.................................................. 2,713,044 (196,528) Net change in unrealized appreciation of investments..................................... 12,941,978 (1,007,198) Net increase (decrease) resulting from operations..................................... 14,990,146 (1,765,221) DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS: Class A Shares........................................................................... -- (934,221) Total distributions to shareholders................................................ -- (934,221) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................ 12,332,626 21,670,407 Proceeds from reinvestment of distributions.............................................. -- 753,121 Payment for shares redeemed.............................................................. (15,935,716) (13,141,951) Net increase (decrease) resulting from Fund share transactions........................ (3,603,090) 9,281,577 Net increase in net assets............................................................ 11,387,056 6,582,135 NET ASSETS: Beginning of period...................................................................... 64,635,051 58,052,916 End of period............................................................................ $ 76,022,107 $ 64,635,051
See accompanying notes to financial statements. 9 EVERGREEN AGGRESSIVE GROWTH FUND (SUCCESSOR TO ABT EMERGING GROWTH FUND) (Photo of Bottles) FINANCIAL HIGHLIGHTS
CLASS A SHARES# ELEVEN MONTHS ENDED SEPTEMBER 30, YEAR ENDED OCTOBER 31, 1995** 1994++ 1993++ 1992++ 1991++ PER SHARE DATA: Net asset value, beginning of period.......... $13.85 $14.44 $11.76 $12.22 $7.37 Income (loss) from investment operations: Net investment loss......................... (.16) (.13) (.12) (.10) (.08) Net realized and unrealized gain (loss) on investments............................... 3.68 (.22) 3.06 1.84 5.59 Total income (loss) from investment operations.............................. 3.52 (.35) 2.94 1.74 5.51 Less distributions to shareholders from net realized gains.......................... -- (.24) (.26) (2.20) (.66) Net asset value, end of period................ $17.37 $13.85 $14.44 $11.76 $12.22 TOTAL RETURN+................................. 25.4% (2.4%) 25.3% 17.4% 79.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............................. $70,858 $64,635 $58,053 $29,302 $23,509 Ratios to average net assets: Expenses.................................... 1.47%++ 1.25% 1.31% 1.44% 1.59% Net investment loss......................... (1.12%)++ (.92%) (.92%) (.93%) (.71%) Portfolio turnover rate....................... 31% 59% 48% 46% 108% CLASS B CLASS C CLASS Y SHARES SHARES SHARES JULY 7, AUGUST 3, JULY 11, 1995* 1995* 1995* THROUGH THROUGH THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995** 1995** 1995** PER SHARE DATA: Net asset value, beginning of period.......... $15.82 $16.42 $15.79 Income (loss) from investment operations: Net investment loss......................... (.03) (.01) (.01) Net realized and unrealized gain (loss) on investments............................... 1.56 .90 1.60 Total income (loss) from investment operations.............................. 1.53 .89 1.59 Less distributions to shareholders from net realized gains.......................... -- -- -- Net asset value, end of period................ $17.35 $17.31 $17.38 TOTAL RETURN+................................. 9.7% 5.4% 10.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............................. $2,858 $416 $1,889 Ratios to average net assets: Expenses.................................... 2.09%++ 2.09%++ 1.08%++ Net investment loss......................... (1.71%)++ (1.51%)++ (.71%)++ Portfolio turnover rate....................... 31% 31% 31%
# Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of Evergreen Trust, acquired substantially all of the net assets of ABT Emerging Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that ended on October 31 was the accounting survivor in the combination. Accordingly, the information above includes the results of operations of ABT Emerging Growth Fund prior to June 30, 1995. * Commencement of class operations. ** The Fund changed its fiscal year end from October 31 to September 30. ++ Per share data based on average shares outstanding. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. Due to the recent commencement of their offering, the ratios for Class B, Class C and Class Y shares are not necessarily comparable to that of Class A shares and are not necessarily indicative of future ratios. See accompanying notes to financial statements. 10 EVERGREEN FUND (Photo of Wall St.) A REPORT FROM YOUR PORTFOLIO MANAGER STEPHEN A. LIEBER Evergreen Fund completed its 24th fiscal year on September (Photo of 30, 1995. Major investment strategies of Evergreen Fund Stephen A. developed over recent years proved rewarding during this year. Lieber) The Fund's concentration on investment in undervalued growth opportunities was central to our favorable results. Banks, the largest industry sector in the portfolio, had impressive results during this period, reflecting growth in net income, improvements in balance sheets, and the impact of a rapidly rising trend of acquisitions in the course of a still growing consolidation in the American financial industry. The thirty-five banks held in the portfolio at the end of this period, six of which were purchased during the year, provided a 27.5% return for the fiscal year. The second largest sector of the Fund's investment, health care products and services, provided a 44.7% return. This return was especially significant, since it was, in large part, the result of our judgment in 1993 to increase health care commitments during a period when the industry was widely regarded by investors with disfavor and apprehension because of that year's health care plan debate. This is a meaningful illustration of our approach which combines growth stock investing with investing on a value basis. Another example of the same philosophy occurred in finance and insurance, where the Fund's investments provided a 41.4% appreciation during the fiscal year. Most of these equities were interest rate related and reflected our conclusion during the last period of high rates, that a number of growth companies in the financial sector were significantly undervalued. The largest single sector gain was in information services and technology. This group, as a whole, provided a 64.0% return for the twelve months. Similarly, the telecommunications services and equipment sector provided a 62.3% return for this period. The Fund's weakest results came from the environmental services, chemical and agricultural products, and retailing and wholesale sectors, with returns of 0.1%, 0.4%, and 5.7%, respectively. Overall, the portfolio strength reflected appreciation in the majority of the long-term holdings and incremental gains from a number of recent purchases, notably in the technology sectors. While the Fund's total return (Class Y, no-load shares) did not exceed that of the NASDAQ OTC Composite*, it did exceed that of the Russell 2000.* (For additional performance information, please see page 13.) Evergreen Fund continued the transition of recent years of shifting emphasis toward dynamic smaller companies. There is still a substantial role for larger companies in the portfolio. Most of these large company shares have been purchased during periods of extreme undervaluation, or have been held for many years and have grown from being small companies to being large companies. During the year, 66 new companies were added to the portfolio. The portfolio, as a whole, has a small companies emphasis, with the median market capitalization being $379 million. We believe the portfolio remains more conservatively valued than the market as a whole. These figures are consistent with the long-term Evergreen Fund strategy of purchasing outstanding entrepreneurial growth companies at a valuation level below that of the general market. We seek substantially more than average growth at a valuation which is less than or equal to the market valuation. This policy, we believe, helps to lower risk during periods of weaker markets with overall substantial returns during periods of strength. OUTSTANDING PERFORMERS Diversity of opportunity is a characteristic of the Fund's broad portfolio exposure. With a total of 226 equity securities, major opportunities were found in a wide variety of companies and industries. For example, the six companies in the portfolio which appreciated 100% or more during the fiscal year included one FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. * UNMANAGED INDICES OF SELECTED SECURITIES. 11 EVERGREEN FUND (Photo of Wall St.) telecommunications technology provider, Coherent Communications Systems Corp., which appreciated 231.4%, three health care related enterprises, Boston Scientific Corp., 250.6%, Coherent, Inc., 159.7%, and Idexx Laboratories, 159.3%, one computer network systems company, Cisco Systems, 115.5%, and one provider of business-to-business marketing information, American Business Information, 106.6%. Each issue was chosen within the program of detailed, fundamental research which characterizes the Fund's investment process. Our approach is both "top down", where we make our judgments as to the direction of the economy and its impact on individual industries, and "bottom up" where we look at individual companies for their unique abilities to provide rising profits and improving quality. MERGERS AND ACQUISITIONS The search for undervaluation within the broader strategies remains central to the Fund's investment process. The proof of undervaluation which is often provided by corporate acquisitions of Fund holdings at prices substantially in excess of market levels is, for us, a demonstration that we have, indeed, selected truly undervalued companies. During the fiscal year, sixteen issues among the Fund holdings were either acquired, merged, or have acquisition bids pending. These bring the total number of such transactions among Fund portfolio companies since inception of the Fund in October, 1971, to 283. All of the acquisitions of portfolio companies that were completed were at prices in excess of cost; ranging from 294% for First Financial Management Corp., whose acquisition was completed in October, 1995, held since 1989, to 3.4% for Magma Power Co., held since 1993. A continuing long-term trend among companies acquired during the fiscal year was in the financial industry. Examples of such companies include: Coral Gables Fedcorp, First Colonial Bankshares, and Intercontinental Bank. Since inception, forty-seven of the Fund's bank and thrift industry holdings have been acquired, or have received an acquisition offer, with an average gain of 113.3% on completed acquisitions. The Fund's holdings are largely of regional and community banks, each of which we believe represents an undervalued opportunity for larger institutions to establish a strong franchise. We focus our analysis on the quality of the individual banks, and their growth opportunity in terms of the strength of their franchise and customer base. The portfolio sector with the greatest number of acquisitions during the fiscal year was health care. These included: Intergroup Healthcare Corp., Medicine Shoppe International, REN Corp.-USA, Sci-Med Life Systems, and Zenith Laboratories. Each of the health care companies acquired represented a uniquely effective industry product or service franchise of value to prospective acquirers planning to build major companies. We believe that the portfolio continues to include a number of holdings which can play an important synergistic role in the expansion of larger companies seeking unique products, business franchises or management strengths. OUTLOOK The Fund's strategies for the new fiscal year continue to focus on the search for excellent entrepreneurial management in securities we believe to be undervalued with growth opportunities. Notwithstanding the slowing of the economy, we believe there are an ample number of companies meeting these growth-oriented qualifications. Strong products and services which create new demand is, in our view, going to be the main focus of the investment search in a less ebullient economy. Liquidity is likely to remain high due to the lower interest rates and the restraints being imposed on a budget-conscious business and governmental community. Liquidity for investment should also remain high so long as low inflation rates and modest growth continues to characterize the economy. We anticipate a period when corporations are likely to be generating enough free cash to add to the demand for equities through buybacks, which may well offset the supply through new issues. In this environment, the dynamic leaders in a broad variety of segments of industries and sectors of the economy will stand out as beacons to attract investors who find an otherwise uninspiring trend of corporate profits. Our aim is to hold and buy the profits leaders, especially when we consider them comparatively undervalued. We appreciate the broadening investor interest in the Evergreen Fund over the past fiscal year, and welcome the many new shareholders who have joined it. 12 EVERGREEN FUND (Photo of Wall St.) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN FUND The graphs below compare a $10,000 investment in the Evergreen Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Russell 2000 and NASDAQ OTC Indices ("Indices"). CLASS A AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=23.7% (Class A Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 EVERGREEN FUND 9,525 10,671 11,498 12,374 CLASS B AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=24.3% (Class B Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 EVERGREEN FUND 10,000 11,186 12,038 12,432 CLASS C AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=28.3% (Class C Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 EVERGREEN FUND 10,000 11,186 12,038 12,832 CLASS Y AVERAGE ANNUAL TOTAL RETURN ONE YEAR=26.8% FIVE YEAR=18.7% SINCE INCEPTION=12.8% (Class Y Average Annual Total Return chart appears here, plot points are as follows)
9/30/85 9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 RUSSELL 2000 10,000 12,202 15,789 14,083 17,109 12,462 18,081 19,696 26,223 26,926 33,221 NASDAQ OTC 10,000 12,509 15,876 13,865 16,910 12,317 18,838 20,857 27,275 27,326 37,432 EVERGREEN FUND 10,000 13,087 16,033 15,734 18,880 14,088 20,251 21,302 24,673 26,192 33,208
*Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on September 30, 1995; (c) all recurring fees (including investment advisory fees), net of fee waivers and reimbursements, were deducted; and (d) all dividends and distributions were reinvested. The Indices are an unmanaged indices 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. 13 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS -- 84.5% BANKS -- 18.4% 45,000 Amcore Financial, Inc.................. $ 1,023,750 50,000 American Federal Bank, FSB............. 762,500 28,300 AmSouth Bancorporation................. 1,075,400 101,196 Arrow Financial Corp................... 1,796,229 110,000 Bank of Boston Corp.................... 5,238,750 273,320 Barnett Banks, Inc..................... 15,476,745 190,000 Baybanks, Inc.......................... 14,416,250 40,000 Benson Financial Corp.................. 750,000 30,000 Central Fidelity Banks, Inc............ 975,000 210,312 Chittenden Corp........................ 5,362,956 50,000 Cole Taylor Financial Group, Inc............................. 1,162,500 28,700 Crestar Financial Corp................. 1,603,612 5,000 Evergreen Bancorp, Inc................. 106,250 127,000 First Empire State Corp................ 24,130,000 244,703 First Michigan Bank Corp............... 6,423,453 45,000 First Palm Beach Bancorp., Inc......... 1,096,875 301,732 1st Source Corp........................ 6,788,970 50,000 First State Bancorp.................... 725,000 50,000 1st United Bancorp..................... 434,375 160,350 Fort Wayne National Corp............... 5,211,375 889,540 Hibernia Corp. Cl. A................... 9,006,592 100,000 Intercontinental Bank.................. 2,912,500 67,779 Magna Group, Inc....................... 1,643,640 210,000 North Fork Bancorporation, Inc.................... 4,357,500 105,432 Old Kent Financial Corp................ 4,019,595 111,000 ONBANCorp, Inc......................... 3,607,500 21,500 One Valley Bancorp of West Virginia, Inc.......................... 709,500 30,000* Riggs National Corp.................... 386,250 70,000 River Forest Bancorp................... 1,627,500 80,000 United Carolina Bancshares Corp........................ 2,780,000 31,428 Univest Corp. of Pennsylvania........................... 1,099,980 10,000 USBanCorp, Inc......................... 302,500 16,800 Valley National Bancorp................ 415,800 29,400 West Coast Bancorp..................... 521,850 115,900 Westamerica Bancorporation............. 4,462,150 132,412,847 BUILDING, CONSTRUCTION & FURNISHINGS -- 3.1% 20,000* Champion Enterprises, Inc.............. 397,500 88,000 Continental Homes Holding Corp......... 1,848,000 220,900 Interface, Inc. Cl. A.................. 3,782,913 160,000 Juno Lighting, Inc..................... 2,440,000 SHARES VALUE BUILDING, CONSTRUCTION & FURNISHINGS (CONTINUED) 38,000 Kaufman & Broad Home Corp.............. $ 479,750 90,800 La-Z-Boy Chair Co...................... 2,712,650 72,200* M/I Schottenstein Homes, Inc........... 740,050 92,650 Medusa Corp............................ 2,617,363 100,000* Redman Industries, Inc................. 2,600,000 85,700 Ryland Group, Inc...................... 1,328,350 50,000* Southern Energy Homes, Inc............. 793,750 158,200 Standard Pacific Corp.................. 1,107,400 90,000* Sundance Homes, Inc.................... 241,875 48,000* Toll Brothers, Inc..................... 906,000 21,995,601 BUSINESS EQUIPMENT & SERVICES -- 2.2% 52,500* Boole & Babbage, Inc................... 1,581,563 88,700 Bowne & Co., Inc....................... 1,796,175 30,000* Cisco Systems, Inc..................... 2,070,000 40,000 EIS International, Inc................. 715,000 104,800* Gradco Systems, Inc.................... 235,800 16,700 HON Industries, Inc.................... 484,300 30,000* In Focus Systems, Inc.................. 738,750 10,000* Intuit, Inc............................ 470,000 14,850* Personnel Management, Inc.............. 137,363 60,600 Pitney Bowes, Inc...................... 2,545,200 100,000 Sensormatic Electronics Corp........... 2,300,000 50,000* Zebra Technologies Corp................ 2,662,500 15,736,651 CHEMICALS & AGRICULTURAL PRODUCTS -- 1.6% 30,000 Nalco Chemical Co...................... 1,023,750 349,568 Schulman (A.), Inc..................... 8,739,200 45,000 Sigma-Aldrich Corp..................... 2,182,500 11,945,450 CONSUMER PRODUCTS & SERVICES -- 4.2% 70,000 Aaron Rents, Inc. Cl. B................ 1,242,500 105,000* American Business Information, Inc..... 2,126,250 185,030 Anthony Industries, Inc................ 3,492,441 60,000 Arctco, Inc............................ 765,000 71,333* Barry (R.G.) Corp...................... 1,230,497 25,000* Children's Discovery Centers of America, Inc........................... 293,750 65,000* Circle K Corp.......................... 1,348,750 155,300 Crown Crafts, Inc...................... 2,018,900 30,000 Franklin Electric Co., Inc............. 967,500 60,600 Garan, Inc............................. 1,037,775 55,650 Harman International Industries, Inc........................ 2,726,850 28,750 Kellwood Co............................ 592,969
14 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF INVESTMENTS -- (CONTINUED) SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS (CONTINUED) CONSUMER PRODUCTS & SERVICES (CONTINUED) 252,777 Lancaster Colony Corp.................. $ 8,594,418 30,000* LoJack Corp............................ 495,000 45,000* Nautica Enterprises, Inc............... 1,541,250 50,000* Recovery Engineering, Inc.............. 731,250 23,000 Roto-Rooter, Inc....................... 851,000 30,056,100 ENVIRONMENTAL SERVICES -- .4% 69,000* Handex Corp............................ 491,625 30,000 Watts Industries, Inc. Cl.A............ 746,250 100,000* Western Waste Industries, Inc.......... 2,000,000 3,237,875 FINANCE & INSURANCE -- 9.5% 172,200 Allmerica Property & Casualty Cos., Inc................... 4,111,275 189,400 AMBAC, Inc............................. 8,333,600 63,200 Countrywide Credit Industries, Inc..... 1,485,200 141,600 Executive Risk, Inc.................... 3,327,600 126,900 Federal Home Loan Mortgage Corp.......................... 8,771,963 159,500 Federal National Mortgage Association................... 16,508,250 60,000 First American Financial Corp.......... 1,447,500 97,000 John Nuveen Co. (The) Cl. A............ 2,400,750 70,900 MBIA, Inc.............................. 4,998,450 253,800 MGIC Investment Corp................... 14,530,050 23,992 Providian Corp......................... 995,668 66,852* Resource Bancshares Mortgage Group, Inc.................... 1,019,493 20,000 State Auto Financial Corp.............. 450,000 68,379,799 FOOD PRODUCTS -- .1% 16,500+ Coca-Cola Bottling Co. Consolidated Cl. B..................... 581,625 FOOD RETAILING & DISTRIBUTION -- .5% 55,405 Cracker Barrel Old Country Store, Inc..................... 1,115,025 134,000 Seaway Food Town, Inc.**............... 2,110,500 3,225,525 HEALTH CARE PRODUCTS & SERVICES -- 15.5% 75,000 Arbor Drugs, Inc....................... 1,406,250 15,000 Arrow International, Inc............... 648,750 130,000* Biomet, Inc............................ 2,242,500 68,298* Boston Scientific Corp................. 2,911,202 141,000 Caremark International, Inc............ 3,031,500 30,000* Circon Corp............................ 603,750 90,000* Coherent, Inc.......................... 3,285,000 SHARES VALUE HEALTH CARE PRODUCTS & SERVICES (CONTINUED) 90,200 Columbia/HCA Healthcare Corp........... $ 4,385,975 40,000* Express Scripts, Inc................... 1,760,000 54,828* FHP International Corp................. 1,322,725 28,974* Foundation Health Corp................. 1,104,634 230,000* Idexx Laboratories, Inc................ 8,567,500 20,000 Invacare Corp.......................... 960,000 55,000* Isomedix, Inc.......................... 804,375 195,000 Johnson & Johnson...................... 14,454,375 104,600* Living Centers of America, Inc......... 3,477,950 30,000* Maxxim Medical, Inc.................... 480,000 117,900 McKesson Corp.......................... 5,305,500 500,000 Merck & Co., Inc....................... 28,000,000 30,000* Mid Atlantic Medical Services, Inc.................. 588,750 24,750 Minntech Corp.......................... 408,375 20,000* Physician Corporation of America....... 315,000 90,000* Psicor, Inc............................ 1,012,500 90,000* Regency Health Services, Inc........... 933,750 25,000* Regeneron Pharmaceuticals, Inc......... 390,625 20,000* Ren Corp.-USA.......................... 397,500 45,000* Salick Health Care, Inc................ 1,642,500 75,000* St. Jude Medical, Inc.................. 4,743,750 226,500 Stryker Corp........................... 10,560,563 128,000* Sun Healthcare Group, Inc.............. 1,648,000 39,600 Superior Surgical Manufacturing Co., Inc................. 410,850 75,750* Tecnol Medical Products, Inc........... 1,458,188 50,000* Tenet Healthcare Corp.................. 868,750 20,000 United Healthcare Corp................. 977,500 111,108,587 INDUSTRIAL SPECIALTY PRODUCTS -- 6.4% 50,000* Adflex Solutions, Inc.................. 1,118,750 55,000 Breed Technologies, Inc................ 1,093,125 25,000* Chemfab Corp........................... 481,250 72,500* Dionex Corp............................ 3,788,125 98,000 Fisher Scientific International, Inc..................... 3,172,750 182,000 Fuller (H.B.) Co....................... 5,733,000 85,000* Galey & Lord Inc....................... 1,168,750 15,000 Greenbrier Companies, Inc.............. 168,750 140,800 Leggett & Platt, Inc................... 3,467,200 90,000 Masland Corp........................... 1,338,750 122,900* Material Sciences Corp................. 2,166,113 33,900 Nacco Industries, Inc. Cl. A........... 2,012,813 66,000* Osmonics, Inc.......................... 1,163,250 174,687* Paxar Corp............................. 2,401,946 19,500 Roanoke Electric Steel Corp............ 302,250 28,300 Smith (A.O.) Corp...................... 732,263 50,000 Superior Industries International, Inc..................... 1,343,750
15 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF INVESTMENTS -- (CONTINUED) SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS (CONTINUED) INDUSTRIAL SPECIALTY PRODUCTS (CONTINUED) 147,200 Tecumseh Products Co. Cl. A............ $ 7,065,600 57,800 Tecumseh Products Co. Cl. B............ 2,673,250 91,600 Teleflex, Inc.......................... 3,709,800 50,000 Wescast Industries, Inc................ 550,000 45,651,485 INFORMATION SERVICES & TECHNOLOGY -- 6.4% 50,000* Atmel Corp............................. 1,687,500 120,000 Autodesk, Inc.......................... 5,250,000 37,500* CUC International, Inc................. 1,307,813 20,000* Data Translation, Inc.................. 355,000 50,000* Dialogic Corp.......................... 1,237,500 93,679 First Financial Management Corp........................ 9,145,412 10,000* Franklin Electronic Publishers, Inc.... 393,750 55,000 HBO & Co............................... 3,437,500 180,000 Intel Corp............................. 10,822,500 35,000* Intersolv Inc.......................... 704,375 20,000* Lam Research Corp...................... 1,195,000 48,437 Molex, Inc............................. 1,755,859 50,000* Mylex Corp............................. 850,000 90,000* NetManage, Inc......................... 2,137,500 45,000* Parametric Technology Corp............. 2,767,500 80,000* Silicon Graphics, Inc.................. 2,750,000 15,500* Three-Five Systems, Inc................ 404,937 46,202,146 PAPER & PACKAGING -- .9% 65,000 Avery Dennison Corp.................... 2,730,000 6,500 St. Joe Paper Co....................... 413,562 148,530 Wausau Paper Mills Co.................. 3,601,852 6,745,414 PUBLISHING, BROADCASTING & ENTERTAINMENT -- 3.6% 214,250* Clear Channel Communications, Inc.................... 16,229,437 50,000* EZ Communications, Inc. Cl. A.......... 962,500 38,000 Grupo Televisa S.A. GDS................ 760,000 130,800* Jacor Communications, Inc.............. 2,027,400 95,000 Wiley, (John) & Sons, Inc., Cl. A...... 5,581,250 25,560,587 REAL ESTATE -- 2.9% 138,760* Alexander's, Inc....................... 8,360,290 46,200 Apartment Investment & Management Co........................ 970,200 54,000 Chelsea GCA Realty, Inc................ 1,613,250 80,000 Clayton Homes, Inc..................... 1,900,000 47,400* FRP Properties, Inc.................... 1,030,950 50,000 HGI Realty, Inc........................ 1,200,000 80,000* Host Marriott Corp..................... 990,000 40,000 Irvine Apartment Communities, Inc...... 705,000 SHARES VALUE REAL ESTATE (CONTINUED) 25,000 Lennar Corp............................ $ 543,750 85,000* U.S. Home Corp......................... 2,125,000 29,300 Webb (Del) Corp........................ 553,038 30,500 Wellsford Residential Property Trust......................... 651,937 20,643,415 RETAILING & WHOLESALE -- 5.0% 33,000 Blair Corp............................. 1,122,000 35,000* Burlington Coat Factory Warehouse...... 463,750 300,000 Dillard Department Stores, Inc. Cl. A..................... 9,562,500 25,000 Dollar General Corp.................... 734,375 268,800 Fingerhut Companies, Inc............... 4,334,400 26,300* Forstmann & Co., Inc................... 21,369 50,000 Heilig-Meyers Co....................... 1,162,500 50,000* Jones Apparel Group, Inc............... 1,781,250 126,236* Leslie's Poolmart...................... 2,051,339 42,000 Lillian Vernon Corp.................... 561,750 43,300 Lowe's Companies, Inc.................. 1,299,000 154,000 Medicine Shoppe International, Inc..................... 6,814,500 98,900 Mercantile Stores Co., Inc............. 4,450,500 60,500* Michaels Stores, Inc................... 983,125 7,000 Nike, Inc. Cl. B....................... 777,875 36,120,233 TELECOMMUNICATION SERVICES & EQUIPMENT -- 1.0% 70,000* Aspect Telecommunications Corp......... 1,890,000 85,000* Boston Technology Inc.................. 1,285,625 50,000* Coherent Communications Systems Corp........................... 1,375,000 35,000* Level One Communications, Inc.......... 822,500 110,000* Vertex Communications Corp............. 1,897,500 7,270,625 THRIFT INSTITUTIONS -- 1.4% 99,750 BSB Bancorp, Inc....................... 3,117,187 70,000 Collective Bancorp, Inc................ 1,811,250 255,000* Dime Financial Corp.**................. 2,964,375 33,275 Glacier Bancorp, Inc................... 690,456 73,500* Hawthorne Financial Corp............... 271,031 55,000 Sandwich Co-Operative Bank............. 1,017,500 9,871,799 TRANSPORTATION -- 1.3% 135,000 Atlantic Southeast Airlines, Inc....... 3,155,625 94,166* Heartland Express, Inc................. 2,754,355 75,000 Skywest, Inc........................... 1,425,000 110,000 TNT Freightways Corp................... 2,076,250 9,411,230 OTHER SECURITIES -- .1%................ 526,757 Total Common Stocks (cost $323,546,172).................... 606,683,751
16 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF INVESTMENTS -- (CONTINUED) SEPTEMBER 30, 1995
PRINCIPAL AMOUNT (000) VALUE SHORT-TERM INVESTMENTS -- 15.3% COMMERCIAL PAPER -- 5.4% $10,000 Allergan, Inc. 5.77%, 11/14/95............ $ 9,929,478 2,000 American Home Products Corp. 5.74%, 10/27/95............ 1,991,709 11,000 IBM Credit Corp. 5.73%, 10/13/95............ 10,978,990 1,200 Mid-South Capital Corp. 5.78%, 10/10/95............ 1,198,266 National Rural Utilities Cooperative Finance Corp. 2,000 5.65%, 11/03/95............ 1,989,642 6,000 5.75%, 11/13/95............ 5,958,792 2,000 Sherwood Medical Co. 5.75%, 10/27/95............ 1,991,694 3,000 Whirpool Financial Corp. 5.75%, 10/16/95............ 2,992,812 Xerox Corp. 1,400 5.70%, 11/2/95............. 1,392,906 800 5.74%, 10/5/95............. 799,490 39,223,779 PRINCIPAL AMOUNT (000) VALUE U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 9.9% $50,000 Federal Farm Credit Bank 5.73%, 10/20/95............ $ 49,848,792 Federal National Mortgage Co. 16,500 5.61%, 10/25/95............ 16,438,290 4,505 5.63%, 10/10/95............ 4,498,659 70,785,741 TOTAL SHORT-TERM INVESTMENTS (COST $110,009,520)........ 110,009,520 TOTAL INVESTMENTS (COST $433,555,692)........ 99.8% 716,693,271 OTHER ASSETS AND LIABILITIES -- NET......... .2 1,083,044 NET ASSETS................. 100.0% $717,776,315
* Non-income producing security. ** Investment in non-controlled affiliate-holding over 5% of outstanding voting securities. During the year ended September 30, 1995, the Fund recognized $65,600 in dividend income from these securities. + No market quotation available, valued at fair value as determined in good faith by the Fund's Trustees. 17 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995
ASSETS: Investments at value (identified cost $433,555,692)........................................................... $716,693,271 Cash.......................................................................................................... 797,121 Receivable for Fund shares sold............................................................................... 4,577,967 Receivable for securities sold................................................................................ 1,492,841 Dividends receivable.......................................................................................... 952,700 Prepaid expenses.............................................................................................. 66,014 Due from Adviser.............................................................................................. 2,588 Total assets............................................................................................ 724,582,502 LIABILITIES: Payable for Fund shares redeemed.............................................................................. 3,458,570 Payable for securities purchased.............................................................................. 2,390,270 Accrued advisory fee.......................................................................................... 573,085 Accrued expenses.............................................................................................. 338,176 Distribution fee payable...................................................................................... 46,086 Total liabilities....................................................................................... 6,806,187 NET ASSETS....................................................................................................... $717,776,315 NET ASSETS CONSIST OF: Paid-in capital............................................................................................... $407,400,987 Undistributed net investment income........................................................................... 1,963,316 Accumulated net realized gain on investment transactions...................................................... 25,274,433 Net unrealized appreciation of investments.................................................................... 283,137,579 Net assets.............................................................................................. $717,776,315 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($29,437,126 1,893,623 shares of beneficial interest outstanding).............................. $ 15.55 Sales charge -- 4.75% of offering price....................................................................... .78 Maximum offering price.................................................................................. $ 16.33 Class B Shares ($74,153,577 4,791,802 shares of beneficial interest outstanding).............................. $ 15.48 Class C Shares ($1,946,908 125,742 shares of beneficial interest outstanding)................................. $ 15.48 Class Y Shares ($612,238,704 39,282,153 shares of beneficial interest outstanding)............................ $ 15.59
See accompanying notes to financial statements. 18 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1995
INVESTMENT INCOME: Dividends.................................................................................... $ 8,360,789 Interest..................................................................................... 1,252,872 Total investment income................................................................... 9,613,661 EXPENSES: Advisory fee................................................................................. $5,472,439 Distribution fee -- Class A Shares........................................................... 21,713 Distribution fee -- Class B Shares........................................................... 160,792 Shareholder services fee -- Class B Shares................................................... 53,597 Distribution fee -- Class C Shares........................................................... 3,738 Shareholder services fee -- Class C Shares................................................... 1,246 Transfer agent fee........................................................................... 421,005 Custodian fee................................................................................ 136,003 Registration and filing fees................................................................. 105,320 Professional fees............................................................................ 98,993 Reports and notices to shareholders.......................................................... 76,052 Trustees' fees and expenses.................................................................. 57,870 Insurance expense............................................................................ 4,001 Miscellaneous................................................................................ 66,469 Total operating expenses.................................................................. 6,679,238 Interest expense............................................................................. 326,552 Less: Expense reimbursements................................................................. (24,130) Net expenses.............................................................................. 6,981,660 Net investment income........................................................................... 2,632,001 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments............................................................. 27,142,401 Net change in unrealized appreciation of investments......................................... 107,314,951 Net gain on investments......................................................................... 134,457,352 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $137,089,353
See accompanying notes to financial statements. 19 EVERGREEN FUND (Photo of Wall St.) STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED SEPTEMBER 30, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income............................................................... $ 2,632,001 $ 2,281,759 Net realized gain on investments.................................................... 27,142,401 72,013,209 Net change in unrealized appreciation of investments................................ 107,314,951 (36,681,720) Net increase resulting from operations........................................... 137,089,353 37,613,248 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- Class Y Shares............................................. (2,383,433) (3,823,912) Net realized gain on investments -- Class Y Shares.................................. (70,360,416) (25,464,732) Total distributions to shareholders.............................................. (72,743,849) (29,288,644) FUND SHARE TRANSACTIONS: Proceeds from shares sold........................................................... 1,350,882,223 1,081,247,408 Proceeds from reinvestment of distributions......................................... 66,336,031 27,023,906 Payment for shares redeemed......................................................... (1,289,695,764) (1,247,930,329) Net increase (decrease) resulting from Fund share transactions...................... 127,522,490 (139,659,015) Net increase (decrease) in net assets............................................ 191,867,994 (131,334,411) NET ASSETS: Beginning of year................................................................... 525,908,321 657,242,732 End of year (including undistributed net investment income of $1,963,316 and $1,714,748, respectively)......................................................... $ 717,776,315 $ 525,908,321
See accompanying notes to financial statements. 20 EVERGREEN FUND (Photo of Wall St.) FINANCIAL HIGHLIGHTS
JANUARY 3, 1995* THROUGH CLASS Y SHARES SEPTEMBER 30, 1995 CLASS A CLASS B CLASS C YEAR ENDED SEPTEMBER 30, SHARES SHARES SHARES 1995 1994 1993 1992 PER SHARE DATA: Net asset value, beginning of period........................... $11.97 $11.97 $11.97 $14.62 $14.46 $13.10 $13.32 Income (loss) from investment operations: Net investment income (loss)................................. .01 (.02) (.01) .10 .07 .09 .09 Net realized and unrealized gain on investments.............. 3.57 3.53 3.52 3.10 .79 1.96 .55 Total income from investment operations.................... 3.58 3.51 3.51 3.20 .86 2.05 .64 Less distributions to shareholders from: Net investment income........................................ -- -- -- (.07) (.09) (.07) (.17) Net realized gains on investments............................ -- -- -- (2.16) (.61) (.62) (.69) Total distributions........................................ -- -- -- (2.23) (.70) (.69) (.86) Net asset value, end of period................................. $15.55 $15.48 $15.48 $15.59 $14.62 $14.46 $13.10 TOTAL RETURN**................................................. 29.9% 29.3% 29.3% 26.8% 6.2% 15.8% 5.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)........................ $29 $74 $2 $612 $526 $657 $772 Ratios to average net assets: Operating expenses........................................... 1.70% +# 2.32%+# 2.12%+# 1.16% 1.13% 1.11% 1.13% Interest expense............................................. .01% + .01%+ .01%+ .06% .09% .01% -- Net investment income (loss)................................. .13% +# (.48%)+# (.31%)+# .53% .40% .60% .56% Portfolio turnover rate........................................ 19% 19% 19% 19% 19% 21% 32% 1991 PER SHARE DATA: Net asset value, beginning of period........................... $9.66 Income (loss) from investment operations: Net investment income (loss)................................. .17 Net realized and unrealized gain on investments.............. 3.93 Total income from investment operations.................... 4.10 Less distributions to shareholders from: Net investment income........................................ (.18) Net realized gains on investments............................ (.26) Total distributions........................................ (.44) Net asset value, end of period................................. $13.32 TOTAL RETURN**................................................. 43.7% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)........................ $755 Ratios to average net assets: Operating expenses........................................... 1.15% Interest expense............................................. -- Net investment income (loss)................................. 1.45% Portfolio turnover rate........................................ 35%
* Commencement of class operations. ** Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. + Annualized. 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 Class Y shares and are not necessarily indicative of future ratios. # 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, exclusive of any applicable state expense limitations, would have been the following:
JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 CLASS A CLASS B CLASS C SHARES SHARES SHARES Operating expenses........................................................... 1.75% 2.34% 5.31% Net investment income (loss)................................................. .08% (.50% ) (3.50%)
See accompanying notes to financial statements. 21 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) A REPORT FROM YOUR PORTFOLIO MANAGER DERRICK E. WENGER Evergreen Limited Market Fund completed its thirteenth fiscal (Photo of year on September 30, 1995. The Fund's return for the fiscal Derrick E. year was substantially below its historical average annual Wenger) return. We regard this divergence from trend as an interruption rather than as a new direction. It is, therefore, appropriate that this report discuss this underperformance as compared with the historical compounded return. In the first quarter of the fiscal year, the Fund was negatively impacted by extensive tax-loss selling, which particularly struck less active, non-institutional sectors of the stock market. With the Fund's very small company orientation (median market capitalization of the portfolio, $49 million), our holdings proved rather vulnerable. During the next six months, these companies, which are generally quite small, and we believe financially solid rather than spectacular, failed to attract market interest. The market focus moved toward those companies that are generally volatile and have exceptionally high growth rates, in contrast with the low price/earnings ratio and high book-to-market values which have been the hallmark of Evergreen Limited Market Fund. A reversal of trend began to take place in the course of the summer so that, by the fiscal fourth quarter, the Fund was showing improvement. For its fiscal year, the Fund's total return was exceeded by the total returns of both the NASDAQ OTC Composite* and the Russell 2000.* (For additional performance information, please see page 24.) The Fund's management made the decision to stay with the value-oriented long-term investment approach which has characterized the Fund's success since inception. Within this context, we have made significant efforts to improve the performance by adding new investments which we believe will revitalize performance. We have also made efforts to intensify our sell discipline so that it may more effectively avoid the impact of this volatile market's abrupt changes of investor sentiment. PORTFOLIO PERFORMANCE The Fund had its share of outstanding performers. Three portfolio holdings provided appreciation of over 100% for the fiscal year: JLG Industries, 168.2%, Mercer International, 105.4%, and Oxford Resources, 102.0%. Appreciation of 90% or better was provided by Springfield Institution for Savings, 93.2%, and Northern Technologies, 90.0%. A number of holdings provided appreciation of more than 50% including: National Dentex, 66.9%, Orthopedic Technology, 66.7%, Continental Waste Industries, 66.5%, DonKenny Inc., 64.5%, Right Management Consultants, 62.0%, Supreme International, 57.9%, Motorcar Parts and Accessories, 56.1%, and Benson Financial Corporation, 51.3%. Substantial gains were realized in the course of the fiscal year. Examples of such include: Cannon Express, Cl.B, 386.5%, held four and one-half years; Consolidated Products, 162.9%, held seven year and three quarter years; Pediatric Services of America, 154.2%, held eight months; Kenneth Cole Productions, 134.0%, held five months, and Wireless Telecom Group, 113.2% held four months. We believe that these realized and unrealized gains indicate that the underlying strategy of the Fund and our continuing fundamental research may provide for the long-term results in line with the Fund's historical trends. FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. *UNMANAGED INDICES OF SELECTED SECURITIES. 22 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) The negative pressures in the portfolio predominantly reflected shorter term operating trends of businesses faced with reduced demand or unusual competition. The primary area of weakness was in the consumer sector, where we have historically enjoyed a strong position in the retailing and apparel industry. Issues such as Eateries Inc., Rocky Shoes and Boots, Oneita Industries, Holson Burnes Group, Chic by H.I.S., and American Sensors, experienced declines of 20% to 40%, (many of them suddenly upon the publication of an adverse earnings trend), bringing our overall consumer products actual as-weighted performance to - -14.1% for the fiscal year. Similarly, the Fund's holdings in companies purely engaged in retailing produced a return of -14.2%, with the greatest declines being in 50-OFF Stores, -65.3%, and Model Imperial, -66.4%. Regrettably, as a result of redemption pressures during the fiscal year, we were not as free to average as we had been historically when our practice was always to keep reasonable liquidity in order to be able to snap up bargains during liquidation of issues with comparatively thin markets. MERGER AND ACQUISITION TRENDS The Fund continued to benefit from the long-term trend wherein larger companies seek to acquire smaller specialty businesses with excellent business franchises or products and services. During this fiscal year, three of our financial institution holdings were acquired: F & C Bancshares Inc., with a 114.5% gain over seven years, Central Mortgage Bancshares, with a 50.8% gain over twenty-five months, and Deerbank Corp., with a 40.7% gain over fifteen months. Other companies that were acquired or received acquisition offers included: DF & R Restaurants, which was sold after the acquisition was announced, for a two-month gain of 121.9%, Insituform Mid-America, also sold after the acquisition was announced, for a nine-month gain of 32.9%, and Triconex Corp., with a 23.9% gain in a six-month holding period. We believe that the degree of undervaluation and unrealized growth opportunity in the Fund's broad list of holdings should help provide a continuation of this acquisition trend. Since inception, the Fund has experienced 66 mergers and acquisitions (pending and completed) of portfolio holdings, with an average gain of 63.3% on completed acquisitions. DYNAMIC OPPORTUNITIES The large number of new issues brought to the stock market in 1995 will, we expect, provide many exceptional opportunities for long-term appreciation. This may not, typically, be the result of purchase on initial offering. Instead, we find that, frequently, after the enthusiastic investor reception of new issues quickly drives fully priced stocks to a level of overvaluation within a few months, the companies are unable to meet investors exaggerated expectations. The shares are then sold down, often carelessly. Our experience is that upon such declines, particularly during periods of tax-loss selling, we are able to establish positions at prices substantially below the new issue level, and well below the highs. Over the years, this has provided some of the better long-term gain opportunities for the Fund. OUTLOOK We are encouraged by the number of, in our opinion, attractive values we have been able to add to the Fund in recent months. The recovery in the Fund's performance in the last quarter of the fiscal year gives us positive expectations that as the outflow of funds from the portfolio is stemmed, we shall have more opportunities for new purchases to help reestablish the Fund's outstanding long-term record. We thank our shareholders for their continuing interest and conviction about the extraordinary opportunities available for investment in America's smaller, quality companies. 23 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN LIMITED MARKET FUND The graphs below compare a $10,000 investment in the Evergreen Limited Market Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Russell 2000 and NASDAQ OTC Indices ("Indices"). CLASS A AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=11.3% (Class A Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 LIMITED MARKET FUND 9,525 9,912 10,232 11,127 CLASS B AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=11.1% (Class B Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 LIMITED MARKET FUND 10,000 10,387 10,698 11,112 CLASS C AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=15.2% (Class C Average Annual Total Return chart appears here, plot points are as follows) 1/3/95* 3/31/95 6/30/95 9/30/95 RUSSELL 2000 10,000 10,461 11,441 12,572 NASDAQ OTC 10,000 10,884 12,450 13,934 LIMITED MARKET FUND 10,000 10,387 10,704 11,518 CLASS Y AVERAGE ANNUAL TOTAL RETURN ONE YEAR=4.7% FIVE YEAR=14.4% SINCE INCEPTION=12.8% (Class Y Average Annual Total Return chart appears here, plot points are as follows)
9/30/85 9/30/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 RUSSELL 2000 10,000 12,202 15,789 14,083 17,109 12,462 18,081 19,696 26,223 26,926 33,221 NASDAQ OTC 10,000 12,509 15,876 13,865 16,910 12,317 18,838 20,857 27,275 27,326 37,432 LIMITED MARKET FUND 10,000 13,518 17,018 16,011 20,167 17,108 23,735 25,952 31,296 31,957 33,478
*Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on September 30, 1995; (c) all recurring fees (including investment advisory fees), net of fee waivers and reimbursements, were deducted; and (d) all dividends and distributions were reinvested. The Indices are unmanaged indices 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. 24 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS -- 97.5% BANKS -- 17.2% 40,000 Abington Savings Bank.................. $ 640,000 25,000 Bank of New Hampshire Corp............. 781,250 50,000 Benson Financial Corp.................. 937,500 9,000 Cape Cod Bank & Trust Co............... 353,250 83,900 Cornerstone Bank+...................... 896,681 20,000 Hudson Chartered Bancorp, Inc.......... 330,000 7,000 Letchworth Independent Bancshares Corp........................ 198,625 10,000* Letchworth Independent Bancshares Corp. Warrants Expiring 12/31/97............. 51,250 70,000 Main Street Community Bancorp, Inc..... 1,172,500 11,000 Merchants Bancorp, Inc................. 294,250 100,000* SC Bancorp............................. 606,250 30,000 Seacoast Banking Corporation of Florida................................ 660,000 42,500* Springfield Institution for Saving..... 653,437 79,000 State Financial Services Corp.......... 1,303,500 321,500* Surety Capital Corp.................... 1,527,125 3,625 Susquehanna Bancshares, Inc............ 100,593 60,500* United Security Bancorp................ 612,562 36,000 West Coast Bancorp, Inc................ 540,000 11,658,773 BUILDING & CONSTRUCTION -- 2.4% 65,000* Cameron Ashley, Inc.................... 617,500 8,800 JLG Industries, Inc.................... 396,000 37,500* Southern Energy Homes, Inc............. 595,312 1,608,812 COMMUNICATION SYSTEMS & SERVICES -- .2% 10,500* Tel-Save Holdings, Inc................. 161,437 CONSUMER PRODUCTS -- 16.7% 151,000* American Sensors, Inc.................. 1,057,000 72,000* Ashworth, Inc.......................... 576,000 16,300* Bollinger Industries, Inc.............. 59,169 25,500* Boyds Wheels, Inc...................... 178,500 98,000* Celebrity, Inc......................... 686,000 85,000* Chic By H.I.S., Inc.................... 680,000 51,000* Conso Products Company................. 841,500 23,600* Donnkenny, Inc......................... 663,750 144,000* Geerlings & Wade, Inc.................. 1,332,000 110,000* Gotham Apparel Corp.+.................. 13,750 147,800* Holson Burnes Group, Inc............... 554,250 40,000* Motorcar Parts and Accessories, Inc.... 555,000 30,300* Norton McNaughton, Inc................. 674,175 160,500* Oneita Industries, Inc................. 1,363,881 30,000* River Oaks Furniture, Inc.............. 277,500 SHARES VALUE CONSUMER PRODUCTS (CONTINUED) 52,100* Rocky Shoes & Boots, Inc............... $ 345,163 44,000* Simmons Outdoor Corp................... 297,000 10,200 Sport Supply Group, Inc................ 124,950 9,025* Sport Supply Group, Inc. Warrants Expiring 12/15/98...................... 19,178 15,000* Sport-Haley, Inc....................... 142,500 32,000* Supreme International Corp............. 608,000 47,900 Wolf (Howard B.), Inc.................. 311,350 11,360,616 CONSUMER SERVICES -- 3.0% 25,000* Children's Discovery Center of America, Inc.................................... 293,750 234,000* Eateries, Inc.+........................ 672,750 120,000* Noble Roman's, Inc..................... 562,750 105,000* Summit Family Restaurants, Inc......... 492,188 2,021,438 ENERGY -- 1.3% 238,000* Frontier Oil Exploration Co............ 550,375 22,300 KCS Energy, Inc........................ 320,562 870,937 FINANCE & INSURANCE -- 2.3% 60,000 Amvestors Financial Corp............... 690,000 10,000* Financial Federal Corp................. 205,000 20,000* Oxford Resources Corp.................. 468,250 12,800 Titan Holdings, Inc.................... 196,800 1,560,050 HEALTH CARE PRODUCTS & SERVICES -- 3.9% 38,400 Allied Health Care Product, Inc........ 702,225 4,600* Fresenius USA, Inc..................... 71,875 4,000* Gelman Sciences, Inc................... 88,000 96,500* Hosposable Products, Inc.+............. 699,625 148,000* Mediware Information Systems, Inc.+.... 148,000 1,000* National Dentex Corp................... 17,500 79,200* Orthopedic Technology, Inc............. 564,300 70,000* Quidel Corp............................ 385,000 2,676,525 INDUSTRIAL & COMMERCIAL SERVICES -- 10.2% 88,000* AG Services of America, Inc............ 880,000 1,000* Consolidated Graphics, Inc............. 21,500 10,000* Continental Waste Industries, Inc...... 172,500 49,950 Falcon Products, Inc................... 699,300 70,000* Handex Corp............................ 498,750 88,200* Heist (C.H.) Corp...................... 705,538 200,000* Integrated Waste Services, Inc......... 375,000
25 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF INVESTMENTS -- (CONTINUED) SEPTEMBER 30, 1995
SHARES VALUE COMMON STOCKS -- (CONTINUED) INDUSTRIAL & COMMERCIAL SERVICES (CONTINUED) 70,000* Medar, Inc............................. $ 691,250 3,500 Northern Technologies International Corp..................... 24,500 10,600* Right Management Consultants, Inc...... 360,400 40,000* SOS Staffing Services, Inc............. 330,000 89,200* Serv-Tech, Inc......................... 713,600 220,000* Utilx Corp............................. 605,000 106,200* Weston (Roy F.), Inc. Cl. A............ 584,100 174,000* Winston Resources, Inc................. 282,750 6,944,188 INDUSTRIAL SPECIALTY PRODUCTS -- 15.5% 43,000* Astec Industries, Inc.................. 483,750 20,400* Astrosystems, Inc...................... 109,650 87,585* Autocam Corp........................... 1,094,813 80,000* Ballantyne of Omaha, Inc............... 610,000 7,800* Chase Brass Industries, Inc............ 99,450 5,000* Computational Systems, Inc............. 81,250 32,500* Digitran Systems, Inc.**............... 32,500 78,000* Dynamic Materials Corp................. 170,625 60,000* Environmental Technologies Corp........ 727,500 31,000* Hilite Industries, Inc................. 282,875 105,500* Holopak Technologies, Inc.............. 764,875 10,000* JPE, Inc............................... 135,000 30,500* Liberty Technologies, Inc.............. 160,125 50,000* Mercer International, Inc.............. 1,250,000 27,600 Met-Pro Corp........................... 386,400 68,600* Mity-Lite, Inc......................... 591,675 2,400 Penn Engineering & Manufacturing Corp................................... 220,800 100,000* R-B Rubber Products, Inc............... 450,000 60,000* Shaw Group, Inc........................ 547,500 55,000* Tower Automotive, Inc.................. 756,250 80,000 Wescast Industries, Inc................ 880,000 69,100* Zemex Corp............................. 665,087 10,500,125 RETAILING -- 11.5% 12,500* American Eagle Outfitters, Inc......... 174,805 80,900* Central Tractor Farm & Country, Inc.... 909,762 85,000* Duckwall-ALCO Stores, Inc.............. 935,000 135,000* Ernst Home Center, Inc................. 759,375 50,000* 50-OFF Stores, Inc..................... 87,500 SHARES VALUE RETAILING (CONTINUED) 3,000* Grow Biz International, Inc............ $ 30,375 25,400 Michaels (J.), Inc..................... 273,050 244,200* Model Imperial, Inc.................... 675,299 62,000* Mothers Work, Inc...................... 1,030,750 177,000* Roberds, Inc........................... 2,212,500 64,400* Spec's Music, Inc...................... 209,300 40,000* Sportmart, Inc. Cl. A.................. 243,750 21,000* Trend-Lines, Inc....................... 278,250 7,819,716 TECHNOLOGICAL PRODUCTS & SERVICES -- 9.4% 83,000* American Electronic Components, Inc.... 835,189 40,000* Aseco Corp............................. 680,000 19,600* Asyst Technologies, Inc................ 899,150 13,000* Continential Circuits Corp............. 175,500 40,000* GSE Systems, Inc....................... 560,000 6,000* Globalink, Inc......................... 62,250 40,000* Interactive Group, Inc................. 270,000 4,000* Paradigm Technology, Inc............... 123,000 89,000* Richey Electronics, Inc................ 778,750 20,000* SPSS, Inc.............................. 345,000 11,700* Semiconductor Packaging Materials Co., Inc..................... 137,475 1,000* Smartflex Systems, Inc................. 17,000 10,000* Smith Micro Software, Inc.............. 98,750 81,500* Supertex, Inc.......................... 845,562 23,100* Viasoft, Inc........................... 300,300 10,000 Wireless Telecom Group................. 186,250 5,000* Zycon Corp............................. 61,250 6,375,426 THRIFT INSTITUTIONS -- .4% 8,000 BSB Bancorp, Inc....................... 250,000 TRANSPORTATION -- 3.5% 168,425* Cannon Express Inc. Cl. B.............. 1,536,878 25,000* Covenant Transport, Inc. Cl. A......... 367,188 90,000* OTR Express, Inc....................... 472,500 2,376,566 OTHER SECURITIES....................... 18 TOTAL COMMON STOCKS (COST $63,387,399)..................... 66,184,627
26 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF INVESTMENTS -- (CONTINUED) SEPTEMBER 30, 1995
PRINCIPAL AMOUNT VALUE SHORT-TERM U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 4.0% $ 400,000 Federal Home Loan Mortgage Association, 5.64%, 10/11/95..................... $ 399,373 2,300,000 Federal National Mortgage Association, 5.58%, 10/27/95.............. 2,290,731 TOTAL SHORT-TERM U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $2,690,104)............ 2,690,104 TOTAL INVESTMENTS (COST $66,077,503)...... 101.5% 68,874,731 OTHER ASSETS AND LIABILITIES -- NET...... (1.5) (982,760) NET ASSETS................. 100.0% $67,891,971
* Non-income producing security. ** Valued at fair value as determined in good faith by the Fund's Board of Directors. + Investment in non-controlled affiliate-holdings over 5% of outstanding voting securities. During the year ended September 30, 1995, the Fund recognized $3,910 in dividend income from these securities. None of these securities were sold. See accompanying notes to financial statements. 27 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 ASSETS: Investments at value (identified cost $66,077,503)............................................................. $68,874,731 Receivable for securities sold................................................................................. 1,511,931 Receivable for Fund shares sold................................................................................ 46,810 Prepaid expenses............................................................................................... 40,851 Dividends receivable........................................................................................... 18,704 Due from Adviser............................................................................................... 8,420 Total assets............................................................................................. 70,501,447 LIABILITIES: Due to custodian bank.......................................................................................... 52,218 Payable for securities purchased............................................................................... 2,340,475 Accrued expenses............................................................................................... 95,476 Payable for Fund shares redeemed............................................................................... 62,720 Accrued advisory fee........................................................................................... 57,193 Distribution fee payable....................................................................................... 1,394 Total liabilities........................................................................................ 2,609,476 NET ASSETS........................................................................................................ $67,891,971 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $63,432,101 Accumulated net realized gain on investment transactions....................................................... 1,662,642 Net unrealized appreciation of investments..................................................................... 2,797,228 Net assets............................................................................................... $67,891,971 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($1,089,220 59,169 shares outstanding).......................................................... $ 18.41 Sales charge -- 4.75% of offering price........................................................................ .92 Maximum offering price................................................................................... $ 19.33 Class B Shares ($2,020,378 110,394 shares outstanding)......................................................... $ 18.30 Class C Shares ($61,567 3,363 shares outstanding).............................................................. $ 18.31 Class Y Shares ($64,720,806 3,513,698 shares outstanding)...................................................... $ 18.42
See accompanying notes to financial statements. 28 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1995 INVESTMENT INCOME: Dividends...................................................................................... $ 370,183 Interest....................................................................................... 27,212 Total investment income..................................................................... 397,395 EXPENSES: Advisory fee...................................................................................... $800,642 Distribution fee -- Class A Shares................................................................ 1,429 Distribution fee -- Class B Shares................................................................ 8,649 Shareholder services fee -- Class B Shares........................................................ 2,883 Distribution fee -- Class C Shares................................................................ 303 Shareholder services fee -- Class C Shares........................................................ 101 Custodian fee..................................................................................... 84,089 Registration and filing fees...................................................................... 72,982 Transfer agent fee................................................................................ 72,182 Professional fees................................................................................. 51,861 Reports and notices to shareholders............................................................... 26,700 Insurance expense................................................................................. 13,226 Directors' fees and expenses...................................................................... 10,680 Miscellaneous..................................................................................... 4,514 1,150,241 Less: Fee waivers and expense reimbursements...................................................... (48,100) Net expenses................................................................................... 1,102,141 Net investment loss.................................................................................. (704,746) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments.................................................................. 2,480,633 Net change in unrealized appreciation of investments.............................................. (99,059) Net gain on investments.............................................................................. 2,381,574 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $1,676,828
See accompanying notes to financial statements. 29 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED FOUR MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss.................................................................. $ (704,746) $ (219,094) Net realized gain on investments..................................................... 2,480,633 5,921,027 Net change in unrealized appreciation of investments................................. (99,059) (3,012,423) Net increase resulting from operations............................................ 1,676,828 2,689,510 DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS: Class Y Shares....................................................................... (15,681,527) -- Total distributions to shareholders............................................... (15,681,527) -- FUND SHARE TRANSACTIONS: Proceeds from shares sold............................................................ 30,951,369 64,053,556 Proceeds from reinvestment of distributions.......................................... 14,048,986 -- Payment for shares redeemed.......................................................... (62,443,458) (63,760,491) Net increase (decrease) resulting from Fund share transactions.................... (17,443,103) 293,065 Net increase (decrease) in net assets............................................. (31,447,802) 2,982,575 NET ASSETS: Beginning of period.................................................................. 99,339,773 96,357,198 End of period (including net investment loss of $536,569 at September 30, 1994)...... $67,891,971 $99,339,773
See accompanying notes to financial statements. 30 EVERGREEN LIMITED MARKET FUND, INC. (Photo of side of building) FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C SHARES SHARES SHARES JANUARY 3, JANUARY 3, JANUARY 3, CLASS Y SHARES 1995* 1995* 1995* FOUR MONTHS YEAR THROUGH THROUGH THROUGH YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, MAY 31, 1995 1995 1995 1995 1994** 1994 PER SHARE DATA: Net asset value, beginning of period... $ 15.76 $ 15.76 $ 15.76 $21.74 $21.20 $20.87 Income (loss) from investment operations: Net investment income (loss)......... (.10) (.20) (.20) (.23) (.05) (.07) Net realized and unrealized gain on investments........................ 2.75 2.74 2.75 .59 .59 1.67 Total income from investment operations....................... 2.65 2.54 2.55 .36 .54 1.60 Less distributions to shareholders from: Net investment income................ -- -- -- -- -- -- Net realized gains................... -- -- -- (3.68) -- (1.27) Total distributions................ -- -- -- (3.68) -- (1.27) Net asset value, end of period......... $ 18.41 $ 18.30 $ 18.31 $18.42 $21.74 $21.20 TOTAL RETURN+.......................... 16.8% 16.1% 16.2% 4.8% 2.6% 7.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............................. $ 1,089 $ 2,020 $62 $64,721 $99,340 $96,357 Ratios to average net assets: Expenses............................. 1.51%++# 2.26%++# 2.25%++# 1.36% 1.37%++ 1.26% Net investment income (loss)......... (1.03%)++# (1.77%)++# (1.76%)++# (.87%) (.70%)++ (.33%) Portfolio turnover rate................ 84% 84% 84% 84% 36% 89% 1993 1992 < PER SHARE DATA: Net asset value, beginning of period... $21.02 $18.81 Income (loss) from investment operations: Net investment income (loss)......... (.03) .02 Net realized and unrealized gain on investments........................ 1.57 3.33 Total income from investment operations....................... 1.54 3.35 Less distributions to shareholders from: Net investment income................ -- (.14) Net realized gains................... (1.69) (1.00) Total distributions................ (1.69) (1.14) Net asset value, end of period......... $20.87 $21.02 TOTAL RETURN+.......................... 7.5% 18.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)............................. $80,605 $62,172 Ratios to average net assets: Expenses............................. 1.24% 1.25% Net investment income (loss)......... (.07%) .22% Portfolio turnover rate................ 29% 55%
* Commencement of class operations. ** The Fund changed its fiscal year end from May 31 to September 30. + Total return is calculated for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ 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 Class Y shares and are not necessarily indicative of future ratios. # 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:
CLASS A CLASS B CLASS C SHARES SHARES SHARES JANUARY 3, JANUARY 3, JANUARY 3, 1995* 1995* 1995* THROUGH THROUGH THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1995 Expenses.............................................. 4.33% 3.66% 41.34% Net investment loss................................... (3.85%) (3.18%) (40.85%)
See accompanying notes to financial statements. 31 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) A REPORT FROM YOUR PORTFOLIO MANAGER SAMUEL A. LIEBER Evergreen U.S. Real Estate Equity Fund ended its fiscal year on September 30, 1995. While the Fund's twelve-month total (Photo of return (Class Y, no-load shares) lagged that of the Standard and Samuel A. Poor's 500 Reinvested Index*, it dramatically exceeded that of Lieber) the Lipper Real Estate Funds Average of 20 real estate funds tracked by Lipper Analytical Services**. In fact, Evergreen U.S. Real Estate Equity Fund (Class Y, no-load shares) ranked #1*** among these funds, based on its twelve-month total return through September 30. The Fund's total return also surpassed that of the unmanaged Wilshire Real Estate Securities Index* for the twelve-month period. (For additional performance information, please see page 34.) In the Fund's prior annual report, we wrote that "...the opportunities for profitably investing in real estate investment trusts (REITs) and homebuilders have rarely been better". We believe that this is still true for homebuilding shares. While many REITs also are attractively valued, changes in some share prices and the economy itself has led us to be more cautious regarding certain sectors and companies. We believe that the stock market has not fully adjusted to the recent interest rate volatility and the rapidly growing REIT stock issuance, creating inefficient pricing of future growth or current value. We are not willing to pay a large premium to underlying property asset values. Risk reduction and return can both be enhanced when stocks are bought at prices which underestimate current and prospective property values. For example, the Fund's five largest REITs are selling at low multiples: 10x to 11x this year's cash flow numbers, under 10x next year's; with dividend yields typically from 7.5% to over 8%. In addition, these REITs are growing a minimum of 10% to 15% based not only on what we project, but also on research analyst consensus numbers. The portfolio's construction and emphasis is apparent in its sector diversification: 68.4% REITs, 23.2% homebuilders, 4.2% operating companies. Further, the geographic distribution emphasizes the Sunbelt as well as the West. We are combining our approach of emphasizing growth areas with searching for situations we feel are undervalued or areas which may recover and, hence, provide significant value. In response to changing opportunities, we have made a few significant changes over the past year. We believe office and industrial REIT's are overvalued, so we have reduced this sector investment from 10.3% of net assets at September 30, 1994, to 3.4% at September 30, 1995. We have added to self-storage facilities (7.1% compared with 3.0%) and most notably hotel REITs and lodging companies (18.9% vs. 8.6%). We have also started to pick up over-sold shopping center REITs where concern over poor retail sales is perhaps overdiscounted, creating value timing opportunities. Homebuilder stocks remain the largest single sector of this diversified portfolio. The homebuilding market has been rather volatile after benefiting from previously pent-up demand being released by historically low interest rates in 1993. Homebuilders then experienced a contraction as interest rates rose precipitously during the fourth quarter of 1994. Today, however, interest rates have declined to levels not seen since the beginning of 1994. This combined with high levels of employment and a general absence of home price inflation, has lead to demand absorbing a significant amount of the available inventory of both existing and newly constructed homes. As a result, homebuilders have enjoyed strong new orders and solid backlogs. Many of the medium-size builders in the Fund dominate their local markets yet still trade at prospective P/E multiples below 10x. FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT CONCENTRATION IN ONE INDUSTRY MAY INCREASE THE RISKS THAT WOULD OTHERWISE BE DECREASED IN MORE DIVERSE INVESTMENTS. * UNMANAGED INDICES OF SELECTED SECURITIES ** LIPPER ANALYTICAL SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR *** RANKINGS FOR THE FUND'S CLASS A, CLASS B, AND CLASS C SHARES ARE NOT AVAILABLE AS THOSE SHARE CLASSES DID NOT EXIST FOR THE FULL TIME PERIOD. 32 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) We believe Evergreen U.S. Real Estate Equity Fund's investment strategy, which emphasizes sectors that we believe are positioned for growth over the next few years, such as factory outlet centers, self-storage facilities and hotels, will continue to be successful when augmented by our value timing approach. 33 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) RESULTS TO DATE PERFORMANCE OF $10,000 INVESTED IN THE EVERGREEN U.S. REAL ESTATE EQUITY FUND The graphs below compare a $10,000 investment in the Evergreen U.S. Real Estate Equity Fund (Class A, Class B, Class C and Class Y Shares) with a similar investment in the Wilshire Real Estate and S&P 500 Indices ("Indices"). CLASS A AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=18.1% (Class A Average Annual Total Return chart appears here. Plot points are as follows) 3/10/95* 3/31/95 6/30/95 9/30/95 S & P 500 INDEX 10,000 10,975 12,012 12,965 WILSHIRE REAL ESTATE INDEX 10,000 10,058 10,491 10,989 US REAL ESTATE EQUITY FUND 9,525 9,618 10,766 11,811 CLASS B AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=18.7% (Class B Average Annual Total Return chart appears here. Plot points are as follows) 3/7/95* 3/31/95 6/30/95 9/30/95 S & P 500 INDEX 10,000 10,975 12,012 12,965 WILSHIRE REAL ESTATE INDEX 10,000 10,058 10,491 10,989 US REAL ESTATE EQUITY FUND 10,000 10,109 11,295 11,872 CLASS C AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION=4.4% (Class C Average Annual Total Return chart appears here. Plot points are as follows) 7/12/95* 7/31/95 8/31/95 9/30/95 S & P 500 INDEX 10,000 10,975 12,012 12,965 WILSHIRE REAL ESTATE INDEX 10,000 10,161 10,285 10,474 US REAL ESTATE EQUITY FUND 10,000 10,000 10,212 10,436 CLASS Y AVERAGE ANNUAL TOTAL RETURN ONE YEAR=17.6% SINCE INCEPTION=8.7% (Class Y Average Annual Total Return chart appears here. Plot points are as follows)
9/1/93* 9/30/93 9/30/94 9/30/95 S & P 500 INDEX 10,000 9,924 10,286 13,333 WILSHIRE REAL ESTATE INDEX 10,000 10,455 9,890 10,819 US REAL ESTATE EQUITY FUND 10,000 10,350 10,117 11,900
*Commencement of class operations. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED. For the purposes of the graphs and the accompanying tables, it has been assumed that (a) the maximum sales charge of 4.75% was deducted from the initial $10,000 investment in Class A Shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C Shares, assuming full redemption on September 30, 1995; (c) all recurring fees, (including investment advisory fees), net of fee waivers and reimbursements, were deducted; and (d) all dividends and distributions were reinvested. The Indices are unmanaged indices 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. 34 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995 SHARES/ PRINCIPAL AMOUNT VALUE EQUITY SECURITIES -- 95.8 REAL ESTATE INVESTMENT TRUSTS -- 68.4% APARTMENTS -- 15.6% 7,000 Bay Apartment Communities, Inc......... $ 150,500 19,000 Columbus Realty Trust.................. 361,000 7,500 Evans Withycombe Residential, Inc...... 151,875 20,000 Gables Residential Trust............... 450,000 10,000 Irvine Apartment Communities, Inc...... 176,250 6,800 Post Properties, Inc................... 210,800 1,500,425 COMMUNITY SHOPPING CENTERS -- 6.3% 20,000 Alexander Haagen Properties, Inc....... 232,500 7,000 Kranzco Realty Trust................... 118,125 23,000 Tucker Properties Corp................. 255,875 606,500 FACTORY OUTLET CENTERS -- 11.3% 14,500 Chelsea GCA Realty, Inc................ 433,187 19,680 HGI Realty, Inc........................ 472,320 7,200 Tanger Factory Outlet Centers, Inc..... 179,100 1,084,607 HOTELS -- 16.0% 10,000 FelCor Suite Hotels, Inc............... 300,000 16,000 * Patriot American Hospitality, Inc...... 410,000 10,000 RFS Hotel Investors, Inc............... 152,500 15,367 * Starwood Lodging Trust................. 432,197 25,000 * Sunstone Hotel Investors, Inc.......... 240,625 1,535,322 SELF-STORAGE -- 7.1% 12,500 * Sovran Self Storage, Inc............... 310,937 20,000 Storage Equities, Inc.................. 372,500 683,437 OFFICE/INDUSTRIAL BUILDINGS -- 3.4% 65,000 * American Industrial Property........... 121,875 4,000 Highwoods Properties, Inc.............. 105,500 $100,000 Liberty Property Trust Exchangeable Subordinated Debentures 8.00%, 7/1/01............... 105,625 333,000 SHARES VALUE SHOPPING MALLS -- 8.7% 4,500 * Alexander's, Inc....................... $ 271,125 25,000 Crown American Realty Trust............ 206,250 10,000 DeBartolo Realty Corp.................. 140,000 22,000 Taubman Centers, Inc................... 220,000 837,375 TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $6,047,518)...................... 6,580,666 COMMON STOCKS -- 27.4% HOMEBUILDERS -- 23.2% 10,000 * Brewer (C.) Homes, Inc. Cl. A.......... 57,500 16,300 Continental Homes Holding Corp......... 342,300 15,200 Engle Homes, Inc....................... 133,000 20,000 * M/I Schottenstein Homes, Inc........... 205,000 90,300 * Presley Companies...................... 180,600 10,000 * Redman Industries, Inc................. 260,000 11,750 * Southern Energy Homes, Inc............. 186,532 32,000 Standard Pacific Corp.................. 224,000 8,500 * Toll Brothers, Inc..................... 160,438 41,200 * US Home Corp. Warrants CI. B........... 365,650 23,400 Washington Homes, Inc.................. 117,000 2,232,020 LODGING -- 2.9% 20,000 Kahler Realty Corp..................... 275,000 OTHER SECURITIES -- 1.3%............... 131,000 TOTAL COMMON STOCKS (COST $2,709,270)...................... 2,638,020 TOTAL INVESTMENTS (COST $8,756,788).......... 95.8 % 9,218,686 OTHER ASSETS AND LIABILITIES -- NET......... 4.2 405,138 NET ASSETS.................... 100.0 % $9,623,824
* Non-income producing security. See accompanying notes to financial statements. 35 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995 ASSETS: Investments at value (identified cost $8,756,788).............................................................. $ 9,218,686 Cash........................................................................................................... 306,082 Receivable for securities sold................................................................................. 670,869 Dividends receivable........................................................................................... 72,833 Prepaid expenses............................................................................................... 51,957 Receivable for Fund shares sold................................................................................ 47,005 Unamortized organization expenses.............................................................................. 19,743 Due from Adviser............................................................................................... 11,714 Total assets................................................................................................ 10,398,889 LIABILITIES: Payable for securities purchased............................................................................... 734,138 Accrued expenses............................................................................................... 40,634 Payable for Fund shares redeemed............................................................................... 223 Distribution fee payable....................................................................................... 70 Total liabilities........................................................................................... 775,065 NET ASSETS........................................................................................................ $ 9,623,824 NET ASSETS CONSIST OF: Paid-in capital................................................................................................ $ 8,938,272 Undistributed net investment income............................................................................ 113,558 Accumulated net realized gain on investment transactions....................................................... 110,096 Net unrealized appreciation of investments..................................................................... 461,898 Net assets.................................................................................................. $ 9,623,824 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A Shares ($4,943 433 shares of beneficial interest outstanding)....................................... $ 11.42 Sales charge -- 4.75% of offering price..................................................................... .57 Maximum offering price...................................................................................... $ 11.99 Class B Shares ($160,483 14,116 shares of beneficial interest outstanding).................................. $ 11.37 Class C Shares ($2,761 242 shares of beneficial interest outstanding)....................................... $ 11.41 Class Y Shares ($9,455,637 826,737 shares of beneficial interest outstanding)............................... $ 11.44
See accompanying notes to financial statements. 36 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1995 INVESTMENT INCOME: Income: Dividends..................................................................................... $ 327,467 Interest...................................................................................... 10,510 Total investment income.................................................................... 337,977 EXPENSES: Advisory fee..................................................................................... $ 85,509 Distribution fee -- Class A Shares............................................................... 6 Distribution fee -- Class B Shares............................................................... 269 Shareholder services fee -- Class B Shares....................................................... 90 Distribution fee -- Class C Shares............................................................... 5 Shareholder services fee -- Class C Shares....................................................... 2 Custodian fee.................................................................................... 43,120 Registration and filing fees..................................................................... 42,872 Transfer agent fee............................................................................... 27,693 Professional fees................................................................................ 26,143 Reports and notices to shareholders.............................................................. 10,596 Trustees' fees and expenses...................................................................... 6,923 Amortization of organization expense............................................................. 6,760 Insurance expense................................................................................ 6,750 Miscellaneous.................................................................................... 355 257,093 Less: Fee waivers and expense reimbursements..................................................... (128,522) Net expenses............................................................................... 128,571 Net investment income............................................................................... 209,406 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments................................................................. 113,161 Net change in unrealized appreciation of investments............................................. 1,146,688 Net gain on investments............................................................................. 1,259,849 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ 1,469,255
See accompanying notes to financial statements. 37 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) STATEMENT OF CHANGES IN NET ASSETS
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................................................. $ 209,406 $ 91,947 Net realized gain on investments....................................................... 113,161 83,042 Net change in unrealized appreciation (depreciation) of investments.................... 1,146,688 (870,461) Net increase (decrease) resulting from operations................................... 1,469,255 (695,472) DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- Class Y Shares........................................... (183,475) -- From net realized gain on investments -- Class Y Shares................................ (106,651) -- Total distributions to shareholders................................................. (290,126) -- FUND SHARE TRANSACTIONS: Proceeds from shares sold.............................................................. 1,706,148 7,218,876 Proceeds from reinvestments of distributions........................................... 273,657 -- Payment for shares redeemed............................................................ (2,165,200) (2,503,707) Net increase (decrease) resulting from Fund share transactions...................... (185,395) 4,715,169 Net increase in net assets.......................................................... 993,734 4,019,697 NET ASSETS: Beginning of period.................................................................... 8,630,090 4,610,393 End of period (including undistributed net investment income of $113,558 and $87,627, respectively)........................................................................ $ 9,623,824 $ 8,630,090
See accompanying notes to financial statements. 38 EVERGREEN U.S. REAL ESTATE EQUITY FUND (Photo of flag) FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C SHARES SHARES SHARES CLASS Y SHARES MARCH 10, MARCH 7, JULY 12, NINE MONTHS 1995* THROUGH 1995* THROUGH 1995* THROUGH YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1995 1995 1994** PER SHARE DATA: Net asset value, beginning of period....... $ 9.21 $ 9.19 $ 10.87 $ 10.07 $ 10.71 Income (loss) from investment operations: Net investment income.................... .18 .05 .08 .23 .11 Net realized and unrealized gain (loss) on investments......................... 2.03 2.13 .46 1.46 (.75) Total income (loss) from investment operations........................... 2.21 2.18 .54 1.69 (.64) Less distributions to shareholders from: Net investment income.................... -- -- -- (.20) -- In excess of net investment income....... -- -- -- -- -- Net realized gains on investments........ -- -- -- (.12) -- Total distributions.................... -- -- -- (.32) -- Net asset value, end of period............. $ 11.42 $ 11.37 $ 11.41 $ 11.44 $ 10.07 TOTAL RETURN+.............................. 24.0% 23.7% 5.0% 17.6% (6.0%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................. $5 $160 $3 $ 9,456 $ 8,630 Ratios to average net assets: Expenses................................. 1.78%++# 2.51%++# 2.49%++# 1.50%# 1.49%++ Net investment income.................... 3.13%++# 2.00%++# 2.55%++# 2.45%# 1.60%++ Portfolio turnover rate.................... 115% 115% 115% 115% 102% SEPTEMBER 1, 1993* THROUGH DECEMBER 31, 1993 PER SHARE DATA: Net asset value, beginning of period....... $10.00 Income (loss) from investment operations: Net investment income.................... .04 Net realized and unrealized gain (loss) on investments......................... .72 Total income (loss) from investment operations........................... .76 Less distributions to shareholders from: Net investment income.................... (.04) In excess of net investment income....... (.01) Net realized gains on investments........ -- Total distributions.................... (.05) Net asset value, end of period............. $10.71 TOTAL RETURN+.............................. 7.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (000's omitted)................................. $4,610 Ratios to average net assets: Expenses................................. 0.44%++ Net investment income.................... 1.93%++ Portfolio turnover rate.................... 17%
* Commencement of class operations. ** The Fund changed its fiscal year end from December 31 to September 30. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ 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 Class Y shares and are not necessarily indicative of future ratios. # 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:
CLASS A CLASS B CLASS C CLASS Y SHARES SHARES SHARES SHARES SEPTEMBER 1, MARCH 10, MARCH 7, JULY 12, NINE MONTHS 1993* 1995* THROUGH 1995* THROUGH 1995* THROUGH YEAR ENDED ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1995 1995 1995 1995 1994 1993 Expenses......... 364.74% 28.70% 421.54% 2.70% 2.65% 3.59% Net investment income (loss)......... (359.83%) (24.19%) (416.50%) 1.25% .44% (1.21%)
See accompanying notes to financial statements. 39 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION The Evergreen Domestic Equity Funds (the "Funds") are separate series of open-end management companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Evergreen Domestic Equity Funds consist of Evergreen Aggressive Growth Fund ("Aggressive Growth"), Evergreen Fund, The Evergreen Limited Market Fund, Inc. ("Limited Market") and Evergreen U.S. Real Estate Equity Fund ("U.S. Real Estate"), known collectively as the Funds. NOTE 2 -- ACQUISITION INFORMATION Effective June 30, 1995, Aggressive Growth, a new series of the Evergreen Trust formed for the purpose of acquiring substantially all of ABT Emerging Growth Fund's net assets ("Emerging Growth's net assets"), issued 4,209,767 of its Class A shares at $15.53 per share in exchange for Emerging Growth's net assets valued at $65,368,158. The acquired net assets, in this non-taxable transaction, primarily consisted of portfolio securities with unrealized appreciation of $27,072,969. ABT Emerging Growth Fund's fiscal year ended October 31. Because ABT Emerging Growth Fund contributed substantially all of Aggressive Growth's net assets and shareholders, its basis of accounting for assets and liabilities and its operating results for prior periods are carried forward in the accompanying financial statements and financial highlights as the accounting survivor. Accordingly, the accompanying financial statements of Aggressive Growth for the eleven months ended September 30, 1995 include ABT Emerging Growth Fund's results of operations for the period November 1, 1994 through June 30, 1995. NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. SECURITY VALUATIONS -- Investments in securities traded on a national securities exchange or included on the NASDAQ National Market System ("NMS") are valued at the last reported sale price. Securities traded on an exchange or NMS for which there has been no sale and securities traded in the over-the-counter market are valued at the mean between the last reported bid and asked price. Securities for which market quotations are not readily available are valued at their respective fair value as determined in good faith by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains or losses are determined on the identified cost basis. INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the ex-dividend date. Interest income and expenses are accrued daily. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by the Federal Reserve Bank and are designated as being held on each Fund's behalf by its custodian under a book-entry system. Each Fund monitors the adequacy of the collateral on a daily basis, and can require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment adviser to be creditworthy pursuant to guidelines established by the Trustees. DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income and net realized capital gains on investments, if any, will be distributed at least annually. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from the amounts available for distribution under generally accepted accounting principles. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets. 40 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued As of September 30, 1995, the following reclassifications have been made to increase (decrease) such accounts with offsetting adjustments made to paid-in capital:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT REALIZED GAIN INCOME ON INVESTMENTS Aggressive Growth $664,876 $(105,112) Evergreen Fund -- -- Limited Market 1,241,315 (1,241,315) U.S. Real Estate -- --
INCOME TAXES -- It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable net income and net realized capital gains to its shareholders. Accordingly, no provisions for Federal income or excise taxes are necessary. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. Capital losses incurred after October 31, within the Fund's fiscal year are deemed to arise on the first business day of the Fund's following fiscal year. U.S. Real Estate incurred and will elect to defer $92,587 of these net capital losses. ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of shares are charged to that class. Expenses common to a Trust as a whole are allocated to the funds in that Trust. Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of U.S. Real Estate and Aggressive Growth incurred in connection with their organization are being deferred and amortized over a period of benefit not to exceed 60 months from the date they commenced operations. REAL ESTATE INVESTMENT TRUSTS -- U.S. Real Estate owns shares of real estate investment trusts ("REITs") which report information on the source of their distributions annually. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost. NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North Carolina ("First Union") is entitled to an annual fee of .60 of 1% of Aggressive Growth's average daily net assets pursuant to the Fund's investment advisory agreement. Prior to June 30, 1995, Aggressive Growth paid an investment advisory fee to Palm Beach Capital Management, Ltd. ("Palm Beach") of .60 of 1% of its average daily net assets. First Union received $106,041 from advisory fees for the period July 1, 1995 through September 30, 1995. Palm Beach received $248,815 from advisory fees for the period November 1, 1994 through June 30, 1995. Pursuant to an agreement with Evergreen Fund's, Limited Market's and U.S. Real Estate's investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee based on each of Evergreen Fund's, Limited Market's and U.S. Real Estate's average daily net assets, in accordance with the following schedule: First $750 million 1.00% Next $250 million 0.90% Over $1 billion 0.80%
41 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued Evergreen Asset has agreed to reimburse U.S. Real Estate to the extent that the Fund's operating expenses (including the investment advisory fee and amortization of organization expenses but excluding interest, taxes, brokerage commissions, 12b-1 distribution and shareholder services fees and extraordinary expense) exceed 1.50% of its average daily net assets until the Fund's net assets reach $15 million. For the year ended September 30, 1995, Evergreen Asset waived all of its advisory fee and reimbursed $22,093 in expenses under this limitation. In addition, for the year ended September 30, 1995, Evergreen Asset voluntarily reimbursed certain class specific expenses amounting to $24,130, $48,100 and $20,920 for Evergreen Fund, Limited Market and U.S. Real Estate, respectively. Evergreen Asset can modify or terminate these voluntary waivers at any time. Lieber & Company, an affiliate of First Union, is the investment sub-adviser to Evergreen Fund, Limited Market and U.S. Real Estate and also provides brokerage services with respect to substantially all security transactions executed on the New York or American Stock Exchanges. For transactions executed during the year ended September 30, 1995, Evergreen Fund, Limited Market and U.S. Real Estate incurred brokerage commissions of $252,069, $125,347 and $69,835, 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. ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes Evergreen Fund, Limited Market and U.S. Real Estate with administrative services as part of their advisory agreements and accordingly, these Funds do not pay a separate administration fee. Furman Selz, Incorporated ("Furman Selz") is each of the Funds' sub-administrator. As sub-administrator, Furman Selz provides the officers of the Funds. For Evergreen Fund, Limited Market and U.S. Real Estate, Furman Selz' fee is paid by Evergreen Asset and is not a fund expense. Until June 30, 1995, Palm Beach was Aggressive Growth's Administrator. Pursuant to an administration agreement, Aggressive Growth paid $32,123 in administration fees to Palm Beach. Effective June 30, 1995, Evergreen Asset became the Fund's Administrator and Furman Selz became sub-administrator. Officers of Furman Selz became officers of the Fund. Evergreen Asset's fee and Furman Selz' fee for Aggressive Growth is based on the average daily net assets of all the funds administered by Evergreen Asset for which First Union or Evergreen Asset is also investment adviser. These fees are calculated at the following annual rates:
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.050% on the first $7 billion 0.035% on the next $3 billion 0.030% on the next $5 billion 0.020% on the next $10 billion 0.015% on the next $5 billion 0.010% in excess of $30 billion
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS 0.0100% on the first $7 billion 0.0075% on the next $3 billion 0.0050% on the next $15 billion 0.0040% in excess of $25 billion
At September 30, 1995, assets for which Evergreen Asset was the administrator for which either Evergreen Asset or First Union was investment adviser totaled approximately $10.1 billion. PLANS OF DISTRIBUTION -- The Funds have adopted Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the Act for their Class A Shares, Class B Shares, and Class C Shares (see note 5). 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 42 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued and 1% for Class B and Class C Shares. For each of the Funds, the payments for Class A Shares were voluntarily limited to .25 of 1% of average daily net assets. Rule 12b-1 fees are accrued daily and paid monthly. In connection with their plans, the Funds have entered into distribution agreements with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz, whereby the Funds will compensate EFD for its services at a rate which may not exceed an annual fee of .25 of 1% of Class A Shares' average daily net assets and an annual fee of .75 of 1% of Class B and Class C Share's average daily net assets, respectively. A portion of the payments for Class B and C Shares, up to .25 of 1% may constitute a shareholder services fee. EFD has entered into a Shareholder Services Agreement with First Union Brokerage ("FUBS"), an affiliate of First Union, whereby they will compensate FUBS for certain services provided to shareholders and /or maintenance of shareholder accounts relating to each of the 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 fiscal period ended September 30, 1995:
FRONT-END SALES CHARGES Aggressive Growth $ 8,909 Evergreen Fund 72,923 Limited Market 495 U.S. Real Estate 131
NOTE 5 -- SHARES OF BENEFICIAL INTEREST Aggressive Growth, Evergreen Fund and U.S. Real Estate have an unlimited number of shares of beneficial interest authorized. Limited Market has 25 million common shares authorized allocated equally to each of its classes of shares sold. The par value of the Fund's shares are $.001, $.001, $.10, and $.0001 for Aggressive Growth, Evergreen Fund, Limited Market and U.S. Real Estate, respectively. The shares are divided into classes which are designated Class Y, Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.75%. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares after seven years of purchase. Class C shares are sold with a contingent deferred sales charge of 1% during the first year. Class Y shares are sold without a sales charge and are available only to investment advisory clients of First Union and its affiliates, certain institutional investors or Class Y shareholders of record of certain other funds managed by First Union and its affiliates as of December 30, 1994. The classes have identical voting, dividend, liquidation and other rights, except that Class A, Class B and Class C shares bear distribution expenses (see Note 4) and have exclusive voting rights with respect to their distribution plans. 43 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued Transactions in shares of beneficial interest were as follows:
ELEVEN MONTHS ENDED* YEAR ENDED SEPTEMBER 30, 1995 OCTOBER 31, 1994 AGGRESSIVE GROWTH SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold.................................................. 495,784 $ 7,228,522 1,539,650 $ 21,670,407 Shares issued on reinvestment of distributions............... -- -- 54,495 753,121 Shares redeemed.............................................. (1,083,263) (15,863,245) (945,351) (13,141,951) Net increase (decrease)...................................... (587,479) (8,634,723) 648,794 9,281,577 CLASS B Shares sold.................................................. 165,945 2,799,908 -- -- Shares redeemed.............................................. (1,193) (19,616) -- -- Net increase................................................. 164,752 2,780,292 -- -- CLASS C Shares sold.................................................. 24,064 422,094 -- -- Net increase................................................. 24,064 422,094 -- -- CLASS Y Shares sold.................................................. 111,806 1,882,102 -- -- Shares redeemed.............................................. (3,091) (52,855) -- -- Net increase................................................. 108,715 1,829,247 -- -- Total net increase (decrease) resulting from Fund share transactions............................................... (289,948) ($ 3,603,090) 648,794 $ 9,281,577
* For Class B Shares, Class C Shares and Class Y Shares, the Fund Share transaction activity is for the period July 7, 1995, August 3, 1995 and July 11, 1995, each classes commencement of operations, respectively, through September 30, 1995. 44 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED* YEAR ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 EVERGREEN FUND SHARES AMOUNT SHARES AMOUNT CLASS A Shares sold......................................... 2,116,988 $ 30,255,833 -- -- Shares redeemed..................................... (223,365) (3,375,528) -- -- Net increase........................................ 1,893,623 26,880,305 -- -- CLASS B Shares sold......................................... 4,886,698 69,361,586 -- -- Shares redeemed..................................... (94,896) (1,403,566) -- -- Net increase........................................ 4,791,802 67,958,020 -- -- CLASS C Shares sold......................................... 138,560 1,992,663 -- -- Shares redeemed..................................... (12,818) (190,022) -- -- Net increase........................................ 125,742 1,802,641 -- -- CLASS Y Shares sold......................................... 89,763,450 1,249,272,141 74,919,356 $ 1,081,247,408 Shares issued on reinvestment of distributions..................................... 5,626,158 66,336,031 1,934,878 27,023,906 Shares redeemed..................................... (92,075,790) (1,284,726,648) (86,341,400) (1,247,930,329) Net increase (decrease)............................. 3,313,818 30,881,524 (9,487,166) (139,659,015) Total net increase (decrease) resulting from Fund share transactions................................ 10,124,985 $ 127,522,490 (9,487,166) ($ 139,659,015)
* For Class A, B, and C shares, the Fund share transaction activity is for the period January 3, 1995 (commencement of class operations) through September 30, 1995. 45 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED* YEAR ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SHARES AMOUNT SHARES AMOUNT LIMITED MARKET CLASS A Shares sold.................................................. 68,006 $ 1,122,391 -- -- Shares redeemed.............................................. (8,837) (150,079) -- -- Net increase................................................. 59,169 972,312 -- -- CLASS B Shares sold.................................................. 132,239 2,169,679 -- -- Shares redeemed.............................................. (21,845) (382,430) -- -- Net increase................................................. 110,394 1,787,249 -- -- CLASS C Shares sold.................................................. 4,195 68,235 -- -- Shares redeemed.............................................. (832) (15,092) -- -- Net increase................................................. 3,363 53,143 -- -- CLASS Y Shares sold.................................................. 1,558,531 27,591,064 3,073,194 $ 64,053,556 Shares issued on reinvestment of distributions............... 901,732 14,048,986 -- -- Shares redeemed.............................................. (3,515,593) (61,895,857) (3,049,291) (63,760,491) Net increase (decrease)...................................... (1,055,330) (20,255,807) 23,903 293,065 Total net increase (decrease) resulting from Fund share transactions............................................... (882,404) ($17,443,103) 23,903 $ 293,065
* For Class A, B, and C shares, the Fund share transaction activity is for the period January 3, 1995 (commencement of class operations) through September 30, 1995. 46 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
YEAR ENDED* NINE MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SHARES AMOUNT SHARES AMOUNT U.S. REAL ESTATE CLASS A Shares sold.......................................................... 1,923 $ 18,771 -- -- Shares redeemed...................................................... (1,490) (14,411) -- -- Net increase......................................................... 433 $ 4,360 -- -- CLASS B Shares sold.......................................................... 14,116 147,171 -- -- Shares redeemed...................................................... -- -- -- -- Net increase......................................................... 14,116 147,171 -- -- CLASS C Shares sold.......................................................... 242 2,509 -- -- Shares redeemed...................................................... -- -- -- -- Net increase......................................................... 242 2,509 -- -- CLASS Y Shares sold.......................................................... 161,434 1,537,697 666,009 $ 7,218,876 Shares issued on reinvestment of distributions....................... 30,172 273,657 -- -- Shares redeemed...................................................... (222,266) (2,150,789) (238,930) (2,503,707) Net increase (decrease).............................................. (30,660) (339,435) 427,079 4,715,169 Total net increase (decrease) resulting from Fund share transactions....................................................... (15,869) ($ 185,395) 427,079 $ 4,715,169
* For Class A, Class B and Class C shares, the Fund share transaction activity reflects the period from commencement of class operations March 10, 1995, March 7, 1995 and July 12, 1995, respectively, through September 30, 1995. 47 COMBINED NOTES TO FINANCIAL STATEMENTS NOTE 6 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities for the period ended September 30, 1995 were as follows:
PURCHASES SALES Aggressive Growth..................................... $ 19,522,510 $ 22,757,503 Evergreen Fund........................................ 102,920,924 125,641,905 Limited Market........................................ 67,160,058 100,762,453 U.S. Real Estate...................................... 9,937,178 10,409,467
On September 30, 1995, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
FEDERAL TAX APPRECIATION DEPRECIATION NET APPRECIATION COST Aggressive Growth........... $ 32,996,707 $ 483,750 $ 32,512,957 $ 41,451,593 Evergreen Fund.............. 294,934,209 12,125,933 282,808,276 433,884,995 Limited Market.............. 10,018,169 7,443,999 2,574,170 66,300,561 U.S. Real Estate............ 917,310 471,577 445,733 8,772,953
NOTE 7 -- FINANCING AGREEMENT Evergreen Fund has a financing agreement with its custodian, State Street Bank and Trust Company (the "Bank"), which provides the Fund with a line of credit, in the aggregate amount of the lesser of $25,000,000 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 bear interest at 1% above the Bank's cost of funds as set periodically by the Bank and are secured by securities pledged by the Fund. During the year ended September 30, 1995, the Fund had borrowings outstanding for 142 days under the line of credit and incurred $316,041 in interest charges related to these borrowings. In addition, the Fund incurred $10,511 in interest charges relating to other borrowings with the Bank. The Fund's average amount of debt outstanding during the period aggregated $12,243,662 at a weighted average interest rate of 6.64%. The Fund had no outstanding borrowings at September 30, 1995. NOTE 8 -- CONCENTRATION OF CREDIT RISK Since U.S. Real Estate invests a substantial portion of its assets in REITs, it may be more affected by economic developments in the real estate industry than would a general equity fund. NOTE 9 -- SUBSEQUENT EVENT On June 18, 1995, First Fidelity Bancorporation ("First Fidelity") agreed to merge with First Union on or about January 1, 1996. On September 19, 1995, Evergreen Fund's management signed an agreement and Plan of Reorganization to exchange substantially all of the net assets of FFB Lexicon Small Company Fund, an investment company advised by a subsidiary of First Fidelity, approximating $27 million at September 30, 1995, for shares of Evergreen Fund. FFB Lexicon Small Company Fund's Trustees have called a special meeting to consider the proposed transaction. If the fund transaction is consummated, the reorganization is scheduled to take place on or about January 19, 1996. 48 (This Page Left Blank Intentionally) (This Page Left Blank Intentionally) REPORT OF INDEPENDENT ACCOUNTANTS TO THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN FUND, EVERGREEN AGGRESSIVE GROWTH FUND AND EVERGREEN U.S. REAL ESTATE 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 Fund and Evergreen Aggressive Growth Fund (constituting the Evergreen Trust) and Evergreen U.S. Real Estate Equity Fund (one of the Evergreen Real Estate Equity Trust Portfolios), (the "Funds"), at September 30, 1995, the results of operations of Evergreen Aggressive Growth Fund for the eleven months in the period then ended, the results of operations of Evergreen Fund and Evergreen U.S. Real Estate Equity Fund for the year then ended, the changes in the net assets of Evergreen Aggressive Growth Fund for the eleven months in the period then ended, the changes in the net assets of Evergreen Fund for each of the two years in the period then ended, the changes in the net assets of Evergreen U.S. Real Estate Equity Fund for the year then ended and for the nine months in the period ended September 30, 1994, and the financial highlights of Evergreen Aggressive Growth Fund for the eleven months in the period then ended, and the financial highlights of Evergreen Fund and Evergreen U.S. Real Estate Equity Fund for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 1995 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 Evergreen Aggressive Growth fund statement of changes in net assets for the year ended October 31, 1994 and its financial highlights for each of the four years in the period ended October 31, 1994 were audited by other independent accountants, whose opinion thereon, dated November 29, 1994 was unqualified. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York November 21, 1995 49 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE TRUSTEES AND SHAREHOLDERS OF EVERGREEN LIMITED MARKET FUND, INC. We have audited the accompanying statement of assets and liabilities of Evergreen Limited Market Fund, Inc. including the statement of investments, as of September 30, 1995 and the related statement of operations for the year then ended, the statement of changes in net assets for year then ended and for the four month period ended September 30, 1994, and the financial highlights for the year ended September 30, 1995, the four month period ended September 30, 1994, and each of the three years in the period ended May 31, 1994. These financial statements and financial highlights are the responsibility of the Fund'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 securities owned as of September 30, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the overall 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, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Evergreen Limited Market Fund, Inc. at September 30, 1995, and the results of its operations for the year then ended, the changes in its net assets for the year then ended and for the four month period ended September 30, 1994, and the financial highlights for the year ended September 30, 1995, the four month period ended September 30, 1994 and each of the three years in the period ended May 31, 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Boston, Massachusetts November 16, 1995 50 (This Page Left Blank Intentionally) (This Page Left Blank Intentionally) TRUSTEES/DIRECTORS AND OFFICERS TRUSTEES/DIRECTORS: Mr. Laurence B. Ashkin Mr. Foster Bam Mr. James S. Howell, Chairman Mr. Robert J. Jeffries Mr. Gerald M. McDonnell Mr. Thomas L. McVerry Mr. William W. Pettit Mr. Russell A. Salton, III M.D. Mr. 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 FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED) During the fiscal year ended September 30, 1995 the Evergreen Fund, Limited Market and U.S. Real Estate paid $63,667,214, $10,687,111, and $1,309 respectively, of net long-term capital gain distributions. For corporate taxpayers, 100%, 8% and 25% of the ordinary income distributions paid during the fiscal year ended September 30, 1995 by Evergreen Fund, Limited Market and U.S. Real Estate respectively, qualified for corporate dividends received deduction. NOT May lose value FDIC No bank guarantee INSURED 537244 Evergreen Funds Distributor, Inc. 11/95 -----END PRIVACY-ENHANCED MESSAGE-----