OMB APPROVAL |
OMB Number: 3235-0570 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08413
Evergreen Equity Trust
_____________________________________________________________
(Exact name of registrant as specified in charter)
200 Berkeley Street
Boston, Massachusetts 02116
_____________________________________________________________
(Address of principal executive offices) (Zip code)
Michael H. Koonce, Esq.
200 Berkeley Street
Boston, Massachusetts 02116
____________________________________________________________
(Name and address of agent for service)
Registrant's telephone number, including area code: (617) 210-3200
Date of fiscal year end: Registrant is making a semi-annual filing for eleven of its series, Evergreen Disciplined Value Fund, Evergreen Enhanced S&P 500 Fund, Evergreen Equity Income Fund, Evergreen Fundamental Large Cap Fund, Evergreen Fundamental Mid Cap Value Fund, Evergreen Golden Core Opportunities Fund, Evergreen Golden Large Cap Core Fund, Evergreen Golden Mid Cap Core Fund, Evergreen Intrinsic Value Fund, Evergreen Small Cap Value Fund and Evergreen Special Values Fund, for the six months ended January 31, 2009. These series have July 31 fiscal year end.
Date of reporting period: January 31, 2009
Item 1 – Reports to Stockholders.
Evergreen Disciplined Value Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
11 |
| SCHEDULE OF INVESTMENTS |
17 |
| STATEMENT OF ASSETS AND LIABILITIES |
18 |
| STATEMENT OF OPERATIONS |
19 |
| STATEMENTS OF CHANGES IN NET ASSETS |
21 |
| NOTES TO FINANCIAL STATEMENTS |
29 |
| ADDITIONAL INFORMATION |
40 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Disciplined Value Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During the period, the management teams of Evergreen’s value-oriented equity funds tended to emphasize investments in attractively priced and fundamentally sound corporations. The portfolio manager of Evergreen Disciplined Value Fund, for example, used a combination of quantitative tools and traditional fundamental analysis in reviewing opportunities. The manager of Evergreen Equity Index Fund maintained a portfolio reflecting the composition of the Standard & Poor’s 500® Index, using a proprietary process to control trading and implementation costs. Management of Evergreen Equity Income Fund emphasized companies they believe have the ability to maintain and increase their dividends to shareholders. The management of Evergreen Fundamental Large Cap Fund focused on larger corporations with stable earnings
1
LETTER TO SHAREHOLDERS continued
growth records while the management of Evergreen Fundamental Mid Cap Value Fund emphasized mid-sized companies selling at what the management believed to be reasonable valuations. The team managing Evergreen Intrinsic Value Fund sought out investments in established companies selling at stock prices below the managers’ estimate of the company’s intrinsic value. Meanwhile, the management of Evergreen Special Values Fund focused on higher-quality companies believed to have reasonable prices and strong balance sheets, and the management of Evergreen Small Cap Value Fund sought to invest in small companies of sound quality at attractive prices.
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
| • | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
| • | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Manager:
William E. Zieff
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 5/8/1992
| Class A | Class B | Class C | Class I |
Class inception date | 3/18/2005 | 3/18/2005 | 3/18/2005 | 5/8/1992 |
Nasdaq symbol | EDSAX | EDSBX | EDSCX | EDSIX |
6-month return with sales charge | -37.47% | -37.10% | -34.57% | N/A |
6-month return w/o sales charge | -33.65% | -33.90% | -33.93% | -33.60% |
Average annual return* |
|
|
|
|
1-year with sales charge | -42.43% | -42.29% | -39.96% | N/A |
1-year w/o sales charge | -38.92% | -39.37% | -39.38% | -38.80% |
5-year | -3.87% | -3.56% | -3.34% | -2.59% |
10-year | 0.04% | 0.33% | 0.31% | 0.70% |
Maximum sales charge | 5.75% | 5.00% | 1.00% | N/A |
| Front-end | CDSC | CDSC |
|
* | Adjusted for maximum applicable sales charge, unless noted. |
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C or I, please go to EvergreenInvestments.com/fundperformance. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Historical performance shown for Classes A, B and C prior to their inception is based on the performance of Class I. Historical performance for Class I prior to 3/21/2005 is based on the fund’s predecessor fund, SouthTrust Value Fund. The historical returns for Classes A, B and C have not been adjusted to reflect the effect of each class’ 12b-1 fee. These fees are 0.25% for Class A and 1.00% for Classes B and C. Class I does not, and the fund’s predecessor fund did not, pay a 12b-1 fee. If these fees had been reflected, returns for Classes A, B and C would have been lower.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
The advisor is waiving a portion of its advisory fee. Had the fee not been waived, returns would have been lower.
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Disciplined Value Fund Class A shares versus a similar investment in the Russell 1000 Value Index (Russell 1000 Value) and the Consumer Price Index (CPI).
The Russell 1000 Value is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to, retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund’s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
| Beginning |
| Ending |
|
| ||
|
| Account Value |
| Account Value |
| Expenses Paid | ||
|
| 8/1/2008 |
| 1/31/2009 |
| During Period* | ||
Actual |
|
|
|
|
|
|
|
|
Class A |
| $1,000.00 |
| $ | 663.45 |
|
| $4.57 |
Class B |
| $1,000.00 |
| $ | 661.03 |
|
| $7.70 |
Class C |
| $1,000.00 |
| $ | 660.73 |
|
| $7.70 |
Class I |
| $1,000.00 |
| $ | 664.05 |
|
| $3.48 |
Hypothetical |
|
|
|
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
|
|
|
Class A |
| $1,000.00 |
| $ | 1,019.71 |
|
| $5.55 |
Class B |
| $1,000.00 |
| $ | 1,015.93 |
|
| $9.35 |
Class C |
| $1,000.00 |
| $ | 1,015.93 |
|
| $9.35 |
Class I |
| $1,000.00 |
| $ | 1,021.02 |
|
| $4.23 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.09% for Class A, 1.84% for Class B, 1.84% for Class C and 0.83% for Class I), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| Year Ended April 30, 20052 |
| ||||||||||||
|
|
|
|
| |||||||||||||||
CLASS A |
|
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| ||||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.75 |
| $ | 18.05 |
| $ | 16.62 |
| $ | 15.82 |
| $ | 16.96 |
| $ | 17.35 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.13 |
|
| 0.27 |
|
| 0.27 |
|
| 0.22 |
|
| 0.05 |
|
| 0.01 |
|
Net realized and unrealized gains or losses on investments |
|
| (4.73 | ) |
| (2.15 | ) |
| 1.96 |
|
| 1.22 |
|
| 1.08 |
|
| (0.36 | ) |
|
|
| |||||||||||||||||
Total from investment operations |
|
| (4.60 | ) |
| (1.88 | ) |
| 2.23 |
|
| 1.44 |
|
| 1.13 |
|
| (0.35 | ) |
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.12 | ) |
| (0.27 | ) |
| (0.27 | ) |
| (0.19 | ) |
| (0.04 | ) |
| (0.04 | ) |
Net realized gains |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.35 | ) |
| (2.42 | ) |
| (0.80 | ) |
| (0.64 | ) |
| (2.27 | ) |
| (0.04 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 8.80 |
| $ | 13.75 |
| $ | 18.05 |
| $ | 16.62 |
| $ | 15.82 |
| $ | 16.96 |
|
| |||||||||||||||||||
Total return3 |
|
| (33.65 | )% |
| (11.90 | )% |
| 13.60 | % |
| 9.44 | % |
| 7.76 | % |
| (2.01 | )% |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 40,169 |
| $ | 69,864 |
| $ | 119,461 |
| $ | 13,428 |
| $ | 1,617 |
| $ | 1 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.09 | %4 |
| 1.04 | % |
| 1.04 | % |
| 1.15 | % |
| 1.26 | %4 |
| 1.11 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.22 | %4 |
| 1.11 | % |
| 1.04 | % |
| 1.17 | % |
| 1.26 | %4 |
| 1.11 | %4 |
Net investment income (loss) |
|
| 2.32 | %4 |
| 1.67 | % |
| 1.04 | % |
| 1.14 | % |
| 0.74 | %4 |
| 0.58 | %4 |
Portfolio turnover rate |
|
| 13 | % |
| 45 | % |
| 60 | % |
| 55 | % |
| 15 | % |
| 54 | % |
|
1 | For the three months ended July 31, 2005. The Fund changed its fiscal year end from April 30 to July 31, effective July 31, 2005. |
2 | For the period from March 18, 2005 (commencement of class operations), to April 30, 2005. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| Year Ended April 30, 20052 |
| ||||||||||||
|
|
|
|
| |||||||||||||||
CLASS B |
|
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| ||||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.68 |
| $ | 17.96 |
| $ | 16.55 |
| $ | 15.79 |
| $ | 16.97 |
| $ | 17.35 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.09 |
|
| 0.14 |
|
| 0.13 |
|
| 0.10 |
|
| 0.01 | 3 |
| 0 | 3 |
Net realized and unrealized gains or losses on investments |
|
| (4.72 | ) |
| (2.13 | ) |
| 1.94 |
|
| 1.22 |
|
| 1.06 |
|
| (0.34 | ) |
|
|
| |||||||||||||||||
Total from investment operations |
|
| (4.63 | ) |
| (1.99 | ) |
| 2.07 |
|
| 1.32 |
|
| 1.07 |
|
| (0.34 | ) |
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.07 | ) |
| (0.14 | ) |
| (0.13 | ) |
| (0.11 | ) |
| (0.02 | ) |
| (0.04 | ) |
Net realized gains |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.30 | ) |
| (2.29 | ) |
| (0.66 | ) |
| (0.56 | ) |
| (2.25 | ) |
| (0.04 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 8.75 |
| $ | 13.68 |
| $ | 17.96 |
| $ | 16.55 |
| $ | 15.79 |
| $ | 16.97 |
|
| |||||||||||||||||||
Total return4 |
|
| (33.90 | )% |
| (12.61 | )% |
| 12.70 | % |
| 8.64 | % |
| 7.35 | % |
| (1.97 | )% |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 2,324 |
| $ | 4,261 |
| $ | 7,329 |
| $ | 5,070 |
| $ | 121 |
| $ | 5 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.84 | %5 |
| 1.79 | % |
| 1.79 | % |
| 1.89 | % |
| 2.00 | %5 |
| 1.82 | %5 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.97 | %5 |
| 1.86 | % |
| 1.79 | % |
| 1.91 | % |
| 2.00 | %5 |
| 1.82 | %5 |
Net investment income (loss) |
|
| 1.57 | %5 |
| 0.91 | % |
| 0.71 | % |
| 0.47 | % |
| 0.16 | %5 |
| 0.10 | %5 |
Portfolio turnover rate |
|
| 13 | % |
| 45 | % |
| 60 | % |
| 55 | % |
| 15 | % |
| 54 | % |
|
1 | For the three months ended July 31, 2005. The Fund changed its fiscal year end from April 30 to July 31, effective July 31, 2005. |
2 | For the period from March 18, 2005 (commencement of class operations), to April 30, 2005. |
3 | Net investment income (loss) per share is based on average shares outstanding during the period. |
4 | Excluding applicable sales charges |
5 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| Year Ended April 30, 20052 |
| ||||||||||||
|
|
|
|
| |||||||||||||||
CLASS C |
|
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| ||||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.65 |
| $ | 17.93 |
| $ | 16.53 |
| $ | 15.79 |
| $ | 16.97 |
| $ | 17.35 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.09 |
|
| 0.14 |
|
| 0.13 |
|
| 0.12 |
|
| 0 | 3 |
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| (4.70 | ) |
| (2.13 | ) |
| 1.93 |
|
| 1.18 |
|
| 1.08 |
|
| (0.34 | ) |
|
|
| |||||||||||||||||
Total from investment operations |
|
| (4.61 | ) |
| (1.99 | ) |
| 2.06 |
|
| 1.30 |
|
| 1.08 |
|
| (0.34 | ) |
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.08 | ) |
| (0.14 | ) |
| (0.13 | ) |
| (0.11 | ) |
| (0.03 | ) |
| (0.04 | ) |
Net realized gains |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.31 | ) |
| (2.29 | ) |
| (0.66 | ) |
| (0.56 | ) |
| (2.26 | ) |
| (0.04 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 8.73 |
| $ | 13.65 |
| $ | 17.93 |
| $ | 16.53 |
| $ | 15.79 |
| $ | 16.97 |
|
| |||||||||||||||||||
Total return4 |
|
| (33.93 | )% |
| (12.58 | )% |
| 12.65 | % |
| 8.54 | % |
| 7.37 | % |
| (1.97 | )% |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 1,529 |
| $ | 1,890 |
| $ | 3,009 |
| $ | 1,617 |
| $ | 144 |
| $ | 1 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.84 | %5 |
| 1.79 | % |
| 1.79 | % |
| 1.88 | % |
| 2.16 | %5 |
| 1.85 | %5 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.97 | %5 |
| 1.86 | % |
| 1.79 | % |
| 1.90 | % |
| 2.16 | %5 |
| 1.85 | %5 |
Net investment income (loss) |
|
| 1.56 | %5 |
| 0.91 | % |
| 0.70 | % |
| 0.53 | % |
| (0.09 | )%5 |
| (0.16 | )%5 |
Portfolio turnover rate |
|
| 13 | % |
| 45 | % |
| 60 | % |
| 55 | % |
| 15 | % |
| 54 | % |
|
1 | For the three months ended July 31, 2005. The Fund changed its fiscal year end from April 30 to July 31, effective July 31, 2005. |
2 | For the period from March 18, 2005 (commencement of class operations), to April 30, 2005. |
3 | Net investment income (loss) per share is based on average shares outstanding during the period. |
4 | Excluding applicable sales charges |
5 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| Year Ended April 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS I |
|
| 2008 |
| 2007 |
| 2006 |
| 20051 |
| 20052 |
| 20042 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.71 |
| $ | 18.01 |
| $ | 16.59 |
| $ | 15.81 |
| $ | 16.97 |
| $ | 16.14 |
| $ | 12.30 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.15 |
|
| 0.31 |
|
| 0.32 |
|
| 0.24 |
|
| 0.05 |
|
| 0.12 |
|
| 0.08 |
|
Net realized and unrealized gains or losses on investments |
|
| (4.73 | ) |
| (2.15 | ) |
| 1.94 |
|
| 1.23 |
|
| 1.07 |
|
| 1.84 | 3 |
| 3.83 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.58 | ) |
| (1.84 | ) |
| 2.26 |
|
| 1.47 |
|
| 1.12 |
|
| 1.96 |
|
| 3.91 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.13 | ) |
| (0.31 | ) |
| (0.31 | ) |
| (0.24 | ) |
| (0.05 | ) |
| (0.12 | ) |
| (0.07 | ) |
Net realized gains |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| (1.01 | ) |
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.36 | ) |
| (2.46 | ) |
| (0.84 | ) |
| (0.69 | ) |
| (2.28 | ) |
| (1.13 | ) |
| (0.07 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 8.77 |
| $ | 13.71 |
| $ | 18.01 |
| $ | 16.59 |
| $ | 15.81 |
| $ | 16.97 |
| $ | 16.14 |
|
| ||||||||||||||||||||||
Total return |
|
| (33.60 | )% |
| (11.71 | )% |
| 13.85 | % |
| 9.66 | % |
| 7.65 | % |
| 12.10 | % |
| 31.87 | %4 |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 97,904 |
| $ | 235,108 |
| $ | 559,719 |
| $ | 673,865 |
| $ | 157,238 |
| $ | 157,107 |
| $ | 313,929 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.83 | %5 |
| 0.79 | % |
| 0.79 | % |
| 0.88 | % |
| 0.91 | %5 |
| 0.99 | % |
| 0.99 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.96 | %5 |
| 0.86 | % |
| 0.79 | % |
| 0.90 | % |
| 0.91 | %5 |
| 1.20 | % |
| 1.19 | % |
Net investment income (loss) |
|
| 2.57 | %5 |
| 1.93 | % |
| 1.78 | % |
| 1.45 | % |
| 1.34 | %5 |
| 0.64 | % |
| 0.54 | % |
Portfolio turnover rate |
|
| 13 | % |
| 45 | % |
| 60 | % |
| 55 | % |
| 15 | % |
| 54 | % |
| 33 | % |
|
1 | For the three months ended July 31, 2005. The Fund changed its fiscal year end from April 30 to July 31, effective July 31, 2005. |
2 | Effective at the close of business March 18, 2005, the Fund acquired the net assets of SouthTrust Value Fund (“SouthTrust Fund”). SouthTrust Fund was the accounting and performance survivor in this transaction. The financial highlights for the periods prior to March 21, 2005 are those of SouthTrust Fund. |
3 | The per share net realized and unrealized gains or losses is not in accord with the net realized and unrealized gains or losses for the period due to the timing of sales and redemptions of fund shares in relation to fluctuating market values of the portfolio. |
4 | Excluding applicable sales charges applicable to SouthTrust Fund |
5 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS 97.5% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 6.7% |
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 1.7% |
|
|
|
|
|
|
|
Darden Restaurants, Inc. |
|
| 24,538 |
| $ | 643,386 |
|
McDonald’s Corp. |
|
| 29,000 |
|
| 1,682,580 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,325,966 |
|
|
|
|
|
|
| ||
Leisure Equipment & Products 0.6% |
|
|
|
|
|
|
|
Hasbro, Inc. |
|
| 35,165 |
|
| 848,532 |
|
|
|
|
|
|
| ||
Media 2.7% |
|
|
|
|
|
|
|
DISH Network Corp., Class A * |
|
| 37,556 |
|
| 482,219 |
|
Gannett Co., Inc. |
|
| 41,056 |
|
| 236,893 |
|
Time Warner, Inc. |
|
| 203,935 |
|
| 1,902,714 |
|
Viacom, Inc., Class B * |
|
| 22,263 |
|
| 328,379 |
|
Walt Disney Co. |
|
| 44,149 |
|
| 913,001 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,863,206 |
|
|
|
|
|
|
| ||
Specialty Retail 1.1% |
|
|
|
|
|
|
|
Home Depot, Inc. |
|
| 23,339 |
|
| 502,489 |
|
Sherwin-Williams Co. |
|
| 7,947 |
|
| 379,469 |
|
TJX Cos. |
|
| 32,534 |
|
| 631,810 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,513,768 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 0.6% |
|
|
|
|
|
|
|
Nike, Inc., Class B |
|
| 19,958 |
|
| 903,100 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 10.3% |
|
|
|
|
|
|
|
Beverages 2.4% |
|
|
|
|
|
|
|
Coca-Cola Co. |
|
| 17,849 |
|
| 762,509 |
|
Coca-Cola Enterprises, Inc. |
|
| 74,802 |
|
| 840,027 |
|
Molson Coors Brewing Co., Class B |
|
| 24,696 |
|
| 994,508 |
|
Pepsi Bottling Group, Inc. |
|
| 44,905 |
|
| 866,217 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,463,261 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 2.6% |
|
|
|
|
|
|
|
CVS Caremark Corp. |
|
| 19,650 |
|
| 528,192 |
|
Kroger Co. |
|
| 21,978 |
|
| 494,505 |
|
Safeway, Inc. |
|
| 47,958 |
|
| 1,027,740 |
|
Wal-Mart Stores, Inc. |
|
| 34,818 |
|
| 1,640,624 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,691,061 |
|
|
|
|
|
|
| ||
Food Products 1.3% |
|
|
|
|
|
|
|
Archer Daniels Midland Co. |
|
| 41,480 |
|
| 1,135,722 |
|
Bunge, Ltd. |
|
| 16,925 |
|
| 726,760 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,862,482 |
|
|
|
|
|
|
| ||
Household Products 2.9% |
|
|
|
|
|
|
|
Procter & Gamble Co. |
|
| 74,665 |
|
| 4,069,242 |
|
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
CONSUMER STAPLES continued |
|
|
|
|
|
|
|
Tobacco 1.1% |
|
|
|
|
|
|
|
Altria Group, Inc. |
|
| 61,799 |
| $ | 1,022,156 |
|
Philip Morris International, Inc. |
|
| 14,249 |
|
| 529,350 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,551,506 |
|
|
|
|
|
|
| ||
ENERGY 18.0% |
|
|
|
|
|
|
|
Energy Equipment & Services 0.5% |
|
|
|
|
|
|
|
Noble Corp. |
|
| 28,107 |
|
| 763,105 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 17.5% |
|
|
|
|
|
|
|
Apache Corp. |
|
| 20,408 |
|
| 1,530,600 |
|
Chevron Corp. |
|
| 82,302 |
|
| 5,803,937 |
|
ConocoPhillips |
|
| 72,513 |
|
| 3,446,543 |
|
Exxon Mobil Corp. |
|
| 147,923 |
|
| 11,313,151 |
|
Marathon Oil Corp. |
|
| 20,704 |
|
| 563,770 |
|
Noble Energy, Inc. |
|
| 10,359 |
|
| 506,866 |
|
Valero Energy Corp. |
|
| 67,042 |
|
| 1,617,053 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 24,781,920 |
|
|
|
|
|
|
| ||
FINANCIALS 18.4% |
|
|
|
|
|
|
|
Capital Markets 2.8% |
|
|
|
|
|
|
|
Ameriprise Financial, Inc. |
|
| 18,206 |
|
| 366,851 |
|
Bank of New York Mellon Corp. |
|
| 34,034 |
|
| 876,035 |
|
BlackRock, Inc. |
|
| 2,417 |
|
| 262,970 |
|
Goldman Sachs Group, Inc. |
|
| 11,931 |
|
| 963,190 |
|
Morgan Stanley |
|
| 34,667 |
|
| 701,313 |
|
State Street Corp. |
|
| 22,712 |
|
| 528,508 |
|
TD Ameritrade Holding Corp. * |
|
| 27,172 |
|
| 305,413 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,004,280 |
|
|
|
|
|
|
| ||
Commercial Banks 4.3% |
|
|
|
|
|
|
|
Bank of Hawaii Corp. |
|
| 12,536 |
|
| 449,666 |
|
BB&T Corp. |
|
| 33,314 |
|
| 659,284 |
|
Comerica, Inc. |
|
| 19,035 |
|
| 317,123 |
|
Huntington Bancshares, Inc. |
|
| 44,964 |
|
| 129,496 |
|
PNC Financial Services Group, Inc. |
|
| 18,711 |
|
| 608,482 |
|
U.S. Bancorp |
|
| 53,963 |
|
| 800,811 |
|
Wells Fargo & Co. ° |
|
| 168,543 |
|
| 3,185,463 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,150,325 |
|
|
|
|
|
|
| ||
Consumer Finance 0.3% |
|
|
|
|
|
|
|
American Express Co. |
|
| 20,020 |
|
| 334,935 |
|
|
|
|
|
|
| ||
Diversified Financial Services 3.7% |
|
|
|
|
|
|
|
Bank of America Corp. |
|
| 176,063 |
|
| 1,158,494 |
|
Citigroup, Inc. |
|
| 159,165 |
|
| 565,036 |
|
JPMorgan Chase & Co. |
|
| 135,949 |
|
| 3,468,059 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,191,589 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Insurance 5.8% |
|
|
|
|
|
|
|
ACE, Ltd. |
|
| 29,410 |
| $ | 1,284,041 |
|
Allstate Corp. |
|
| 34,886 |
|
| 755,980 |
|
Arch Capital Group, Ltd. * |
|
| 8,860 |
|
| 532,929 |
|
Chubb Corp. |
|
| 38,810 |
|
| 1,652,530 |
|
Hartford Financial Services Group, Inc. |
|
| 25,008 |
|
| 329,105 |
|
PartnerRe, Ltd. |
|
| 13,157 |
|
| 862,178 |
|
Reinsurance Group of America, Inc. |
|
| 19,773 |
|
| 704,512 |
|
Travelers Companies, Inc. |
|
| 54,475 |
|
| 2,104,914 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 8,226,189 |
|
|
|
|
|
|
| ||
Real Estate Investment Trusts (REITs) 1.3% |
|
|
|
|
|
|
|
Hospitality Properties Trust |
|
| 46,298 |
|
| 621,319 |
|
Host Hotels & Resorts, Inc. |
|
| 72,116 |
|
| 387,984 |
|
HRPT Properties Trust |
|
| 145,138 |
|
| 461,539 |
|
Simon Property Group, Inc. |
|
| 9,585 |
|
| 411,963 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,882,805 |
|
|
|
|
|
|
| ||
Thrifts & Mortgage Finance 0.2% |
|
|
|
|
|
|
|
Hudson City Bancorp, Inc. |
|
| 25,088 |
|
| 291,021 |
|
|
|
|
|
|
| ||
HEALTH CARE 14.4% |
|
|
|
|
|
|
|
Biotechnology 0.9% |
|
|
|
|
|
|
|
Amgen, Inc. * |
|
| 24,209 |
|
| 1,327,864 |
|
|
|
|
|
|
| ||
Health Care Equipment & Supplies 0.7% |
|
|
|
|
|
|
|
Baxter International, Inc. |
|
| 15,630 |
|
| 916,699 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 2.1% |
|
|
|
|
|
|
|
CIGNA Corp. |
|
| 26,960 |
|
| 468,026 |
|
McKesson Corp. |
|
| 21,866 |
|
| 966,477 |
|
UnitedHealth Group, Inc. |
|
| 20,500 |
|
| 580,765 |
|
WellPoint, Inc. * |
|
| 24,463 |
|
| 1,013,991 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,029,259 |
|
|
|
|
|
|
| ||
Life Sciences Tools & Services 0.9% |
|
|
|
|
|
|
|
Life Technologies Corp. * |
|
| 21,838 |
|
| 555,995 |
|
Thermo Fisher Scientific, Inc. * |
|
| 21,589 |
|
| 775,693 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,331,688 |
|
|
|
|
|
|
| ||
Pharmaceuticals 9.8% |
|
|
|
|
|
|
|
Eli Lilly & Co. |
|
| 43,432 |
|
| 1,599,166 |
|
Johnson & Johnson |
|
| 82,180 |
|
| 4,740,964 |
|
Merck & Co., Inc. |
|
| 86,335 |
|
| 2,464,865 |
|
Pfizer, Inc. |
|
| 306,559 |
|
| 4,469,630 |
|
Wyeth |
|
| 13,479 |
|
| 579,193 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,853,818 |
|
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INDUSTRIALS 8.6% |
|
|
|
|
|
|
|
Aerospace & Defense 3.4% |
|
|
|
|
|
|
|
Boeing Co. |
|
| 10,113 |
| $ | 427,881 |
|
General Dynamics Corp. |
|
| 28,250 |
|
| 1,602,623 |
|
L-3 Communications Holdings, Inc. |
|
| 17,362 |
|
| 1,371,945 |
|
Northrop Grumman Corp. |
|
| 30,407 |
|
| 1,463,185 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,865,634 |
|
|
|
|
|
|
| ||
Commercial Services & Supplies 0.2% |
|
|
|
|
|
|
|
R.R. Donnelley & Sons Co. |
|
| 30,881 |
|
| 301,399 |
|
|
|
|
|
|
| ||
Industrial Conglomerates 2.3% |
|
|
|
|
|
|
|
General Electric Co. |
|
| 224,470 |
|
| 2,722,821 |
|
Tyco International, Ltd. |
|
| 22,341 |
|
| 469,608 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,192,429 |
|
|
|
|
|
|
| ||
Machinery 1.3% |
|
|
|
|
|
|
|
AGCO Corp. |
|
| 15,801 |
|
| 336,246 |
|
Cummins, Inc. |
|
| 19,998 |
|
| 479,552 |
|
Parker Hannifin Corp. |
|
| 12,187 |
|
| 465,665 |
|
Timken Co. |
|
| 39,625 |
|
| 590,016 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,871,479 |
|
|
|
|
|
|
| ||
Professional Services 0.4% |
|
|
|
|
|
|
|
Manpower, Inc. |
|
| 16,424 |
|
| 467,427 |
|
|
|
|
|
|
| ||
Road & Rail 1.0% |
|
|
|
|
|
|
|
Norfolk Southern Corp. |
|
| 24,411 |
|
| 936,406 |
|
Ryder System, Inc. |
|
| 15,011 |
|
| 507,071 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,443,477 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 4.3% |
|
|
|
|
|
|
|
Computers & Peripherals 1.7% |
|
|
|
|
|
|
|
Hewlett-Packard Co. |
|
| 22,254 |
|
| 773,327 |
|
International Business Machines Corp. |
|
| 11,162 |
|
| 1,022,997 |
|
Lexmark International, Inc., Class A * |
|
| 18,265 |
|
| 432,515 |
|
Seagate Technology, Inc. |
|
| 28,684 |
|
| 108,712 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,337,551 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 0.1% |
|
|
|
|
|
|
|
Jabil Circuit, Inc. |
|
| 32,752 |
|
| 190,616 |
|
|
|
|
|
|
| ||
IT Services 1.0% |
|
|
|
|
|
|
|
Accenture, Ltd., Class A |
|
| 17,920 |
|
| 565,555 |
|
Computer Sciences Corp. * |
|
| 23,989 |
|
| 883,755 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,449,310 |
|
|
|
|
|
|
| ||
Office Electronics 0.3% |
|
|
|
|
|
|
|
Xerox Corp. |
|
| 64,648 |
|
| 429,263 |
|
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
Semiconductors & Semiconductor Equipment 0.5% |
|
|
|
|
|
|
|
Intel Corp. |
|
| 29,684 |
| $ | 382,924 |
|
National Semiconductor Corp. |
|
| 25,480 |
|
| 258,367 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 641,291 |
|
|
|
|
|
|
| ||
Software 0.7% |
|
|
|
|
|
|
|
Microsoft Corp. |
|
| 19,975 |
|
| 341,573 |
|
Symantec Corp. * |
|
| 44,607 |
|
| 683,825 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,025,398 |
|
|
|
|
|
|
| ||
MATERIALS 2.3% |
|
|
|
|
|
|
|
Chemicals 1.7% |
|
|
|
|
|
|
|
Celanese Corp., Ser. A |
|
| 31,540 |
|
| 335,901 |
|
E.I. DuPont de Nemours & Co. |
|
| 27,119 |
|
| 622,652 |
|
Eastman Chemical Co. |
|
| 22,130 |
|
| 574,274 |
|
Lubrizol Corp. |
|
| 24,626 |
|
| 840,239 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,373,066 |
|
|
|
|
|
|
| ||
Metals & Mining 0.6% |
|
|
|
|
|
|
|
Freeport-McMoRan Copper & Gold, Inc. |
|
| 12,646 |
|
| 317,921 |
|
Reliance Steel & Aluminum Co. |
|
| 11,309 |
|
| 250,268 |
|
United States Steel Corp. |
|
| 11,669 |
|
| 350,420 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 918,609 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 6.8% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 6.6% |
|
|
|
|
|
|
|
AT&T, Inc. |
|
| 222,391 |
|
| 5,475,266 |
|
Embarq Corp. |
|
| 17,427 |
|
| 622,493 |
|
Verizon Communications, Inc. |
|
| 108,878 |
|
| 3,252,186 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 9,349,945 |
|
|
|
|
|
|
| ||
Wireless Telecommunication Services 0.2% |
|
|
|
|
|
|
|
Sprint Nextel Corp. |
|
| 104,883 |
|
| 254,865 |
|
|
|
|
|
|
| ||
UTILITIES 7.7% |
|
|
|
|
|
|
|
Electric Utilities 3.1% |
|
|
|
|
|
|
|
American Electric Power Co., Inc. |
|
| 26,683 |
|
| 836,512 |
|
Duke Energy Corp. |
|
| 43,495 |
|
| 658,949 |
|
Edison International |
|
| 32,995 |
|
| 1,074,647 |
|
Entergy Corp. |
|
| 11,915 |
|
| 909,830 |
|
Pepco Holdings, Inc. |
|
| 52,074 |
|
| 927,438 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,407,376 |
|
|
|
|
|
|
| ||
Gas Utilities 0.6% |
|
|
|
|
|
|
|
ONEOK, Inc. |
|
| 29,004 |
|
| 847,497 |
|
|
|
|
|
|
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
UTILITIES continued |
|
|
|
|
|
|
|
Multi-Utilities 4.0% |
|
|
|
|
|
|
|
CenterPoint Energy, Inc. |
|
| 87,862 |
| $ | 1,175,593 |
|
CMS Energy Corp. |
|
| 94,335 |
|
| 1,108,436 |
|
DTE Energy Co. |
|
| 21,706 |
|
| 748,857 |
|
NiSource, Inc. |
|
| 72,317 |
|
| 700,029 |
|
OGE Energy Corp. |
|
| 41,070 |
|
| 1,013,608 |
|
Public Service Enterprise Group, Inc. |
|
| 16,418 |
|
| 518,316 |
|
Xcel Energy, Inc. |
|
| 26,182 |
|
| 483,320 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,748,159 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $195,589,308) |
|
|
|
|
| 138,292,412 |
|
|
|
|
|
|
|
|
| Principal |
| Value |
| ||
| |||||||
SHORT-TERM INVESTMENTS 0.6% |
|
|
|
|
|
|
|
U.S. TREASURY OBLIGATION 0.4% |
|
|
|
|
|
|
|
U.S. Treasury Bill, 0.13%, 06/18/2009 ß ƒ |
| $ | 600,000 |
|
| 599,417 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
| Shares |
| Value |
| ||
| |||||||
MUTUAL FUND SHARES 0.2% |
|
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I, 0.84% q ø |
|
| 301,989 |
|
| 301,989 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $901,694) |
|
|
|
|
| 901,406 |
|
|
|
|
|
|
| ||
Total Investments (cost $196,491,002) 98.1% |
|
|
|
|
| 139,193,818 |
|
Other Assets and Liabilities 1.9% |
|
|
|
|
| 2,732,480 |
|
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 141,926,298 |
|
|
|
|
|
|
|
* | Non-income producing security |
° | Investment in non-controlled affiliate. At January 31, 2009, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $5,901,276 and earned $66,711 of income for the period from October 3, 2008 to January 31, 2009 which is included in income from affiliates. |
ß | Rate shown represents the yield to maturity at date of purchase. |
ƒ | All or a portion of this security was pledged to cover initial margin requirements for open futures contracts. |
q | Rate shown is the 7-day annualized yield at period end. |
ø | Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Financials |
| 18.9 | % |
Energy |
| 18.5 | % |
Health Care |
| 14.8 | % |
Consumer Staples |
| 10.6 | % |
Industrials |
| 8.8 | % |
Utilities |
| 7.9 | % |
Telecommunication Services |
| 6.9 | % |
Consumer Discretionary |
| 6.8 | % |
Information Technology |
| 4.4 | % |
Materials |
| 2.4 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
16
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $190,287,737) |
| $ | 135,706,366 |
|
Investments in affiliated issuers, at value (cost $6,203,265) |
|
| 3,487,452 |
|
| ||||
Total investments |
|
| 139,193,818 |
|
Receivable for securities sold |
|
| 2,555,078 |
|
Receivable for Fund shares sold |
|
| 135,546 |
|
Dividends receivable |
|
| 408,913 |
|
Prepaid expenses and other assets |
|
| 30,395 |
|
| ||||
Total assets |
|
| 142,323,750 |
|
| ||||
Liabilities |
|
|
|
|
Payable for Fund shares redeemed |
|
| 259,310 |
|
Payable for daily variation margin on open futures contracts |
|
| 80,864 |
|
Advisory fee payable |
|
| 4,931 |
|
Distribution Plan expenses payable |
|
| 1,176 |
|
Due to other related parties |
|
| 1,545 |
|
Trustees’ fees and expenses payable |
|
| 19,576 |
|
Printing and postage expenses payable |
|
| 20,216 |
|
Accrued expenses and other liabilities |
|
| 9,834 |
|
| ||||
Total liabilities |
|
| 397,452 |
|
| ||||
Net assets |
| $ | 141,926,298 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 227,000,443 |
|
Undistributed net investment income |
|
| 312,386 |
|
Accumulated net realized losses on investments |
|
| (28,057,259 | ) |
Net unrealized losses on investments |
|
| (57,329,272 | ) |
| ||||
Total net assets |
| $ | 141,926,298 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 40,169,132 |
|
Class B |
|
| 2,324,040 |
|
Class C |
|
| 1,528,903 |
|
Class I |
|
| 97,904,223 |
|
| ||||
Total net assets |
| $ | 141,926,298 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 4,566,228 |
|
Class B |
|
| 265,603 |
|
Class C |
|
| 175,107 |
|
Class I |
|
| 11,158,796 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 8.80 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 9.34 |
|
Class B |
| $ | 8.75 |
|
Class C |
| $ | 8.73 |
|
Class I |
| $ | 8.77 |
|
|
See Notes to Financial Statements
17
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
|
Dividends (net of foreign withholding taxes of $650) |
| $ | 3,584,657 |
|
Income from affiliates |
|
| 98,674 |
|
Interest |
|
| 1,571 |
|
| ||||
Total investment income |
|
| 3,684,902 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 671,221 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 67,420 |
|
Class B |
|
| 16,067 |
|
Class C |
|
| 8,103 |
|
Administrative services fee |
|
| 108,262 |
|
Transfer agent fees |
|
| 162,101 |
|
Trustees’ fees and expenses |
|
| 2,102 |
|
Printing and postage expenses |
|
| 19,683 |
|
Custodian and accounting fees |
|
| 28,774 |
|
Registration and filing fees |
|
| 28,536 |
|
Professional fees |
|
| 18,848 |
|
Interest expense |
|
| 796 |
|
Other |
|
| 4,841 |
|
| ||||
Total expenses |
|
| 1,136,754 |
|
Less: Expense reductions |
|
| (423 | ) |
Fee waivers |
|
| (139,828 | ) |
| ||||
Net expenses |
|
| 996,503 |
|
| ||||
Net investment income |
|
| 2,688,399 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| (24,096,663 | ) |
Affiliated issuers |
|
| (238,472 | ) |
Futures contracts |
|
| (2,702,961 | ) |
| ||||
Net realized losses on investments |
|
| (27,038,096 | ) |
Net change in unrealized gains or losses on investments |
|
| (62,770,691 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
| (89,808,787 | ) |
| ||||
Net decrease in net assets resulting from operations |
| $ | (87,120,388 | ) |
|
See Notes to Financial Statements
18
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended | Year Ended | ||||||||||||
|
| (unaudited) |
| July 31, 2008 |
| ||||||||
| |||||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
| $ | 2,688,399 |
|
|
|
| $ | 9,315,836 |
|
Net realized gains or losses on investments |
|
|
|
|
| (27,038,096 | ) |
|
|
|
| 13,880,561 |
|
Net change in unrealized gains or losses on investments |
|
|
|
|
| (62,770,691 | ) |
|
|
|
| (77,629,812 | ) |
| |||||||||||||
Net decrease in net assets resulting from operations |
|
|
|
|
| (87,120,388 | ) |
|
|
|
| (54,433,415 | ) |
| |||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| (570,134 | ) |
|
|
|
| (1,548,355 | ) |
Class B |
|
|
|
|
| (20,516 | ) |
|
|
|
| (52,915 | ) |
Class C |
|
|
|
|
| (10,912 | ) |
|
|
|
| (21,690 | ) |
Class I |
|
|
|
|
| (1,861,105 | ) |
|
|
|
| (7,843,115 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| (1,083,278 | ) |
|
|
|
| (12,226,944 | ) |
Class B |
|
|
|
|
| (63,147 | ) |
|
|
|
| (826,017 | ) |
Class C |
|
|
|
|
| (32,180 | ) |
|
|
|
| (336,376 | ) |
Class I |
|
|
|
|
| (3,041,967 | ) |
|
|
|
| (57,464,687 | ) |
| |||||||||||||
Total distributions to shareholders |
|
|
|
|
| (6,683,239 | ) |
|
|
|
| (80,320,099 | ) |
| |||||||||||||
|
|
| Shares |
|
|
|
|
| Shares |
|
|
|
|
| |||||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 222,541 |
|
| 2,280,938 |
|
| 461,548 |
|
| 7,165,283 |
|
Class B |
|
| 39,390 |
|
| 412,578 |
|
| 41,416 |
|
| 655,946 |
|
Class C |
|
| 73,066 |
|
| 710,370 |
|
| 25,766 |
|
| 384,364 |
|
Class I |
|
| 1,008,320 |
|
| 9,957,459 |
|
| 3,051,843 |
|
| 47,693,159 |
|
| |||||||||||||
|
|
|
|
|
| 13,361,345 |
|
|
|
|
| 55,898,752 |
|
| |||||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 162,058 |
|
| 1,575,217 |
|
| 847,532 |
|
| 13,310,442 |
|
Class B |
|
| 8,023 |
|
| 75,860 |
|
| 48,272 |
|
| 753,503 |
|
Class C |
|
| 3,601 |
|
| 33,896 |
|
| 17,281 |
|
| 269,244 |
|
Class I |
|
| 173,186 |
|
| 1,686,703 |
|
| 2,058,467 |
|
| 32,299,829 |
|
| |||||||||||||
|
|
|
|
|
| 3,371,676 |
|
|
|
|
| 46,633,018 |
|
| |||||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 20,351 |
|
| 209,358 |
|
| 25,477 |
|
| 394,236 |
|
Class B |
|
| (20,459 | ) |
| (209,358 | ) |
| (25,615 | ) |
| (394,236 | ) |
| |||||||||||||
|
|
|
|
|
| 0 |
|
|
|
|
| 0 |
|
| |||||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| (920,355 | ) |
| (10,067,376 | ) |
| (2,871,834 | ) |
| (46,374,577 | ) |
Class B |
|
| (72,922 | ) |
| (784,712 | ) |
| (160,552 | ) |
| (2,468,652 | ) |
Class C |
|
| (39,990 | ) |
| (416,877 | ) |
| (72,445 | ) |
| (1,111,591 | ) |
Class I |
|
| (7,166,821 | ) |
| (80,857,210 | ) |
| (19,041,647 | ) |
| (296,219,010 | ) |
| |||||||||||||
|
|
|
|
|
| (92,126,175 | ) |
|
|
|
| (346,173,830 | ) |
| |||||||||||||
Net decrease in net assets resulting from capital share transactions |
|
|
|
|
| (75,393,154 | ) |
|
|
|
| (243,642,060 | ) |
| |||||||||||||
Total decrease in net assets |
|
|
|
|
| (169,196,781 | ) |
|
|
|
| (378,395,574 | ) |
See Notes to Financial Statements
19
STATEMENTS OF CHANGES IN NET ASSETS continued
Six Months Ended | Year Ended | ||||||||||||
|
| (unaudited) |
| July 31, 2008 |
| ||||||||
| |||||||||||||
Net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| $ | 311,123,079 |
|
|
|
| $ | 689,518,653 |
|
| |||||||||||||
End of period |
|
|
|
| $ | 141,926,298 |
|
|
|
| $ | 311,123,079 |
|
| |||||||||||||
Undistributed net investment income |
|
|
|
| $ | 312,386 |
|
|
|
| $ | 86,654 |
|
|
See Notes to Financial Statements
20
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Disciplined Value Fund (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C and Class I shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I shares are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Foreign securities traded on an established exchange are valued at the last sales price on the exchange where the security is primarily traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Foreign securities may be valued at fair value according to procedures approved by the Board of Trustees if the closing price is not reflective of current market values due to trading or events occurring in the foreign markets between the close of the established exchange and the valuation time of the Fund. In addition, substantial changes in values in the U.S. markets subsequent to the close of a foreign market may also affect the values of securities traded in the foreign market. The value of foreign securities may be adjusted if such movements in the U.S. market exceed a specified threshold.
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as similar security prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers which use prices provided by market makers or
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Repurchase agreements
Securities pledged as collateral for repurchase agreements are held by the custodian bank or in a segregated account in the Fund’s name until the agreements mature. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the Fund and the counterparty. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. However, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. The Fund will enter into repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. In certain instances, the Fund’s securities lending agent may provide collateral in the form of repurchase agreements.
c. Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments.
d. Futures contracts
In order to gain exposure to, or protect against changes in, security values, the Fund may buy and sell futures contracts. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts.
e. Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
f. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date. Foreign income and capital gains realized on some securities may be subject to foreign taxes, which are accrued as applicable.
g. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
h. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
i. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
annual fee starting at 0.62% and declining to 0.45% as average daily net assets increase. For the six months ended January 31, 2009, the advisory fee was equivalent to an annual rate of 0.62% of the Fund’s average daily net assets.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC with the same terms and conditions as the existing agreement which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC voluntarily waived its advisory fee in the amount of $139,828.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliates on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.15% of the Fund’s average daily net assets.
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Wachovia Bank NA, a subsidiary of Wells Fargo and an affiliate of EIMC, through its securities lending division, Wachovia Global Securities Lending, acts as the securities lending agent for the Fund.
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wells Fargo. During the six months ended January 31, 2009, the Fund paid brokerage commissions of $1,499 to Wachovia Securities, LLC, a broker-dealer affiliated with Wells Fargo.
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for Class A shares and up to 1.00% of the average daily net assets for each of Class B and Class C shares. However, currently the distribution fees for Class A shares are limited to 0.25% of the average daily net assets of the class.
For the six months ended January 31, 2009, EIS received $943 from the sale of Class A shares and $5,980, and $26 in contingent deferred sales charges from redemptions of Class B and Class C shares, respectively.
5. IN-KIND TRANSACTION
Effective at the close of business on March 14, 2008, the Fund distributed assets through an in-kind redemption. The number and value of Class I shares redeemed are reflected as payment for shares redeemed in the Statement of Changes in Net Assets for the year ended July 31, 2008. In the transaction, the Fund distributed securities with a market value of $68,256,543 and cash in the amount of $1,142,314. The Fund realized $780,043 of net capital losses resulting from the in-kind redemption. The Fund recognizes a gain or loss on in-kind redemptions to the extent that the value of the distributed securities on the date of redemption exceeds or is less than the cost of those securities. Such gains and losses are not included in the taxable income of the Fund and were not required to be distributed to shareholders.
6. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $27,877,014 and $103,940,542, respectively, for the six months ended January 31, 2009.
On August 1, 2008, the Fund implemented Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs |
| Investments in |
| Other Financial | |||||
Level 1 – Quoted Prices |
| $ | 139,193,818 |
|
|
| $ | (32,088 | ) |
Level 2 – Other Significant Observable Inputs |
|
| 0 |
|
|
|
| 0 |
|
Level 3 – Significant Unobservable Inputs |
|
| 0 |
|
|
|
| 0 |
|
Total |
| $ | 139,193,818 |
|
|
| $ | (32,088 | ) |
* | Other financial instruments include futures transactions. |
At January 31, 2009, the Fund had long futures contracts outstanding as follows:
|
| Initial |
|
|
|
| Contract | Value at | Unrealized |
Expiration | Contracts | Amount | January 31, 2009 | Gain (Loss) |
March 2009 | 16 S&P 500 Index | $3,322,088 | $3,290,000 | $(32,088) |
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $197,579,145. The gross unrealized appreciation and depreciation on securities based on tax cost was $3,713,959 and $62,099,286, respectively, with a net unrealized depreciation of $58,385,327.
7. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an interfund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
8. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
9. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
10. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata.
During the six months ended January 31, 2009, the Fund had average borrowings outstanding of $14,879 (on an annualized basis) at an average rate of 5.35% and paid interest of $796.
11. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds.
12. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amendment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
13. SUBSEQUENT DISTRIBUTIONS
On March 12, 2009, the Fund declared distributions from net investment income to shareholders of record on March 11, 2009. The per share amounts payable on March 13, 2009 were as follows:
| Net Investment | |
| Income | |
Class A | $0.0652 |
|
Class B | 0.0492 |
|
Class C | 0.0471 |
|
Class I | 0.0704 |
|
These distributions are not reflected in the accompanying financial statements.
28
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On February 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $156,973,167 of net assets outstanding of which $107,413,023 (68.43%) of net assets were represented at the meeting.
Proposal 1 — To consider and act upon a new Investment Advisory Agreement with Evergreen Investment Management Company, LLC:
Net assets voted “For” | $ | 105,687,397 |
Net assets voted “Against” | $ | 583,125 |
Net assets voted “Abstain” | $ | 1,142,501 |
29
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. In September 2008, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Disciplined Value Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of its deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. The Trustees began their 2008 review process at the time of the last advisory contract-renewal process in September 2007. In the course of their 2007 review, the Trustees identified a number of funds that had experienced either short-term or longer-term performance issues. During the 2008 review process, the Trustees monitored each of these funds in particular for changes in performance and for the results of any changes in a fund’s investment process or investment team. In addition, during the course of the year, the Trustees regularly reviewed information regarding the investment performance of all of the funds, paying particular attention to funds whose performance since September 2007 indicated short-term or longer-term performance issues.
In spring 2008, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Board would review as part of its 2008 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the independent Trustees, the information that EIMC and Keil provided. The Trustees formed small groups to review individual funds in greater detail. In addition, the Trustees
30
ADDITIONAL INFORMATION (unaudited) continued
considered information regarding, among other things, brokerage practices of the funds, the use of derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
The Committee met several times by telephone during the 2008 review process to consider the information provided by EIMC. The Committee then met with representatives of EIMC. In addition, over the period of this review, the independent Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC and in multiple private sessions with independent legal counsel at which no personnel of EIMC were present. At a meeting of the full Board of Trustees in September, the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC and engaged in further review of the materials provided to it, and approved the continuation of each of the advisory and sub-advisory agreements.
In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements as part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, EIMC presents a wide variety of information regarding the services it performs, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds and EIMC with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of
31
ADDITIONAL INFORMATION (unaudited) continued
services provided by EIMC. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2007. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new Chief Compliance Officer for the funds in June of 2007 and a new Chief Investment Officer at EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC or its affiliates for such services. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. The Trustees also considered the investment performance of those other accounts managed by EIMC and its affiliates, where applicable, and concluded that the performance of those accounts did not suggest any substantial difference in the quality of the service provided by EIMC and its affiliates to those accounts.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. The Board considered that EIS, an affiliate of EIMC, serves as distributor to the funds generally and receives fees from the funds for those services. They considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that the funds pay sub-transfer agency fees to various financial institutions, including Wachovia Securities, LLC and its affiliates, that hold fund shares in omnibus accounts,
32
ADDITIONAL INFORMATION (unaudited) continued
and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the Trustees noted that an affiliate of EIMC had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wachovia Securities, LLC and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through it. The Trustees also noted that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
In the period leading up to the Trustees’ approval of continuation of the investment advisory agreements, the Trustees were mindful of the financial condition of Wachovia Corporation (“Wachovia”), EIMC’s parent company. They considered the possibility that a significant adverse change in Wachovia’s financial condition could impair the ability of EIMC or its affiliates to perform services for the funds at the same level as in the past. The Trustees concluded that any change in Wachovia’s financial condition had not to date had any such effect, but determined to monitor EIMC’s and its affiliates’ performance, and financial conditions generally, going forward in order to identify any such impairment that may develop and to take appropriate action.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC formulates and implements an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC were consistent with their respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund
33
ADDITIONAL INFORMATION (unaudited) continued
and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by EIMC, including services provided by EIMC under its administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. Although the Trustees considered the performance of all share classes, the Trustees noted that, for the one-, three-, and five-year periods ended December 31, 2007, the Fund’s Class I shares (the Fund’s oldest share class) had outperformed the Fund’s benchmark index, the Russell 1000 Value Index, and had outperformed a majority of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees also noted that, for the ten-year period ended December 31, 2007, the Fund’s Class I shares had slightly underperformed the Fund’s benchmark index and had performed in the third quintile of the mutual funds against which the Trustees compared the Fund’s performance.
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative underperformance. The Trustees also noted that EIMC had appointed a new Chief Investment Officer in August of 2008 who had not yet had sufficient time to evaluate and direct remedial efforts with respect to funds that have experienced a substantial period of relative underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not excessive. The Trustees noted that the management fee paid by the Fund was near the average and the median of the management fees paid by the other
34
ADDITIONAL INFORMATION (unaudited) continued
mutual funds against which the Trustees compared the Fund’s management fee, and that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees noted the possibility that economies of scale would be achieved by EIMC in managing the funds as the funds grow. The Trustees noted that the Fund had implemented breakpoints in its advisory fee structure. The Trustees noted that they would continue to review the appropriate levels of breakpoints in the future, and concluded that the breakpoints as implemented appeared to be a reasonable step toward the realization of economies of scale by the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability of any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
Matters Relating to Approval of Interim Advisory and Sub-Advisory Agreements. Following the Trustees’ approval of the continuation of the funds’ investment advisory agreements, Wells Fargo & Company (“Wells Fargo”) announced that it had agreed to acquire Wachovia in a whole company transaction that would include all of Wachovia’s banking and other businesses, including EIMC. In connection with this transaction, on October 20, 2008, Wachovia issued preferred shares representing a 39.9% voting interest in Wachovia to Wells Fargo pursuant to a Share Exchange Agreement. Wells Fargo subsequently completed its acquisition of Wachovia on December 31, 2008.
Under the 1940 Act, both the issuance of the preferred shares to Wells Fargo and the completion of the acquisition could be viewed as resulting in the termination of the funds’ investment advisory and sub-advisory agreements. Accordingly, on October 20, 2008, the Board of Trustees approved interim investment advisory and sub-advisory agreements that would become effective upon Wachovia’s issuance of preferred shares to Wells Fargo. On November 12, 2008, the Trustees approved a second set of interim investment advisory and sub-advisory agreements that would become effective upon the completion of the acquisition. (The first set of interim agreements approved on October 20, 2008, together
35
ADDITIONAL INFORMATION (unaudited) continued
with the second set of interim agreements approved November 12, 2008, are referred to as “Interim Agreements.”) In addition, the Trustees approved on November 12, 2008, and again at an in-person meeting on December 3 and 4, 2008, definitive investment advisory and sub-advisory agreements (the “New Agreements”) and recommended that shareholders of the funds approve them at meetings to be held in early 2009.
In considering whether to approve the first set of Interim Agreements on October 20, 2008, the Trustees took into account that they had recently approved the annual continuation of all of the funds’ existing investment advisory and sub-advisory agreements in September 2008. The Trustees reviewed the terms of the Interim Agreements, noting that the terms were generally identical to those of the funds’ investment advisory agreements that were in effect before October 20, 2008 (but for provisions required by law to be included in the Interim Agreements). They also took into account current and anticipated market and economic conditions, the financial condition of EIMC and of Wachovia generally, and the likely effect of the merger on the financial condition of Wachovia. In general, the Trustees considered that the proposed merger of Wachovia with Wells Fargo would very likely improve substantially the financial condition of EIMC’s parent company, increase the capital available to support the funds, and ensure that EIMC and its affiliates would have the resources to provide continuing services to the funds. In light principally of these considerations and their recent continuation of the funds’ investment advisory arrangements in September, the Trustees unanimously approved the first set of Interim Agreements that became effective on October 20, 2008.
In addition to the foregoing, at their meetings on November 12, 2008 and December 3 and 4, 2008 when the Trustees considered whether to approve the second set of Interim Agreements as well as the New Agreements, the Trustees considered presentations made to them on November 12, 2008 by representatives of EIMC and Wells Fargo regarding the anticipated implications of the merger for EIMC and the funds. The Trustees also considered:
• | Their understanding that the merger was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC would provide to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high quality services; |
• | Information about Wells Fargo’s financial condition, reputation, and resources, and the likelihood that the merger would result in improved organizational stability for EIMC, benefiting the funds as well as offering the potential for the funds, over time, to access Wells Fargo’s infrastructure, resources and capabilities; |
36
ADDITIONAL INFORMATION (unaudited) continued
• | That EIMC and Wells Fargo representatives have stated that there is no present intention to change the funds’ existing advisory fees or expense limitations; |
• | That the representatives of Wells Fargo have expressed their intention to pursue the integration of EIMC and the funds with corresponding Wells Fargo businesses and funds only after a deliberative process designed to identify and retain the relative strengths of both organizations; |
• | That the Wells Fargo representatives expect that the deliberative process and any subsequent integration will take more than a year; |
• | That, in the meantime, Wells Fargo expects to retain, largely in its current form, the existing EIMC management team and investment advisory and other key professionals and to operate EIMC following the merger as a separate business unit under the Evergreen brand; |
• | That Wells Fargo and EIMC would consult with the Trustees before implementing any significant changes that would affect the funds or the services provided by EIMC or its affiliates to the funds; |
• | Wells Fargo’s experience and approach with respect to acquisitions of other fund complexes; |
• | The fact that, if the New Agreements were not approved, on March 19, 2009, the Subsequent Interim Agreements will expire and the funds will no longer have a contractual right to investment advisory services from EIMC or any sub-advisors; |
• | That EIMC’s management supports the merger; and |
• | That representatives of EIMC have committed that the funds will not bear the expenses relating to Wells Fargo’s acquisition of Wachovia, including the costs of soliciting fund shareholders to approve the New Agreements. |
Based on the foregoing, the Trustees, including all of the Trustees who are not “interested persons” of the funds or EIMC, unanimously approved the second set of Interim Agreements and the New Agreements.
37
This page left intentionally blank
38
This page left intentionally blank
39
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
|
Charles A. Austin III |
| Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford |
| Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. |
| Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel |
| Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell |
| Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris |
| President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 |
| Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson |
| President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton III, MD |
| President/CEO, AccessOne MedCard, Inc. |
40
TRUSTEES AND OFFICERS continued
Michael S. Scofield |
| Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima |
| Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 |
| Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
|
|
|
OFFICERS |
|
|
W. Douglas Munn4 |
| Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 |
| Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 |
| Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 |
| Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
41
575709 rv3 03/2009
Evergreen Enhanced S&P 500® Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
12 |
| SCHEDULE OF INVESTMENTS |
19 |
| STATEMENT OF ASSETS AND LIABILITIES |
20 |
| STATEMENT OF OPERATIONS |
21 |
| STATEMENTS OF CHANGES IN NET ASSETS |
25 |
| NOTES TO FINANCIAL STATEMENTS |
34 |
| ADDITIONAL INFORMATION |
44 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Enhanced S&P 500® Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During the period, the management teams of Evergreen’s value-oriented equity funds tended to emphasize investments in attractively priced and fundamentally sound corporations. The portfolio manager of Evergreen Disciplined Value Fund, for example, used a combination of quantitative tools and traditional fundamental analysis in reviewing opportunities. The manager of Evergreen Equity Index Fund maintained a portfolio reflecting the composition of the Standard & Poor’s 500® Index, using a proprietary process to control trading and implementation costs. Management of Evergreen Equity Income Fund emphasized companies they believe have the ability to maintain and increase their dividends to shareholders. The management of Evergreen Fundamental Large Cap Fund focused on larger corporations with stable earnings
1
LETTER TO SHAREHOLDERS continued
growth records while the management of Evergreen Fundamental Mid Cap Value Fund emphasized mid-sized companies selling at what the management believed to be reasonable valuations. The team managing Evergreen Intrinsic Value Fund sought out investments in established companies selling at stock prices below the managers’ estimate of the company’s intrinsic value. Meanwhile, the management of Evergreen Special Values Fund focused on higher-quality companies believed to have reasonable prices and strong balance sheets, and the management of Evergreen Small Cap Value Fund sought to invest in small companies of sound quality at attractive prices.
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
| • | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
| • | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Manager:
William E. Zieff
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 2/28/1990
| Class A | Class B | Class C | Class I | Class IS |
Class inception date | 2/28/1990 | 11/7/1997 | 6/30/1999 | 2/21/1995 | 6/30/2000 |
Nasdaq symbol | EVSAX | EVSBX | EVSTX | EVSYX | EVSSX |
6-month return with sales charge | -36.06% | -36.31% | -33.74% | N/A | N/A |
6-month return w/o sales charge | -32.86% | -33.12% | -33.11% | -32.79% | -32.91% |
Average annual return* |
|
|
|
|
|
1-year with sales charge | -39.83% | -40.26% | -37.85% | N/A | N/A |
1-year w/o sales charge | -36.82% | -37.28% | -37.25% | -36.67% | -36.84% |
5-year | -3.76% | -3.86% | -3.53% | -2.57% | -2.83% |
10-year | -2.62% | -2.88% | -2.84% | -1.89% | -2.14% |
Maximum sales charge | 4.75% | 5.00% | 1.00% | N/A | N/A |
| Front-end | CDSC | CDSC |
|
|
* | Adjusted for maximum applicable sales charge, unless noted. |
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C, I or IS, please go to EvergreenInvestments.com/fundperformance. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Historical performance shown for Classes C and IS prior to their inception is based on the performance of Class A, the original class offered. The historical returns for Class C have not been adjusted to reflect the effect of its 12b-1 fee. The fund incurs a 12b-1 fee of 0.25% for Classes A and IS and 1.00% for Classes B and C. Class I does not pay a 12b-1 fee. If these fees had been reflected, returns for Class C would have been lower.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Returns reflect expense limits previously in effect, without which returns would have been lower.
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Enhanced S&P 500® Fund Class A shares versus a similar investment in the S&P 500® Index (S&P 500) and the Consumer Price Index (CPI).
The S&P 500 is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to, retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I and IS shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
An index fund cannot modify its investment strategy to respond to changes in the economy, may be particularly susceptible to general market declines, may not track its benchmark perfectly and may have lower returns than its benchmark index due to fees and expenses.
“Standard & Poor’s,” “S&P,” “S&P 500,” “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Evergreen Investment Management Company, LLC. The product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of investing in the product.
Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability and foreign currency fluctuations.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund’s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning | Ending |
| ||
| Account Value | Account Value | Expenses Paid | ||
| 8/1/2008 | 1/31/2009 | During Period* | ||
Actual |
|
|
|
|
|
Class A | $1,000.00 | $ 671.41 | $ | 4.17 |
|
Class B | $1,000.00 | $ 668.81 | $ | 7.32 |
|
Class C | $1,000.00 | $ 668.94 | $ | 7.32 |
|
Class I | $1,000.00 | $ 672.06 | $ | 3.08 |
|
Class IS | $1,000.00 | $ 670.94 | $ | 4.17 |
|
Hypothetical |
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
Class A | $1,000.00 | $1,020.21 | $ | 5.04 |
|
Class B | $1,000.00 | $1,016.43 | $ | 8.84 |
|
Class C | $1,000.00 | $1,016.43 | $ | 8.84 |
|
Class I | $1,000.00 | $1,021.53 | $ | 3.72 |
|
Class IS | $1,000.00 | $1,020.21 | $ | 5.04 |
|
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (0.99% for Class A, 1.74% for Class B, 1.74% for Class C, 0.73% for Class I and 0.99% for Class IS), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, 20081 |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS A |
|
|
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 14.40 |
| $ | 18.97 |
| $ | 17.09 |
| $ | 15.56 |
| $ | 13.56 |
| $ | 11.93 |
| $ | 9.70 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.10 |
|
| 0.14 |
|
| 0.18 |
|
| 0.19 |
|
| 0.12 | 2 |
| 0.07 |
|
| 0.05 | 2 |
Net realized and unrealized gains or losses on investments |
|
| (4.80 | ) |
| (2.58 | ) |
| 2.48 |
|
| 1.53 |
|
| 2.02 |
|
| 1.62 |
|
| 2.23 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.70 | ) |
| (2.44 | ) |
| 2.66 |
|
| 1.72 |
|
| 2.14 |
|
| 1.69 |
|
| 2.28 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.09 | ) |
| (0.14 | ) |
| (0.18 | ) |
| (0.19 | ) |
| (0.14 | ) |
| (0.06 | ) |
| (0.05 | ) |
Net realized gains |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.50 | ) |
| (2.13 | ) |
| (0.78 | ) |
| (0.19 | ) |
| (0.14 | ) |
| (0.06 | ) |
| (0.05 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 9.20 |
| $ | 14.40 |
| $ | 18.97 |
| $ | 17.09 |
| $ | 15.56 |
| $ | 13.56 |
| $ | 11.93 |
|
| ||||||||||||||||||||||
Total return3 |
|
| (32.86 | )% |
| (14.06 | )% |
| 15.98 | % |
| 11.13 | % |
| 15.86 | % |
| 14.16 | % |
| 23.61 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 209,727 |
| $ | 348,350 |
| $ | 513,074 |
| $ | 115,630 |
| $ | 100,728 |
| $ | 51,209 |
| $ | 40,373 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.99 | %4 |
| 0.94 | %4 |
| 0.89 | % |
| 0.81 | % |
| 1.11 | % |
| 1.15 | % |
| 1.12 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.99 | %4 |
| 0.94 | %4 |
| 0.89 | % |
| 0.82 | % |
| 1.15 | % |
| 1.17 | % |
| 1.22 | % |
Net investment income (loss) |
|
| 1.74 | %4 |
| 1.12 | %4 |
| 0.92 | % |
| 1.20 | % |
| 0.83 | % |
| 0.47 | % |
| 0.47 | % |
Portfolio turnover rate |
|
| 12 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
| 49 | % |
|
1 | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, 20081 |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS B |
|
|
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.68 |
| $ | 18.13 |
| $ | 16.36 |
| $ | 14.90 |
| $ | 13.01 |
| $ | 11.48 |
| $ | 9.36 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.06 | 2 |
| 0.05 | 2 |
| 0.04 | 2 |
| 0.07 | 2 |
| 0 | 2 |
| (0.04 | ) |
| (0.03 | )2 |
Net realized and unrealized gains or losses on investments |
|
| (4.57 | ) |
| (2.46 | ) |
| 2.37 |
|
| 1.47 |
|
| 1.95 |
|
| 1.57 |
|
| 2.15 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.51 | ) |
| (2.41 | ) |
| 2.41 |
|
| 1.54 |
|
| 1.95 |
|
| 1.53 |
|
| 2.12 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.05 | ) |
| (0.04 | ) |
| (0.08 | ) |
| (0.06 | ) |
| 0 | 3 |
| 0 |
|
Net realized gains |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.45 | ) |
| (2.04 | ) |
| (0.64 | ) |
| (0.08 | ) |
| (0.06 | ) |
| 0 |
|
| 0 |
|
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 8.72 |
| $ | 13.68 |
| $ | 18.13 |
| $ | 16.36 |
| $ | 14.90 |
| $ | 13.01 |
| $ | 11.48 |
|
| ||||||||||||||||||||||
Total return4 |
|
| (33.12 | )% |
| (14.60 | )% |
| 15.05 | % |
| 10.34 | % |
| 15.03 | % |
| 13.34 | % |
| 22.68 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 6,738 |
| $ | 11,935 |
| $ | 23,630 |
| $ | 29,352 |
| $ | 55,071 |
| $ | 11,177 |
| $ | 10,211 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.74 | %5 |
| 1.69 | %5 |
| 1.62 | % |
| 1.57 | % |
| 1.81 | % |
| 1.85 | % |
| 1.85 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.74 | %5 |
| 1.69 | %5 |
| 1.62 | % |
| 1.58 | % |
| 1.85 | % |
| 1.87 | % |
| 1.94 | % |
Net investment income (loss) |
|
| 0.99 | %5 |
| 0.37 | %5 |
| 0.25 | % |
| 0.46 | % |
| 0.00 | % |
| (0.24 | )% |
| (0.25 | )% |
Portfolio turnover rate |
|
| 12 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
| 49 | % |
|
1 | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Amount represents less than $0.005 per share. |
4 | Excluding applicable sales charges |
5 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, 20081 |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS C |
|
|
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 13.95 |
| $ | 18.45 |
| $ | 16.64 |
| $ | 15.17 |
| $ | 13.24 |
| $ | 11.69 |
| $ | 9.53 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.06 |
|
| 0.05 |
|
| 0.04 | 2 |
| 0.07 | 2 |
| 0.01 | 2 |
| (0.03 | )2 |
| (0.02 | )2 |
Net realized and unrealized gains or losses on investments |
|
| (4.66 | ) |
| (2.51 | ) |
| 2.42 |
|
| 1.49 |
|
| 1.98 |
|
| 1.58 |
|
| 2.18 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.60 | ) |
| (2.46 | ) |
| 2.46 |
|
| 1.56 |
|
| 1.99 |
|
| 1.55 |
|
| 2.16 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.05 | ) |
| (0.05 | ) |
| (0.09 | ) |
| (0.06 | ) |
| 0 | 3 |
| 0 |
|
Net realized gains |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.45 | ) |
| (2.04 | ) |
| (0.65 | ) |
| (0.09 | ) |
| (0.06 | ) |
| 0 |
|
| 0 |
|
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 8.90 |
| $ | 13.95 |
| $ | 18.45 |
| $ | 16.64 |
| $ | 15.17 |
| $ | 13.24 |
| $ | 11.69 |
|
| ||||||||||||||||||||||
Total return4 |
|
| (33.11 | )% |
| (14.58 | )% |
| 15.10 | % |
| 10.29 | % |
| 15.08 | % |
| 13.27 | % |
| 22.67 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 9,847 |
| $ | 10,409 |
| $ | 12,331 |
| $ | 7,944 |
| $ | 6,003 |
| $ | 2,518 |
| $ | 460 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.74 | %5 |
| 1.69 | %5 |
| 1.63 | % |
| 1.55 | % |
| 1.81 | % |
| 1.84 | % |
| 1.85 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.74 | %5 |
| 1.69 | %5 |
| 1.63 | % |
| 1.56 | % |
| 1.85 | % |
| 1.86 | % |
| 1.94 | % |
Net investment income (loss) |
|
| 0.98 | %5 |
| 0.36 | %5 |
| 0.24 | % |
| 0.45 | % |
| 0.09 | % |
| (0.24 | )% |
| (0.21 | )% |
Portfolio turnover rate |
|
| 12 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
| 49 | % |
|
1 | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Amount represents less than $0.005 per share. |
4 | Excluding applicable sales charges |
5 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, 20081 |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS I |
|
|
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 14.48 |
| $ | 19.06 |
| $ | 17.16 |
| $ | 15.62 |
| $ | 13.61 |
| $ | 11.99 |
| $ | 9.74 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.13 |
|
| 0.19 |
|
| 0.23 |
|
| 0.24 |
|
| 0.18 |
|
| 0.10 |
|
| 0.08 | 2 |
Net realized and unrealized gains or losses on investments |
|
| (4.84 | ) |
| (2.61 | ) |
| 2.49 |
|
| 1.53 |
|
| 2.01 |
|
| 1.62 |
|
| 2.25 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.71 | ) |
| (2.42 | ) |
| 2.72 |
|
| 1.77 |
|
| 2.19 |
|
| 1.72 |
|
| 2.33 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.11 | ) |
| (0.17 | ) |
| (0.22 | ) |
| (0.23 | ) |
| (0.18 | ) |
| (0.10 | ) |
| (0.08 | ) |
Net realized gains |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.52 | ) |
| (2.16 | ) |
| (0.82 | ) |
| (0.23 | ) |
| (0.18 | ) |
| (0.10 | ) |
| (0.08 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 9.25 |
| $ | 14.48 |
| $ | 19.06 |
| $ | 17.16 |
| $ | 15.62 |
| $ | 13.61 |
| $ | 11.99 |
|
| ||||||||||||||||||||||
Total return |
|
| (32.79 | )% |
| (13.89 | )% |
| 16.28 | % |
| 11.44 | % |
| 16.19 | % |
| 14.40 | % |
| 24.04 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 487,965 |
| $ | 942,112 |
| $ | 1,592,166 |
| $ | 1,722,790 |
| $ | 1,432,963 |
| $ | 1,455,039 |
| $ | 528,160 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.73 | %3 |
| 0.69 | %3 |
| 0.62 | % |
| 0.55 | % |
| 0.80 | % |
| 0.84 | % |
| 0.85 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.73 | %3 |
| 0.69 | %3 |
| 0.62 | % |
| 0.56 | % |
| 0.84 | % |
| 0.86 | % |
| 0.94 | % |
Net investment income (loss) |
|
| 2.00 | %3 |
| 1.36 | %3 |
| 1.25 | % |
| 1.45 | % |
| 1.23 | % |
| 0.76 | % |
| 0.76 | % |
Portfolio turnover rate |
|
| 12 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
| 49 | % |
|
1 | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
10
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, 20081 |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS IS |
|
|
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 14.41 |
| $ | 18.99 |
| $ | 17.10 |
| $ | 15.57 |
| $ | 13.57 |
| $ | 11.93 |
| $ | 9.70 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.10 |
|
| 0.15 |
|
| 0.18 |
|
| 0.20 |
|
| 0.152 |
|
| 0.07 |
|
| 0.05 | 2 |
Net realized and unrealized gains or losses on investments |
|
| (4.81 | ) |
| (2.59 | ) |
| 2.49 |
|
| 1.52 |
|
| 2.00 |
|
| 1.63 |
|
| 2.24 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| (4.71 | ) |
| (2.44 | ) |
| 2.67 |
|
| 1.72 |
|
| 2.15 |
|
| 1.70 |
|
| 2.29 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.09 | ) |
| (0.15 | ) |
| (0.18 | ) |
| (0.19 | ) |
| (0.15 | ) |
| (0.06 | ) |
| (0.06 | ) |
Net realized gains |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.50 | ) |
| (2.14 | ) |
| (0.78 | ) |
| (0.19 | ) |
| (0.15 | ) |
| (0.06 | ) |
| (0.06 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 9.20 |
| $ | 14.41 |
| $ | 18.99 |
| $ | 17.10 |
| $ | 15.57 |
| $ | 13.57 |
| $ | 11.93 |
|
| ||||||||||||||||||||||
Total return |
|
| (32.91 | )% |
| (14.03 | )% |
| 15.92 | % |
| 11.13 | % |
| 15.89 | % |
| 14.23 | % |
| 23.64 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 29,876 |
| $ | 49,125 |
| $ | 68,154 |
| $ | 68,764 |
| $ | 75,019 |
| $ | 80,111 |
| $ | 915 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.99 | %3 |
| 0.94 | %3 |
| 0.87 | % |
| 0.80 | % |
| 1.05 | % |
| 1.08 | % |
| 1.10 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.99 | %3 |
| 0.94 | %3 |
| 0.87 | % |
| 0.81 | % |
| 1.09 | % |
| 1.10 | % |
| 1.19 | % |
Net investment income (loss) |
|
| 1.74 | %3 |
| 1.12 | %3 |
| 1.00 | % |
| 1.21 | % |
| 0.99 | % |
| 0.51 | % |
| 0.49 | % |
Portfolio turnover rate |
|
| 12 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
| 49 | % |
|
1 | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
|
|
| Value |
| ||
| |||||||
COMMON STOCKS 97.9% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 7.0% |
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 1.4% |
|
|
|
|
|
|
|
Darden Restaurants, Inc. |
|
| 123,235 |
| $ | 3,231,222 |
|
McDonald’s Corp. |
|
| 120,628 |
|
| 6,998,836 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,230,058 |
|
|
|
|
|
|
| ||
Internet & Catalog Retail 0.4% |
|
|
|
|
|
|
|
Amazon.com, Inc. * ρ |
|
| 49,773 |
|
| 2,927,648 |
|
|
|
|
|
|
| ||
Leisure Equipment & Products 0.6% |
|
|
|
|
|
|
|
Hasbro, Inc. |
|
| 186,044 |
|
| 4,489,242 |
|
|
|
|
|
|
| ||
Media 2.4% |
|
|
|
|
|
|
|
DIRECTV Group, Inc. * ρ |
|
| 185,611 |
|
| 4,064,881 |
|
Time Warner, Inc. |
|
| 831,961 |
|
| 7,762,196 |
|
Viacom, Inc., Class B * |
|
| 189,560 |
|
| 2,796,010 |
|
Walt Disney Co. |
|
| 165,655 |
|
| 3,425,745 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 18,048,832 |
|
|
|
|
|
|
| ||
Specialty Retail 1.4% |
|
|
|
|
|
|
|
AutoZone, Inc. * ρ |
|
| 21,882 |
|
| 2,907,899 |
|
Home Depot, Inc. |
|
| 121,952 |
|
| 2,625,626 |
|
Sherwin-Williams Co. |
|
| 41,385 |
|
| 1,976,134 |
|
TJX Cos. ρ |
|
| 168,733 |
|
| 3,276,795 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,786,454 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 0.8% |
|
|
|
|
|
|
|
Coach, Inc. * |
|
| 111,428 |
|
| 1,626,849 |
|
Nike, Inc., Class B |
|
| 92,020 |
|
| 4,163,905 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,790,754 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 13.8% |
|
|
|
|
|
|
|
Beverages 3.5% |
|
|
|
|
|
|
|
Coca-Cola Co. |
|
| 192,151 |
|
| 8,208,691 |
|
Coca-Cola Enterprises, Inc. |
|
| 350,372 |
|
| 3,934,677 |
|
Molson Coors Brewing Co., Class B |
|
| 115,417 |
|
| 4,647,843 |
|
Pepsi Bottling Group, Inc. |
|
| 251,765 |
|
| 4,856,547 |
|
PepsiCo, Inc. |
|
| 91,169 |
|
| 4,579,419 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 26,227,177 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 4.2% |
|
|
|
|
|
|
|
CVS Caremark Corp. |
|
| 265,115 |
|
| 7,126,291 |
|
Kroger Co. ρ |
|
| 224,701 |
|
| 5,055,773 |
|
Safeway, Inc. |
|
| 120,789 |
|
| 2,588,508 |
|
Wal-Mart Stores, Inc. ρ |
|
| 349,912 |
|
| 16,487,853 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 31,258,425 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
CONSUMER STAPLES continued |
|
|
|
|
|
|
|
Food Products 1.2% |
|
|
|
|
|
|
|
Archer Daniels Midland Co. ρ |
|
| 217,652 |
| $ | 5,959,312 |
|
Bunge, Ltd. ρ |
|
| 74,816 |
|
| 3,212,599 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 9,171,911 |
|
|
|
|
|
|
| ||
Household Products 2.9% |
|
|
|
|
|
|
|
Procter & Gamble Co. ρ |
|
| 387,025 |
|
| 21,092,862 |
|
|
|
|
|
|
| ||
Tobacco 2.0% |
|
|
|
|
|
|
|
Altria Group, Inc. |
|
| 346,024 |
|
| 5,723,237 |
|
Philip Morris International, Inc. |
|
| 248,827 |
|
| 9,243,923 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 14,967,160 |
|
|
|
|
|
|
| ||
ENERGY 14.2% |
|
|
|
|
|
|
|
Energy Equipment & Services 1.6% |
|
|
|
|
|
|
|
ENSCO International, Inc. ρ |
|
| 144,068 |
|
| 3,941,700 |
|
National Oilwell Varco, Inc. * |
|
| 60,123 |
|
| 1,589,652 |
|
Noble Corp. ρ |
|
| 189,277 |
|
| 5,138,871 |
|
Schlumberger, Ltd. |
|
| 21,690 |
|
| 885,169 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,555,392 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 12.6% |
|
|
|
|
|
|
|
Apache Corp. |
|
| 85,997 |
|
| 6,449,775 |
|
Chevron Corp. |
|
| 259,961 |
|
| 18,332,450 |
|
ConocoPhillips |
|
| 260,913 |
|
| 12,401,195 |
|
Exxon Mobil Corp. |
|
| 534,431 |
|
| 40,873,283 |
|
Noble Energy, Inc. |
|
| 64,235 |
|
| 3,143,018 |
|
Occidental Petroleum Corp. |
|
| 100,816 |
|
| 5,499,513 |
|
Valero Energy Corp. ρ |
|
| 296,331 |
|
| 7,147,504 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 93,846,738 |
|
|
|
|
|
|
| ||
FINANCIALS 10.1% |
|
|
|
|
|
|
|
Capital Markets 2.1% |
|
|
|
|
|
|
|
Ameriprise Financial, Inc. |
|
| 83,717 |
|
| 1,686,898 |
|
Bank of New York Mellon Corp. |
|
| 140,061 |
|
| 3,605,170 |
|
BlackRock, Inc. |
|
| 12,533 |
|
| 1,363,590 |
|
Goldman Sachs Group, Inc. |
|
| 35,559 |
|
| 2,870,678 |
|
Morgan Stanley |
|
| 69,583 |
|
| 1,407,664 |
|
State Street Corp. |
|
| 117,614 |
|
| 2,736,878 |
|
TD Ameritrade Holding Corp. * ρ |
|
| 140,813 |
|
| 1,582,738 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,253,616 |
|
|
|
|
|
|
| ||
Commercial Banks 2.3% |
|
|
|
|
|
|
|
Bank of Hawaii Corp. |
|
| 32,414 |
|
| 1,162,690 |
|
BB&T Corp. ρ |
|
| 115,059 |
|
| 2,277,018 |
|
Comerica, Inc. |
|
| 75,130 |
|
| 1,251,666 |
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Commercial Banks continued |
|
|
|
|
|
|
|
U.S. Bancorp ρ |
|
| 110,535 |
| $ | 1,640,339 |
|
Wells Fargo & Co. ρ ° |
|
| 560,228 |
|
| 10,588,309 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 16,920,022 |
|
|
|
|
|
|
| ||
Consumer Finance 0.2% |
|
|
|
|
|
|
|
American Express Co. |
|
| 104,612 |
|
| 1,750,159 |
|
|
|
|
|
|
| ||
Diversified Financial Services 2.3% |
|
|
|
|
|
|
|
Bank of America Corp. |
|
| 573,074 |
|
| 3,770,827 |
|
Citigroup, Inc. |
|
| 369,850 |
|
| 1,312,967 |
|
IntercontinentalExchange, Inc. * |
|
| 27,733 |
|
| 1,578,840 |
|
JPMorgan Chase & Co. |
|
| 415,052 |
|
| 10,587,977 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 17,250,611 |
|
|
|
|
|
|
| ||
Insurance 2.6% |
|
|
|
|
|
|
|
ACE, Ltd. |
|
| 135,810 |
|
| 5,929,465 |
|
Allstate Corp. |
|
| 102,468 |
|
| 2,220,481 |
|
Arch Capital Group, Ltd. * |
|
| 59,532 |
|
| 3,580,850 |
|
Reinsurance Group of America, Inc. |
|
| 1 |
|
| 36 |
|
Travelers Companies, Inc. |
|
| 205,256 |
|
| 7,931,092 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,661,924 |
|
|
|
|
|
|
| ||
Real Estate Investment Trusts (REITs) 0.4% |
|
|
|
|
|
|
|
HRPT Properties Trust |
|
| 473,333 |
|
| 1,505,199 |
|
Simon Property Group, Inc. ρ |
|
| 41,388 |
|
| 1,778,856 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,284,055 |
|
|
|
|
|
|
| ||
Thrifts & Mortgage Finance 0.2% |
|
|
|
|
|
|
|
Hudson City Bancorp, Inc. |
|
| 109,244 |
|
| 1,267,230 |
|
|
|
|
|
|
| ||
HEALTH CARE 16.4% |
|
|
|
|
|
|
|
Biotechnology 2.6% |
|
|
|
|
|
|
|
Amgen, Inc. * |
|
| 223,501 |
|
| 12,259,030 |
|
Biogen Idec, Inc. * |
|
| 73,140 |
|
| 3,558,261 |
|
Genzyme Corp. * |
|
| 48,853 |
|
| 3,366,949 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,184,240 |
|
|
|
|
|
|
| ||
Health Care Equipment & Supplies 2.0% |
|
|
|
|
|
|
|
Baxter International, Inc. |
|
| 131,807 |
|
| 7,730,480 |
|
St. Jude Medical, Inc. * |
|
| 165,243 |
|
| 6,009,888 |
|
Zimmer Holdings, Inc. * |
|
| 36,964 |
|
| 1,345,490 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,085,858 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 2.4% |
|
|
|
|
|
|
|
McKesson Corp. |
|
| 129,566 |
|
| 5,726,817 |
|
UnitedHealth Group, Inc. |
|
| 195,685 |
|
| 5,543,756 |
|
WellPoint, Inc. * |
|
| 152,909 |
|
| 6,338,078 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 17,608,651 |
|
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
|
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
HEALTH CARE continued |
|
|
|
|
|
|
|
Life Sciences Tools & Services 0.7% |
|
|
|
|
|
|
|
Thermo Fisher Scientific, Inc. |
|
| 153,301 |
| $ | 5,508,105 |
|
|
|
|
|
|
| ||
Pharmaceuticals 8.7% |
|
|
|
|
|
|
|
Abbott Laboratories |
|
| 67,031 |
|
| 3,716,198 |
|
Eli Lilly & Co. |
|
| 229,123 |
|
| 8,436,309 |
|
Forest Laboratories, Inc. * |
|
| 112,328 |
|
| 2,812,693 |
|
Johnson & Johnson ρ |
|
| 370,652 |
|
| 21,382,914 |
|
Merck & Co., Inc. |
|
| 301,936 |
|
| 8,620,273 |
|
Pfizer, Inc. |
|
| 1,053,498 |
|
| 15,360,001 |
|
Wyeth |
|
| 105,065 |
|
| 4,514,643 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 64,843,031 |
|
|
|
|
|
|
| ||
INDUSTRIALS 9.2% |
|
|
|
|
|
|
|
Aerospace & Defense 4.6% |
|
|
|
|
|
|
|
Boeing Co. |
|
| 61,199 |
|
| 2,589,330 |
|
General Dynamics Corp. ρ |
|
| 123,711 |
|
| 7,018,125 |
|
Goodrich Corp. |
|
| 53,277 |
|
| 2,059,689 |
|
Honeywell International, Inc. ρ |
|
| 104,523 |
|
| 3,429,399 |
|
L-3 Communications Holdings, Inc. |
|
| 75,089 |
|
| 5,933,533 |
|
Lockheed Martin Corp. |
|
| 36,235 |
|
| 2,972,719 |
|
Northrop Grumman Corp. |
|
| 134,108 |
|
| 6,453,277 |
|
United Technologies Corp. |
|
| 82,498 |
|
| 3,959,079 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 34,415,151 |
|
|
|
|
|
|
| ||
Commercial Services & Supplies 0.2% |
|
|
|
|
|
|
|
R.R. Donnelley & Sons Co. |
|
| 140,042 |
|
| 1,366,810 |
|
|
|
|
|
|
| ||
Industrial Conglomerates 1.7% |
|
|
|
|
|
|
|
General Electric Co. ρ |
|
| 892,353 |
|
| 10,824,242 |
|
Tyco International, Ltd. |
|
| 84,254 |
|
| 1,771,019 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 12,595,261 |
|
|
|
|
|
|
| ||
Machinery 1.1% |
|
|
|
|
|
|
|
AGCO Corp. * |
|
| 65,817 |
|
| 1,400,586 |
|
Cummins, Inc. |
|
| 106,435 |
|
| 2,552,311 |
|
Parker Hannifin Corp. |
|
| 115,395 |
|
| 4,409,243 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 8,362,140 |
|
|
|
|
|
|
| ||
Professional Services 0.2% |
|
|
|
|
|
|
|
Manpower, Inc. |
|
| 42,987 |
|
| 1,223,410 |
|
|
|
|
|
|
| ||
Road & Rail 1.4% |
|
|
|
|
|
|
|
CSX Corp. |
|
| 91,203 |
|
| 2,641,239 |
|
Norfolk Southern Corp. |
|
| 152,672 |
|
| 5,856,498 |
|
Ryder System, Inc. |
|
| 52,346 |
|
| 1,768,248 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,265,985 |
|
|
|
|
|
|
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
|
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY 16.6% |
|
|
|
|
|
|
|
Communications Equipment 1.3% |
|
|
|
|
|
|
|
Cisco Systems, Inc. * ρ |
|
| 469,020 |
| $ | 7,021,229 |
|
QUALCOMM, Inc. |
|
| 79,838 |
|
| 2,758,403 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 9,779,632 |
|
|
|
|
|
|
| ||
Computers & Peripherals 5.8% |
|
|
|
|
|
|
|
Apple, Inc. |
|
| 78,328 |
|
| 7,059,703 |
|
Hewlett-Packard Co. |
|
| 364,306 |
|
| 12,659,633 |
|
International Business Machines Corp. |
|
| 201,376 |
|
| 18,456,110 |
|
Lexmark International, Inc., Class A * |
|
| 131,028 |
|
| 3,102,743 |
|
Seagate Technology, Inc. |
|
| 168,043 |
|
| 636,883 |
|
Western Digital Corp. * |
|
| 102,825 |
|
| 1,509,471 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 43,424,543 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 0.2% |
|
|
|
|
|
|
|
Jabil Circuit, Inc. |
|
| 224,050 |
|
| 1,303,971 |
|
|
|
|
|
|
| ||
Internet Software & Services 1.2% |
|
|
|
|
|
|
|
eBay, Inc. * |
|
| 155,739 |
|
| 1,871,983 |
|
Google, Inc., Class A * |
|
| 19,764 |
|
| 6,690,707 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 8,562,690 |
|
|
|
|
|
|
| ||
IT Services 1.5% |
|
|
|
|
|
|
|
Accenture, Ltd., Class A |
|
| 154,234 |
|
| 4,867,625 |
|
Affiliated Computer Services, Inc., Class A * |
|
| 71,840 |
|
| 3,294,583 |
|
Computer Sciences Corp. * ρ |
|
| 84,849 |
|
| 3,125,837 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,288,045 |
|
|
|
|
|
|
| ||
Office Electronics 0.2% |
|
|
|
|
|
|
|
Xerox Corp. |
|
| 189,136 |
|
| 1,255,863 |
|
|
|
|
|
|
| ||
Semiconductors & Semiconductor Equipment 1.9% |
|
|
|
|
|
|
|
Intel Corp. ρ |
|
| 698,286 |
|
| 9,007,889 |
|
LSI Corp. * |
|
| 740,001 |
|
| 2,353,203 |
|
National Semiconductor Corp. |
|
| 132,105 |
|
| 1,339,545 |
|
Texas Instruments, Inc. |
|
| 108,289 |
|
| 1,618,921 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 14,319,558 |
|
|
|
|
|
|
| ||
Software 4.5% |
|
|
|
|
|
|
|
Adobe Systems, Inc. * |
|
| 135,051 |
|
| 2,607,835 |
|
Microsoft Corp. |
|
| 959,981 |
|
| 16,415,675 |
|
Oracle Corp. * |
|
| 699,146 |
|
| 11,766,627 |
|
Symantec Corp. * |
|
| 195,421 |
|
| 2,995,804 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 33,785,941 |
|
|
|
|
|
|
|
See Notes to Financial Statements
16
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
|
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
MATERIALS 2.3% |
|
|
|
|
|
|
|
Chemicals 1.8% |
|
|
|
|
|
|
|
Dow Chemical Co. |
|
| 241,489 |
| $ | 2,798,857 |
|
E.I. DuPont de Nemours & Co. |
|
| 59,007 |
|
| 1,354,801 |
|
Eastman Chemical Co. |
|
| 73,698 |
|
| 1,912,463 |
|
Lubrizol Corp. |
|
| 130,710 |
|
| 4,459,825 |
|
Monsanto Co. ρ |
|
| 36,948 |
|
| 2,810,265 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,336,211 |
|
|
|
|
|
|
| ||
Metals & Mining 0.5% |
|
|
|
|
|
|
|
Freeport-McMoRan Copper & Gold, Inc. |
|
| 55,629 |
|
| 1,398,513 |
|
Reliance Steel & Aluminum Co. |
|
| 49,097 |
|
| 1,086,517 |
|
United States Steel Corp. |
|
| 47,380 |
|
| 1,422,821 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,907,851 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 4.1% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 3.9% |
|
|
|
|
|
|
|
AT&T, Inc. ρ |
|
| 692,284 |
|
| 17,044,032 |
|
Verizon Communications, Inc. ρ |
|
| 400,953 |
|
| 11,976,466 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 29,020,498 |
|
|
|
|
|
|
| ||
Wireless Telecommunication Services 0.2% |
|
|
|
|
|
|
|
Sprint Nextel Corp. |
|
| 415,728 |
|
| 1,010,219 |
|
|
|
|
|
|
| ||
UTILITIES 4.2% |
|
|
|
|
|
|
|
Electric Utilities 2.5% |
|
|
|
|
|
|
|
American Electric Power Co., Inc. |
|
| 179,822 |
|
| 5,637,420 |
|
Duke Energy Corp. ρ |
|
| 106,092 |
|
| 1,607,294 |
|
Edison International ρ |
|
| 196,376 |
|
| 6,395,966 |
|
Entergy Corp. |
|
| 66,411 |
|
| 5,071,144 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 18,711,824 |
|
|
|
|
|
|
| ||
Multi-Utilities 1.7% |
|
|
|
|
|
|
|
CenterPoint Energy, Inc. |
|
| 529,606 |
|
| 7,086,128 |
|
NiSource, Inc. ρ |
|
| 355,712 |
|
| 3,443,292 |
|
Xcel Energy, Inc. |
|
| 119,255 |
|
| 2,201,448 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 12,730,868 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $802,515,560) |
|
|
|
|
| 728,676,626 |
|
|
|
|
|
|
| ||
| |||||||
|
|
| Principal |
|
|
|
|
|
|
| Amount |
|
| Value |
|
| |||||||
SHORT-TERM INVESTMENTS 12.7% |
|
|
|
|
|
|
|
U.S. TREASURY OBLIGATIONS 0.4% |
|
|
|
|
|
|
|
U.S. Treasury Bills: |
|
|
|
|
|
|
|
0.10%, 02/19/2009 ƒ ß |
| $ | 250,000 |
|
| 249,987 |
|
0.13%, 06/18/2009 ƒ ß |
|
| 400,000 |
|
| 399,612 |
|
See Notes to Financial Statements
17
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
| Principal |
|
|
|
|
|
|
| Amount |
|
| Value |
|
| |||||||
SHORT-TERM INVESTMENTS continued |
|
|
|
|
|
|
|
U.S. TREASURY OBLIGATIONS continued |
|
|
|
|
|
|
|
U.S. Treasury Bills: |
|
|
|
|
|
|
|
0.14%, 04/30/2009 ƒ ß |
| $ | 1,600,000 |
| $ | 1,599,146 |
|
0.30%, 02/05/2009 ƒ ß |
|
| 1,000,000 |
|
| 999,997 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,248,742 |
|
|
|
|
|
|
| ||
| |||||||
|
|
| Shares |
|
| Value |
|
| |||||||
MUTUAL FUND SHARES 12.3% |
|
|
|
|
|
|
|
BGI Prime Money Market Fund, Premium Shares, 0.52% q ρρ |
|
| 7,028,632 |
|
| 7,028,632 |
|
BlackRock Liquidity TempFund, Institutional Class, 1.30% q ρρ |
|
| 7,106,306 |
|
| 7,106,306 |
|
Evergreen Institutional Money Market Fund, Class I, 0.84% q ø ρρ |
|
| 70,110,875 |
|
| 70,110,875 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.57% q ρρ |
|
| 6,898,790 |
|
| 6,898,790 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 91,144,603 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $94,393,824) |
|
|
|
|
| 94,393,345 |
|
|
|
|
|
|
| ||
Total Investments (cost $896,909,384) 110.6% |
|
|
|
|
| 823,069,971 |
|
Other Assets and Liabilities (10.6%) |
|
|
|
|
| (78,917,803 | ) |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 744,152,168 |
|
|
|
|
|
|
|
* | Non-income producing security |
ρ | All or a portion of this security is on loan. |
° | Investment in non-controlled affiliate. At January 31, 2009, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $19,986,027 and earned $208,121 of income for the period from October 3, 2008 to January 31, 2009 which is included in income from affiliates. |
ƒ | All or a portion of this security was pledged to cover initial margin requirements for open futures contracts. |
ß | Rate shown represents the yield to maturity at date of purchase. |
q | Rate shown is the 7-day annualized yield at period end. |
ρρ | All or a portion of this security represents investment of cash collateral received from securities on loan. |
ø | Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Information Technology | 17.0 | % |
Health Care | 16.7 | % |
Energy | 14.5 | % |
Consumer Staples | 14.1 | % |
Financials | 10.3 | % |
Industrials | 9.4 | % |
Consumer Discretionary | 7.2 | % |
Utilities | 4.3 | % |
Telecommunication Services | 4.1 | % |
Materials | 2.4 | % |
|
| |
| 100.0 | % |
|
|
See Notes to Financial Statements
18
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $806,812,482) including $75,385,181 of securities loaned |
| $ | 742,370,787 |
|
Investments in affiliated issuers, at value (cost $90,096,902) |
|
| 80,699,184 |
|
| ||||
Total investments |
|
| 823,069,971 |
|
Segregated cash |
|
| 14,732 |
|
Receivable for Fund shares sold |
|
| 937,269 |
|
Dividends receivable |
|
| 1,393,832 |
|
Receivable for securities lending income |
|
| 87,322 |
|
Prepaid expenses and other assets |
|
| 28,933 |
|
| ||||
Total assets |
|
| 825,532,059 |
|
| ||||
Liabilities |
|
|
|
|
Payable for Fund shares redeemed |
|
| 797,178 |
|
Payable for securities on loan |
|
| 80,056,358 |
|
Payable for daily variation margin on open futures contracts |
|
| 347,103 |
|
Advisory fee payable |
|
| 28,149 |
|
Distribution Plan expenses payable |
|
| 6,433 |
|
Due to other related parties |
|
| 6,662 |
|
Accrued expenses and other liabilities |
|
| 138,008 |
|
| ||||
Total liabilities |
|
| 81,379,891 |
|
| ||||
Net assets |
| $ | 744,152,168 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 967,191,780 |
|
Undistributed net investment income |
|
| 922,575 |
|
Accumulated net realized losses on investments |
|
| (149,875,830 | ) |
Net unrealized losses on investments |
|
| (74,086,357 | ) |
| ||||
Total net assets |
| $ | 744,152,168 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 209,726,763 |
|
Class B |
|
| 6,737,682 |
|
Class C |
|
| 9,846,963 |
|
Class I |
|
| 487,965,024 |
|
Class IS |
|
| 29,875,736 |
|
| ||||
Total net assets |
| $ | 744,152,168 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 22,802,702 |
|
Class B |
|
| 772,676 |
|
Class C |
|
| 1,106,402 |
|
Class I |
|
| 52,752,013 |
|
Class IS |
|
| 3,246,013 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 9.20 |
|
Class A — Offering price (based on sales charge of 4.75%) |
| $ | 9.66 |
|
Class B |
| $ | 8.72 |
|
Class C |
| $ | 8.90 |
|
Class I |
| $ | 9.25 |
|
Class IS |
| $ | 9.20 |
|
|
See Notes to Financial Statements
19
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 13,043,377 |
|
Securities lending |
|
| 474,177 |
|
Income from affiliates |
|
| 320,970 |
|
Interest |
|
| 7,839 |
|
| ||||
Total investment income |
|
| 13,846,363 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 2,283,553 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 340,271 |
|
Class B |
|
| 44,547 |
|
Class C |
|
| 47,689 |
|
Class IS |
|
| 48,236 |
|
Administrative services fee |
|
| 507,456 |
|
Transfer agent fees |
|
| 581,230 |
|
Trustees’ fees and expenses |
|
| 10,234 |
|
Printing and postage expenses |
|
| 65,714 |
|
Custodian and accounting fees |
|
| 125,355 |
|
Registration and filing fees |
|
| 47,624 |
|
Professional fees |
|
| 36,001 |
|
Interest expense |
|
| 1,317 |
|
Other |
|
| 70,973 |
|
| ||||
Total expenses |
|
| 4,210,200 |
|
Less: Expense reductions |
|
| (1,921 | ) |
Fee waivers |
|
| (425 | ) |
| ||||
Net expenses |
|
| 4,207,854 |
|
| ||||
Net investment income |
|
| 9,638,509 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| (63,082,993 | ) |
Affiliated issuers |
|
| (638,109 | ) |
Futures contracts |
|
| (5,102,649 | ) |
| ||||
Net realized losses on investments |
|
| (68,823,751 | ) |
Net change in unrealized gains or losses on investments |
|
| (344,515,550 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
| (413,339,301 | ) |
| ||||
Net decrease in net assets resulting from operations |
| $ | (403,700,792 | ) |
|
See Notes to Financial Statements
20
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 9,638,509 |
|
|
| $ | 18,365,871 |
|
Net realized gains or losses on investments |
|
|
|
| (68,823,751 | ) |
|
|
| 61,380,693 |
|
Net change in unrealized gains or losses on investments |
|
|
|
| (344,515,550 | ) |
|
|
| (339,176,306 | ) |
| |||||||||||
Net decrease in net assets resulting from operations |
|
|
|
| (403,700,792 | ) |
|
|
| (259,429,742 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (2,096,218 | ) |
|
|
| (3,878,326 | ) |
Class B |
|
|
|
| (31,605 | ) |
|
|
| (51,813 | ) |
Class C |
|
|
|
| (39,798 | ) |
|
|
| (39,440 | ) |
Class I |
|
|
|
| (6,151,474 | ) |
|
|
| (13,019,753 | ) |
Class IS |
|
|
|
| (297,285 | ) |
|
|
| (554,873 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (9,171,367 | ) |
|
|
| (51,305,752 | ) |
Class B |
|
|
|
| (307,953 | ) |
|
|
| (2,370,573 | ) |
Class C |
|
|
|
| (360,597 | ) |
|
|
| (1,265,357 | ) |
Class I |
|
|
|
| (22,526,507 | ) |
|
|
| (157,887,576 | ) |
Class IS |
|
|
|
| (1,299,464 | ) |
|
|
| (6,975,858 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (42,282,268 | ) |
|
|
| (237,349,321 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 1,800,462 |
|
| 20,027,933 |
| 1,158,197 |
|
| 18,754,170 |
|
Class B |
| 99,684 |
|
| 1,006,050 |
| 96,782 |
|
| 1,462,758 |
|
Class C |
| 560,214 |
|
| 5,498,061 |
| 190,880 |
|
| 2,897,212 |
|
Class I |
| 4,054,069 |
|
| 44,061,345 |
| 7,586,455 |
|
| 120,931,280 |
|
Class IS |
| 24,199 |
|
| 270,666 |
| 25,123 |
|
| 410,176 |
|
| |||||||||||
|
|
|
|
| 70,864,055 |
|
|
|
| 144,455,596 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 1,074,876 |
|
| 10,563,170 |
| 3,250,280 |
|
| 52,985,687 |
|
Class B |
| 32,676 |
|
| 298,470 |
| 143,987 |
|
| 2,233,451 |
|
Class C |
| 23,126 |
|
| 215,520 |
| 51,778 |
|
| 818,705 |
|
Class I |
| 1,265,091 |
|
| 12,516,636 |
| 5,506,367 |
|
| 90,363,687 |
|
Class IS |
| 143,521 |
|
| 1,409,231 |
| 404,270 |
|
| 6,592,364 |
|
| |||||||||||
|
|
|
|
| 25,003,027 |
|
|
|
| 152,993,894 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 99,844 |
|
| 1,167,718 |
| 343,489 |
|
| 5,513,467 |
|
Class B |
| (105,189 | ) |
| (1,167,718 | ) | (361,172 | ) |
| (5,513,467 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (4,366,620 | ) |
| (49,430,764 | ) | (7,606,840 | ) |
| (121,519,827 | ) |
Class B |
| (126,931 | ) |
| (1,361,869 | ) | (310,366 | ) |
| (4,697,348 | ) |
Class C |
| (223,388 | ) |
| (2,229,707 | ) | (164,595 | ) |
| (2,600,768 | ) |
Class I |
| (17,639,524 | ) |
| (210,883,296 | ) | (31,568,968 | ) |
| (509,783,011 | ) |
Class IS |
| (331,411 | ) |
| (3,756,932 | ) | (609,574 | ) |
| (9,494,311 | ) |
| |||||||||||
|
|
|
|
| (267,662,568 | ) |
|
|
| (648,095,265 | ) |
|
(a) | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
See Notes to Financial Statements
21
STATEMENTS OF CHANGES IN NET ASSETS continued
|
| Six Months Ended |
| Year Ended |
| ||||||
Capital share transactions continued |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets resulting from capital share transactions |
|
|
| $ | (171,795,486 | ) |
|
| $ | (350,645,775 | ) |
| |||||||||||
Total decrease in net assets |
|
|
|
| (617,778,546 | ) |
|
|
| (847,424,838 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 1,361,930,714 |
|
|
|
| 2,209,355,552 |
|
End of period |
|
|
| $ | 744,152,168 |
|
|
| $ | 1,361,930,714 |
|
Undistributed (overdistributed) net investment income |
|
|
| $ | 922,575 |
|
|
| $ | (99,554 | ) |
(a) | For the ten months ended July 31, 2008. The Fund changed its fiscal year end from September 30 to July 31, effective July 31, 2008. |
See Notes to Financial Statements
22
STATEMENTS OF CHANGES IN NET ASSETS continued
|
| Year Ended |
| |||
| ||||||
Operations |
|
|
|
|
|
|
Net investment income |
|
|
| $ | 24,666,231 |
|
Net realized gains on investments |
|
|
|
| 317,472,821 |
|
Net change in unrealized gains or losses on investments |
|
|
|
| (58,186,121 | ) |
| ||||||
Net increase in net assets resulting from operations |
|
|
|
| 283,952,931 |
|
| ||||||
Distributions to shareholders from |
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
Class A |
|
|
|
| (3,348,628 | ) |
Class B |
|
|
|
| (59,143 | ) |
Class C |
|
|
|
| (25,804 | ) |
Class I |
|
|
|
| (20,692,940 | ) |
Class IS |
|
|
|
| (665,003 | ) |
Net realized gains |
|
|
|
|
|
|
Class A |
|
|
|
| (4,070,673 | ) |
Class B |
|
|
|
| (1,044,861 | ) |
Class C |
|
|
|
| (307,085 | ) |
Class I |
|
|
|
| (58,268,660 | ) |
Class IS |
|
|
|
| (2,358,668 | ) |
| ||||||
Total distributions to shareholders |
|
|
|
| (90,841,465 | ) |
| ||||||
|
| Shares |
|
|
|
|
| ||||||
Capital share transactions |
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
Class A |
| 2,285,129 |
|
| 42,144,543 |
|
Class B |
| 215,470 |
|
| 3,744,929 |
|
Class C |
| 271,740 |
|
| 4,788,660 |
|
Class I |
| 15,094,476 |
|
| 280,114,830 |
|
Class IS |
| 39,036 |
|
| 714,883 |
|
| ||||||
|
|
|
|
| 331,507,845 |
|
| ||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
Class A |
| 386,349 |
|
| 6,959,436 |
|
Class B |
| 61,800 |
|
| 1,038,276 |
|
Class C |
| 12,516 |
|
| 214,218 |
|
Class I |
| 2,001,115 |
|
| 35,605,091 |
|
Class IS |
| 144,674 |
|
| 2,563,336 |
|
| ||||||
|
|
|
|
| 46,380,357 |
|
| ||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
Class A |
| 360,217 |
|
| 6,538,358 |
|
Class B |
| (377,148 | ) |
| (6,538,358 | ) |
| ||||||
|
|
|
|
| 0 |
|
|
See Notes to Financial Statements
23
STATEMENTS OF CHANGES IN NET ASSETS continued
|
| Year Ended |
| |||
| ||||||
|
| Shares |
|
|
|
|
| ||||||
Capital share transactions continued |
|
|
|
|
|
|
Payment for shares redeemed |
|
|
|
|
|
|
Class A |
| (10,014,036 | ) | $ | (188,221,519 | ) |
Class B |
| (391,453 | ) |
| (6,795,099 | ) |
Class C |
| (93,304 | ) |
| (1,649,230 | ) |
Class I |
| (33,929,502 | ) |
| (622,568,556 | ) |
Class IS |
| (615,247 | ) |
| (11,201,450 | ) |
| ||||||
|
|
|
|
| (830,435,854 | ) |
| ||||||
Net asset value of shares issued in acquisition |
|
|
|
|
|
|
Class A |
| 27,266,273 |
|
| 524,311,277 |
|
| ||||||
Net increase in net assets resulting from capital share transactions |
|
|
|
| 71,763,625 |
|
| ||||||
Total increase in net assets |
|
|
|
| 264,875,091 |
|
Net assets |
|
|
|
|
|
|
Beginning of period |
|
|
|
| 1,944,480,461 |
|
| ||||||
End of period |
|
|
| $ | 2,209,355,552 |
|
| ||||||
Overdistributed net investment income |
|
|
| $ | (1,061,550 | ) |
|
See Notes to Financial Statements
24
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Enhanced S&P 500® (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C, Class I and Class IS shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I and Class IS shares are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Foreign securities traded on an established exchange are valued at the last sales price on the exchange where the security is primarily traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Foreign securities may be valued at fair value according to procedures approved by the Board of Trustees if the closing price is not reflective of current market values due to trading or events occurring in the foreign markets between the close of the established exchange and the valuation time of the Fund. In addition, substantial changes in values in the U.S. markets subsequent to the close of a foreign market may also affect the values of securities traded in the foreign market. The value of foreign securities may be adjusted if such movements in the U.S. market exceed a specified threshold.
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as similar security prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers which use prices provided by market makers or
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Repurchase agreements
Securities pledged as collateral for repurchase agreements are held by the custodian bank or in a segregated account in the Fund’s name until the agreements mature. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the Fund and the counterparty. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. However, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. The Fund will only enter into repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. In certain instances, the Fund’s securities lending agent may provide collateral in the form of repurchase agreements.
c. Futures contracts
In order to gain exposure to, or protect against changes in, security values, the Fund may buy and sell futures contracts. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts.
d. Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan. In the event of default or bankruptcy by the borrower, the Fund could experience delays
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
e. Options
The Fund may write covered put or call options. When a Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options, which expire unexercised, are recognized as realized gains from investments on the expiration date. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
The Fund may also purchase call or put options. The premium is included in the Statement of Assets and Liabilities as an investment which is subsequently adjusted to the current market value of the option. Premiums paid for purchased options which expire are recognized as realized losses from investments on the expiration date. Premiums paid for purchased options which are exercised or closed are added to the amount paid or offset against the proceeds on the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.
f. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date or in the case of some foreign securities, on the date when the Fund is made aware of the dividend.
g. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
h. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
i. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid a base monthly management fee at an annual rate of 0.30% which could be adjusted up to a maximum annual rate of 0.45% or down to a minimum annual rate of 0.15%, depending on the Fund’s performance against the S&P 500. For the six months ended January 31, 2009, the advisory fee was equivalent to an annual rate of 0.45% of the Fund’s average daily net assets.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC with the same terms and conditions as the existing agreement which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC voluntarily waived its advisory fee in the amount of $425.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliates on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying
28
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.11% of the Fund’s average daily net assets.
Wachovia Bank NA, a subsidiary of Wells Fargo and an affiliate of EIMC, through its securities lending division, Wachovia Global Securities Lending, acts as the securities lending agent for the Fund (see Note 6).
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for each of Class A and Class IS shares and up to 1.00% of the average daily net assets for each of Class B and Class C shares. However, currently the distribution fees for Class A and Class IS shares are limited to 0.25% of the average daily net assets of each class.
For the six months ended January 31, 2009, EIS received $890 from the sale of Class A shares and $8,607 and $2,117 in contingent deferred sales charges from redemptions of Class B and Class C shares, respectively.
5. ACQUISITIONS
Effective at the close of business on May 18, 2007, the Fund acquired the net assets of Atlas Growth Opportunities Fund in a tax-free exchange for Class A shares of the Fund. Shares were issued to shareholders of Atlas Growth Opportunities Fund at an exchange ratio of 1.33 for Class A shares of the Fund. On the same date, the Fund also acquired the net assets of Atlas Strategic Growth Fund in a tax-free exchange for Class A shares of the Fund. Shares were issued to shareholders of Atlas Strategic Growth Fund at an exchange ratio of 0.81 for Class A shares of the Fund. The aggregate net assets of the Fund immediately prior to the acquisitions were $2,009,952,035.
29
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The value of net assets acquired, unrealized appreciation acquired and number of shares issued were as follows:
| Value of |
|
| |||||
| Net Assets | Unrealized | Number of | |||||
Acquired Fund | Acquired | Appreciation | Shares Issued | |||||
Atlas Growth Opportunities Fund |
| $434,721,074 |
|
| $98,150,126 |
| 22,607,238 | Class A |
Atlas Strategic Growth Fund |
| 89,590,203 |
|
| 15,433,119 |
| 4,659,035 | Class A |
The aggregate net assets of the Fund immediately after these acquisitions were $2,534,263,312.
6. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $125,283,568 and $332,535,620, respectively, for the six months ended January 31, 2009.
On August 1, 2008, the Fund implemented Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
|
| Investments in |
| Other Financial | ||||
Valuation Inputs |
| Securities |
| Instruments* | ||||
Level 1 – Quoted Prices |
| $ | 823,069,971 |
|
| $ | (246,944 | ) |
Level 2 – Other Significant Observable Inputs |
|
| 0 |
|
|
| 0 |
|
Level 3 – Significant Unobservable Inputs |
|
| 0 |
|
|
| 0 |
|
Total |
| $ | 823,069,971 |
|
| $ | (246,944 | ) |
* | Other financial instruments include futures transactions. |
30
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
At January 31, 2009, the Fund had long futures contracts outstanding as follows:
Expiration | Contracts |
| Initial Contract Amount |
| Value at |
| Unrealized |
|
March 2009 | 67 S&P 500 Index Futures |
| $14,023,819 |
| $13,776,875 |
| $(246,944) |
|
During the six months ended January 31, 2009, the Fund loaned securities to certain brokers and earned $474,177, net of $53,795 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2009, the value of securities on loan and the total value of collateral received for securities loaned (including segregated cash) amounted to $75,385,181 and $80,056,358, respectively.
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $899,436,177. The gross unrealized appreciation and depreciation on securities based on tax cost was $130,201,523 and $206,567,729, respectively, with a net unrealized depreciation of $76,366,206.
As of July 31, 2008, the Fund had $78,652,416 in capital loss carryovers for federal income tax purposes with $26,197,616 expiring in 2009 and $52,454,800 expiring in 2010. Certain portions of the capital loss carryovers of the Fund were assumed as a result of acquisitions. These losses are subject to certain limitations prescribed by the Internal Revenue Code. Utilization of these capital loss carryovers was limited during the year ended July 31, 2008 in accordance with income tax regulations.
7. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an interfund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
8. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
9. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
31
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
10. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata.
During the six months ended January 31, 2009, the Fund had average borrowings outstanding of $48,969 (on an annualized basis) at an average rate of 2.69% and paid interest of $1,317.
11. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds.
12. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amend-
32
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
ment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
13. SUBSEQUENT DISTRIBUTIONS
On March 12, 2009, the Fund declared distributions from net investment income to shareholders of record on March 11, 2009. The per share amounts payable on March 13, 2009 were as follows:
| Net Investment | |
Class A | $0.0502 |
|
Class B | 0.0305 |
|
Class C | 0.0316 |
|
Class I | 0.0561 |
|
Class IS | 0.0502 |
|
These distributions are not reflected in the accompanying financial statements.
33
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On February 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $781,692,686 of net assets outstanding of which $488,156,072 (62.45%) of net assets were represented at the meeting.
Proposal 1 — To consider and act upon a new investment advisory agreement with Evergreen Investment Management Company, LLC:
Net assets voted “For” | $ | 475,904,573 |
Net assets voted “Against” | $ | 4,489,133 |
Net assets voted “Abstain” | $ | 7,762,366 |
34
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. In September 2008, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Enhanced S&P 500® Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of its deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. The Trustees began their 2008 review process at the time of the last advisory contract-renewal process in September 2007. In the course of their 2007 review, the Trustees identified a number of funds that had experienced either short-term or longer-term performance issues. During the 2008 review process, the Trustees monitored each of these funds in particular for changes in performance and for the results of any changes in a fund’s investment process or investment team. In addition, during the course of the year, the Trustees regularly reviewed information regarding the investment performance of all of the funds, paying particular attention to funds whose performance since September 2007 indicated short-term or longer-term performance issues.
In spring 2008, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Board would review as part of its 2008 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the independent Trustees, the information that EIMC and Keil provided. The Trustees formed small groups to review individual funds in greater detail. In addition, the Trustees
35
ADDITIONAL INFORMATION (unaudited) continued
considered information regarding, among other things, brokerage practices of the funds, the use of derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
The Committee met several times by telephone during the 2008 review process to consider the information provided by EIMC. The Committee then met with representatives of EIMC. In addition, over the period of this review, the independent Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC and in multiple private sessions with independent legal counsel at which no personnel of EIMC were present. At a meeting of the full Board of Trustees in September, the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC and engaged in further review of the materials provided to it, and approved the continuation of each of the advisory and sub-advisory agreements.
In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements as part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, EIMC presents a wide variety of information regarding the services it performs, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds and EIMC with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of
36
ADDITIONAL INFORMATION (unaudited) continued
services provided by EIMC. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2007. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new Chief Compliance Officer for the funds in June of 2007 and a new Chief Investment Officer at EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC or its affiliates for such services. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. The Trustees also considered the investment performance of those other accounts managed by EIMC and its affiliates, where applicable, and concluded that the performance of those accounts did not suggest any substantial difference in the quality of the service provided by EIMC and its affiliates to those accounts.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. The Board considered that EIS, an affiliate of EIMC, serves as distributor to the funds generally and receives fees from the funds for those services. They considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that the funds pay sub-transfer agency fees to various financial institutions, including Wachovia Securities, LLC and its affiliates, that hold fund shares in omnibus accounts,
37
ADDITIONAL INFORMATION (unaudited) continued
and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the Trustees noted that an affiliate of EIMC had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wachovia Securities, LLC and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through it. The Trustees also noted that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
In the period leading up to the Trustees’ approval of continuation of the investment advisory agreements, the Trustees were mindful of the financial condition of Wachovia Corporation (“Wachovia”), EIMC’s parent company. They considered the possibility that a significant adverse change in Wachovia’s financial condition could impair the ability of EIMC or its affiliates to perform services for the funds at the same level as in the past. The Trustees concluded that any change in Wachovia’s financial condition had not to date had any such effect, but determined to monitor EIMC’s and its affiliates’ performance, and financial conditions generally, going forward in order to identify any such impairment that may develop and to take appropriate action.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC formulates and implements an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC were consistent with their respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund
38
ADDITIONAL INFORMATION (unaudited) continued
and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by EIMC, including services provided by EIMC under its administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. Although the Trustees considered the performance of all share classes, the Trustees noted that, for the three- and five-year periods ended December 31, 2007, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the S&P 500 Index, and a majority of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that, for the one- and ten-year periods ended December 31, 2007, the Fund’s Class A shares had underperformed the Fund’s benchmark index and performed in the third quintile of mutual funds against which the Trustees compared the Fund’s performance.
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative underperformance. The Trustees also noted that EIMC had appointed a new Chief Investment Officer in August of 2008 who had not yet had sufficient time to evaluate and direct remedial efforts with respect to funds that have experienced a substantial period of relative underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not excessive. The Trustees noted that the management fee paid by the Fund was lower than the management fees paid by most of the other mutual funds
39
ADDITIONAL INFORMATION (unaudited) continued
against which the Trustees compared the Fund’s management fee, and that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees noted the possibility that economies of scale would be achieved by EIMC in managing the funds as the funds grow. The Trustees noted that the Fund had implemented breakpoints in its advisory fee structure. The Trustees noted that they would continue to review the appropriate levels of breakpoints in the future, and concluded that the breakpoints as implemented appeared to be a reasonable step toward the realization of economies of scale by the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability of any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
Matters Relating to Approval of Interim Advisory and Sub-Advisory Agreements. Following the Trustees’ approval of the continuation of the funds’ investment advisory agreements, Wells Fargo & Company (“Wells Fargo”) announced that it had agreed to acquire Wachovia in a whole company transaction that would include all of Wachovia’s banking and other businesses, including EIMC. In connection with this transaction, on October 20, 2008, Wachovia issued preferred shares representing a 39.9% voting interest in Wachovia to Wells Fargo pursuant to a Share Exchange Agreement. Wells Fargo subsequently completed its acquisition of Wachovia on December 31, 2008.
Under the 1940 Act, both the issuance of the preferred shares to Wells Fargo and the completion of the acquisition could be viewed as resulting in the termination of the funds’ investment advisory and sub-advisory agreements. Accordingly, on October 20, 2008, the Board of Trustees approved interim investment advisory and sub-advisory agreements that would become effective upon Wachovia’s issuance of preferred shares to Wells Fargo. On November 12, 2008, the Trustees approved a second set of interim investment advisory and sub-advisory agreements that would become effective upon the completion of the acquisition. (The first set of interim agreements approved on October 20, 2008, together
40
ADDITIONAL INFORMATION (unaudited) continued
with the second set of interim agreements approved November 12, 2008, are referred to as “Interim Agreements.”) In addition, the Trustees approved on November 12, 2008, and again at an in-person meeting on December 3 and 4, 2008, definitive investment advisory and sub-advisory agreements (the “New Agreements”) and recommended that shareholders of the funds approve them at meetings to be held in early 2009.
In considering whether to approve the first set of Interim Agreements on October 20, 2008, the Trustees took into account that they had recently approved the annual continuation of all of the funds’ existing investment advisory and sub-advisory agreements in September 2008. The Trustees reviewed the terms of the Interim Agreements, noting that the terms were generally identical to those of the funds’ investment advisory agreements that were in effect before October 20, 2008 (but for provisions required by law to be included in the Interim Agreements). They also took into account current and anticipated market and economic conditions, the financial condition of EIMC and of Wachovia generally, and the likely effect of the merger on the financial condition of Wachovia. In general, the Trustees considered that the proposed merger of Wachovia with Wells Fargo would very likely improve substantially the financial condition of EIMC’s parent company, increase the capital available to support the funds, and ensure that EIMC and its affiliates would have the resources to provide continuing services to the funds. In light principally of these considerations and their recent continuation of the funds’ investment advisory arrangements in September, the Trustees unanimously approved the first set of Interim Agreements that became effective on October 20, 2008.
In addition to the foregoing, at their meetings on November 12, 2008 and December 3 and 4, 2008 when the Trustees considered whether to approve the second set of Interim Agreements as well as the New Agreements, the Trustees considered presentations made to them on November 12, 2008 by representatives of EIMC and Wells Fargo regarding the anticipated implications of the merger for EIMC and the funds. The Trustees also considered:
• | Their understanding that the merger was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC would provide to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high quality services; |
• | Information about Wells Fargo’s financial condition, reputation, and resources, and the likelihood that the merger would result in improved organizational stability for EIMC, benefiting the funds as well as offering the potential for the funds, over time, to access Wells Fargo’s infrastructure, resources and capabilities; |
41
ADDITIONAL INFORMATION (unaudited) continued
• | That EIMC and Wells Fargo representatives have stated that there is no present intention to change the funds’ existing advisory fees or expense limitations; |
• | That the representatives of Wells Fargo have expressed their intention to pursue the integration of EIMC and the funds with corresponding Wells Fargo businesses and funds only after a deliberative process designed to identify and retain the relative strengths of both organizations; |
• | That the Wells Fargo representatives expect that the deliberative process and any subsequent integration will take more than a year; |
• | That, in the meantime, Wells Fargo expects to retain, largely in its current form, the existing EIMC management team and investment advisory and other key professionals and to operate EIMC following the merger as a separate business unit under the Evergreen brand; |
• | That Wells Fargo and EIMC would consult with the Trustees before implementing any significant changes that would affect the funds or the services provided by EIMC or its affiliates to the funds; |
• | Wells Fargo’s experience and approach with respect to acquisitions of other fund complexes; |
• | The fact that, if the New Agreements were not approved, on March 19, 2009, the Subsequent Interim Agreements will expire and the funds will no longer have a contractual right to investment advisory services from EIMC or any sub-advisors; |
• | That EIMC’s management supports the merger; and |
• | That representatives of EIMC have committed that the funds will not bear the expenses relating to Wells Fargo’s acquisition of Wachovia, including the costs of soliciting fund shareholders to approve the New Agreements. |
Based on the foregoing, the Trustees, including all of the Trustees who are not “interested persons” of the funds or EIMC, unanimously approved the second set of Interim Agreements and the New Agreements.
42
This page left intentionally blank
43
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
|
Charles A. Austin III |
| Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford |
| Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. |
| Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel |
| Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell |
| Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris |
| President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 |
| Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson |
| President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton III, MD |
| President/CEO, AccessOne MedCard, Inc. |
44
TRUSTEES AND OFFICERS continued
Michael S. Scofield |
| Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima |
| Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 |
| Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
OFFICERS |
|
|
|
|
|
W. Douglas Munn4 |
| Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 |
| Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 |
| Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 |
| Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
45
569843 rv5 03/2009
Evergreen Equity Income Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
12 |
| SCHEDULE OF INVESTMENTS |
16 |
| STATEMENT OF ASSETS AND LIABILITIES |
18 |
| STATEMENT OF OPERATIONS |
19 |
| STATEMENTS OF CHANGES IN NET ASSETS |
21 |
| NOTES TO FINANCIAL STATEMENTS |
28 |
| ADDITIONAL INFORMATION |
36 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Equity Income Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During the period, the management teams of Evergreen’s value-oriented equity funds tended to emphasize investments in attractively priced and fundamentally sound corporations. The portfolio manager of Evergreen Disciplined Value Fund, for example, used a combination of quantitative tools and traditional fundamental analysis in reviewing opportunities. The manager of Evergreen Equity Index Fund maintained a portfolio reflecting the composition of the Standard & Poor’s 500® Index, using a proprietary process to control trading and implementation costs. Management of Evergreen Equity Income Fund emphasized companies they believe have the ability to maintain and increase their dividends to shareholders. The management of Evergreen Fundamental Large Cap Fund focused on larger corporations with stable earnings
1
LETTER TO SHAREHOLDERS continued
growth records while the management of Evergreen Fundamental Mid Cap Value Fund emphasized mid-sized companies selling at what the management believed to be reasonable valuations. The team managing Evergreen Intrinsic Value Fund sought out investments in established companies selling at stock prices below the managers’ estimate of the company’s intrinsic value. Meanwhile, the management of Evergreen Special Values Fund focused on higher-quality companies believed to have reasonable prices and strong balance sheets, and the management of Evergreen Small Cap Value Fund sought to invest in small companies of sound quality at attractive prices.
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
| • | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
| • | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Managers:
Walter T. McCormick, CFA; Gary Mishuris, CFA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 8/31/1978
| Class A | Class B | Class C | Class I | Class R |
Class inception date | 1/3/1995 | 1/3/1995 | 1/3/1995 | 8/31/1978 | 10/10/2003 |
Nasdaq symbol | ETRAX | ETRBX | ETRCX | EVTRX | ETRRX |
6-month return with sales charge | -36.34% | -36.00% | -33.39% | N/A | N/A |
6-month return w/o sales charge | -32.46% | -32.73% | -32.73% | -32.37% | -32.54% |
Average annual return* |
|
|
|
|
|
1-year with sales charge | -42.19% | -42.07% | -39.72% | N/A | N/A |
1-year w/o sales charge | -38.66% | -39.12% | -39.13% | -38.47% | -38.80% |
5-year | -5.75% | -5.58% | -5.31% | -4.35% | -4.86% |
10-year | 0.16% | 0.02% | 0.02% | 1.03% | 0.75% |
Maximum sales charge | 5.75% | 5.00% | 1.00% | N/A | N/A |
| Front-end | CDSC | CDSC |
|
|
* | Adjusted for maximum applicable sales charge, unless noted. |
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C or I, please go to EvergreenInvestments.com/fundperformance. Please call 1.800.847.5397 for the most recent month-end performance information for Class R. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Historical performance shown for Class R prior to its inception is based on the performance of Class I, the original class offered. The historical returns for Class R have not been adjusted to reflect the effect of its 12b-1 fee. The fund incurs a 12b-1 fee of 0.25% for Class A, 0.50% for Class R and 1.00% for Classes B and C. Class I does not pay a 12b-1 fee. If these fees had been reflected, returns for Class R would have been lower.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Returns reflect expense limits previously in effect, without which returns would have been lower.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to,
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Equity Income Fund Class A shares versus a similar investment in the Russell 1000 Value Index (Russell 1000 Value) and the Consumer Price Index (CPI).
The Russell 1000 Value is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability and foreign currency fluctuations.
Small and mid cap securities may be subject to special risks associated with narrower product lines and limited financial resources compared to their large cap counterparts, and, as a result, small and mid cap securities may decline significantly in market downturns and may be more volatile than those of larger companies due to the higher risk of failure.
The market value of convertible securities tends to decline as interest rates increase and may be affected by changes in the price of the underlying security.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
High yield, lower-rated bonds may contain more risk due to the increased possibility of default.
The return of principal is not guaranteed due to fluctuation in the fund’s NAV caused by changes in the price of individual bonds held by the fund and the buying and selling of bonds by the fund. Bond funds have the same inflation, interest rate and credit risks as individual bonds. Generally, the value of bond funds rises when prevailing interest rates fall, and falls when interest rates rise.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund���s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning | Ending |
| Expenses Paid | ||||
Actual |
|
|
|
|
|
|
|
|
Class A | $1,000.00 | $ | 675.39 |
|
| $ | 5.19 |
|
Class B | $1,000.00 | $ | 672.72 |
|
| $ | 8.35 |
|
Class C | $1,000.00 | $ | 672.69 |
|
| $ | 8.39 |
|
Class I | $1,000.00 | $ | 676.28 |
|
| $ | 4.18 |
|
Class R | $1,000.00 | $ | 674.55 |
|
| $ | 6.16 |
|
Hypothetical |
|
|
|
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
|
|
|
Class A | $1,000.00 | $ | 1,019.00 |
|
| $ | 6.26 |
|
Class B | $1,000.00 | $ | 1,015.22 |
|
| $ | 10.06 |
|
Class C | $1,000.00 | $ | 1,015.17 |
|
| $ | 10.11 |
|
Class I | $1,000.00 | $ | 1,020.21 |
|
| $ | 5.04 |
|
Class R | $1,000.00 | $ | 1,017.85 |
|
| $ | 7.43 |
|
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.23% for Class A, 1.98% for Class B, 1.99% for Class C, 0.99% for Class I and 1.46% for Class R), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS A |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
| $ | 19.57 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.12 |
|
| 0.29 |
|
| 0.36 |
|
| 0.44 |
|
| 0.35 |
|
| 0.36 |
|
Net realized and unrealized gains or losses on investments |
|
| (6.22 | ) |
| (3.25 | ) |
| 2.70 |
|
| 1.01 |
|
| 3.40 |
|
| 1.89 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.10 | ) |
| (2.96 | ) |
| 3.06 |
|
| 1.45 |
|
| 3.75 |
|
| 2.25 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.11 | ) |
| (0.28 | ) |
| (0.49 | ) |
| (0.30 | ) |
| (0.33 | ) |
| (0.39 | ) |
Net realized gains |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.43 | ) |
| (2.13 | ) |
| (3.24 | ) |
| (1.37 | ) |
| (1.10 | ) |
| (0.39 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 12.36 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
|
| |||||||||||||||||||
Total return1 |
|
| (32.46 | )% |
| (13.46 | )% |
| 13.55 | % |
| 6.40 | % |
| 17.85 | % |
| 11.48 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 175,411 |
| $ | 287,236 |
| $ | 404,494 |
| $ | 420,757 |
| $ | 494,637 |
| $ | 485,701 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.23 | %2 |
| 1.15 | % |
| 1.18 | % |
| 1.21 | % |
| 1.19 | % |
| 1.34 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.23 | %2 |
| 1.18 | % |
| 1.19 | % |
| 1.21 | % |
| 1.23 | % |
| 1.36 | % |
Net investment income (loss) |
|
| 1.52 | %2 |
| 1.35 | % |
| 1.49 | % |
| 1.80 | % |
| 1.56 | % |
| 1.62 | % |
Portfolio turnover rate |
|
| 9 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
| 137 | % |
|
1 | Excluding applicable sales charges |
2 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS B |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.71 |
| $ | 23.77 |
| $ | 23.96 |
| $ | 23.88 |
| $ | 21.26 |
| $ | 19.40 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.06 | 1 |
| 0.13 | 1 |
| 0.19 | 1 |
| 0.25 | 1 |
| 0.20 | 1 |
| 0.20 | 1 |
Net realized and unrealized gains or losses on investments |
|
| (6.17 | ) |
| (3.23 | ) |
| 2.69 |
|
| 1.02 |
|
| 3.35 |
|
| 1.88 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.11 | ) |
| (3.10 | ) |
| 2.88 |
|
| 1.27 |
|
| 3.55 |
|
| 2.08 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.11 | ) |
| (0.32 | ) |
| (0.12 | ) |
| (0.16 | ) |
| (0.22 | ) |
Net realized gains |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.36 | ) |
| (1.96 | ) |
| (3.07 | ) |
| (1.19 | ) |
| (0.93 | ) |
| (0.22 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 12.24 |
| $ | 18.71 |
| $ | 23.77 |
| $ | 23.96 |
| $ | 23.88 |
| $ | 21.26 |
|
| |||||||||||||||||||
Total return2 |
|
| (32.73 | )% |
| (14.10 | )% |
| 12.76 | % |
| 5.66 | % |
| 16.97 | % |
| 10.71 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 13,403 |
| $ | 27,550 |
| $ | 48,897 |
| $ | 60,111 |
| $ | 85,366 |
| $ | 121,797 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.98 | %3 |
| 1.89 | % |
| 1.89 | % |
| 1.91 | % |
| 1.89 | % |
| 2.05 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.98 | %3 |
| 1.89 | % |
| 1.89 | % |
| 1.91 | % |
| 1.93 | % |
| 2.07 | % |
Net investment income (loss) |
|
| 0.78 | %3 |
| 0.61 | % |
| 0.78 | % |
| 1.05 | % |
| 0.89 | % |
| 0.92 | % |
Portfolio turnover rate |
|
| 9 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
| 137 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS C |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.67 |
| $ | 23.72 |
| $ | 23.92 |
| $ | 23.85 |
| $ | 21.23 |
| $ | 19.39 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.06 |
|
| 0.13 | 1 |
| 0.19 | 1 |
| 0.25 | 1 |
| 0.20 | 1 |
| 0.20 | 1 |
Net realized and unrealized gains or losses on investments |
|
| (6.16 | ) |
| (3.22 | ) |
| 2.68 |
|
| 1.02 |
|
| 3.35 |
|
| 1.87 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.10 | ) |
| (3.09 | ) |
| 2.87 |
|
| 1.27 |
|
| 3.55 |
|
| 2.07 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.11 | ) |
| (0.32 | ) |
| (0.13 | ) |
| (0.16 | ) |
| (0.23 | ) |
Net realized gains |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.36 | ) |
| (1.96 | ) |
| (3.07 | ) |
| (1.20 | ) |
| (0.93 | ) |
| (0.23 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 12.21 |
| $ | 18.67 |
| $ | 23.72 |
| $ | 23.92 |
| $ | 23.85 |
| $ | 21.23 |
|
| |||||||||||||||||||
Total return2 |
|
| (32.73 | )% |
| (14.07 | )% |
| 12.74 | % |
| 5.64 | % |
| 17.02 | % |
| 10.70 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 11,836 |
| $ | 17,571 |
| $ | 27,901 |
| $ | 28,739 |
| $ | 37,607 |
| $ | 42,447 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.99 | %3 |
| 1.90 | % |
| 1.89 | % |
| 1.91 | % |
| 1.89 | % |
| 2.04 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.99 | %3 |
| 1.90 | % |
| 1.89 | % |
| 1.91 | % |
| 1.93 | % |
| 2.06 | % |
Net investment income (loss) |
|
| 0.76 | %3 |
| 0.61 | % |
| 0.78 | % |
| 1.08 | % |
| 0.87 | % |
| 0.92 | % |
Portfolio turnover rate |
|
| 9 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
| 137 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS I |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
| $ | 19.57 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.14 |
|
| 0.35 |
|
| 0.42 |
|
| 0.51 |
|
| 0.43 |
|
| 0.42 |
|
Net realized and unrealized gains or losses on investments |
|
| (6.22 | ) |
| (3.26 | ) |
| 2.72 |
|
| 1.01 |
|
| 3.39 |
|
| 1.89 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.08 | ) |
| (2.91 | ) |
| 3.14 |
|
| 1.52 |
|
| 3.82 |
|
| 2.31 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.13 | ) |
| (0.33 | ) |
| (0.57 | ) |
| (0.37 | ) |
| (0.40 | ) |
| (0.45 | ) |
Net realized gains |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.45 | ) |
| (2.18 | ) |
| (3.32 | ) |
| (1.44 | ) |
| (1.17 | ) |
| (0.45 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 12.36 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
|
| |||||||||||||||||||
Total return |
|
| (32.37 | )% |
| (13.18 | )% |
| 13.84 | % |
| 6.72 | % |
| 18.19 | % |
| 11.81 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 322 |
| $ | 502 |
| $ | 642 |
| $ | 616 |
| $ | 640 |
| $ | 631 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.99 | %1 |
| 0.90 | % |
| 0.89 | % |
| 0.92 | % |
| 0.89 | % |
| 1.05 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.99 | %1 |
| 0.90 | % |
| 0.89 | % |
| 0.92 | % |
| 0.93 | % |
| 1.07 | % |
Net investment income (loss) |
|
| 1.77 | %1 |
| 1.61 | % |
| 1.78 | % |
| 2.12 | % |
| 1.87 | % |
| 1.92 | % |
Portfolio turnover rate |
|
| 9 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
| 137 | % |
|
1 | Annualized |
See Notes to Financial Statements
10
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS R |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 20041 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.92 |
| $ | 24.02 |
| $ | 24.19 |
| $ | 24.10 |
| $ | 21.42 |
| $ | 20.33 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.09 | 2 |
| 0.21 |
|
| 0.30 |
|
| 0.34 |
|
| 0.24 |
|
| 0.25 |
|
Net realized and unrealized gains or losses on investments |
|
| (6.23 | ) |
| (3.23 | ) |
| 2.73 |
|
| 1.06 |
|
| 3.44 |
|
| 1.08 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.14 | ) |
| (3.02 | ) |
| 3.03 |
|
| 1.40 |
|
| 3.68 |
|
| 1.33 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.06 | ) |
| (0.23 | ) |
| (0.45 | ) |
| (0.24 | ) |
| (0.23 | ) |
| (0.24 | ) |
Net realized gains |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
| 0 |
|
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.38 | ) |
| (2.08 | ) |
| (3.20 | ) |
| (1.31 | ) |
| (1.00 | ) |
| (0.24 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 12.40 |
| $ | 18.92 |
| $ | 24.02 |
| $ | 24.19 |
| $ | 24.10 |
| $ | 21.42 |
|
| |||||||||||||||||||
Total return |
|
| (32.54 | )% |
| (13.64 | )% |
| 13.30 | % |
| 6.19 | % |
| 17.46 | % |
| 6.50 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 12 |
| $ | 50 |
| $ | 103 |
| $ | 85 |
| $ | 88 |
| $ | 1 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.46 | %3 |
| 1.39 | % |
| 1.39 | % |
| 1.42 | % |
| 1.47 | % |
| 1.47 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.46 | %3 |
| 1.39 | % |
| 1.39 | % |
| 1.42 | % |
| 1.51 | % |
| 1.49 | %3 |
Net investment income (loss) |
|
| 1.08 | %3 |
| 1.16 | % |
| 1.27 | % |
| 1.45 | % |
| 0.88 | % |
| 1.41 | %3 |
Portfolio turnover rate |
|
| 9 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
| 137 | % |
|
1 | For the period from October 10, 2003 (commencement of class operations), to July 31, 2004. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS 98.4% |
|
|
|
|
|
|
CONSUMER DISCRETIONARY 10.8% |
|
|
|
|
|
|
Hotels, Restaurants & Leisure 1.8% |
|
|
|
|
|
|
Carnival Corp. ρ |
| 502,000 |
| $ | 9,131,380 |
|
|
|
|
|
| ||
Media 3.6% |
|
|
|
|
|
|
Omnicom Group, Inc. ρ |
| 721,966 |
|
| 18,691,700 |
|
|
|
|
|
| ||
Multiline Retail 1.4% |
|
|
|
|
|
|
Target Corp. ρ |
| 232,392 |
|
| 7,250,630 |
|
|
|
|
|
| ||
Specialty Retail 1.6% |
|
|
|
|
|
|
Home Depot, Inc. ρ |
| 399,600 |
|
| 8,603,388 |
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 2.4% |
|
|
|
|
|
|
Timberland Co., Class A * |
| 1,134,000 |
|
| 12,462,660 |
|
|
|
|
|
| ||
CONSUMER STAPLES 12.9% |
|
|
|
|
|
|
Beverages 4.7% |
|
|
|
|
|
|
Coca-Cola Co. |
| 160,096 |
|
| 6,839,301 |
|
Diageo plc |
| 1,296,803 |
|
| 17,697,546 |
|
|
|
|
|
| ||
|
|
|
|
| 24,536,847 |
|
|
|
|
|
| ||
Food Products 3.5% |
|
|
|
|
|
|
Kraft Foods, Inc., Class A |
| 277,175 |
|
| 7,774,759 |
|
McCormick & Co., Inc. ρ |
| 323,900 |
|
| 10,377,756 |
|
|
|
|
|
| ||
|
|
|
|
| 18,152,515 |
|
|
|
|
|
| ||
Household Products 2.5% |
|
|
|
|
|
|
Clorox Co. ρ |
| 160,311 |
|
| 8,039,597 |
|
Procter & Gamble Co. |
| 94,603 |
|
| 5,155,863 |
|
|
|
|
|
| ||
|
|
|
|
| 13,195,460 |
|
|
|
|
|
| ||
Tobacco 2.2% |
|
|
|
|
|
|
Philip Morris International, Inc. |
| 311,669 |
|
| 11,578,504 |
|
|
|
|
|
| ||
ENERGY 15.5% |
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 15.5% |
|
|
|
|
|
|
Chevron Corp. |
| 220,100 |
|
| 15,521,452 |
|
ConocoPhillips |
| 352,589 |
|
| 16,758,555 |
|
Exxon Mobil Corp. |
| 450,029 |
|
| 34,418,218 |
|
Occidental Petroleum Corp. ρ |
| 265,430 |
|
| 14,479,207 |
|
|
|
|
|
| ||
|
|
|
|
| 81,177,432 |
|
|
|
|
|
| ||
FINANCIALS 12.5% |
|
|
|
|
|
|
Capital Markets 4.2% |
|
|
|
|
|
|
AllianceBernstein Holding LP ρ |
| 310,718 |
|
| 5,307,063 |
|
Legg Mason, Inc. ρ |
| 649,800 |
|
| 10,435,788 |
|
State Street Corp. |
| 273,080 |
|
| 6,354,572 |
|
|
|
|
|
| ||
|
|
|
|
| 22,097,423 |
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
Commercial Banks 1.2% |
|
|
|
|
|
|
Wells Fargo & Co. ° |
| 333,504 |
| $ | 6,303,226 |
|
|
|
|
|
| ||
Consumer Finance 1.0% |
|
|
|
|
|
|
Visa, Inc., Class A ρ |
| 102,735 |
|
| 5,069,972 |
|
|
|
|
|
| ||
Diversified Financial Services 4.5% |
|
|
|
|
|
|
Apollo Global Management, LLC, Class A + |
| 605,421 |
|
| 908,132 |
|
Bank of America Corp. |
| 1,273,497 |
|
| 8,379,610 |
|
JPMorgan Chase & Co. |
| 545,485 |
|
| 13,915,322 |
|
|
|
|
|
| ||
|
|
|
|
| 23,203,064 |
|
|
|
|
|
| ||
Insurance 1.6% |
|
|
|
|
|
|
Prudential Financial, Inc. |
| 207,999 |
|
| 5,355,974 |
|
Stewart Information Services Corp. |
| 217,300 |
|
| 3,224,732 |
|
|
|
|
|
| ||
|
|
|
|
| 8,580,706 |
|
|
|
|
|
| ||
HEALTH CARE 17.6% |
|
|
|
|
|
|
Biotechnology 2.1% |
|
|
|
|
|
|
Amgen, Inc. * |
| 199,201 |
|
| 10,926,175 |
|
|
|
|
|
| ||
Health Care Equipment & Supplies 4.8% |
|
|
|
|
|
|
Baxter International, Inc. |
| 121,762 |
|
| 7,141,341 |
|
Boston Scientific Corp. ρ * |
| 781,300 |
|
| 6,930,131 |
|
Medtronic, Inc. |
| 327,594 |
|
| 10,971,123 |
|
|
|
|
|
| ||
|
|
|
|
| 25,042,595 |
|
|
|
|
|
| ||
Health Care Providers & Services 3.2% |
|
|
|
|
|
|
WellPoint, Inc. * |
| 398,595 |
|
| 16,521,763 |
|
|
|
|
|
| ||
Pharmaceuticals 7.5% |
|
|
|
|
|
|
Bristol-Myers Squibb Co. |
| 395,526 |
|
| 8,468,212 |
|
Novartis AG, ADR ρ |
| 427,800 |
|
| 17,651,028 |
|
Pfizer, Inc. |
| 914,430 |
|
| 13,332,389 |
|
|
|
|
|
| ||
|
|
|
|
| 39,451,629 |
|
|
|
|
|
| ||
INDUSTRIALS 8.6% |
|
|
|
|
|
|
Aerospace & Defense 1.3% |
|
|
|
|
|
|
Lockheed Martin Corp. |
| 85,150 |
|
| 6,985,706 |
|
|
|
|
|
| ||
Air Freight & Logistics 1.4% |
|
|
|
|
|
|
Expeditors International of Washington, Inc. |
| 265,000 |
|
| 7,369,650 |
|
|
|
|
|
| ||
Commercial Services & Supplies 3.0% |
|
|
|
|
|
|
Avery Dennison Corp. |
| 201,800 |
|
| 4,889,614 |
|
Cintas Corp. |
| 481,800 |
|
| 10,960,950 |
|
|
|
|
|
| ||
|
|
|
|
| 15,850,564 |
|
|
|
|
|
| ||
Industrial Conglomerates 2.9% |
|
|
|
|
|
|
General Electric Co. ρ |
| 1,227,169 |
|
| 14,885,560 |
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
INFORMATION TECHNOLOGY 14.8% |
|
|
|
|
|
|
Communications Equipment 4.0% |
|
|
|
|
|
|
Cisco Systems, Inc. * |
| 530,300 |
| $ | 7,938,591 |
|
QUALCOMM, Inc. |
| 380,600 |
|
| 13,149,730 |
|
|
|
|
|
| ||
|
|
|
|
| 21,088,321 |
|
|
|
|
|
| ||
Computers & Peripherals 0.6% |
|
|
|
|
|
|
Dell, Inc. * ρ |
| 350,000 |
|
| 3,325,000 |
|
|
|
|
|
| ||
Internet Software & Services 1.2% |
|
|
|
|
|
|
Google, Inc., Class A * |
| 18,500 |
|
| 6,262,805 |
|
|
|
|
|
| ||
IT Services 1.7% |
|
|
|
|
|
|
Automatic Data Processing, Inc. |
| 242,100 |
|
| 8,795,493 |
|
|
|
|
|
| ||
Semiconductors & Semiconductor Equipment 2.4% |
|
|
|
|
|
|
Intel Corp. |
| 548,200 |
|
| 7,071,780 |
|
Texas Instruments, Inc. |
| 367,300 |
|
| 5,491,135 |
|
|
|
|
|
| ||
|
|
|
|
| 12,562,915 |
|
|
|
|
|
| ||
Software 4.9% |
|
|
|
|
|
|
Microsoft Corp. ρ |
| 939,253 |
|
| 16,061,226 |
|
Oracle Corp. * |
| 547,700 |
|
| 9,217,791 |
|
|
|
|
|
| ||
|
|
|
|
| 25,279,017 |
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 1.0% |
|
|
|
|
|
|
Wireless Telecommunication Services 1.0% |
|
|
|
|
|
|
Sprint Nextel Corp. |
| 2,080,028 |
|
| 5,054,468 |
|
|
|
|
|
| ||
UTILITIES 4.7% |
|
|
|
|
|
|
Electric Utilities 4.7% |
|
|
|
|
|
|
Entergy Corp. ρ |
| 107,360 |
|
| 8,198,010 |
|
Exelon Corp. ρ |
| 186,500 |
|
| 10,112,030 |
|
Fortum Oyj |
| 319,800 |
|
| 6,243,940 |
|
|
|
|
|
| ||
|
|
|
|
| 24,553,980 |
|
|
|
|
|
| ||
Total Common Stocks (cost $784,521,845) |
|
|
|
| 513,990,548 |
|
|
|
|
|
| ||
SHORT-TERM INVESTMENTS 21.6% |
|
|
|
|
|
|
MUTUAL FUND SHARES 21.6% |
|
|
|
|
|
|
BGI Prime Money Market Fund, Premium Shares, 0.52% q ρρ |
| 9,198,116 |
|
| 9,198,116 |
|
BlackRock Liquidity TempFund, Institutional Class, 1.30% q ρρ |
| 9,299,764 |
|
| 9,299,764 |
|
Evergreen Institutional Money Market Fund, Class I, 0.84% q ø ρρ |
| 77,221,493 |
|
| 77,221,493 |
|
Evergreen Institutional U.S. Government Money Market Fund, Class I, 0.61% q ø |
| 8,078,410 |
|
| 8,078,410 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.57% q ρρ |
| 9,028,196 |
|
| 9,028,196 |
|
|
|
|
|
| ||
Total Short-Term Investments (cost $112,825,979) |
|
|
|
| 112,825,979 |
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
|
|
| Value |
|
| ||||||
Total Investments (cost $897,347,824) 120.0% |
|
|
| $ | 626,816,527 |
|
Other Assets and Liabilities (20.0%) |
|
|
|
| (104,589,517 | ) |
|
|
|
|
| ||
Net Assets 100.0% |
|
|
| $ | 522,227,010 |
|
|
|
|
|
|
ρ | All or a portion of this security is on loan. |
* | Non-income producing security |
° | Investment in non-controlled affiliate. At January 31, 2009, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $10,069,382 and earned $113,391 of income for the period from October 3, 2008 to January 31, 2009 which is included in income from affiliates. |
+ | Security is deemed illiquid and is valued using market quotations when readily available, unless otherwise noted. |
q | Rate shown is the 7-day annualized yield at period end. |
ρρ | All or a portion of this security represents investment of cash collateral received from securities on loan. |
ø | Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Health Care |
| 17.9 | % |
Energy |
| 15.8 | % |
Information Technology |
| 15.0 | % |
Consumer Staples |
| 13.1 | % |
Financials |
| 12.7 | % |
Consumer Discretionary |
| 10.9 | % |
Industrials |
| 8.8 | % |
Utilities |
| 4.8 | % |
Telecommunication Services |
| 1.0 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
15
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
Investments in unaffiliated issuers, at value (cost $801,978,539) including $99,131,720 of securities loaned | $ | 535,213,398 |
|
Investments in affiliated issuers, at value (cost $95,369,285) |
| 91,603,129 |
|
| |||
Total investments |
| 626,816,527 |
|
Segregated cash |
| 19,278 |
|
Foreign currency, at value (cost $477,625) |
| 395,142 |
|
Receivable for Fund shares sold |
| 77,133 |
|
Dividends receivable |
| 621,172 |
|
Receivable for securities lending income |
| 83,190 |
|
Prepaid expenses and other assets |
| 58,476 |
|
| |||
Total assets |
| 628,070,918 |
|
| |||
Liabilities |
|
|
|
Payable for Fund shares redeemed |
| 837,288 |
|
Payable for securities on loan |
| 104,766,847 |
|
Advisory fee payable |
| 29,281 |
|
Distribution Plan expenses payable |
| 5,811 |
|
Due to other related parties |
| 5,124 |
|
Trustees’ fees and expenses payable |
| 168,142 |
|
Accrued expenses and other liabilities |
| 31,415 |
|
| |||
Total liabilities |
| 105,843,908 |
|
| |||
Net assets | $ | 522,227,010 |
|
| |||
Net assets represented by |
|
|
|
Paid-in capital | $ | 806,001,896 |
|
Undistributed net investment income |
| 333,942 |
|
Accumulated net realized losses on investments |
| (13,494,928 | ) |
Net unrealized losses on investments |
| (270,613,900 | ) |
| |||
Total net assets | $ | 522,227,010 |
|
| |||
Net assets consists of |
|
|
|
Class A | $ | 175,411,376 |
|
Class B |
| 13,402,927 |
|
Class C |
| 11,835,769 |
|
Class I |
| 321,564,715 |
|
Class R |
| 12,223 |
|
| |||
Total net assets | $ | 522,227,010 |
|
| |||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
Class A |
| 14,191,223 |
|
Class B |
| 1,094,760 |
|
Class C |
| 969,241 |
|
Class I |
| 26,022,773 |
|
Class R |
| 986 |
|
|
See Notes to Financial Statements
16
STATEMENT OF ASSETS AND LIABILITIES continued
January 31, 2009 (unaudited)
Net asset value per share |
|
|
|
Class A | $ | 12.36 |
|
Class A — Offering price (based on sales charge of 5.75%) | $ | 13.11 |
|
Class B | $ | 12.24 |
|
Class C | $ | 12.21 |
|
Class I | $ | 12.36 |
|
Class R | $ | 12.40 |
|
See Notes to Financial Statements
17
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
Dividends | $ | 8,704,959 |
|
Securities lending |
| 378,530 |
|
Income from affiliates |
| 244,414 |
|
Interest |
| 302 |
|
Total investment income |
| 9,328,205 |
|
Expenses |
|
|
|
Advisory fee |
| 2,180,186 |
|
Distribution Plan expenses |
|
|
|
Class A |
| 288,232 |
|
Class B |
| 99,131 |
|
Class C |
| 73,131 |
|
Class R |
| 50 |
|
Administrative services fee |
| 338,817 |
|
Transfer agent fees |
| 592,515 |
|
Trustees’ fees and expenses |
| 2,166 |
|
Printing and postage expenses |
| 54,908 |
|
Custodian and accounting fees |
| 77,603 |
|
Registration and filing fees |
| 50,962 |
|
Professional fees |
| 23,939 |
|
Other |
| 15,670 |
|
Total expenses |
| 3,797,310 |
|
Less: Expense reductions |
| (1,194 | ) |
Fee waivers |
| (291 | ) |
| |||
Net expenses |
| 3,795,825 |
|
| |||
Net investment income |
| 5,532,380 |
|
| |||
Net realized and unrealized gains or losses on investments |
|
|
|
Net realized losses on: |
|
|
|
Securities in unaffiliated issuers |
| (13,422,257 | ) |
Foreign currency related transactions |
| (29,069 | ) |
Net realized losses on investments |
| (13,451,326 | ) |
Net change in unrealized gains or losses on investments |
| (253,401,873 | ) |
Net realized and unrealized gains or losses on investments |
| (266,853,199 | ) |
Net decrease in net assets resulting from operations | $ | (261,320,819 | ) |
See Notes to Financial Statements
18
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
|
|
| ||||||
|
| January 31, 2009 |
| Year Ended |
| ||||||
|
| (unaudited) |
| July 31, 2008 |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 5,532,380 |
|
|
| $ | 14,529,978 |
|
Net realized gains or losses on investments |
|
|
|
| (13,451,326 | ) |
|
|
| 36,206,079 |
|
Net change in unrealized gains or losses on investments |
|
|
|
| (253,401,873 | ) |
|
|
| (186,979,810 | ) |
| |||||||||||
Net decrease in net assets resulting from operations |
|
|
|
| (261,320,819 | ) |
|
|
| (136,243,753 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (1,549,370 | ) |
|
|
| (4,514,238 | ) |
Class B |
|
|
|
| (48,016 | ) |
|
|
| (191,423 | ) |
Class C |
|
|
|
| (41,955 | ) |
|
|
| (117,543 | ) |
Class I |
|
|
|
| (3,342,114 | ) |
|
|
| (9,109,593 | ) |
Class R |
|
|
|
| (54 | ) |
|
|
| (964 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (4,586,137 | ) |
|
|
| (29,784,846 | ) |
Class B |
|
|
|
| (381,661 | ) |
|
|
| (3,438,895 | ) |
Class C |
|
|
|
| (297,781 | ) |
|
|
| (1,990,621 | ) |
Class I |
|
|
|
| (8,289,836 | ) |
|
|
| (48,668,287 | ) |
Class R |
|
|
|
| (288 | ) |
|
|
| (8,302 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (18,537,212 | ) |
|
|
| (97,824,712 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 374,511 |
|
| 5,602,083 |
| 317,302 |
|
| 6,836,421 |
|
Class B |
| 45,010 |
|
| 633,841 |
| 57,780 |
|
| 1,256,960 |
|
Class C |
| 242,040 |
|
| 3,306,968 |
| 51,247 |
|
| 1,099,006 |
|
Class I |
| 123,896 |
|
| 1,843,041 |
| 180,907 |
|
| 3,866,518 |
|
Class R |
| 181 |
|
| 2,890 |
| 1,450 |
|
| 31,256 |
|
| |||||||||||
|
|
|
|
| 11,388,823 |
|
|
|
| 13,090,161 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 428,654 |
|
| 5,718,770 |
| 1,476,596 |
|
| 32,128,920 |
|
Class B |
| 29,703 |
|
| 380,530 |
| 149,839 |
|
| 3,236,211 |
|
Class C |
| 21,559 |
|
| 275,902 |
| 80,553 |
|
| 1,735,423 |
|
Class I |
| 801,748 |
|
| 10,769,762 |
| 2,458,731 |
|
| 53,442,732 |
|
Class R |
| 26 |
|
| 342 |
| 30 |
|
| 642 |
|
| |||||||||||
|
|
|
|
| 17,145,306 |
|
|
|
| 90,543,928 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 142,632 |
|
| 2,260,898 |
| 203,190 |
|
| 4,310,225 |
|
Class B |
| (144,043 | ) |
| (2,260,898 | ) | (205,187 | ) |
| (4,310,225 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (1,958,136 | ) |
| (30,249,302 | ) | (3,658,763 | ) |
| (78,101,427 | ) |
Class B |
| (308,094 | ) |
| (4,802,885 | ) | (587,586 | ) |
| (12,467,370 | ) |
Class C |
| (235,499 | ) |
| (3,287,354 | ) | (366,983 | ) |
| (7,815,065 | ) |
Class I |
| (1,493,314 | ) |
| (22,715,746 | ) | (2,799,734 | ) |
| (59,433,459 | ) |
Class R |
| (1,844 | ) |
| (35,542 | ) | (3,137 | ) |
| (63,340 | ) |
| |||||||||||
|
|
|
|
| (61,090,829 | ) |
|
|
| (157,880,661 | ) |
|
See Notes to Financial Statements
19
STATEMENTS OF CHANGES IN NET ASSETS continued
|
| Six Months Ended |
|
|
| ||||||
|
| January 31, 2009 |
| Year Ended |
| ||||||
|
| (unaudited) |
| July 31, 2008 |
| ||||||
| |||||||||||
Capital share transactions continued |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets resulting from capital share transactions |
|
|
| $ | (32,556,700 | ) |
|
| $ | (54,246,572 | ) |
| |||||||||||
Total decrease in net assets |
|
|
|
| (312,414,731 | ) |
|
|
| (288,315,037 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 834,641,741 |
|
|
|
| 1,122,956,778 |
|
| |||||||||||
End of period |
|
|
| $ | 522,227,010 |
|
|
| $ | 834,641,741 |
|
| |||||||||||
Undistributed (overdistributed) net investment income |
|
|
| $ | 333,942 |
|
|
| $ | (216,929 | ) |
|
See Notes to Financial Statements
20
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Equity Income Fund (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C, Class I and Class R shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I shares are sold without a front-end sales charge or contingent deferred sales charge. Class R shares are only available to participants in certain retirement plans and are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Foreign securities traded on an established exchange are valued at the last sales price on the exchange where the security is primarily traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Foreign securities may be valued at fair value according to procedures approved by the Board of Trustees if the closing price is not reflective of current market values due to trading or events occurring in the foreign markets between the close of the established exchange and the valuation time of the Fund. In addition, substantial changes in values in the U.S. markets subsequent to the close of a foreign market may also affect the values of securities traded in the foreign market. The value of foreign securities may be adjusted if such movements in the U.S. market exceed a specified threshold.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Repurchase agreements
Securities pledged as collateral for repurchase agreements are held by the custodian bank or in a segregated account in the Fund’s name until the agreements mature. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the Fund and the counterparty. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. However, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. The Fund will only enter into repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. In certain instances, the Fund’s securities lending agent may provide collateral in the form of repurchase agreements.
c. Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments.
d. Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
e. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date or in the case of some foreign securities, on the date when the Fund is made aware of the dividend.
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
f. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
g. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
h. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee starting at 0.70% and declining to 0.50% as average daily net assets increase. For the six months ended January 31, 2008, the advisory fee was equivalent to an annual rate of 0.64% of the Fund’s average daily net assets.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC with the same terms and conditions as the existing agreement which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect.
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC voluntarily waived its advisory fee in the amount of $291.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliates on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.17% of the Fund’s average daily net assets.
Wachovia Bank NA, a subsidiary of Wells Fargo and an affiliate of EIMC, through its securities lending division, Wachovia Global Securities Lending, acts as the securities lending agent for the Fund (see Note 5).
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wells Fargo. During the six months ended January 31, 2009, the Fund paid brokerage commissions of $16,793 to Wachovia Securities, LLC, a broker-dealer affiliated with Wells Fargo.
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for Class A shares and up to 1.00% of the average daily net assets for each of Class B, Class C and Class R shares. However, currently the distribution fees for Class A shares are limited to 0.25% of the average daily net assets of the class and the distribution fees for Class R shares are limited to 0.50% of the average daily net assets of the class.
For the six months ended January 31, 2009, EIS received $1,652 from the sale of Class A shares and $23,465 and $103 in contingent deferred sales charges from redemptions of Class B and Class C shares, respectively.
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $56,664,523 and $80,098,183, respectively, for the six months ended January 31, 2009.
On August 1, 2008, the Fund implemented Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs |
| Investments in |
|
Level 1 – Quoted Prices |
| $625,908,395 |
|
Level 2 – Other Significant Observable Inputs |
| 908,132 |
|
Level 3 – Significant Unobservable Inputs |
| 0 |
|
Total |
| $626,816,527 |
|
During the six months ended January 31, 2009, the Fund loaned securities to certain brokers and earned $378,530, net of $42,465 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2009, the value of securities on loan and the total value of collateral received for securities loaned (including segregated cash) amounted to $99,131,720 and $104,766,847, respectively.
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $897,387,460. The gross unrealized appreciation and depreciation on securities based on tax cost was $28,875,476 and $299,446,409, respectively, with a net unrealized depreciation of $270,570,933.
6. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an interfund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
7. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
8. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
9. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2009, the Fund had no borrowings.
10. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds.
11. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amendment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
12. SUBSEQUENT DISTRIBUTION(S)
On March 12, 2009, the Fund declared distributions from net investment income to shareholders of record on March 11, 2009. The per share amounts payable on March 13, 2009 are as follows:
| Net Investment |
|
Class A | $0.0832 |
|
Class B | 0.0580 |
|
Class C | 0.0577 |
|
Class I | 0.0908 |
|
Class R | 0.0767 |
|
These distributions are not reflected in the accompanying financial statements.
27
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On February 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $528,202,891 of net assets outstanding of which $290,606,879 (55.02%) of net assets were represented at the meeting.
Proposal 1 — To consider and act upon a new investment advisory agreement with Evergreen Investment Management Company, LLC:
Net assets voted “For” | $ | 260,597,010 |
|
Net assets voted “Against” | $ | 13,346,272 |
|
Net assets voted “Abstain” | $ | 16,663,597 |
|
28
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. In September 2008, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Equity Income Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of its deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. The Trustees began their 2008 review process at the time of the last advisory contract-renewal process in September 2007. In the course of their 2007 review, the Trustees identified a number of funds that had experienced either short-term or longer-term performance issues. During the 2008 review process, the Trustees monitored each of these funds in particular for changes in performance and for the results of any changes in a fund’s investment process or investment team. In addition, during the course of the year, the Trustees regularly reviewed information regarding the investment performance of all of the funds, paying particular attention to funds whose performance since September 2007 indicated short-term or longer-term performance issues.
In spring 2008, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Board would review as part of its 2008 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the independent Trustees, the information that EIMC and Keil provided. The Trustees formed small groups to review individual funds in greater detail. In addition, the Trustees considered information regarding, among other things, brokerage practices of the funds, the use of derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
29
ADDITIONAL INFORMATION (unaudited) continued
The Committee met several times by telephone during the 2008 review process to consider the information provided by EIMC. The Committee then met with representatives of EIMC. In addition, over the period of this review, the independent Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC and in multiple private sessions with independent legal counsel at which no personnel of EIMC were present. At a meeting of the full Board of Trustees in September, the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC and engaged in further review of the materials provided to it, and approved the continuation of each of the advisory and sub-advisory agreements.
In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements as part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, EIMC presents a wide variety of information regarding the services it performs, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds and EIMC with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of services provided by EIMC. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2007. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new Chief Compliance Officer for the funds in June of 2007 and a new Chief Investment Officer at EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
30
ADDITIONAL INFORMATION (unaudited) continued
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC or its affiliates for such services. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. The Trustees also considered the investment performance of those other accounts managed by EIMC and its affiliates, where applicable, and concluded that the performance of those accounts did not suggest any substantial difference in the quality of the service provided by EIMC and its affiliates to those accounts.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. The Board considered that EIS, an affiliate of EIMC, serves as distributor to the funds generally and receives fees from the funds for those services. They considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that the funds pay sub-transfer agency fees to various financial institutions, including Wachovia Securities, LLC and its affiliates, that hold fund shares in omnibus accounts, and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the Trustees noted that an affiliate of EIMC had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wachovia Securities, LLC and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through it. The Trustees also noted that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
In the period leading up to the Trustees’ approval of continuation of the investment advisory agreements, the Trustees were mindful of the financial condition of Wachovia Corporation (“Wachovia”), EIMC’s parent company. They considered the possibility that a significant adverse change in Wachovia’s financial condition could impair the ability of EIMC or its affiliates to perform services for the funds at the same level as in the past. The Trustees concluded that any change in Wachovia’s financial condition had not to date had any such effect, but determined to monitor EIMC’s and its affiliates’ performance, and
31
ADDITIONAL INFORMATION (unaudited) continued
financial conditions generally, going forward in order to identify any such impairment that may develop and to take appropriate action.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC formulates and implements an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC were consistent with their respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by EIMC, including services provided by EIMC under its administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. Although the Trustees considered the performance of all share classes, the Trustees noted that, for the one-year period ended December 31, 2007, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the Russell 1000 Value Index, and that for the three-, five-, and ten-year periods ended December 31, 2007, the Fund’s Class A shares had underperformed the Fund’s benchmark index. The Trustees also noted that the Fund’s Class A shares had performed in the third quintile for the one- and ten-year periods ended December 31, 2007, and in the fourth quintile for the three- and five-year periods ended December 31, 2007, of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that the Fund’s portfolio manager had recently changed and that the new portfolio manager had not yet managed the Fund for a sufficiently long period to allow for definitive conclusions; however, the Trustees noted that all share classes of the Fund outperformed the Fund’s benchmark index over the one-year period ended December 31, 2007, and the three-month period ended December 31, 2007.
32
ADDITIONAL INFORMATION (unaudited) continued
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative underperformance. The Trustees also noted that EIMC had appointed a new Chief Investment Officer in August of 2008 who had not yet had sufficient time to evaluate and direct remedial efforts with respect to funds that have experienced a substantial period of relative underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not excessive. The Trustees noted that the management fee paid by the Fund was higher than the average management fees paid by the mutual funds against which the Trustees compared the Fund’s management fee, and higher than the median of that group. The Trustees also noted that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees noted the possibility that economies of scale would be achieved by EIMC in managing the funds as the funds grow. The Trustees noted that the Fund had implemented breakpoints in its advisory fee structure. The Trustees noted that they would continue to review the appropriate levels of breakpoints in the future, and concluded that the breakpoints as implemented appeared to be a reasonable step toward the realization of economies of scale by the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the
33
ADDITIONAL INFORMATION (unaudited) continued
profitability of any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
Matters Relating to Approval of Interim Advisory and Sub-Advisory Agreements. Following the Trustees’ approval of the continuation of the funds’ investment advisory agreements, Wells Fargo & Company (“Wells Fargo”) announced that it had agreed to acquire Wachovia in a whole company transaction that would include all of Wachovia’s banking and other businesses, including EIMC. In connection with this transaction, on October 20, 2008, Wachovia issued preferred shares representing a 39.9% voting interest in Wachovia to Wells Fargo pursuant to a Share Exchange Agreement. Wells Fargo subsequently completed its acquisition of Wachovia on December 31, 2008.
Under the 1940 Act, both the issuance of the preferred shares to Wells Fargo and the completion of the acquisition could be viewed as resulting in the termination of the funds’ investment advisory and sub-advisory agreements. Accordingly, on October 20, 2008, the Board of Trustees approved interim investment advisory and sub-advisory agreements that would become effective upon Wachovia’s issuance of preferred shares to Wells Fargo. On November 12, 2008, the Trustees approved a second set of interim investment advisory and sub-advisory agreements that would become effective upon the completion of the acquisition. (The first set of interim agreements approved on October 20, 2008, together with the second set of interim agreements approved November 12, 2008, are referred to as “Interim Agreements.”) In addition, the Trustees approved on November 12, 2008, and again at an in-person meeting on December 3 and 4, 2008, definitive investment advisory and sub-advisory agreements (the “New Agreements”) and recommended that shareholders of the funds approve them at meetings to be held in early 2009.
In considering whether to approve the first set of Interim Agreements on October 20, 2008, the Trustees took into account that they had recently approved the annual continuation of all of the funds’ existing investment advisory and sub-advisory agreements in September 2008. The Trustees reviewed the terms of the Interim Agreements, noting that the terms were generally identical to those of the funds’ investment advisory agreements that were in effect before October 20, 2008 (but for provisions required by law to be included in the Interim Agreements). They also took into account current and anticipated market and economic conditions, the financial condition of EIMC and of Wachovia generally, and the likely effect of the merger on the financial condition of Wachovia. In general, the Trustees considered that the proposed merger of Wachovia with Wells Fargo would very likely improve substantially the financial condition of EIMC’s parent company, increase the capital available to support the funds, and ensure that EIMC and its affiliates would have the resources to provide continuing services to the funds. In light principally of these considerations and their recent continuation of the funds’ investment advisory arrangements in September, the Trustees unanimously approved the first set of Interim Agreements that became effective on October 20, 2008.
In addition to the foregoing, at their meetings on November 12, 2008 and December 3 and 4, 2008 when the Trustees considered whether to approve the second set of Interim Agreements as well as the New Agreements, the Trustees considered presentations made
34
ADDITIONAL INFORMATION (unaudited) continued
to them on November 12, 2008 by representatives of EIMC and Wells Fargo regarding the anticipated implications of the merger for EIMC and the funds. The Trustees also considered:
• | Their understanding that the merger was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC would provide to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high quality services; |
• | Information about Wells Fargo’s financial condition, reputation, and resources, and the likelihood that the merger would result in improved organizational stability for EIMC, benefiting the funds as well as offering the potential for the funds, over time, to access Wells Fargo’s infrastructure, resources and capabilities; |
• | That EIMC and Wells Fargo representatives have stated that there is no present intention to change the funds’ existing advisory fees or expense limitations; |
• | That the representatives of Wells Fargo have expressed their intention to pursue the integration of EIMC and the funds with corresponding Wells Fargo businesses and funds only after a deliberative process designed to identify and retain the relative strengths of both organizations; |
• | That the Wells Fargo representatives expect that the deliberative process and any subsequent integration will take more than a year; |
• | That, in the meantime, Wells Fargo expects to retain, largely in its current form, the existing EIMC management team and investment advisory and other key professionals and to operate EIMC following the merger as a separate business unit under the Evergreen brand; |
• | That Wells Fargo and EIMC would consult with the Trustees before implementing any significant changes that would affect the funds or the services provided by EIMC or its affiliates to the funds; |
• | Wells Fargo’s experience and approach with respect to acquisitions of other fund complexes; |
• | The fact that, if the New Agreements were not approved, on March 19, 2009, the Subsequent Interim Agreements will expire and the funds will no longer have a contractual right to investment advisory services from EIMC or any sub-advisors; |
• | That EIMC’s management supports the merger; and |
• | That representatives of EIMC have committed that the funds will not bear the expenses relating to Wells Fargo’s acquisition of Wachovia, including the costs of soliciting fund shareholders to approve the New Agreements. |
Based on the foregoing, the Trustees, including all of the Trustees who are not “interested persons” of the funds or EIMC, unanimously approved the second set of Interim Agreements and the New Agreements.
35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
|
Charles A. Austin III |
| Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford |
| Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. |
| Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel |
| Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell |
| Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris |
| President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 |
| Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson |
| President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton III, MD |
| President/CEO, AccessOne MedCard, Inc. |
36
TRUSTEES AND OFFICERS continued
Michael S. Scofield |
| Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima |
| Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 |
| Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
OFFICERS |
|
|
W. Douglas Munn4 |
| Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 |
| Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 |
| Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 |
| Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
37
565219 rv6 03/2009
Evergreen Fundamental Large Cap Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
11 |
| SCHEDULE OF INVESTMENTS |
15 |
| STATEMENT OF ASSETS AND LIABILITIES |
16 |
| STATEMENT OF OPERATIONS |
17 |
| STATEMENTS OF CHANGES IN NET ASSETS |
19 |
| NOTES TO FINANCIAL STATEMENTS |
27 |
| ADDITIONAL INFORMATION |
36 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Fundamental Large Cap Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During the period, the management teams of Evergreen’s value-oriented equity funds tended to emphasize investments in attractively priced and fundamentally sound corporations. The portfolio manager of Evergreen Disciplined Value Fund, for example, used a combination of quantitative tools and traditional fundamental analysis in reviewing opportunities. The manager of Evergreen Equity Index Fund maintained a portfolio reflecting the composition of the Standard & Poor’s 500® Index, using a proprietary process to control trading and implementation costs. Management of Evergreen Equity Income Fund emphasized companies they believe have the ability to maintain and increase their dividends to shareholders. The management of Evergreen Fundamental Large Cap Fund focused on larger corporations with stable earnings
1
LETTER TO SHAREHOLDERS continued
growth records while the management of Evergreen Fundamental Mid Cap Value Fund emphasized mid-sized companies selling at what the management believed to be reasonable valuations. The team managing Evergreen Intrinsic Value Fund sought out investments in established companies selling at stock prices below the managers’ estimate of the company’s intrinsic value. Meanwhile, the management of Evergreen Special Values Fund focused on higher-quality companies believed to have reasonable prices and strong balance sheets, and the management of Evergreen Small Cap Value Fund sought to invest in small companies of sound quality at attractive prices.
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
| • | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
| • | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Managers:
Walter T. McCormick, CFA; Emory Sanders, Jr., CFA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 10/15/1986
| Class A | Class B | Class C | Class I |
Class inception date | 1/3/1995 | 1/3/1995 | 1/3/1995 | 10/15/1986 |
Nasdaq symbol | EGIAX | EGIBX | EGICX | EVVTX |
6-month return with sales charge | -35.38% | -35.10% | -32.40% | N/A |
6-month return w/o sales charge | -31.44% | -31.71% | -31.72% | -31.37% |
Average annual return* |
|
|
|
|
1-year with sales charge | -38.54% | -38.52% | -35.95% | N/A |
1-year w/o sales charge | -34.79% | -35.31% | -35.31% | -34.64% |
5-year | -4.35% | -4.24% | -3.90% | -2.94% |
10-year | -2.15% | -2.29% | -2.29% | -1.30% |
Maximum sales charge | 5.75% | 5.00% | 1.00% | N/A |
| Front-end | CDSC | CDSC |
|
* | Adjusted for maximum applicable sales charge, unless noted. |
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C or I, please go to EvergreenInvestments.com/fundperformance. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The fund incurs a 12b-1 fee of 0.25% for Class A and 1.00% for Classes B and C. Class I does not pay a 12b-1 fee.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Returns reflect expense limits previously in effect, without which returns would have been lower.
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Fundamental Large Cap Fund Class A shares versus a similar investment in the S&P 500 Index (S&P 500) and the Consumer Price Index (CPI).
The S&P 500 is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to, retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability and foreign currency fluctuations.
The market value of convertible securities tends to decline as interest rates increase and may be affected by changes in the price of the underlying security.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
High yield, lower-rated bonds may contain more risk due to the increased possibility of default.
The return of principal is not guaranteed due to fluctuation in the fund’s NAV caused by changes in the price of individual bonds held by the fund and the buying and selling of bonds by the fund. Bond funds have the same inflation, interest rate and credit risks as individual bonds. Generally, the value of bond funds rises when prevailing interest rates fall, and falls when interest rates rise.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund’s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning |
| Ending |
|
| ||||
| Account Value |
| Account Value |
| Expenses Paid | ||||
| 8/1/2008 |
| 1/31/2009 |
| During Period* | ||||
Actual |
|
|
|
|
|
|
|
|
|
Class A | $ 1,000.00 |
| $ | 685.61 |
|
| $ | 6.12 |
|
Class B | $ 1,000.00 |
| $ | 682.95 |
|
| $ | 9.25 |
|
Class C | $ 1,000.00 |
| $ | 682.80 |
|
| $ | 9.29 |
|
Class I | $ 1,000.00 |
| $ | 686.34 |
|
| $ | 5.06 |
|
Hypothetical |
|
|
|
|
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
|
|
|
|
Class A | $ 1,000.00 |
| $ | 1,017.95 |
|
| $ | 7.32 |
|
Class B | $ 1,000.00 |
| $ | 1,014.22 |
|
| $ | 11.07 |
|
Class C | $ 1,000.00 |
| $ | 1,014.17 |
|
| $ | 11.12 |
|
Class I | $ 1,000.00 |
| $ | 1,019.21 |
|
| $ | 6.06 |
|
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.44% for Class A, 2.18% for Class B, 2.19% for Class C and 1.19% for Class I), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS A |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 23.15 |
| $ | 26.73 |
| $ | 23.37 |
| $ | 23.25 |
| $ | 20.85 |
| $ | 20.02 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.11 |
|
| 0.17 | 1 |
| 0.13 | 1 |
| 0.11 | 1 |
| 0.14 | 1 |
| 0.07 | 1 |
Net realized and unrealized gains or losses on investments |
|
| (7.38 | ) |
| (2.36 | ) |
| 3.65 |
|
| 0.52 |
|
| 3.64 |
|
| 2.21 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (7.27 | ) |
| (2.19 | ) |
| 3.78 |
|
| 0.63 |
|
| 3.78 |
|
| 2.28 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.14 | ) |
| (0.12 | ) |
| (0.11 | ) |
| (0.08 | ) |
| (0.12 | ) |
| 0 | 2 |
Net realized gains |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
| (1.45 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.14 | ) |
| (1.39 | ) |
| (0.42 | ) |
| (0.51 | ) |
| (1.38 | ) |
| (1.45 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 15.74 |
| $ | 23.15 |
| $ | 26.73 |
| $ | 23.37 |
| $ | 23.25 |
| $ | 20.85 |
|
| |||||||||||||||||||
Total return3 |
|
| (31.44 | )% |
| (8.74 | )% |
| 16.29 | % |
| 2.76 | % |
| 18.77 | % |
| 11.78 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 331 |
| $ | 521 |
| $ | 646 |
| $ | 642 |
| $ | 794 |
| $ | 364 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.44 | %4 |
| 1.33 | % |
| 1.38 | % |
| 1.38 | % |
| 1.39 | % |
| 1.61 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.44 | %4 |
| 1.36 | % |
| 1.41 | % |
| 1.40 | % |
| 1.49 | % |
| 1.65 | % |
Net investment income (loss) |
|
| 0.94 | %4 |
| 0.69 | % |
| 0.50 | % |
| 0.49 | % |
| 0.62 | % |
| 0.36 | % |
Portfolio turnover rate |
|
| 14 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
| 87 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Amount represents less than $0.005 per share. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS B |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
| $ | 19.14 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.02 | 1 |
| (0.01 | )1 |
| (0.04 | )1 |
| (0.05 | )1 |
| (0.01 | )1 |
| (0.08 | )1 |
Net realized and unrealized gains or losses on investments |
|
| (6.80 | ) |
| (2.19 | ) |
| 3.40 |
|
| 0.49 |
|
| 3.42 |
|
| 2.11 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.78 | ) |
| (2.20 | ) |
| 3.36 |
|
| 0.44 |
|
| 3.41 |
|
| 2.03 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.10 | ) |
| (0.01 | ) |
| (0.03 | ) |
| 0 |
|
| (0.01 | ) |
| 0 |
|
Net realized gains |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
| (1.45 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.10 | ) |
| (1.28 | ) |
| (0.34 | ) |
| (0.43 | ) |
| (1.27 | ) |
| (1.45 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 14.53 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
|
| |||||||||||||||||||
Total return2 |
|
| (31.71 | )% |
| (9.42 | )% |
| 15.44 | % |
| 2.07 | % |
| 17.93 | % |
| 10.97 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 37 |
| $ | 77 |
| $ | 150 |
| $ | 214 |
| $ | 340 |
| $ | 272 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.18 | %3 |
| 2.07 | % |
| 2.09 | % |
| 2.07 | % |
| 2.10 | % |
| 2.33 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.18 | %3 |
| 2.07 | % |
| 2.11 | % |
| 2.09 | % |
| 2.20 | % |
| 2.37 | % |
Net investment income (loss) |
|
| 0.20 | %3 |
| (0.06 | )% |
| (0.18 | )% |
| (0.21 | )% |
| (0.03 | )% |
| (0.36 | )% |
Portfolio turnover rate |
|
| 14 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
| 87 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS C |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
| $ | 19.14 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.02 | 1 |
| (0.01 | )1 |
| (0.05 | )1 |
| (0.05 | )1 |
| 0 | 1 |
| (0.08 | )1 |
Net realized and unrealized gains or losses on investments |
|
| (6.81 | ) |
| (2.19 | ) |
| 3.41 |
|
| 0.49 |
|
| 3.42 |
|
| 2.11 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (6.79 | ) |
| (2.20 | ) |
| 3.36 |
|
| 0.44 |
|
| 3.42 |
|
| 2.03 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.09 | ) |
| (0.01 | ) |
| (0.03 | ) |
| 0 |
|
| (0.02 | ) |
| 0 |
|
Net realized gains |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
| (1.45 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.09 | ) |
| (1.28 | ) |
| (0.34 | ) |
| (0.43 | ) |
| (1.28 | ) |
| (1.45 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 14.53 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
|
| |||||||||||||||||||
Total return2 |
|
| (31.72 | )% |
| (9.40 | )% |
| 15.44 | % |
| 2.07 | % |
| 17.95 | % |
| 10.97 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 39 |
| $ | 61 |
| $ | 80 |
| $ | 86 |
| $ | 110 |
| $ | 116 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.19 | %3 |
| 2.08 | % |
| 2.09 | % |
| 2.08 | % |
| 2.10 | % |
| 2.31 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.19 | %3 |
| 2.08 | % |
| 2.11 | % |
| 2.10 | % |
| 2.20 | % |
| 2.35 | % |
Net investment income (loss) |
|
| 0.19 | %3 |
| (0.06 | )% |
| (0.20 | )% |
| (0.21 | )% |
| (0.01 | )% |
| (0.35 | )% |
Portfolio turnover rate |
|
| 14 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
| 87 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended January 31, 2009 (unaudited) |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS I |
|
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 23.56 |
| $ | 27.21 |
| $ | 23.76 |
| $ | 23.63 |
| $ | 21.16 |
| $ | 20.26 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.17 |
|
| 0.24 | 1 |
| 0.21 | 1 |
| 0.19 | 1 |
| 0.20 | 1 |
| 0.13 | 1 |
Net realized and unrealized gains or losses on investments |
|
| (7.54 | ) |
| (2.40 | ) |
| 3.70 |
|
| 0.52 |
|
| 3.70 |
|
| 2.25 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| (7.37 | ) |
| (2.16 | ) |
| 3.91 |
|
| 0.71 |
|
| 3.90 |
|
| 2.38 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.18 | ) |
| (0.22 | ) |
| (0.15 | ) |
| (0.15 | ) |
| (0.17 | ) |
| (0.03 | ) |
Net realized gains |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
| (1.45 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.18 | ) |
| (1.49 | ) |
| (0.46 | ) |
| (0.58 | ) |
| (1.43 | ) |
| (1.48 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.01 |
| $ | 23.56 |
| $ | 27.21 |
| $ | 23.76 |
| $ | 23.63 |
| $ | 21.16 |
|
| |||||||||||||||||||
Total return |
|
| (31.37 | )% |
| (8.46 | )% |
| 16.59 | % |
| 3.08 | % |
| 19.12 | % |
| 12.12 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 147 |
| $ | 225 |
| $ | 274 |
| $ | 263 |
| $ | 292 |
| $ | 83 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.19 | %2 |
| 1.08 | % |
| 1.09 | % |
| 1.08 | % |
| 1.08 | % |
| 1.33 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.19 | %2 |
| 1.08 | % |
| 1.11 | % |
| 1.10 | % |
| 1.18 | % |
| 1.37 | % |
Net investment income (loss) |
|
| 1.19 | %2 |
| 0.94 | % |
| 0.79 | % |
| 0.80 | % |
| 0.87 | % |
| 0.64 | % |
Portfolio turnover rate |
|
| 14 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
| 87 | % |
|
1 | Net investment income (loss) per share is based on average shares outstanding during the period. |
2 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS 100.0% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 11.0% |
|
|
|
|
|
|
|
Internet & Catalog Retail 6.3% |
|
|
|
|
|
|
|
Amazon.com, Inc. * ρ |
|
| 487,716 |
| $ | 28,687,455 |
|
Blue Nile, Inc. * ρ |
|
| 309,995 |
|
| 6,268,099 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 34,955,554 |
|
|
|
|
|
|
| ||
Media 1.5% |
|
|
|
|
|
|
|
Omnicom Group, Inc. ρ |
|
| 328,803 |
|
| 8,512,710 |
|
|
|
|
|
|
| ||
Specialty Retail 1.0% |
|
|
|
|
|
|
|
Home Depot, Inc. |
|
| 251,248 |
|
| 5,409,369 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 2.2% |
|
|
|
|
|
|
|
Timberland Co., Class A * ρ |
|
| 1,117,421 |
|
| 12,280,457 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 12.7% |
|
|
|
|
|
|
|
Beverages 2.5% |
|
|
|
|
|
|
|
Diageo plc |
|
| 595,373 |
|
| 8,125,089 |
|
PepsiCo, Inc. |
|
| 110,884 |
|
| 5,569,703 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,694,792 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 2.7% |
|
|
|
|
|
|
|
CVS Caremark Corp. |
|
| 557,602 |
|
| 14,988,342 |
|
|
|
|
|
|
| ||
Food Products 2.9% |
|
|
|
|
|
|
|
Kraft Foods, Inc., Class A ρ |
|
| 191,922 |
|
| 5,383,412 |
|
McCormick & Co., Inc. |
|
| 330,375 |
|
| 10,585,215 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,968,627 |
|
|
|
|
|
|
| ||
Household Products 2.5% |
|
|
|
|
|
|
|
Clorox Co. ρ |
|
| 165,710 |
|
| 8,310,357 |
|
Procter & Gamble Co. |
|
| 107,070 |
|
| 5,835,315 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 14,145,672 |
|
|
|
|
|
|
| ||
Tobacco 2.1% |
|
|
|
|
|
|
|
Philip Morris International, Inc. |
|
| 309,536 |
|
| 11,499,262 |
|
|
|
|
|
|
| ||
ENERGY 11.6% |
|
|
|
|
|
|
|
Energy Equipment & Services 1.3% |
|
|
|
|
|
|
|
Schlumberger, Ltd. |
|
| 80,736 |
|
| 3,294,836 |
|
Weatherford International, Ltd. * |
|
| 322,070 |
|
| 3,552,432 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,847,268 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 10.3% |
|
|
|
|
|
|
|
Apache Corp. |
|
| 144,203 |
|
| 10,815,225 |
|
Chevron Corp. |
|
| 100,228 |
|
| 7,068,079 |
|
ConocoPhillips |
|
| 201,908 |
|
| 9,596,687 |
|
Exxon Mobil Corp. ρ |
|
| 388,748 |
|
| 29,731,447 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 57,211,438 |
|
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS 16.3% |
|
|
|
|
|
|
|
Capital Markets 4.9% |
|
|
|
|
|
|
|
Goldman Sachs Group, Inc. ρ |
|
| 156,230 |
| $ | 12,612,448 |
|
State Street Corp. ρ |
|
| 264,578 |
|
| 6,156,730 |
|
T. Rowe Price Group, Inc. ρ |
|
| 295,551 |
|
| 8,151,297 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 26,920,475 |
|
|
|
|
|
|
| ||
Commercial Banks 2.7% |
|
|
|
|
|
|
|
Wells Fargo & Co. ρ ° |
|
| 784,333 |
|
| 14,823,894 |
|
|
|
|
|
|
| ||
Consumer Finance 4.1% |
|
|
|
|
|
|
|
American Express Co. ρ |
|
| 214,319 |
|
| 3,585,557 |
|
Visa, Inc., Class A ρ |
|
| 389,262 |
|
| 19,210,080 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 22,795,637 |
|
|
|
|
|
|
| ||
Diversified Financial Services 3.0% |
|
|
|
|
|
|
|
Apollo Global Management, LLC, Class A + |
|
| 612,041 |
|
| 918,061 |
|
Bank of America Corp. |
|
| 548,423 |
|
| 3,608,623 |
|
JPMorgan Chase & Co. |
|
| 480,619 |
|
| 12,260,591 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 16,787,275 |
|
|
|
|
|
|
| ||
Insurance 1.6% |
|
|
|
|
|
|
|
Prudential Financial, Inc. |
|
| 348,892 |
|
| 8,983,969 |
|
|
|
|
|
|
| ||
HEALTH CARE 10.2% |
|
|
|
|
|
|
|
Biotechnology 2.5% |
|
|
|
|
|
|
|
Amgen, Inc. * ρ |
|
| 257,236 |
|
| 14,109,394 |
|
|
|
|
|
|
| ||
Health Care Equipment & Supplies 1.6% |
|
|
|
|
|
|
|
Medtronic, Inc. |
|
| 270,706 |
|
| 9,065,944 |
|
|
|
|
|
|
| ||
Pharmaceuticals 6.1% |
|
|
|
|
|
|
|
Johnson & Johnson |
|
| 285,327 |
|
| 16,460,515 |
|
Novartis AG, ADR |
|
| 416,623 |
|
| 17,189,865 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 33,650,380 |
|
|
|
|
|
|
| ||
INDUSTRIALS 7.0% |
|
|
|
|
|
|
|
Aerospace & Defense 2.8% |
|
|
|
|
|
|
|
Lockheed Martin Corp. |
|
| 130,692 |
|
| 10,721,972 |
|
United Technologies Corp. |
|
| 98,138 |
|
| 4,709,642 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,431,614 |
|
|
|
|
|
|
| ||
Air Freight & Logistics 1.8% |
|
|
|
|
|
|
|
Expeditors International of Washington, Inc. |
|
| 139,046 |
|
| 3,866,869 |
|
United Parcel Service, Inc., Class B |
|
| 146,310 |
|
| 6,216,712 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,083,581 |
|
|
|
|
|
|
| ||
Industrial Conglomerates 2.4% |
|
|
|
|
|
|
|
General Electric Co. ρ |
|
| 1,096,029 |
|
| 13,294,832 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY 27.2% |
|
|
|
|
|
|
|
Communications Equipment 9.7% |
|
|
|
|
|
|
|
Cisco Systems, Inc. * |
|
| 1,108,251 |
| $ | 16,590,517 |
|
QUALCOMM, Inc. ρ |
|
| 1,069,018 |
|
| 36,934,572 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 53,525,089 |
|
|
|
|
|
|
| ||
Internet Software & Services 7.5% |
|
|
|
|
|
|
|
Bankrate, Inc. * ρ |
|
| 500,227 |
|
| 16,687,573 |
|
Google, Inc., Class A * ρ |
|
| 73,389 |
|
| 24,844,378 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 41,531,951 |
|
|
|
|
|
|
| ||
IT Services 1.0% |
|
|
|
|
|
|
|
Automatic Data Processing, Inc. ρ |
|
| 151,476 |
|
| 5,503,123 |
|
|
|
|
|
|
| ||
Semiconductors & Semiconductor Equipment 1.2% |
|
|
|
|
|
|
|
Altera Corp. |
|
| 421,541 |
|
| 6,483,301 |
|
|
|
|
|
|
| ||
Software 7.8% |
|
|
|
|
|
|
|
FactSet Research Systems, Inc. ρ |
|
| 238,447 |
|
| 9,490,191 |
|
Microsoft Corp. |
|
| 637,543 |
|
| 10,901,985 |
|
Oracle Corp. * ρ |
|
| 1,375,697 |
|
| 23,152,980 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 43,545,156 |
|
|
|
|
|
|
| ||
MATERIALS 1.0% |
|
|
|
|
|
|
|
Chemicals 1.0% |
|
|
|
|
|
|
|
Air Products & Chemicals, Inc. ρ |
|
| 107,488 |
|
| 5,406,647 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 2.0% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 2.0% |
|
|
|
|
|
|
|
AT&T, Inc. |
|
| 218,696 |
|
| 5,384,296 |
|
Verizon Communications, Inc. |
|
| 184,767 |
|
| 5,518,990 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,903,286 |
|
|
|
|
|
|
| ||
UTILITIES 1.0% |
|
|
|
|
|
|
|
Electric Utilities 1.0% |
|
|
|
|
|
|
|
Exelon Corp. |
|
| 102,710 |
|
| 5,568,936 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $669,573,309) |
|
|
|
|
| 553,927,975 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
| Principal |
|
|
|
| |
|
| Amount |
| Value |
| ||
| |||||||
OTHER 0.3% |
|
|
|
|
|
|
|
Gryphon Funding, Ltd., Private Placement Pass-Through Notes + o ρρ |
| $ | 8,197,394 |
|
| 1,797,689 |
|
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
SHORT-TERM INVESTMENTS 40.0% |
|
|
|
|
|
|
|
MUTUAL FUND SHARES 40.0% |
|
|
|
|
|
|
|
BGI Prime Money Market Fund, Premium Shares, 0.52% ρρ q |
|
| 19,018,712 |
| $ | 19,018,712 |
|
BlackRock Liquidity TempFund, Institutional Class, 1.30% ρρ q |
|
| 19,228,890 |
|
| 19,228,890 |
|
Evergreen Institutional Money Market Fund, Class I, 0.84% ρρ q ø |
|
| 159,669,008 |
|
| 159,669,008 |
|
Evergreen Institutional U.S. Government Money Market Fund, Class I, 0.61% q ø |
|
| 4,887,171 |
|
| 4,887,171 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.57% ρρ q |
|
| 18,667,374 |
|
| 18,667,374 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $221,471,155) |
|
|
|
|
| 221,471,155 |
|
|
|
|
|
|
| ||
Total Investments (cost $893,844,459) 140.3% |
|
|
|
|
| 777,196,819 |
|
Other Assets and Liabilities (40.3%) |
|
|
|
|
| (223,268,475 | ) |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 553,928,344 |
|
|
|
|
|
|
|
* | Non-income producing security |
ρ | All or a portion of this security is on loan. |
° | Investment in non-controlled affiliate. At January 31, 2009, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $20,345,715 and earned $266,673 of income for the period from October 3, 2008 to January 31, 2009 which is included in income from affiliates. |
+ | Security is deemed illiquid and is valued using market quotations when readily available, unless otherwise noted. |
ρρ | All or a portion of this security represents investment of cash collateral received from securities on loan. |
o | Security is valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees. |
q | Rate shown is the 7-day annualized yield at period end. |
ø | Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
Summary of Abbreviations
ADR | American Depository Receipt |
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Information Technology | 27.2 | % |
Financials | 16.3 | % |
Consumer Staples | 12.7 | % |
Energy | 11.6 | % |
Consumer Discretionary | 11.0 | % |
Health Care | 10.2 | % |
Industrials | 7.0 | % |
Telecommunication Services | 2.0 | % |
Utilities | 1.0 | % |
Materials | 1.0 | % |
|
| |
| 100.0 | % |
|
|
See Notes to Financial Statements
14
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $708,942,565) including $217,460,115 of securities loaned |
| $ | 597,816,746 |
|
Investments in affiliated issuers, at value (cost $184,901,894) |
|
| 179,380,073 |
|
| ||||
Total investments |
|
| 777,196,819 |
|
Segregated cash |
|
| 39,908 |
|
Foreign currency, at value (cost $605,599) |
|
| 477,616 |
|
Receivable for securities sold |
|
| 6,052,405 |
|
Receivable for Fund shares sold |
|
| 7,963 |
|
Dividends receivable |
|
| 729,008 |
|
Receivable for securities lending income |
|
| 227,655 |
|
Prepaid expenses and other assets |
|
| 51,225 |
|
| ||||
Total assets |
|
| 784,782,599 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 5,710,655 |
|
Payable for Fund shares redeemed |
|
| 963,450 |
|
Payable for securities on loan |
|
| 223,857,754 |
|
Advisory fee payable |
|
| 29,822 |
|
Distribution Plan expenses payable |
|
| 13,245 |
|
Due to other related parties |
|
| 5,639 |
|
Accrued expenses and other liabilities |
|
| 273,690 |
|
| ||||
Total liabilities |
|
| 230,854,255 |
|
| ||||
Net assets |
| $ | 553,928,344 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 841,580,238 |
|
Overdistributed net investment income |
|
| (2,201,227 | ) |
Accumulated net realized losses on investments |
|
| (168,675,069 | ) |
Net unrealized losses on investments |
|
| (116,775,598 | ) |
| ||||
Total net assets |
| $ | 553,928,344 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 330,865,860 |
|
Class B |
|
| 37,217,007 |
|
Class C |
|
| 39,243,387 |
|
Class I |
|
| 146,602,090 |
|
| ||||
Total net assets |
| $ | 553,928,344 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 21,026,573 |
|
Class B |
|
| 2,561,800 |
|
Class C |
|
| 2,700,529 |
|
Class I |
|
| 9,158,840 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 15.74 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 16.70 |
|
Class B |
| $ | 14.53 |
|
Class C |
| $ | 14.53 |
|
Class I |
| $ | 16.01 |
|
|
See Notes to Financial Statements
15
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 6,751,281 |
|
Securities lending |
|
| 1,406,842 |
|
Income from affiliates |
|
| 334,230 |
|
| ||||
Total investment income |
|
| 8,492,353 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 2,240,140 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 528,882 |
|
Class B |
|
| 274,652 |
|
Class C |
|
| 248,920 |
|
Administrative services fee |
|
| 357,210 |
|
Transfer agent fees |
|
| 1,487,831 |
|
Trustees’ fees and expenses |
|
| 5,778 |
|
Printing and postage expenses |
|
| 49,936 |
|
Custodian and accounting fees |
|
| 59,230 |
|
Registration and filing fees |
|
| 18,323 |
|
Professional fees |
|
| 14,587 |
|
Interest expense |
|
| 833 |
|
Other |
|
| 9,545 |
|
| ||||
Total expenses |
|
| 5,295,867 |
|
Less: Expense reductions |
|
| (1,385 | ) |
Fee waivers |
|
| (305 | ) |
| ||||
Net expenses |
|
| 5,294,177 |
|
| ||||
Net investment income |
|
| 3,198,176 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| (25,393,294 | ) |
Affiliated issuers |
|
| (460,250 | ) |
Foreign currency related transactions |
|
| (31,610 | ) |
| ||||
Net realized losses on investments |
|
| (25,885,154 | ) |
Net change in unrealized gains or losses on investments |
|
| (244,959,160 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
| (270,844,314 | ) |
| ||||
Net decrease in net assets resulting from operations |
| $ | (267,646,138 | ) |
|
See Notes to Financial Statements
16
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended July 31, 2008 |
| ||||||||
| |||||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
| $ | 3,198,176 |
|
|
|
| $ | 6,384,910 |
|
Net realized gains or losses on investments |
|
|
|
|
| (25,885,154 | ) |
|
|
|
| 59,544,255 |
|
Net change in unrealized gains or losses on investments |
|
|
|
|
| (244,959,160 | ) |
|
|
|
| (155,799,461 | ) |
| |||||||||||||
Net decrease in net assets resulting from operations |
|
|
|
|
| (267,646,138 | ) |
|
|
|
| (89,870,296 | ) |
| |||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| (2,968,429 | ) |
|
|
|
| (2,773,070 | ) |
Class B |
|
|
|
|
| (260,252 | ) |
|
|
|
| (32,221 | ) |
Class C |
|
|
|
|
| (249,507 | ) |
|
|
|
| (34,311 | ) |
Class I |
|
|
|
|
| (1,723,402 | ) |
|
|
|
| (2,186,761 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| 0 |
|
|
|
|
| (29,430,678 | ) |
Class B |
|
|
|
|
| 0 |
|
|
|
|
| (6,699,281 | ) |
Class C |
|
|
|
|
| 0 |
|
|
|
|
| (3,865,879 | ) |
Class I |
|
|
|
|
| 0 |
|
|
|
|
| (12,606,057 | ) |
| |||||||||||||
Total distributions to shareholders |
|
|
|
|
| (5,201,590 | ) |
|
|
|
| (57,628,258 | ) |
| |||||||||||||
|
|
| Shares |
|
|
|
|
| Shares |
|
|
|
|
| |||||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 309,670 |
|
| 5,824,956 |
|
| 455,107 |
|
| 11,407,196 |
|
Class B |
|
| 112,492 |
|
| 1,909,348 |
|
| 158,342 |
|
| 3,719,002 |
|
Class C |
|
| 146,512 |
|
| 2,393,131 |
|
| 119,559 |
|
| 2,854,461 |
|
Class I |
|
| 228,431 |
|
| 5,230,197 |
|
| 294,839 |
|
| 7,790,514 |
|
| |||||||||||||
|
|
|
|
|
| 15,357,632 |
|
|
|
|
| 25,771,173 |
|
| |||||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 167,046 |
|
| 2,777,986 |
|
| 1,181,325 |
|
| 30,545,185 |
|
Class B |
|
| 16,347 |
|
| 247,980 |
|
| 267,644 |
|
| 6,432,635 |
|
Class C |
|
| 14,730 |
|
| 223,600 |
|
| 147,645 |
|
| 3,548,208 |
|
Class I |
|
| 87,358 |
|
| 1,551,595 |
|
| 510,793 |
|
| 13,451,217 |
|
| |||||||||||||
|
|
|
|
|
| 4,801,161 |
|
|
|
|
| 53,977,245 |
|
| |||||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 567,335 |
|
| 11,062,216 |
|
| 1,365,639 |
|
| 33,787,648 |
|
Class B |
|
| (614,208 | ) |
| (11,062,216 | ) |
| (1,472,824 | ) |
| (33,787,648 | ) |
| |||||||||||||
|
|
|
|
|
| 0 |
|
|
|
|
| 0 |
|
| |||||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| (2,547,012 | ) |
| (49,096,439 | ) |
| (4,653,487 | ) |
| (117,087,443 | ) |
Class B |
|
| (530,759 | ) |
| (9,485,488 | ) |
| (1,388,963 | ) |
| (32,563,834 | ) |
Class C |
|
| (331,598 | ) |
| (5,745,957 | ) |
| (599,809 | ) |
| (14,066,078 | ) |
Class I |
|
| (715,802 | ) |
| (13,797,806 | ) |
| (1,300,813 | ) |
| (33,086,055 | ) |
| |||||||||||||
|
|
|
|
|
| (78,125,690 | ) |
|
|
|
| (196,803,410 | ) |
| |||||||||||||
Net decrease in net assets resulting from capital share transactions |
|
|
|
|
| (57,966,897 | ) |
|
|
|
| (117,054,992 | ) |
| |||||||||||||
Total decrease in net assets |
|
|
|
|
| (330,814,625 | ) |
|
|
|
| (264,553,546 | ) |
|
See Notes to Financial Statements
17
STATEMENTS OF CHANGES IN NET ASSETS continued
|
| Six Months Ended |
| Year Ended July 31, 2008 |
| ||||||||
| |||||||||||||
Net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| $ | 884,742,969 |
|
|
|
| $ | 1,149,296,515 |
|
| |||||||||||||
End of period |
|
|
|
| $ | 553,928,344 |
|
|
|
| $ | 884,742,969 |
|
| |||||||||||||
Overdistributed net investment income |
|
|
|
| $ | (2,201,227 | ) |
|
|
| $ | (197,813 | ) |
|
See Notes to Financial Statements
18
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Fundamental Large Cap Fund (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C and Class I shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I shares are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Foreign securities traded on an established exchange are valued at the last sales price on the exchange where the security is primarily traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Foreign securities may be valued at fair value according to procedures approved by the Board of Trustees if the closing price is not reflective of current market values due to trading or events occurring in the foreign markets between the close of the established exchange and the valuation time of the Fund. In addition, substantial changes in values in the U.S. markets subsequent to the close of a foreign market may also affect the values of securities traded in the foreign market. The value of foreign securities may be adjusted if such movements in the U.S. market exceed a specified threshold.
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as similar security prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers which use prices provided by market makers or
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Short-term securities with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Repurchase agreements
Securities pledged as collateral for repurchase agreements are held by the custodian bank or in a segregated account in the Fund’s name until the agreements mature. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the Fund and the counterparty. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. However, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. The Fund will only enter into repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be creditworthy pursuant to guidelines established by the Board of Trustees. In certain instances, the Fund’s securities lending agent may provide collateral in the form of repurchase agreements.
c. Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments.
d. Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
e. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Dividend income is recorded on the ex-dividend date or in the case of some foreign securities, on the date when the Fund is made aware of the dividend.
f. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
g. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
h. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee starting at 0.70% and declining to 0.50% as the aggregate average daily net assets of the Fund and its variable annuity counterpart, Evergreen VA Fundamental Large Cap Fund, increase. For the six months ended January 31, 2009, the advisory fee was equivalent to an annual rate of 0.63% of the Fund’s average daily net assets.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC with the same terms and conditions as the existing agreement which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC voluntarily waived its advisory fee in the amount of $305.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliates on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.42% of the Fund’s average daily net assets.
Wachovia Bank NA, a subsidiary of Wells Fargo and an affiliate of EIMC, through its securities lending division, Wachovia Global Securities Lending, acts as the securities lending agent for the Fund (see Note 5).
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wells Fargo. During the six months ended January 31, 2009, the Fund paid brokerage commissions of $53,193 to Wachovia Securities, LLC, a broker-dealer affiliated with Wells Fargo.
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for Class A shares and up to 1.00% of the average daily net assets for each of Class B and Class C shares. However, currently the distribution fees for Class A shares are limited to 0.25% of the average daily net assets of the class.
For the six months ended January 31, 2009, EIS received $5,151 from the sale of Class A shares and $53,934 and $455 in contingent deferred sales charges from redemptions of Class B and Class C shares, respectively.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $101,040,712 and $150,235,568, respectively, for the six months ended January 31, 2009.
On August 1, 2008, the Fund implemented Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs |
| Investments in | ||
Level 1 – Quoted Prices |
| $ | 774,481,069 |
|
Level 2 – Other Significant Observable Inputs |
|
| 918,061 |
|
Level 3 – Significant Unobservable Inputs |
|
| 1,797,689 |
|
Total |
| $ | 777,196,819 |
|
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
|
| Investments in | ||
Balance as of August 1, 2008 |
| $ | 0 |
|
Realized gain (loss) |
|
| 0 |
|
Change in unrealized appreciation (depreciation) |
|
| 0 |
|
Net purchases (sales) |
|
| 0 |
|
Transfers in and/or out of Level 3 |
|
| 1,797,689 |
|
Balance as of January 31, 2009 |
| $ | 1,797,689 |
|
During the six months ended January 31, 2009, the Fund loaned securities to certain brokers and earned $1,406,842, net of $169,010 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2009, the value of securities on loan and the total value of collateral received for securities loaned (including segregated cash) amounted to $217,460,115 and $223,857,754, respectively.
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $895,771,567. The gross unrealized appreciation and depreciation on securities based on tax cost was $44,464,314 and $163,039,062, respectively, with a net unrealized depreciation of $118,574,748.
As of July 31, 2008, the Fund had $136,638,686 in capital loss carryovers for federal income tax purposes with $134,054,733 expiring in 2010 and $2,583,953 expiring in 2011. Certain portions of the capital loss carryovers of the Fund were assumed as a result of acquisitions. These losses are subject to certain limitations prescribed by the Internal Revenue Code. Utilization of these capital loss carryovers was limited during the year ended July 31, 2008 in accordance with income tax regulations.
6. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an inter-fund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
7. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
8. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
9. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata.
During the six months ended January 31, 2009, the Fund had average borrowings outstanding of $28,724 (on an annualized basis) at an average rate of 2.90% and paid interest of $833.
10. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
transaction costs or operating expenses or have other adverse consequences on the Evergreen funds.
11. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amendment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
26
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On March 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $551,953,473 of net assets outstanding of which $297,981,710 (53.99%) of net assets were represented at the meeting.
Proposal 1 — To consider and act upon a new investment advisory agreement with Evergreen Investment Management Company, LLC:
Net assets voted “For” | $ | 267,682,125 |
Net assets voted “Against” | $ | 12,845,567 |
Net assets voted “Abstain” | $ | 17,454,018 |
27
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. In September 2008, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Fundamental Large Cap Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of its deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. The Trustees began their 2008 review process at the time of the last advisory contract-renewal process in September 2007. In the course of their 2007 review, the Trustees identified a number of funds that had experienced either short-term or longer-term performance issues. During the 2008 review process, the Trustees monitored each of these funds in particular for changes in performance and for the results of any changes in a fund’s investment process or investment team. In addition, during the course of the year, the Trustees regularly reviewed information regarding the investment performance of all of the funds, paying particular attention to funds whose performance since September 2007 indicated short-term or longer-term performance issues.
In spring 2008, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Board would review as part of its 2008 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the independent Trustees, the information that EIMC and Keil provided. The Trustees formed small groups to review individual funds in greater detail. In addition, the Trustees
28
ADDITIONAL INFORMATION (unaudited) continued
considered information regarding, among other things, brokerage practices of the funds, the use of derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
The Committee met several times by telephone during the 2008 review process to consider the information provided by EIMC. The Committee then met with representatives of EIMC. In addition, over the period of this review, the independent Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC and in multiple private sessions with independent legal counsel at which no personnel of EIMC were present. At a meeting of the full Board of Trustees in September, the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC and engaged in further review of the materials provided to it, and approved the continuation of each of the advisory and sub-advisory agreements.
In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements as part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, EIMC presents a wide variety of information regarding the services it performs, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds and EIMC with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of
29
ADDITIONAL INFORMATION (unaudited) continued
services provided by EIMC. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2007. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new Chief Compliance Officer for the funds in June of 2007 and a new Chief Investment Officer at EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC or its affiliates for such services. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. The Trustees also considered the investment performance of those other accounts managed by EIMC and its affiliates, where applicable, and concluded that the performance of those accounts did not suggest any substantial difference in the quality of the service provided by EIMC and its affiliates to those accounts.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. The Board considered that EIS, an affiliate of EIMC, serves as distributor to the funds generally and receives fees from the funds for those services. They considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that the funds pay sub-transfer agency fees to various financial institutions, including Wachovia Securities, LLC and its affiliates, that hold fund shares in omnibus accounts,
30
ADDITIONAL INFORMATION (unaudited) continued
and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the Trustees noted that an affiliate of EIMC had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wachovia Securities, LLC and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through it. The Trustees also noted that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
In the period leading up to the Trustees’ approval of continuation of the investment advisory agreements, the Trustees were mindful of the financial condition of Wachovia Corporation (“Wachovia”), EIMC’s parent company. They considered the possibility that a significant adverse change in Wachovia’s financial condition could impair the ability of EIMC or its affiliates to perform services for the funds at the same level as in the past. The Trustees concluded that any change in Wachovia’s financial condition had not to date had any such effect, but determined to monitor EIMC’s and its affiliates’ performance, and financial conditions generally, going forward in order to identify any such impairment that may develop and to take appropriate action.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC formulates and implements an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC were consistent with their respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund
31
ADDITIONAL INFORMATION (unaudited) continued
and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by EIMC, including services provided by EIMC under its administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. Although the Trustees considered the performance of all share classes, the Trustees noted that, for the one- and three-year periods ended December 31, 2007, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the S&P 500 Index, and a majority of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that, for the five-year period ended December 31, 2007, the Fund’s Class A shares had underperformed the Fund’s benchmark index, and outperformed a majority of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that, for the ten-year period ended December 31, 2007, the Fund’s Class A shares had underperformed the Fund’s benchmark index and performed in the fourth quintile of the mutual funds against which the Trustees compared the Fund’s performance.
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative underperformance. The Trustees also noted that EIMC had appointed a new Chief Investment Officer in August of 2008 who had not yet had sufficient time to evaluate and direct remedial efforts with respect to funds that have experienced a substantial period of relative underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level
32
ADDITIONAL INFORMATION (unaudited) continued
of management fees was not excessive. The Trustees noted that the management fee paid by the Fund was higher than the management fees paid by the other mutual funds against which the Trustees compared the Fund’s management fee, and noted that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees noted the possibility that economies of scale would be achieved by EIMC in managing the funds as the funds grow. The Trustees noted that the Fund had implemented breakpoints in its advisory fee structure. The Trustees noted that they would continue to review the appropriate levels of breakpoints in the future, and concluded that the breakpoints as implemented appeared to be a reasonable step toward the realization of economies of scale by the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability of any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
Matters Relating to Approval of Interim Advisory and Sub-Advisory Agreements. Following the Trustees’ approval of the continuation of the funds’ investment advisory agreements, Wells Fargo & Company (“Wells Fargo”) announced that it had agreed to acquire Wachovia in a whole company transaction that would include all of Wachovia’s banking and other businesses, including EIMC. In connection with this transaction, on October 20, 2008, Wachovia issued preferred shares representing a 39.9% voting interest in Wachovia to Wells Fargo pursuant to a Share Exchange Agreement. Wells Fargo subsequently completed its acquisition of Wachovia on December 31, 2008.
Under the 1940 Act, both the issuance of the preferred shares to Wells Fargo and the completion of the acquisition could be viewed as resulting in the termination of the funds’ investment advisory and sub-advisory agreements. Accordingly, on October 20, 2008, the Board of Trustees approved interim investment advisory and sub-advisory agreements that would become effective upon Wachovia’s issuance of preferred shares to Wells Fargo. On November 12, 2008, the Trustees approved a second set of interim investment advisory
33
ADDITIONAL INFORMATION (unaudited) continued
and sub-advisory agreements that would become effective upon the completion of the acquisition. (The first set of interim agreements approved on October 20, 2008, together with the second set of interim agreements approved November 12, 2008, are referred to as “Interim Agreements.”) In addition, the Trustees approved on November 12, 2008, and again at an in-person meeting on December 3 and 4, 2008, definitive investment advisory and sub-advisory agreements (the “New Agreements”) and recommended that shareholders of the funds approve them at meetings to be held in early 2009.
In considering whether to approve the first set of Interim Agreements on October 20, 2008, the Trustees took into account that they had recently approved the annual continuation of all of the funds’ existing investment advisory and sub-advisory agreements in September 2008. The Trustees reviewed the terms of the Interim Agreements, noting that the terms were generally identical to those of the funds’ investment advisory agreements that were in effect before October 20, 2008 (but for provisions required by law to be included in the Interim Agreements). They also took into account current and anticipated market and economic conditions, the financial condition of EIMC and of Wachovia generally, and the likely effect of the merger on the financial condition of Wachovia. In general, the Trustees considered that the proposed merger of Wachovia with Wells Fargo would very likely improve substantially the financial condition of EIMC’s parent company, increase the capital available to support the funds, and ensure that EIMC and its affiliates would have the resources to provide continuing services to the funds. In light principally of these considerations and their recent continuation of the funds’ investment advisory arrangements in September, the Trustees unanimously approved the first set of Interim Agreements that became effective on October 20, 2008.
In addition to the foregoing, at their meetings on November 12, 2008 and December 3 and 4, 2008 when the Trustees considered whether to approve the second set of Interim Agreements as well as the New Agreements, the Trustees considered presentations made to them on November 12, 2008 by representatives of EIMC and Wells Fargo regarding the anticipated implications of the merger for EIMC and the funds. The Trustees also considered:
• | Their understanding that the merger was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC would provide to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high quality services; |
• | Information about Wells Fargo’s financial condition, reputation, and resources, and the likelihood that the merger would result in improved organizational stability for EIMC, benefiting the funds as well as offering the potential for the funds, over time, to access Wells Fargo’s infrastructure, resources and capabilities; |
34
ADDITIONAL INFORMATION (unaudited) continued
• | That EIMC and Wells Fargo representatives have stated that there is no present intention to change the funds’ existing advisory fees or expense limitations; |
• | That the representatives of Wells Fargo have expressed their intention to pursue the integration of EIMC and the funds with corresponding Wells Fargo businesses and funds only after a deliberative process designed to identify and retain the relative strengths of both organizations; |
• | That the Wells Fargo representatives expect that the deliberative process and any subsequent integration will take more than a year; |
• | That, in the meantime, Wells Fargo expects to retain, largely in its current form, the existing EIMC management team and investment advisory and other key professionals and to operate EIMC following the merger as a separate business unit under the Evergreen brand; |
• | That Wells Fargo and EIMC would consult with the Trustees before implementing any significant changes that would affect the funds or the services provided by EIMC or its affiliates to the funds; |
• | Wells Fargo’s experience and approach with respect to acquisitions of other fund complexes; |
• | The fact that, if the New Agreements were not approved, on March 19, 2009, the Subsequent Interim Agreements will expire and the funds will no longer have a contractual right to investment advisory services from EIMC or any sub-advisors; |
• | That EIMC’s management supports the merger; and |
• | That representatives of EIMC have committed that the funds will not bear the expenses relating to Wells Fargo’s acquisition of Wachovia, including the costs of soliciting fund shareholders to approve the New Agreements. |
Based on the foregoing, the Trustees, including all of the Trustees who are not “interested persons” of the funds or EIMC, unanimously approved the second set of Interim Agreements and the New Agreements.
35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
Charles A. Austin III | Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford | Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. | Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel | Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell | Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris | President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 | Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson | President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton III, MD | President/CEO, AccessOne MedCard, Inc. |
36
TRUSTEES AND OFFICERS continued
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima | Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 | Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
|
|
OFFICERS |
|
W. Douglas Munn4 | Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 | Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 | Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
37
565221 rv6 03/2009
Evergreen Fundamental Mid Cap Value Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
11 |
| SCHEDULE OF INVESTMENTS |
15 |
| STATEMENT OF ASSETS AND LIABILITIES |
16 |
| STATEMENT OF OPERATIONS |
17 |
| STATEMENTS OF CHANGES IN NET ASSETS |
18 |
| NOTES TO FINANCIAL STATEMENTS |
24 |
| ADDITIONAL INFORMATION |
36 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC.
Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC, is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc.
200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Fundamental Mid Cap Value Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During the period, the management teams of Evergreen’s value-oriented equity funds tended to emphasize investments in attractively priced and fundamentally sound corporations. The portfolio manager of Evergreen Disciplined Value Fund, for example, used a combination of quantitative tools and traditional fundamental analysis in reviewing opportunities. The manager of Evergreen Equity Index Fund maintained a portfolio reflecting the composition of the Standard & Poor’s 500® Index, using a proprietary process to control trading and implementation costs. Management of
1
LETTER TO SHAREHOLDERS continued
Evergreen Equity Income Fund emphasized companies they believe have the ability to maintain and increase their dividends to shareholders. The management of Evergreen Fundamental Large Cap Fund focused on larger corporations with stable earnings growth records while the management of Evergreen Fundamental Mid Cap Value Fund emphasized mid-sized companies selling at what the management believed to be reasonable valuations. The team managing Evergreen Intrinsic Value Fund sought out investments in established companies selling at stock prices below the managers’ estimate of the company’s intrinsic value. Meanwhile, the management of Evergreen Special Values Fund focused on higher-quality companies believed to have reasonable prices and strong balance sheets, and the management of Evergreen Small Cap Value Fund sought to invest in small companies of sound quality at attractive prices.
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
| • | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC are subsidiaries of Wells Fargo. |
| • | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Manager:
James M. Tringas, CFA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 9/28/2007
| Class A | Class B | Class C | Class I |
Class inception date | 9/28/2007 | 9/28/2007 | 9/28/2007 | 9/28/2007 |
Nasdaq symbol | EFVAX | EFVBX | EFVCX | EFVIX |
6-month return with sales charge | -34.42% | -34.10% | -31.29% | N/A |
6-month return w/o sales charge | -30.42% | -30.63% | -30.60% | -30.27% |
Average annual return* |
|
|
|
|
1-year with sales charge | -35.68% | -35.65% | -32.91% | N/A |
1-year w/o sales charge | -31.76% | -32.26% | -32.23% | -31.54% |
Since portfolio inception | -31.40% | -30.91% | -28.75% | -28.11% |
Maximum sales charge | 5.75% | 5.00% | 1.00% | N/A |
| Front-end | CDSC | CDSC |
|
* Adjusted for maximum applicable sales charge, unless noted
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C or I, please go to EvergreenInvestments.com/fundperformance. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The fund incurs a 12b-1 fee of 0.25% for Class A and 1.00% for Classes B and C. Class I does not pay a 12b-1 fee.
The advisor is waiving its advisory fee and reimbursing the fund for a portion of other expenses. Had the fee not been waived and expenses not reimbursed, returns would have been lower.
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Fundamental Mid Cap Value Fund Class A shares versus a similar investment in the Russell Midcap Value Index (Russell Midcap Value) and the Consumer Price Index (CPI).
The Russell Midcap Value is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to, retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
Small and mid cap securities may be subject to special risks associated with narrower product lines and limited financial resources compared to their large cap counterparts, and, as a result, small and mid cap securities may decline significantly in market downturns and may be more volatile than those of larger companies due to the higher risk of failure.
The market value of convertible securities tends to decline as interest rates increase and may be affected by changes in the price of the underlying security.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund’s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning | Ending | Expenses Paid |
Actual |
|
|
|
Class A | $1,000.00 | $ 695.78 | $ 5.34 |
Class B | $1,000.00 | $ 693.65 | $ 8.54 |
Class C | $1,000.00 | $ 694.00 | $ 8.54 |
Class I | $1,000.00 | $ 697.29 | $ 4.28 |
Hypothetical |
|
|
|
(5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,018.90 | $ 6.36 |
Class B | $1,000.00 | $1,015.12 | $10.16 |
Class C | $1,000.00 | $1,015.12 | $10.16 |
Class I | $1,000.00 | $1,020.16 | $ 5.09 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.25% for Class A, 2.00% for Class B, 2.00% for Class C and 1.00% for Class I), multiplied by the average account value over the period, multiplied by 184/365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
|
|
| ||
|
| January 31, 2009 |
| Year Ended |
| ||
Class A |
| (unaudited) |
| July 31, 20081 |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.17 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.03 |
|
| 0.05 |
|
Net realized and unrealized gains or losses on investments |
|
| (2.81 | ) |
| (0.87 | ) |
|
|
| |||||
Total from investment operations |
|
| (2.78 | ) |
| (0.82 | ) |
| |||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.01 | ) |
| |||||||
Net asset value, end of period |
| $ | 6.35 |
| $ | 9.17 |
|
| |||||||
Total return2 |
|
| (30.42 | )% |
| (8.06 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 338 |
| $ | 390 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.25 | %3 |
| 1.25 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 6.55 | %3 |
| 13.49 | %3 |
Net investment income (loss) |
|
| 0.85 | %3 |
| 0.71 | %3 |
Portfolio turnover rate |
|
| 119 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
|
|
| ||
|
| January 31, 2009 |
| Year Ended |
| ||
Class B |
| (unaudited) |
| July 31, 20081 |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.13 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.01 | ) |
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| (2.78 | ) |
| (0.87 | ) |
|
|
| |||||
Total from investment operations |
|
| (2.79 | ) |
| (0.87 | ) |
| |||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
Net investment income |
|
| 0 |
|
| 0 | 2 |
| |||||||
Net asset value, end of period |
| $ | 6.34 |
| $ | 9.13 |
|
| |||||||
Total return3 |
|
| (30.63 | )% |
| (8.59 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 209 |
| $ | 308 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.00 | %4 |
| 2.00 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 7.30 | %4 |
| 14.24 | %4 |
Net investment income (loss) |
|
| (0.18 | )%4 |
| (0.04 | )%4 |
Portfolio turnover rate |
|
| 119 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Amount represents less than $0.005 per share. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
|
|
| ||
|
| January 31, 2009 |
| Year Ended |
| ||
Class C |
| (unaudited) |
| July 31, 20081 |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.14 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.03 | ) |
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| (2.77 | ) |
| (0.86 | ) |
|
|
| |||||
Total from investment operations |
|
| (2.80 | ) |
| (0.86 | ) |
| |||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
Net investment income |
|
| (0.02 | ) |
| 0 | 2 |
| |||||||
Net asset value, end of period |
| $ | 6.32 |
| $ | 9.14 |
|
| |||||||
Total return3 |
|
| (30.60 | )% |
| (8.59 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 402 |
| $ | 1,107 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.00 | %4 |
| 2.00 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 7.30 | %4 |
| 14.24 | %4 |
Net investment income (loss) |
|
| (0.06 | )%4 |
| (0.01 | )%4 |
Portfolio turnover rate |
|
| 119 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Amount represents less than $0.005 per share. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
|
|
| ||
|
| January 31, 2009 |
| Year Ended |
| ||
Class I |
| (unaudited) |
| July 31, 20081 |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.19 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.02 |
|
| 0.06 |
|
Net realized and unrealized gains or losses on investments |
|
| (2.80 | ) |
| (0.85 | ) |
|
|
| |||||
Total from investment operations |
|
| (2.78 | ) |
| (0.79 | ) |
| |||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
Net investment income |
|
| (0.05 | ) |
| (0.02 | ) |
| |||||||
Net asset value, end of period |
| $ | 6.36 |
| $ | 9.19 |
|
| |||||||
Total return |
|
| (30.27 | )% |
| (7.92 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 510 |
| $ | 465 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.00 | %2 |
| 1.00 | %2 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 6.30 | %2 |
| 13.24 | %2 |
Net investment income (loss) |
|
| 0.71 | %2 |
| 1.01 | %2 |
Portfolio turnover rate |
|
| 119 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS 84.1% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 12.9% |
|
|
|
|
|
|
|
Distributors 0.3% |
|
|
|
|
|
|
|
Genuine Parts Co. |
|
| 130 |
| $ | 4,163 |
|
|
|
|
|
|
| ||
Hotels, Restaurants & Leisure 2.6% |
|
|
|
|
|
|
|
Wendy’s/Arby’s Group, Inc. |
|
| 7,413 |
|
| 37,362 |
|
|
|
|
|
|
| ||
Household Durables 2.5% |
|
|
|
|
|
|
|
Mohawk Industries, Inc. * |
|
| 226 |
|
| 7,257 |
|
Snap-On, Inc. |
|
| 986 |
|
| 29,757 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 37,014 |
|
|
|
|
|
|
| ||
Media 6.6% |
|
|
|
|
|
|
|
McGraw-Hill Cos. |
|
| 648 |
|
| 14,250 |
|
Scripps Networks Interactive, Inc., Class A |
|
| 2,658 |
|
| 57,067 |
|
Washington Post Co., Class B |
|
| 65 |
|
| 25,386 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 96,703 |
|
|
|
|
|
|
| ||
Specialty Retail 0.5% |
|
|
|
|
|
|
|
AnnTaylor Stores Corp. * |
|
| 1,491 |
|
| 7,336 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 0.4% |
|
|
|
|
|
|
|
Coach, Inc. * |
|
| 389 |
|
| 5,679 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 4.8% |
|
|
|
|
|
|
|
Food Products 4.2% |
|
|
|
|
|
|
|
ConAgra Foods, Inc. |
|
| 411 |
|
| 7,028 |
|
Sara Lee Corp. |
|
| 5,313 |
|
| 53,290 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 60,318 |
|
|
|
|
|
|
| ||
Tobacco 0.6% |
|
|
|
|
|
|
|
Lorillard, Inc. |
|
| 151 |
|
| 8,978 |
|
|
|
|
|
|
| ||
ENERGY 5.9% |
|
|
|
|
|
|
|
Energy Equipment & Services 2.2% |
|
|
|
|
|
|
|
Atwood Oceanics, Inc. * |
|
| 1,902 |
|
| 31,668 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 3.7% |
|
|
|
|
|
|
|
Cimarex Energy Co. |
|
| 1,210 |
|
| 30,056 |
|
Pioneer Natural Resources Co. |
|
| 454 |
|
| 6,647 |
|
St. Mary Land & Exploration Co. |
|
| 929 |
|
| 17,976 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 54,679 |
|
|
|
|
|
|
| ||
FINANCIALS 20.9% |
|
|
|
|
|
|
|
Commercial Banks 6.4% |
|
|
|
|
|
|
|
BOK Financial Corp. |
|
| 259 |
|
| 9,661 |
|
Comerica, Inc. |
|
| 216 |
|
| 3,599 |
|
Cullen/Frost Bankers, Inc. |
|
| 1,352 |
|
| 59,177 |
|
First Citizens Bancshares, Inc., Class A |
|
| 147 |
|
| 20,559 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 92,996 |
|
|
|
|
|
|
| ||
Insurance 12.4% |
|
|
|
|
|
|
|
Brown & Brown, Inc. |
|
| 2,434 |
|
| 46,562 |
|
Everest Re Group, Ltd. |
|
| 691 |
|
| 43,533 |
|
Fidelity National Financial, Inc., Class A |
|
| 1,966 |
|
| 28,743 |
|
White Mountains Insurance Group, Ltd. |
|
| 259 |
|
| 62,549 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 181,387 |
|
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Thrifts & Mortgage Finance 2.1% |
|
|
|
|
|
|
|
People’s United Financial, Inc. |
|
| 1,892 |
| $ | 30,953 |
|
|
|
|
|
|
| ||
HEALTH CARE 2.9% |
|
|
|
|
|
|
|
Pharmaceuticals 2.9% |
|
|
|
|
|
|
|
Endo Pharmaceuticals Holdings, Inc. * |
|
| 886 |
|
| 19,908 |
|
Forest Laboratories, Inc. * |
|
| 904 |
|
| 22,636 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 42,544 |
|
|
|
|
|
|
| ||
INDUSTRIALS 11.4% |
|
|
|
|
|
|
|
Aerospace & Defense 1.3% |
|
|
|
|
|
|
|
Precision Castparts Corp. |
|
| 86 |
|
| 5,586 |
|
Rockwell Collins Corp. |
|
| 375 |
|
| 14,130 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,716 |
|
|
|
|
|
|
| ||
Construction & Engineering 0.6% |
|
|
|
|
|
|
|
KBR, Inc. |
|
| 605 |
|
| 8,567 |
|
|
|
|
|
|
| ||
Electrical Equipment 0.8% |
|
|
|
|
|
|
|
Acuity Brands, Inc. |
|
| 263 |
|
| 7,067 |
|
Belden, Inc. |
|
| 367 |
|
| 4,793 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,860 |
|
|
|
|
|
|
| ||
Machinery 4.6% |
|
|
|
|
|
|
|
Dover Corp. |
|
| 1,815 |
|
| 51,328 |
|
Eaton Corp. |
|
| 346 |
|
| 15,231 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 66,559 |
|
|
|
|
|
|
| ||
Professional Services 1.8% |
|
|
|
|
|
|
|
Manpower, Inc. |
|
| 389 |
|
| 11,071 |
|
Monster Worldwide, Inc. * |
|
| 1,704 |
|
| 15,694 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 26,765 |
|
|
|
|
|
|
| ||
Road & Rail 2.3% |
|
|
|
|
|
|
|
Con-Way, Inc. |
|
| 1,513 |
|
| 33,331 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 13.9% |
|
|
|
|
|
|
|
Computers & Peripherals 5.4% |
|
|
|
|
|
|
|
Imation Corp. |
|
| 2,896 |
|
| 28,207 |
|
Lexmark International, Inc., Class A * |
|
| 1,405 |
|
| 33,270 |
|
Sun Microsystems, Inc. * |
|
| 1,523 |
|
| 6,336 |
|
Western Digital Corp. * |
|
| 756 |
|
| 11,098 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 78,911 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 0.9% |
|
|
|
|
|
|
|
Ingram Micro, Inc., Class A * |
|
| 324 |
|
| 3,975 |
|
Tyco Electronics, Ltd. |
|
| 648 |
|
| 9,176 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,151 |
|
|
|
|
|
|
| ||
IT Services 4.8% |
|
|
|
|
|
|
|
Fidelity National Information Services, Inc. |
|
| 222 |
|
| 3,532 |
|
Global Payments, Inc. |
|
| 1,685 |
|
| 58,486 |
|
Total System Services, Inc. |
|
| 591 |
|
| 7,482 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 69,500 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
Semiconductors & Semiconductor Equipment 2.3% |
|
|
|
|
|
|
|
LSI Corp. * |
|
| 6,526 |
| $ | 20,753 |
|
Xilinx, Inc. |
|
| 800 |
|
| 13,480 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 34,233 |
|
|
|
|
|
|
| ||
Software 0.5% |
|
|
|
|
|
|
|
Amdocs, Ltd. * |
|
| 389 |
|
| 6,582 |
|
|
|
|
|
|
| ||
MATERIALS 3.7% |
|
|
|
|
|
|
|
Containers & Packaging 2.3% |
|
|
|
|
|
|
|
Owens-Illinois, Inc. * |
|
| 1,766 |
|
| 33,554 |
|
|
|
|
|
|
| ||
Paper & Forest Products 1.4% |
|
|
|
|
|
|
|
Weyerhaeuser Co. |
|
| 735 |
|
| 20,095 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 1.8% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 1.0% |
|
|
|
|
|
|
|
CenturyTel, Inc. |
|
| 562 |
|
| 15,253 |
|
|
|
|
|
|
| ||
Wireless Telecommunication Services 0.8% |
|
|
|
|
|
|
|
Telephone & Data Systems, Inc. |
|
| 367 |
|
| 11,197 |
|
|
|
|
|
|
| ||
UTILITIES 5.9% |
|
|
|
|
|
|
|
Electric Utilities 3.4% |
|
|
|
|
|
|
|
Mirant Corp. * |
|
| 614 |
|
| 10,543 |
|
Westar Energy, Inc. |
|
| 1,966 |
|
| 39,477 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 50,020 |
|
|
|
|
|
|
| ||
Multi-Utilities 2.5% |
|
|
|
|
|
|
|
Ameren Corp. |
|
| 1,080 |
|
| 35,910 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $1,585,070) |
|
|
|
|
| 1,226,984 |
|
|
|
|
|
|
| ||
EXCHANGE TRADED FUND 1.9% |
|
|
|
|
|
|
|
iShares Russell Midcap Value Index Fund (cost $28,352) |
|
| 1,089 |
|
| 27,562 |
|
|
|
|
|
|
| ||
SHORT-TERM INVESTMENTS 10.0% |
|
|
|
|
|
|
|
MUTUAL FUND SHARES 10.0% |
|
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I, 0.84% q ø (cost $146,617) |
|
| 146,617 |
|
| 146,617 |
|
|
|
|
|
|
| ||
Total Investments (cost $1,760,039) 96.0% |
|
|
|
|
| 1,401,163 |
|
Other Assets and Liabilities 4.0% |
|
|
|
|
| 58,216 |
|
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 1,459,379 |
|
|
|
|
|
|
|
* | Non-income producing security |
q | Rate shown is the 7-day annualized yield at period end. |
ø | Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Financials | 24.4 | % |
Information Technology | 16.1 | % |
Consumer Discretionary | 15.0 | % |
Industrials | 13.3 | % |
Energy | 6.9 | % |
Utilities | 6.8 | % |
Consumer Staples | 5.5 | % |
Materials | 4.3 | % |
Health Care | 3.4 | % |
Telecommunication Services | 2.1 | % |
Other | 2.2 | % |
|
| |
| 100.0 | % |
|
|
See Notes to Financial Statements
14
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $1,613,422) |
| $ | 1,254,546 |
|
Investments in affiliated issuers, at value (cost $146,617) |
|
| 146,617 |
|
| ||||
Total investments |
|
| 1,401,163 |
|
Receivable for securities sold |
|
| 25,729 |
|
Receivable for Fund shares sold |
|
| 211 |
|
Dividends receivable |
|
| 859 |
|
Receivable from investment advisor |
|
| 1,035 |
|
Prepaid expenses and other assets |
|
| 64,503 |
|
| ||||
Total assets |
|
| 1,493,500 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 29,302 |
|
Distribution Plan expenses payable |
|
| 59 |
|
Due to other related parties |
|
| 465 |
|
Printing and postage expenses payable |
|
| 2,195 |
|
Accrued expenses and other liabilities |
|
| 2,100 |
|
| ||||
Total liabilities |
|
| 34,121 |
|
| ||||
Net assets |
| $ | 1,459,379 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 2,504,574 |
|
Overdistributed net investment income |
|
| (1,610 | ) |
Accumulated net realized losses on investments |
|
| (684,709 | ) |
Net unrealized losses on investments |
|
| (358,876 | ) |
| ||||
Total net assets |
| $ | 1,459,379 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 338,326 |
|
Class B |
|
| 208,923 |
|
Class C |
|
| 402,262 |
|
Class I |
|
| 509,868 |
|
| ||||
Total net assets |
| $ | 1,459,379 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 53,254 |
|
Class B |
|
| 32,966 |
|
Class C |
|
| 63,640 |
|
Class I |
|
| 80,230 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 6.35 |
|
Class A—Offering price (based on sales charge of 5.75%) |
| $ | 6.74 |
|
Class B |
| $ | 6.34 |
|
Class C |
| $ | 6.32 |
|
Class I |
| $ | 6.36 |
|
|
See Notes to Financial Statements
15
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
|
Dividends (net of foreign withholding taxes of $46) |
| $ | 18,114 |
|
Income from affiliate |
|
| 2,372 |
|
| ||||
Total investment income |
|
| 20,486 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 6,968 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 555 |
|
Class B |
|
| 1,288 |
|
Class C |
|
| 5,101 |
|
Administrative services fee |
|
| 1,072 |
|
Transfer agent fees |
|
| 2,663 |
|
Trustees’ fees and expenses |
|
| 277 |
|
Printing and postage expenses |
|
| 7,472 |
|
Custodian and accounting fees |
|
| 2,023 |
|
Registration and filing fees |
|
| 31,174 |
|
Professional fees |
|
| 9,481 |
|
Other |
|
| 6,382 |
|
| ||||
Total expenses |
|
| 74,456 |
|
Less: Expense reductions |
|
| (4 | ) |
Fee waivers and expense reimbursements |
|
| (56,788 | ) |
| ||||
Net expenses |
|
| 17,664 |
|
| ||||
Net investment income |
|
| 2,822 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on securities in unaffiliated issuers |
|
| (671,852 | ) |
Net change in unrealized gains or losses on investments |
|
| (198,437 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
| (870,289 | ) |
| ||||
Net decrease in net assets resulting from operations |
| $ | (867,467 | ) |
|
See Notes to Financial Statements
16
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 2,822 |
|
|
| $ | 4,100 |
|
Net realized losses on investments |
|
|
|
| (671,852 | ) |
|
|
| (12,857 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| (198,437 | ) |
|
|
| (160,439 | ) |
| |||||||||||
Net decrease in net assets resulting from operations |
|
|
|
| (867,467 | ) |
|
|
| (169,196 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (1,775 | ) |
|
|
| (366 | ) |
Class B |
|
|
|
| 0 |
|
|
|
| (23 | ) |
Class C |
|
|
|
| (3,405 | ) |
|
|
| (23 | ) |
Class I |
|
|
|
| (2,472 | ) |
|
|
| (468 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (7,652 | ) |
|
|
| (880 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 78,845 |
|
| 726,288 |
| 43,029 |
|
| 423,823 |
|
Class B |
| 6,047 |
|
| 43,310 |
| 36,282 |
|
| 359,720 |
|
Class C |
| 54,079 |
|
| 472,512 |
| 122,828 |
|
| 1,187,779 |
|
Class I |
| 38,581 |
|
| 259,713 |
| 50,625 |
|
| 512,670 |
|
| |||||||||||
|
|
|
|
| 1,501,823 |
|
|
|
| 2,483,992 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 117 |
|
| 772 |
| 0 |
|
| 0 |
|
Class C |
| 427 |
|
| 2,798 |
| 0 |
|
| 0 |
|
Class I |
| 186 |
|
| 1,227 |
| 0 |
|
| 0 |
|
| |||||||||||
|
|
|
|
| 4,797 |
|
|
|
| 0 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 11 |
|
| 71 |
| 0 |
|
| 0 |
|
Class B |
| (11 | ) |
| (71 | ) | 0 |
|
| 0 |
|
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (68,232 | ) |
| (595,226 | ) | (516 | ) |
| (4,770 | ) |
Class B |
| (6,812 | ) |
| (46,248 | ) | (2,540 | ) |
| (23,409 | ) |
Class C |
| (112,007 | ) |
| (732,044 | ) | (1,687 | ) |
| (15,419 | ) |
Class I |
| (9,150 | ) |
| (68,807 | ) | (12 | ) |
| (115 | ) |
| |||||||||||
|
|
|
|
| (1,442,325 | ) |
|
|
| (43,713 | ) |
| |||||||||||
Net increase in net assets resulting from capital share transactions |
|
|
|
| 64,295 |
|
|
|
| 2,440,279 |
|
| |||||||||||
Total increase (decrease) in net assets |
|
|
|
| (810,824 | ) |
|
|
| 2,270,203 |
|
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 2,270,203 |
|
|
|
| 0 |
|
| |||||||||||
End of period |
|
|
| $ | 1,459,379 |
|
|
| $ | 2,270,203 |
|
| |||||||||||
Undistributed (overdistributed) net investment income |
|
|
| $ | (1,610 | ) |
|
| $ | 3,220 |
|
|
(a) | For the period from September 28, 2007 (commencement of operations), to July 31, 2008. |
See Notes to Financial Statements
17
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Fundamental Mid Cap Value Fund (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C and Class I shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I shares are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current market value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Dividend income is recorded on the ex-dividend date. Foreign income and capital gains realized on some securities may be subject to foreign taxes, which are accrued as applicable.
c. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting
18
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
d. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
e. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee starting at 0.65% and declining to 0.60% as average daily net assets increase. For the six months ended January 31, 2009, the advisory fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC with the same terms and conditions as the existing agreement which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect.
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC voluntarily waived its advisory fee in the amount of $6,968 and reimbursed other expenses in the amount of $49,820.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliate on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.25% of the Fund’s average daily net assets.
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wells Fargo. During the six months ended January 31, 2009, the Fund paid brokerage commissions of $558 to Wachovia Securities, LLC, a broker-dealer affiliated with Wells Fargo.
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for Class A shares and up to 1.00% of the average daily net assets for each of Class B and Class C shares. However, currently the distribution fees for Class A shares are limited to 0.25% of the average daily net assets of the class.
For the six months ended January 31, 2009, EIS received $239 from the sale of Class A shares.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $2,228,959 and $2,219,065, respectively, for the six months ended January 31, 2009.
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
On August 1, 2008 the Fund implemented Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs |
| Investments in | ||
Level 1 – Quoted Prices |
| $ | 1,401,163 |
|
Level 2 – Other Significant Observable Inputs |
|
| 0 |
|
Level 3 – Significant Unobservable Inputs |
|
| 0 |
|
Total |
| $ | 1,401,163 |
|
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $1,968,073. The gross unrealized appreciation and depreciation on securities based on tax cost was $0 and $566,910, respectively, with a net unrealized depreciation of $566,910.
For income tax purposes, capital losses incurred after October 31 within the Fund’s fiscal year are deemed to arise on the first business day of the following fiscal year. As of July 31, 2008, the Fund incurred and elected to defer post-October losses of $3,484.
6. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an interfund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
7. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
8. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
9. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2009, the Fund had no borrowings.
10. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen Funds.
11. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amendment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
23
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On February 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $1,663,685 of net assets outstanding of which $1,253,999 (75.37%) of net assets were represented at the meeting.
Proposal 1 - To consider and act upon a new investment advisory agreement with Evergreen Investment Management Company, LLC:
Net assets voted “For” | $ | 1,215,046 |
Net assets voted “Against” | $ | 33,451 |
Net assets voted “Abstain” | $ | 5,502 |
24
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. In September 2008, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Fundamental Mid Cap Value Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of its deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. The Trustees began their 2008 review process at the time of the last advisory contract-renewal process in September 2007. In the course of their 2007 review, the Trustees identified a number of funds that had experienced either short-term or longer-term performance issues. During the 2008 review process, the Trustees monitored each of these funds in particular for changes in performance and for the results of any changes in a fund’s investment process or investment team. In addition, during the course of the year, the Trustees regularly reviewed information regarding the investment performance of all of the funds, paying particular attention to funds whose performance since September 2007 indicated short-term or longer-term performance issues.
In spring 2008, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Board would review as part of its 2008 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other issues and requested specific information as to those issues.
The Trustees reviewed, with the assistance of an independent industry consultant retained by the independent Trustees, the information that EIMC and Keil provided. The Trustees formed small groups to review individual funds in greater detail. In addition, the Trustees considered information regarding, among other things, brokerage
25
ADDITIONAL INFORMATION (unaudited) continued
practices of the funds, the use of derivatives by the funds, strategic planning for the funds, analyst and research support available to the portfolio management teams, and information regarding the various fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
The Committee met several times by telephone during the 2008 review process to consider the information provided by EIMC. The Committee then met with representatives of EIMC. In addition, over the period of this review, the independent Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC and in multiple private sessions with independent legal counsel at which no personnel of EIMC were present. At a meeting of the full Board of Trustees in September, the Committee reported the results of its discussions with EIMC, and the full Board met with representatives of EIMC and engaged in further review of the materials provided to it, and approved the continuation of each of the advisory and sub-advisory agreements.
In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements as part of the larger process of considering the continuation of the advisory contracts for all of the funds, their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees meet periodically during the course of the year. At those meetings, EIMC presents a wide variety of information regarding the services it performs, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of those teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds and EIMC with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of services provided by EIMC. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since
26
ADDITIONAL INFORMATION (unaudited) continued
September 2007. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new Chief Compliance Officer for the funds in June of 2007 and a new Chief Investment Officer at EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC or its affiliates for such services. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. The Trustees also considered the investment performance of those other accounts managed by EIMC and its affiliates, where applicable, and concluded that the performance of those accounts did not suggest any substantial difference in the quality of the service provided by EIMC and its affiliates to those accounts.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of the advisory fee paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. The Board considered that EIS, an affiliate of EIMC, serves as distributor to the funds generally and receives fees from the funds for those services. They considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC for the benefit of the funds and brokerage commissions received by Wachovia Securities, LLC, an affiliate of EIMC, from transactions effected by it for the funds. The Trustees also noted that the funds pay sub-transfer agency fees to various financial institutions, including Wachovia Securities, LLC and its affiliates, that hold fund shares in omnibus accounts, and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the
27
ADDITIONAL INFORMATION (unaudited) continued
Trustees noted that an affiliate of EIMC had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wachovia Securities, LLC and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through it. The Trustees also noted that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
In the period leading up to the Trustees’ approval of continuation of the investment advisory agreements, the Trustees were mindful of the financial condition of Wachovia Corporation (“Wachovia”), EIMC’s parent company. They considered the possibility that a significant adverse change in Wachovia’s financial condition could impair the ability of EIMC or its affiliates to perform services for the funds at the same level as in the past. The Trustees concluded that any change in Wachovia’s financial condition had not to date had any such effect, but determined to monitor EIMC’s and its affiliates’ performance, and financial conditions generally, going forward in order to identify any such impairment that may develop and to take appropriate action.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC formulates and implements an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team, and considered the in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties. The Board considered the managerial and financial resources available to EIMC and its affiliates, and the commitment that the Wachovia organization has made to the funds generally. On the basis of these factors, they determined that the nature and scope of the services provided by EIMC were consistent with their respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund and to the funds generally. The Board and the disinterested Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and
28
ADDITIONAL INFORMATION (unaudited) continued
quality of the services provided by EIMC, including services provided by EIMC under its administrative services agreements with the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. The Trustees noted that the Fund had recently commenced operations.
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative underperformance. The Trustees also noted that EIMC had appointed a new Chief Investment Officer in August of 2008 who had not yet had sufficient time to evaluate and direct remedial efforts with respect to funds that have experienced a substantial period of relative underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not excessive. The Trustees noted that the management fee paid by the Fund was lower than the management fees paid by the mutual funds against which the Trustees compared the Fund’s management fee due in large part to a voluntary fee waiver, and that the level of profitability realized by EIMC in respect of the fee did not appear excessive. The Trustees also considered the advisory fee the Fund would have paid absent the voluntary waiver.
Economies of scale. The Trustees noted the possibility that economies of scale would be achieved by EIMC in managing the funds as the funds grow. The Trustees noted that the Fund had implemented breakpoints in its advisory fee structure. The Trustees noted that they would continue to review the appropriate levels of breakpoints in the future, and concluded that the breakpoints as implemented appeared to be a reasonable step toward the realization of economies of scale by the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its
29
ADDITIONAL INFORMATION (unaudited) continued
affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on among other things the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability of any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
Matters Relating to Approval of Interim Advisory and Sub-Advisory Agreements. Following the Trustees’ approval of the continuation of the funds’ investment advisory agreements, Wells Fargo & Company (“Wells Fargo”) announced that it had agreed to acquire Wachovia in a whole company transaction that would include all of Wachovia’s banking and other businesses, including EIMC. In connection with this transaction, on October 20, 2008, Wachovia issued preferred shares representing a 39.9% voting interest in Wachovia to Wells Fargo pursuant to a Share Exchange Agreement. Wells Fargo subsequently completed its acquisition of Wachovia on December 31, 2008.
Under the 1940 Act, both the issuance of the preferred shares to Wells Fargo and the completion of the acquisition could be viewed as resulting in the termination of the funds’ investment advisory and sub-advisory agreements. Accordingly, on October 20, 2008, the Board of Trustees approved interim investment advisory and sub-advisory agreements that would become effective upon Wachovia’s issuance of preferred shares to Wells Fargo. On November 12, 2008, the Trustees approved a second set of interim investment advisory and sub-advisory agreements that would become effective upon the completion of the acquisition. (The first set of interim agreements approved on October 20, 2008, together with the second set of interim agreements approved November 12, 2008, are referred to as “Interim Agreements.”) In addition, the Trustees approved on November 12, 2008, and again at an in-person meeting on December 3 and 4, 2008, definitive investment advisory and sub-advisory agreements (the “New Agreements”) and recommended that shareholders of the funds approve them at meetings to be held in early 2009.
In considering whether to approve the first set of Interim Agreements on October 20, 2008, the Trustees took into account that they had recently approved the annual continuation of all of the funds’ existing investment advisory and sub-advisory agreements in September 2008. The Trustees reviewed the terms of the Interim Agreements, noting that the terms were generally identical to those of the funds’ investment advisory agreements that were in effect before October 20, 2008 (but for provisions required by law to be included in the Interim Agreements). They also took
30
ADDITIONAL INFORMATION (unaudited) continued
into account current and anticipated market and economic conditions, the financial condition of EIMC and of Wachovia generally, and the likely effect of the merger on the financial condition of Wachovia. In general, the Trustees considered that the proposed merger of Wachovia with Wells Fargo would very likely improve substantially the financial condition of EIMC’s parent company, increase the capital available to support the funds, and ensure that EIMC and its affiliates would have the resources to provide continuing services to the funds. In light principally of these considerations and their recent continuation of the funds’ investment advisory arrangements in September, the Trustees unanimously approved the first set of Interim Agreements that became effective on October 20, 2008.
In addition to the foregoing, at their meetings on November 12, 2008 and December 3 and 4, 2008 when the Trustees considered whether to approve the second set of Interim Agreements as well as the New Agreements, the Trustees considered presentations made to them on November 12, 2008 by representatives of EIMC and Wells Fargo regarding the anticipated implications of the merger for EIMC and the funds. The Trustees also considered:
• | Their understanding that the merger was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC would provide to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high quality services; |
• | Information about Wells Fargo’s financial condition, reputation, and resources, and the likelihood that the merger would result in improved organizational stability for EIMC, benefiting the funds as well as offering the potential for the funds, over time, to access Wells Fargo’s infrastructure, resources and capabilities; |
• | That EIMC and Wells Fargo representatives have stated that there is no present intention to change the funds’ existing advisory fees or expense limitations; |
• | That the representatives of Wells Fargo have expressed their intention to pursue the integration of EIMC and the funds with corresponding Wells Fargo businesses and funds only after a deliberative process designed to identify and retain the relative strengths of both organizations; |
• | That the Wells Fargo representatives expect that the deliberative process and any subsequent integration will take more than a year; |
• | That, in the meantime, Wells Fargo expects to retain, largely in its current form, the existing EIMC management team and investment advisory and other key professionals and to operate EIMC following the merger as a separate business unit under the Evergreen brand; |
31
ADDITIONAL INFORMATION (unaudited) continued
• | That Wells Fargo and EIMC would consult with the Trustees before implementing any significant changes that would affect the funds or the services provided by EIMC or its affiliates to the funds; |
• | Wells Fargo’s experience and approach with respect to acquisitions of other fund complexes; |
• | The fact that, if the New Agreements were not approved, on March 19, 2009, the Subsequent Interim Agreements will expire and the funds will no longer have a contractual right to investment advisory services from EIMC or any sub-advisors; |
• | That EIMC’s management supports the merger; and |
• | That representatives of EIMC have committed that the funds will not bear the expenses relating to Wells Fargo’s acquisition of Wachovia, including the costs of soliciting fund shareholders to approve the New Agreements. |
Based on the foregoing, the Trustees, including all of the Trustees who are not “interested persons” of the funds or EIMC, unanimously approved the second set of Interim Agreements and the New Agreements.
32
This page left intentionally blank
33
This page left intentionally blank
34
This page left intentionally blank
35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
|
Charles A. Austin III |
| Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford |
| Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. |
| Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel |
| Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell |
| Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris |
| President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 |
| Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson |
| President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton, MD |
| President/CEO, AccessOne MedCard, Inc. |
36
TRUSTEES AND OFFICERS continued
Michael S. Scofield |
| Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima |
| Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 |
| Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
OFFICERS |
|
|
W. Douglas Munn4 |
| Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 |
| Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 |
| Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 |
| Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Fund because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
37
581828 RV1 03/2009
Evergreen Golden Core Opportunities Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
11 |
| SCHEDULE OF INVESTMENTS |
14 |
| STATEMENT OF ASSETS AND LIABILITIES |
15 |
| STATEMENT OF OPERATIONS |
16 |
| STATEMENTS OF CHANGES IN NET ASSETS |
17 |
| NOTES TO FINANCIAL STATEMENTS |
23 |
| ADDITIONAL INFORMATION |
24 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Golden Core Opportunities Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During this period of unprecedented events, the Golden fund management teams pursued strategies based on each fund’s objective. Evergreen Golden Large Cap Core Fund sought undervalued large cap companies likely to meet or exceed earnings expectations. Evergreen Golden Mid Cap Core Fund sought undervalued, mid cap companies similar to those found in the Russell Midcap Index. Evergreen Golden Core Opportunities Fund sought undervalued stocks of small to mid cap companies similar to those found in the Russell 2500 Index.
1
LETTER TO SHAREHOLDERS continued
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
• | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
• | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Sub-Advisor:
Golden Capital Management, LLC
Portfolio Manager:
John R. Campbell, CFA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 12/17/2007
Class inception date | Class A | Class B | Class C | Class I |
Nasdaq symbol | ECOAX | ECOBX | ECOCX | ECOIX |
6-month return with sales charge | -45.47% | -45.25% | -42.94% | N/A |
6-month return w/o sales charge | -42.16% | -42.37% | -42.37% | -42.01% |
Average annual return* |
|
|
|
|
1-year with sales charge | -46.15% | -46.03% | -43.75% | N/A |
1-year w/o sales charge | -42.86% | -43.18% | -43.18% | -42.64% |
Since portfolio inception | -46.64% | -46.03% | -44.03% | -43.56% |
Maximum sales charge | 5.75% | 5.00% | 1.00% | N/A |
| Front-end | CDSC | CDSC |
|
* | Adjusted for maximum applicable sales charge, unless noted. |
Past performance is no guarantee of future results. The performance quoted represents past performance and current performance may be lower or higher. The investment return and principal value of an investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance information current to the most recent month-end for Classes A, B, C or I, please go to EvergreenInvestments.com/fundperformance. The performance of each class may vary based on differences in loads, fees and expenses paid by the shareholders investing in each class. Performance includes the reinvestment of income dividends and capital gain distributions. Performance shown does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Performance results are extremely short term, and may not provide an adequate basis for evaluating a fund’s performance over varying market conditions or economic cycles. Unusual investment returns may be a result of a fund’s recent inception, existing market and economic conditions and the increased potential of a small number of stocks affecting fund performance due to the smaller asset size. Most mutual funds are intended to be long-term investments.
The fund incurs a 12b-1 fee of 0.25% for Class A and 1.00% for Classes B and C. Class I does not pay a 12b-1 fee.
The advisor is waiving its advisory fee and reimbursing the fund for a portion of other expenses. Had the fee not been waived and expenses not reimbursed, returns would have been lower.
4
FUND AT A GLANCE continued
Comparison of a $10,000 investment in the Evergreen Golden Core Opportunities Fund Class A shares versus a similar investment in the Russell 2500 Index (Russell 2500) and the Consumer Price Index (CPI).
The Russell 2500 is an unmanaged market index and does not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses or any taxes. The CPI is a commonly used measure of inflation and does not represent an investment return. It is not possible to invest directly in an index.
Class I shares are only offered, subject to the minimum initial purchase requirements, in the following manner: (1) to investment advisory clients of EIMC (or its advisory affiliates), (2) to employer- or state-sponsored benefit plans, including but not limited to, retirement plans, defined benefit plans, deferred compensation plans, or savings plans, (3) to fee-based mutual fund wrap accounts, (4) through arrangements entered into on behalf of the Evergreen funds with certain financial services firms, (5) to certain institutional investors, and (6) to persons who owned Class Y shares in registered name in an Evergreen fund on or before December 31, 1994 or who owned shares of any SouthTrust fund in registered name as of March 18, 2005 or who owned shares of Vestaur Securities Fund as of May 20, 2005.
Class I shares are only available to institutional shareholders with a minimum of $1 million investment, which may be waived in certain situations.
The fund’s investment objective may be changed without a vote of the fund’s shareholders.
Since the fund tends to invest in a smaller number of stocks than many similar mutual funds, changes in the value of individual stocks may have a larger impact on its net asset value than such fluctuations would if the fund were more broadly invested.
Small and mid cap securities may be subject to special risks associated with narrower product lines and limited financial resources compared to their large cap counterparts, and, as a result, small and mid cap securities may decline significantly in market downturns and may be more volatile than those of larger companies due to the higher risk of failure.
All data is as of January 31, 2009, and subject to change.
5
ABOUT YOUR FUND’S EXPENSES
The Example below is intended to describe the fees and expenses borne by shareholders and the impact of those costs on your investment.
Example
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads), redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution (12b-1) fees and other fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August 1, 2008 to January 31, 2009.
The example illustrates your fund’s costs in two ways:
• Actual expenses
The section in the table under the heading “Actual” provides information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the appropriate column for your share class, in the column entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
• Hypothetical example for comparison purposes
The section in the table under the heading “Hypothetical (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the section in the table under the heading “Hypothetical (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning | Ending | Expenses Paid | ||||
Actual |
|
|
|
|
|
|
|
Class A | $1,000.00 | $ | 578.37 |
| $ | 5.97 |
|
Class B | $1,000.00 | $ | 576.33 |
| $ | 8.94 |
|
Class C | $1,000.00 | $ | 576.33 |
| $ | 8.94 |
|
Class I | $1,000.00 | $ | 579.93 |
| $ | 4.98 |
|
Hypothetical |
|
|
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
|
|
Class A | $1,000.00 | $ | 1,017.64 |
| $ | 7.63 |
|
Class B | $1,000.00 | $ | 1,013.86 |
| $ | 11.42 |
|
Class C | $1,000.00 | $ | 1,013.86 |
| $ | 11.42 |
|
Class I | $1,000.00 | $ | 1,018.90 |
| $ | 6.36 |
|
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.50% for Class A, 2.25% for Class B, 2.25% for Class C and 1.25% for Class I), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
6
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
CLASS A |
| Six Months Ended |
| Year Ended |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.06 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0 |
|
| (0.02 | ) |
Net realized and unrealized gains or losses on investments |
|
| (3.82 | ) |
| (0.92 | ) |
|
|
| |||||
Total from investment operations |
|
| (3.82 | ) |
| (0.94 | ) |
| |||||||
Net asset value, end of period |
| $ | 5.24 |
| $ | 9.06 |
|
| |||||||
Total return2 |
|
| (42.16 | )% |
| (9.40 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 13,322 |
| $ | 563 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.50 | %3 |
| 1.50 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.32 | %3 |
| 5.15 | %3 |
Net investment income (loss) |
|
| (0.17 | )%3 |
| (0.44 | )%3 |
Portfolio turnover rate |
|
| 209 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
CLASS B |
| Six Months Ended |
| Year Ended |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.04 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.03 | )2 |
| (0.06 | ) |
Net realized and unrealized gains or losses on investments |
|
| (3.80 | ) |
| (0.90 | ) |
|
|
| |||||
Total from investment operations |
|
| (3.83 | ) |
| (0.96 | ) |
| |||||||
Net asset value, end of period |
| $ | 5.21 |
| $ | 9.04 |
|
| |||||||
Total return3 |
|
| (42.37 | )% |
| (9.60 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 3,412 |
| $ | 533 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.25 | %4 |
| 2.25 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 3.07 | %4 |
| 5.90 | %4 |
Net investment income (loss) |
|
| (0.87 | )%4 |
| (1.18 | )%4 |
Portfolio turnover rate |
|
| 209 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
CLASS C |
| Six Months Ended |
| Year Ended |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.04 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.03 | )2 |
| (0.07 | ) |
Net realized and unrealized gains or losses on investments |
|
| (3.80 | ) |
| (0.89 | ) |
|
|
| |||||
Total from investment operations |
|
| (3.83 | ) |
| (0.96 | ) |
| |||||||
Net asset value, end of period |
| $ | 5.21 |
| $ | 9.04 |
|
| |||||||
Total return3 |
|
| (42.37 | )% |
| (9.60 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 3,108 |
| $ | 477 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.25 | %4 |
| 2.25 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 3.07 | %4 |
| 5.90 | %4 |
Net investment income (loss) |
|
| (0.87 | )%4 |
| (1.18 | )%4 |
Portfolio turnover rate |
|
| 209 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Excluding applicable sales charges |
4 | Annualized |
See Notes to Financial Statements
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
CLASS I |
| Six Months Ended |
| Year Ended |
| ||
| |||||||
Net asset value, beginning of period |
| $ | 9.07 |
| $ | 10.00 |
|
| |||||||
Income from investment operations |
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0 | 2 |
| (0.01 | ) |
Net realized and unrealized gains or losses on investments |
|
| (3.81 | ) |
| (0.92 | ) |
|
|
| |||||
Total from investment operations |
|
| (3.81 | ) |
| (0.93 | ) |
| |||||||
Net asset value, end of period |
| $ | 5.26 |
| $ | 9.07 |
|
| |||||||
Total return |
|
| (42.01 | )% |
| (9.30 | )% |
| |||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 10,333 |
| $ | 3,221 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.25 | %3 |
| 1.25 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.07 | %3 |
| 4.90 | %3 |
Net investment income (loss) |
|
| 0.16 | %3 |
| (0.18 | )%3 |
Portfolio turnover rate |
|
| 209 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Net investment income (loss) per share is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS 97.5% |
|
|
|
|
|
|
CONSUMER DISCRETIONARY 12.3% |
|
|
|
|
|
|
Household Durables 1.9% |
|
|
|
|
|
|
Snap-On, Inc. |
| 18,835 |
| $ | 568,440 |
|
|
|
|
|
| ||
Leisure Equipment & Products 2.1% |
|
|
|
|
|
|
Hasbro, Inc. |
| 25,905 |
|
| 625,088 |
|
|
|
|
|
| ||
Media 2.1% |
|
|
|
|
|
|
DreamWorks Animation SKG, Inc., Class A * |
| 29,145 |
|
| 639,733 |
|
|
|
|
|
| ||
Multiline Retail 2.2% |
|
|
|
|
|
|
Family Dollar Stores, Inc. |
| 23,645 |
|
| 656,621 |
|
|
|
|
|
| ||
Specialty Retail 2.0% |
|
|
|
|
|
|
Ross Stores, Inc. |
| 20,835 |
|
| 612,966 |
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 2.0% |
|
|
|
|
|
|
Wolverine World Wide, Inc. |
| 32,955 |
|
| 597,804 |
|
|
|
|
|
| ||
CONSUMER STAPLES 5.1% |
|
|
|
|
|
|
Food & Staples Retailing 1.5% |
|
|
|
|
|
|
Casey’s General Stores, Inc. |
| 21,205 |
|
| 450,606 |
|
|
|
|
|
| ||
Food Products 3.6% |
|
|
|
|
|
|
Corn Products International, Inc. |
| 25,305 |
|
| 585,811 |
|
Darling International, Inc. * |
| 109,544 |
|
| 502,807 |
|
|
|
|
|
| ||
|
|
|
|
| 1,088,618 |
|
|
|
|
|
| ||
ENERGY 8.0% |
|
|
|
|
|
|
Energy Equipment & Services 6.8% |
|
|
|
|
|
|
Cameron International Corp. * |
| 24,015 |
|
| 556,188 |
|
Helmerich & Payne, Inc. |
| 20,020 |
|
| 449,649 |
|
Noble Corp. |
| 20,925 |
|
| 568,114 |
|
Unit Corp. * |
| 18,415 |
|
| 459,270 |
|
|
|
|
|
| ||
|
|
|
|
| 2,033,221 |
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 1.2% |
|
|
|
|
|
|
Massey Energy Co. |
| 24,180 |
|
| 367,052 |
|
|
|
|
|
| ||
FINANCIALS 15.8% |
|
|
|
|
|
|
Capital Markets 4.2% |
|
|
|
|
|
|
Federated Investors, Inc. |
| 34,035 |
|
| 664,364 |
|
Knight Capital Group, Inc., Class A * |
| 34,005 |
|
| 613,110 |
|
|
|
|
|
| ||
|
|
|
|
| 1,277,474 |
|
|
|
|
|
| ||
Commercial Banks 1.7% |
|
|
|
|
|
|
Cullen/Frost Bankers, Inc. |
| 12,095 |
|
| 529,398 |
|
|
|
|
|
| ||
Diversified Financial Services 2.0% |
|
|
|
|
|
|
NASDAQ OMX Group, Inc. * |
| 27,105 |
|
| 591,431 |
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
Insurance 5.8% |
|
|
|
|
|
|
American Financial Group, Inc. |
| 31,575 |
| $ | 536,144 |
|
HCC Insurance Holdings, Inc. |
| 26,840 |
|
| 628,324 |
|
Platinum Underwriters Holdings, Ltd. |
| 21,330 |
|
| 593,187 |
|
|
|
|
|
| ||
|
|
|
|
| 1,757,655 |
|
|
|
|
|
| ||
Real Estate Investment Trusts (REITs) 2.1% |
|
|
|
|
|
|
Digital Realty Trust, Inc. |
| 19,630 |
|
| 626,197 |
|
|
|
|
|
|
| |
HEALTH CARE 16.1% |
|
|
|
|
|
|
Health Care Equipment & Supplies 1.8% |
|
|
|
|
|
|
STERIS Corp. |
| 20,380 |
|
| 542,108 |
|
|
|
|
|
| ||
Health Care Providers & Services 5.9% |
|
|
|
|
|
|
AmerisourceBergen Corp. |
| 17,110 |
|
| 621,435 |
|
Express Scripts, Inc. * |
| 10,585 |
|
| 569,050 |
|
Laboratory Corporation of America Holdings * |
| 9,880 |
|
| 584,896 |
|
|
|
|
|
| ||
|
|
|
|
| 1,775,381 |
|
|
|
|
|
| ||
Life Sciences Tools & Services 4.1% |
|
|
|
|
|
|
Life Technologies Corp. * |
| 26,930 |
|
| 685,638 |
|
Waters Corp. * |
| 15,590 |
|
| 563,890 |
|
|
|
|
|
| ||
|
|
|
|
| 1,249,528 |
|
|
|
|
|
| ||
Pharmaceuticals 4.3% |
|
|
|
|
|
|
Endo Pharmaceuticals Holdings, Inc. * |
| 28,570 |
|
| 641,968 |
|
Watson Pharmaceuticals, Inc. * |
| 23,630 |
|
| 644,626 |
|
|
|
|
|
| ||
|
|
|
|
| 1,286,594 |
|
|
|
|
|
| ||
INDUSTRIALS 15.1% |
|
|
|
|
|
|
Aerospace & Defense 2.1% |
|
|
|
|
|
|
Goodrich Corp. |
| 16,170 |
|
| 625,132 |
|
|
|
|
|
| ||
Air Freight & Logistics 1.8% |
|
|
|
|
|
|
Pacer International, Inc. |
| 62,612 |
|
| 538,463 |
|
|
|
|
|
| ||
Commercial Services & Supplies 1.5% |
|
|
|
|
|
|
Brink’s Co. |
| 17,080 |
|
| 451,424 |
|
|
|
|
|
| ||
Electrical Equipment 6.1% |
|
|
|
|
|
|
Cooper Industries, Inc. |
| 25,320 |
|
| 681,361 |
|
GrafTech International, Ltd. * |
| 74,350 |
|
| 595,544 |
|
Woodward Governor Co. |
| 27,683 |
|
| 569,439 |
|
|
|
|
|
| ||
|
|
|
|
| 1,846,344 |
|
|
|
|
|
| ||
Machinery 2.0% |
|
|
|
|
|
|
Gardner Denver, Inc. * |
| 28,210 |
|
| 614,132 |
|
|
|
|
|
| ||
Marine 1.6% |
|
|
|
|
|
|
TBS International, Ltd., Class A * |
| 48,335 |
|
| 475,617 |
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2009 (unaudited)
|
| Shares |
|
| Value |
|
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
INFORMATION TECHNOLOGY 14.6% |
|
|
|
|
|
|
Communications Equipment 2.1% |
|
|
|
|
|
|
Harris Corp. |
| 14,435 |
| $ | 624,891 |
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 2.0% |
|
|
|
|
|
|
Amphenol Corp., Class A |
| 23,575 |
|
| 616,486 |
|
|
|
|
|
| ||
IT Services 4.4% |
|
|
|
|
|
|
Genpact, Ltd. * |
| 84,775 |
|
| 694,307 |
|
NeuStar, Inc., Class A * |
| 46,000 |
|
| 626,520 |
|
|
|
|
|
| ||
|
|
|
|
| 1,320,827 |
|
|
|
|
|
| ||
Software 6.1% |
|
|
|
|
|
|
Ansys, Inc. * |
| 22,240 |
|
| 552,887 |
|
BMC Software, Inc. * |
| 25,945 |
|
| 657,187 |
|
Sybase, Inc. * |
| 23,623 |
|
| 645,144 |
|
|
|
|
|
| ||
|
|
|
|
| 1,855,218 |
|
|
|
|
|
| ||
MATERIALS 4.4% |
|
|
|
|
|
|
Chemicals 4.4% |
|
|
|
|
|
|
Albemarle Corp. |
| 29,960 |
|
| 666,610 |
|
FMC Corp. |
| 14,975 |
|
| 668,184 |
|
|
|
|
|
| ||
|
|
|
|
| 1,334,794 |
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 2.0% |
|
|
|
|
|
|
Diversified Telecommunication Services 2.0% |
|
|
|
|
|
|
CenturyTel, Inc. |
| 22,820 |
|
| 619,335 |
|
|
|
|
|
| ||
UTILITIES 4.1% |
|
|
|
|
|
|
Gas Utilities 2.2% |
|
|
|
|
|
|
Energen Corp. |
| 22,200 |
|
| 648,462 |
|
|
|
|
|
| ||
Multi-Utilities 1.9% |
|
|
|
|
|
|
MDU Resources Group, Inc. |
| 29,370 |
|
| 584,169 |
|
|
|
|
|
| ||
Total Investments (cost $42,385,539) 97.5% |
|
|
|
| 29,431,209 |
|
Other Assets and Liabilities 2.5% |
|
|
|
| 743,353 |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
| $ | 30,174,562 |
|
|
|
|
|
|
* | Non-income producing security |
The following table shows the percent of total long-term investments by sector as of January 31, 2009:
Health Care |
| 16.5 | % |
Financials |
| 16.2 | % |
Industrials |
| 15.5 | % |
Information Technology |
| 15.0 | % |
Consumer Discretionary |
| 12.6 | % |
Energy |
| 8.2 | % |
Consumer Staples |
| 5.2 | % |
Materials |
| 4.5 | % |
Utilities |
| 4.2 | % |
Telecommunication Services |
| 2.1 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
13
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2009 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $42,385,539) |
| $ | 29,431,209 |
|
Receivable for securities sold |
|
| 2,345,305 |
|
Receivable for Fund shares sold |
|
| 3,387 |
|
Dividends receivable |
|
| 12,484 |
|
Receivable from investment advisor |
|
| 510 |
|
Prepaid expenses and other assets |
|
| 62,100 |
|
Total assets |
|
| 31,854,995 |
|
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 1,247,826 |
|
Payable for Fund shares redeemed |
|
| 42,510 |
|
Due to custodian bank |
|
| 369,276 |
|
Distribution Plan expenses payable |
|
| 827 |
|
Due to other related parties |
|
| 2,243 |
|
Accrued expenses and other liabilities |
|
| 17,751 |
|
Total liabilities |
|
| 1,680,433 |
|
Net assets |
| $ | 30,174,562 |
|
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 55,597,461 |
|
Undistributed net investment loss |
|
| (28,464 | ) |
Accumulated net realized losses on investments |
|
| (12,440,105 | ) |
Net unrealized losses on investments |
|
| (12,954,330 | ) |
Total net assets |
| $ | 30,174,562 |
|
Net assets consists of |
|
|
|
|
Class A |
| $ | 13,321,639 |
|
Class B |
|
| 3,411,682 |
|
Class C |
|
| 3,108,133 |
|
Class I |
|
| 10,333,108 |
|
Total net assets |
| $ | 30,174,562 |
|
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 2,541,271 |
|
Class B |
|
| 654,939 |
|
Class C |
|
| 596,410 |
|
Class I |
|
| 1,965,285 |
|
Net asset value per share |
|
|
|
|
Class A |
| $ | 5.24 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 5.56 |
|
Class B |
| $ | 5.21 |
|
Class C |
| $ | 5.21 |
|
Class I |
| $ | 5.26 |
|
See Notes to Financial Statements
14
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2009 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 183,671 |
|
Income from affiliate |
|
| 5,333 |
|
Total investment income |
|
| 189,004 |
|
Expenses |
|
|
|
|
Advisory fee |
|
| 110,252 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 14,446 |
|
Class B |
|
| 16,205 |
|
Class C |
|
| 14,553 |
|
Administrative services fee |
|
| 13,782 |
|
Transfer agent fees |
|
| 91,647 |
|
Trustees’ fees and expenses |
|
| 357 |
|
Printing and postage expenses |
|
| 15,180 |
|
Custodian and accounting fees |
|
| 4,385 |
|
Registration and filing fees |
|
| 32,173 |
|
Professional fees |
|
| 16,742 |
|
Other |
|
| 1,172 |
|
Total expenses |
|
| 330,894 |
|
Less: Expense reductions |
|
| (43 | ) |
Fee waivers and expense reimbursements |
|
| (113,377 | ) |
Net expenses |
|
| 217,474 |
|
Net investment loss |
|
| (28,470 | ) |
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on securities in unaffiliated issuers |
|
| (12,272,292 | ) |
Net change in unrealized gains or losses on investments |
|
| (11,005,963 | ) |
Net realized and unrealized gains or losses on investments |
|
| (23,278,255 | ) |
Net decrease in net assets resulting from operations |
| $ | (23,306,725 | ) |
See Notes to Financial Statements
15
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
|
| $ | (28,470 | ) |
|
| $ | (12,249 | ) |
Net realized losses on investments |
|
|
|
| (12,272,292 | ) |
|
|
| (168,297 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| (11,005,963 | ) |
|
|
| (306,685 | ) |
Net decrease in net assets resulting from operations |
|
|
|
| (23,306,725 | ) |
|
|
| (487,231 | ) |
|
| Shares |
|
|
|
| Shares |
|
|
|
|
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 0 |
|
| 0 |
| 62,104 |
|
| 617,602 |
|
Class B |
| 0 |
|
| 0 |
| 61,327 |
|
| 612,555 |
|
Class C |
| 478,161 |
|
| 4,126,473 |
| 52,813 |
|
| 526,112 |
|
Class I |
| 1,429,255 |
|
| 11,847,984 |
| 354,994 |
|
| 3,546,130 |
|
|
|
|
|
| 15,974,457 |
|
|
|
| 5,302,399 |
|
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 41,578 |
|
| 235,034 |
| 0 |
|
| 0 |
|
Class B |
| (41,776 | ) |
| (235,034 | ) | 0 |
|
| 0 |
|
|
|
|
|
| 0 |
|
|
|
| 0 |
|
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (823,551 | ) |
| (6,034,956 | ) | 0 |
|
| 0 |
|
Class B |
| (1,323,231 | ) |
| (11,235,463 | ) | (2,367 | ) |
| (20,908 | ) |
Class C |
| (141,458 | ) |
| (776,705 | ) | 0 |
|
| 0 |
|
Class I |
| (572,106 | ) |
| (3,292,504 | ) | (44 | ) |
| (404 | ) |
|
|
|
|
| (21,339,628 | ) |
|
|
| (21,312 | ) |
Net asset value of shares issued in acquisition |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 3,261,140 |
|
| 28,499,620 |
| 0 |
|
| 0 |
|
Class B |
| 1,960,986 |
|
| 17,182,075 |
| 0 |
|
| 0 |
|
Class C |
| 206,894 |
|
| 1,809,299 |
| 0 |
|
| 0 |
|
Class I |
| 753,186 |
|
| 6,561,608 |
| 0 |
|
| 0 |
|
|
|
|
|
| 54,052,602 |
|
|
|
| 0 |
|
Net increase in net assets resulting from capital share transactions |
|
|
|
| 48,687,431 |
|
|
|
| 5,281,087 |
|
Total increase in net assets |
|
|
|
| 25,380,706 |
|
|
|
| 4,793,856 |
|
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 4,793,856 |
|
|
|
| 0 |
|
End of period |
|
|
| $ | 30,174,562 |
|
|
| $ | 4,793,856 |
|
Undistributed net investment income (loss) |
|
|
| $ | (28,464 | ) |
|
| $ | 6 |
|
(a) | For the period from December 17, 2007 (commencement of operations), to July 31, 2008. |
See Notes to Financial Statements
16
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Golden Core Opportunities Fund (the “Fund”) is a diversified series of Evergreen Equity Trust (the “Trust”), a Delaware statutory trust organized on September 18, 1997. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund offers Class A, Class B, Class C and Class I shares. Class A shares are sold with a front-end sales charge. However, Class A share investments of $1 million or more are not subject to a front-end sales charge but are subject to a contingent deferred sales charge of 1.00% upon redemption within 18 months. Class B shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption and decreases depending on how long the shares have been held. Class C shares are sold without a front-end sales charge but are subject to a contingent deferred sales charge that is payable upon redemption within one year. Class I shares are sold without a front-end sales charge or contingent deferred sales charge. Each class of shares, except Class I shares, pays an ongoing distribution fee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
b. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Dividend income is recorded on the ex-dividend date.
c. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting
17
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
d. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles.
e. Class allocations
Income, common expenses and realized and unrealized gains and losses are allocated to the classes based on the relative net assets of each class. Distribution fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee starting at 0.80% and declining to 0.70% as average daily net assets increase. For the six months ended January 31, 2009, the advisory fee was equivalent to an annual rate of 0.80% of the Fund’s average daily net assets.
Golden Capital Management, LLC (“Golden Capital”) is the investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund. Wachovia Alternative Strategies, Inc., an affiliate of EIMC and a subsidiary of Wells Fargo, owns an approximately 45% minority interest in Golden Capital.
On October 3, 2008, Wells Fargo and Wachovia Corporation (“Wachovia”) announced that Wells Fargo agreed to acquire Wachovia in a whole company transaction that will include all of Wachovia’s banking and other businesses. In connection with this transaction, Wachovia issued preferred shares to Wells Fargo representing approximately a 40% voting interest in Wachovia. Due to its ownership of preferred shares, Wells Fargo may be deemed to control EIMC. If Wells Fargo is deemed to control EIMC, then the existing advisory agreement between the Fund and EIMC and the sub-advisory agreement between EIMC and the Fund’s sub-advisor would have terminated automatically in connection with the issuance of preferred shares. To address this possibility, on October 20, 2008 the Board of Trustees approved an interim advisory agreement with EIMC and an interim sub-advisory agreement with the sub-advisor with the same terms and conditions as the existing agreements, which became effective upon the issuance of the preferred shares. EIMC’s receipt of the advisory fees under the interim advisory agreement is subject to the approval by shareholders of the Fund of a new advisory agreement with EIMC.
On December 31, 2008, Wachovia merged with and into Wells Fargo and as a result of the merger, EIMC, Evergreen Investment Services, Inc. (“EIS”) and Evergreen Service Company, LLC (“ESC”) became subsidiaries of Wells Fargo. After the merger, a new
18
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
interim advisory agreement with the same terms and conditions between the Fund and EIMC went into effect. In addition, a new interim sub-advisory agreement with the same terms and conditions became effective with the sub-advisor to the Fund.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended January 31, 2009, EIMC contractually and voluntarily waived its advisory fee in the amount of $95,524 and $14,728, respectively, and contractually reimbursed other expenses in the amount of $3,125.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliate on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual rate determined by applying percentage rates to the aggregate average daily net assets of the Evergreen funds (excluding money market funds) starting at 0.10% and declining to 0.05% as the aggregate average daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2009, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
ESC, an affiliate of EIMC and a subsidiary of Wells Fargo, is the transfer and dividend disbursing agent for the Fund. ESC receives account fees that vary based on the type of account held by the shareholders in the Fund. For the six months ended January 31, 2009, the transfer agent fees were equivalent to an annual rate of 0.67% of the Fund’s average daily net assets.
4. DISTRIBUTION PLANS
EIS, an affiliate of EIMC and a subsidiary of Wells Fargo, serves as distributor of the Fund’s shares. The Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940 Act, for each class of shares, except Class I. Under the Distribution Plans, the Fund is permitted to pay distribution fees at an annual rate of up to 0.75% of the average daily net assets for Class A shares and up to 1.00% of the average daily net assets for each of Class B and Class C shares. However, currently the distribution fees for Class A shares are limited to 0.25% of the average daily net assets of the class.
For the six months ended January 31, 2009, EIS received $126 from the sale of Class A shares and $6,419 and $653 in contingent deferred sales charges from redemption of Class B and Class C shares, respectively.
5. ACQUISITION
Effective at the close of business on September 19, 2008, the Fund acquired the net assets of Evergreen Special Equity Fund in a tax-free exchange for Class A, Class B, Class C, and Class I shares of the Fund. Shares were issued to Class A, Class B, Class C, Class I and
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Class IS shareholders of Evergreen Special Equity Fund at an exchange ratio of 1.22, 1.14, 1.14, 1.28 and 1.23 for Class A, Class B, Class C, Class I and Class A shares, respectively, of the Fund. The acquired net assets consisted primarily of portfolio securities with unrealized depreciation of $1,641,682. The aggregate net assets of the Fund and Special Equity Fund immediately prior to the acquisition were $4,929,372 and $54,052,602, respectively. The aggregate net assets of the Fund immediately after the acquisition were $58,981,974.
6. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $57,813,070 and $61,581,346, respectively, for the six months ended January 31, 2009.
Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”) establishes a single authoritative definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 establishes a fair value hierarchy based upon the various inputs used in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of January 31, 2009, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Valuation Inputs |
| Investments in | ||
Level 1 – Quoted Prices |
| $ | 29,431,209 |
|
Level 2 – Other Significant Observable Inputs |
|
| 0 |
|
Level 3 – Significant Unobservable Inputs |
|
| 0 |
|
Total |
| $ | 29,431,209 |
|
On January 31, 2009, the aggregate cost of securities for federal income tax purposes was $42,459,926. The gross unrealized appreciation and depreciation on securities based on tax cost was $184,563 and $13,213,280, respectively, with a net unrealized depreciation of $13,028,717.
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
For income tax purposes, capital losses incurred after October 31 within the Fund’s fiscal year are deemed to arise on the first business day of the following fiscal year. As of July 31, 2008, the Fund incurred and elected to defer post-October losses of $168,043.
7. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund may participate in an interfund lending program with certain funds in the Evergreen fund family. This program allows the Fund to borrow from, or lend money to, other participating funds. During the six months ended January 31, 2009, the Fund did not participate in the interfund lending program.
8. EXPENSE REDUCTIONS
Through expense offset arrangements with ESC and the Fund’s custodian, a portion of fund expenses has been reduced.
9. DEFERRED TRUSTEES’ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
10. FINANCING AGREEMENT
The Fund and certain other Evergreen funds share in a $100 million unsecured revolving credit commitment for temporary and emergency purposes, including the funding of redemptions, as permitted by each participating fund’s borrowing restrictions. Borrowings under this facility bear interest at 0.50% per annum above the Federal Funds rate. All of the participating funds are charged an annual commitment fee of 0.09% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2009, the Fund had no borrowings.
11. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
The SEC and the Secretary of the Commonwealth, Securities Division, of the Commonwealth of Massachusetts are conducting separate investigations of EIMC, EIS and Evergreen Ultra Short Opportunities Fund (the “Ultra Short Fund”) concerning
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
alleged issues surrounding the drop in net asset value of the Ultra Short Fund in May and June 2008. In addition, three purported class actions have been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or investigations currently pending or threatened will have a material adverse impact on the financial position or operations of any of the Evergreen funds to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds.
12. NEW ACCOUNTING PRONOUNCEMENT
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), an amendment of FASB Statement No. 133. FAS 161 requires enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and hedging activities are accounted for, and (c) how derivative instruments and related hedging activities affect a fund’s financial position, financial performance, and cash flows. Management of the Fund does not believe the adoption of FAS 161 will materially impact the financial statement amounts, but will require additional disclosures. This will include qualitative and quantitative disclosures on derivative positions existing at period end and the effect of using derivatives during the reporting period. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
22
ADDITIONAL INFORMATION (unaudited)
SPECIAL MEETING OF SHAREHOLDERS
On March 12, 2009, a Special Meeting of Shareholders for the Fund was held to consider a number of proposals. On December 1, 2008, the record date for the meeting, the Fund had $29,361,810 of net assets outstanding of which $15,546,062 (52.95%) of net assets were represented at the meeting.
Proposal 1a — To consider and act upon a new investment advisory agreement with Evergreen Investment Management Company, LLC:
| ||||
Net Assets voted “For” |
| $ | 14,862,471 |
|
Net Assets voted “Against” |
| $ | 287,795 |
|
Net Assets voted “Abstain” |
| $ | 395,796 |
|
|
Proposal 1b — To consider and act upon a new sub-advisory agreement with Golden Capital Management, LLC:
| ||||
Net Assets voted “For” |
| $ | 14,764,520 |
|
Net Assets voted “Against” |
| $ | 399,853 |
|
Net Assets voted “Abstain” |
| $ | 381,689 |
|
|
23
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
|
Charles A. Austin III |
| Investment Counselor, Anchor Capital Advisors, LLC. (investment advice); Director, The Andover Companies (insurance); Trustee, Arthritis Foundation of New England; Former Director, The Francis Ouimet Society (scholarship program); Former Director, Executive Vice President and Treasurer, State Street Research & Management Company (investment advice) |
K. Dun Gifford |
| Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
Dr. Leroy Keith, Jr. |
| Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co.; Former Director, Lincoln Educational Services |
Carol A. Kosel |
| Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
Gerald M. McDonnell |
| Former Manager of Commercial Operations, CMC Steel (steel producer) |
Patricia B. Norris |
| President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
William Walt Pettit2 |
| Partner and Vice President, Kellam & Pettit, P.A. (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
David M. Richardson |
| President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
Russell A. Salton III, MD |
| President/CEO, AccessOne MedCard, Inc. |
24
TRUSTEES AND OFFICERS continued
Michael S. Scofield |
| Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
Richard J. Shima |
| Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director, Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
Richard K. Wagoner, CFA3 |
| Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
OFFICERS |
|
|
W. Douglas Munn4 |
| Principal occupations: Chief Operating Officer, Wells Fargo Funds Management, LLC; former Chief Operating Officer, Evergreen Investment Company, Inc. |
Jeremy DePalma4 |
| Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 |
| Principal occupations: Senior Vice President and General Counsel, Evergreen Investment Services, Inc.; Secretary, Senior Vice President and General Counsel, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
Robert Guerin4 |
| Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
1 | Each Trustee serves until a successor is duly elected or qualified or until his or her death, resignation, retirement or removal from office. Each Trustee oversaw 77 Evergreen funds as of December 31, 2008. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
2 | It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
3 | Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
4 | The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
Additional information about the Fund’s Board of Trustees and Officers can be found in the Statement of Additional Information (SAI) and is available upon request without charge by calling 800.343.2898.
25
581816 rv1 03/2009
Evergreen Golden Large Cap Core Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
6 |
| ABOUT YOUR FUND’S EXPENSES |
7 |
| FINANCIAL HIGHLIGHTS |
11 |
| SCHEDULE OF INVESTMENTS |
14 |
| STATEMENT OF ASSETS AND LIABILITIES |
15 |
| STATEMENT OF OPERATIONS |
16 |
| STATEMENTS OF CHANGES IN NET ASSETS |
17 |
| NOTES TO FINANCIAL STATEMENTS |
23 |
| ADDITIONAL INFORMATION |
24 |
| TRUSTEES AND OFFICERS |
This semiannual report must be preceded or accompanied by a prospectus of the Evergreen fund contained herein. The prospectus contains more complete information, including fees and expenses, and should be read carefully before investing or sending money.
The fund will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q will be available on the SEC’s Web site at http://www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2009, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s other Broker Dealer subsidiaries.
Evergreen mutual funds are distributed by Evergreen Investment Services, Inc. 200 Berkeley Street, Boston, MA 02116
LETTER TO SHAREHOLDERS
March 2009
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Golden Large Cap Core Fund for the six-month period ended January 31, 2009 (the “period”).
During the latter half of 2008, one of the worst periods in the history of the financial markets developed as the crises in housing and credit forced the economy into recession, and by extension, the financial markets fell into turmoil. While the U.S. economy held up relatively well in the first half of 2008, these gains were largely due to strength in government spending and exports, powered higher by the weakening U.S. currency. Meanwhile, home prices continued to fall and job losses persisted. Finally, September 2008 marked the crucial event, when federal officials allowed for the collapse of Lehman Brothers, which history will likely judge as a colossal policy failure. The collateral damage from this event led to further collapse. Venerable financial institutions fell like dominos in the ensuing weeks as distrust prevailed and counter-party risk, whether real or imagined, escalated. Inter-bank lending ceased to exist, and the credit markets froze.
Consequently, officials at the Federal Reserve Board and U.S. Treasury increased their involvement, utilizing innovative measures to improve both liquidity and confidence. These efforts culminated with Congress’ approval of the $700 billion Troubled Asset Relief Program (“TARP”), enacted to purchase distressed mortgage-related securities, until the Treasury decided against it one month after TARP’s approval. Not surprisingly, confidence at the consumer and investor levels was shaken further, and banks, despite the recapitalization efforts to revive their balance sheets, became both increasingly vigilant and militant relative to their lending policies. As a result, economic activity in the fourth quarter of 2008 was positioned to be among the weakest in history.
During this period of unprecedented events, the Golden fund management teams pursued strategies based on each fund’s objective. Evergreen Golden Large Cap Core Fund sought undervalued large cap companies likely to meet or exceed earnings expectations. Evergreen Golden Mid Cap Core Fund sought undervalued, mid cap companies similar to those found in the Russell Midcap Index. Evergreen Golden Core Opportunities Fund sought undervalued stocks of small to mid cap companies similar to those found in the Russell 2500 Index.
1
LETTER TO SHAREHOLDERS continued
As we look back over the extraordinary series of events during the period, we believe it is vitally important for all investors to keep perspective and remain focused on their long-term strategies. Most importantly, we continue to urge investors to pursue fully diversified strategies in order to participate in future market gains and limit the risks of potential losses. If they haven’t already done so, we encourage individual investors to work with their financial advisors to develop a diversified, long-term strategy and, most importantly, to adhere to it. Investors should keep in mind that the economy and the financial markets have had long and successful histories of adaptability, recovery, innovation and growth. Proper asset allocation decisions can have significant impacts on the returns of long-term portfolios.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
LETTER TO SHAREHOLDERS continued
Notices to Shareholders:
• | On December 31, 2008, Wachovia Corporation merged with and into Wells Fargo & Company (“Wells Fargo”). As a result of the merger, Evergreen Investment Management Company, LLC (“EIMC”), Tattersall Advisory Group, Inc., First International Advisors, LLC, Metropolitan West Capital Management, LLC, Evergreen Investment Services, Inc. and Evergreen Service Company, LLC, are subsidiaries of Wells Fargo. |
• | Effective January 1, 2009, W. Douglas Munn became President and Chief Executive Officer of the Evergreen Funds. |
3
FUND AT A GLANCE
as of January 31, 2009
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Sub-Advisor:
Golden Capital Management, LLC
Portfolio Manager:
Jeff C. Moser, CFA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2008.
The Equity style box placement is based on 10 growth and valuation measures for each fund holding and the median size of the companies in which the fund invests.
PERFORMANCE AND RETURNS
Portfolio inception date: 12/17/2007