-----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, NMR3mzXPkurWAMFnXH88NX0QawZX4aK/o2qI/ttUnoTAilLxfjTdQlPn4H7SX+HM Yn/YSlLQaGBBL7CJ+2q7Ow== 0000950168-97-001465.txt : 19970602 0000950168-97-001465.hdr.sgml : 19970602 ACCESSION NUMBER: 0000950168-97-001465 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970530 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN GLOBAL EQUITY TRUST /NY CENTRAL INDEX KEY: 0000842436 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136915301 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05684 FILM NUMBER: 97617398 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER 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 GLOBAL REAL ESTATE EQUITY TRUST DATE OF NAME CHANGE: 19920703 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: 97617399 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN LIMITED MARKET FUND INC CENTRAL INDEX KEY: 0000714234 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133135977 STATE OF INCORPORATION: NY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03653 FILM NUMBER: 97617400 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146942020 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 N-30D 1 EVERGREEN DOMESTIC GROWTH FUNDS (Four photos: street sign, beakers, building and U.S. flag) SEMIANNUAL REPORT MARCH 31, 1997 Evergreen Keystone (Logo) FUNDS(SM) (Logo) EVERGREEN DOMESTIC GROWTH FUNDS TABLE OF CONTENTS
Economic Overview......................................................... 1 (photo of street sign) EVERGREEN A Report From Your Portfolio Manager...................................... 2 FUND Statement of Investments.................................................. 4 Statement of Assets and Liabilities....................................... 10 Statement of Operations................................................... 11 Statements of Changes in Net Assets....................................... 12 Financial Highlights...................................................... 13 (photo of beakers) EVERGREEN A Report From Your Portfolio Manager...................................... 16 AGGRESSIVE GROWTH Statement of Investments.................................................. 19 FUND Statement of Assets and Liabilities....................................... 20 Statement of Operations................................................... 21 Statements of Changes in Net Assets....................................... 22 Financial Highlights...................................................... 23 EVERGREEN A Report From Your Portfolio Managers..................................... 26 LIMITED MARKET Statement of Investments.................................................. 29 (photo of building) FUND Statement of Assets and Liabilities....................................... 31 Statement of Operations................................................... 32 Statements of Changes in Net Assets....................................... 33 Financial Highlights...................................................... 34 EVERGREEN A Report From Your Portfolio Manager...................................... 37 U.S. REAL ESTATE Statement of Investments.................................................. 40 (photo of U.S. flag) EQUITY FUND Statement of Assets and Liabilities....................................... 41 Statement of Operations................................................... 42 Statements of Changes in Net Assets....................................... 43 Financial Highlights...................................................... 44 Combined Notes to Financial Statements.................................... 47 Trustees and Officers...................................... Inside Back Cover
EVERGREEN DOMESTIC GROWTH FUNDS ECONOMIC OVERVIEW BY EVERGREEN ASSET MANAGEMENT CHAIRMAN STEPHEN A. LIEBER The dynamic United States economy during the first third of 1997 has almost overwhelmed the expectations (photo of Stephen Lieber) of the experts. The achievement of a gross domestic product increase of 5.6% in the first quarter, together with a core inflation rate of 2.2% and little indicated pressure for wage inflation, dramatically contrasts with the predictions of economists who anticipated slower growth and a trend of rising wages as the number of unemployed shrank as a percentage of the labor force. Even more confounding, is the contrast with expectations of the business cycle. If the economy were to be following the pattern evident in most post-war years, it would now be deep in a recession, not in an impressively sustained expansion. The investor, as well as the economist, must ask whether this is a significantly different era for the American economy, suggesting different responses and strategies. Several major differences from recent experience are evident. Comparatively stable wage costs are foremost, and are the subject of much debate. Some argue that U.S. wage costs are held down by international competition, especially as a result of the rise of the dollar, and the consequent cheapening of imports. Others hold that the bargaining power of labor has been diminished by the downsizing of corporations with its emphasis on productivity gains. Another view is that industry emphasis on cost control and flexibility on relocation has served to reduce the bargaining power of the work force. Irrespective of which one of the factors is decisive, the evidence does indicate that wage pressures have unexpectedly not mirrored the rise in employment. The issue of increased productivity is also debated as an important factor, but there is very little agreement on the statistical evidence. The prospects for increasing productivity are enhanced by sustained capital spending, up at a rate of 11.9% in the first quarter. Raw materials have also played a role in reducing cost pressures, especially with the decline in oil and petroleum products during the first quarter. Seldom have commodity price pressures been so few during a period of significantly increased demand. Notwithstanding these favorable trends, the Federal Reserve Open Market Committee chose to make a "pre-emptive" 0.25% increase in the discount rate during March, with a view toward containing the pressures for too rapid economic growth. In this environment of favorable trends, it is understandable that consumer spending has risen to record levels, up 6.4% in the first quarter, that consumer savings rose to 5.3% in March, and that polls of consumer confidence show a diminished anticipation of recession. Investment implications of this economic strength are, as usual, subject to widespread debate. The most obvious implication is that the strong economy is producing a broad, sustained growth in corporate profits, which translates into higher dividends and, to-date, in higher stock prices. It has also brought higher bond yields and a decline in bond prices as the anticipation of Federal Reserve growth restraining policies become more widespread. The higher bond yields, in turn, also tend to put competitive pressures against the higher stock prices achieved because of rising corporate earnings. The challenge for investors is, in fact, an unusual one; responding to what many economists and, perhaps, the Federal Reserve regulators view as a too successful economy. How does one invest in an economy which appears to be too successful? The approach to this challenge favored by the Evergreen Keystone Funds is to concentrate investment on long-term values. Those values include corporations with strong financial condition, long-term records of outstanding achievement, effective management which enhances its business franchise with new and improved products and services, and well-grounded innovators who can create new demand and, thus, rapidly growing businesses. A cautious and patient approach which takes into account the volatility of the securities markets generated by this unexpected strength and "pre-emptive" monetary moves, seems to us the best long-term approach. Patient accumulation with purchases during periods of market weakness, and judicious sales during those periods so aptly named by Federal Reserve Chairman, Alan Greenspan, as "irrational exuberance", are the strategies of our equity management. Important, too, is the use of appropriate balance between equities and fixed income, with a careful adjustment of the allocation of assets, including the maturities of obligations in an effort to both minimize risk and maximize return. International investing presents yet another opportunity for asset allocation, based on the search for the most comparatively undervalued and well-grounded long-term growth opportunities. Recognizing the multiplicity of choices, the complexity of asset allocation, and the necessity for constant evaluation in order to take advantage of shifting opportunities, the Evergreen Keystone Funds provide a wide variety of investing options and an investment management group oriented toward long-term results. 1 EVERGREEN FUND (photo of street sign) A REPORT FROM YOUR PORTFOLIO MANAGER STEPHEN A. LIEBER In the first half of fiscal 1997, Evergreen Fund's total return (Class Y, no-load shares) was +4.9%*, comparing with (photo of - -0.2% for the Russell 2000 Index**, and -0.4% for the NASDAQ Stephen Lieber) Composite Index**. The six-month total return ended March 31, 1997, for the Fund's Class A shares at net asset value was 4.8%*. This six-month period started strongly with Evergreen Fund's total return (Class Y shares) +12.9% through the middle of February. But, the growth sectors of the stock market experienced a reversal at the end of February, and through March, which brought the gain for the period down to +4.9%. Nonetheless, the portfolio demonstrated a breadth and balance which permitted outperformance of its traditional emphasis -- the smaller entrepreneurial company sectors. Notwithstanding an environment of underperformance of smaller companies, the Fund's performance leaders were in this category. Each represented an exceptional corporate profits growth trend in a modestly, even undervalued company. The top ten performers in the Fund were: United Carolina Bancshares Corp., +84.1%, Hvide Marine, Inc., +75.1%, Herman Miller, Inc., +74.2%, Bank of Yorba Linda, +72.4%, Bank of Commerce San Diego, +58.3%, Seaway Food Town, Inc., +57.8%, American Federal Bank, FSB, +53.2%, SC Bancorp, +51.3%, Tosco Corp., +51.0%, and Intel Corp., +45.4%. After an excellent five-month performance, the March interruption to the portfolio's growth in value particularly affected the larger capitalization group of holdings, especially financial and pharmaceutical companies. These major company holdings have generally been held by the Fund over long periods, and are analyzed as having continuing exceptional growth potentials. Included in this group are shares of Merck & Co., Inc., held since 1986, Johnson & Johnson, held since 1987, Barnett Banks, Inc., and BankBoston Corp., held since 1990, and Federal National Mortgage Association, held since 1991. Corporate merger and acquisition activity provided significant gains during the half year, as is consistent with our long-term experience. Nineteen companies in the Fund's portfolio received merger or acquisition offers, or completed previously announced offers, during the period. Gains on these issues to March 31, ranged up to 247.2% for United Carolina Bancshares Corp., and averaged 59.8% for all completed transactions. The pace of such transactions increased through the period, with nine announced during the fiscal second quarter. A few occurred very shortly after initial purchases to the Fund. Illustratively, a bid for Kysor Industrial Corp. was made in just five months after our purchase, with a gain of 58.7% on the completed acquisition one month after the announcement. Even more striking was the 43.2% gain in American Medical Response, Inc., held just two months. The total number of companies merged or acquired among Evergreen holdings have now reached 312 since the Fund's inception in 1971. We see the maintenance of the trend as demonstrating an effective selection of undervalued investment opportunities. FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. * -0.2% WAS THE 6-MONTH TOTAL RETURN FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ** THE RUSSELL 2000 IS AN UNMANAGED INDEX OF SELECTED SMALL CAP SECURITIES. THE NASDAQ OTC COMPOSITE INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. + THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CAPITAL APPRECIATION PRINCIPALLY THROUGH INVESTMENT IN SECURITIES LITTLE-KNOWN, OR RELATIVELY SMALL COMPANIES OR COMPANIES UNDERGOING CHANGES WHICH THE FUND'S INVESTMENT ADVISER BELIEVES WILL HAVE FAVORABLE CONSEQUENCES. 2 EVERGREEN FUND (photo of street sign) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Profits were taken in a number of holdings which we viewed as having comparatively limited promise. Portions of holdings in a number of banks were most prominent among sales. Holdings were reduced in Barnett Banks, Inc., First Michigan Bank Corp., North Fork Bancorp, Inc., ONBANCorp, Inc., Old Kent Financial Corp., and BankBoston Corp., with gains ranging from 1,212.5% to 44.6%. The largest held position in this group was First Michigan Bank Corp., realizing a 514.8% gain since 1985. Losses realized were predominantly in shares of very small, specialized companies, where modest initial positions were held pending the confirmation of growth potential. When these were deemed less promising than anticipated, the position were sold. Such losses involved a 58.9% fall in value for computer software producer, Broderbund Software, Inc., a 25.0% loss in global positioning system manufacturer, Trimble Navigation Ltd., and a 19.3% loss in specialty retailer, Harold's Stores, Inc. We view such losses as a consequence of the risk factor in our search for early positioning in entrepreneurial growth opportunities. The Fund's basic purchasing strategy was a focus on issues considered undervalued, either for intrinsic reasons, or because of what we viewed as temporary market factors. A total of 137 equity purchases were made. Of these, 54 were new holdings and 83 were additions to positions. Illustratively, the largest percentage gain of any issue bought during the period was in the shares of Herman Miller, Inc. representing an addition to the position. These shares rose 46.8% from purchase on November 20, 1996, through March 31. Our analysis of this company's prospects for increased sales and profit margins under new management leadership suggested that it was undervalued. In contrast to this rather neglected issue, we added to our holding of Intel Corp. with a purchase on October 8, which returned 32.3% by March 31. We saw an opportunity brought on by a widespread fear that the computer and semiconductor industries were in a free fall of product prices. We saw this reasoning as short-term, and particularly inappropriate for Intel Corp., and, thus, used it as an opportunity. Not all purchases went as well as Herman Miller, Inc. and Intel Corp. In the case of Harman International Industries, Inc., we added to holdings in October, and then saw the shares fall 30.8% by the end of March. We had not anticipated an inventory build up by customers which, in the latest quarter, led the company to lower-than-projected sales, and consequent profit margins. Viewing this as a temporary interruption of trend, we not only continue to hold, but have further added to this position. In looking at the investment outlook for the balance of the fiscal year, and for calendar 1997, we are reminded of the conclusion of a semiannual report at the beginning of this decade, when we wrote, "We expect the stock market to revert toward its long historical emphasis on selectivity among growth companies, especially those with a conservative valuation of both growth trends and assets. That emphasis provided the environment for Evergreen Fund's greatest gains. We are optimistic that our sustained research and strategic effort will provide capital appreciation..." Recent market volatility illustrates an increasingly selective trend in the markets, with a recognition that many issues had become fully valued, some overvalued, while others are ignored. The intensity of our search for undervalued growth opportunities should continue to produce significant gains notwithstanding a volatile and often uncertain market. The power of valuable corporate franchises, strong financials, vigorous research and marketing programs, and, above all, able managements, is evident in a great many companies which we regularly analyze and visit. We expect this research-intensive effort to be rewarding in the months ahead with further likelihood of gains from revealed growth trends, mergers and acquisitions, and profits generated through innovative leadership. We have carefully maintained sizable cash reserves to be able to buy shares on weakness, and have done so during each period of stock market uncertainty. Our goal is capital growth with a minimization of risk, and we will continue to shape Evergreen Fund's strategy to these purposes. We welcome the many new shareholders who have joined us in the first half of this fiscal year. 3 EVERGREEN FUND STATEMENT OF INVESTMENTS MARCH 31, 1997 (UNAUDITED) (photo of street sign) SHARES VALUE COMMON STOCKS -- 85.0% BANKS -- 16.9% 60,300 Amcore Financial, Inc........... $ 1,703,475 100,000 * American Bancshares, Inc........ 890,625 100,000 American Federal Bank, FSB...... 2,700,000 28,300 AmSouth Bancorp................. 1,365,475 115,767 Arrow Financial Corp............ 2,821,821 532,240 BankBoston Corp................. 35,660,080 9,000 Bank of Commerce/San Diego...... 267,750 25,000 Bank of Yorba Linda California.. 453,125 516,640 Barnett Banks, Inc.............. 24,023,760 30,000 BNH Bancshares, Inc............. 367,500 161,625 BSB Bancorp, Inc................ 4,909,359 63,000 Cape Cod Bank & Trust Co........ 1,701,000 45,000 Central Fidelity Banks, Inc..... 1,248,750 230,015 Chittenden Corp................. 6,210,405 77,000 Comerica, Inc................... 4,340,875 12,800 Compass Bancshares, Inc......... 569,600 99,380 Cornerstone Bank **............. 1,627,348 70,000 Corus Bankshares, Inc........... 2,327,500 57,400 Crestar Financial Corp.......... 1,987,475 14,800 Cullen/Frost Bankers, Inc....... 527,250 127,000 First Empire State Corp......... 40,640,000 200,017 First Michigan Bank Corp........ 6,050,514 185,100 First Palm Beach Bancorp, Inc... 5,136,525 396,022 1st Source Corp................. 9,108,506 62,500 First State Bancorp............. 953,125 50,000 1st United Bancorp.............. 725,000 150,350 Fort Wayne National Corp........ 6,427,462 36,602 Glacier Bancorp. Inc............ 896,749 105,000 * Gold Banc Corp., Inc............ 1,128,750 889,540 Hibernia Corp. Cl. A............ 11,675,212 24,200 Hudson Chartered Bancorp, Inc............................. 635,250 30,000 Independent Bancshares, Inc..... 483,750 7,000 Letchworth Independent Bancshares Corp................. 246,750 10,000 * Letchworth Independent Bancshares Corp. warrants....... 128,750 94,000 Liberty Bancorp, Inc............ 4,371,000 67,779 Magna Group, Inc................ 1,931,702 11,000 Merchants Bancorp, Inc.......... 402,875 50,000 North Fork Bancorp, Inc......... 1,806,250 95,403 Old Kent Financial Corp......... 4,495,866 91,000 ONBANCorp, Inc.................. 4,254,250 26,875 One Valley Bancorp of West Virginia, Inc................... 964,141 130,000 Reliance Acceptance Group, Inc............................. 1,267,500 SHARES VALUE BANKS -- CONTINUED 56,000 Sandwich Co-operative Bank...... $ 1,568,000 100,000 SC Bancorp...................... 1,062,500 34,700 Seacoast Banking Corp. of Florida Cl. A................... 980,275 113,760 State Financial Services Corp............................ 2,033,460 455,200 * Surety Capital Corp. **......... 2,532,050 76,900 United Carolina Bancshares Corp............................ 3,297,087 97,405 * United Security Bancorp......... 1,424,548 39,285 Univest Corp. of Pennsylvania... 1,556,865 10,000 USBancorp, Inc.................. 445,000 36,000 West Coast Bancorp, Inc. (Fla.).......................... 700,875 40,425 West Coast Bancorp, Inc. (Ore.).......................... 874,191 36,000 Westamerica Bancorp............. 2,286,000 218,193,951 BUILDING, CONSTRUCTION & FURNISHINGS -- 3.5% 30,000 * Castle & Cooke, Inc............. 446,250 151,250 Cavalier Homes, Inc............. 1,701,563 431,625 Clayton Homes, Inc.............. 5,503,219 125,700 Continental Homes Holding Corp............................ 2,089,762 206,360 D.R. Horton, Inc................ 2,218,370 80,000 * Furniture Brands International, Inc............................. 1,200,000 135,900 Interface Systems, Inc.......... 3,405,994 95,800 Juno Lighting, Inc.............. 1,520,825 105,000 La-Z-Boy Inc.................... 3,596,250 80,000 Lennar Corp..................... 1,960,000 159,700 * M/I Schottenstein Homes, Inc.... 1,636,925 40,000 Miller (Herman), Inc............ 2,730,000 230,000 * Pacific Greystone Corp.......... 2,875,000 55,000 Ryland Group, Inc............... 646,250 90,000 * Southern Energy Homes, Inc...... 933,750 158,200 Standard Pacific Corp........... 988,750 90,000 * Sundance Homes, Inc............. 213,750 449,600 * Toll Brothers, Inc.............. 8,205,200 121,500 * US Home Corp.................... 3,083,062 44,954,920 BUSINESS EQUIPMENT & SERVICES -- 2.5% 118,125 * Boole & Babbage, Inc............ 2,805,469 297,130 First Data Corp................. 10,065,278 104,800 * Gradco Systems, Inc............. 350,425 140,000 * Hvide Marine Inc................ 3,185,000 70,000 * In Focus Systems, Inc........... 1,207,500 4 EVERGREEN FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of street sign) SHARES VALUE COMMON STOCKS -- CONTINUED BUSINESS EQUIPMENT & SERVICES -- CONTINUED 93,000 * Input/Output, Inc............... $ 1,348,500 59,700 * Lumisys Inc..................... 417,900 100,000 * Macromedia, Inc................. 906,250 99,400 * Medic Computer Systems, Inc..... 1,590,400 57,000 * Metromail Corp.................. 976,125 110,000 Sensormatic Electronics Corp.... 1,856,250 117,000 * Verifone Inc.................... 3,831,750 140,800 * Zebra Technologies Corp......... 3,238,400 31,779,247 CHEMICAL & AGRICULTURAL PRODUCTS -- 2.0% 35,000 Delta & Pine Land Co............ 1,085,000 150,000 H.B. Fuller Co.................. 7,312,500 40,000 Nalco Chemical Co............... 1,495,000 16,500 OM Group, Inc................... 464,063 359,568 Schulman (A.), Inc.............. 6,831,792 290,000 Sigma-Aldrich Corp.............. 8,953,750 26,142,105 COMMUNICATION SYSTEMS & SERVICES -- 2.5% 206,250 * Andrew Corp..................... 7,450,781 158,000 * Aspect Telecommunications Corp............................ 3,081,000 85,000 * Boston Technology, Inc.......... 1,604,375 110,000 * Cisco Systems, Inc.............. 5,293,750 50,000 * Coherent Communications System Corp............................ 862,500 108,000 * Coherent, Inc................... 5,163,750 50,000 * DSP Group, Inc.................. 462,500 60,000 * Inter-Tel, Inc.................. 682,500 165,000 * InterCel Inc.................... 1,650,000 35,000 * Level One Communications, Inc............................. 962,500 90,200 * Loral Space & Communications.... 1,274,075 29,000 * U.S. Robotics Corp.............. 1,605,875 140,000 * Vertex Communications Corp...... 2,975,000 33,068,606 SHARES VALUE CONSUMER PRODUCTS & SERVICES -- 4.5% 140,000 Aaron Rents, Inc. Cl. B......... $ 1,610,000 130,000 * American Business Information, Inc............................. 2,535,000 165,300 Crown Crafts, Inc............... 1,900,950 339,795 * CUC International, Inc.......... 7,645,388 65,000 Fila Holdings SpA ADS........... 3,534,375 80,300 * Franklin Electronic Publishers, Inc............................. 943,525 40,000 * Gaylord Container Corp. Cl. A... 242,500 89,000 Gucci Group..................... 6,419,125 339,350 Harman International Industries, Inc............................. 11,368,225 201,030 * K2, Inc......................... 5,000,621 177,777 Lancaster Colony Corp........... 8,177,742 75,000 * LoJack Corp..................... 740,625 80,000 * Nautica Enterprises, Inc........ 2,010,000 20,000 * North Face, Inc. (The).......... 332,500 250,000 * Prime Hospitality Corp.......... 3,906,250 60,000 * Recovery Engineering, Inc....... 442,500 53,800 Toro Co. (The).................. 1,829,200 58,638,526 ELECTRICAL EQUIPMENT & SERVICES -- 1.8% 27,900 * 3Com Corp....................... 913,725 285,400 * Atmel Corp...................... 6,831,763 299,000 Baldor Electric Co.............. 7,512,375 50,000 * Computer Products, Inc.......... 731,250 50,000 * Electro Scientific Industries, Inc............................. 1,262,500 32,000 * Franklin Electric Co., Inc...... 1,424,000 60,000 Hadco Corp...................... 2,325,000 80,000 * IFR Systems, Inc................ 1,200,000 50,000 * SMART Modular Technologies, Inc............................. 1,187,500 23,388,113 5 EVERGREEN FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of street sign) SHARES VALUE COMMON STOCKS -- CONTINUED FINANCE & INSURANCE -- 8.8% 172,200 Allmerica Property & Casualty Cos., Inc....................... $ 5,381,250 184,400 AMBAC, Inc...................... 11,893,800 50,000 * Automobile Protection Corp...... 171,875 28,000 CapMAC Holdings Inc............. 745,500 111,900 Countrywide Credit Industries, Inc............................. 2,769,525 131,000 Edwards (A.G.), Inc............. 4,028,250 19,100 Enhance Financial Services Group, Inc...................... 754,450 20,500 Equitable of Iowa Companies..... 1,025,000 100,000 Executive Risk, Inc............. 4,637,500 507,600 Federal Home Loan Mortgage Corp............................ 13,832,100 678,000 Federal National Mortgage Association..................... 24,492,750 68,000 First American Financial Corp... 2,533,000 50,000 * First Enterprise Financial Group........................... 362,500 85,000 * FPIC Insurance Group, Inc....... 1,455,625 29,700 Interra Financial, Inc.......... 1,032,075 50,000 Itla Capital Corp............... 743,750 93,100 John Nuveen Co. (The) Cl. A..... 2,758,088 37,400 * Leasing Solutions Inc........... 701,250 15,000 Legg Mason, Inc................. 633,750 30,900 MBIA, Inc....................... 2,962,537 75,000 * Mego Mortgage Corp.............. 937,500 253,800 MGIC Investment Corp............ 17,956,350 15,000 Ohio Casualty Corp.............. 616,875 16,600 PennCorp Financial Group, Inc............................. 531,200 54,692 Providian Corp.................. 2,926,022 43,000 ReliaStar Financial Corp........ 2,542,375 71,531 Resource Bancshares Mortgage Group, Inc...................... 1,126,613 30,000 State Auto Financial Corp....... 513,750 59,500 Trenwick Group, Inc............. 2,945,250 14,100 Vesta Insurance Group, Inc...... 502,313 113,512,823 FOOD RETAILING & DISTRIBUTION -- 0.5% 16,500.... Coca-Cola Bottling Co. Cl. B Consolidated+................... 783,750 11,600 Earthgrains Co.................. 580,000 134,000 Seaway Food Town, Inc.**........ 4,020,000 40,000 Wendy's International, Inc...... 825,000 6,208,750 SHARES VALUE HEALTHCARE PRODUCTS & SERVICES -- 11.3% 50,000 Arbor Drugs, Inc................ $ 875,000 60,000 Arrow International, Inc........ 1,815,000 55,000 * Arterial Vascular Engineering, Inc............................. 962,500 52,000 Beckman Instruments, Inc........ 2,184,000 130,000 * Beverly Enterprises, Inc........ 1,852,500 18,750 * Bio-Rad Laboratories, Inc. Cl. A........................... 478,125 190,000 Biomet, Inc..................... 3,206,250 68,298 * Boston Scientific Corp.......... 4,217,401 72,400 * Chad Therapeutics, Inc.......... 787,350 205,300 Columbia / HCA Healthcare Corp............................ 6,903,212 112,800 * Exactech, Inc................... 786,075 40,000 * Express Scripts, Inc............ 1,430,000 28,974 * Foundation Health Corp.......... 1,057,551 110,000 HBO & Co........................ 5,225,000 47,050 * Health Management Associates, Inc............................. 1,117,438 15,000 * Health Management Systems, Inc............................. 97,500 30,000 * Health Systems International, lnc............................. 843,750 23,600 * HEALTHSOUTH Corp................ 451,350 20,000 * Heartstream, Inc................ 212,500 300,000 * Idexx Laboratories, Inc......... 4,200,000 30,000 * Interneuron Pharmaceuticals, Inc............................. 528,750 30,000 Invacare Corp................... 705,000 390,000 Johnson & Johnson............... 20,621,250 69,100 * Laser Industries, Ltd........... 829,200 13,400 * Lincare Holdings, Inc........... 552,750 145,600 * Living Centers of America, Inc............................. 5,023,200 30,000 * Maxxim Medical, Inc............. 431,250 117,900 McKesson Corp................... 7,545,600 144,361 * MedPartners, Inc................ 3,067,671 500,000 Merck & Co., Inc................ 42,125,000 35,000 Meridian Diagnostics, Inc....... 385,000 1,446 * Pacificare Health Systems, Inc. Cl. A........................... 119,476 4,545 * Pacificare Health Systems, Inc. Cl. B........................... 392,006 125,000 * Regency Health Services, Inc.... 1,328,125 50,000 * Regeneron Pharmaceuticals, Inc............................. 400,000 45,000 * Salick Health Care, Inc......... 1,856,250 107,500 * St. Jude Medical, Inc........... 3,587,812 6 EVERGREEN FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of street sign) SHARES VALUE COMMON STOCKS -- CONTINUED HEALTHCARE PRODUCTS & SERVICES -- CONTINUED 468,000 Stryker Corp.................... $ 11,641,500 90,000 * Sun Healthcare Group, Inc....... 1,293,750 35,600 Superior Surgical Manufacturing Co., Inc........................ 462,800 75,750 * Tecnol Medical Products, Inc.... 1,193,063 72,950 * Tenet Healthcare Corp........... 1,796,394 45,600 West Co., Inc. (The)............ 1,236,900 145,825,249 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 8.1% 90,000 * ADFlex Solutions, Inc........... 1,068,750 90,500 AptarGroup, Inc................. 3,461,625 30,000 BHA Group, Inc.................. 547,500 77,500 * Brooks Automation, Inc.......... 1,152,813 40,500 * Chemfab Corp.................... 734,063 90,000 Commonwealth Aluminum Corp...... 1,541,250 145,000 * Dionex Corp..................... 6,597,500 78,600 Dover Corp...................... 4,126,500 149,200 Fisher Scientific International, Inc............................. 6,583,450 82,700 Furon Co........................ 1,757,375 54,200 Garan, Inc...................... 975,600 43,200 * Global Industrial Technologies, Inc............................. 745,200 70,000 * Global Industries, Inc.......... 1,496,250 70,000 Kaydon Corp..................... 2,931,250 43,800 Keystone International, Inc..... 777,450 92,900 * Lear Corp....................... 3,100,537 180,800 Leggett & Platt, Inc............ 5,876,000 61,900 Medusa Corp..................... 2,321,250 43,400 Nacco Industries, Inc. Cl. A.... 2,137,450 66,000 * Osmonics, Inc................... 1,204,500 126,700 Park Electrochemical Corp....... 2,898,262 193,358 * Paxar Corp...................... 3,746,311 19,500 Roanoke Electric Steel Corp..... 287,625 133,200 Robbins & Myers, Inc............ 3,529,800 40,000 * Simula, Inc..................... 625,000 234,500 Snap-on, Inc.................... 9,086,875 185,000 Spartech Corp................... 2,081,250 20,000 * Special Devices, Inc............ 340,000 35,800 Superior Industries International, Inc.............. 809,975 147,200 Tecumseh Products Co. Cl. A..... 8,390,400 SHARES VALUE INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- CONTINUED 57,800 Tecumseh Products Co. Cl. B..... $ 3,142,875 115,000 Teleflex, Inc................... 6,080,625 20,000 * U.S. Rentals, Inc............... 362,500 202,400 * UCAR International, Inc......... 8,020,100 50,000 Wescast Industries, Inc......... 1,225,000 104,000 Woodward Governor Co............ 2,808,000 100,000 Zero Corp....................... 1,875,000 104,445,911 INFORMATION SERVICES & TECHNOLOGY -- 7.4% 89,850 * Analytical Surveys, Inc......... 954,656 120,000 Autodesk, Inc................... 3,720,000 50,000 Computer Associates International, Inc.............. 1,943,750 11,750 * Data Translation, Inc........... 32,313 120,000 * Dialogic Corp................... 2,325,000 92,500 Fair Issac & Co., Inc........... 3,341,562 185,000 * Gateway 2000, Inc............... 9,481,250 250,000 Hewlett-Packard Co.............. 13,312,500 214,000 Intel Corp...................... 29,772,750 85,000 * Intel Corp. warrants............ 8,425,625 30,000 * Intersolv, Inc.................. 251,250 77,437 Molex, Inc...................... 2,749,013 25,000 * Mylex Corp...................... 281,250 22,500 * National Instruments Corp....... 725,625 70,000 * NetManage, Inc.................. 199,063 30,000 * Optical Data Systems, Inc....... 375,000 115,000 * Parametric Technology Corp...... 5,189,375 406,000 * Sun Microsystems, Inc........... 11,723,250 83,000 * Trimble Navigation, Ltd......... 975,250 95,778,482 OIL -- 0.6% 100,000 * COHO Energy, Inc................ 725,000 30,000 KN Energy, Inc.................. 1,185,000 80,000 Ranger Oil Ltd.................. 760,000 30,000 * Stolt Comex Seaway, S.A......... 607,500 118,590 Tosco Corp...................... 3,379,815 13,050 Williams Companies., Inc. (The)........................... 580,725 7,238,040 PAPER & PACKAGING -- 0.5% 30,400 Avery Dennison Corp............. 1,170,400 18,000 St. Joe Corp.................... 1,329,750 186,662 Wausau Paper Mills Co........... 3,418,248 5,918,398 7 EVERGREEN FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of street sign) SHARES VALUE COMMON STOCKS -- CONTINUED PUBLISHING, BROADCASTING & ENTERTAINMENT -- 4.9% 252,000 Belo (A.H.) Corp................ $ 9,324,000 135,000 Cadmus Communications Corp...... 1,906,875 30,000 * Cellularvision USA, Inc......... 270,000 857,000 * Clear Channel Communications, Inc............................. 36,743,875 22,500 * Evergreen Media Corp. Cl. A..... 656,719 50,000 * EZ Communications, Inc. Cl. A........................... 1,975,000 30,000 Gaylord Entertainment Co. Cl. A........................... 645,000 205,800 * Jacor Communications, Inc....... 5,685,225 125,000 * Obie Media Corp................. 968,750 190,000 Wiley (John) & Sons, Inc. Cl. A........................... 5,747,500 63,922,944 REAL ESTATE -- 2.7% 138,960 * Alexander's, Inc................ 9,622,980 46,200 Apartment Investment & Management Co. REIT............. 1,345,575 303,100 * Champion Enterprises, Inc....... 4,508,613 54,000 Chelsea GCA Realty, Inc. REIT... 1,937,250 47,400 * FRP Properties, Inc............. 1,190,925 128,300 * HFS, Inc........................ 7,553,662 118,000 * Homegate Hospitality, Inc....... 818,625 50,000 Horizon Group, Inc. REIT........ 643,750 140,000 * Host Marriott Corp.............. 2,380,000 20,000 Irvine Apartment Communities, Inc............................. 567,500 130,000 * Renaissance Hotel Group N.V..... 3,883,750 30,500 Wellsford Residential Property Trust........................... 884,500 35,337,130 RETAILING & WHOLESALE -- 3.6% 140,000 Avnet, Inc...................... 7,892,500 35,600 Blair Corp...................... 565,150 140,000 * Cole National Corp.............. 4,445,000 204,200 Dillard Department Stores, Inc. Cl. A........................... 6,432,300 268,800 Fingerhut Companies, Inc........ 3,763,200 50,000 * Footstar, Inc................... 1,481,250 198,000 Heilig-Meyers Co................ 3,143,250 SHARES VALUE RETAILING & WHOLESALE -- CONTINUED 119,600 * Jones Apparel Group, Inc........ $ 4,440,150 179,236 * Leslie's Poolmart............... 2,509,304 111,000 Lowe's Companies., Inc.......... 4,148,625 117,900 Mercantile Stores Co., Inc...... 5,467,612 49,500 * Payless Shoesource, Inc......... 2,072,813 46,361,154 THRIFT INSTITUTIONS -- 0.8% 70,000 Collective Bancorp, Inc......... 2,703,750 275,000 Dime Financial Corp.**.......... 4,950,000 73,500 * Hawthorne Financial Corp........ 753,375 50,000 Maryland Federal Bancorp, Inc... 1,762,500 20,000 People's Savings Financial Corp............................ 640,000 10,809,625 TRANSPORTATION -- 1.9% 125,000 ASA Holdings, Inc............... 2,593,750 98,000 Delta Air Lines, Inc............ 8,244,250 217,465 * Heartland Express, Inc.......... 4,131,835 40,000 * Offshore Logistics, Inc......... 640,000 13,000 Pittston Brink's Group.......... 328,250 75,000 Skywest, Inc.................... 975,000 239,000 Southwest Airlines Co........... 5,287,875 120,000 U.S. Freightways Corp........... 3,105,000 25,305,960 OTHER SECURITIES -- 0.2% 2,306,025 TOTAL COMMON STOCKS (COST $644,649,132)........ 1,099,135,959 PRINCIPAL AMOUNT SHORT-TERM INVESTMENTS -- 14.9% Commercial Paper -- 9.9% $ 3,500,000 American Home Food Products, Inc. 5.27%, 4/4/97................... 3,498,463 1,400,000 B.I. Funding, Inc. 5.28%, 4/16/97.................. 1,396,920 8,100,000 Bell Atlantic Financial Services, Inc. 5.30%, 4/16/97.................. 8,082,113 8 EVERGREEN FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of street sign) PRINCIPAL AMOUNT VALUE SHORT-TERM INVESTMENTS -- CONTINUED Commercial Paper -- continued Columbia/HCA Healthcare Corp. $ 400,000 5.52%, 5/9/97................... $ 397,669 8,400,000 5.58%, 5/27/97.................. 8,327,088 2,500,000 Compagnie Bancaire USA Finance Corp. 5.27%, 4/17/97.................. 2,494,144 1,600,000 Finova Capital Corp. 5.32%, 4/10/97.................. 1,597,872 21,900,000 Gannett Co. 5.28%, 4/25/97.................. 21,822,912 18,700,000 General Electric Capital Corp. 5.52%, 5/12/97.................. 18,582,439 10,100,000 Great Lakes Chemical Corp. 5.32%, 4/25/97.................. 10,064,179 7,450,000 H.J. Heinz Co. 5.24%, 4/3/97................... 7,447,831 6,000,000 Lucent Technologies, Inc. 5.27%, 4/16/97.................. 5,986,825 3,500,000 Norfolk Southern Corp. 5.27%, 4/24/97.................. 3,488,216 Transamerica Corp. 5,000,000 5.32%, 4/8/97................... 4,994,828 9,950,000 5.32%, 4/30/97.................. 9,907,358 4,000,000 Virginia Electric & Power Co. 5.25%, 4/14/97.................. 3,992,417 16,600,000 Xerox Credit Corp. 5.30%, 4/21/97.................. 16,551,122 TOTAL COMMERCIAL PAPER (COST $128,632,396)........ 128,632,396 U.S. Government & Agency Obligations -- 5.0% 38,600,000 Federal Home Loan Bank 5.41%, 4/28/97.................. 38,443,381 12,600,000 Federal Home Loan Mortgage Corp. 5.29%, 4/18/97.................. 12,568,524 13,500,000 Federal National Mortgage Association 5.20%, 4/10/97.................. 13,482,450 VALUE U.S. Government & Agency Obligations -- continued TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (COST $64,494,355)............ $ 64,494,355 TOTAL SHORT-TERM INVESTMENTS (COST $193,126,751)........... 193,126,751 TOTAL INVESTMENTS -- (COST $837,775,883)... 99.9% $1,292,262,710 OTHER ASSETS AND LIABILITIES -- NET.... 0.1 1,937,746 NET ASSETS.............. 100.0% $1,294,200,456 ADS -- American Depository Shares REIT -- Real Estate Investment Trust * Non-income producing securities. + No market quotation available. Valued at fair value as determined in good faith under procedures established by the Fund's Board of Trustees. ** Investment in non-controlled affiliate-holding over 5% of outstanding voting securities. At March 31, 1997, the Fund held investments in the following securities: DIVIDENDS SECURITY NAME SHARES COST VALUE EARNED Cornerstone Bank........ 99,380 $1,089,310 $1,627,348 $15,787 Dime Financial Corp........ 275,000 3,184,375 4,950,000 46,750 Seaway Food Town, Inc......... 134,000 1,563,474 4,020,000 29,480 Surety Capital Corp........ 455,200 1,728,888 2,532,050 -- See accompanying notes to financial statements. 9 EVERGREEN FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED) (photo of street sign)
ASSETS: Investments at value (identified cost $837,775,883)......................................................... $1,292,262,710 Cash........................................................................................................ 1,860,543 Receivable for investment securities sold................................................................... 2,428,295 Receivable for Fund shares sold............................................................................. 4,651,704 Dividends receivable........................................................................................ 917,143 Prepaid expenses............................................................................................ 66,865 Total assets.......................................................................................... 1,302,187,260 LIABILITIES: Payable for investment securities purchased................................................................. 3,713,766 Payable for Fund shares repurchased......................................................................... 1,976,760 Advisory fee payable........................................................................................ 1,076,141 Distribution fee payable.................................................................................... 485,130 Accrued expenses............................................................................................ 735,007 Total liabilities..................................................................................... 7,986,804 NET ASSETS..................................................................................................... $1,294,200,456 NET ASSETS CONSISTS OF: Paid-in capital............................................................................................. 826,522,339 Accumulated undistributed net investment income............................................................. 1,743,438 Accumulated undistributed net realized gain on investment transactions...................................... 11,447,852 Net unrealized appreciation of investments.................................................................. 454,486,827 Net assets............................................................................................ $1,294,200,456 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A shares ($109,620,352/6,095,019 shares of beneficial interest outstanding)........................... $ 17.99 Sales charge -- 4.75% of offering price..................................................................... 0.90 Maximum offering price................................................................................ $ 18.89 Class B shares ($340,963,231/19,101,109 shares of beneficial interest outstanding).......................... $ 17.85 Class C shares ($6,920,154/388,268 shares of beneficial interest outstanding)............................... $ 17.82 Class Y shares ($836,696,719/46,344,336 shares of beneficial interest outstanding).......................... $ 18.05
See accompanying notes to financial statements. 10 EVERGREEN FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (photo of street sign)
INVESTMENT INCOME: Income: Dividends (net of foreign withholding taxes of $1,410)...................................... $ 6,039,164 Interest.................................................................................... 5,706,419 Total investment income..................................................................... 11,745,583 EXPENSES: Advisory fee................................................................................... $6,012,819 Distribution fees -- Class A Shares............................................................ 127,520 Distribution fees -- Class B Shares............................................................ 1,142,353 Shareholder services fees -- Class B Shares.................................................... 380,784 Distribution fees -- Class C Shares............................................................ 24,824 Shareholder services fees -- Class C Shares.................................................... 8,274 Transfer agent fee............................................................................. 770,000 Reports and notices to shareholders............................................................ 425,950 Custodian fee.................................................................................. 226,000 Registration and filing fees................................................................... 87,265 Professional fees.............................................................................. 31,927 Trustees' fees and expenses.................................................................... 25,377 Insurance expenses............................................................................. 10,000 Miscellaneous.................................................................................. 15,083 Total expenses.............................................................................. 9,288,176 Net investment income............................................................................. 2,457,407 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions................................................... 14,101,251 Net change in unrealized appreciation of investments........................................... 40,495,339 Net realized and unrealized gain on investments................................................... 54,596,590 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $57,053,997
See accompanying notes to financial statements. 11 EVERGREEN FUND STATEMENTS OF CHANGES IN NET ASSETS (photo of street sign)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income............................................................... $ 2,457,407 $ 6,883,572 Net realized gain on investment transactions........................................ 14,101,251 26,342,145 Net change in unrealized appreciation of investments................................ 40,495,339 127,948,227 Net increase in net assets resulting from operations............................. 57,053,997 161,173,944 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET INVESTMENT INCOME: Class A Shares...................................................................... (454,970) (140,066) Class B Shares...................................................................... -- (104,944) Class C Shares...................................................................... -- (3,361) Class Y Shares...................................................................... (5,477,171) (3,380,345) Total distributions from net investment income................................... (5,932,141) (3,628,716) FROM NET REALIZED GAINS ON INVESTMENTS: Class A Shares...................................................................... (2,174,311) (1,345,646) Class B Shares...................................................................... (6,505,988) (3,481,371) Class C Shares...................................................................... (143,970) (94,635) Class Y Shares...................................................................... (18,647,833) (21,876,223) Total distributions from net realized gains on investments....................... (27,472,102) (26,797,875) Total distributions to shareholders.............................................. (33,404,243) (30,426,591) FUND SHARE TRANSACTIONS: Proceeds from shares sold........................................................... 935,720,211 1,696,117,113 Proceeds from acquisition of FFB Lexicon Small Company Growth Fund.................. -- 27,158,980 Proceeds from reinvestment of distributions......................................... 28,701,825 27,083,002 Payment for shares redeemed......................................................... (881,577,652) (1,411,176,445) Net increase resulting from Fund share transactions.............................. 82,844,384 339,182,650 Net increase in net assets....................................................... 106,494,138 469,930,003 NET ASSETS: Beginning of period................................................................. 1,187,706,318 717,776,315 End of period (including undistributed net investment income of $1,743,438 and $5,218,172, respectively)......................................................... $1,294,200,456 $ 1,187,706,318
See accompanying notes to financial statements. 12 EVERGREEN FUND CLASS A AND CLASS B SHARES FINANCIAL HIGHLIGHTS (photo of street sign)
CLASS A SHARES CLASS B SHARES SIX MONTHS JANUARY 3, SIX MONTHS ENDED 1995* ENDED MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 1995 (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period................. $17.64 $15.55 $11.97 $17.49 $15.48 Income (loss) from investment operations: Net investment income (loss)....................... .04 .12 .01 (.03) (.03) Net realized and unrealized gain on investments.... .81 2.61 3.57 .80 2.64 Total from investment operations................. .85 2.73 3.58 .77 2.61 Less distributions to shareholders from: Net investment income.............................. (.09) (.06) -- -- (.02) Net realized gains................................. (.41) (.58) -- (.41) (.58) Total distributions.............................. (.50) (.64) -- (.41) (.60) Net asset value, end of period....................... $17.99 $17.64 $15.55 $17.85 $17.49 TOTAL RETURN+........................................ 4.8% 18.1% 29.9% 4.4% 17.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions).............. $110 $87 $29 $341 $254 Ratios to average net assets: Expenses........................................... 1.43%++ 1.45% 1.70%#++ 2.17%++ 2.18% Interest expense................................... -- -- .01%++ -- -- Net investment income (loss)....................... .40%++ .63% .13%#++ (.34%)++ (.10%) Portfolio turnover rate.............................. 5% 15% 19% 5% 15% Average commission rate paid per share............... $ .0588 $ .0603 N/A $ .0588 $ .0603
JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period................. $11.97 Income (loss) from investment operations: Net investment income (loss)....................... (.02) Net realized and unrealized gain on investments.... 3.53 Total from investment operations................. 3.51 Less distributions to shareholders from: Net investment income.............................. -- Net realized gains................................. -- Total distributions.............................. -- Net asset value, end of period....................... $15.48 TOTAL RETURN+........................................ 29.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions).............. $74 Ratios to average net assets: Expenses........................................... 2.32%#++ Interest expense................................... .01%++ Net investment income (loss)....................... (.48%)#++ Portfolio turnover rate.............................. 19% Average commission rate paid per share............... N/A * Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets would have been the following:
CLASS A SHARES CLASS B SHARES JANUARY 3, JANUARY 3, 1995* 1995* THROUGH THROUGH SEPTEMBER 30, SEPTEMBER 30, 1995 1995 Expenses.................................................................................. 1.75% 2.34% Net investment income (loss).............................................................. .08% (.50%)
See accompanying notes to financial statements. 13 EVERGREEN FUND CLASS C SHARES FINANCIAL HIGHLIGHTS (photo of street sign)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period........................................................... $ 17.47 $ 15.48 Income (loss) from investment operations: Net investment loss.......................................................................... (.03) -- Net realized and unrealized gain on investments.............................................. .79 2.61 Total from investment operations........................................................... .76 2.61 Less distributions to shareholders from: Net investment income........................................................................ -- (.04) Net realized gains........................................................................... (.41) (.58) Total distributions........................................................................ (.41) (.62) Net asset value, end of period................................................................. $ 17.82 $ 17.47 TOTAL RETURN+.................................................................................. 4.3% 17.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)........................................................ $7 $6 Ratios to average net assets: Expenses..................................................................................... 2.18%++ 2.14%# Interest expense............................................................................. -- -- Net investment loss.......................................................................... (.35%)++ (.07%)# Portfolio turnover rate........................................................................ 5% 15% Average commission rate paid per share......................................................... $ .0588 $ .0603 JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period........................................................... $ 11.97 Income (loss) from investment operations: Net investment loss.......................................................................... (.01) Net realized and unrealized gain on investments.............................................. 3.52 Total from investment operations........................................................... 3.51 Less distributions to shareholders from: Net investment income........................................................................ -- Net realized gains........................................................................... -- Total distributions........................................................................ -- Net asset value, end of period................................................................. $ 15.48 TOTAL RETURN+.................................................................................. 29.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)........................................................ $2 Ratios to average net assets: Expenses..................................................................................... 2.12%#++ Interest expense............................................................................. .01%++ Net investment loss.......................................................................... (.31%)#++ Portfolio turnover rate........................................................................ 19% Average commission rate paid per share......................................................... N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment loss to average net assets would have been the following:
JANUARY 3, 1995* YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 1996 1995 Expenses.................................................................................. 2.38% 5.31% Net investment loss....................................................................... (.31%) (3.50%)
See accompanying notes to financial statements. 14 EVERGREEN FUND CLASS Y SHARES FINANCIAL HIGHLIGHTS (photo of street sign)
SIX MONTHS ENDED MARCH 31, 1997+++ YEAR ENDED SEPTEMBER 30, (UNAUDITED) 1996 1995 1994 1993 PER SHARE DATA: Net asset value, beginning of period................................................ $17.71 $15.59 $14.62 $14.46 $13.10 Income from investment operations: Net investment income............................................................. .06 .24 .10 .07 .09 Net realized and unrealized gain on investments................................... .81 2.55 3.10 .79 1.96 Total from investment operations................................................ .87 2.79 3.20 .86 2.05 Less distributions to shareholders from: Net investment income............................................................. (.12) (.09) (.07) (.09) (.07) Net realized gains (.41) (.58) (2.16) (.61) (.62) Total distributions............................................................. (.53) (.67) (2.23) (.70) (.69) Net asset value, end of period...................................................... $18.05 $17.71 $15.59 $14.62 $14.46 TOTAL RETURN+....................................................................... 4.9% 18.4% 26.8% 6.2% 15.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)............................................. $837 $841 $612 $526 $657 Ratios to average net assets: Expenses.......................................................................... 1.19%++ 1.15% 1.16% 1.13% 1.11% Interest expense.................................................................. -- -- .06% .09% .01% Net investment income............................................................. .64%++ .93% .53% .40% .60% Portfolio turnover rate............................................................. 5% 15% 19% 19% 21% Average commission rate paid per share.............................................. $.0588 $.0603 N/A N/A N/A 1992 PER SHARE DATA: Net asset value, beginning of period................................................ $13.32 Income from investment operations: Net investment income............................................................. .09 Net realized and unrealized gain on investments................................... .55 Total from investment operations................................................ .64 Less distributions to shareholders from: Net investment income............................................................. (.17) Net realized gains (.69) Total distributions............................................................. (.86) Net asset value, end of period...................................................... $13.10 TOTAL RETURN+....................................................................... 5.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in millions)............................................. $772 Ratios to average net assets: Expenses.......................................................................... 1.13% Interest expense.................................................................. -- Net investment income............................................................. .56% Portfolio turnover rate............................................................. 32% Average commission rate paid per share.............................................. N/A
+ Total return is calculated on net asset value per share for the periods indicated is not annualized. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. See accompanying notes to financial statements. 15 EVERGREEN AGGRESSIVE GROWTH FUND (photo of beakers) A REPORT FROM YOUR PORTFOLIO MANAGER HAROLD J. IRELAND We are pleased to present this Semiannual Report for Evergreen Aggressive Growth Fund for the period ended March 31, 1997. The past six months have been a volatile period for the stock market, for capital appreciation funds and for your (photo of Mr. Fund. Evergreen Aggressive Growth Fund's Class A shares at net Ireland here) asset value (NAV) began the period under review with a price per share of $21.04, and reached an all time high of $22.41 on January 22, 1997. However, the Fund closed on March 31, 1997, at a price per share $18.43, a decline of 12.4%* for the six-month period. By way of comparison, for this six-month period, the NASDAQ Industrial Index** was down 8.1%, the Russell 2000 Index** was down 0.2%, and the average of the Lipper Capital Appreciation Funds group of the 214 capital appreciation funds tracked by Lipper Analytical Services, Inc., during that time, was down 0.7%***. There were three general trends that impacted Fund performance during this period: 1) small company stocks, as represented by the NASDAQ Industrial Index, have been severely out of favor, and even within the larger capitalization S&P 500 Index+, the 100 smallest companies have underperformed the 100 largest companies by 12.8% during the past six months and underperformed 25.9% during the past twelve months; 2) technology stocks have been undergoing one of their periodic sharp corrections; and 3) comments and actions by Federal Reserve Board Chairman, Alan Greenspan, have triggered a general market correction and a short-term flight to larger and less economically sensitive companies. Regarding the first point, slightly over two-thirds of the Fund's holdings were invested in NASDAQ-OTC listed companies. These same three factors also impacted the Fund's trailing twelve-month performance. For the twelve months ended March 31, 1997, the Funds Class A shares at NAV declined 2.6%. This compares to the average of the Lipper Capital Appreciation Funds group of the 202 capital appreciation Funds tracked by Lipper during that time, which increased 6.2%. The table below illustrates the Fund's longer-term returns as of March 31, 1997.
SIX-MONTH(A) ONE-YEAR(A) THREE-YEAR(B) FIVE-YEAR(B) Evergreen Aggressive Growth Fund Class A at NAV* -12.4% -2.6% 10.2% 12.4% NASDAQ Industrial Index -8.1% -0.7% 9.3% 8.5% Russell 2000 Index -0.2% 5.1% 12.7% 12.8% Lipper Capital Appreciation Funds average -0.7% 6.2% 13.4% 12.1% TEN-YEAR(B) Evergreen Aggressive Growth Fund Class A at NAV* 10.7% NASDAQ Industrial Index 8.4% Russell 2000 Index 9.4% Lipper Capital Appreciation Funds average 9.8%
(a) cumulative return (b) average annual compound return FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. * -16.6%, -7.2%, 8.4%, 11.3%, AND 10.2% WERE THE 6-MONTH AND ONE-YEAR TOTAL RETURNS, AND THE THREE-YEAR, FIVE-YEAR, AND TEN-YEAR AVERAGE ANNUAL COMPOUND RETURNS, RESPECTIVELY, ENDED 3/31/97, FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE, AND CLASS Y, NO-LOAD SHARES. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ** THE NASDAQ INDUSTRIAL INDEX IS AN UNMANAGED INDEX OF SELECTED SECURITIES. THE RUSSELL 2000 IS AN UNMANAGED INDEX OF SELECTED SMALL CAP SECURITIES. *** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES AND IF INCLUDED, AVERAGE MAY BE LOWER. + THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. 16 EVERGREEN AGGRESSIVE GROWTH FUND (photo of beakers) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) ECONOMIC AND INVESTMENT BACKGROUND In many respects this period is reminiscent of 1994 when the Federal Reserve, concerned with an overly strong economy and the threat of inflation, pushed interest rates higher in an effort to slow the economy. The economy today appears much stronger than many expected, yet the inflation rate is no higher than three years ago and overseas economies in Europe and Japan are much weaker. In fact, the U. S. has just entered the seventh year of its current economic expansion with the lowest inflation rates for this stage of the business cycle in two generations. This is a very favorable background for stocks in general and should bode well for aggressive growth stocks in particular. Now, as then, your portfolio manager is remaining fully invested and sticking with the Fund's investment disciplines and focus on aggressive growth companies with dominant positions in their industries. INDUSTRY WEIGHTINGS AND PORTFOLIO CHANGES During the past six months, the retail industry weighting was reduced from 25% to 14.5% of the Fund's net assets. Much of the proceeds was used to increase the technology weightings, as the computers sector was increased from 8.1% to 16.6% of the Fund's net assets, and information services and technology from 13.6% to 16.3%. The position in AutoZone was sold as well as the positions in Bed, Bath & Beyond; The Home Depot, Office Depot and Tommy Hilfiger were reduced. Within the information services and technology, and computers groupings, shares of American Power Conversion, Gateway 2000 and BMC Software were acquired and our position in Adaptec was substantially increased. The Healthcare sector was reduced from 13.9% to 9.3% with the sale of the positions in Ivax, Matrix Pharmaceuticals and Respironics and the reduction of holdings in HBO & Co. and Mylan Labs. The Oil/Gas industry weighting was increased from 5.1% to 8.7% through the addition of a new position in Petroleum Geo-Services, ADR++. There was a small net reduction in the financial services weighting. Mercury Finance was eliminated from the portfolio, with some of the proceeds used to increase the position in Green Tree Financial. A new position was established in Staples, Inc. in the specialty retail sector. The position in Network General was significantly reduced and a large addition was made to the position in Medic Computer Systems. Slight increases were made to the positions in APAC Teleservices, HEALTHSOUTH, Medtronic, Viking Office Products, and Sterling Commerce. PORTFOLIO PROFILE The Fund continues to concentrate its holdings in financially strong companies whose five-year record of business momentum in sales and earnings exceeds 20% per year. These companies have low debt, strong insider ownership and show, through their products and services, leadership in their respective industries. The profile below lists some of the current characteristics that have been most important in selecting the companies owned. At March 31, 1997, the Fund's 30 holdings had the following positions-weighted average profile. Sales Growth (five years, compounded) 41% Sales Growth (last twelve months) 43% Earnings per Share Growth (five years, compounded) 38% Earnings per Share Growth (last twelve months) 37% Return on Equity (last twelve months) 23% Net Profit Margin (after tax) 9.0% Median Market Value (capitalization) $ 3.2 billion Long-Term Debt as a percent of total capital 22% Beta+++ 1.21 Average Daily Trading volume (calendar year-to-date) 2.369 million Price/Earnings (P/E) Ratio (past twelve months' earnings per share) 28.0
++ INTERNATIONAL INVESTING MAY INVOLVE ADDITIONAL RISKS. +++ BETA IS A MEASURE OF MARKET RISK. IT ILLUSTRATES THE VOLATILITY OF THE NET ASSET VALUE PER SHARE OF A SECURITY AS COMPARED WITH THE MARKET AS A WHOLE, AS MEASURED BY THE S&P 500 REINVESTED INDEX, WHICH IS ASSIGNED A BETA OF ONE. GENERALLY, A BETA OF LESS THAN ONE INDICATES THAT THE SECURITY WOULD FLUCTUATE LESS THAN THE MARKET, AND GREATER THAN ONE INDICATES IT WOULD FLUCTUATE MORE THAN THE MARKET. A BETA IS SUBJECT TO CHANGE. 17 EVERGREEN AGGRESSIVE GROWTH FUND (photo of beakers) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) Of course, a company's past performance is no guarantee of future operating or stock performance, but it is probably the best available guidepost for assessing the excellence of a company, its products, services and its management. Even though stock price performance of many of the Fund's holdings has lagged for the past six and twelve months, the average company operating performance has not deteriorated at all. For example, as can be seen from this profile, revenue growth has even accelerated slightly from 41% to 43%. OUTLOOK There are several reasons to expect that smaller companies could outperform their larger counterparts going forward. First, they have higher expected earnings growth than the stock market as a whole, as represented by the large company S&P 500. Second, they have less international business and, thus, less exposure to the revenue and earnings dampening effects of the strong dollar. Third, the poor performance of small stocks since their peak last May has led to less issuance of new stock, decreasing the potential supply. Finally, at present prices, aggressive growth stocks appear to have reached bargain levels seen only three other times in the past eighteen years. The stock market oscillates between cycles of overvaluation and undervaluation of small companies and large companies. Smith Barney's Emerging Growth Stock Index has receded to a price earnings multiple premium of 13% above that of the large company S&P 500 stock index. This relative multiple is down from a level of a 100% premium just one year ago, and it has been this low only in 1987 and 1990. The index has averaged about 60% P/E premium to the S&P 500 P/E for the whole eighteen years. The decline in the past year has been the worst one-year decline in the entire eighteen years of the Emerging Growth Index. A substantial premium for smaller emerging growth companies has been historically justified because they inherently grow faster than the larger, more mature S&P 500 companies. Based on another important valuation measure, the PEG ratio, (price earnings multiple divided by estimated five-year future earnings growth) investors today are paying a price earnings multiple 2.9 times the projected earnings growth for the S&P 500. In contrast, for the stocks in the portfolio of the Evergreen Aggressive Growth Fund, we are paying a price earnings multiple only 0.8 times their projected growth. In the past, discrepancies this wide have been followed by outperformance and it has paid handsomely to own smaller, aggressive growth stocks rebounding from such a depressed level. Despite a difficult past six months, it is worth noting that the Fund has outperformed the average of its Lipper Capital Appreciation Fund peer group 11 out of 13 calendar years, the exceptions being 1987 and 1994. Our long-term strategy of holding onto quality, high-performing, aggressive growth companies has rewarded investors as the Fund has outperformed its Lipper peer group by an average of 3.9 percentage points per year for that 13-year period. For taxable investors, our comparatively low portfolio turnover has led to an even higher tax-adjusted positive performance differential. We are working hard to continue that long-term record and to benefit current shareholders. 18 EVERGREEN AGGRESSIVE GROWTH FUND STATEMENT OF INVESTMENTS MARCH 31, 1997 (UNAUDITED) (photo of beakers)
SHARES VALUE COMMON STOCKS -- 98.0% BUSINESS SERVICES -- 18.6% 280,000* APAC TeleServices, Inc............... $ 7,280,000 140,000 Danka Business Systems, ADR.......... 4,401,250 170,000 First Data Corporation............... 5,758,750 25,000* Fiserv, Inc.......................... 931,250 200,000* Medic Computer Systems, Inc.......... 3,200,000 200,000* Sterling Commerce, Inc............... 5,800,000 27,371,250 COMPUTERS -- 16.6% 175,000* Adaptec, Inc......................... 6,256,250 250,000* American Power Conversion Corp....... 5,406,250 160,000* Cisco Systems, Inc................... 7,700,000 100,000* Gateway 2000, Inc.................... 5,125,000 24,487,500 CONSUMER/DIVERSIFIED -- 9.4% 400,000* Republic Industries, Inc............. 13,875,000 FINANCIAL SERVICES -- 4.6% 200,000 Green Tree Financial Corporation..... 6,750,000 HEALTHCARE -- 9.3% 35,000 HBO & Company........................ 1,662,500 100,000* Health Management Associates, Inc.... 2,375,000 60,000* HEALTHSOUTH Corporation.............. 1,147,500 125,000 Medtronic, Inc....................... 7,781,250 50,000 Mylan Laboratories, Inc.............. 731,250 13,697,500 INFORMATION SERVICES & TECHNOLOGY -- 16.3% 106,000* BMC Software, Inc.................... 4,889,250 100,000* Microsoft Corporation................ 9,168,750 150,000* Network General Corporation.......... 3,225,000 150,000* Parametric Technology Corp........... 6,768,750 24,051,750 SHARES VALUE
OIL/GAS -- 8.7% 140,000* Petroleum Geo-Services, ADR.......... $ 6,020,000 120,000 Transocean Offshore, Inc............. 6,735,000 12,755,000 RETAILING (SPECIALTY) -- 14.5% 75,000* Bed Bath & Beyond, Inc............... 1,814,063 80,000 Fastenal Company..................... 2,800,000 50,000 Home Depot, Inc...................... 2,675,000 150,000* Office Depot, Inc.................... 3,056,250 150,000* Staples, Inc......................... 3,018,750 40,000* Tommy Hilfiger Corporation........... 2,090,000 300,000* Viking Office Products, Inc.......... 5,812,500 21,266,563 TOTAL COMMON STOCKS (COST $104,540,467)............. 144,254,563
PRINCIPAL AMOUNT REPURCHASE AGREEMENT -- 2.6% $3,826,000 State Street Bank & Trust Co., 5.25%, purchased 3/31/97, maturing 4/1/97 (Collaterized by $4,060,000 U.S. Treasury Bonds, 5.25% due 1/31/01) (cost $3,826,000)................. 3,826,000 TOTAL INVESTMENTS -- (COST $108,366,467).... 100.6% 148,080,563 OTHER ASSETS AND LIABILITIES -- NET..... (0.6) (893,763) NET ASSETS................ 100.0% $147,186,800
* Non-income producing securities. ADR -- American Depositary Receipt. See accompanying notes to financial statements. 19 EVERGREEN AGGRESSIVE GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED) (photo of beakers)
ASSETS: Investments at value (identified cost $108,366,467)........................................................... $148,080,563 Cash.......................................................................................................... 4,064 Receivable for Fund shares sold............................................................................... 757,131 Dividends and interest receivable............................................................................. 7,035 Prepaid expenses.............................................................................................. 43,520 Unamortized organization expenses............................................................................. 16,575 Total assets............................................................................................... 148,908,888 LIABILITIES: Payable for investment securities purchased................................................................... 1,167,520 Payable for Fund shares repurchased........................................................................... 265,409 Distribution fee payable...................................................................................... 92,106 Advisory and administration fees payable...................................................................... 84,299 Accrued expenses.............................................................................................. 112,754 Total liabilities.......................................................................................... 1,722,088 NET ASSETS....................................................................................................... $147,186,800 NET ASSETS CONSISTS OF: Paid-in capital............................................................................................... 110,628,401 Accumulated net investment loss............................................................................... (863,278) Accumulated net realized loss on investment transactions...................................................... (2,292,419) Net unrealized appreciation of investments.................................................................... 39,714,096 Net assets................................................................................................. $147,186,800 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A shares ($80,425,563/4,364,581 shares of beneficial interest outstanding).............................. $18.43 Sales charge -- 4.75% of offering price....................................................................... 0.92 Maximum offering price.................................................................................. $19.35 Class B shares ($26,827,157/1,474,110 shares of beneficial interest outstanding).............................. $18.20 Class C shares ($1,999,708/110,006 shares of beneficial interest outstanding)................................. $18.18 Class Y shares ($37,934,372/2,052,317 shares of beneficial interest outstanding).............................. $18.48
See accompanying notes to financial statements. 20 EVERGREEN AGGRESSIVE GROWTH FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (photo of beakers)
INVESTMENT INCOME: Income: Dividends (net of foreign withholding taxes of $2,263)................................... $ 101,319 Interest................................................................................. 87,470 Total investment income............................................................... 188,789 EXPENSES: Advisory and administration fees............................................................ $ 498,245 Distribution fees -- Class A Shares......................................................... 117,627 Distribution fees -- Class B Shares......................................................... 96,669 Shareholder services fees -- Class B Shares................................................. 32,223 Distribution fees -- Class C Shares......................................................... 5,043 Shareholder services fees -- Class C Shares................................................. 1,681 Transfer agent fee.......................................................................... 122,324 Registration and filing fees................................................................ 56,672 Reports and notices to shareholders......................................................... 49,707 Custodian fee............................................................................... 44,803 Professional fees........................................................................... 14,241 Insurance................................................................................... 10,604 Trustees' fees and expenses................................................................. 4,596 Amortization of organization expense........................................................ 2,550 Miscellaneous............................................................................... 2,851 Total expenses........................................................................ 1,059,836 Less: Expenses paid indirectly........................................................ (11,430) Net expenses.......................................................................... 1,048,406 Net investment loss............................................................................ (859,617) NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized gain on investment transactions................................................ 700,010 Net change in unrealized appreciation of investments........................................ (20,780,097) Net realized and unrealized loss on investments................................................ (20,080,087) NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... ($ 20,939,704)
See accompanying notes to financial statements. 21 EVERGREEN AGGRESSIVE GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS (photo of beakers)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss....................................................................... $ (859,617) $ (923,543) Net realized gain (loss) on investment transactions....................................... 700,010 (2,456,367) Net change in unrealized appreciation of investments...................................... (20,780,097) 27,981,236 Net increase (decrease) in net assets resulting from operations........................ (20,939,704) 24,601,326 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET REALIZED GAINS ON INVESTMENTS: Class A Shares............................................................................ -- (2,568,867) Class B Shares............................................................................ -- (157,682) Class C Shares............................................................................ -- (7,213) Class Y Shares............................................................................ -- (213,704) Total distributions from net realized gains on investments.......................... -- (2,947,466) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................. 70,392,570 73,789,548 Proceeds from reinvestment of distributions............................................... -- 2,476,706 Payment for shares redeemed............................................................... (47,427,318) (28,780,969) Net increase resulting from Fund share transactions.................................... 22,965,252 47,485,285 Net increase in net assets............................................................. 2,025,548 69,139,145 NET ASSETS: Beginning of period....................................................................... 145,161,252 76,022,107 End of period (including accumulated net investment loss of $863,278 and $3,661 respectively)...................................................... $ 147,186,800 $ 145,161,252
See accompanying notes to financial statements. 22 EVERGREEN AGGRESSIVE GROWTH FUND CLASS A SHARES FINANCIAL HIGHLIGHTS (photo of beakers)
SIX MONTHS ENDED ELEVEN MONTHS MARCH 31, YEAR ENDED ENDED 1997+++ SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 1996 1995*# PER SHARE DATA: Net asset value, beginning of period.......................... $21.04 $17.37 $13.85 Income (loss) from investment operations: Net investment loss......................................... (.11) (.15) (.16) Net realized and unrealized gain (loss) on investments...... (2.50) 4.46 3.68 Total from investment operations.......................... (2.61) 4.31 3.52 Less distributions to shareholders from net realized gains.... -- (.64) -- Net asset value, end of period................................ $18.43 $21.04 $17.37 TOTAL RETURN+................................................. (12.4%) 25.6% 25.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...................... $80,426 $96,608 $70,858 Ratios to average net assets: Expenses**.................................................. 1.28%++ 1.22% 1.47%++ Expenses, excluding indirectly paid expenses................ 1.27%++ N/A N/A Net investment loss......................................... (1.03%)++ (.86%) (1.12%)++ Portfolio turnover rate....................................... 14% 33% 31% Average commission rate paid per share........................ $.0600 $.0582 N/A YEAR ENDED OCTOBER 31, 1994#+++ 1993#+++ PER SHARE DATA: Net asset value, beginning of period.......................... $14.44 $11.76 Income (loss) from investment operations: Net investment loss......................................... (.13) (.12) Net realized and unrealized gain (loss) on investments...... (.22) 3.06 Total from investment operations.......................... (.35) 2.94 Less distributions to shareholders from net realized gains.... (.24) (.26) Net asset value, end of period................................ $13.85 $14.44 TOTAL RETURN+................................................. (2.4%) 25.3% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...................... $64,635 $58,053 Ratios to average net assets: Expenses**.................................................. 1.25% 1.31% Expenses, excluding indirectly paid expenses................ N/A N/A Net investment loss......................................... (.92%) (.92%) Portfolio turnover rate....................................... 59% 48% Average commission rate paid per share........................ N/A N/A 1992#+++ PER SHARE DATA: Net asset value, beginning of period.......................... $12.22 Income (loss) from investment operations: Net investment loss......................................... (.10) Net realized and unrealized gain (loss) on investments...... 1.84 Total from investment operations.......................... 1.74 Less distributions to shareholders from net realized gains.... (2.20) Net asset value, end of period................................ $11.76 TOTAL RETURN+................................................. 17.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...................... $29,302 Ratios to average net assets: Expenses**.................................................. 1.44% Expenses, excluding indirectly paid expenses................ N/A Net investment loss......................................... (.93%) Portfolio turnover rate....................................... 46% Average commission rate paid per share........................ N/A
* The Fund changed its fiscal year end from October 31 to September 30. ** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of Evergreen Trust, acquired substantially all of the net assets of ABT Emerging Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that ended on October 31 was the accounting survivor in the combination. Accordingly, the information above includes the results of operations of ABT Emerging Growth Fund prior to June 30, 1995. See accompanying notes to financial statements. 23 EVERGREEN AGGRESSIVE GROWTH FUND CLASS B AND CLASS C SHARES FINANCIAL HIGHLIGHTS (photo of beakers)
CLASS B SHARES CLASS C SHARES SIX MONTHS JULY 7, SIX MONTHS ENDED 1995* ENDED MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 1995 (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period.......... $20.89 $17.35 $15.82 $20.88 $17.31 Income (loss) from investment operations: Net investment loss......................... (.18) (.16) (.03) (.17) (.15) Net realized and unrealized gain (loss) on investments............................... (2.51) 4.34 1.56 (2.53) 4.36 Total from investment operations.......... (2.69) 4.18 1.53 (2.70) 4.21 Less distributions to shareholders from net realized gains.............................. -- (.64) -- -- (.64) Net asset value, end of period................ $18.20 $20.89 $17.35 $18.18 $20.88 TOTAL RETURN+................................. (12.9%) 24.9% 9.7% (12.9%) 25.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...... $26,827 $21,644 $2,858 $2,000 $991 Ratios to average net assets: Expenses**.................................. 2.05%++ 1.98% 2.09%++ 2.05%++ 1.96% Expenses, excluding indirectly paid expenses.................................. 2.04%++ N/A N/A 2.04%++ N/A Net investment loss......................... (1.79%)++ (1.60%) (1.71%)++ (1.78%)++ (1.57%) Portfolio turnover rate....................... 14% 33% 31% 14% 33% Average commission rate paid per share........ $.0600 $.0582 N/A $.0600 $.0582 AUGUST 3, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period.......... $16.42 Income (loss) from investment operations: Net investment loss......................... (.01) Net realized and unrealized gain (loss) on investments............................... 0.90 Total from investment operations.......... 0.89 Less distributions to shareholders from net realized gains.............................. -- Net asset value, end of period................ $17.31 TOTAL RETURN+................................. 5.4% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...... $416 Ratios to average net assets: Expenses**.................................. 2.09%++ Expenses, excluding indirectly paid expenses.................................. N/A Net investment loss......................... (1.51%)++ Portfolio turnover rate....................... 31% Average commission rate paid per share........ N/A
* Commencement of class operations. ** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. See accompanying notes to financial statements. 24 EVERGREEN AGGRESSIVE GROWTH FUND CLASS Y SHARES FINANCIAL HIGHLIGHTS (photo of beakers)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period..................................................... $21.09 $17.38 Income (loss) from investment operations: Net investment loss.................................................................... (.08) (.06) Net realized and unrealized gain (loss) on investments................................. (2.53) 4.41 Total from investment operations..................................................... (2.61) 4.35 Less distributions to shareholders from net realized gains............................... -- (.64) Net asset value, end of period........................................................... $18.48 $21.09 TOTAL RETURN+............................................................................ (12.4%) 25.8% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)................................................. $37,934 $25,918 Ratios to average net assets: Expenses**............................................................................. 1.03%++ .97% Expenses, excluding indirectly paid expenses........................................... 1.02%++ N/A Net investment loss.................................................................... (.78%)++ (.60%) Portfolio turnover rate.................................................................. 14% 33% Average commission rate paid per share................................................... $.0600 $.0582 JULY 11, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period..................................................... $15.79 Income (loss) from investment operations: Net investment loss.................................................................... (.01) Net realized and unrealized gain (loss) on investments................................. 1.60 Total from investment operations..................................................... 1.59 Less distributions to shareholders from net realized gains............................... -- Net asset value, end of period........................................................... $17.38 TOTAL RETURN+............................................................................ 10.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)................................................. $1,889 Ratios to average net assets: Expenses**............................................................................. 1.08%++ Expenses, excluding indirectly paid expenses........................................... N/A Net investment loss.................................................................... (.71%)++ Portfolio turnover rate.................................................................. 31% Average commission rate paid per share................................................... N/A
* Commencement of class operations. ** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. See accompanying notes to financial statements. 25 EVERGREEN LIMITED MARKET FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGERS STEPHEN A. LIEBER EDWIN H. MISKA We are pleased to present the Semiannual Report for Evergreen Limited Market Fund for the period ended March 31, 1997. Strong outperformance during the six months under review was achieved despite a generally depressed and volatile small (photo of Stephen capitalization market environment, with limited amplitude for Lieber here) the very small to "micro" capitalization issues in which your Fund invests. For the six months ended March 31, 1997, Evergreen Limited Market Fund's total return (Class Y, no-load (photo of shares) was 7.3%*. This was striking in that it provided a Mr. Miska here) strong absolute and relative return well in excess of some of the representative small capitalization indexes: the Russell 2000 returned -0.2%**, and the Lipper Micro Capitalization Funds average return of the 26 micro-cap funds tracked by Lipper Analytical Services, Inc., during that time, was -0.6%***. These strong comparisons are also reflected in the twelve months returns. Your Fund (Class Y shares) returned 11.4% versus 5.1% for the Russell 2000 and 8.6% for the Lipper Micro Cap Funds average of the 23 micro-cap funds tracked by Lipper during that time. The results are of note, in that they represent a full twelve-month time period in which to evaluate the Evergreen Limited Market Fund portfolio in light of last year's restructuring efforts. We are optimistic that our efforts during fiscal 1996, have sown the seeds for a prosperous fiscal 1997 and beyond. We are extremely encouraged by the results to date. The five- and ten-year average annual compound returns ended March 31, for the Fund's Class Y shares were 3.9% and 7.9%, respectively. The twelve-month total return, and the average annual compound return since inception on January 3, 1995, through March 31, 1997, for the Fund's Class A shares were 5.7% and 6.7%, respectively. ECONOMIC ENVIRONMENT AND PORTFOLIO REVIEW The United States economy continued its strong growth trend from the fall of 1996. Aided by low unemployment, a tight labor market, a strong currency worldwide, and the strongest sustained growth in corporate profits since the 1950's, the stock market during the six months under review saw the Dow Jones Industrial average rise above the 7000 level for the very first time. This "exuberance" was tempered only by the Federal Reserve's resolve to keep inflation and an "overheating" of the economy at bay. The specter of the onset of rising interest rates, culminating with the 25 basis point increase of the Federal Funds rate on March 25, sat heavily on the markets, and created the only real dampening to an otherwise prosperous environment. This had the effect of increasing volatility, and placing a paramount value on trading liquidity -- causing FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FUND'S CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THE RUSSELL 2000 IS AN UNMANAGED REINVESTED INDEX OF 2000 SELECTED SMALL-CAP SECURITIES. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. *** SOURCE: LANA (LIPPER ANALYTICAL NEW APPLICATIONS) LIPPER ANALYTICAL SERVICES INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE MONITOR. LIPPER AVERAGE DOES NOT INCLUDE SALES CHARGES AND IF INCLUDED, AVERAGE MAY BE LOWER. 26 EVERGREEN LIMITED MARKET FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGERS -- (CONTINUED) most of the small-to-micro-capitalization issues to go largely overlooked, if not totally forgotten. The comparative fundamental advantage smaller capitalization stocks have enjoyed over the years was also being negated: Profit growth for the largest capitalization issues was surprisingly better than expected, increasing investors focus and drawing attention away from the traditionally faster growing areas of small-cap stocks. Compounding the small-cap "malaise" was the seasonal tax-loss selling period during the fourth quarter of 1996, and the overall poor showing during the typically seasonally strong "January effect" period in the first quarter of calendar 1997. Despite these obstacles, your Fund performed admirably. As noted in our previous reports, a focus on careful stock selection, through a strong fundamental and valuation review, coupled with a discipline to sell issues which no longer meet the investment criteria, helped the Fund outperform. An acceleration of firms receiving takeover or merger offers also helped contribute, as the Fund saw eight merger announcements during the period. Sectors that contributed to the strong performance were: Banks +25.3%, Thrift Institutions +16.6%, Building, Construction and Furnishings +14.5% and Industrial Specialty Products and Services, +12.9%. Disappointing results came from Consumer Products and Services, -3.6% and Healthcare Products and Services, - -0.5%. Among individual securities, the continued focus on well-managed, high quality issues with a consistent record of profitability and earnings growth served the fund well, as twenty issues held currently rose in excess of 25% for the six months. Among the best performing: Zygo Corp., a high technology maker of electro-optical measuring devices for the semiconductor industry, rose 53.8%; Badger Meter, Inc., a manufacturer of meters and flow measurement tools to the utility and industrial markets worldwide, rose 45.5%; American Precision Industries, a growing diversified maker of miniature motors, heat transfer equipment and electronic components, rose 39.2%; and AG Services of America, a provider of credit to the agricultural industry was up 38.9%. Among bank holding companies, West Coast Bancorp (Oregon) rose 37.5%, WSFS Financial Corp. (Delaware) rose 37.3% and Independent Bank Corp. (Michigan) rose 36.9%. An active strategy to sell issues upon achieving investment objectives or upon failing to maintain fundamental standing also served the Fund well. Despite an overall low portfolio turnover rate of 22% (annualized), The Fund was able to enhance performance contribution brought on by increased market volatility by locking in capital gains or by avoiding extensive capital losses. Sales of the shares of Barra, Inc., (45.4% gain), Exactech, Inc., (12.5% gain), R&G Financial Corp. (5.9% gain) Control Devices, Inc., (17.7% gain), Timberline Software, Inc., (21.1% gain) and FRP Properties, Inc., (20.8% gain) were representative of stocks meeting our investment valuation targets. Sales of the shares of Aceto Corp., Aseco Corporation, Chesapeake Utilities, Custom Chrome, Inc., National Sanitary Supply, Utah Medical Products and Tuscarora, Inc., for small gains or losses, were representative of issues sold upon identifying their failure to maintain investment merit due to poor earnings releases, or a deterioration of fundamental factors. Through the methodical use of both quantitative and fundamental analysis, sensitive to daily changing financial conditions, the Fund has benefited from the identifying of undervalued, undiscovered companies, initially as buys and subsequently as sells, in an effort to enhance gains and minimize losses. 27 EVERGREEN LIMITED MARKET FUND (photo of building) A REPORT FROM YOUR PORTFOLIO MANAGERS -- (CONTINUED) MERGERS AND ACQUISITIONS The Fund continued to benefit from the long-term trend where larger companies seek to acquire smaller specialty businesses with strong franchises, markets, or products and services. During the period under review, eight companies in the Fund's portfolio received acquisition offers. The total since the Fund's inception on June 1, 1983, has grown to 85 mergers and acquisitions (pending and completed) for an average gain of 59.9% on those completed. The companies receiving and/or completing offers during the six months were: Premier Bankshares Corp., (+52.0% since purchase February 1996), offer to be acquired by First Virginia Bank via stock; Kysor Industrial Corp. (realized gain +74.6%) acquired by Scotsman Industries for cash; Cavco Industries, Inc., (+88.5% since purchase February 1996) offer to be acquired by Centex Corp. for cash; ESELCO Inc., (+58.8% since purchase March 1996) offer to be acquired by Wisconsin Energy via stock; Peoples Savings Financial (+60.0% since purchase February 1996) merger offer from Webster Financial via the exchange of stock; American List Corp. (-18.9% since purchase February 1996) has agreed to be merged into Snyder Communications via the exchange of stock; Calnetics Corp. (-5.3% since purchase October 1996) has agreed to be acquired by Summa Industries via a combination of cash and stock worth $7.50 per share; and Steel of West Virginia, Inc, has received but has not agreed to a merger offer from CPT Holdings for $9.00 cash per share. It has been our belief that the acquisitions of relatively undervalued, well-managed and consistently profitable small companies will continue, as larger entities seek ways to continue enhancing their overall bottom lines in an evermore competitive environment. Our focus on these small growth opportunities should help provide a continuation of this mergers and acquisitions pace for your Fund. The equity markets have managed solid gains despite bouts of increased market volatility caused by rising valuations, uncertainties over higher interest rates and fears over the re-emerging signs of inflation. The continued focus of the Fund will be to position itself to outperform in any economic environment, by emphasizing investment in companies with consistently strong top and bottom line profit growth opportunities in the small to micro-capitalization segment. Acquisition candidates will continue to get significant emphasis. As the current economic cycle slows and organic corporate profit growth diminishes, larger companies will seek ways to enhance their competitive position. Opportunities through acquisitions and takeovers of successfully managed producers of profitable niche products and services will continue. As many of the Fund's holdings fit this profile, we believe we have positioned the Fund to benefit handsomely in this kind of environment. We appreciate the patience and support of our longtime investors and are optimistic of the outlook for your Fund. We have made great strides in enhancing the overall returns both on an absolute and relative basis during the past six months and look forward to providing you with continued updates on the Fund's progress. 28 EVERGREEN LIMITED MARKET FUND STATEMENT OF INVESTMENTS MARCH 31, 1997 (UNAUDITED) (photo of building) SHARES VALUE COMMON STOCKS -- 99.6% AEROSPACE & DEFENSE -- 0.6% 9,900* Ducommun, Inc.......................... $ 241,313 BANKS -- 16.4% 17,600 BT Financial Corp...................... 754,600 10,000 CNB Financial Corp..................... 215,000 20,000 First Oak Brook Bancshares Inc. Cl. A.................................. 500,000 20,475 Independent Bank Corp.................. 783,169 15,000 Mainstreet Bankgroup, Inc.............. 301,875 2,700 Northern States Financial Corp......... 244,350 25,000 Norwich Financial Corp................. 468,750 5,000 Peoples Bancorp, Inc................... 151,250 17,500 Pinnacle Financial Services, Inc....... 470,312 20,000 Premier Bankshares Corp................ 570,000 15,000 Second Bancorp, Inc.................... 551,250 21,150 Washington Trust Bancorp, Inc.......... 592,200 31,250 West Coast Bancorp, Inc. (Ore.)........ 675,781 6,278,537 BUILDING, CONSTRUCTION & FURNISHINGS -- 5.4% 28,750 Cavalier Homes, Inc.................... 323,438 25,000* Cavco Industries, Inc.................. 659,375 20,000* Mestek, Inc............................ 325,000 22,000 Republic Group, Inc.................... 335,500 12,000 Schult Homes Corp...................... 202,500 20,000* Southern Energy Homes, Inc............. 207,500 2,053,313 BUSINESS EQUIPMENT & SERVICES -- 8.8% 26,500 American List Corp..................... 649,250 22,000* Equitrac Corp.......................... 286,000 45,800 General Employment Enterprises, Inc.................................... 403,612 40,000 Graphic Industries, Inc................ 460,000 23,500* Right Management Consultants, Inc.................................... 226,188 10,000* StaffMark, Inc......................... 131,250 1,630* Stevens International, Inc. Warrants A +........................... 0 40,000* TEAM America Corp...................... 380,000 42,300* Uniflex, Inc........................... 306,675 20,000 Uniforce Services, Inc................. 316,250 10,000* Union Corp. (The)...................... 215,000 3,374,225 SHARES VALUE CHEMICAL & AGRICULTURAL PRODUCTS -- 2.2% 18,300 Balchem Corp........................... $ 155,550 40,000* Calnetics Corp......................... 265,000 10,000 Chase Corp............................. 72,500 51,319 Hawkins Chemical, Inc.................. 362,439 855,489 CONSUMER PRODUCTS & SERVICES -- 7.7% 10,000* Benihana, Inc.......................... 80,000 17,000 Bush Industries, Inc. Cl. A............ 340,000 15,000* Conso Products Co...................... 208,125 30,000 Cooker Restaurant Corp................. 315,000 25,000* Educational Development Corp........... 128,125 45,000 First Years, Inc. (The)................ 720,000 110,000* Gotham Apparel Corp.**+................ 5,500 20,000* Guest Supply, Inc...................... 287,500 20,000* Motorcar Parts and Accesories, Inc.................................... 282,500 12,000 Oneida, Ltd............................ 237,000 31,600 Stephan Co. (The)...................... 347,600 2,951,350 ELECTRICAL EQUIPMENT & SERVICES -- 8.8% 25,000* Ault, Inc.............................. 190,625 24,000 Badger Meter, Inc...................... 1,116,000 48,270* Del Global Technologies Corp........... 404,261 27,500* IFR Systems, Inc....................... 412,500 6,400 L.S. Starrett, Co. Cl. A............... 183,200 20,000* SBS Technologies, Inc.................. 305,000 25,000 Tech/OPS Sevcon, Inc................... 334,375 21,000 Todd-AO Corp. (The) Cl. A.............. 204,750 10,000* Zygo Corp.............................. 227,500 3,378,211 FINANCE & INSURANCE -- 5.1% 21,600* CorVel Corp............................ 540,000 11,500 First Financial Caribbean Corp......... 304,750 20,000* FPIC Insurance Group, Inc.............. 342,500 21,804 Grand Premier Financial, Inc........... 242,569 20,000* Penn Treaty American Corp.............. 520,000 1,949,819 FOOD RETAILING & DISTRIBUTION -- 0.5% 10,000 Worthington Foods, Inc................. 195,000 HEALTHCARE PRODUCTS & SERVICES -- 7.7% 30,500* Alcide Corp............................ 663,375 16,000 Biosource International, Inc........... 115,000 33,666 Del Laboratories, Inc.................. 698,569 29 EVERGREEN LIMITED MARKET FUND STATEMENT OF INVESTMENTS -- (CONTINUED) MARCH 31, 1997 (UNAUDITED) (photo of building) SHARES VALUE COMMON STOCKS -- CONTINUED HEALTHCARE PRODUCTS & SERVICES -- CONTINUED 10,000 Kewaunee Scientific Corp............... $ 61,250 20,000* Laser Industries, Ltd.................. 240,000 26,100 Meridian Diagnostics, Inc.............. 287,100 60,000* Mesa Laboratories, Inc................. 300,000 27,000* Natural Alternatives International, Inc.................................... 219,375 30,000* Nutramax Products, Inc................. 360,000 2,944,669 INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -- 17.4% 20,000* AG Services of America, Inc............ 325,000 24,900 American Precision Industries, Inc.................................... 423,300 26,750 Autocam Corp........................... 300,938 33,000* CEM Corp............................... 276,375 20,000* Chemfab Corp........................... 362,500 37,500 CPAC, Inc.............................. 445,312 40,000 Culp, Inc.............................. 690,000 25,000 Falcon Products, Inc................... 378,125 20,000* Genlyte Group, Inc..................... 217,500 53,250 Met-Pro Corp........................... 672,281 15,000 Modern Controls, Inc................... 146,250 22,000 Raven Industries, Inc.................. 503,250 35,000* RPC, Inc............................... 503,125 17,500* Special Devices, Inc................... 297,500 26,500* Steel of West Virginia, Inc............ 172,250 24,000 Steel Technologies, Inc................ 270,000 30,000 TSI, Inc............................... 285,000 21,000 World Fuel Services Corp............... 372,750 6,641,456 INFORMATION SERVICES & TECHNOLOGY -- 5.2% 60,000* Analytical Surveys, Inc................ 637,500 22,500* Comarco, Inc........................... 393,750 15,000 Computer Data Systems, Inc............. 451,875 32,000* Norstan, Inc........................... 496,000 1,979,125 METAL PRODUCTS & SERVICES -- 0.7% 10,000* Sinter Metals, Inc. Cl. A.............. 275,000 SHARES VALUE REAL ESTATE -- 1.9% 10,000 Crossmann Communities, Inc............. $ 197,500 45,000 United Mobile Homes, Inc............... 540,000 737,500 RETAILING & WHOLESALE -- 3.2% 25,000* Bowlin Outdoor Advertising & Travel Centers, Inc.................... 168,750 5,000* Buckle, Inc. (The)..................... 133,750 43,785* Harold's Stores, Inc................... 536,366 12,000 Riser Foods, Inc....................... 397,500 1,236,366 THRIFT INSTITUTIONS -- 7.8% 14,600 Iroquois Bancorp, Inc.................. 313,900 24,568 Parkvale Financial Corp................ 669,478 21,500 People's Savings Financial Corp........ 688,000 40,000 Virginia First Financial Corp.......... 590,000 30,000* WSFS Financial Corp.................... 345,000 20,000 York Financial Corp.................... 367,500 2,973,878 UTILITIES -- ELECTRIC -- 0.2% 1,545 Eselco, Inc............................ 61,028 TOTAL INVESTMENTS -- (COST $35,165,241)............ 99.6% 38,126,279 OTHER ASSETS AND LIABILITIES -- NET............ 0.4 147,087 NET ASSETS...................... 100.0% $38,273,366 * Non-income producing securities. + No market quotation available. Valued at fair value as determined in good faith under procedures established by the Fund's Board of Directors. ** Investment in non-controlled affiliate-holding over 5% of outstanding voting securities. This investment was acquired by the Fund at a cost of $665,880. During the six month period ended March 31, 1997, the Fund recognized no dividend income from this security. See accompanying notes to financial statements. 30 EVERGREEN LIMITED MARKET FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED) (photo of building) ASSETS: Investments at value (identified cost $35,165,241)............................................................. $38,126,279 Cash........................................................................................................... 201,043 Receivable for investment securities sold...................................................................... 99,597 Receivable for Fund shares sold................................................................................ 390 Dividends receivable........................................................................................... 28,440 Prepaid expenses............................................................................................... 35,027 Total assets............................................................................................. 38,490,776 LIABILITIES: Payable for Fund shares repurchased............................................................................ 109,710 Distribution fee payable....................................................................................... 2,195 Advisory fee payable........................................................................................... 31,595 Accrued expenses............................................................................................... 73,910 Total liabilities........................................................................................ 217,410 NET ASSETS........................................................................................................ $38,273,366 NET ASSETS CONSISTS OF: Paid-in capital................................................................................................ $34,846,208 Accumulated net investment loss................................................................................ (88,806) Accumulated undistributed net realized gain on investment transactions......................................... 554,926 Net unrealized appreciation of investments..................................................................... 2,961,038 Net assets............................................................................................... $38,273,366 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A shares ($754,357/40,677 shares of beneficial interest outstanding)..................................... $ 18.55 Sales charge -- 4.75% of offering price........................................................................ 0.93 Maximum offering price................................................................................... $ 19.48 Class B shares ($1,299,946/71,311 shares of beneficial interest outstanding)................................... $ 18.23 Class C shares ($28,607/1,568 shares of beneficial interest outstanding)....................................... $ 18.24 Class Y shares ($36,190,456/1,943,943 shares of beneficial interest outstanding)............................... $ 18.62
See accompanying notes to financial statements. 31 EVERGREEN LIMITED MARKET FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (photo of building) INVESTMENT INCOME: Income: Dividends (net of foreign withholding taxes of $719)............................................ $ 265,869 Interest........................................................................................ 1,405 Total investment income...................................................................... 267,274 EXPENSES: Advisory fee....................................................................................... $205,771 Distribution fees -- Class A Shares................................................................ 1,111 Distribution fees -- Class B Shares................................................................ 5,392 Shareholder services fees -- Class B Shares........................................................ 1,797 Distribution fees -- Class C Shares................................................................ 107 Shareholder services fees -- Class C Shares........................................................ 35 Registration and filing fees....................................................................... 38,996 Custodian fee...................................................................................... 33,550 Transfer agent fee................................................................................. 32,715 Reports and notices to shareholders................................................................ 17,533 Professional fees.................................................................................. 16,463 Insurance expenses................................................................................. 4,755 Trustees' fees and expenses........................................................................ 4,001 Miscellaneous...................................................................................... 6,932 Total expenses.................................................................................. 369,158 Less: Fee waivers and expense reimbursements....................................................... (16,993) Net expenses.................................................................................... 352,165 Net investment loss................................................................................... (84,891) NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions....................................................... 1,162,320 Net change in unrealized appreciation of investments............................................... 1,932,837 Net realized and unrealized gain on investments....................................................... 3,095,157 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $3,010,266
See accompanying notes to financial statements. 32 EVERGREEN LIMITED MARKET FUND STATEMENTS OF CHANGES IN NET ASSETS (photo of building)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss......................................................................... $ (84,891) $ (209,279) Net realized gain (loss) on investment transactions......................................... 1,162,320 (378,317) Net change in unrealized appreciation of investments........................................ 1,932,837 (1,769,027) Net increase (decrease) in net assets resulting from operations.......................... 3,010,266 (2,356,623) DISTRIBUTIONS TO SHAREHOLDERS: FROM NET REALIZED GAINS ON INVESTMENTS: Class A Shares.............................................................................. -- (32,318) Class B Shares.............................................................................. -- (61,166) Class C Shares.............................................................................. -- (1,952) Class Y Shares.............................................................................. -- (1,796,283) Total distributions from net realized gains on investments............................... -- (1,891,719) FUND SHARE TRANSACTIONS: Proceeds from shares sold................................................................... 1,263,739 6,715,931 Proceeds from reinvestment of distributions................................................. -- 1,739,216 Payment for shares redeemed................................................................. (8,014,074) (30,085,341) Net decrease resulting from Fund share transactions...................................... (6,750,335) (21,630,194) Net decrease in net assets............................................................... (3,740,069) (25,878,536) NET ASSETS: Beginning of period......................................................................... 42,013,435 67,891,971 End of period (including accumulated net investment loss of $88,806 and $3,915, respectively)............................................................................. $38,273,366 $ 42,013,435
See accompanying notes to financial statements. 33 EVERGREEN LIMITED MARKET FUND CLASS A AND CLASS B SHARES FINANCIAL HIGHLIGHTS (photo of building)
CLASS A CLASS B SIX MONTHS JANUARY 3, SIX MONTHS ENDED 1995* ENDED MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 1995 (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period.................. $17.31 $18.41 $15.76 $17.07 $18.30 Income (loss) from investment operations: Net investment loss................................. (.06) (.10) (.10) (.12) (.25) Net realized and unrealized gain (loss) on investments....................................... 1.30 (.44) 2.75 1.28 (.42) Total from investment operations.................. 1.24 (.54) 2.65 1.16 (.67) Less distributions to shareholders from net realized gains............................................... -- (.56) -- -- (.56) Net asset value, end of period........................ $18.55 $17.31 $18.41 $18.23 $17.07 TOTAL RETURN+......................................... 7.1% (2.9%) 16.8% 6.8% (3.6%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands).............. $754 $903 $1,089 $1,300 $1,461 Ratios to average net assets: Expenses#........................................... 1.92%++ 1.73% 1.51%++ 2.67%++ 2.47% Interest expense.................................... -- .02% -- -- .02% Net investment loss#................................ (.61%)++ (.52%) (1.03%)++ (1.37%)++ (1.28%) Portfolio turnover rate............................... 24% 160% 84% 24% 160% Average commission rate paid per share................ $.0545 $.0497 N/A $.0545 $.0497 JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period.................. $15.76 Income (loss) from investment operations: Net investment loss................................. (.20) Net realized and unrealized gain (loss) on investments....................................... 2.74 Total from investment operations.................. 2.54 Less distributions to shareholders from net realized gains............................................... -- Net asset value, end of period........................ $18.30 TOTAL RETURN+......................................... 16.1% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands).............. $2,020 Ratios to average net assets: Expenses#........................................... 2.26%++ Interest expense.................................... -- Net investment loss#................................ (1.77%)++ Portfolio turnover rate............................... 84% Average commission rate paid per share................ N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment loss to average net assets would have been the following:
CLASS A CLASS B SIX MONTHS JANUARY 3, SIX MONTHS ENDED 1995* ENDED MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, SEPTEMBER 30, 1997 SEPTEMBER 30, (UNAUDITED) 1996 1995 (UNAUDITED) 1996 Expenses...................................... 2.00% 3.08% 4.33% 2.75% 3.26% Net investment loss........................... (.69%) (1.87%) (3.85%) (1.45%) (2.07%) JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 Expenses...................................... 3.66% Net investment loss........................... (3.18%)
See accompanying notes to financial statements. 34 EVERGREEN LIMITED MARKET FUND CLASS C SHARES FINANCIAL HIGHLIGHTS (photo of building)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, (UNAUDITED) 1996 PER SHARE DATA: Net asset value, beginning of period........................................................... $17.09 $18.31 Income (loss) from investment operations: Net investment loss.......................................................................... (.13) (.36) Net realized and unrealized gain (loss) on investments....................................... 1.28 (.30) Total from investment operations........................................................... 1.15 (.66) Less distributions to shareholders from net realized gains..................................... -- (.56) Net asset value, end of period................................................................. $18.24 $17.09 TOTAL RETURN+.................................................................................. 6.7% (3.6%) RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)....................................................... $29 $27 Ratios to average net assets: Expenses#.................................................................................... 2.68%++ 2.44% Interest expense............................................................................. -- .02% Net investment loss#......................................................................... (1.38%)++ (1.35%) Portfolio turnover rate........................................................................ 24% 160% Average commission rate paid per share......................................................... $.0545 $ .0497 JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period........................................................... $15.76 Income (loss) from investment operations: Net investment loss.......................................................................... (.20) Net realized and unrealized gain (loss) on investments....................................... 2.75 Total from investment operations........................................................... 2.55 Less distributions to shareholders from net realized gains..................................... -- Net asset value, end of period................................................................. $18.31 TOTAL RETURN+.................................................................................. 16.2% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)....................................................... $62 Ratios to average net assets: Expenses#.................................................................................... 2.25%++ Interest expense............................................................................. -- Net investment loss#......................................................................... (1.76%)++ Portfolio turnover rate........................................................................ 84% Average commission rate paid per share......................................................... N/A
* Commencement of class operations. + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment loss to average net assets would have been the following:
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 Expenses..................................................................................... 2.76% 32.28% Net investment loss.......................................................................... (1.46%) (31.19%) JANUARY 3, 1995* THROUGH SEPTEMBER 30, 1995 Expenses..................................................................................... 41.34% Net investment loss.......................................................................... (40.85%)
See accompanying notes to financial statements. 35 EVERGREEN LIMITED MARKET FUND CLASS Y SHARES FINANCIAL HIGHLIGHTS (photo of building)
SIX MONTHS ENDED YEAR MARCH 31, ENDED 1997+++ YEAR ENDED SEPTEMBER 30, MAY 31, (UNAUDITED) 1996 1995 1994* 1994 PER SHARE DATA: Net asset value, beginning of period................................ $17.35 $18.42 $21.74 $21.20 $20.87 Income (loss) from investment operations: Net investment loss............................................... (.03) (.08) (.23) (.05) (.07) Net realized and unrealized gain (loss) on investments............ 1.30 (.43) .59 .59 1.67 Total from investment operations................................ 1.27 (.51) .36 .54 1.60 Less distributions to shareholders from net realized gains.......... -- (.56) (3.68) -- (1.27) Net asset value, end of period...................................... $18.62 $17.35 $18.42 $21.74 $21.20 TOTAL RETURN+....................................................... 7.3% (2.7%) 4.8% 2.6% 7.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)............................ $36,190 $39,622 $64,721 $99,340 $96,357 Ratios to average net assets: Expenses.......................................................... 1.67%#++ 1.55%# 1.36% 1.37%++ 1.26% Interest expense.................................................. -- .02% -- -- -- Net investment loss............................................... (.37%)#++ (.38%)# (.87%) (.70%)++ (.33%) Portfolio turnover rate............................................. 24% 160% 84% 36% 89% Average commission rate paid per share.............................. $.0545 $.0497 N/A N/A N/A 1993 PER SHARE DATA: Net asset value, beginning of period................................ $21.02 Income (loss) from investment operations: Net investment loss............................................... (.03) Net realized and unrealized gain (loss) on investments............ 1.57 Total from investment operations................................ 1.54 Less distributions to shareholders from net realized gains.......... (1.69) Net asset value, end of period...................................... $20.87 TOTAL RETURN+....................................................... 7.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)............................ $80,605 Ratios to average net assets: Expenses.......................................................... 1.24% Interest expense.................................................. -- Net investment loss............................................... (.07%) Portfolio turnover rate............................................. 29% Average commission rate paid per share.............................. N/A
* The Fund changed its fiscal year end from May 31 to September 30, effective Septmeber 30, 1994. + Total return is calculated for the periods indicated and is not annualized. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment loss to average net assets would have been the following:
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 Expenses.................................................... 1.75% 1.60% Net investment loss......................................... (.45%) (.43%)
See accompanying notes to financial statements. 36 EVERGREEN U.S. REAL ESTATE EQUITY FUND (photo of U.S. flag) A REPORT FROM YOUR PORTFOLIO MANAGER SAMUEL A. LIEBER We are pleased to provide this Semiannual Report for Evergreen U.S. Real Estate Equity Fund for the period ended March 31, 1997. The price per share of $13.09, (Class Y, no-load shares) on March 31, reflects total returns of 3.0%* and 19.7%* (photo of Samuel for the three- and six-month periods, respectively. The three- Lieber) and six-month total returns ended March 31, for the Fund's Class A shares at net asset value were 2.9% and 19.9%, respectively. These figures compare with the returns for the Morgan Stanley REIT (Real Estate Investment Trust) Index** of 0.2% and 20.2%, for the same periods. While REIT's, as measured by the Morgan Stanley Index, was the top stock group for the fourth calendar quarter, your Fund performed nearly as well as this group during the six months through March 31, despite only a 50% exposure to REITs. The Fund benefited from its emphasis on investing in undervalued, quality assets, as four companies of Fund holdings received and accepted takeover bids. REIT RESURGENCE? After two years of relatively modest performance (averaging 16.4% versus 21.8% for the S&P 500 Index*** per year), REIT shares surged 20% during the fourth quarter of calendar 1996, outperforming all other stock market sectors. The impetus and significance of the surge of enthusiasm for REIT's has implications for both short-term and long-term investment opportunities. The rationale behind the flood of new investment into REIT's stems, in large part, from last summer's weakness in the S&P 500 and, specifically, the technology sector. The stock market focused on the high visibility of current predictable earnings growth that is generally evident for real estate companies at this mature stage of the real estate cycle. There is greater predictability for REIT earnings today than for many other potentially faster growing business sectors, since real estate generally performs well in the latter part of the economic cycle. Earnings visibility is especially critical when the economic cycle has the risk of slowing. Many investors were also attracted to the historic defensive quality of REIT shares which, in large part, is due to their relatively high dividend yield. This was very apparent during the mid-summer stock market slump, and helped fuel the fourth quarter rally. In sharp contrast, the first quarter of calendar 1997 was rather anemic for REIT's. We believe that this anemic performance and subsequent negative performance reflected the high valuations of many REIT shares by year-end. During the first quarter, many REIT shares exhibited unusually high share price volatility, which we believe is correlated with the atypically low dividend yields (in many cases under 5%) of many REIT's, which, in turn, eroded some of the defensive characteristics of these stocks. In other words, one of the characteristics which led investors to REIT's was partially negated. FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT CONCENTRATION IN ONE SECTOR OF THE MARKET INVOLVES ADDITIONAL RISKS THAN WITH MORE DIVERSE INVESTMENTS. * PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. INVESTMENT RETURN, PRINCIPAL VALUE AND YIELD WILL FLUCTUATE. INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. -2.0%, and 14.2% WERE THE RESPECTIVE 3- AND 6-MONTH TOTAL RETURNS ENDED MARCH 31, FOR THE FUND'S CLASS A SHARES WITH THE MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE WITHIN THE FIRST YEAR AFTER THE MONTH OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF SHARES MAY BE DIFFERENT. ** THE MORGAN STANLEY REIT INDEX IS A CAPITALIZATION-WEIGHTED INDEX WITH DIVIDENDS REINVESTED OF THE MOST ACTIVELY TRADED REAL ESTATE INVESTMENT TRUSTS AND DESIGNED TO BE A MEASURE OF REAL ESTATE EQUITY PERFORMANCE. *** THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY, TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE MADE IN AN INDEX. 37 EVERGREEN U.S. REAL ESTATE EQUITY FUND (photo of U.S. flag) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) The most significant positive from the new REIT investors and subsequent high valuations is that many companies were able to raise investor's awareness of REIT's and elevate the profile of real estate stocks in the market. New equity issuance and rising market capitalizations during the six months under review, increased REIT capitalization of the Russell 2000 Index to 8% and even led to discussion of the possibility of at least one stock entering the S&P 500 this year. The long-term positive implication is a wider spectrum of investors and enhanced access to public capital for real estate in the future. The implications for the short-term, however, is relatively modest performance as share prices either have to recede toward their historic valuation norms or wait until earnings growth catches up to the share price performance. PORTFOLIO ACTIVITY The Fund's portfolio changed considerably during the past six months, with a number of holdings sold in response to the high valuations discussed above. Many of these were replaced with companies with superior growth prospects and/or more modest valuations. For example, positions in Patriot American Hospitality, Crescent Real Estate, CapStar Hotels and Host Marriott Corporation were replaced with companies such as Kilroy Realty Corp., Brandywine Realty Trust, Bristol Hotels and Homegate Hospitality. A result of the Fund's value orientation is that the portfolio held a number of stocks of companies that were recipients of merger or acquisition proposals during the first half of the fiscal year. Studio Plus Hotels was acquired in a share swap with Extended Stay America, and Renaissance Hotel Group was acquired by Marriott International. The Fund's position in Wyndham Hotels (held six months) appreciated in anticipation of its early April acquisition by Patriot American Hospitality, as did the Fund's holdings in Santa Anita Realty Enterprises which accepted an offer from Meditrust in early April. The fact that three of these four companies were in the lodging business reflects the real estate community's positive assessment of prospects for the hotel sector. Major shifts on a sector basis occurred, as exposure to apartments was reduced from 16% of the Fund's net assets at September 30, to 9% at March 31, and shopping centers exposure was reduced from 18.3% to 9.8%. The proceeds from these sales were used to fuel additional investments in the office/industrial buildings sector, which increased from 9.5% to 18.6%, as well as in hotel REIT's and lodging corporations which, combined, increased from 25.9% to 28.3% of net assets. These two groups constitute the Fund's largest sector exposure. HOMEBUILDERS, A CONTRARIAN PLAY The Fund's second largest sector concentration is homebuilders. These stocks trade at share prices which, on average, are below book value and at estimates of nine times earnings per share. By contrast, the S&P 500 Index is currently trading at a price earnings (P/E) ratio of 20.8X and 3.4X book value. Such low valuations for homebuilders usually occur only during a recession. However, the near-record performance of the homebuilders sector in 1996 was reflected in the highest annual level of new home sales since 1986 and the highest annual level of existing single family home sales since 1978. Not only was demand strong, but supply was and still is modest. The current inventory of new homes for sale has been this low for only a few years since 1982. When combined with historically low unemployment rates, historically modest interest rates and only moderate home price inflation, the resulting affordability ratios are very attractive. 38 EVERGREEN U.S. REAL ESTATE EQUITY FUND (photo of U.S. flag) A REPORT FROM YOUR PORTFOLIO MANAGER -- (CONTINUED) We believe that Wall Street is patterning its valuation of these "early cyclicals" as if the boom/bust economic cycles of the 1970's through 1980's still applied. Our belief that the current homebuilding cycle has not only been extended, but has also moderated in its amplitude as it follows the economic cycle. This economic cycle has been modified by restrictive central bank monetary policies, constrained government fiscal policies and less confluence of global business cycles. As a result, we believe that homebuilding stocks are mispriced by the stock market in this current economic environment, and sustained, solid earnings should eventually be recognized by higher stock prices. LOOKING AHEAD With the American economy roughly six years into the current expansion of the business cycle with still no obvious sign of either overheating or fatigue, we believe the possibility exists that we may enjoy another three to five years of moderate, sustainable growth. Since the real estate cycle follows the business cycle, we believe the prospects are still positive, although significant availability of capital for new development may lead to scattered periods of oversupply in certain locations. This will be tempered by relatively few uneconomic subsidies such as the tax incentives which pushed real estate too far and too fast in the 1980's. Even though the easy money has been made during the rebound of real estate values during the past few years, we believe excellent growth prospects remain in several parts of the lodging sector and more selectively in the office sector, particularly in major urban centers for both property types. Top line revenue growth at the rate of inflation should be easily achievable for distribution space, apartments, and self storage facilities. The American dream of homeownership and high affordability should continue to produce a rising percentage of homeowners. We believe the greatest selectivity will be required in the competitive retail sector, where shoppers will continue to spend on the extremes of value or service and quality. Finally, we expect that the growth of the securitization of real estate will continue and with it so will Wall Street's valuation of real estate fundamentals. Already, we have seen the stock market evolve from favoring owners of properties in narrow geographic regions with a property type focus, to companies with a super regional or national scope, and a focus that could include more than one or two types of property. The market now realizes there are more ways to find and assess real estate opportunity and this, in turn, has created more opportunities for investors. Evergreen U.S. Real Estate Equity Fund will continue to search for such opportunities in this ever growing universe of real estate securities and we appreciate your support in so doing. 39 EVERGREEN U.S. REAL ESTATE FUND STATEMENT OF INVESTMENTS MARCH 31, 1997 (UNAUDITED) (photo of U.S. flag) SHARES VALUE EQUITY SECURITIES -- 96.5% Real Estate Investment Trusts -- 43.3% APARTMENTS -- 8.7% 19,000 Apartment Investment & Management Co.......................... $ 553,375 12,000 Columbus Realty Trust.................. 241,500 12,500 Gables Residential Trust............... 318,750 8,300 Oasis Residential, Inc................. 186,750 1,300,375 HOTELS -- 6.2% 6,001 Starwood Lodging Trust................. 234,039 53,000 Sunstone Hotel Investors, Inc.......... 695,625 929,664 OFFICE-INDUSTRIAL BUILDINGS -- 18.6% 87,000* American Industrial Property........... 228,375 24,333 Brandywine Realty Trust................ 492,743 10,000 Cali Realty Corp....................... 320,000 6,000 CarrAmerica Realty Corp................ 184,500 30,000 Kilroy Realty Corp..................... 798,750 12,000 Koger Equity, Inc...................... 207,000 5,000 Parkway Properties, Inc................ 120,000 10,000 Prentiss Properties Trust.............. 253,750 5,000 Spieker Properties, Inc................ 195,000 2,800,118 SHOPPING CENTERS -- 9.8% 6,000* Alexander's, Inc....................... 415,500 64,680 Horizon Group, Inc..................... 832,755 8,100 Santa Anita Realty Enterprises, Inc.................................... 220,725 1,468,980 TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $6,137,031)................. 6,499,137 Common Stocks -- 53.2% HOMEBUILDERS -- 23.9% 20,000* Beazer Homes USA, Inc.................. 295,000 12,000* Castle & Cooke, Inc.................... 178,500 18,750 Cavalier Homes, Inc.................... 210,937 19,300 Continental Homes Holding Corp......... 320,862 SHARES VALUE Common Stocks -- continued HOMEBUILDERS -- CONTINUED 56,000 D.R. Horton, Inc....................... $ 602,000 10,000* M/I Schottenstein Homes, Inc........... 102,500 52,500* Pacific Greystone Corp................. 656,250 111,300* Presley Companies (The) Cl. A.......... 125,213 30,000* Toll Brothers, Inc..................... 547,500 73,200* US Home Corp., warrants Cl. B $20 -- expiring 6/22/98................................ 539,850 3,578,612 LODGING -- 22.1% 5,000 Bristol Hotel Co....................... 217,500 52,000* Homegate Hospitality, Inc.............. 360,750 20,000* Homestead Village Properties, Inc...... 337,500 15,100* Interstate Hotels Co................... 426,575 56,000* John Q. Hammons Hotels, Inc............ 504,000 5,000 Marriott International, Inc............ 248,750 26,300* Prime Hospitality Corp................. 410,938 10,500* Studio Plus Hotels, Inc................ 181,125 35,000* Vistana, Inc........................... 393,750 8,000* Wyndham Hotel Corp..................... 236,000 3,316,888 MISC. REAL ESTATE COMPANIES -- 4.5% 48,400* Grubb & Ellis Co....................... 459,800 3,000 St. Joe Corp........................... 221,625 681,425 OTHER SECURITIES -- 2.7%............... 409,000 TOTAL COMMON STOCKS (COST $7,445,465)................. 7,985,925 TOTAL INVESTMENTS (COST $13,582,496)......... 96.5% 14,485,062 OTHER ASSETS AND LIABILITIES -- NET......... 3.5 522,501 NET ASSETS.................... 100.0% $15,007,563 * Non-income producing security. See accompanying notes to financial statements. 40 EVERGREEN U.S. REAL ESTATE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1997 (UNAUDITED) (photo of U.S. flag) ASSETS: Investments at value (identified cost $13,582,496)............................................................. $14,485,062 Receivable for investment securities sold...................................................................... 939,948 Receivable for Fund shares sold................................................................................ 53,669 Dividends and interest receivable.............................................................................. 37,226 Prepaid expenses............................................................................................... 30,259 Unamortized organization expenses.............................................................................. 6,210 Total assets................................................................................................ 15,552,374 LIABILITIES: Due to Custodian............................................................................................... 67,050 Payable for investment securities purchased.................................................................... 401,259 Payable for Fund shares repurchased............................................................................ 28,694 Distribution fee payable....................................................................................... 2,173 Accrued expenses............................................................................................... 45,635 Total liabilities........................................................................................... 544,811 NET ASSETS........................................................................................................ $15,007,563 NET ASSETS CONSISTS OF: Paid-in capital................................................................................................ 12,792,067 Accumulated undistributed net investment income................................................................ 56,552 Accumulated undistributed net realized gain on investment transactions......................................... 1,256,378 Net unrealized appreciation of investments..................................................................... 902,566 Net assets.................................................................................................. $15,007,563 CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE: Class A shares ($837,693/64,435 shares of beneficial interest outstanding).................................. $ 13.00 Sales charge -- 4.75% of offering price..................................................................... .65 Maximum offering price................................................................................... $ 13.65 Class B shares ($1,121,253/86,811 shares of beneficial interest outstanding)................................ $ 12.92 Class C shares ($515,893/39,993 shares of beneficial interest outstanding).................................. $ 12.90 Class Y shares ($12,532,724/958,442 shares of beneficial interest outstanding).............................. $ 13.08
See accompanying notes to financial statements. 41 EVERGREEN U.S. REAL ESTATE EQUITY FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) (photo of U.S. flag) INVESTMENT INCOME: Income: Dividends....................................................................................... $ 213,466 Interest........................................................................................ 3,438 Total investment income...................................................................... 216,904 EXPENSES: Advisory fee....................................................................................... $ 67,021 Distribution fees -- Class A Shares................................................................ 626 Distribution fees -- Class B Shares................................................................ 2,918 Shareholder services fees -- Class B Shares........................................................ 973 Distribution fees -- Class C Shares................................................................ 1,510 Shareholder services fees -- Class C Shares........................................................ 503 Custodian fee...................................................................................... 35,323 Registration and filing fees....................................................................... 32,392 Transfer agent fee................................................................................. 25,844 Professional fees.................................................................................. 14,668 Reports and notices to shareholders................................................................ 5,010 Insurance.......................................................................................... 4,058 Trustees' fees and expenses........................................................................ 2,658 Miscellaneous...................................................................................... 1,001 Total expenses.................................................................................. 194,505 Less: Fee waivers and expense reimbursements....................................................... (85,556) Expenses paid indirectly..................................................................... (1,835) Net expenses.................................................................................... 107,114 Net investment income................................................................................. 109,790 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investment transactions....................................................... 1,609,538 Net change in unrealized appreciation of investments............................................... 557,791 Net realized and unrealized gain on investments....................................................... 2,167,329 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $2,277,119
See accompanying notes to financial statements 42 EVERGREEN U.S. REAL ESTATE EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS (photo of U.S. flag)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, (UNAUDITED) 1996 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.................................................................. $ 109,790 $ 207,611 Net realized gain on investment transactions........................................... 1,609,538 1,211,270 Net change in unrealized appreciation of investments................................... 557,791 (117,123) Net increase in net assets resulting from operations................................ 2,277,119 1,301,758 DISTRIBUTIONS TO SHAREHOLDERS: FROM NET INVESTMENT INCOME: Class A Shares...................................................................... (6,261) (2,161) Class B Shares...................................................................... (9,714) (2,282) Class C Shares...................................................................... (6,723) (113) Class Y Shares...................................................................... (227,570) (161,622) Total distributions from net investment income................................... (250,268) (166,178) FROM NET REALIZED GAINS ON INVESTMENTS: Class A Shares...................................................................... (38,196) (2,640) Class B Shares...................................................................... (78,704) (3,174) Class C Shares...................................................................... (45,396) (144) Class Y Shares...................................................................... (1,293,383) (170,850) Total distributions from net realized gains on investments....................... (1,455,679) (176,808) Total distributions to shareholders........................................... (1,705,947) (342,986) FUND SHARE TRANSACTIONS: Proceeds from shares sold.............................................................. 2,473,662 1,954,850 Proceeds from reinvestment of distributions............................................ 1,419,029 326,476 Payment for shares redeemed............................................................ (876,353) (1,443,869) Net increase resulting from Fund share transactions................................. 3,016,338 837,457 Net increase in net assets.......................................................... 3,587,510 1,796,229 NET ASSETS: Beginning of period.................................................................... 11,420,053 9,623,824 End of period (including undistributed net investment income of $56,552 and $197,030, respectively)........................................................................ $15,007,563 $11,420,053
See accompanying notes to financial statements. 43 EVERGREEN U.S. REAL ESTATE EQUITY FUND CLASS A AND CLASS B SHARES FINANCIAL HIGHLIGHTS (photo of U.S. flag)
CLASS A SHARES CLASS B SHARES SIX MONTHS MARCH 10, SIX MONTHS ENDED 1995* ENDED MARCH 31, YEAR ENDED THROUGH MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, SEPTEMBER 30, 1997+++ SEPTEMBER 30, (UNAUDITED) 1996+++ 1995 (UNAUDITED) 1996+++ PER SHARE DATA: Net asset value, beginning of period.......... $12.49 $11.42 $9.21 $12.41 $11.37 Income from investment operations: Net investment income....................... .08 .20 .18 .04 .13 Net realized and unrealized gain on investments............................... 2.27 1.28 2.03 2.25 1.27 Total from investment operations.......... 2.35 1.48 2.21 2.29 1.40 Less distributions to shareholders from: Net investment income....................... (.26) (.20) -- (.20) (.15) Net realized gains.......................... (1.58) (.21) -- (1.58) (.21) Total distributions....................... (1.84) (.41) -- (1.78) (.36) Net asset value, end of period................ $13.00 $12.49 $11.42 $12.92 $12.41 TOTAL RETURN+................................. 19.9% 13.1% 24.0% 19.4% 12.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...... $838 $263 $5 $1,121 $431 RATIOS TO AVERAGE NET ASSETS: Expenses**.................................. 1.77%#++ 1.72%# 1.78%#++ 2.52%#++ 2.46%# Expenses, excluding indirectly paid expenses............................. 1.75%#++ N/A N/A 2.50%#++ N/A Interest expense............................ -- .04% -- -- .04% Net investment income....................... 1.30%#++ 1.60%# 3.13%#++ .67%#++ 1.05%# Portfolio turnover rate....................... 86% 169% 115% 86% 169% Average commission rate paid per share........ $.0609 $.0619 N/A $.0609 $.0619 MARCH 7, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period.......... $9.19 Income from investment operations: Net investment income....................... .05 Net realized and unrealized gain on investments............................... 2.13 Total from investment operations.......... 2.18 Less distributions to shareholders from: Net investment income....................... -- Net realized gains.......................... -- Total distributions....................... -- Net asset value, end of period................ $11.37 TOTAL RETURN+................................. 23.7% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)...... $160 RATIOS TO AVERAGE NET ASSETS: Expenses**.................................. 2.51%#++ Expenses, excluding indirectly paid expenses............................. N/A Interest expense............................ -- Net investment income....................... 2.00%#++ Portfolio turnover rate....................... 115% Average commission rate paid per share........ N/A
* Commencement of class operations. ** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets would have been the following:
CLASS A SHARES CLASS B SHARES SIX MONTHS SIX MONTHS ENDED ENDED MARCH 31, YEAR ENDED MARCH 10, 1995* MARCH 31, YEAR ENDED 1997 SEPTEMBER 30, THROUGH 1997 SEPTEMBER 30, (UNAUDITED) 1996 SEPTEMBER 30, 1995 (UNAUDITED) 1996 Expenses**.......................... 2.97% 9.65% 364.74% 3.77% 6.19% Expenses, excluding indirectly paid expenses.......................... 2.95% N/A N/A 3.75% N/A Net investment income (loss)........ .10% (6.33%) (359.83%) (.58%) (2.68%) MARCH 7, 1995* THROUGH SEPTEMBER 30, 1995 Expenses**.......................... 28.70% Expenses, excluding indirectly paid expenses.......................... N/A Net investment income (loss)........ (24.19%)
See accompanying notes to financial statements. 44 EVERGREEN U.S. REAL ESTATE EQUITY FUND CLASS C SHARES FINANCIAL HIGHLIGHTS (photo of U.S. flag)
SIX MONTHS ENDED MARCH 31, YEAR ENDED 1997+++ SEPTEMBER 30, (UNAUDITED) 1996+++ PER SHARE DATA: Net asset value, beginning of period.................................................... $12.44 $11.41 Income from investment operations: Net investment income................................................................. .04 .13 Net realized and unrealized gain on investments....................................... 2.23 1.28 Total from investment operations.................................................... 2.27 1.41 Less distributions to shareholders from: Net investment income................................................................. (.23) (.17) Net realized gains.................................................................... (1.58) (.21) Total distributions................................................................. (1.81) (.38) Net asset value, end of period.......................................................... $12.90 $12.44 TOTAL RETURN+........................................................................... 19.4% 12.5% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)................................................ $516 $125 RATIOS TO AVERAGE NET ASSETS: Expenses**............................................................................ 2.52%#++ 2.47%# Expenses, excluding indirectly paid expenses............................................................................ 2.50%#++ N/A Interest expense...................................................................... -- .04% Net investment income................................................................. .60%#++ 1.08%# Portfolio turnover rate................................................................. 86% 169% Average commission rate paid per share.................................................. $.0609 $.0619 JULY 12, 1995* THROUGH SEPTEMBER 30, 1995 PER SHARE DATA: Net asset value, beginning of period.................................................... $10.87 Income from investment operations: Net investment income................................................................. .08 Net realized and unrealized gain on investments....................................... .46 Total from investment operations.................................................... .54 Less distributions to shareholders from: Net investment income................................................................. -- Net realized gains.................................................................... -- Total distributions................................................................. -- Net asset value, end of period.......................................................... $11.41 TOTAL RETURN+........................................................................... 5.0% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands)................................................ $3 RATIOS TO AVERAGE NET ASSETS: Expenses**............................................................................ 2.49%#++ Expenses, excluding indirectly paid expenses............................................................................ N/A Interest expense...................................................................... -- Net investment income................................................................. 2.55%#++ Portfolio turnover rate................................................................. 115% Average commission rate paid per share.................................................. N/A
* Commencement of class operations. ** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. Initial sales charge or contingent deferred sales charges are not reflected. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment loss to average net assets would have been the following:
SIX MONTHS ENDED JULY 12, MARCH 31, YEAR ENDED 1995* THROUGH 1997 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 1996 1995 Expenses**................................................... 3.79% 18.82% 421.54% Expenses, excluding indirectly paid expenses................. 3.77% N/A N/A Net investment loss.......................................... (.67%) (15.27%) (416.50%)
See accompanying notes to financial statements. 45 EVERGREEN U.S. REAL ESTATE EQUITY FUND CLASS Y SHARES FINANCIAL HIGHLIGHTS (photo of U.S. flag)
SIX MONTHS ENDED MARCH YEAR ENDED SEPTEMBER 30, 31, 1997+++ (UNAUDITED) 1996+++ 1995 PER SHARE DATA: Net asset value, beginning of period.................................. $12.56 $11.44 $10.07 Income from investment operations: Net investment income............................................... .11 .24 .23 Net realized and unrealized gain on investments..................... 2.27 1.29 1.46 Total from investment operations.................................. 2.38 1.53 1.69 Less distributions to shareholders from: Net investment income............................................... (.28) (.20) (.20) In excess of net investment income.................................. -- -- -- Net realized gains.................................................. (1.58) (.21) (.12) Total distributions............................................... (1.86) (.41) (.32) Net asset value, end of period........................................ $13.08 $12.56 $11.44 TOTAL RETURN+......................................................... 20.1% 13.6% 17.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands).............................. $12,533 $10,601 $9,456 RATIOS TO AVERAGE NET ASSETS: Expenses***......................................................... 1.52%#++ 1.46%# 1.50%# Expenses, excluding indirectly paid expenses.......................................................... 1.50%#++ N/A N/A Interest expense.................................................... -- .04% -- Net investment income............................................... 1.75%#++ 2.02%# 2.45%# Portfolio turnover rate............................................... 86% 169% 115% Average commission rate paid per share................................ $.0609 $.0619 N/A NINE MONTHS SEPTEMBER 1, ENDED 1993* THROUGH SEPTEMBER 30, DECEMBER 31, 1994** 1993 PER SHARE DATA: Net asset value, beginning of period.................................. $10.71 $10.00 Income from investment operations: Net investment income............................................... .11 .04 Net realized and unrealized gain on investments..................... (.75) 0.72 Total from investment operations.................................. (.64) 0.76 Less distributions to shareholders from: Net investment income............................................... -- (.04) In excess of net investment income.................................. -- (.01) Net realized gains.................................................. -- -- Total distributions............................................... -- (.05) Net asset value, end of period........................................ $10.07 $10.71 TOTAL RETURN+......................................................... (6.0%) 7.6% RATIOS & SUPPLEMENTAL DATA: Net assets, end of period (in thousands).............................. $8,630 $4,610 RATIOS TO AVERAGE NET ASSETS: Expenses***......................................................... 1.49%++# (.44%)++# Expenses, excluding indirectly paid expenses.......................................................... N/A N/A Interest expense.................................................... -- -- Net investment income............................................... 1.60%++# 1.93%++# Portfolio turnover rate............................................... 102% 17% Average commission rate paid per share................................ N/A N/A
* Commencement of class operations. ** The Fund changed its fiscal year end from December 31 to September 30. *** The ratio of total expenses to average net assets for the six months ended March 31, 1997 includes indirectly paid expenses (Note 9). + Total return is calculated on net asset value per share for the periods indicated and is not annualized. ++ Annualized. +++ Per share data is calculated based on average shares outstanding during the period. # Net of expense waivers and reimbursements. If the Fund had borne all expenses that were assumed or waived by the investment adviser, the annualized ratios of expenses and net investment income (loss) to average net assets would have been the following:
SIX MONTHS NINE MONTHS ENDED MARCH YEAR ENDED ENDED SEPTEMBER 1, 1993* 31, 1997 SEPTEMBER 30, SEPTEMBER 30, THROUGH (UNAUDITED) 1996 1995 1994** DECEMBER 31, 1993 Expenses***............................... 2.80%++ 2.25% 2.70% 2.65% 3.59% Expenses, excluding indirectly paid expenses................................ 2.78%++ N/A N/A N/A N/A Net investment income (loss).............. .47%++ 1.23% 1.25% .44% (1.21%)
See accompanying notes to financial statements. 46 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS The Evergreen Domestic Growth Funds (the "Funds") are separate series of open-end management investment companies registered under the Investment Company Act of 1940, as amended (the "Act"). The Evergreen Domestic Growth Funds consist of Evergreen Fund, Evergreen Aggressive Growth Fund ("Aggressive Growth"), Evergreen Limited Market Fund, Inc. ("Limited Market") and Evergreen U.S. Real Estate Equity Fund ("U.S. Real Estate"), known collectively as the Funds. Evergreen Fund's investment objective is to seek capital appreciation principally through investments in common stock and securities convertible into or exchangeable for common stock of companies which are little-known, relatively small or represent special situations which, in the opinion of the Fund's investment adviser, offer potential for capital appreciation. Aggressive Growth seeks to achieve long-term capital appreciation by investing primarily in common stocks of emerging growth companies and larger, more well established companies, all of which are viewed by its investment adviser as having above-average appreciation potential. Limited Market seeks to achieve capital appreciation principally through investing in the common stock of companies for which there is a relatively limited trading market; income is not a factor in the selection of portfolio securities. U.S. Real Estate's investment objective is long-term capital growth which it seeks to achieve through investment primarily in equity securities of domestic companies which are principally engaged in the real estate industry or which own significant real estate assets. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. SECURITY VALUATIONS -- Investments in securities traded on a national securities exchange or included on the NASDAQ National Market System ("NMS") are valued at the last reported sale price. Securities traded on an exchange or NMS for which there has been no sale and securities traded in the over-the-counter market are valued at the mean between the last reported bid and asked price. Securities for which market quotations are not readily available are valued at their respective fair value as determined in good faith under procedures established by the Board of Trustees/Directors. Short-term investments maturing in less than sixty days are valued at amortized cost, which approximates market value. SECURITY TRANSACTIONS -- Security transactions are accounted for on the date purchased or sold. Net realized gains or losses are determined on the identified cost basis. INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the ex-dividend date. Interest income and expenses are accrued daily. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by the Federal Reserve Bank and are designated as being held on each Fund's behalf by its custodian under a book-entry system. Each Fund monitors the adequacy of the collateral on a daily basis, and can require the seller to provide additional collateral in the event the market value of the securities pledged falls below the carrying value of the repurchase agreement, including accrued interest. Each Fund will only enter into repurchase agreements with banks and other financial institutions which are deemed by the investment adviser to be creditworthy pursuant to guidelines established by the Trustees/Directors. DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income and net realized capital gains on investments, if any, will be distributed at least annually. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from the amounts available for distribution under generally accepted accounting principles. The tax treatment of income and capital gain distributions paid during the calendar year will be reported to shareholders prior to February 1, 1998. 47 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued INCOME TAXES -- It is each Fund's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable net income and net realized capital gains to its shareholders. Accordingly, no provisions for Federal income or excise taxes are necessary. To the extent that realized capital gains can be offset by capital loss carryforwards, it is each Fund's policy not to distribute such gains. At September 30, 1996, net capital losses of $2,992,429, $516,710 and $205,513 attributable to security transactions after October 31, 1995 were incurred by Aggressive Growth, Limited Market and U.S. Real Estate, respectively. The Funds have elected to defer these losses for Federal income tax purposes, which will be treated as arising on the first business day of the Fund's current fiscal year. ALLOCATION OF INCOME AND EXPENSES -- Expenses specifically identifiable to a class of shares are charged to that class. Expenses common to a Trust as a whole are allocated to the funds in that Trust. Investment income, net of expenses (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Aggressive Growth and U.S. Real Estate incurred in connection with their organization are being deferred and amortized over a period of benefit not to exceed 60 months from the date they commenced operations. REAL ESTATE INVESTMENT TRUSTS -- U.S. Real Estate owns shares of real estate investment trusts ("REITs") which report information on the source of their distributions annually. A portion of distributions received from REITs during the year is estimated to be a return of capital and is recorded as a reduction of their cost. USE OF ESTIMATES -- The preparation of the financial statements is in accordance with generally accepted accounting principles which requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY AGREEMENTS -- First Union is entitled to an annual fee of .60 of 1% of Aggressive Growth's average daily net assets pursuant to the Fund's investment advisory agreement. Pursuant to an agreement with Evergreen Fund, Limited Market and U.S. Real Estate, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee based on each of Evergreen Fund's, Limited Market's and U.S. Real Estate's average daily net assets, in accordance with the following schedule: First $750 million 1.00% Next $250 million 0.90% Over $1 billion 0.80%
Evergreen Asset has agreed to reimburse U.S. Real Estate to the extent that the Fund's operating expenses (including the investment advisory fee and amortization of organization expenses but excluding interest, taxes, brokerage commissions, 12b-1 distribution and shareholder services fees and extraordinary expenses) exceed 1.50% of its average daily net assets until the Fund's net assets reach $15 million. For the six months ended March 31, 1997, Evergreen Asset waived all of its advisory fee and reimbursed $18,535 in expenses under this limitation. In addition, for the six months ended March 31, 1997, Evergreen Asset voluntarily reimbursed expenses amounting to $16,993 for Limited Market. Evergreen Asset can modify or terminate these voluntary waivers at any time. 48 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued Lieber & Company, an affiliate of First Union, is the investment sub-adviser to Evergreen Fund, Limited Market and U.S. Real Estate and also provides brokerage services with respect to substantially all security transactions executed on the New York or American Stock Exchanges. For transactions executed during the six months ended March 31, 1997, Evergreen Fund, Limited Market and U.S. Real Estate incurred brokerage commissions of $222,703, $27,999 and $56,333, respectively, with Lieber & Company. Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to the Funds, for its cost of providing investment advisory services. At March 31, 1997, Stephen A. Lieber, Chairman of Evergreen Asset owned, directly or beneficially, 19.7% of the outstanding shares of U.S. Real Estate. ADMINISTRATION AGREEMENT -- For the period through March 10, 1997, Evergreen Asset furnished Evergreen Fund, Limited Market and U.S. Real Estate with administrative services as part of their advisory agreements and accordingly, these Funds did not pay a separate administration fee. Effective March 11, 1997, Evergreen Keystone Investment Services (EKIS), a subsidiary of First Union, began providing administrative services to the Funds. For the period through December 31, 1996, Furman Selz LLC ("Furman Selz") was each of the Funds' sub-administrator. As sub-administrator, Furman Selz provided the officers of the Funds. Effective January 1, 1997, The BISYS Group, Inc. ("BISYS") acquired Furman Selz' mutual fund unit and accordingly, BISYS Fund Services became sub-administrator. For Evergreen Fund, Limited Market and U.S. Real Estate, Furman Selz'/BISYS fee was paid by Evergreen Asset/EKIS and is not a fund expense. Evergreen Asset/EKIS was also Aggressive Growth's administrator and Furman Selz/BISYS was sub-administrator during the six month period ended March 31, 1997. Evergreen Asset's/EKIS's and Furman Selz'/BISYS fees for Aggressive Growth are based on the average daily net assets of all the funds administered by Evergreen Asset or EKIS for which First Union or its investment advisory subsidiaries is also investment adviser. These fees were calculated at the following annual rates:
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 March 31, 1997, assets for which EKIS was the administrator and which First Union or its investment advisory subsidiaries was investment adviser totaled approximately $28.6 billion. PLANS OF DISTRIBUTION -- The Funds have adopted Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the Act for their Class A Shares, Class B Shares, and Class C Shares (see Note 4). Under the terms of the Plans, the Funds may incur distribution-related and shareholder servicing expenses which may not exceed an annual fee of .75 of 1% for Class A Shares and 1% for Class B and Class C Shares. For each of the Funds, the payments for Class A Shares were voluntarily limited to .25 of 1% of average daily net assets. 49 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES -- continued In connection with the Plans, the Funds have entered into distribution agreements with Evergreen Keystone Distributors, Inc. ("EKD") (formerly Evergreen Funds Distributor, Inc. ("EFD")), a subsidiary of BYSIS, where by the Funds will compensate EKD for its services at a rate which may not exceed an annual fee of .25 of 1% of Class A Shares' average daily net assets and an annual fee of 1% of Class B and Class C Shares' average daily net assets, respectively. A portion of the payments for Class B and C Shares, up to .25 of 1% constitutes a shareholder services fee. EKD has entered into a Shareholder Services Agreement with First Union Brokerage Services ("FUBS"), an affiliate of First Union, whereby they will compensate FUBS for certain services provided to shareholders and/or maintenance of shareholder accounts relating to each of the Fund's Class B and Class C Shares. SALES CHARGES -- EKD has advised the Funds that it has retained the following amounts from front-end sales charges resulting from sales of Class A Shares during the six months ended March 31, 1997: Aggressive Growth ($20,791), Evergreen Fund ($90,584), Limited Market ($8) and U.S. Real Estate ($706). OTHER SERVICES WITH AFFILIATES -- State Street Bank & Trust Company ("State Street") is the transfer agent, dividend disbursing agent and shareholder servicing agent for the Funds. For certain benefit plan accounts in Evergreen Fund, Aggressive Growth and Limited Market, First Union has been sub-contracted by State Street to maintain shareholder sub-account records, take fund purchase and redemption orders and answer inquiries. For each account, First Union is entitled to a monthly fee which amounted to a total of $85,206 for the Evergreen Fund and $2,766 for Aggressive Growth for the six months ended March 31, 1997. Limited Market did not incur any fees pursuant to this agreement for the six months ended March 31, 1997. NOTE 4 -- SHARES OF BENEFICIAL INTEREST Evergreen Fund, Aggressive Growth, and U.S. Real Estate have an unlimited number of shares of beneficial interest authorized. Limited Market has 25 million common shares authorized allocated equally to each of its classes of shares sold. The par value of the Fund's shares are $.001, $.001, $.10 and $.0001 for Evergreen Fund, Aggressive Growth, Limited Market and U.S. Real Estate, respectively. The shares are divided into classes which are designated Class A, Class B, Class C and Class Y shares. Class A shares are sold with a front-end sales charge of up to 4.75%. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares seven years after the date of purchase. Class C shares are sold with a contingent deferred sales charge of 1% for shares redeemed during the first year after the month of purchase. Class Y shares are sold without a sales charge and are available only to investment advisory clients of First Union and its affiliates, certain institutional investors or Class Y shareholders of record of certain other funds managed by First Union and its affiliates as of December 30, 1994. The classes have identical voting, dividend, liquidation and other rights, except that Class A, Class B and Class C shares bear distribution expenses (see Note 3) and have exclusive voting rights with respect to their distribution plans. 50 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED MARCH 31, 1997 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 1996 EVERGREEN FUND SHARES AMOUNT SHARES DOLLARS CLASS A Shares sold.............................................. 3,925,843 $ 72,511,813 6,095,487 $ 99,948,887 Shares issued on reinvestment of distributions........... 141,871 2,555,095 94,388 1,472,450 Shares redeemed.......................................... (2,918,827) (53,982,929) (3,137,366) (52,080,445) Net increase............................................. 1,148,887 21,083,979 3,052,509 49,340,892 CLASS B Shares sold.............................................. 5,073,036 92,657,473 10,528,707 171,559,260 Shares issued on reinvestment of distributions........... 359,016 6,426,556 230,476 3,588,103 Shares redeemed.......................................... (848,433) (15,480,015) (1,033,495) (16,934,353) Net increase............................................. 4,583,619 83,604,014 9,725,688 158,213,010 CLASS C Shares sold.............................................. 92,687 1,687,456 253,398 4,102,332 Shares issued on reinvestment of distributions........... 7,595 135,795 6,180 96,026 Shares redeemed.......................................... (54,101) (984,797) (43,233) (711,575) Net increase............................................. 46,181 838,454 216,345 3,486,783 CLASS Y Shares sold.............................................. 41,717,662 768,863,469 87,374,014 1,420,506,634 Shares issued in acquisition of FFB Lexicon Small Company Growth Fund.................. -- -- 1,752,546 27,158,980 Shares issued on reinvestment of distributions........... 1,085,007 19,584,379 1,402,844 21,926,423 Shares redeemed.......................................... (43,922,476) (811,129,911) (82,347,414) (1,341,450,072) Net increase (decrease).................................. (1,119,807) (22,682,063) 8,181,990 128,141,965 Total net increase resulting from Fund share transactions........................................... 4,658,880 $ 82,844,384 21,176,532 $ 339,182,650
51 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED MARCH 31, 1997 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 1996 AGGRESSIVE GROWTH SHARES AMOUNT SHARES DOLLARS CLASS A Shares sold.................................................... 1,051,624 $21,666,933 1,486,503 $ 28,206,250 Shares issued on reinvestment of distributions................. -- -- 125,571 2,164,153 Shares redeemed................................................ (1,278,980) (26,222,020) (1,100,349) (20,468,235) Net increase (decrease)........................................ (227,356) (4,555,087) 511,725 9,902,168 CLASS B Shares sold.................................................... 569,193 11,707,165 1,012,639 18,916,487 Shares issued on reinvestment of distributions................. -- -- 9,125 156,717 Shares redeemed................................................ (130,936) (2,677,031) (150,663) (2,835,175) Net increase................................................... 438,257 9,030,134 871,101 16,238,029 CLASS C Shares sold.................................................... 74,852 1,501,903 44,926 857,932 Shares issued on reinvestment of distributions................. -- -- 420 7,213 Shares redeemed................................................ (12,308) (248,392) (21,948) (396,890) Net increase................................................... 62,544 1,253,511 23,398 468,255 CLASS Y Shares sold.................................................... 1,705,952 35,516,569 1,385,748 25,808,879 Shares issued on reinvestment of distributions................. -- -- 8,611 148,623 Shares redeemed................................................ (882,799) (18,279,875) (273,910) (5,080,669) Net increase................................................... 823,153 17,236,694 1,120,449 20,876,833 Total net increase resulting from Fund share transactions................................................. 1,096,598 $22,965,252 2,526,673 $ 47,485,285
52 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED MARCH 31, 1997 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 1996 SHARES AMOUNT SHARES DOLLARS LIMITED MARKET CLASS A Shares sold...................................................... 430 $ 7,922 44,104 $ 755,204 Shares issued on reinvestment of distributions................... -- -- 1,829 31,166 Shares redeemed.................................................. (11,943) (226,123) (52,912) (905,676) Net decrease..................................................... (11,513) (218,201) (6,979) (119,306) CLASS B Shares sold...................................................... 1,653 29,715 15,418 265,257 Shares issued on reinvestment of distributions................... -- -- 3,263 55,180 Shares redeemed.................................................. (15,935) (292,054) (43,481) (724,243) Net decrease..................................................... (14,282) (262,339) (24,800) (403,806) CLASS C Shares sold...................................................... -- -- 134 2,393 Shares issued on reinvestment of distributions................... -- -- 112 1,899 Shares redeemed.................................................. (1) (20) (2,040) (33,276) Net decrease..................................................... (1) (20) (1,794) (28,984) CLASS Y Shares sold...................................................... 65,450 1,226,102 332,812 5,693,077 Shares issued on reinvestment of distributions................... -- -- 96,831 1,650,971 Shares redeemed.................................................. (405,139) (7,495,877) (1,659,712) (28,422,146) Net decrease..................................................... (339,689) (6,269,775) (1,230,069) (21,078,098) Total net decrease resulting from Fund share transactions................................................... (365,485) $(6,750,335) (1,263,642) $(21,630,194)
53 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
SIX MONTHS ENDED MARCH 31, 1997 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 1996 SHARES AMOUNT SHARES DOLLARS U.S. REAL ESTATE CLASS A Shares sold.................................................................. 43,688 $ 568,101 50,221 $ 600,589 Shares issued on reinvestment of distributions............................... 3,065 37,276 352 4,164 Shares redeemed.............................................................. (3,371) (44,515) (29,953) (356,039) Net increase................................................................. 43,382 560,862 20,620 248,714 CLASS B Shares sold.................................................................. 47,059 613,365 21,611 258,923 Shares issued on reinvestment of distributions............................... 7,088 85,699 459 5,421 Shares redeemed.............................................................. (2,044) (27,606) (1,478) (17,892) Net increase................................................................. 52,103 671,458 20,592 246,452 CLASS C Shares sold.................................................................. 31,902 406,429 11,216 136,531 Shares issued on reinvestment of distributions............................... 1,542 18,793 22 258 Shares redeemed.............................................................. (3,501) (47,435) (1,430) (17,003) Net increase................................................................. 29,943 377,787 9,808 119,786 CLASS Y Shares sold.................................................................. 67,383 885,767 79,674 958,807 Shares issued on reinvestment of distributions............................... 104,600 1,277,261 26,720 316,633 Shares redeemed.............................................................. (57,674) (756,797) (88,998) (1,052,935) Net increase................................................................. 114,309 1,406,231 17,396 222,505 Total net increase resulting from Fund share transactions............................................................... 239,737 $3,016,338 68,416 $ 837,457
54 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 -- INVESTMENT TRANSACTIONS The cost of purchases and proceeds from sales of investments, excluding short-term securities, for the six months ended March 31, 1997 were as follows:
PURCHASES SALES Evergreen Fund.......................................... $140,007,131 $54,727,044 Aggressive Growth....................................... 40,606,635 20,543,833 Limited Market.......................................... 9,625,960 16,696,720 U.S. Real Estate........................................ 12,699,885 11,537,526
On March 31, 1997, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal tax purposes was as follows:
NET APPRECIATION/ FEDERAL TAX APPRECIATION DEPRECIATION (DEPRECIATION) COST Evergreen Fund............. $488,608,902 $ 34,122,075 $ 454,486,827 $837,775,883 Aggressive Growth.......... 46,639,715 6,925,619 39,714,096 108,366,467 Limited Market............. 5,813,979 2,852,941 2,961,038 35,165,241 U.S. Real Estate........... 1,632,698 730,132 902,566 13,582,496
NOTE 6 -- FINANCING AGREEMENT A financing agreement was in place with all the Evergreen Funds and the custodian, State Street Bank and Trust Company (the "Bank"). Under the agreement, the Bank provided an unsecured line of credit facility, in the aggregate amount of $100 million ($50 million committed and $50 million uncommitted), to be accessed by the Funds for temporary or emergency purposes only and is subject to each participating Fund's borrowing restrictions. Effective October 31, 1996, a new financing agreement was put in place between all of the Evergreen Funds and State Street, Societe Generale and ABN AMRO Bank N.V. (collectively, the "Banks"). Under this agreement, the Banks provide an unsecured line of credit facility in the aggregate amount of $225 million ($112.5 million committed and $112.5 million uncommitted) allocated evenly between the Banks. Borrowings under these facilities bear interest at .75% per annum above the Federal Funds rate. A commitment fee of .10% per annum will be incurred on the unused portion of the committed facility which would be allocated to all participating funds. During the six months ended March 31, 1997, the Funds had no significant borrowings. NOTE 7 -- CONCENTRATION OF CREDIT RISK Since U.S. Real Estate invests a substantial portion of its assets in REITs, it may be more affected by economic developments in the real estate industry than would a general equity fund. NOTE 8 -- DEFERRED TRUSTEES' (DIRECTORS') FEES Each Trustee/Director (referred to as Trustees) may defer any or all of his compensation related to performance of his duties as a Trustee of the Funds. Deferred balances are allocated to a "Deferral Account", which is included in the accrued expenses for each Fund at March 31, 1997, in its Statement of Assets and Liabilities. Any gains earned or losses incurred in the Deferral Accounts are reported in each Fund's Trustees' fees and expenses on the Statement of Operations. Trustees will be paid either in one lump sum or in quarterly installments for up to ten years at his election, not earlier than either the year in which the Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of March 31, 1997, Trustees had 55 COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 8 -- DEFERRED TRUSTEES' (DIRECTORS') FEES -- continued deferred $41,682, $6,953, $7,217 and $4,312 for Evergreen Fund, Aggressive Growth, Limited Market and U.S. Real Estate, respectively. NOTE 9 -- EXPENSE OFFSET ARRANGEMENT The Funds have entered into an expense offset arrangement with their custodian. For the six months ended March 31, 1997, Aggressive Growth and U.S. Real Estate incurred total custody expenses of $44,803 and $35,323, respectively, and received credits of $11,430 and $1,835, respectively, resulting in net custody expenses of $33,373 and $33,488, respectively. The assets deposited with the custodian under this expense offset arrangement could have been invested in income producing assets. Evergreen Fund and Limited Market did not earn a significant amount of credits during the period. NOTE 10 -- SUBSEQUENT EVENTS Effective May 5, 1997, Evergreen Keystone Services Company, an affiliate of First Union, became the Funds' transfer agent, dividend disbursement agent and shareholder servicing agent. 56 TRUSTEES/DIRECTORS AND OFFICERS TRUSTEES/DIRECTORS: Laurence B. Ashkin Foster Bam James S. Howell, Chairman Robert J. Jeffries+ Gerald M. McDonnell Thomas L. McVerry William W. Pettit Russell A. Salton, III M.D. Michael S. Scofield OFFICERS: John J. Pileggi President and Treasurer Joan V. Fiore Secretary Sheryl Hirschfeld Assistant Secretary Donald E. Brostrom Assistant Treasurer Stephen W. St. Clair Assistant Treasurer + Trustee Emeritus This report was prepared primarily for the information of fund shareholders. It is authorized for distribution if preceded or accompanied by the fund's current prospectus. The prospectus contains important information about the fund, including fees and expenses. Read it carefully before you invest or send money. For a free prospectus on other Evergreen Keystone Funds, contact your financial adviser or call Evergreen Keystone. [box containing NOT FDIC INSURED & May lose value No bank guarantee] Evergreen Keystone Distributor, Inc. Evergreen Keystone(sm) is a Service Mark of Evergreen Keystone Investment Services, Inc. Copyright 1997. 49344 540979 5/97 -----END PRIVACY-ENHANCED MESSAGE-----