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, 2010. These series have July 31 fiscal year end. |
Date of reporting period: January 31, 2010
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 |
19 |
| STATEMENT OF ASSETS AND LIABILITIES |
20 |
| STATEMENT OF OPERATIONS |
21 |
| STATEMENTS OF CHANGES IN NET ASSETS |
22 |
| NOTES TO FINANCIAL STATEMENTS |
30 |
| 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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
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, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
1
LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, the management team 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 Enhanced S&P 500® Fund used a quantitative investment approach to identify companies with favorable investment characteristics in the areas of valuation, investor sentiment, and quality. 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 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors, staying focused on a long-term strategy based on individual goals and risk tolerance can
2
LETTER TO SHAREHOLDERS continued
help avoid missing potential periods of strong recovery.
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
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 12/31/2009.
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 | 2.64% | 3.43% | 7.46% | N/A |
6-month return w/o sales charge | 8.90% | 8.43% | 8.46% | 9.06% |
Average annual return* |
|
|
|
|
1-year with sales charge | 19.25% | 20.59% | 24.62% | N/A |
1-year w/o sales charge | 26.52% | 25.59% | 25.62% | 26.93% |
5-year | -1.35% | -1.19% | -0.95% | 0.03% |
10-year | 2.24% | 2.46% | 2.45% | 2.95% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
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.
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.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Class B shares are closed to new investments by new and existing shareholders.
The advisor is waiving a portion of its advisory fee. Had the fee not been waived, 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, 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.
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, 2010, 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, 2009 to January 31, 2010.
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 |
| 8/1/2009 | 1/31/2010 | During Period* |
Actual |
|
|
|
Class A | $1,000.00 | $1,089.02 | $ 6.27 |
Class B | $1,000.00 | $1,084.29 | $10.19 |
Class C | $1,000.00 | $1,084.59 | $10.19 |
Class I | $1,000.00 | $1,090.63 | $ 4.95 |
Hypothetical |
|
|
|
(5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,019.21 | $ 6.06 |
Class B | $1,000.00 | $1,015.43 | $ 9.86 |
Class C | $1,000.00 | $1,015.43 | $ 9.86 |
Class I | $1,000.00 | $1,020.47 | $ 4.79 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.19% for Class A, 1.94% for Class B, 1.94% for Class C and 0.94% 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 |
| Year Ended July 31, |
| Year Ended |
| |||||||||||||||
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| ||||||||||||||||||
CLASS A |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.10 |
| $ | 13.75 |
| $ | 18.05 |
| $ | 16.62 |
| $ | 15.82 |
| $ | 16.96 |
| $ | 17.35 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.06 |
|
| 0.22 |
|
| 0.27 |
|
| 0.27 |
|
| 0.22 |
|
| 0.05 |
|
| 0.01 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.84 |
|
| (3.42 | ) |
| (2.15 | ) |
| 1.96 |
|
| 1.22 |
|
| 1.08 |
|
| (0.36 | ) |
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.90 |
|
| (3.20 | ) |
| (1.88 | ) |
| 2.23 |
|
| 1.44 |
|
| 1.13 |
|
| (0.35 | ) |
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.06 | ) |
| (0.22 | ) |
| (0.27 | ) |
| (0.27 | ) |
| (0.19 | ) |
| (0.04 | ) |
| (0.04 | ) |
Net realized gains |
|
| 0 |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.06 | ) |
| (0.45 | ) |
| (2.42 | ) |
| (0.80 | ) |
| (0.64 | ) |
| (2.27 | ) |
| (0.04 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 10.94 |
| $ | 10.10 |
| $ | 13.75 |
| $ | 18.05 |
| $ | 16.62 |
| $ | 15.82 |
| $ | 16.96 |
|
| ||||||||||||||||||||||
Total return3 |
|
| 8.90 | % |
| (22.92 | )% |
| (11.90 | )% |
| 13.60 | % |
| 9.44 | % |
| 7.76 | % |
| (2.01 | )% |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
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|
Net assets, end of period (thousands) |
| $ | 38,058 |
| $ | 40,132 |
| $ | 69,864 |
| $ | 119,461 |
| $ | 13,428 |
| $ | 1,617 |
| $ | 1 |
|
Ratios to average net assets |
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.19 | %4 |
| 1.12 | % |
| 1.04 | % |
| 1.04 | % |
| 1.15 | % |
| 1.26 | %4 |
| 1.11 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.26 | %4 |
| 1.25 | % |
| 1.11 | % |
| 1.04 | % |
| 1.17 | % |
| 1.26 | %4 |
| 1.11 | %4 |
Net investment income |
|
| 1.09 | %4 |
| 2.21 | % |
| 1.67 | % |
| 1.04 | % |
| 1.14 | % |
| 0.74 | %4 |
| 0.58 | %4 |
Portfolio turnover rate |
|
| 28 | % |
| 33 | % |
| 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 |
| Year Ended July 31, |
| Year Ended |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS B |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.05 |
| $ | 13.68 |
| $ | 17.96 |
| $ | 16.55 |
| $ | 15.79 |
| $ | 16.97 |
| $ | 17.35 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.02 |
|
| 0.15 |
|
| 0.14 |
|
| 0.13 |
|
| 0.10 |
|
| 0.01 | 3 |
| 0 | 3 |
Net realized and unrealized gains or losses on investments |
|
| 0.83 |
|
| (3.41 | ) |
| (2.13 | ) |
| 1.94 |
|
| 1.22 |
|
| 1.06 |
|
| (0.34 | ) |
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.85 |
|
| (3.26 | ) |
| (1.99 | ) |
| 2.07 |
|
| 1.32 |
|
| 1.07 |
|
| (0.34 | ) |
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.02 | ) |
| (0.14 | ) |
| (0.14 | ) |
| (0.13 | ) |
| (0.11 | ) |
| (0.02 | ) |
| (0.04 | ) |
Net realized gains |
|
| 0 |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.02 | ) |
| (0.37 | ) |
| (2.29 | ) |
| (0.66 | ) |
| (0.56 | ) |
| (2.25 | ) |
| (0.04 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 10.88 |
| $ | 10.05 |
| $ | 13.68 |
| $ | 17.96 |
| $ | 16.55 |
| $ | 15.79 |
| $ | 16.97 |
|
| ||||||||||||||||||||||
Total return4 |
|
| 8.43 | % |
| (23.44 | )% |
| (12.61 | )% |
| 12.70 | % |
| 8.64 | % |
| 7.35 | % |
| (1.97 | )% |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
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|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 1,841 |
| $ | 2,118 |
| $ | 4,261 |
| $ | 7,329 |
| $ | 5,070 |
| $ | 121 |
| $ | 5 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.94 | %5 |
| 1.87 | % |
| 1.79 | % |
| 1.79 | % |
| 1.89 | % |
| 2.00 | %5 |
| 1.82 | %5 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.01 | %5 |
| 2.00 | % |
| 1.86 | % |
| 1.79 | % |
| 1.91 | % |
| 2.00 | %5 |
| 1.82 | %5 |
Net investment income |
|
| 0.35 | %5 |
| 1.49 | % |
| 0.91 | % |
| 0.71 | % |
| 0.47 | % |
| 0.16 | %5 |
| 0.10 | %5 |
Portfolio turnover rate |
|
| 28 | % |
| 33 | % |
| 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 | Per share amount 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 |
| Year Ended July 31, |
| Year Ended |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS C |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.03 |
| $ | 13.65 |
| $ | 17.93 |
| $ | 16.53 |
| $ | 15.79 |
| $ | 16.97 | $ | 17.35 |
| |
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.02 |
|
| 0.15 |
|
| 0.14 |
|
| 0.13 |
|
| 0.12 |
|
| 0 | 3 |
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.83 |
|
| (3.40 | ) |
| (2.13 | ) |
| 1.93 |
|
| 1.18 |
|
| 1.08 |
|
| (0.34 | ) |
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.85 |
|
| (3.25 | ) |
| (1.99 | ) |
| 2.06 |
|
| 1.30 |
|
| 1.08 |
|
| (0.34 | ) |
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.02 | ) |
| (0.14 | ) |
| (0.14 | ) |
| (0.13 | ) |
| (0.11 | ) |
| (0.03 | ) |
| (0.04 | ) |
Net realized gains |
|
| 0 |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.02 | ) |
| (0.37 | ) |
| (2.29 | ) |
| (0.66 | ) |
| (0.56 | ) |
| (2.26 | ) |
| (0.04 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 10.86 |
| $ | 10.03 |
| $ | 13.65 |
| $ | 17.93 |
| $ | 16.53 |
| $ | 15.79 |
| $ | 16.97 |
|
| ||||||||||||||||||||||
Total return4 |
|
| 8.46 | % |
| (23.47 | )% |
| (12.58 | )% |
| 12.65 | % |
| 8.54 | % |
| 7.37 | % |
| (1.97 | )% |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 1,374 |
| $ | 1,455 |
| $ | 1,890 |
| $ | 3,009 |
| $ | 1,617 |
| $ | 144 |
| $ | 1 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.94 | %5 |
| 1.88 | % |
| 1.79 | % |
| 1.79 | % |
| 1.88 | % |
| 2.16 | %5 |
| 1.85 | %5 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.01 | %5 |
| 2.01 | % |
| 1.86 | % |
| 1.79 | % |
| 1.90 | % |
| 2.16 | %5 |
| 1.85 | %5 |
Net investment income (loss) |
|
| 0.33 | %5 |
| 1.44 | % |
| 0.91 | % |
| 0.70 | % |
| 0.53 | % |
| (0.09 | )%5 |
| (0.16 | )%5 |
Portfolio turnover rate |
|
| 28 | % |
| 33 | % |
| 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 | Per share amount 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 |
| Year Ended July 31, |
| Year Ended |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS I |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 20051 |
|
| |||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.07 |
| $ | 13.71 |
| $ | 18.01 |
| $ | 16.59 |
| $ | 15.81 |
| $ | 16.97 |
| $ | 16.14 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.07 |
|
| 0.26 |
|
| 0.31 |
|
| 0.32 |
|
| 0.24 |
|
| 0.05 |
|
| 0.12 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.84 |
|
| (3.42 | ) |
| (2.15 | ) |
| 1.94 |
|
| 1.23 |
|
| 1.07 |
|
| 1.84 | 3 |
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.91 |
|
| (3.16 | ) |
| (1.84 | ) |
| 2.26 |
|
| 1.47 |
|
| 1.12 |
|
| 1.96 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.07 | ) |
| (0.25 | ) |
| (0.31 | ) |
| (0.31 | ) |
| (0.24 | ) |
| (0.05 | ) |
| (0.12 | ) |
Net realized gains |
|
| 0 |
|
| (0.23 | ) |
| (2.15 | ) |
| (0.53 | ) |
| (0.45 | ) |
| (2.23 | ) |
| (1.01 | ) |
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.07 | ) |
| (0.48 | ) |
| (2.46 | ) |
| (0.84 | ) |
| (0.69 | ) |
| (2.28 | ) |
| (1.13 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 10.91 |
| $ | 10.07 |
| $ | 13.71 |
| $ | 18.01 |
| $ | 16.59 |
| $ | 15.81 |
| $ | 16.97 |
|
| ||||||||||||||||||||||
Total return |
|
| 9.06 | % |
| (22.72 | )% |
| (11.71 | )% |
| 13.85 | % |
| 9.66 | % |
| 7.65 | % |
| 12.10 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 89,301 |
| $ | 97,385 |
| $ | 235,108 |
| $ | 559,719 |
| $ | 673,865 |
| $ | 157,238 |
| $ | 157,107 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.94 | %4 |
| 0.87 | % |
| 0.79 | % |
| 0.79 | % |
| 0.88 | % |
| 0.91 | %4 |
| 0.99 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.01 | %4 |
| 1.00 | % |
| 0.86 | % |
| 0.79 | % |
| 0.90 | % |
| 0.91 | %4 |
| 1.20 | % |
Net investment income |
|
| 1.34 | %4 |
| 2.48 | % |
| 1.93 | % |
| 1.78 | % |
| 1.45 | % |
| 1.34 | %4 |
| 0.64 | % |
Portfolio turnover rate |
|
| 28 | % |
| 33 | % |
| 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 | 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 period 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 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS 98.1% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 10.0% |
|
|
|
|
|
|
|
Automobiles 0.7% |
|
|
|
|
|
|
|
Ford Motor Co. * |
|
| 84,917 |
| $ | 920,500 |
|
|
|
|
|
|
| ||
Diversified Consumer Services 0.3% |
|
|
|
|
|
|
|
ITT Educational Services, Inc. * |
|
| 3,507 |
|
| 339,723 |
|
|
|
|
|
|
| ||
Hotels, Restaurants & Leisure 0.5% |
|
|
|
|
|
|
|
Carnival Corp. * |
|
| 8,946 |
|
| 298,170 |
|
Royal Caribbean Cruises, Ltd. * |
|
| 15,658 |
|
| 408,518 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 706,688 |
|
|
|
|
|
|
| ||
Household Durables 1.1% |
|
|
|
|
|
|
|
Newell Rubbermaid, Inc. |
|
| 25,438 |
|
| 345,194 |
|
Whirlpool Corp. |
|
| 13,636 |
|
| 1,025,154 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,370,348 |
|
|
|
|
|
|
| ||
Media 4.0% |
|
|
|
|
|
|
|
Comcast Corp., Class A |
|
| 120,798 |
|
| 1,912,232 |
|
Gannett Co., Inc. |
|
| 44,045 |
|
| 711,327 |
|
Time Warner Cable, Inc. |
|
| 17,691 |
|
| 771,151 |
|
Time Warner, Inc. |
|
| 44,876 |
|
| 1,231,846 |
|
Walt Disney Co. |
|
| 22,065 |
|
| 652,021 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,278,577 |
|
|
|
|
|
|
| ||
Multiline Retail 1.8% |
|
|
|
|
|
|
|
Big Lots, Inc. * |
|
| 17,834 |
|
| 506,664 |
|
Dollar Tree, Inc. * |
|
| 5,988 |
|
| 296,526 |
|
Macy’s, Inc. |
|
| 47,292 |
|
| 753,361 |
|
Target Corp. |
|
| 15,911 |
|
| 815,757 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,372,308 |
|
|
|
|
|
|
| ||
Specialty Retail 1.3% |
|
|
|
|
|
|
|
AutoZone, Inc. * |
|
| 1,998 |
|
| 309,750 |
|
Best Buy Co., Inc. |
|
| 12,907 |
|
| 473,041 |
|
Penske Automotive Group, Inc. * |
|
| 19,761 |
|
| 277,840 |
|
Ross Stores, Inc. |
|
| 12,690 |
|
| 582,852 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,643,483 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 0.3% |
|
|
|
|
|
|
|
Coach, Inc. |
|
| 10,641 |
|
| 371,158 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 5.4% |
|
|
|
|
|
|
|
Beverages 0.9% |
|
|
|
|
|
|
|
Coca-Cola Enterprises, Inc. |
|
| 55,865 |
|
| 1,127,914 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 1.7% |
|
|
|
|
|
|
|
CVS Caremark Corp. |
|
| 14,789 |
|
| 478,720 |
|
Kroger Co. |
|
| 12,065 |
|
| 258,553 |
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
CONSUMER STAPLES continued |
|
|
|
|
|
|
|
Food & Staples Retailing continued |
|
|
|
|
|
|
|
Safeway, Inc. |
|
| 36,174 |
| $ | 812,106 |
|
Wal-Mart Stores, Inc. |
|
| 12,317 |
|
| 658,098 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,207,477 |
|
|
|
|
|
|
| ||
Food Products 1.6% |
|
|
|
|
|
|
|
Archer Daniels Midland Co. |
|
| 35,588 |
|
| 1,066,572 |
|
Bunge, Ltd. |
|
| 4,265 |
|
| 250,739 |
|
Del Monte Foods Co. |
|
| 41,044 |
|
| 467,081 |
|
Sara Lee Corp. |
|
| 29,468 |
|
| 357,742 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,142,134 |
|
|
|
|
|
|
| ||
Household Products 0.6% |
|
|
|
|
|
|
|
Procter & Gamble Co. |
|
| 13,345 |
|
| 821,385 |
|
|
|
|
|
|
| ||
Personal Products 0.3% |
|
|
|
|
|
|
|
Estee Lauder Cos., Class A |
|
| 7,289 |
|
| 382,818 |
|
|
|
|
|
|
| ||
Tobacco 0.3% |
|
|
|
|
|
|
|
Philip Morris International, Inc. |
|
| 7,922 |
|
| 360,530 |
|
|
|
|
|
|
| ||
ENERGY 17.4% |
|
|
|
|
|
|
|
Energy Equipment & Services 2.8% |
|
|
|
|
|
|
|
Atwood Oceanics, Inc. * |
|
| 10,660 |
|
| 357,323 |
|
Exterran Holdings, Inc. * |
|
| 34,448 |
|
| 698,605 |
|
Helmerich & Payne, Inc. |
|
| 11,578 |
|
| 484,308 |
|
National Oilwell Varco, Inc. * |
|
| 15,452 |
|
| 631,987 |
|
Noble Corp. |
|
| 17,626 |
|
| 710,680 |
|
Patterson-UTI Energy, Inc. |
|
| 17,005 |
|
| 261,197 |
|
Rowan Cos, Inc. * |
|
| 24,006 |
|
| 515,649 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,659,749 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 14.6% |
|
|
|
|
|
|
|
Apache Corp. |
|
| 17,774 |
|
| 1,755,538 |
|
Chevron Corp. |
|
| 59,705 |
|
| 4,305,925 |
|
ConocoPhillips |
|
| 54,445 |
|
| 2,613,360 |
|
Devon Energy Corp. |
|
| 7,813 |
|
| 522,768 |
|
El Paso Corp. |
|
| 108,647 |
|
| 1,102,767 |
|
EOG Resources, Inc. |
|
| 7,701 |
|
| 696,324 |
|
Exxon Mobil Corp. |
|
| 87,542 |
|
| 5,640,331 |
|
Marathon Oil Corp. |
|
| 8,889 |
|
| 264,981 |
|
Murphy Oil Corp. |
|
| 8,169 |
|
| 417,273 |
|
Occidental Petroleum Corp. |
|
| 13,137 |
|
| 1,029,153 |
|
Overseas Shipholding Group, Inc. |
|
| 7,309 |
|
| 326,054 |
|
SandRidge Energy, Inc. * |
|
| 45,372 |
|
| 383,847 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,058,321 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS 23.4% |
|
|
|
|
|
|
|
Capital Markets 4.3% |
|
|
|
|
|
|
|
Ameriprise Financial, Inc. |
|
| 18,580 |
| $ | 710,499 |
|
Bank of New York Mellon Corp. |
|
| 25,774 |
|
| 749,766 |
|
BlackRock, Inc. |
|
| 1,789 |
|
| 382,524 |
|
Goldman Sachs Group, Inc. |
|
| 17,087 |
|
| 2,541,179 |
|
Morgan Stanley |
|
| 14,744 |
|
| 394,844 |
|
State Street Corp. |
|
| 21,015 |
|
| 901,123 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,679,935 |
|
|
|
|
|
|
| ||
Commercial Banks 4.9% |
|
|
|
|
|
|
|
Bank of Hawaii Corp. |
|
| 6,365 |
|
| 289,480 |
|
BB&T Corp. |
|
| 14,624 |
|
| 407,571 |
|
PNC Financial Services Group, Inc. |
|
| 17,296 |
|
| 958,717 |
|
U.S. Bancorp |
|
| 41,031 |
|
| 1,029,058 |
|
Wells Fargo & Co. ° |
|
| 129,328 |
|
| 3,676,795 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,361,621 |
|
|
|
|
|
|
| ||
Consumer Finance 1.0% |
|
|
|
|
|
|
|
American Express Co. |
|
| 14,791 |
|
| 557,029 |
|
SLM Corp. * |
|
| 65,625 |
|
| 691,031 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,248,060 |
|
|
|
|
|
|
| ||
Diversified Financial Services 5.4% |
|
|
|
|
|
|
|
Bank of America Corp. |
|
| 180,086 |
|
| 2,733,706 |
|
Citigroup, Inc. |
|
| 72,353 |
|
| 240,212 |
|
JPMorgan Chase & Co. |
|
| 99,098 |
|
| 3,858,876 |
|
NASDAQ OMX Group, Inc. * |
|
| 16,002 |
|
| 287,876 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 7,120,670 |
|
|
|
|
|
|
| ||
Insurance 5.4% |
|
|
|
|
|
|
|
ACE, Ltd. |
|
| 14,431 |
|
| 711,015 |
|
Allied World Assurance Co. Holdings, Ltd. |
|
| 7,301 |
|
| 326,793 |
|
Aspen Insurance Holdings, Ltd. |
|
| 12,955 |
|
| 344,992 |
|
Chubb Corp. |
|
| 14,297 |
|
| 714,850 |
|
Endurance Specialty Holdings, Ltd. |
|
| 9,758 |
|
| 351,483 |
|
Everest Re Group, Ltd. |
|
| 6,083 |
|
| 521,556 |
|
Hartford Financial Services Group, Inc. |
|
| 25,344 |
|
| 608,002 |
|
PartnerRe, Ltd. |
|
| 9,832 |
|
| 733,369 |
|
Prudential Financial, Inc. |
|
| 8,812 |
|
| 440,512 |
|
Reinsurance Group of America, Inc. |
|
| 15,005 |
|
| 731,044 |
|
Travelers Companies, Inc. |
|
| 31,894 |
|
| 1,616,069 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 7,099,685 |
|
|
|
|
|
|
| ||
Real Estate Investment Trusts (REITs) 2.1% |
|
|
|
|
|
|
|
Annaly Capital Management, Inc. |
|
| 42,147 |
|
| 732,515 |
|
Hospitality Properties Trust |
|
| 27,435 |
|
| 606,862 |
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Real Estate Investment Trusts (REITs) continued |
|
|
|
|
|
|
|
Host Hotels & Resorts, Inc. |
|
| 35,167 |
| $ | 372,770 |
|
HRPT Properties Trust |
|
| 86,910 |
|
| 579,690 |
|
Simon Property Group, Inc. |
|
| 6,170 |
|
| 444,240 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,736,077 |
|
|
|
|
|
|
| ||
Thrifts & Mortgage Finance 0.3% |
|
|
|
|
|
|
|
Hudson City Bancorp, Inc. |
|
| 25,056 |
|
| 332,493 |
|
|
|
|
|
|
| ||
HEALTH CARE 10.1% |
|
|
|
|
|
|
|
Health Care Equipment & Supplies 0.3% |
|
|
|
|
|
|
|
Baxter International, Inc. |
|
| 6,654 |
|
| 383,204 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 2.7% |
|
|
|
|
|
|
|
Health Net, Inc. * |
|
| 18,492 |
|
| 448,616 |
|
Humana, Inc. * |
|
| 10,544 |
|
| 512,649 |
|
McKesson Corp. |
|
| 10,356 |
|
| 609,140 |
|
UnitedHealth Group, Inc. |
|
| 24,052 |
|
| 793,716 |
|
WellPoint, Inc. * |
|
| 18,317 |
|
| 1,167,159 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,531,280 |
|
|
|
|
|
|
| ||
Life Sciences Tools & Services 0.4% |
|
|
|
|
|
|
|
Thermo Fisher Scientific, Inc. * |
|
| 11,836 |
|
| 546,231 |
|
|
|
|
|
|
| ||
Pharmaceuticals 6.7% |
|
|
|
|
|
|
|
Eli Lilly & Co. |
|
| 32,471 |
|
| 1,142,980 |
|
Forest Laboratories, Inc. * |
|
| 9,583 |
|
| 284,040 |
|
Johnson & Johnson |
|
| 28,542 |
|
| 1,794,150 |
|
Merck & Co., Inc. |
|
| 28,994 |
|
| 1,106,991 |
|
Pfizer, Inc. |
|
| 236,394 |
|
| 4,411,112 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 8,739,273 |
|
|
|
|
|
|
| ||
INDUSTRIALS 11.3% |
|
|
|
|
|
|
|
Aerospace & Defense 2.9% |
|
|
|
|
|
|
|
General Dynamics Corp. |
|
| 21,107 |
|
| 1,411,003 |
|
L-3 Communications Holdings, Inc. |
|
| 11,803 |
|
| 983,662 |
|
Northrop Grumman Corp. |
|
| 25,085 |
|
| 1,419,811 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,814,476 |
|
|
|
|
|
|
| ||
Air Freight & Logistics 0.8% |
|
|
|
|
|
|
|
FedEx Corp. |
|
| 8,938 |
|
| 700,292 |
|
United Parcel Service, Inc., Class B |
|
| 6,656 |
|
| 384,517 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,084,809 |
|
|
|
|
|
|
| ||
Building Products 0.3% |
|
|
|
|
|
|
|
Owens Corning, Inc. * |
|
| 15,725 |
|
| 404,604 |
|
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INDUSTRIALS continued |
|
|
|
|
|
|
|
Commercial Services & Supplies 0.7% |
|
|
|
|
|
|
|
Pitney Bowes, Inc. |
|
| 13,420 |
| $ | 280,747 |
|
R.R. Donnelley & Sons Co. |
|
| 28,699 |
|
| 568,814 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 849,561 |
|
|
|
|
|
|
| ||
Construction & Engineering 0.7% |
|
|
|
|
|
|
|
Fluor Corp. |
|
| 10,004 |
|
| 453,582 |
|
KBR, Inc. |
|
| 547 |
|
| 10,245 |
|
Shaw Group, Inc. |
|
| 13,428 |
|
| 433,590 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 897,417 |
|
|
|
|
|
|
| ||
Industrial Conglomerates 3.6% |
|
|
|
|
|
|
|
General Electric Co. |
|
| 252,683 |
|
| 4,063,143 |
|
Tyco International, Ltd. |
|
| 16,447 |
|
| 582,717 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,645,860 |
|
|
|
|
|
|
| ||
Machinery 1.0% |
|
|
|
|
|
|
|
Caterpillar, Inc. |
|
| 10,313 |
|
| 538,751 |
|
Timken Co. |
|
| 17,432 |
|
| 390,651 |
|
Trinity Industries, Inc. |
|
| 25,202 |
|
| 394,159 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,323,561 |
|
|
|
|
|
|
| ||
Road & Rail 1.3% |
|
|
|
|
|
|
|
Hertz Global Holdings, Inc. * |
|
| 43,261 |
|
| 448,184 |
|
Norfolk Southern Corp. |
|
| 17,233 |
|
| 810,985 |
|
Ryder System, Inc. |
|
| 11,454 |
|
| 416,926 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,676,095 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 5.3% |
|
|
|
|
|
|
|
Computers & Peripherals 1.8% |
|
|
|
|
|
|
|
International Business Machines Corp. |
|
| 7,752 |
|
| 948,767 |
|
Seagate Technology, Inc. |
|
| 40,845 |
|
| 683,337 |
|
Western Digital Corp. * |
|
| 17,580 |
|
| 667,864 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 2,299,968 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 0.9% |
|
|
|
|
|
|
|
Flextronics International, Ltd. * |
|
| 40,864 |
|
| 259,078 |
|
Ingram Micro, Inc., Class A * |
|
| 20,836 |
|
| 352,129 |
|
Tech Data Corp. * |
|
| 7,720 |
|
| 314,590 |
|
Vishay Intertechnology, Inc. * |
|
| 36,247 |
|
| 273,302 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,199,099 |
|
|
|
|
|
|
| ||
IT Services 0.9% |
|
|
|
|
|
|
|
Computer Sciences Corp. * |
|
| 18,049 |
|
| 925,913 |
|
Convergys Corp. * |
|
| 23,251 |
|
| 248,786 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,174,699 |
|
|
|
|
|
|
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
Office Electronics 0.2% |
|
|
|
|
|
|
|
Xerox Corp. |
|
| 24,623 |
| $ | 214,713 |
|
|
|
|
|
|
| ||
Semiconductors & Semiconductor Equipment 1.1% |
|
|
|
|
|
|
|
Intel Corp. |
|
| 46,400 |
|
| 900,160 |
|
Marvell Technology Group, Ltd. * |
|
| 15,807 |
|
| 275,516 |
|
Texas Instruments, Inc. |
|
| 11,524 |
|
| 259,290 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,434,966 |
|
|
|
|
|
|
| ||
Software 0.4% |
|
|
|
|
|
|
|
Symantec Corp. * |
|
| 33,523 |
|
| 568,215 |
|
|
|
|
|
|
| ||
MATERIALS 4.3% |
|
|
|
|
|
|
|
Chemicals 2.5% |
|
|
|
|
|
|
|
Ashland, Inc. |
|
| 9,750 |
|
| 393,998 |
|
Cabot Corp. |
|
| 11,835 |
|
| 305,106 |
|
Dow Chemical Co. |
|
| 9,227 |
|
| 249,959 |
|
Eastman Chemical Co. |
|
| 16,632 |
|
| 940,207 |
|
Lubrizol Corp. |
|
| 12,298 |
|
| 906,240 |
|
Nalco Holding Co. |
|
| 20,040 |
|
| 472,543 |
|
Valspar Corp. |
|
| 2,336 |
|
| 61,857 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,329,910 |
|
|
|
|
|
|
| ||
Metals & Mining 0.6% |
|
|
|
|
|
|
|
Freeport-McMoRan Copper & Gold, Inc. * |
|
| 6,322 |
|
| 421,614 |
|
Reliance Steel & Aluminum Co. |
|
| 9,852 |
|
| 401,371 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 822,985 |
|
|
|
|
|
|
| ||
Paper & Forest Products 1.2% |
|
|
|
|
|
|
|
International Paper Co. |
|
| 45,069 |
|
| 1,032,531 |
|
MeadWestvaco Corp. |
|
| 20,764 |
|
| 499,789 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,532,320 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 4.7% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 4.7% |
|
|
|
|
|
|
|
AT&T, Inc. |
|
| 166,988 |
|
| 4,234,816 |
|
Qwest Communications International, Inc. |
|
| 135,364 |
|
| 569,882 |
|
Verizon Communications, Inc. |
|
| 44,114 |
|
| 1,297,834 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,102,532 |
|
|
|
|
|
|
| ||
UTILITIES 6.2% |
|
|
|
|
|
|
|
Electric Utilities 2.4% |
|
|
|
|
|
|
|
Edison International |
|
| 14,967 |
|
| 498,701 |
|
Entergy Corp. |
|
| 5,223 |
|
| 398,567 |
|
FirstEnergy Corp. |
|
| 18,885 |
|
| 823,764 |
|
Mirant Corp. * |
|
| 47,749 |
|
| 671,828 |
|
See Notes to Financial Statements
16
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
UTILITIES continued |
|
|
|
|
|
|
|
Electric Utilities continued |
|
|
|
|
|
|
|
Pinnacle West Capital Corp. |
|
| 16,462 |
| $ | 589,669 |
|
PPL Corp. |
|
| 5,104 |
|
| 150,517 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,133,046 |
|
|
|
|
|
|
| ||
Gas Utilities 0.1% |
|
|
|
|
|
|
|
UGI Corp. |
|
| 3,665 |
|
| 89,829 |
|
|
|
|
|
|
| ||
Independent Power Producers & Energy Traders 0.5% |
|
|
|
|
|
|
|
Constellation Energy Group, Inc. |
|
| 23,168 |
|
| 747,863 |
|
|
|
|
|
|
| ||
Multi-Utilities 3.2% |
|
|
|
|
|
|
|
CenterPoint Energy, Inc. |
|
| 36,847 |
|
| 514,016 |
|
CMS Energy Corp. |
|
| 70,688 |
|
| 1,072,337 |
|
DTE Energy Co. |
|
| 21,976 |
|
| 923,871 |
|
Integrys Energy Group, Inc. |
|
| 9,196 |
|
| 384,852 |
|
NiSource, Inc. |
|
| 59,480 |
|
| 847,590 |
|
Public Service Enterprise Group, Inc. |
|
| 14,610 |
|
| 446,920 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,189,586 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $131,040,688) |
|
|
|
|
| 128,077,756 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
| Principal |
| Value |
| ||
| |||||||
SHORT-TERM INVESTMENTS 2.2% |
|
|
|
|
|
|
|
U.S. TREASURY OBLIGATION 0.4% |
|
|
|
|
|
|
|
U.S. Treasury Bills, 0.04%, 03/18/2010 ß ƒ |
| $ | 500,000 |
|
| 499,981 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
| Shares |
| Value |
| ||
| |||||||
MUTUAL FUND SHARES 1.8% |
|
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I, 0.01% q ø |
|
| 2,344,912 |
|
| 2,344,912 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $2,844,893) |
|
|
|
|
| 2,844,893 |
|
|
|
|
|
|
| ||
Total Investments (cost $133,885,581) 100.3% |
|
|
|
|
| 130,922,649 |
|
Other Assets and Liabilities (0.3%) |
|
|
|
|
| (348,348 | ) |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 130,574,301 |
|
|
|
|
|
|
|
* | Non-income producing security |
° | Security represents an investment in a non-controlled affiliate. At January 31, 2010, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $4,486,557 and earned $14,879 of income for the six months ended January 31, 2010 which is included in income from affiliated issuers. |
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. |
See Notes to Financial Statements
17
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
The following table shows the percent of total long-term investments by sector as of January 31, 2010:
Financials |
| 23.8 | % |
Energy |
| 17.7 | % |
Industrials |
| 11.5 | % |
Health Care |
| 10.3 | % |
Consumer Discretionary |
| 10.2 | % |
Utilities |
| 6.4 | % |
Consumer Staples |
| 5.5 | % |
Information Technology |
| 5.4 | % |
Telecommunication Services |
| 4.8 | % |
Materials |
| 4.4 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
18
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $127,054,112) |
| $ | 124,900,942 |
|
Investments in affiliated issuers, at value (cost $6,831,469) |
|
| 6,021,707 |
|
| ||||
Total investments |
|
| 130,922,649 |
|
Receivable for securities sold |
|
| 6,427,359 |
|
Dividends receivable |
|
| 191,039 |
|
Prepaid expenses and other assets |
|
| 36,293 |
|
| ||||
Total assets |
|
| 137,577,340 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 6,322,029 |
|
Payable for Fund shares redeemed |
|
| 608,649 |
|
Payable for daily variation margin on open futures contracts |
|
| 24,200 |
|
Advisory fee payable |
|
| 5,991 |
|
Distribution Plan expenses payable |
|
| 1,066 |
|
Due to other related parties |
|
| 2,443 |
|
Accrued expenses and other liabilities |
|
| 38,661 |
|
| ||||
Total liabilities |
|
| 7,003,039 |
|
| ||||
Net assets |
| $ | 130,574,301 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 184,994,793 |
|
Undistributed net investment income |
|
| 77,953 |
|
Accumulated net realized losses on investments |
|
| (51,429,423 | ) |
Net unrealized losses on investments |
|
| (3,069,022 | ) |
| ||||
Total net assets |
| $ | 130,574,301 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 38,057,935 |
|
Class B |
|
| 1,840,801 |
|
Class C |
|
| 1,374,337 |
|
Class I |
|
| 89,301,228 |
|
| ||||
Total net assets |
| $ | 130,574,301 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 3,479,033 |
|
Class B |
|
| 169,165 |
|
Class C |
|
| 126,547 |
|
Class I |
|
| 8,185,515 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 10.94 |
|
Class A—Offering price (based on sales charge of 5.75%) |
| $ | 11.61 |
|
Class B |
| $ | 10.88 |
|
Class C |
| $ | 10.86 |
|
Class I |
| $ | 10.91 |
|
|
See Notes to Financial Statements
19
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 1,601,421 |
|
Income from affiliated issuers |
|
| 15,799 |
|
Interest |
|
| 251 |
|
| ||||
Total investment income |
|
| 1,617,471 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 440,364 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 50,638 |
|
Class B |
|
| 10,224 |
|
Class C |
|
| 7,691 |
|
Administrative services fee |
|
| 71,026 |
|
Transfer agent fees |
|
| 114,056 |
|
Trustees’ fees and expenses |
|
| 2,093 |
|
Printing and postage expenses |
|
| 20,026 |
|
Custodian and accounting fees |
|
| 21,300 |
|
Registration and filing fees |
|
| 23,793 |
|
Professional fees |
|
| 18,070 |
|
Other |
|
| 4,193 |
|
| ||||
Total expenses |
|
| 783,474 |
|
Less: Expense reductions |
|
| (15 | ) |
Fee waivers |
|
| (49,718 | ) |
| ||||
Net expenses |
|
| 733,741 |
|
| ||||
Net investment income |
|
| 883,730 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| (2,505,528 | ) |
Affiliated issuers |
|
| (259,368 | ) |
Futures contracts |
|
| 444,219 |
|
| ||||
Net realized losses on investments |
|
| (2,320,677 | ) |
| ||||
Net change in unrealized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 13,508,128 |
|
Affiliated issuers |
|
| 887,640 |
|
Futures contracts |
|
| (229,563 | ) |
| ||||
Net change in unrealized gains or losses on investments |
|
| 14,166,205 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
| 11,845,528 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 12,729,258 |
|
|
See Notes to Financial Statements
20
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 883,730 |
|
|
| $ | 4,175,611 |
|
Net realized losses on investments |
|
|
|
| (2,320,677 | ) |
|
|
| (48,156,632 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| 14,166,205 |
|
|
|
| (22,676,646 | ) |
| |||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
| 12,729,258 |
|
|
|
| (66,657,667 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (219,659 | ) |
|
|
| (1,003,098 | ) |
Class B |
|
|
|
| (3,217 | ) |
|
|
| (37,100 | ) |
Class C |
|
|
|
| (2,645 | ) |
|
|
| (21,191 | ) |
Class I |
|
|
|
| (656,961 | ) |
|
|
| (3,057,122 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| 0 |
|
|
|
| (1,083,278 | ) |
Class B |
|
|
|
| 0 |
|
|
|
| (63,147 | ) |
Class C |
|
|
|
| 0 |
|
|
|
| (32,180 | ) |
Class I |
|
|
|
| 0 |
|
|
|
| (3,041,967 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (882,482 | ) |
|
|
| (8,339,083 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 93,521 |
|
| 1,041,484 |
| 441,697 |
|
| 4,257,189 |
|
Class B |
| 1,553 |
|
| 17,121 |
| 51,415 |
|
| 516,301 |
|
Class C |
| 14,549 |
|
| 160,748 |
| 78,322 |
|
| 753,769 |
|
Class I |
| 142,382 |
|
| 1,554,704 |
| 1,799,703 |
|
| 16,514,586 |
|
| |||||||||||
|
|
|
|
| 2,774,057 |
|
|
|
| 22,041,845 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 19,024 |
|
| 208,660 |
| 210,683 |
|
| 1,980,802 |
|
Class B |
| 254 |
|
| 2,777 |
| 9,793 |
|
| 90,267 |
|
Class C |
| 190 |
|
| 2,076 |
| 4,577 |
|
| 41,875 |
|
Class I |
| 24,570 |
|
| 268,591 |
| 226,961 |
|
| 2,135,323 |
|
| |||||||||||
|
|
|
|
| 482,104 |
|
|
|
| 4,248,267 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 9,519 |
|
| 103,428 |
| 40,395 |
|
| 386,400 |
|
Class B |
| (9,568 | ) |
| (103,428 | ) | (40,620 | ) |
| (386,400 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (615,778 | ) |
| (6,771,527 | ) | (1,801,661 | ) |
| (18,061,903 | ) |
Class B |
| (33,816 | ) |
| (371,130 | ) | (121,417 | ) |
| (1,207,349 | ) |
Class C |
| (33,250 | ) |
| (367,178 | ) | (76,271 | ) |
| (733,794 | ) |
Class I |
| (1,647,812 | ) |
| (18,107,498 | ) | (9,504,400 | ) |
| (101,324,698 | ) |
| |||||||||||
|
|
|
|
| (25,617,333 | ) |
|
|
| (121,327,744 | ) |
| |||||||||||
Net decrease in net assets resulting from capital share transactions |
|
|
|
| (22,361,172 | ) |
|
|
| (95,037,632 | ) |
| |||||||||||
Total decrease in net assets |
|
|
|
| (10,514,396 | ) |
|
|
| (170,034,382 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 141,088,697 |
|
|
|
| 311,123,079 |
|
| |||||||||||
End of period |
|
|
| $ | 130,574,301 |
|
|
| $ | 141,088,697 |
|
| |||||||||||
Undistributed net investment income |
|
|
| $ | 77,953 |
|
|
| $ | 76,705 |
|
|
See Notes to Financial Statements
21
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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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 had 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices.
Short-term securities of sufficient credit quality 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.
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
b. Futures contracts
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against changes in, security values. 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. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
c. 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. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectibility of interest is reasonably assured, the debt obligation is removed from non-accrual status. Dividend income is recorded on the ex-dividend date.
d. 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.
e. 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.
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
f. 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 0.62% and declining to 0.45% as average daily net assets increase. For the six months ended January 31, 2010, the advisory fee was equivalent to an annual rate of 0.62% of the Fund’s average daily net assets.
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, 2010, EIMC voluntarily waived its advisory fee in the amount of $49,718.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers 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, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.16% of the Fund’s average daily net assets.
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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, 2010, EIS received $231 from the sale of Class A shares and $3,047, in contingent deferred sales charges from redemptions of Class B shares.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $37,773,059 and $59,277,894, respectively, for the six months ended January 31, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 128,077,756 |
| $ | 0 |
| $ | 0 |
| $ | 128,077,756 |
|
Debt securities issued by U.S. Treasury and U.S. government agencies |
|
| 0 |
|
| 499,981 |
|
| 0 |
|
| 499,981 |
|
Short-term investments |
|
| 2,344,912 |
|
| 0 |
|
| 0 |
|
| 2,344,912 |
|
| |||||||||||||
|
| $ | 130,422,668 |
| $ | 499,981 |
| $ | 0 |
| $ | 130,922,649 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of January 31, 2010, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:
|
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Other financial instruments* |
| $ | (106,090 | ) | $ | 0 |
| $ | 0 |
| $ | (106,090 | ) |
|
* | Other financial instruments include futures contracts. |
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $135,235,389. The gross unrealized appreciation and depreciation on securities based on tax cost was $8,586,445 and $12,899,185, respectively, with a net unrealized depreciation of $4,312,740.
As of July 31, 2009, the Fund had $5,003,683 in capital loss carryovers for federal income tax purposes expiring in 2017.
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, 2009, the Fund incurred and elected to defer post-October losses of $42,635,634.
6. DERIVATIVE TRANSACTIONS
During the six months ended January 31, 2010, the Fund entered into futures contracts for speculative purposes.
At January 31, 2010, the Fund had long futures contracts outstanding as follows:
Expiration | Contracts | Initial | Value at | Unrealized |
March 2010 | 11 S&P 500 Index | $3,049,690 | $2,943,600 | $(106,090) |
The Fund had an average contract amount of $2,749,051 in futures contracts during the six months ended January 31, 2010.
On January 31, 2010, the cumulative depreciation on futures contracts in the amount of $106,090 is reflected in net unrealized losses on investment on the Statement of Assets and Liabilities. The receivable for daily variation margin on open futures contracts only represents the current day’s variation margin. The realized losses and change in unrealized gains or losses on futures contracts are reflected in the Statement of Operations.
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
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
six months ended January 31, 2010, 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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2010, the Fund had no borrowings under this agreement.
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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some,
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
12. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
28
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
13. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Disciplined Value Fund, which will be a series of Wells Fargo Funds Trust created in order to receive the assets of the Fund upon completion of the reorganization, will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Disciplined Value Fund.
A special meeting of shareholders of the Fund will be held in June 2010 to consider and vote on the Plan. In April 2010, materials for this meeting will be mailed to shareholders of record on March 10, 2010. If approved by the shareholders at this meeting, the reorganization will take place in July 2010.
14. SUBSEQUENT DISTRIBUTIONS
On March 11, 2010, the Fund declared distributions from net investment income to shareholders of record on March 10, 2010. The per share amounts payable on March 12, 2010 were as follows:
|
| Net Investment | |
Class A |
| $ | 0.0330 |
Class B |
|
| 0.0106 |
Class C |
|
| 0.0106 |
Class I |
|
| 0.0400 |
These distributions are not reflected in the accompanying financial statements.
29
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the information that EIMC and Keil provided. In addition, the Trustees considered
30
ADDITIONAL INFORMATION (unaudited) continued
information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
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ADDITIONAL INFORMATION (unaudited) continued
Information reviewed. The Board of Trustees and committees of the Board of Trustees met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the 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 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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 fees 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. They considered that EIS, an affiliate of EIMC,
32
ADDITIONAL INFORMATION (unaudited) continued
would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (incl uding amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 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 Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that
33
ADDITIONAL INFORMATION (unaudited) continued
the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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. They determined that the nature and scope of the services provided by EIMC were consistent with EIMC’s duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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-, five-, and ten-year periods ended December 31, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the Russell 1000 Value Index. The Trustees also noted that the Fund’s Class A shares’ performance was in the second quintile for the one- and three-year periods ended December 31, 2008 and in the first quintile for the five- and ten-year periods ended December 31, 2008, 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 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
34
ADDITIONAL INFORMATION (unaudited) continued
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 a majority of the 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
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TRUSTEES AND OFFICERS continued
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: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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
120960 575709 rv4 03/2010
Evergreen Enhanced S&P 500® Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
7 |
| ABOUT YOUR FUND’S EXPENSES |
8 |
| FINANCIAL HIGHLIGHTS |
13 |
| SCHEDULE OF INVESTMENTS |
21 |
| STATEMENT OF ASSETS AND LIABILITIES |
22 |
| STATEMENT OF OPERATIONS |
23 |
| STATEMENTS OF CHANGES IN NET ASSETS |
25 |
| NOTES TO FINANCIAL STATEMENTS |
34 |
| 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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
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, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
1
LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, the management team 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 Enhanced S&P 500® Fund used a quantitative investment approach to identify companies with favorable investment characteristics in the areas of valuation, investor sentiment, and quality. 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 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors,
2
LETTER TO SHAREHOLDERS continued
staying focused on a long-term strategy based on individual goals and risk tolerance can help avoid missing potential periods of strong recovery.
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
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 12/31/2009.
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 | 3.73% | 3.45% | 7.49% | N/A | N/A |
6-month return w/o sales charge | 8.90% | 8.45% | 8.49% | 8.98% | 8.89% |
Average annual return* |
|
|
|
|
|
1-year with sales charge | 23.46% | 23.67% | 27.69% | N/A | N/A |
1-year w/o sales charge | 29.63% | 28.67% | 28.69% | 30.03% | 29.75% |
5-year | -0.28% | -0.38% | -0.03% | 0.96% | 0.70% |
10-year | -0.70% | -0.96% | -0.95% | 0.04% | -0.20% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
Historical performance shown for Class IS prior to its inception is based on the performance of Class A, the original class offered. 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.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Class B shares are closed to new investments by new and existing shareholders.
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.
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, 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.
5
FUND AT A GLANCE continued
This section left intentionally blank
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.
All data is as of January 31, 2010, and subject to change.
6
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, 2009 to January 31, 2010.
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 |
| 8/1/2009 | 1/31/2010 | During Period* |
Actual |
|
|
|
Class A | $1,000.00 | $1,088.97 | $4.16 |
Class B | $1,000.00 | $1,084.51 | $8.14 |
Class C | $1,000.00 | $1,084.88 | $8.09 |
Class I | $1,000.00 | $1,089.80 | $2.90 |
Class IS | $1,000.00 | $1,088.91 | $4.16 |
Hypothetical |
|
|
|
(5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,021.22 | $4.02 |
Class B | $1,000.00 | $1,017.39 | $7.88 |
Class C | $1,000.00 | $1,017.44 | $7.83 |
Class I | $1,000.00 | $1,022.43 | $2.80 |
Class IS | $1,000.00 | $1,021.22 | $4.02 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (0.79% for Class A, 1.55% for Class B, 1.54% for Class C, 0.55% for Class I and 0.79% for Class IS), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS A |
|
| 2009 |
| 20081 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.85 |
| $ | 14.40 |
| $ | 18.97 |
| $ | 17.09 |
| $ | 15.56 |
| $ | 13.56 |
| $ | 11.93 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.07 |
|
| 0.18 |
|
| 0.14 |
|
| 0.18 |
|
| 0.19 |
|
| 0.12 | 2 |
| 0.07 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.90 |
|
| (3.15 | ) |
| (2.58 | ) |
| 2.48 |
|
| 1.53 |
|
| 2.02 |
|
| 1.62 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.97 |
|
| (2.97 | ) |
| (2.44 | ) |
| 2.66 |
|
| 1.72 |
|
| 2.14 |
|
| 1.69 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.08 | ) |
| (0.17 | ) |
| (0.14 | ) |
| (0.18 | ) |
| (0.19 | ) |
| (0.14 | ) |
| (0.06 | ) |
Net realized gains |
|
| 0 |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.08 | ) |
| (0.58 | ) |
| (2.13 | ) |
| (0.78 | ) |
| (0.19 | ) |
| (0.14 | ) |
| (0.06 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 11.74 |
| $ | 10.85 |
| $ | 14.40 |
| $ | 18.97 |
| $ | 17.09 |
| $ | 15.56 |
| $ | 13.56 |
|
| ||||||||||||||||||||||
Total return3 |
|
| 8.90 | % |
| (20.07 | )% |
| (14.06 | )% |
| 15.98 | % |
| 11.13 | % |
| 15.86 | % |
| 14.16 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 239,640 |
| $ | 243,049 |
| $ | 348,350 |
| $ | 513,074 |
| $ | 115,630 |
| $ | 100,728 |
| $ | 51,209 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.79 | %4 |
| 1.00 | % |
| 0.94 | %4 |
| 0.89 | % |
| 0.81 | % |
| 1.11 | % |
| 1.15 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.79 | %4 |
| 1.00 | % |
| 0.94 | %4 |
| 0.89 | % |
| 0.82 | % |
| 1.15 | % |
| 1.17 | % |
Net investment income |
|
| 1.27 | %4 |
| 1.71 | % |
| 1.12 | %4 |
| 0.92 | % |
| 1.20 | % |
| 0.83 | % |
| 0.47 | % |
Portfolio turnover rate |
|
| 28 | % |
| 30 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
|
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 | Per share amount 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)
|
| Six Months Ended |
| Year Ended July 31, |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS B |
|
| 2009 |
| 20081 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.29 |
| $ | 13.68 |
| $ | 18.13 |
| $ | 16.36 |
| $ | 14.90 |
| $ | 13.01 |
| $ | 11.48 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.03 | 2 |
| 0.10 | 2 |
| 0.05 | 2 |
| 0.04 | 2 |
| 0.07 | 2 |
| 0 | 2 |
| (0.04 | ) |
Net realized and unrealized gains or losses on investments |
|
| 0.84 |
|
| (2.99 | ) |
| (2.46 | ) |
| 2.37 |
|
| 1.47 |
|
| 1.95 |
|
| 1.57 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.87 |
|
| (2.89 | ) |
| (2.41 | ) |
| 2.41 |
|
| 1.54 |
|
| 1.95 |
|
| 1.53 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.03 | ) |
| (0.09 | ) |
| (0.05 | ) |
| (0.04 | ) |
| (0.08 | ) |
| (0.06 | ) |
| 0 | 3 |
Net realized gains |
|
| 0 |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.03 | ) |
| (0.50 | ) |
| (2.04 | ) |
| (0.64 | ) |
| (0.08 | ) |
| (0.06 | ) |
| 0 |
|
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 11.13 |
| $ | 10.29 |
| $ | 13.68 |
| $ | 18.13 |
| $ | 16.36 |
| $ | 14.90 |
| $ | 13.01 |
|
| ||||||||||||||||||||||
Total return4 |
|
| 8.45 | % |
| (20.65 | )% |
| (14.60 | )% |
| 15.05 | % |
| 10.34 | % |
| 15.03 | % |
| 13.34 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 5,833 |
| $ | 6,585 |
| $ | 11,935 |
| $ | 23,630 |
| $ | 29,352 |
| $ | 55,071 |
| $ | 11,177 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.55 | %5 |
| 1.75 | % |
| 1.69 | %5 |
| 1.62 | % |
| 1.57 | % |
| 1.81 | % |
| 1.85 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.55 | %5 |
| 1.75 | % |
| 1.69 | %5 |
| 1.62 | % |
| 1.58 | % |
| 1.85 | % |
| 1.87 | % |
Net investment income (loss) |
|
| 0.53 | %5 |
| 0.99 | % |
| 0.37 | %5 |
| 0.25 | % |
| 0.46 | % |
| 0.00 | % |
| (0.24 | )% |
Portfolio turnover rate |
|
| 28 | % |
| 30 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
|
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 | Per share amount 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 |
| Year Ended July 31, |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS C |
|
| 2009 |
| 20081 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.50 |
| $ | 13.95 |
| $ | 18.45 |
| $ | 16.64 |
| $ | 15.17 |
| $ | 13.24 |
| $ | 11.69 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.03 |
|
| 0.11 |
|
| 0.05 |
|
| 0.04 | 2 |
| 0.07 | 2 |
| 0.01 | 2 |
| (0.03 | )2 |
Net realized and unrealized gains or losses on investments |
|
| 0.86 |
|
| (3.06 | ) |
| (2.51 | ) |
| 2.42 |
|
| 1.49 |
|
| 1.98 |
|
| 1.58 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.89 |
|
| (2.95 | ) |
| (2.46 | ) |
| 2.46 |
|
| 1.56 |
|
| 1.99 |
|
| 1.55 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.03 | ) |
| (0.09 | ) |
| (0.05 | ) |
| (0.05 | ) |
| (0.09 | ) |
| (0.06 | ) |
| 0 | 3 |
Net realized gains |
|
| 0 |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.03 | ) |
| (0.50 | ) |
| (2.04 | ) |
| (0.65 | ) |
| (0.09 | ) |
| (0.06 | ) |
| 0 |
|
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 11.36 |
| $ | 10.50 |
| $ | 13.95 |
| $ | 18.45 |
| $ | 16.64 |
| $ | 15.17 |
| $ | 13.24 |
|
| ||||||||||||||||||||||
Total return4 |
|
| 8.49 | % |
| (20.65 | )% |
| (14.58 | )% |
| 15.10 | % |
| 10.29 | % |
| 15.08 | % |
| 13.27 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 12,463 |
| $ | 11,462 |
| $ | 10,409 |
| $ | 12,331 |
| $ | 7,944 |
| $ | 6,003 |
| $ | 2,518 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.54 | %5 |
| 1.76 | % |
| 1.69 | %5 |
| 1.63 | % |
| 1.55 | % |
| 1.81 | % |
| 1.84 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.54 | %5 |
| 1.76 | % |
| 1.69 | %5 |
| 1.63 | % |
| 1.56 | % |
| 1.85 | % |
| 1.86 | % |
Net investment income (loss) |
|
| 0.52 | %5 |
| 0.95 | % |
| 0.36 | %5 |
| 0.24 | % |
| 0.45 | % |
| 0.09 | % |
| (0.24 | )% |
Portfolio turnover rate |
|
| 28 | % |
| 30 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
|
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 | Per share amount 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
10
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS I |
|
| 2009 |
| 20081 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.92 |
| $ | 14.48 |
| $ | 19.06 |
| $ | 17.16 |
| $ | 15.62 |
| $ | 13.61 |
| $ | 11.99 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.10 |
|
| 0.22 |
|
| 0.19 |
|
| 0.23 |
|
| 0.24 |
|
| 0.18 |
|
| 0.10 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.88 |
|
| (3.17 | ) |
| (2.61 | ) |
| 2.49 |
|
| 1.53 |
|
| 2.01 |
|
| 1.62 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.98 |
|
| (2.95 | ) |
| (2.42 | ) |
| 2.72 |
|
| 1.77 |
|
| 2.19 |
|
| 1.72 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.09 | ) |
| (0.20 | ) |
| (0.17 | ) |
| (0.22 | ) |
| (0.23 | ) |
| (0.18 | ) |
| (0.10 | ) |
Net realized gains |
|
| 0 |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.09 | ) |
| (0.61 | ) |
| (2.16 | ) |
| (0.82 | ) |
| (0.23 | ) |
| (0.18 | ) |
| (0.10 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 11.81 |
| $ | 10.92 |
| $ | 14.48 |
| $ | 19.06 |
| $ | 17.16 |
| $ | 15.62 |
| $ | 13.61 |
|
| ||||||||||||||||||||||
Total return |
|
| 8.98 | % |
| (19.81 | )% |
| (13.89 | )% |
| 16.28 | % |
| 11.44 | % |
| 16.19 | % |
| 14.40 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 398,929 |
| $ | 484,594 |
| $ | 942,112 |
| $ | 1,592,166 |
| $ | 1,722,790 |
| $ | 1,432,963 |
| $ | 1,455,039 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.55 | %2 |
| 0.75 | % |
| 0.69 | %2 |
| 0.62 | % |
| 0.55 | % |
| 0.80 | % |
| 0.84 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.55 | %2 |
| 0.75 | % |
| 0.69 | %2 |
| 0.62 | % |
| 0.56 | % |
| 0.84 | % |
| 0.86 | % |
Net investment income |
|
| 1.54 | %2 |
| 1.99 | % |
| 1.36 | %2 |
| 1.25 | % |
| 1.45 | % |
| 1.23 | % |
| 0.76 | % |
Portfolio turnover rate |
|
| 28 | % |
| 30 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
|
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 | Annualized |
See Notes to Financial Statements
11
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| Year Ended September 30, |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||
CLASS IS |
|
| 2009 |
| 20081 |
| 2007 |
| 2006 |
| 2005 |
| 2004 |
| ||||||||
| ||||||||||||||||||||||
Net asset value, beginning of period |
| $ | 10.86 |
| $ | 14.41 |
| $ | 18.99 |
| $ | 17.10 |
| $ | 15.57 |
| $ | 13.57 |
| $ | 11.93 |
|
| ||||||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.07 |
|
| 0.18 |
|
| 0.15 |
|
| 0.18 |
|
| 0.20 |
|
| 0.15 | 2 |
| 0.07 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.90 |
|
| (3.15 | ) |
| (2.59 | ) |
| 2.49 |
|
| 1.52 |
|
| 2.00 |
|
| 1.63 |
|
|
|
| ||||||||||||||||||||
Total from investment operations |
|
| 0.97 |
|
| (2.97 | ) |
| (2.44 | ) |
| 2.67 |
|
| 1.72 |
|
| 2.15 |
|
| 1.70 |
|
| ||||||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.08 | ) |
| (0.17 | ) |
| (0.15 | ) |
| (0.18 | ) |
| (0.19 | ) |
| (0.15 | ) |
| (0.06 | ) |
Net realized gains |
|
| 0 |
|
| (0.41 | ) |
| (1.99 | ) |
| (0.60 | ) |
| 0 |
|
| 0 |
|
| 0 |
|
|
|
| ||||||||||||||||||||
Total distributions to shareholders |
|
| (0.08 | ) |
| (0.58 | ) |
| (2.14 | ) |
| (0.78 | ) |
| (0.19 | ) |
| (0.15 | ) |
| (0.06 | ) |
| ||||||||||||||||||||||
Net asset value, end of period |
| $ | 11.75 |
| $ | 10.86 |
| $ | 14.41 |
| $ | 18.99 |
| $ | 17.10 |
| $ | 15.57 |
| $ | 13.57 |
|
| ||||||||||||||||||||||
Total return |
|
| 8.89 | % |
| (20.06 | )% |
| (14.03 | )% |
| 15.92 | % |
| 11.13 | % |
| 15.89 | % |
| 14.23 | % |
| ||||||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 34,595 |
| $ | 33,452 |
| $ | 49,125 |
| $ | 68,154 |
| $ | 68,764 |
| $ | 75,019 |
| $ | 80,111 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.79 | %3 |
| 1.00 | % |
| 0.94 | %3 |
| 0.87 | % |
| 0.80 | % |
| 1.05 | % |
| 1.08 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.79 | %3 |
| 1.00 | % |
| 0.94 | %3 |
| 0.87 | % |
| 0.81 | % |
| 1.09 | % |
| 1.10 | % |
Net investment income |
|
| 1.27 | %3 |
| 1.72 | % |
| 1.12 | %3 |
| 1.00 | % |
| 1.21 | % |
| 0.99 | % |
| 0.51 | % |
Portfolio turnover rate |
|
| 28 | % |
| 30 | % |
| 29 | % |
| 71 | % |
| 52 | % |
| 38 | % |
| 54 | % |
|
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 | Per share amount is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS 99.1% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 10.0% |
|
|
|
|
|
|
|
Automobiles 0.4% |
|
|
|
|
|
|
|
Ford Motor Co. * |
|
| 231,010 |
| $ | 2,504,148 |
|
|
|
|
|
|
| ||
Diversified Consumer Services 0.5% |
|
|
|
|
|
|
|
Apollo Group, Inc., Class A * |
|
| 31,612 |
|
| 1,915,371 |
|
ITT Educational Services, Inc. * |
|
| 15,922 |
|
| 1,542,364 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,457,735 |
|
|
|
|
|
|
| ||
Hotels, Restaurants & Leisure 1.4% |
|
|
|
|
|
|
|
Carnival Corp. * |
|
| 89,668 |
|
| 2,988,634 |
|
McDonald’s Corp. |
|
| 67,808 |
|
| 4,233,254 |
|
Starbucks Corp. * |
|
| 123,761 |
|
| 2,696,752 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 9,918,640 |
|
|
|
|
|
|
| ||
Household Durables 0.6% |
|
|
|
|
|
|
|
Newell Rubbermaid, Inc. |
|
| 72,692 |
|
| 986,430 |
|
Whirlpool Corp. |
|
| 40,897 |
|
| 3,074,637 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,061,067 |
|
|
|
|
|
|
| ||
Internet & Catalog Retail 0.6% |
|
|
|
|
|
|
|
Amazon.com, Inc. * |
|
| 30,821 |
|
| 3,865,262 |
|
|
|
|
|
|
| ||
Media 2.6% |
|
|
|
|
|
|
|
Comcast Corp., Class A |
|
| 393,984 |
|
| 6,236,767 |
|
Gannett Co., Inc. |
|
| 171,952 |
|
| 2,777,025 |
|
Time Warner Cable, Inc. |
|
| 88,393 |
|
| 3,853,051 |
|
Time Warner, Inc. |
|
| 178,579 |
|
| 4,901,993 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 17,768,836 |
|
|
|
|
|
|
| ||
Multiline Retail 1.9% |
|
|
|
|
|
|
|
Big Lots, Inc. * |
|
| 48,087 |
|
| 1,366,152 |
|
Dollar Tree, Inc. * |
|
| 29,087 |
|
| 1,440,388 |
|
Macy’s, Inc. |
|
| 216,681 |
|
| 3,451,728 |
|
Target Corp. |
|
| 138,633 |
|
| 7,107,714 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,365,982 |
|
|
|
|
|
|
| ||
Specialty Retail 1.7% |
|
|
|
|
|
|
|
AutoZone, Inc. * |
|
| 22,791 |
|
| 3,533,289 |
|
Best Buy Co., Inc. |
|
| 86,590 |
|
| 3,173,523 |
|
Ross Stores, Inc. |
|
| 76,809 |
|
| 3,527,837 |
|
TJX Cos. |
|
| 44,276 |
|
| 1,682,931 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,917,580 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 0.3% |
|
|
|
|
|
|
|
Nike, Inc., Class B |
|
| 30,549 |
|
| 1,947,499 |
|
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
CONSUMER STAPLES 11.3% |
|
|
|
|
|
|
|
Beverages 2.1% |
|
|
|
|
|
|
|
Coca-Cola Co. |
|
| 73,943 |
| $ | 4,011,408 |
|
Coca-Cola Enterprises, Inc. |
|
| 292,766 |
|
| 5,910,946 |
|
Dr. Pepper Snapple Group, Inc. * |
|
| 93,402 |
|
| 2,583,499 |
|
PepsiCo, Inc. |
|
| 30,104 |
|
| 1,794,800 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 14,300,653 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 3.6% |
|
|
|
|
|
|
|
CVS Caremark Corp. |
|
| 195,247 |
|
| 6,320,145 |
|
Kroger Co. |
|
| 126,061 |
|
| 2,701,487 |
|
Safeway, Inc. |
|
| 88,957 |
|
| 1,997,085 |
|
Wal-Mart Stores, Inc. |
|
| 253,809 |
|
| 13,561,015 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 24,579,732 |
|
|
|
|
|
|
| ||
Food Products 1.7% |
|
|
|
|
|
|
|
Archer Daniels Midland Co. |
|
| 183,828 |
|
| 5,509,325 |
|
ConAgra Foods, Inc. |
|
| 98,012 |
|
| 2,228,793 |
|
Del Monte Foods Co. |
|
| 192,762 |
|
| 2,193,632 |
|
Sara Lee Corp. |
|
| 159,718 |
|
| 1,938,976 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,870,726 |
|
|
|
|
|
|
| ||
Household Products 2.2% |
|
|
|
|
|
|
|
Kimberly-Clark Corp. |
|
| 65,696 |
|
| 3,901,686 |
|
Procter & Gamble Co. |
|
| 182,228 |
|
| 11,216,133 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,117,819 |
|
|
|
|
|
|
| ||
Tobacco 1.7% |
|
|
|
|
|
|
|
Altria Group, Inc. |
|
| 190,229 |
|
| 3,777,948 |
|
Philip Morris International, Inc. |
|
| 183,253 |
|
| 8,339,844 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 12,117,792 |
|
|
|
|
|
|
| ||
ENERGY 11.2% |
|
|
|
|
|
|
|
Energy Equipment & Services 1.9% |
|
|
|
|
|
|
|
Atwood Oceanics, Inc. * |
|
| 38,310 |
|
| 1,284,151 |
|
Diamond Offshore Drilling, Inc. ρ |
|
| 14,230 |
|
| 1,302,472 |
|
National Oilwell Varco, Inc. |
|
| 76,742 |
|
| 3,138,748 |
|
Noble Corp. |
|
| 115,062 |
|
| 4,639,300 |
|
Patterson-UTI Energy, Inc. |
|
| 92,920 |
|
| 1,427,251 |
|
Rowan Cos, Inc. * |
|
| 66,347 |
|
| 1,425,134 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,217,056 |
|
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 9.3% |
|
|
|
|
|
|
|
Apache Corp. |
|
| 80,654 |
|
| 7,966,196 |
|
Chevron Corp. |
|
| 204,278 |
|
| 14,732,529 |
|
ConocoPhillips |
|
| 210,394 |
|
| 10,098,912 |
|
El Paso Corp. |
|
| 390,785 |
|
| 3,966,468 |
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
ENERGY continued |
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels continued |
|
|
|
|
|
|
|
Exxon Mobil Corp. |
|
| 358,065 |
| $ | 23,070,128 |
|
Occidental Petroleum Corp. |
|
| 59,731 |
|
| 4,679,326 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 64,513,559 |
|
|
|
|
|
|
| ||
FINANCIALS 14.5% |
|
|
|
|
|
|
|
Capital Markets 3.2% |
|
|
|
|
|
|
|
Ameriprise Financial, Inc. |
|
| 86,504 |
|
| 3,307,913 |
|
Bank of New York Mellon Corp. |
|
| 103,150 |
|
| 3,000,634 |
|
BlackRock, Inc. |
|
| 9,232 |
|
| 1,973,986 |
|
Goldman Sachs Group, Inc. |
|
| 66,659 |
|
| 9,913,526 |
|
State Street Corp. |
|
| 86,615 |
|
| 3,714,051 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 21,910,110 |
|
|
|
|
|
|
| ||
Commercial Banks 3.0% |
|
|
|
|
|
|
|
Bank of Hawaii Corp. |
|
| 24,236 |
|
| 1,102,253 |
|
PNC Financial Services Group, Inc. |
|
| 74,110 |
|
| 4,107,917 |
|
U.S. Bancorp |
|
| 81,405 |
|
| 2,041,638 |
|
Wells Fargo & Co. ° |
|
| 466,400 |
|
| 13,259,752 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 20,511,560 |
|
|
|
|
|
|
| ||
Consumer Finance 0.8% |
|
|
|
|
|
|
|
American Express Co. |
|
| 77,042 |
|
| 2,901,402 |
|
SLM Corp. * |
|
| 256,476 |
|
| 2,700,692 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,602,094 |
|
|
|
|
|
|
| ||
Diversified Financial Services 3.2% |
|
|
|
|
|
|
|
Bank of America Corp. |
|
| 494,917 |
|
| 7,512,840 |
|
JPMorgan Chase & Co. |
|
| 381,866 |
|
| 14,869,862 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 22,382,702 |
|
|
|
|
|
|
| ||
Insurance 3.1% |
|
|
|
|
|
|
|
ACE, Ltd. |
|
| 81,659 |
|
| 4,023,339 |
|
Allied World Assurance Company Holdings, Ltd. |
|
| 49,740 |
|
| 2,226,363 |
|
Chubb Corp. |
|
| 48,935 |
|
| 2,446,750 |
|
Everest Re Group, Ltd. |
|
| 20,603 |
|
| 1,766,501 |
|
Prudential Financial, Inc. |
|
| 33,064 |
|
| 1,652,869 |
|
Reinsurance Group of America, Inc. |
|
| 46,738 |
|
| 2,277,075 |
|
Travelers Companies, Inc. |
|
| 146,823 |
|
| 7,439,522 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 21,832,419 |
|
|
|
|
|
|
| ||
Real Estate Investment Trusts (REITs) 0.7% |
|
|
|
|
|
|
|
Annaly Capital Management, Inc. |
|
| 76,104 |
|
| 1,322,688 |
|
HRPT Properties Trust |
|
| 247,230 |
|
| 1,649,024 |
|
Simon Property Group, Inc. |
|
| 22,220 |
|
| 1,599,840 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,571,552 |
|
|
|
|
|
|
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Thrifts & Mortgage Finance 0.5% |
|
|
|
|
|
|
|
Hudson City Bancorp, Inc. |
|
| 248,342 |
| $ | 3,295,498 |
|
|
|
|
|
|
| ||
HEALTH CARE 13.3% |
|
|
|
|
|
|
|
Biotechnology 1.6% |
|
|
|
|
|
|
|
Amgen, Inc. * |
|
| 143,973 |
|
| 8,419,541 |
|
Biogen Idec, Inc. * |
|
| 53,864 |
|
| 2,894,651 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,314,192 |
|
|
|
|
|
|
| ||
Health Care Equipment & Supplies 1.0% |
|
|
|
|
|
|
|
Baxter International, Inc. |
|
| 55,743 |
|
| 3,210,239 |
|
Medtronic, Inc. |
|
| 84,757 |
|
| 3,635,228 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,845,467 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 3.0% |
|
|
|
|
|
|
|
Health Net, Inc. * |
|
| 77,651 |
|
| 1,883,813 |
|
Humana, Inc. * |
|
| 58,557 |
|
| 2,847,041 |
|
McKesson Corp. |
|
| 67,569 |
|
| 3,974,409 |
|
UnitedHealth Group, Inc. |
|
| 144,117 |
|
| 4,755,861 |
|
WellPoint, Inc. * |
|
| 114,068 |
|
| 7,268,413 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 20,729,537 |
|
|
|
|
|
|
| ||
Life Sciences Tools & Services 0.5% |
|
|
|
|
|
|
|
Thermo Fisher Scientific, Inc. * |
|
| 68,524 |
|
| 3,162,383 |
|
|
|
|
|
|
| ||
Pharmaceuticals 7.2% |
|
|
|
|
|
|
|
Abbott Laboratories |
|
| 73,400 |
|
| 3,885,796 |
|
Eli Lilly & Co. |
|
| 203,703 |
|
| 7,170,346 |
|
Johnson & Johnson |
|
| 254,270 |
|
| 15,983,413 |
|
Merck & Co., Inc. |
|
| 222,366 |
|
| 8,489,934 |
|
Pfizer, Inc. |
|
| 775,866 |
|
| 14,477,659 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 50,007,148 |
|
|
|
|
|
|
| ||
INDUSTRIALS 9.9% |
|
|
|
|
|
|
|
Aerospace & Defense 4.0% |
|
|
|
|
|
|
|
General Dynamics Corp. |
|
| 91,111 |
|
| 6,090,770 |
|
L-3 Communications Holdings, Inc. |
|
| 55,299 |
|
| 4,608,619 |
|
Lockheed Martin Corp. |
|
| 26,686 |
|
| 1,988,641 |
|
Northrop Grumman Corp. |
|
| 119,174 |
|
| 6,745,248 |
|
Raytheon Co. |
|
| 77,469 |
|
| 4,061,700 |
|
United Technologies Corp. |
|
| 60,757 |
|
| 4,099,882 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 27,594,860 |
|
|
|
|
|
|
| ||
Air Freight & Logistics 1.7% |
|
|
|
|
|
|
|
FedEx Corp. |
|
| 70,982 |
|
| 5,561,440 |
|
United Parcel Service, Inc., Class B |
|
| 107,033 |
|
| 6,183,296 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,744,736 |
|
|
|
|
|
|
|
See Notes to Financial Statements
16
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INDUSTRIALS continued |
|
|
|
|
|
|
|
Airlines 0.3% |
|
|
|
|
|
|
|
Southwest Airlines Co. |
|
| 195,187 |
| $ | 2,211,469 |
|
|
|
|
|
|
| ||
Commercial Services & Supplies 0.2% |
|
|
|
|
|
|
|
R.R. Donnelley & Sons Co. |
|
| 81,014 |
|
| 1,605,697 |
|
|
|
|
|
|
| ||
Construction & Engineering 0.5% |
|
|
|
|
|
|
|
Fluor Corp. |
|
| 66,646 |
|
| 3,021,730 |
|
KBR, Inc. |
|
| 2,466 |
|
| 46,188 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 3,067,918 |
|
|
|
|
|
|
| ||
Industrial Conglomerates 1.8% |
|
|
|
|
|
|
|
General Electric Co. |
|
| 630,952 |
|
| 10,145,708 |
|
Tyco International, Ltd. |
|
| 62,051 |
|
| 2,198,467 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 12,344,175 |
|
|
|
|
|
|
| ||
Machinery 0.8% |
|
|
|
|
|
|
|
Caterpillar, Inc. |
|
| 58,915 |
|
| 3,077,720 |
|
Parker Hannifin Corp. |
|
| 43,125 |
|
| 2,411,119 |
|
Timken Co. |
|
| 11,845 |
|
| 265,446 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,754,285 |
|
|
|
|
|
|
| ||
Road & Rail 0.6% |
|
|
|
|
|
|
|
Hertz Global Holdings, Inc. * ρ |
|
| 138,030 |
|
| 1,429,991 |
|
Norfolk Southern Corp. |
|
| 33,423 |
|
| 1,572,886 |
|
Ryder System, Inc. |
|
| 38,552 |
|
| 1,403,293 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 4,406,170 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 19.0% |
|
|
|
|
|
|
|
Communications Equipment 1.6% |
|
|
|
|
|
|
|
Cisco Systems, Inc. * |
|
| 308,908 |
|
| 6,941,163 |
|
Harris Corp. |
|
| 40,783 |
|
| 1,750,406 |
|
QUALCOMM, Inc. |
|
| 58,798 |
|
| 2,304,294 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 10,995,863 |
|
|
|
|
|
|
| ||
Computers & Peripherals 6.2% |
|
|
|
|
|
|
|
Apple, Inc. * |
|
| 49,897 |
|
| 9,586,212 |
|
Hewlett-Packard Co. |
|
| 221,150 |
|
| 10,409,530 |
|
International Business Machines Corp. |
|
| 139,084 |
|
| 17,022,491 |
|
Seagate Technology, Inc. |
|
| 164,261 |
|
| 2,748,086 |
|
Western Digital Corp. * |
|
| 83,445 |
|
| 3,170,076 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 42,936,395 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 1.1% |
|
|
|
|
|
|
|
Avnet, Inc. * |
|
| 98,869 |
|
| 2,614,097 |
|
Flextronics International, Ltd. * |
|
| 357,977 |
|
| 2,269,574 |
|
Ingram Micro, Inc., Class A * |
|
| 69,749 |
|
| 1,178,758 |
|
Tech Data Corp. * |
|
| 38,329 |
|
| 1,561,907 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 7,624,336 |
|
|
|
|
|
|
|
See Notes to Financial Statements
17
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
Internet Software & Services 1.4% |
|
|
|
|
|
|
|
Google, Inc., Class A * |
|
| 18,305 |
| $ | 9,691,033 |
|
|
|
|
|
|
| ||
IT Services 1.7% |
|
|
|
|
|
|
|
Alliance Data Systems Corp. * ρ |
|
| 31,439 |
|
| 1,869,363 |
|
Amdocs, Ltd. * |
|
| 64,510 |
|
| 1,844,341 |
|
Computer Sciences Corp. * |
|
| 62,489 |
|
| 3,205,686 |
|
Convergys Corp. * |
|
| 172,354 |
|
| 1,844,188 |
|
Hewitt Associates, Inc., Class A * |
|
| 54,817 |
|
| 2,164,175 |
|
SAIC, Inc. * |
|
| 69,323 |
|
| 1,270,690 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 12,198,443 |
|
|
|
|
|
|
| ||
Office Electronics 0.2% |
|
|
|
|
|
|
|
Xerox Corp. |
|
| 180,957 |
|
| 1,577,945 |
|
|
|
|
|
|
| ||
Semiconductors & Semiconductor Equipment 2.9% |
|
|
|
|
|
|
|
Intel Corp. |
|
| 545,868 |
|
| 10,589,839 |
|
Marvell Technology Group, Ltd. * |
|
| 107,761 |
|
| 1,878,274 |
|
Micron Technology, Inc. * |
|
| 147,753 |
|
| 1,288,406 |
|
Texas Instruments, Inc. |
|
| 274,757 |
|
| 6,182,033 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,938,552 |
|
|
|
|
|
|
| ||
Software 3.9% |
|
|
|
|
|
|
|
Microsoft Corp. |
|
| 449,412 |
|
| 12,664,430 |
|
Oracle Corp. * |
|
| 476,336 |
|
| 10,984,308 |
|
Symantec Corp. * |
|
| 183,742 |
|
| 3,114,427 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 26,763,165 |
|
|
|
|
|
|
| ||
MATERIALS 3.8% |
|
|
|
|
|
|
|
Chemicals 2.2% |
|
|
|
|
|
|
|
Cabot Corp. |
|
| 68,746 |
|
| 1,772,272 |
|
Dow Chemical Co. |
|
| 103,368 |
|
| 2,800,239 |
|
Eastman Chemical Co. |
|
| 77,970 |
|
| 4,407,644 |
|
Lubrizol Corp. |
|
| 63,819 |
|
| 4,702,822 |
|
Nalco Holding Co. |
|
| 48,409 |
|
| 1,141,484 |
|
Valspar Corp. |
|
| 17,231 |
|
| 456,277 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 15,280,738 |
|
|
|
|
|
|
| ||
Metals & Mining 0.9% |
|
|
|
|
|
|
|
Alcoa, Inc. |
|
| 180,272 |
|
| 2,294,863 |
|
Freeport-McMoRan Copper & Gold, Inc. * |
|
| 40,970 |
|
| 2,732,289 |
|
Reliance Steel & Aluminum Co. |
|
| 35,436 |
|
| 1,443,663 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 6,470,815 |
|
|
|
|
|
|
| ||
Paper & Forest Products 0.7% |
|
|
|
|
|
|
|
International Paper Co. |
|
| 202,565 |
|
| 4,640,764 |
|
|
|
|
|
|
|
See Notes to Financial Statements
18
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
| Shares |
|
| Value |
|
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
TELECOMMUNICATION SERVICES 2.9% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 2.9% |
|
|
|
|
|
|
|
AT&T, Inc. |
|
| 547,018 |
| $ | 13,872,377 |
|
Qwest Communications International, Inc. |
|
| 278,686 |
|
| 1,173,268 |
|
Verizon Communications, Inc. |
|
| 160,069 |
|
| 4,709,230 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 19,754,875 |
|
|
|
|
|
|
| ||
UTILITIES 3.2% |
|
|
|
|
|
|
|
Electric Utilities 0.9% |
|
|
|
|
|
|
|
Entergy Corp. |
|
| 19,462 |
|
| 1,485,145 |
|
Mirant Corp. * |
|
| 131,552 |
|
| 1,850,937 |
|
Pinnacle West Capital Corp. |
|
| 72,660 |
|
| 2,602,681 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 5,938,763 |
|
|
|
|
|
|
| ||
Gas Utilities 0.1% |
|
|
|
|
|
|
|
UGI Corp. |
|
| 26,080 |
|
| 639,221 |
|
|
|
|
|
|
| ||
Independent Power Producers & Energy Traders 0.5% |
|
|
|
|
|
|
|
Constellation Energy Group, Inc. |
|
| 118,072 |
|
| 3,811,364 |
|
|
|
|
|
|
| ||
Multi-Utilities 1.7% |
|
|
|
|
|
|
|
CMS Energy Corp. |
|
| 187,786 |
|
| 2,848,713 |
|
DTE Energy Co. |
|
| 63,950 |
|
| 2,688,458 |
|
NiSource, Inc. |
|
| 261,967 |
|
| 3,733,030 |
|
Public Service Enterprise Group, Inc. |
|
| 77,881 |
|
| 2,382,380 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,652,581 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $529,167,864) |
|
|
|
|
| 685,332,911 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
|
| Principal |
|
|
|
|
|
|
| Amount |
|
| Value |
|
| |||||||
U.S. TREASURY OBLIGATIONS 0.2% |
|
|
|
|
|
|
|
U.S. Treasury Bills: |
|
|
|
|
|
|
|
0.05%, 03/04/2010 ƒ ß |
| $ | 1,000,000 |
|
| 999,983 |
|
0.06%, 04/08/2010 ƒ ß |
|
| 500,000 |
|
| 499,945 |
|
|
|
|
|
|
| ||
Total U.S. Treasury Obligations (cost $1,499,831) |
|
|
|
|
| 1,499,928 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| |||||||
|
|
| Shares |
|
| Value |
|
| |||||||
SHORT-TERM INVESTMENTS 1.5% |
|
|
|
|
|
|
|
MUTUAL FUND SHARES 1.5% |
|
|
|
|
|
|
|
BlackRock Liquidity TempFund, Institutional Class, 0.10% q ρρ |
|
| 2,237,999 |
|
| 2,237,999 |
|
Evergreen Institutional Money Market Fund, Class I, 0.01% q ø ρρ |
|
| 5,761,648 |
|
| 5,761,648 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.13% q ρρ |
|
| 2,220,413 |
|
| 2,220,413 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $10,220,060) |
|
|
|
|
| 10,220,060 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 11,719,988 |
|
|
|
|
|
|
|
See Notes to Financial Statements
19
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
|
|
|
|
| Value |
|
| |||||||
|
|
|
|
|
|
|
|
Total Investments (cost $540,887,755) 100.8% |
|
|
|
| $ | 697,052,899 |
|
Other Assets and Liabilities (0.8%) |
|
|
|
|
| (5,592,874) |
|
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 691,460,025 |
|
|
|
|
|
|
|
* | Non-income producing security |
ρ | All or a portion of this security is on loan. |
° | Security represents an investment in a non-controlled affiliate. At January 31, 2010, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $16,601,499 and earned $51,376 of income for the six months ended January 31, 2010 which is included in income from affiliated issuers. |
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, 2010:
Information Technology |
| 19.3 | % |
Financials |
| 14.6 | % |
Health Care |
| 13.4 | % |
Consumer Staples |
| 11.4 | % |
Energy |
| 11.3 | % |
Consumer Discretionary |
| 10.0 | % |
Industrials |
| 10.0 | % |
Materials |
| 3.9 | % |
Utilities |
| 3.2 | % |
Telecommunication Services |
| 2.9 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
20
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $518,524,608) including $4,462,830 of securities loaned |
| $ | 678,031,499 |
|
Investments in affiliated issuers, at value (cost $22,363,147) |
|
| 19,021,400 |
|
| ||||
Total investments |
|
| 697,052,899 |
|
Receivable for securities sold |
|
| 38,498,876 |
|
Dividends receivable |
|
| 805,196 |
|
Receivable for Fund shares sold |
|
| 74,776 |
|
Receivable for securities lending income |
|
| 402 |
|
Prepaid expenses and other assets |
|
| 82,987 |
|
| ||||
Total assets |
|
| 736,515,136 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 39,313,392 |
|
Payable for Fund shares redeemed |
|
| 700,643 |
|
Payable for securities on loan |
|
| 4,809,408 |
|
Payable for daily variation margin on open futures contracts |
|
| 49,114 |
|
Due to custodian bank |
|
| 8,628 |
|
Advisory fee payable |
|
| 8,652 |
|
Distribution Plan expenses payable |
|
| 7,220 |
|
Due to other related parties |
|
| 5,245 |
|
Accrued expenses and other liabilities |
|
| 152,809 |
|
| ||||
Total liabilities |
|
| 45,055,111 |
|
| ||||
Net assets |
| $ | 691,460,025 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 701,309,523 |
|
Undistributed net investment income |
|
| 425,645 |
|
Accumulated net realized losses on investments |
|
| (166,354,882 | ) |
Net unrealized gains on investments |
|
| 156,079,739 |
|
| ||||
Total net assets |
| $ | 691,460,025 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 239,639,592 |
|
Class B |
|
| 5,833,050 |
|
Class C |
|
| 12,462,917 |
|
Class I |
|
| 398,929,076 |
|
Class IS |
|
| 34,595,390 |
|
| ||||
Total net assets |
| $ | 691,460,025 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 20,411,660 |
|
Class B |
|
| 523,929 |
|
Class C |
|
| 1,097,209 |
|
Class I |
|
| 33,785,541 |
|
Class IS |
|
| 2,944,705 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 11.74 |
|
Class A — Offering price (based on sales charge of 4.75%) |
| $ | 12.33 |
|
Class B |
| $ | 11.13 |
|
Class C |
| $ | 11.36 |
|
Class I |
| $ | 11.81 |
|
Class IS |
| $ | 11.75 |
|
|
See Notes to Financial Statements
21
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 7,656,105 |
|
Securities lending |
|
| 61,424 |
|
Income from affiliated issuers |
|
| 54,781 |
|
Interest |
|
| 480 |
|
| ||||
Total investment income |
|
| 7,772,790 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 946,466 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 310,738 |
|
Class B |
|
| 31,628 |
|
Class C |
|
| 62,533 |
|
Class IS |
|
| 43,983 |
|
Administrative services fee |
|
| 373,484 |
|
Transfer agent fees |
|
| 449,915 |
|
Trustees’ fees and expenses |
|
| 7,725 |
|
Printing and postage expenses |
|
| 56,876 |
|
Custodian and accounting fees |
|
| 89,359 |
|
Registration and filing fees |
|
| 39,384 |
|
Professional fees |
|
| 39,179 |
|
Other |
|
| 52,193 |
|
| ||||
Total expenses |
|
| 2,503,463 |
|
Less: Expense reductions |
|
| (76 | ) |
| ||||
Net expenses |
|
| 2,503,387 |
|
| ||||
Net investment income |
|
| 5,269,403 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 33,604,590 |
|
Affiliated issuers |
|
| (583,144 | ) |
Futures contracts |
|
| 1,238,927 |
|
| ||||
Net realized gains on investments |
|
| 34,260,373 |
|
| ||||
Net change in unrealized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 25,960,160 |
|
Affiliated issuers |
|
| 2,704,292 |
|
Futures contracts |
|
| (603,917 | ) |
| ||||
Net change in unrealized gains or losses on investments |
|
| 28,060,535 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
| 62,320,908 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 67,590,311 |
|
|
See Notes to Financial Statements
22
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||||
| |||||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
| $ | 5,269,403 |
| $ |
|
|
| 16,446,518 |
|
Net realized gains or losses on investments |
|
|
|
|
| 34,260,373 |
|
|
|
|
| (145,832,952 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
|
| 28,060,535 |
|
|
|
|
| (142,409,989 | ) |
| |||||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
|
| 67,590,311 |
|
|
|
|
| (271,796,423 | ) |
| |||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| (1,595,753 | ) |
|
|
|
| (4,021,742 | ) |
Class B |
|
|
|
|
| (16,924 | ) |
|
|
|
| (63,294 | ) |
Class C |
|
|
|
|
| (34,601 | ) |
|
|
|
| (91,006 | ) |
Class I |
|
|
|
|
| (3,497,029 | ) |
|
|
|
| (11,006,650 | ) |
Class IS |
|
|
|
|
| (225,836 | ) |
|
|
|
| (565,727 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
| 0 |
|
|
|
|
| (9,171,367 | ) |
Class B |
|
|
|
|
| 0 |
|
|
|
|
| (307,953 | ) |
Class C |
|
|
|
|
| 0 |
|
|
|
|
| (360,597 | ) |
Class I |
|
|
|
|
| 0 |
|
|
|
|
| (22,526,507 | ) |
Class IS |
|
|
|
|
| 0 |
|
|
|
|
| (1,299,464 | ) |
| |||||||||||||
Total distributions to shareholders |
|
|
|
|
| (5,370,143 | ) |
|
|
|
| (49,414,307 | ) |
| |||||||||||||
|
|
| Shares |
|
|
|
|
| Shares |
|
|
|
|
| |||||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 350,054 |
|
| 4,075,868 |
|
| 3,646,998 |
|
| 36,448,592 |
|
Class B |
|
| 7,659 |
|
| 86,687 |
|
| 150,880 |
|
| 1,473,843 |
|
Class C |
|
| 128,229 |
|
| 1,455,495 |
|
| 745,521 |
|
| 7,161,681 |
|
Class I |
|
| 1,024,604 |
|
| 12,246,289 |
|
| 7,041,460 |
|
| 71,334,572 |
|
Class IS |
|
| 10,173 |
|
| 118,200 |
|
| 42,640 |
|
| 448,010 |
|
| |||||||||||||
|
|
|
|
|
| 17,982,539 |
|
|
|
|
| 116,866,698 |
|
| |||||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 124,551 |
|
| 1,463,297 |
|
| 1,267,157 |
|
| 12,302,538 |
|
Class B |
|
| 1,265 |
|
| 14,116 |
|
| 35,935 |
|
| 325,920 |
|
Class C |
|
| 1,609 |
|
| 18,347 |
|
| 26,593 |
|
| 245,367 |
|
Class I |
|
| 108,083 |
|
| 1,271,297 |
|
| 1,475,469 |
|
| 14,425,721 |
|
Class IS |
|
| 16,539 |
|
| 194,415 |
|
| 169,248 |
|
| 1,641,897 |
|
| |||||||||||||
|
|
|
|
|
| 2,961,472 |
|
|
|
|
| 28,941,443 |
|
| |||||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| 38,474 |
|
| 440,748 |
|
| 177,363 |
|
| 1,894,471 |
|
Class B |
|
| (40,551 | ) |
| (440,748 | ) |
| (186,946 | ) |
| (1,894,471 | ) |
| |||||||||||||
|
|
|
|
|
| 0 |
|
|
|
|
| 0 |
|
| |||||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
| (2,495,198 | ) |
| (29,045,133 | ) |
| (6,891,879 | ) |
| (72,919,793 | ) |
Class B |
|
| (84,211 | ) |
| (940,678 | ) |
| (232,538 | ) |
| (2,277,176 | ) |
Class C |
|
| (124,065 | ) |
| (1,410,178 | ) |
| (427,128 | ) |
| (4,071,684 | ) |
Class I |
|
| (11,743,565 | ) |
| (137,559,462 | ) |
| (29,192,887 | ) |
| (322,393,952 | ) |
Class IS |
|
| (162,013 | ) |
| (1,890,769 | ) |
| (541,586 | ) |
| (5,723,454 | ) |
| |||||||||||||
|
|
|
|
|
| (170,846,220 | ) |
|
|
|
| (407,386,059 | ) |
|
See Notes to Financial Statements
23
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 |
|
|
|
| $ | (149,902,209 | ) |
|
|
| $ | (261,577,918 | ) |
| |||||||||||||
Total decrease in net assets |
|
|
|
|
| (87,682,041 | ) |
|
|
|
| (582,788,648 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
|
| 779,142,066 |
|
|
|
|
| 1,361,930,714 | ) |
| |||||||||||||
End of period |
|
|
|
| $ | 691,460,025 |
|
|
|
| $ | 779,142,066 |
|
| |||||||||||||
Undistributed net investment income |
|
|
|
| $ | 425,645 |
|
|
|
| $ | 526,385 |
|
|
See Notes to Financial Statements
24
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Enhanced S&P 500® 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 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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices.
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 estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
b. Futures contracts
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against changes in, security values. 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. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
c. 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. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
d. 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. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectibility of interest is reasonably assured, the debt obligation is removed from non-accrual status. 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.
e. 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.
f. 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.
g. 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, 2010, the advisory fee was equivalent to an annual rate of 0.25% of the Fund’s average daily net assets.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers 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
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
six months ended January 31, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.12% 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).
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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, 2010, EIS received $2,061 from the sale of Class A shares and $5,162 and $235 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 $205,442,606 and $353,905,314, respectively, for the six months ended January 31, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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) |
28
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 685,332,911 |
| $ | 0 |
| $ | 0 |
| $ | 685,332,911 |
|
Debt securities issued by U.S. Treasury and U.S. government agencies |
|
| 1,499,928 |
|
| 0 |
|
| 0 |
|
| 1,499,928 |
|
Short-term investments |
|
| 10,220,060 |
|
| 0 |
|
| 0 |
|
| 10,220,060 |
|
| |||||||||||||
|
| $ | 697,052,899 |
| $ | 0 |
| $ | 0 |
| $ | 697,052,899 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
As of January 31, 2010, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:
|
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Other financial instruments* |
| $(85,405) |
| $ | 0 |
| $ | 0 |
| $(85,405) |
| ||
|
* | Other financial instruments includes futures contracts. |
During the six months ended January 31, 2010, the Fund loaned securities to certain brokers and earned $61,424, net of $6,778 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2010, the value of securities on loan and the total value of collateral received for securities loaned amounted to $4,462,830 and $4,809,408, respectively.
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $543,330,554. The gross unrealized appreciation and depreciation on securities based on tax cost was $178,701,378 and $24,979,033, respectively, with a net unrealized appreciation of $153,722,345.
As of July 31, 2009, the Fund had $64,440,949 in capital loss carryovers for federal income tax purposes with $52,454,800 expiring in 2010 and $11,986,149 expiring in 2017. These losses are subject to certain limitations prescribed by the Internal Revenue Code.
29
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, 2009, the Fund incurred and elected to defer post-October losses of $133,271,737.
6. DERIVATIVE TRANSACTIONS
During the six months ended January 31, 2010, the Fund entered into futures contracts for speculative purposes.
At January 31, 2010, the Fund had long futures contracts outstanding as follows:
Expiration | Contracts | Initial | Value at | Unrealized |
March 2010 | 24 S&P 500 Index Futures | $6,507,805 | $6,422,400 | $(85,405) |
On January 31, 2010, the cumulative depreciation on futures contracts in the amount of $85,405 is reflected in net unrealized gains on investments on the Statement of Assets and Liabilities. The payable for daily variation margin on open futures contracts only represents the current day’s variation margin. The realized gains and change in unrealized gains or losses on futures contracts are reflected in the Statement of Operations.
The Fund had an average contract amount of $10,642,868 in futures contracts during the six months ended January 31, 2010.
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, 2010, 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.
30
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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2010, 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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV , certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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
31
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
12. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlem ents in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
13. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Disciplined U.S. Core Fund, which will be a series of Wells Fargo Funds Trust created in order to receive the assets of the Fund upon completion of the reorganization, will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Disciplined U.S. Core Fund.
A special meeting of shareholders of the Fund will be held in June 2010 to consider and vote on the Plan. In April 2010, materials for this meeting will be mailed to shareholders of record on March 10, 2010. If approved by the shareholders at this meeting, the reorganization will take place in July 2010.
32
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
14. SUBSEQUENT DISTRIBUTIONS
On March 11, 2010, the Fund declared distributions from net investment income to shareholders of record on March 10, 2010. The per share amounts payable on March 12, 2010 were as follows:
|
| Net |
Class A |
| $0.0395 |
Class B |
| 0.0156 |
Class C |
| 0.0156 |
Class I |
| 0.0475 |
Class IS |
| 0.0394 |
These distributions are not reflected in the accompanying financial statements.
33
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the
34
ADDITIONAL INFORMATION (unaudited) continued
information that EIMC and Keil provided. In addition, the Trustees considered information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
35
ADDITIONAL INFORMATION (unaudited) continued
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 met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the 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 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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.
36
ADDITIONAL INFORMATION (unaudited) continued
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 fees 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. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and b rokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors 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 them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 the in-house research
37
ADDITIONAL INFORMATION (unaudited) continued
capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties.
The Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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. They determined that the nature and scope of the services provided by EIMC were consistent with EIMC’s duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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-, five-, and ten-year periods ended December 31, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the S&P 500® Index, and had performed in the second 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 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.
38
ADDITIONAL INFORMATION (unaudited) continued
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 a majority of the 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
39
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
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TRUSTEES AND OFFICERS continued
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: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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.
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120961 569843 rv6 03/2010
Evergreen Equity Income Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
7 |
| ABOUT YOUR FUND’S EXPENSES |
8 |
| FINANCIAL HIGHLIGHTS |
13 |
| 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 |
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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
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, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
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LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, the management team 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 Enhanced S&P 500® Fund used a quantitative investment approach to identify companies with favorable investment characteristics in the areas of valuation, investor sentiment, and quality. 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 incre ase 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors, staying focused on a long-term strategy based on individual goals and risk tolerance can
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LETTER TO SHAREHOLDERS continued
help avoid missing potential periods of strong recovery.
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
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 12/31/2009.
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 | 2.70% | 3.54% | 7.57% | N/A | N/A |
6-month return w/o sales charge | 8.97% | 8.54% | 8.57% | 9.03% | 8.81% |
Average annual return* |
|
|
|
|
|
1-year with sales charge | 27.96% | 29.78% | 33.78% | N/A | N/A |
1-year w/o sales charge | 35.77% | 34.78% | 34.78% | 36.02% | 35.43% |
5-year | -0.94% | -0.79% | -0.49% | 0.51% | 0.00% |
10-year | 1.98% | 1.84% | 1.84% | 2.86% | 2.53% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
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.
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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.
The returns shown for Class B shares do not reflect the conversion of Class B shares to Class A shares after eight years.
Class B shares are closed to new investments by new and existing shareholders.
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, 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.
5
FUND AT A GLANCE continued
This section left intentionally blank
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, 2010, and subject to change.
6
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, 2009 to January 31, 2010.
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 |
| 8/1/2009 | 1/31/2010 | During Period* |
Actual |
|
|
|
Class A | $1,000.00 | $1,089.66 | $ 6.53 |
Class B | $1,000.00 | $1,085.43 | $10.46 |
Class C | $1,000.00 | $1,085.67 | $10.46 |
Class I | $1,000.00 | $1,090.32 | $ 5.22 |
Class R | $1,000.00 | $1,088.13 | $ 7.95 |
Hypothetical |
|
|
|
(5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,018.95 | $ 6.31 |
Class B | $1,000.00 | $1,015.17 | $10.11 |
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 | $1,017.59 | $ 7.68 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.24% for Class A, 1.99% for Class B, 1.99% for Class C, 0.99% for Class I and 1.51% for Class R), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS A |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 15.27 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.05 |
|
| 0.21 |
|
| 0.29 |
|
| 0.36 |
|
| 0.44 |
|
| 0.35 |
|
Net realized and unrealized gains or losses on investments |
|
| 1.32 |
|
| (3.30 | ) |
| (3.25 | ) |
| 2.70 |
|
| 1.01 |
|
| 3.40 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 1.37 |
|
| (3.09 | ) |
| (2.96 | ) |
| 3.06 |
|
| 1.45 |
|
| 3.75 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.05 | ) |
| (0.21 | ) |
| (0.28 | ) |
| (0.49 | ) |
| (0.30 | ) |
| (0.33 | ) |
Net realized gains |
|
| 0 |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.05 | ) |
| (0.53 | ) |
| (2.13 | ) |
| (3.24 | ) |
| (1.37 | ) |
| (1.10 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.59 |
| $ | 15.27 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
|
| |||||||||||||||||||
Total return1 |
|
| 8.97 | % |
| (15.85 | )% |
| (13.46 | )% |
| 13.55 | % |
| 6.40 | % |
| 17.85 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 206,597 |
| $ | 203,472 |
| $ | 287,236 |
| $ | 404,494 |
| $ | 420,757 |
| $ | 494,637 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.24 | %2 |
| 1.28 | % |
| 1.15 | % |
| 1.18 | % |
| 1.21 | % |
| 1.19 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.24 | %2 |
| 1.28 | % |
| 1.18 | % |
| 1.19 | % |
| 1.21 | % |
| 1.23 | % |
Net investment income |
|
| 0.60 | %2 |
| 1.47 | % |
| 1.35 | % |
| 1.49 | % |
| 1.80 | % |
| 1.56 | % |
Portfolio turnover rate |
|
| 8 | % |
| 19 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
|
1 | Excluding applicable sales charges |
2 | Annualized |
See Notes to Financial Statements
8
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS B |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 15.12 |
| $ | 18.71 |
| $ | 23.77 |
| $ | 23.96 |
| $ | 23.88 |
| $ | 21.26 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.01 | )1 |
| 0.11 | 1 |
| 0.13 | 1 |
| 0.19 | 1 |
| 0.25 | 1 |
| 0.20 | 1 |
Net realized and unrealized gains or losses on investments |
|
| 1.30 |
|
| (3.28 | ) |
| (3.23 | ) |
| 2.69 |
|
| 1.02 |
|
| 3.35 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 1.29 |
|
| (3.17 | ) |
| (3.10 | ) |
| 2.88 |
|
| 1.27 |
|
| 3.55 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0 | 2 |
| (0.10 | ) |
| (0.11 | ) |
| (0.32 | ) |
| (0.12 | ) |
| (0.16 | ) |
Net realized gains |
|
| 0 |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| 0 |
|
| (0.42 | ) |
| (1.96 | ) |
| (3.07 | ) |
| (1.19 | ) |
| (0.93 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.41 |
| $ | 15.12 |
| $ | 18.71 |
| $ | 23.77 |
| $ | 23.96 |
| $ | 23.88 |
|
| |||||||||||||||||||
Total return3 |
|
| 8.54 | % |
| (16.47 | )% |
| (14.10 | )% |
| 12.76 | % |
| 5.66 | % |
| 16.97 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 10,701 |
| $ | 12,186 |
| $ | 27,550 |
| $ | 48,897 |
| $ | 60,111 |
| $ | 85,366 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.99 | %4 |
| 2.02 | % |
| 1.89 | % |
| 1.89 | % |
| 1.91 | % |
| 1.89 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.99 | %4 |
| 2.02 | % |
| 1.89 | % |
| 1.89 | % |
| 1.91 | % |
| 1.93 | % |
Net investment income (loss) |
|
| (0.13 | )%4 |
| 0.79 | % |
| 0.61 | % |
| 0.78 | % |
| 1.05 | % |
| 0.89 | % |
Portfolio turnover rate |
|
| 8 | % |
| 19 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
|
1 | Per share amount 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
9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS C |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 15.08 |
| $ | 18.67 |
| $ | 23.72 |
| $ | 23.92 |
| $ | 23.85 |
| $ | 21.23 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.02 | ) |
| 0.09 |
|
| 0.13 | 1 |
| 0.19 | 1 |
| 0.25 | 1 |
| 0.20 | 1 |
Net realized and unrealized gains or losses on investments |
|
| 1.31 |
|
| (3.26 | ) |
| (3.22 | ) |
| 2.68 |
|
| 1.02 |
|
| 3.35 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 1.29 |
|
| (3.17 | ) |
| (3.09 | ) |
| 2.87 |
|
| 1.27 |
|
| 3.55 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0 | 2 |
| (0.10 | ) |
| (0.11 | ) |
| (0.32 | ) |
| (0.13 | ) |
| (0.16 | ) |
Net realized gains |
|
| 0 |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| 0 |
|
| (0.42 | ) |
| (1.96 | ) |
| (3.07 | ) |
| (1.20 | ) |
| (0.93 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.37 |
| $ | 15.08 |
| $ | 18.67 |
| $ | 23.72 |
| $ | 23.92 |
| $ | 23.85 |
|
| |||||||||||||||||||
Total return3 |
|
| 8.57 | % |
| (16.49 | )% |
| (14.07 | )% |
| 12.74 | % |
| 5.64 | % |
| 17.02 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 12,145 |
| $ | 12,354 |
| $ | 17,571 |
| $ | 27,901 |
| $ | 28,739 |
| $ | 37,607 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.99 | %4 |
| 2.03 | % |
| 1.90 | % |
| 1.89 | % |
| 1.91 | % |
| 1.89 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.99 | %4 |
| 2.03 | % |
| 1.90 | % |
| 1.89 | % |
| 1.91 | % |
| 1.93 | % |
Net investment income (loss) |
|
| (0.15 | )%4 |
| 0.73 | % |
| 0.61 | % |
| 0.78 | % |
| 1.08 | % |
| 0.87 | % |
Portfolio turnover rate |
|
| 8 | % |
| 19 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
|
1 | Per share amount 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
10
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS I |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 15.27 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
| $ | 21.43 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.07 |
|
| 0.25 |
|
| 0.35 |
|
| 0.42 |
|
| 0.51 |
|
| 0.43 |
|
Net realized and unrealized gains or losses on investments |
|
| 1.31 |
|
| (3.31 | ) |
| (3.26 | ) |
| 2.72 |
|
| 1.01 |
|
| 3.39 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 1.38 |
|
| (3.06 | ) |
| (2.91 | ) |
| 3.14 |
|
| 1.52 |
|
| 3.82 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.07 | ) |
| (0.24 | ) |
| (0.33 | ) |
| (0.57 | ) |
| (0.37 | ) |
| (0.40 | ) |
Net realized gains |
|
| 0 |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.07 | ) |
| (0.56 | ) |
| (2.18 | ) |
| (3.32 | ) |
| (1.44 | ) |
| (1.17 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.58 |
| $ | 15.27 |
| $ | 18.89 |
| $ | 23.98 |
| $ | 24.16 |
| $ | 24.08 |
|
| |||||||||||||||||||
Total return |
|
| 9.03 | % |
| (15.63 | )% |
| (13.18 | )% |
| 13.84 | % |
| 6.72 | % |
| 18.19 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 403 |
| $ | 385 |
| $ | 502 |
| $ | 642 |
| $ | 616 |
| $ | 640 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 0.99 | %1 |
| 1.03 | % |
| 0.90 | % |
| 0.89 | % |
| 0.92 | % |
| 0.89 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 0.99 | %1 |
| 1.03 | % |
| 0.90 | % |
| 0.89 | % |
| 0.92 | % |
| 0.93 | % |
Net investment income |
|
| 0.85 | %1 |
| 1.72 | % |
| 1.61 | % |
| 1.78 | % |
| 2.12 | % |
| 1.87 | % |
Portfolio turnover rate |
|
| 8 | % |
| 19 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
|
1 | Annualized |
See Notes to Financial Statements
11
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months Ended |
| Year Ended July 31, |
| ||||||||||||||
|
|
|
| ||||||||||||||||
CLASS R |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 15.32 |
| $ | 18.92 |
| $ | 24.02 |
| $ | 24.19 |
| $ | 24.10 |
| $ | 21.42 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0 | 1 |
| 0.16 | 1 |
| 0.21 |
|
| 0.30 |
|
| 0.34 |
|
| 0.24 |
|
Net realized and unrealized gains or losses on investments |
|
| 1.35 |
|
| (3.30 | ) |
| (3.23 | ) |
| 2.73 |
|
| 1.06 |
|
| 3.44 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 1.35 |
|
| (3.14 | ) |
| (3.02 | ) |
| 3.03 |
|
| 1.40 |
|
| 3.68 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.04 | ) |
| (0.14 | ) |
| (0.23 | ) |
| (0.45 | ) |
| (0.24 | ) |
| (0.23 | ) |
Net realized gains |
|
| 0 |
|
| (0.32 | ) |
| (1.85 | ) |
| (2.75 | ) |
| (1.07 | ) |
| (0.77 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.04 | ) |
| (0.46 | ) |
| (2.08 | ) |
| (3.20 | ) |
| (1.31 | ) |
| (1.00 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 16.63 |
| $ | 15.32 |
| $ | 18.92 |
| $ | 24.02 |
| $ | 24.19 |
| $ | 24.10 |
|
| |||||||||||||||||||
Total return |
|
| 8.81 | % |
| (16.05 | )% |
| (13.64 | )% |
| 13.30 | % |
| 6.19 | % |
| 17.46 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 147 |
| $ | 19 |
| $ | 50 |
| $ | 103 |
| $ | 85 |
| $ | 88 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.51 | %2 |
| 1.52 | % |
| 1.39 | % |
| 1.39 | % |
| 1.42 | % |
| 1.47 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.51 | %2 |
| 1.52 | % |
| 1.39 | % |
| 1.39 | % |
| 1.42 | % |
| 1.51 | % |
Net investment income |
|
| 0.01 | %2 |
| 1.06 | % |
| 1.16 | % |
| 1.27 | % |
| 1.45 | % |
| 0.88 | % |
Portfolio turnover rate |
|
| 8 | % |
| 19 | % |
| 23 | % |
| 57 | % |
| 96 | % |
| 114 | % |
|
1 | Per share amount is based on average shares outstanding during the period. |
2 | Annualized |
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS 98.5% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 14.9% |
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 3.0% |
|
|
|
|
|
|
|
Carnival Corp. * |
|
| 558,183 |
| $ | 18,604,240 |
|
|
|
|
|
|
| ||
Media 5.1% |
|
|
|
|
|
|
|
Comcast Corp., Class A |
|
| 417,404 |
|
| 6,607,505 |
|
Omnicom Group, Inc. |
|
| 721,966 |
|
| 25,485,400 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 32,092,905 |
|
|
|
|
|
|
| ||
Multiline Retail 1.1% |
|
|
|
|
|
|
|
Target Corp. |
|
| 138,627 |
|
| 7,107,406 |
|
|
|
|
|
|
| ||
Specialty Retail 3.2% |
|
|
|
|
|
|
|
Home Depot, Inc. |
|
| 714,335 |
|
| 20,008,523 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 2.5% |
|
|
|
|
|
|
|
Timberland Co., Class A * |
|
| 930,824 |
|
| 16,010,173 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 12.8% |
|
|
|
|
|
|
|
Beverages 4.5% |
|
|
|
|
|
|
|
Coca-Cola Co. |
|
| 118,446 |
|
| 6,425,696 |
|
Diageo plc |
|
| 1,296,803 |
|
| 21,831,346 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 28,257,042 |
|
|
|
|
|
|
| ||
Food & Staples Retailing 1.1% |
|
|
|
|
|
|
|
Safeway, Inc. |
|
| 310,130 |
|
| 6,962,418 |
|
|
|
|
|
|
| ||
Food Products 1.9% |
|
|
|
|
|
|
|
McCormick & Co., Inc. |
|
| 323,900 |
|
| 11,757,570 |
|
|
|
|
|
|
| ||
Household Products 3.4% |
|
|
|
|
|
|
|
Clorox Co. |
|
| 97,343 |
|
| 5,759,785 |
|
Procter & Gamble Co. |
|
| 259,041 |
|
| 15,943,974 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 21,703,759 |
|
|
|
|
|
|
| ||
Tobacco 1.9% |
|
|
|
|
|
|
|
Philip Morris International, Inc. |
|
| 263,205 |
|
| 11,978,459 |
|
|
|
|
|
|
| ||
ENERGY 9.7% |
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 9.7% |
|
|
|
|
|
|
|
Chevron Corp. |
|
| 220,100 |
|
| 15,873,612 |
|
ConocoPhillips |
|
| 352,589 |
|
| 16,924,272 |
|
Exxon Mobil Corp. |
|
| 220,824 |
|
| 14,227,691 |
|
Occidental Petroleum Corp. |
|
| 180,445 |
|
| 14,136,061 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 61,161,636 |
|
|
|
|
|
|
| ||
FINANCIALS 21.5% |
|
|
|
|
|
|
|
Capital Markets 5.7% |
|
|
|
|
|
|
|
AllianceBernstein Holding, LP ρ |
|
| 310,718 |
|
| 7,997,881 |
|
Legg Mason, Inc. |
|
| 649,800 |
|
| 16,751,844 |
|
State Street Corp. |
|
| 270,661 |
|
| 11,605,944 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 36,355,669 |
|
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Commercial Banks 3.4% |
|
|
|
|
|
|
|
U.S. Bancorp |
|
| 483,130 |
| $ | 12,116,900 |
|
Wells Fargo & Co. ° |
|
| 333,504 |
|
| 9,481,519 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 21,598,419 |
|
|
|
|
|
|
| ||
Consumer Finance 1.1% |
|
|
|
|
|
|
|
Visa, Inc., Class A |
|
| 86,960 |
|
| 7,133,329 |
|
|
|
|
|
|
| ||
Diversified Financial Services 7.5% |
|
|
|
|
|
|
|
Bank of America Corp. ρ |
|
| 1,266,387 |
|
| 19,223,755 |
|
JPMorgan Chase & Co. |
|
| 511,618 |
|
| 19,922,405 |
|
Moody’s Corp. ρ |
|
| 293,518 |
|
| 8,098,161 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 47,244,321 |
|
|
|
|
|
|
| ||
Insurance 3.8% |
|
|
|
|
|
|
|
Prudential Financial, Inc. |
|
| 376,290 |
|
| 18,810,737 |
|
Stewart Information Services Corp. ρ |
|
| 485,967 |
|
| 4,986,022 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 23,796,759 |
|
|
|
|
|
|
| ||
HEALTH CARE 18.3% |
|
|
|
|
|
|
|
Biotechnology 3.0% |
|
|
|
|
|
|
|
Amgen, Inc. * |
|
| 320,895 |
|
| 18,765,940 |
|
|
|
|
|
|
| ||
Health Care Equipment & Supplies 2.4% |
|
|
|
|
|
|
|
Medtronic, Inc. |
|
| 350,377 |
|
| 15,027,669 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 4.0% |
|
|
|
|
|
|
|
WellPoint, Inc. * |
|
| 398,595 |
|
| 25,398,473 |
|
|
|
|
|
|
| ||
Pharmaceuticals 8.9% |
|
|
|
|
|
|
|
Merck & Co., Inc. |
|
| 341,719 |
|
| 13,046,832 |
|
Novartis AG, ADR |
|
| 427,800 |
|
| 22,900,134 |
|
Pfizer, Inc. |
|
| 1,096,520 |
|
| 20,461,063 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 56,408,029 |
|
|
|
|
|
|
| ||
INDUSTRIALS 10.6% |
|
|
|
|
|
|
|
Aerospace & Defense 1.3% |
|
|
|
|
|
|
|
Boeing Co. |
|
| 133,823 |
|
| 8,109,674 |
|
|
|
|
|
|
| ||
Air Freight & Logistics 3.3% |
|
|
|
|
|
|
|
Expeditors International of Washington, Inc. |
|
| 229,519 |
|
| 7,826,598 |
|
FedEx Corp. |
|
| 169,713 |
|
| 13,297,014 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 21,123,612 |
|
|
|
|
|
|
| ||
Commercial Services & Supplies 3.5% |
|
|
|
|
|
|
|
Avery Dennison Corp. |
|
| 316,034 |
|
| 10,274,265 |
|
Cintas Corp. |
|
| 481,800 |
|
| 12,097,998 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 22,372,263 |
|
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INDUSTRIALS continued |
|
|
|
|
|
|
|
Industrial Conglomerates 2.5% |
|
|
|
|
|
|
|
General Electric Co. |
|
| 973,217 |
| $ | 15,649,329 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 9.4% |
|
|
|
|
|
|
|
Communications Equipment 2.1% |
|
|
|
|
|
|
|
Cisco Systems, Inc. * |
|
| 352,893 |
|
| 7,929,506 |
|
QUALCOMM, Inc. |
|
| 132,471 |
|
| 5,191,538 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 13,121,044 |
|
|
|
|
|
|
| ||
Computers & Peripherals 1.4% |
|
|
|
|
|
|
|
Dell, Inc. * |
|
| 713,411 |
|
| 9,203,002 |
|
|
|
|
|
|
| ||
IT Services 1.6% |
|
|
|
|
|
|
|
Automatic Data Processing, Inc. |
|
| 242,100 |
|
| 9,875,259 |
|
|
|
|
|
|
| ||
Software 4.3% |
|
|
|
|
|
|
|
Microsoft Corp. |
|
| 629,744 |
|
| 17,746,186 |
|
Oracle Corp. |
|
| 415,954 |
|
| 9,591,899 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 27,338,085 |
|
|
|
|
|
|
| ||
UTILITIES 1.3% |
|
|
|
|
|
|
|
Electric Utilities 1.3% |
|
|
|
|
|
|
|
Entergy Corp. |
|
| 107,360 |
|
| 8,192,642 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $671,728,942) |
|
|
|
|
| 622,357,649 |
|
|
|
|
|
|
| ||
PRIVATE PLACEMENT 0.6% |
|
|
|
|
|
|
|
FINANCIALS 0.6% |
|
|
|
|
|
|
|
Diversified Financial Services 0.6% |
|
|
|
|
|
|
|
Apollo Management, LP * + (cost $13,555,985) |
|
| 605,421 |
|
| 3,632,526 |
|
|
|
|
|
|
| ||
SHORT-TERM INVESTMENTS 3.5% |
|
|
|
|
|
|
|
MUTUAL FUND SHARES 3.5% |
|
|
|
|
|
|
|
BlackRock Liquidity TempFund, Institutional Class, 0.10% q ρρ |
|
| 9,978,785 |
|
| 9,978,785 |
|
Evergreen Institutional Money Market Fund, Class I, 0.01% q ø ρρ |
|
| 1,565,023 |
|
| 1,565,023 |
|
Evergreen Institutional U.S. Government Money Market Fund, Class I, 0.01% q ø |
|
| 894,872 |
|
| 894,872 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.13% q ρρ |
|
| 9,900,370 |
|
| 9,900,370 |
|
|
|
|
|
|
| ||
Total Short-Term Investments (cost $22,339,050) |
|
|
|
|
| 22,339,050 |
|
|
|
|
|
|
| ||
Total Investments (cost $707,623,977) 102.6% |
|
|
|
|
| 648,329,225 |
|
Other Assets and Liabilities (2.6%) |
|
|
|
|
| (16,186,935 | ) |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 632,142,290 |
|
|
|
|
|
|
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
* | Non-income producing security |
ρ | All or a portion of this security is on loan. |
° | Security represents an investment in a non-controlled affiliate. At January 31, 2010, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $10,069,382 and earned $33,350 of income for the six months ended January 31, 2010 which is included in income from affiliated issuers. |
+ | Security is deemed illiquid. |
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. |
Summary of Abbreviations | |
ADR | American Depository Receipt |
The following table shows the percent of total long-term investments by sector as of January 31, 2010:
Financials |
| 22.3 | % |
Health Care |
| 18.5 | % |
Consumer Discretionary |
| 15.0 | % |
Consumer Staples |
| 12.9 | % |
Industrials |
| 10.7 | % |
Energy |
| 9.8 | % |
Information Technology |
| 9.5 | % |
Utilities |
| 1.3 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
16
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $695,094,700) including $20,339,074 of securities loaned |
| $ | 636,387,811 |
|
Investments in affiliated issuers, at value (cost $12,529,277) |
|
| 11,941,414 |
|
| ||||
Total investments |
|
| 648,329,225 |
|
Foreign currency, at value (cost $742,080) |
|
| 748,025 |
|
Receivable for securities sold |
|
| 8,937,734 |
|
Receivable for Fund shares sold |
|
| 44,812 |
|
Dividends receivable |
|
| 209,045 |
|
Receivable for securities lending income |
|
| 670 |
|
Prepaid expenses and other assets |
|
| 59,813 |
|
| ||||
Total assets |
|
| 658,329,324 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 3,694,717 |
|
Payable for Fund shares redeemed |
|
| 738,680 |
|
Payable for securities on loan |
|
| 21,444,178 |
|
Advisory fee payable |
|
| 34,091 |
|
Distribution Plan expenses payable |
|
| 6,217 |
|
Due to other related parties |
|
| 15,746 |
|
Accrued expenses and other liabilities |
|
| 253,405 |
|
| ||||
Total liabilities |
|
| 26,187,034 |
|
| ||||
Net assets |
| $ | 632,142,290 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 745,010,938 |
|
Overdistributed net investment income |
|
| (43,041 | ) |
Accumulated net realized losses on investments |
|
| (53,534,176 | ) |
Net unrealized losses on investments |
|
| (59,291,431 | ) |
| ||||
Total net assets |
| $ | 632,142,290 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 206,596,854 |
|
Class B |
|
| 10,701,128 |
|
Class C |
|
| 12,144,640 |
|
Class I |
|
| 402,552,786 |
|
Class R |
|
| 146,882 |
|
| ||||
Total net assets |
| $ | 632,142,290 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 12,454,645 |
|
Class B |
|
| 652,148 |
|
Class C |
|
| 742,063 |
|
Class I |
|
| 24,274,319 |
|
Class R |
|
| 8,834 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 16.59 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 17.60 |
|
Class B |
| $ | 16.41 |
|
Class C |
| $ | 16.37 |
|
Class I |
| $ | 16.58 |
|
Class R |
| $ | 16.63 |
|
|
See Notes to Financial Statements
17
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 5,887,891 |
|
Income from affiliated issuers |
|
| 34,239 |
|
Securities lending |
|
| 4,860 |
|
| ||||
Total investment income |
|
| 5,926,990 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 2,088,492 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 266,630 |
|
Class B |
|
| 57,645 |
|
Class C |
|
| 63,616 |
|
Class R |
|
| 172 |
|
Administrative services fee |
|
| 323,063 |
|
Transfer agent fees |
|
| 562,154 |
|
Trustees’ fees and expenses |
|
| 5,456 |
|
Printing and postage expenses |
|
| 57,131 |
|
Custodian and accounting fees |
|
| 84,535 |
|
Registration and filing fees |
|
| 29,980 |
|
Professional fees |
|
| 26,551 |
|
Other |
|
| 13,229 |
|
| ||||
Total expenses |
|
| 3,578,654 |
|
Less: Expense reductions |
|
| (66 | ) |
| ||||
Net expenses |
|
| 3,578,588 |
|
| ||||
Net investment income |
|
| 2,348,402 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized gains or losses on: |
|
|
|
|
Securities in unaffiliated issuers |
|
| (21,685,119 | ) |
Foreign currency related transactions |
|
| 12,130 |
|
| ||||
Net realized losses on investments |
|
| (21,672,989 | ) |
| ||||
Net change in unrealized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 73,100,774 |
|
Affiliated issuers |
|
| 1,324,011 |
|
Foreign currency related transactions |
|
| 5,492 |
|
| ||||
Net change in unrealized gains or losses on investments |
|
| 74,430,277 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
| 52,757,288 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 55,105,690 |
|
|
See Notes to Financial Statements
18
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 2,348,402 |
|
|
| $ | 9,673,509 |
|
Net realized losses on investments |
|
|
|
| (21,672,989 | ) |
|
|
| (31,892,284 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| 74,430,277 |
|
|
|
| (116,509,681 | ) |
| |||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
| 55,105,690 |
|
|
|
| (138,728,456 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (631,366 | ) |
|
|
| (2,925,392 | ) |
Class B |
|
|
|
| (1,217 | ) |
|
|
| (105,306 | ) |
Class C |
|
|
|
| (1,525 | ) |
|
|
| (93,336 | ) |
Class I |
|
|
|
| (1,701,503 | ) |
|
|
| (6,313,338 | ) |
Class R |
|
|
|
| (198 | ) |
|
|
| (143 | ) |
Net realized gains |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| 0 |
|
|
|
| (4,586,137 | ) |
Class B |
|
|
|
| 0 |
|
|
|
| (381,661 | ) |
Class C |
|
|
|
| 0 |
|
|
|
| (297,781 | ) |
Class I |
|
|
|
| 0 |
|
|
|
| (8,289,836 | ) |
Class R |
|
|
|
| 0 |
|
|
|
| (288 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (2,335,809 | ) |
|
|
| (22,993,218 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 128,531 |
|
| 2,085,219 |
| 522,173 |
|
| 7,521,458 |
|
Class B |
| 9,921 |
|
| 166,340 |
| 71,537 |
|
| 973,392 |
|
Class C |
| 21,195 |
|
| 346,770 |
| 279,022 |
|
| 3,762,430 |
|
Class I |
| 127,941 |
|
| 2,152,482 |
| 216,868 |
|
| 3,036,659 |
|
Class R |
| 8,749 |
|
| 149,690 |
| 428 |
|
| 6,153 |
|
| |||||||||||
|
|
|
|
| 4,900,501 |
|
|
|
| 15,300,092 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 35,250 |
|
| 578,273 |
| 536,222 |
|
| 6,978,183 |
|
Class B |
| 64 |
|
| 1,034 |
| 34,138 |
|
| 430,166 |
|
Class C |
| 77 |
|
| 1,232 |
| 25,252 |
|
| 317,107 |
|
Class I |
| 94,391 |
|
| 1,550,508 |
| 1,030,296 |
|
| 13,475,492 |
|
Class R |
| 12 |
|
| 198 |
| 34 |
|
| 431 |
|
| |||||||||||
|
|
|
|
| 2,131,245 |
|
|
|
| 21,201,379 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 60,015 |
|
| 972,018 |
| 254,688 |
|
| 3,718,849 |
|
Class B |
| (60,586 | ) |
| (972,018 | ) | (257,204 | ) |
| (3,718,849 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (1,090,213 | ) |
| (18,081,984 | ) | (3,195,583 | ) |
| (46,071,123 | ) |
Class B |
| (103,015 | ) |
| (1,674,038 | ) | (514,891 | ) |
| (7,418,101 | ) |
Class C |
| (98,241 | ) |
| (1,602,995 | ) | (426,383 | ) |
| (5,668,919 | ) |
Class I |
| (1,136,482 | ) |
| (18,934,077 | ) | (2,649,138 | ) |
| (37,573,782 | ) |
Class R |
| (1,148 | ) |
| (20,086 | ) | (1,864 | ) |
| (35,770 | ) |
| |||||||||||
|
|
|
|
| (40,313,180 | ) |
|
|
| (96,767,695 | ) |
|
See Notes to Financial Statements
19
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 |
|
|
| $ | (33,281,434 | ) |
|
| $ | (60,266,224 | ) |
| |||||||||||
Total increase (decrease) in net assets |
|
|
|
| 19,488,447 |
|
|
|
| (221,987,898 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 612,653,843 |
|
|
|
| 834,641,741 |
|
| |||||||||||
End of period |
|
|
| $ | 632,142,290 |
|
|
| $ | 612,653,843 |
|
| |||||||||||
Overdistributed net investment income |
|
|
| $ | (43,041 | ) |
|
| $ | (55,634 | ) |
|
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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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 had 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices.
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
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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.
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.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
b. 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.
c. 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. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
d. 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.
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
e. 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.
f. 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.
g. 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, 2010, the advisory fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers 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, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.17% of the Fund’s average daily net assets.
23
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 (see Note 5).
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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 Class R shares.
For the six months ended January 31, 2010, EIS received $841 from the sale of Class A shares and $7,006 and $65 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 $49,109,160 and $82,513,148, respectively, for the six months ended January 31, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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.
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of January 31, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 622,357,649 |
| $ | 0 |
| $ | 0 |
| $ | 622,357,649 |
|
Other |
|
| 0 |
|
| 3,632,526 |
|
| 0 |
|
| 3,632,526 |
|
Short-term investments |
|
| 22,339,050 |
|
| 0 |
|
| 0 |
|
| 22,339,050 |
|
| |||||||||||||
|
| $ | 644,696,699 |
| $ | 3,632,526 |
| $ | 0 |
| $ | 648,329,225 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
During the six months ended January 31, 2010, the Fund loaned securities to certain brokers and earned $4,860, net of $745 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2010, the value of securities on loan and the total value of collateral received for securities loaned amounted to $20,339,074 and $21,444,178, respectively.
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $707,663,613. The gross unrealized appreciation and depreciation on securities based on tax cost was $64,020,423 and $123,354,811, respectively, with a net unrealized depreciation of $59,334,388.
As of July 31, 2009, the Fund had $10,835,876 in capital loss carryovers for federal income tax purposes expiring in 2017.
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, 2009, the Fund incurred and elected to defer post-October losses of $20,985,677.
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, 2010, 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.
25
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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata. During the six months ended Januray 31, 2010, the Fund had no borrowings under this agreement.
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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
11. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
12. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Classic Value Fund, which will be a series of Wells Fargo Funds Trust created in order to receive the assets of the Fund upon completion of the reorganization, will
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Classic Value Fund.
13. SUBSEQUENT DISTRIBUTIONS
On March 11, 2010, the Fund declared distributions from net investment income to shareholders of record on March 10, 2010. The per share amounts payable on March 12, 2010 were as follows:
|
| Net Investment |
| |
Class A |
| $ | 0.0604 |
|
Class B |
|
| 0.0276 |
|
Class C |
|
| 0.0274 |
|
Class I |
|
| 0.0712 |
|
Class R |
|
| 0.0500 |
|
These distributions are not reflected in the accompanying financial statements.
28
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the information that EIMC and Keil provided. In addition, the Trustees considered
29
ADDITIONAL INFORMATION (unaudited) continued
information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
30
ADDITIONAL INFORMATION (unaudited) continued
Information reviewed. The Board of Trustees and committees of the Board of Trustees met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the 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 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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 fees 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. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds
31
ADDITIONAL INFORMATION (unaudited) continued
Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (incl uding amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 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 Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and
32
ADDITIONAL INFORMATION (unaudited) continued
broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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. They determined that the nature and scope of the services provided by EIMC were consistent with EIMC’s duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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 ten-year periods ended December 31, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the Russell 1000 Value Index, but that for the five-year period ended December 31, 2008, the Fund’s Class A shares had underperformed the Fund’s benchmark index. The Trustees also noted that the Fund’s Class A shares’ performance was in the fourth quintile for the one-, three-, and five-year periods ended December 31, 2008, and in the second quintile for the ten-year period ended December 31, 2008, 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 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
33
ADDITIONAL INFORMATION (unaudited) continued
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 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
34
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35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
36
TRUSTEES AND OFFICERS continued
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: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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
120962 565219 rv7 03/2010
Evergreen Fundamental Large Cap Fund
|
| table of contents |
1 |
| LETTER TO SHAREHOLDERS |
4 |
| FUND AT A GLANCE |
7 |
| ABOUT YOUR FUND’S EXPENSES |
8 |
| FINANCIAL HIGHLIGHTS |
12 |
| SCHEDULE OF INVESTMENTS |
16 |
| STATEMENT OF ASSETS AND LIABILITIES |
17 |
| STATEMENT OF OPERATIONS |
18 |
| 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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
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, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
1
LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, the management team 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 Enhanced S&P 500® Fund used a quantitative investment approach to identify companies with favorable investment characteristics in the areas of valuation, investor sentiment, and quality. 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 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors, staying focused on a long-term strategy based on individual goals and risk tolerance can help avoid missing potential periods of strong recovery.
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LETTER TO SHAREHOLDERS continued
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
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 12/31/2009.
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 | 4.74% | 5.73% | 9.74% | N/A |
6-month return w/o sales charge | 11.13% | 10.73% | 10.74% | 11.28% |
Average annual return* |
|
|
|
|
1-year with sales charge | 35.42% | 37.67% | 41.67% | N/A |
1-year w/o sales charge | 43.68% | 42.67% | 42.67% | 44.09% |
5-year | 1.66% | 1.76% | 2.13% | 3.16% |
10-year | 0.60% | 0.46% | 0.46% | 1.47% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
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.
Class B shares are closed to new investments by new and existing shareholders.
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.
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, 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.
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.
5
FUND AT A GLANCE continued
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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, 2010, and subject to change.
6
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, 2009 to January 31, 2010.
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 |
| 8/1/2009 | 1/31/2010 | During Period* |
Actual |
|
|
|
Class A | $1,000.00 | $1,111.31 | $ 7.45 |
Class B | $1,000.00 | $1,107.33 | $11.42 |
Class C | $1,000.00 | $1,107.35 | $11.42 |
Class I | $1,000.00 | $1,112.83 | $ 6.12 |
Hypothetical |
|
|
|
(5% return before expenses) |
|
|
|
Class A | $1,000.00 | $1,018.15 | $ 7.12 |
Class B | $1,000.00 | $1,014.37 | $10.92 |
Class C | $1,000.00 | $1,014.37 | $10.92 |
Class I | $1,000.00 | $1,019.41 | $ 5.85 |
* | For each class of the fund, expenses are equal to the annualized expense ratio of each class (1.40% for Class A, 2.15% for Class B, 2.15% for Class C and 1.15% for Class I), multiplied by the average account value over the period, multiplied by 184 / 365 days. |
7
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
| Year Ended July 31, |
| |||||||||||||||
|
|
|
| ||||||||||||||||
CLASS A |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 20.36 |
| $ | 23.15 |
| $ | 26.73 |
| $ | 23.37 |
| $ | 23.25 |
| $ | 20.85 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.05 |
|
| 0.21 |
|
| 0.17 | 1 |
| 0.13 | 1 |
| 0.11 | 1 |
| 0.14 | 1 |
Net realized and unrealized gains or losses on investments |
|
| 2.21 |
|
| (2.86 | ) |
| (2.36 | ) |
| 3.65 |
|
| 0.52 |
|
| 3.64 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 2.26 |
|
| (2.65 | ) |
| (2.19 | ) |
| 3.78 |
|
| 0.63 |
|
| 3.78 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.16 | ) |
| (0.14 | ) |
| (0.12 | ) |
| (0.11 | ) |
| (0.08 | ) |
| (0.12 | ) |
Net realized gains |
|
| 0 |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.16 | ) |
| (0.14 | ) |
| (1.39 | ) |
| (0.42 | ) |
| (0.51 | ) |
| (1.38 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 22.46 |
| $ | 20.36 |
| $ | 23.15 |
| $ | 26.73 |
| $ | 23.37 |
| $ | 23.25 |
|
| |||||||||||||||||||
Total return2 |
|
| 11.13 | % |
| (11.36 | )% |
| (8.74 | )% |
| 16.29 | % |
| 2.76 | % |
| 18.77 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 444 |
| $ | 413 |
| $ | 521 |
| $ | 646 |
| $ | 642 |
| $ | 794 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.40 | %3 |
| 1.50 | % |
| 1.33 | % |
| 1.38 | % |
| 1.38 | % |
| 1.39 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.40 | %3 |
| 1.50 | % |
| 1.36 | % |
| 1.41 | % |
| 1.40 | % |
| 1.49 | % |
Net investment income |
|
| 0.34 | %3 |
| 0.99 | % |
| 0.69 | % |
| 0.50 | % |
| 0.49 | % |
| 0.62 | % |
Portfolio turnover rate |
|
| 10 | % |
| 30 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
|
1 | Per share amount 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 |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
| Year Ended July 31, |
| |||||||||||||||
|
|
|
| ||||||||||||||||
CLASS B |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.72 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.03 | )1 |
| 0.05 | 1 |
| (0.01 | )1 |
| (0.04 | )1 |
| (0.05 | )1 |
| (0.01 | )1 |
Net realized and unrealized gains or losses on investments |
|
| 2.04 |
|
| (2.64 | ) |
| (2.19 | ) |
| 3.40 |
|
| 0.49 |
|
| 3.42 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 2.01 |
|
| (2.59 | ) |
| (2.20 | ) |
| 3.36 |
|
| 0.44 |
|
| 3.41 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.08 | ) |
| (0.10 | ) |
| (0.01 | ) |
| (0.03 | ) |
| 0 |
|
| (0.01 | ) |
Net realized gains |
|
| 0 |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.08 | ) |
| (0.10 | ) |
| (1.28 | ) |
| (0.34 | ) |
| (0.43 | ) |
| (1.27 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 20.65 |
| $ | 18.72 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
|
| |||||||||||||||||||
Total return2 |
|
| 10.73 | % |
| (12.01 | )% |
| (9.42 | )% |
| 15.44 | % |
| 2.07 | % |
| 17.93 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 30 |
| $ | 34 |
| $ | 77 |
| $ | 150 |
| $ | 214 |
| $ | 340 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.15 | %3 |
| 2.23 | % |
| 2.07 | % |
| 2.09 | % |
| 2.07 | % |
| 2.10 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.15 | %3 |
| 2.23 | % |
| 2.07 | % |
| 2.11 | % |
| 2.09 | % |
| 2.20 | % |
Net investment income (loss) |
|
| (0.39 | )%3 |
| 0.28 | % |
| (0.06 | )% |
| (0.18 | )% |
| (0.21 | )% |
| (0.03 | )% |
Portfolio turnover rate |
|
| 10 | % |
| 30 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
|
1 | Per share amount 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 |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
| Year Ended July 31, |
| |||||||||||||||
|
|
|
| ||||||||||||||||
CLASS C |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 18.73 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
| $ | 19.72 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.04 | )1 |
| 0.04 | 1 |
| (0.01 | )1 |
| (0.05 | )1 |
| (0.05 | )1 |
| 0 | 1 |
Net realized and unrealized gains or losses on investments |
|
| 2.04 |
|
| (2.63 | ) |
| (2.19 | ) |
| 3.41 |
|
| 0.49 |
|
| 3.42 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 2.00 |
|
| (2.59 | ) |
| (2.20 | ) |
| 3.36 |
|
| 0.44 |
|
| 3.42 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.08 | ) |
| (0.09 | ) |
| (0.01 | ) |
| (0.03 | ) |
| 0 |
|
| (0.02 | ) |
Net realized gains |
|
| 0 |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.08 | ) |
| (0.09 | ) |
| (1.28 | ) |
| (0.34 | ) |
| (0.43 | ) |
| (1.28 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 20.65 |
| $ | 18.73 |
| $ | 21.41 |
| $ | 24.89 |
| $ | 21.87 |
| $ | 21.86 |
|
| |||||||||||||||||||
Total return2 |
|
| 10.74 | % |
| (12.03 | )% |
| (9.40 | )% |
| 15.44 | % |
| 2.07 | % |
| 17.95 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 50 |
| $ | 47 |
| $ | 61 |
| $ | 80 |
| $ | 86 |
| $ | 110 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.15 | %3 |
| 2.25 | % |
| 2.08 | % |
| 2.09 | % |
| 2.08 | % |
| 2.10 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.15 | %3 |
| 2.25 | % |
| 2.08 | % |
| 2.11 | % |
| 2.10 | % |
| 2.20 | % |
Net investment income (loss) |
|
| (0.41 | )%3 |
| 0.25 | % |
| (0.06 | )% |
| (0.20 | )% |
| (0.21 | )% |
| (0.01 | )% |
Portfolio turnover rate |
|
| 10 | % |
| 30 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
|
1 | Per share amount is based on average shares outstanding during the period. |
2 | Excluding applicable sales charges |
3 | Annualized |
See Notes to Financial Statements
10
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
| Six Months |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
| Year Ended July 31, |
| |||||||||||||||
|
|
|
| ||||||||||||||||
CLASS I |
|
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |||||||
| |||||||||||||||||||
Net asset value, beginning of period |
| $ | 20.73 |
| $ | 23.56 |
| $ | 27.21 |
| $ | 23.76 |
| $ | 23.63 |
| $ | 21.16 |
|
| |||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.10 |
|
| 0.23 | 1 |
| 0.24 | 1 |
| 0.21 | 1 |
| 0.19 | 1 |
| 0.20 | 1 |
Net realized and unrealized gains or losses on investments |
|
| 2.24 |
|
| (2.88 | ) |
| (2.40 | ) |
| 3.70 |
|
| 0.52 |
|
| 3.70 |
|
|
|
| |||||||||||||||||
Total from investment operations |
|
| 2.34 |
|
| (2.65 | ) |
| (2.16 | ) |
| 3.91 |
|
| 0.71 |
|
| 3.90 |
|
| |||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.20 | ) |
| (0.18 | ) |
| (0.22 | ) |
| (0.15 | ) |
| (0.15 | ) |
| (0.17 | ) |
Net realized gains |
|
| 0 |
|
| 0 |
|
| (1.27 | ) |
| (0.31 | ) |
| (0.43 | ) |
| (1.26 | ) |
|
|
| |||||||||||||||||
Total distributions to shareholders |
|
| (0.20 | ) |
| (0.18 | ) |
| (1.49 | ) |
| (0.46 | ) |
| (0.58 | ) |
| (1.43 | ) |
| |||||||||||||||||||
Net asset value, end of period |
| $ | 22.87 |
| $ | 20.73 |
| $ | 23.56 |
| $ | 27.21 |
| $ | 23.76 |
| $ | 23.63 |
|
| |||||||||||||||||||
Total return |
|
| 11.28 | % |
| (11.13 | )% |
| (8.46 | )% |
| 16.59 | % |
| 3.08 | % |
| 19.12 | % |
| |||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions) |
| $ | 195 |
| $ | 181 |
| $ | 225 |
| $ | 274 |
| $ | 263 |
| $ | 292 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.15 | %2 |
| 1.25 | % |
| 1.08 | % |
| 1.09 | % |
| 1.08 | % |
| 1.08 | % |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 1.15 | %2 |
| 1.25 | % |
| 1.08 | % |
| 1.11 | % |
| 1.10 | % |
| 1.18 | % |
Net investment income |
|
| 0.59 | %2 |
| 1.25 | % |
| 0.94 | % |
| 0.79 | % |
| 0.80 | % |
| 0.87 | % |
Portfolio turnover rate |
|
| 10 | % |
| 30 | % |
| 24 | % |
| 17 | % |
| 21 | % |
| 44 | % |
|
1 | Per share amount is based on average shares outstanding during the period. |
2 | Annualized |
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS 97.9% |
|
|
|
|
|
|
CONSUMER DISCRETIONARY 13.9% |
|
|
|
|
|
|
Hotels, Restaurants & Leisure 1.0% |
|
|
|
|
|
|
Burger King Holdings, Inc. |
| 426,081 |
| $ | 7,430,852 |
|
|
|
|
|
| ||
Internet & Catalog Retail 2.9% |
|
|
|
|
|
|
Amazon.com, Inc. * |
| 120,929 |
|
| 15,165,706 |
|
Blue Nile, Inc. * |
| 107,614 |
|
| 5,547,501 |
|
|
|
|
|
| ||
|
|
|
|
| 20,713,207 |
|
|
|
|
|
| ||
Media 4.8% |
|
|
|
|
|
|
CBS Corp., Class B |
| 1,751,859 |
|
| 22,651,537 |
|
Omnicom Group, Inc. |
| 328,803 |
|
| 11,606,746 |
|
|
|
|
|
| ||
|
|
|
|
| 34,258,283 |
|
|
|
|
|
| ||
Specialty Retail 3.1% |
|
|
|
|
|
|
Home Depot, Inc. |
| 798,263 |
|
| 22,359,347 |
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 2.1% |
|
|
|
|
|
|
Timberland Co., Class A * |
| 885,474 |
|
| 15,230,153 |
|
|
|
|
|
| ||
CONSUMER STAPLES 10.2% |
|
|
|
|
|
|
Beverages 2.3% |
|
|
|
|
|
|
Diageo plc |
| 595,373 |
|
| 10,022,951 |
|
PepsiCo, Inc. |
| 110,884 |
|
| 6,610,904 |
|
|
|
|
|
| ||
|
|
|
|
| 16,633,855 |
|
|
|
|
|
| ||
Food Products 2.0% |
|
|
|
|
|
|
McCormick & Co., Inc. ρ |
| 407,811 |
|
| 14,803,539 |
|
|
|
|
|
| ||
Household Products 3.9% |
|
|
|
|
|
|
Clorox Co. |
| 165,710 |
|
| 9,805,061 |
|
Procter & Gamble Co. |
| 293,219 |
|
| 18,047,629 |
|
|
|
|
|
| ||
|
|
|
|
| 27,852,690 |
|
|
|
|
|
| ||
Tobacco 2.0% |
|
|
|
|
|
|
Philip Morris International, Inc. |
| 309,536 |
|
| 14,086,984 |
|
|
|
|
|
| ||
ENERGY 9.5% |
|
|
|
|
|
|
Energy Equipment & Services 1.5% |
|
|
|
|
|
|
Schlumberger, Ltd. |
| 162,386 |
|
| 10,305,016 |
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 8.0% |
|
|
|
|
|
|
Apache Corp. |
| 144,203 |
|
| 14,242,930 |
|
Chevron Corp. |
| 143,214 |
|
| 10,328,594 |
|
ConocoPhillips |
| 354,911 |
|
| 17,035,728 |
|
Exxon Mobil Corp. |
| 248,714 |
|
| 16,024,643 |
|
|
|
|
|
| ||
|
|
|
|
| 57,631,895 |
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
FINANCIALS 19.3% |
|
|
|
|
|
|
Capital Markets 3.8% |
|
|
|
|
|
|
Goldman Sachs Group, Inc. |
| 89,091 |
| $ | 13,249,613 |
|
State Street Corp. |
| 141,328 |
|
| 6,060,145 |
|
T. Rowe Price Group, Inc. |
| 155,476 |
|
| 7,714,719 |
|
|
|
|
|
| ||
|
|
|
|
| 27,024,477 |
|
|
|
|
|
| ||
Commercial Banks 3.0% |
|
|
|
|
|
|
Wells Fargo & Co. ° |
| 756,551 |
|
| 21,508,745 |
|
|
|
|
|
| ||
Consumer Finance 3.6% |
|
|
|
|
|
|
American Express Co. |
| 186,033 |
|
| 7,006,003 |
|
Visa, Inc., Class A |
| 233,174 |
|
| 19,127,263 |
|
|
|
|
|
| ||
|
|
|
|
| 26,133,266 |
|
|
|
|
|
| ||
Diversified Financial Services 6.8% |
|
|
|
|
|
|
Bank of America Corp. ρ |
| 1,072,926 |
|
| 16,287,016 |
|
JPMorgan Chase & Co. |
| 480,619 |
|
| 18,715,304 |
|
Moody’s Corp. ρ |
| 494,000 |
|
| 13,629,460 |
|
|
|
|
|
| ||
|
|
|
|
| 48,631,780 |
|
|
|
|
|
| ||
Insurance 2.1% |
|
|
|
|
|
|
Prudential Financial, Inc. |
| 306,341 |
|
| 15,313,987 |
|
|
|
|
|
| ||
HEALTH CARE 16.1% |
|
|
|
|
|
|
Biotechnology 2.1% |
|
|
|
|
|
|
Amgen, Inc. * |
| 257,236 |
|
| 15,043,161 |
|
|
|
|
|
| ||
Health Care Equipment & Supplies 1.6% |
|
|
|
|
|
|
Medtronic, Inc. |
| 270,706 |
|
| 11,610,581 |
|
|
|
|
|
| ||
Pharmaceuticals 12.4% |
|
|
|
|
|
|
Johnson & Johnson |
| 285,327 |
|
| 17,935,655 |
|
Merck & Co., Inc. |
| 764,587 |
|
| 29,191,932 |
|
Novartis AG, ADR |
| 416,623 |
|
| 22,301,829 |
|
Pfizer, Inc. |
| 1,052,423 |
|
| 19,638,213 |
|
|
|
|
|
| ||
|
|
|
|
| 89,067,629 |
|
|
|
|
|
| ||
INDUSTRIALS 8.4% |
|
|
|
|
|
|
Aerospace & Defense 3.1% |
|
|
|
|
|
|
Boeing Co. |
| 259,481 |
|
| 15,724,549 |
|
United Technologies Corp. |
| 98,138 |
|
| 6,622,352 |
|
|
|
|
|
| ||
|
|
|
|
| 22,346,901 |
|
|
|
|
|
| ||
Air Freight & Logistics 2.2% |
|
|
|
|
|
|
Expeditors International of Washington, Inc. |
| 217,054 |
|
| 7,401,541 |
|
United Parcel Service, Inc., Class B |
| 146,310 |
|
| 8,452,329 |
|
|
|
|
|
| ||
|
|
|
|
| 15,853,870 |
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
INDUSTRIALS continued |
|
|
|
|
|
|
Industrial Conglomerates 3.1% |
|
|
|
|
|
|
General Electric Co. |
| 1,367,856 |
| $ | 21,995,124 |
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 19.4% |
|
|
|
|
|
|
Communications Equipment 6.5% |
|
|
|
|
|
|
Cisco Systems, Inc. * |
| 1,108,251 |
|
| 24,902,400 |
|
QUALCOMM, Inc. |
| 551,657 |
|
| 21,619,438 |
|
|
|
|
|
| ||
|
|
|
|
| 46,521,838 |
|
|
|
|
|
| ||
Internet Software & Services 4.8% |
|
|
|
|
|
|
Ancestry.com, Inc. * ρ |
| 533,040 |
|
| 7,398,595 |
|
Google, Inc., Class A * |
| 51,699 |
|
| 27,370,485 |
|
|
|
|
|
| ||
|
|
|
|
| 34,769,080 |
|
|
|
|
|
| ||
IT Services 0.9% |
|
|
|
|
|
|
Automatic Data Processing, Inc. |
| 151,476 |
|
| 6,178,706 |
|
|
|
|
|
| ||
Software 7.2% |
|
|
|
|
|
|
FactSet Research Systems, Inc. ρ |
| 206,929 |
|
| 13,036,527 |
|
Microsoft Corp. |
| 470,440 |
|
| 13,256,999 |
|
Nintendo Co., Ltd. |
| 42,000 |
|
| 11,744,674 |
|
Oracle Corp. |
| 585,780 |
|
| 13,508,087 |
|
|
|
|
|
| ||
|
|
|
|
| 51,546,287 |
|
|
|
|
|
| ||
MATERIALS 1.1% |
|
|
|
|
|
|
Chemicals 1.1% |
|
|
|
|
|
|
Air Products & Chemicals, Inc. |
| 107,488 |
|
| 8,164,789 |
|
|
|
|
|
| ||
Total Common Stocks (cost $611,307,490) |
|
|
|
| 703,016,042 |
|
|
|
|
|
| ||
PREFERRED STOCKS 0.5% |
|
|
|
|
|
|
FINANCIALS 0.5% |
|
|
|
|
|
|
Diversified Financial Services 0.5% |
|
|
|
|
|
|
Bank of America Corp., 10.00% (cost $3,393,000) |
| 226,200 |
|
| 3,415,620 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||||||
|
| Principal |
| Value |
| |
| ||||||
OTHER 0.4% |
|
|
|
|
|
|
Gryphon Funding, Ltd., Private Placement Pass-Through Notes ρρ + o (cost $3,286,684) | $ | 7,674,941 |
|
| 3,004,739 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||||||
|
| Shares |
| Value |
| |
| ||||||
PRIVATE PLACEMENT 0.5% |
|
|
|
|
|
|
FINANCIALS 0.5% |
|
|
|
|
|
|
Diversified Financial Services 0.5% |
|
|
|
|
|
|
Apollo Management, LP * + (cost $13,746,559) |
| 612,041 |
|
| 3,672,246 |
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
SHORT-TERM INVESTMENTS 5.4% |
|
|
|
|
|
|
MUTUAL FUND SHARES 5.4% |
|
|
|
|
|
|
BlackRock Liquidity TempFund, Institutional Class, 0.10% ρρ q |
| 15,341,248 |
| $ | 15,341,248 |
|
Evergreen Institutional Money Market Fund, Class I, 0.01% ρρ q ø |
| 2,404,550 |
|
| 2,404,550 |
|
Evergreen Institutional U.S. Government Money Market Fund, Class I, 0.01% q ø |
| 5,720,444 |
|
| 5,720,444 |
|
Morgan Stanley Institutional Liquidity Fund Money Market Portfolio, Institutional Class, 0.13% ρρ q |
| 15,220,693 |
|
| 15,220,693 |
|
|
|
|
|
| ||
Total Short-Term Investments (cost $38,686,935) |
|
|
|
| 38,686,935 |
|
|
|
|
|
| ||
Total Investments (cost $670,420,668) 104.7% |
|
|
|
| 751,795,582 |
|
Other Assets and Liabilities (4.7%) |
|
|
|
| (33,475,224 | ) |
|
|
|
|
| ||
Net Assets 100.0% |
|
|
| $ | 718,320,358 |
|
|
|
|
|
|
* | Non-income producing security |
ρ | All or a portion of this security is on loan. |
° | Security represents an investment in a non-controlled affiliate. At January 31, 2010, the Fund invested in securities issued by Wells Fargo & Co. with a cost basis of $19,385,269 and earned $77,044 of income for the six months ended January 31, 2010 which is included in income from affiliated issuers. |
ρρ | All or a portion of this security represents investment of cash collateral received from securities on loan. |
+ | Security is deemed illiquid. |
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, 2010:
Financials |
| 20.5 | % |
Information Technology |
| 19.6 | % |
Health Care |
| 16.3 | % |
Consumer Discretionary |
| 14.1 | % |
Consumer Staples |
| 10.3 | % |
Energy |
| 9.6 | % |
Industrials |
| 8.5 | % |
Materials |
| 1.1 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
15
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $642,910,405) including $38,310,185 of securities loaned |
| $ | 722,161,843 |
|
Investments in affiliated issuers, at value (cost $27,510,263) |
|
| 29,633,739 |
|
| ||||
Total investments |
|
| 751,795,582 |
|
Segregated cash |
|
| 1,496 |
|
Foreign currency, at value (cost $944,320) |
|
| 872,323 |
|
Receivable for securities sold |
|
| 6,185,073 |
|
Receivable for Fund shares sold |
|
| 87,878 |
|
Dividends receivable |
|
| 471,240 |
|
Receivable for securities lending income |
|
| 1,331 |
|
Prepaid expenses and other assets |
|
| 45,665 |
|
| ||||
Total assets |
|
| 759,460,588 |
|
| ||||
Liabilities |
|
|
|
|
Payable for Fund shares redeemed |
|
| 1,009,174 |
|
Payable for securities on loan |
|
| 39,768,646 |
|
Advisory fee payable |
|
| 37,229 |
|
Distribution Plan expenses payable |
|
| 15,826 |
|
Due to other related parties |
|
| 6,427 |
|
Trustees’ fees and expenses payable |
|
| 193,378 |
|
Printing and postage expenses payable |
|
| 75,142 |
|
Accrued expenses and other liabilities |
|
| 34,408 |
|
| ||||
Total liabilities |
|
| 41,140,230 |
|
| ||||
Net assets |
| $ | 718,320,358 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 782,755,799 |
|
Overdistributed net investment income |
|
| (3,137,807 | ) |
Accumulated net realized losses on investments |
|
| (142,607,149 | ) |
Net unrealized gains on investments |
|
| 81,309,515 |
|
| ||||
Total net assets |
| $ | 718,320,358 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 443,907,144 |
|
Class B |
|
| 29,735,367 |
|
Class C |
|
| 49,723,963 |
|
Class I |
|
| 194,953,884 |
|
| ||||
Total net assets |
| $ | 718,320,358 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 19,760,089 |
|
Class B |
|
| 1,439,983 |
|
Class C |
|
| 2,407,437 |
|
Class I |
|
| 8,525,141 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 22.46 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 23.83 |
|
Class B |
| $ | 20.65 |
|
Class C |
| $ | 20.65 |
|
Class I |
| $ | 22.87 |
|
|
See Notes to Financial Statements
16
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 6,166,179 |
|
Securities lending |
|
| 49,183 |
|
Income from affiliated issuers |
|
| 78,494 |
|
| ||||
Total investment income |
|
| 6,293,856 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 2,257,214 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 557,417 |
|
Class B |
|
| 158,499 |
|
Class C |
|
| 252,187 |
|
Administrative services fee |
|
| 361,790 |
|
Transfer agent fees |
|
| 1,269,313 |
|
Trustees’ fees and expenses |
|
| 6,033 |
|
Printing and postage expenses |
|
| 89,033 |
|
Custodian and accounting fees |
|
| 90,516 |
|
Registration and filing fees |
|
| 35,588 |
|
Professional fees |
|
| 29,482 |
|
Other |
|
| 12,036 |
|
| ||||
Total expenses |
|
| 5,119,108 |
|
Less: Expense reductions |
|
| (74 | ) |
| ||||
Net expenses |
|
| 5,119,034 |
|
| ||||
Net investment income |
|
| 1,174,822 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 20,824,280 |
|
Affiliated issuers |
|
| (198,778 | ) |
Foreign currency related transactions |
|
| (8,403 | ) |
| ||||
Net realized gains on investments |
|
| 20,617,099 |
|
| ||||
Net change in unrealized gains or losses on: |
|
|
|
|
Securities |
|
|
|
|
Unaffiliated issuers |
|
| 49,331,593 |
|
Affiliated issuers |
|
| 3,284,406 |
|
Foreign currency related transactions |
|
| (34,646 | ) |
| ||||
Net change in unrealized gains or losses on investments |
|
| 52,581,353 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
| 73,198,452 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 74,373,274 |
|
|
See Notes to Financial Statements
17
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 1,174,822 |
|
|
| $ | 6,247,070 |
|
Net realized gains or losses on investments |
|
|
|
| 20,617,099 |
|
|
|
| (20,460,444 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| 52,581,353 |
|
|
|
| (99,455,400 | ) |
| |||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
| 74,373,274 |
|
|
|
| (113,668,774 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (3,115,678 | ) |
|
|
| (2,968,403 | ) |
Class B |
|
|
|
| (118,368 | ) |
|
|
| (260,253 | ) |
Class C |
|
|
|
| (198,839 | ) |
|
|
| (249,507 | ) |
Class I |
|
|
|
| (1,711,436 | ) |
|
|
| (1,723,402 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (5,144,321 | ) |
|
|
| (5,201,565 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 565,855 |
|
| 12,883,749 |
| 672,039 |
|
| 12,296,572 |
|
Class B |
| 30,064 |
|
| 617,905 |
| 193,638 |
|
| 3,188,457 |
|
Class C |
| 87,532 |
|
| 1,788,107 |
| 218,166 |
|
| 3,579,042 |
|
Class I |
| 153,829 |
|
| 3,523,346 |
| 338,116 |
|
| 7,207,918 |
|
| |||||||||||
|
|
|
|
| 18,813,107 |
|
|
|
| 26,271,989 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 127,988 |
|
| 2,907,353 |
| 167,046 |
|
| 2,777,986 |
|
Class B |
| 5,391 |
|
| 113,904 |
| 16,347 |
|
| 247,980 |
|
Class C |
| 8,354 |
|
| 176,516 |
| 14,730 |
|
| 223,600 |
|
Class I |
| 66,932 |
|
| 1,537,930 |
| 87,358 |
|
| 1,551,595 |
|
| |||||||||||
|
|
|
|
| 4,735,703 |
|
|
|
| 4,801,161 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 199,291 |
|
| 4,334,246 |
| 1,042,271 |
|
| 19,255,390 |
|
Class B |
| (216,681 | ) |
| (4,334,246 | ) | (1,129,628 | ) |
| (19,255,390 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (1,424,820 | ) |
| (31,826,339 | ) | (4,119,115 | ) |
| (75,265,433 | ) |
Class B |
| (168,113 | ) |
| (3,424,123 | ) | (868,963 | ) |
| (14,745,515 | ) |
Class C |
| (195,819 | ) |
| (4,027,108 | ) | (596,411 | ) |
| (9,713,761 | ) |
Class I |
| (405,735 | ) |
| (9,279,175 | ) | (1,274,212 | ) |
| (23,121,731 | ) |
| |||||||||||
|
|
|
|
| (48,556,745 | ) |
|
|
| (122,846,440 | ) |
| |||||||||||
Net decrease in net assets resulting from capital share transactions |
|
|
|
| (25,007,935 | ) |
|
|
| (91,773,290 | ) |
| |||||||||||
Total increase (decrease) in net assets |
|
|
|
| 44,221,018 |
|
|
|
| (210,643,629 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 674,099,340 |
|
|
|
| 884,742,969 |
|
| |||||||||||
End of period |
|
|
| $ | 718,320,358 |
|
|
| $ | 674,099,340 |
|
| |||||||||||
Undistributed (overdistributed) net investment income |
|
|
| $ | (3,137,807 | ) |
|
| $ | 831,692 |
|
|
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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices. Non-listed preferred securities are valued using evaluated prices determined by an independent pricing service which takes into consideration such factors as similar security prices, spreads, liquidity, benchmark quotes and market conditions. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers who use prices provided by market makers or estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
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
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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 estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Short-term securities of sufficient credit quality 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.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
b. 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.
c. 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
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
d. 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.
e. 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.
f. 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.
g. 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, 2010, the advisory fee was equivalent to an annual rate of 0.62% of the Fund’s average daily net assets.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers on the Statement of Operations.
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.35% 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).
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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, 2010, EIS received $7,713 from the sale of Class A shares and $26,502 and $516 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 $73,533,279 and $96,776,287, respectively, for the six months ended January 31, 2010.
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 681,248,417 |
| $ | 21,767,625 |
| $ | 0 |
| $ | 703,016,042 |
|
Preferred stocks |
|
| 3,415,620 |
|
| 0 |
|
| 0 |
|
| 3,415,620 |
|
Other |
|
| 0 |
|
| 3,672,246 |
|
| 3,004,739 |
|
| 6,676,985 |
|
Short-term investments |
|
| 38,686,935 |
|
| 0 |
|
| 0 |
|
| 38,686,935 |
|
| |||||||||||||
|
| $ | 723,350,972 |
| $ | 25,439,871 |
| $ | 3,004,739 |
| $ | 751,795,582 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
|
| Other |
| |
| ||||
Balance as of August 1, 2009 |
| $ | 1,559,579 |
|
Realized gains or losses |
|
| 142,798 |
|
Change in unrealized gains or losses |
|
| 1,552,112 |
|
Net purchases (sales) |
|
| (249,750 | ) |
| ||||
Balance as of January 31, 2010 |
| $ | 3,004,739 |
|
| ||||
Change in unrealized gains or losses included in earnings relating to securities still held at January 31, 2010 |
| $ | 1,494,311 |
|
|
During the six months ended January 31, 2010, the Fund loaned securities to certain brokers and earned $49,183, net of $6,682 paid to Wachovia Global Securities Lending as the securities lending agent. At January 31, 2010, the value of securities on loan and
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
the total value of collateral received for securities loaned (including segregated cash) amounted to $38,310,185 and $39,768,646, respectively.
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $671,941,867. The gross unrealized appreciation and depreciation on securities based on tax cost was $134,478,972 and $54,625,257, respectively, with a net unrealized appreciation of $79,853,715.
As of July 31, 2009, the Fund had $157,815,648 in capital loss carryovers for federal income tax purposes with $134,054,732 expiring in 2010, $2,583,953 expiring in 2011 and $21,176,963 expiring in 2017. These losses are subject to certain limitations prescribed by the Internal Revenue Code.
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, 2010, 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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2010, the Fund had no borrowings.
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
11. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
12. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Core Equity Fund, which will be a series of Wells Fargo Funds Trust created in order to receive the assets of the Fund upon completion of the reorganization, will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Core Equity Fund.
A special meeting of shareholders of the Fund will be held in June 2010 to consider and vote on the Plan. In April 2010, materials for this meeting will be mailed to shareholders of record on March 10, 2010. If approved by the shareholders at this meeting, the reorganization will take place in July 2010.
26
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the
27
ADDITIONAL INFORMATION (unaudited) continued
information that EIMC and Keil provided. In addition, the Trustees considered information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
28
ADDITIONAL INFORMATION (unaudited) continued
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 met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the 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 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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.
29
ADDITIONAL INFORMATION (unaudited) continued
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 fees 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. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (inclu ding amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 the in-house research
30
ADDITIONAL INFORMATION (unaudited) continued
capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties.
The Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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. They determined that the nature and scope of the services provided by EIMC were consistent with EIMC’s duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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-, five-, and ten-year periods ended December 31, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the S&P 500 Index, and had performed in the second quintile of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that, for the one-year period ended December 31, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, and had performed in the first 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 emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did
31
ADDITIONAL INFORMATION (unaudited) continued
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 slightly higher than the management fees paid by a majority of the 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
32
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33
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34
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35
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
36
TRUSTEES AND OFFICERS continued
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: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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
120963 565221 rv7 03/2010
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 |
32 |
| 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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
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, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
1
LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, the management team 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 Enhanced S&P 500® Fund used a quantitative investment approach to identify companies with favorable investment characteristics in the areas of valuation, investor sentiment, and quality. 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 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors,
2
LETTER TO SHAREHOLDERS continued
staying focused on a long-term strategy based on individual goals and risk tolerance can help avoid missing potential periods of strong recovery.
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
MANAGEMENT TEAM
Investment Advisor:
Evergreen Investment Management Company, LLC
Portfolio Manager:
James M. Tringas, CFA, CPA
CURRENT INVESTMENT STYLE
Source: Morningstar, Inc.
Morningstar’s style box is based on a portfolio date as of 12/31/2009.
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 | 7.06% | 8.08% | 12.07% | N/A |
6-month return w/o sales charge | 13.58% | 13.08% | 13.07% | 13.81% |
Average annual return* |
|
|
|
|
1-year with sales charge | 27.40% | 29.12% | 33.18% | N/A |
1-year w/o sales charge | 35.22% | 34.12% | 34.18% | 35.47% |
Since portfolio inception | -8.35% | -7.88% | -6.65% | -5.78% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
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.
Class B shares are closed to new investments by new and existing shareholders.
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, 2010, 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, 2009 to January 31, 2010.
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 |
|
| $ | 1,135.77 |
|
| $ | 6.73 |
|
|
Class B |
| $ | 1,000.00 |
|
| $ | 1,130.78 |
|
| $ | 10.74 |
|
|
Class C |
| $ | 1,000.00 |
|
| $ | 1,130.67 |
|
| $ | 10.74 |
|
|
Class I |
| $ | 1,000.00 |
|
| $ | 1,138.12 |
|
| $ | 5.39 |
|
|
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)
CLASS A |
| Six Months Ended |
| Year Ended July 31, |
| |||||
|
| |||||||||
| 2009 |
| 20081 |
| ||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 7.56 |
| $ | 9.17 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.02 |
|
| 0.06 |
|
| 0.05 |
|
Net realized and unrealized gains or losses on investments |
|
| 1.00 |
|
| (1.63 | ) |
| (0.87 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 1.02 |
|
| (1.57 | ) |
| (0.82 | ) |
| ||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.07 | ) |
| (0.04 | ) |
| (0.01 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 8.51 |
| $ | 7.56 |
| $ | 9.17 |
|
| ||||||||||
Total return2 |
|
| 13.58 | % |
| (17.16 | )% |
| (8.06 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 494 |
| $ | 409 |
| $ | 390 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.25 | %3 |
| 1.25 | % |
| 1.25 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 8.96 | %3 |
| 9.59 | % |
| 13.49 | %3 |
Net investment income |
|
| 0.50 | %3 |
| 0.88 | % |
| 0.71 | %3 |
Portfolio turnover rate |
|
| 85 | % |
| 187 | % |
| 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)
CLASS B |
| Six Months Ended |
| Year Ended July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 7.52 |
| $ | 9.13 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
| (0.01 | ) |
| 0 |
|
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.99 |
|
| (1.61 | ) |
| (0.87 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.98 |
|
| (1.61 | ) |
| (0.87 | ) |
| ||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.02 | ) |
| 0 |
|
| 0 | 2 |
| ||||||||||
Net asset value, end of period |
| $ | 8.48 |
| $ | 7.52 |
| $ | 9.13 |
|
| ||||||||||
Total return3 |
|
| 13.08 | % |
| (17.72 | )% |
| (8.59 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 316 |
| $ | 278 |
| $ | 308 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.00 | %4 |
| 2.00 | % |
| 2.00 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 9.71 | %4 |
| 10.34 | % |
| 14.24 | %4 |
Net investment loss |
|
| (0.24 | )%4 |
| (0.03 | )% |
| (0.04 | )%4 |
Portfolio turnover rate |
|
| 85 | % |
| 187 | % |
| 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)
CLASS C |
| Six Months Ended |
| Year Ended July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 7.50 |
| $ | 9.14 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| (0.01 | ) |
| 0 | 2 |
| 0 |
|
Net realized and unrealized gains or losses on investments |
|
| 0.99 |
|
| (1.62 | ) |
| (0.86 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.98 |
|
| (1.62 | ) |
| (0.86 | ) |
| ||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0 |
|
| (0.02 | ) |
| 0 | 3 |
| ||||||||||
Net asset value, end of period |
| $ | 8.48 |
| $ | 7.50 |
| $ | 9.14 |
|
| ||||||||||
Total return4 |
|
| 13.07 | % |
| (17.64 | )% |
| (8.59 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 536 |
| $ | 525 |
| $ | 1,107 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.00 | %5 |
| 2.00 | % |
| 2.00 | %5 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 9.71 | %5 |
| 10.34 | % |
| 14.24 | %5 |
Net investment income (loss) |
|
| (0.23 | )%5 |
| 0.01 | % |
| (0.01 | )%5 |
Portfolio turnover rate |
|
| 85 | % |
| 187 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Per share amount 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)
CLASS I |
| Six Months Ended |
| Year Ended July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 7.58 |
| $ | 9.19 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| 0.03 |
|
| 0.07 | 2 |
| 0.06 |
|
Net realized and unrealized gains or losses on investments |
|
| 1.00 |
|
| (1.63 | ) |
| (0.85 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 1.03 |
|
| (1.56 | ) |
| (0.79 | ) |
| ||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
| (0.09 | ) |
| (0.05 | ) |
| (0.02 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 8.52 |
| $ | 7.58 |
| $ | 9.19 |
|
| ||||||||||
Total return |
|
| 13.81 | % |
| (17.00 | )% |
| (7.92 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 219 |
| $ | 195 |
| $ | 465 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.00 | %3 |
| 1.00 | % |
| 1.00 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 8.71 | %3 |
| 9.34 | % |
| 13.24 | %3 |
Net investment income |
|
| 0.76 | %3 |
| 0.95 | % |
| 1.01 | %3 |
Portfolio turnover rate |
|
| 85 | % |
| 187 | % |
| 120 | % |
|
1 | For the period from September 28, 2007 (commencement of class operations), to July 31, 2008. |
2 | Per share amount is based on average shares outstanding during the period. |
3 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS 88.4% |
|
|
|
|
|
|
CONSUMER DISCRETIONARY 9.1% |
|
|
|
|
|
|
Hotels, Restaurants & Leisure 3.7% |
|
|
|
|
|
|
Darden Restaurants, Inc. |
| 879 |
| $ | 32,488 |
|
Wendy’s/Arby’s Group, Inc. |
| 5,659 |
|
| 26,088 |
|
|
|
|
|
| ||
|
|
|
|
| 58,576 |
|
|
|
|
|
| ||
Household Durables 1.0% |
|
|
|
|
|
|
BLYTH, Inc. |
| 548 |
|
| 15,393 |
|
|
|
|
|
| ||
Internet & Catalog Retail 0.8% |
|
|
|
|
|
|
GameStop Corp., Class A * |
| 632 |
|
| 12,495 |
|
|
|
|
|
| ||
Media 3.6% |
|
|
|
|
|
|
Washington Post Co., Class B |
| 130 |
|
| 56,500 |
|
|
|
|
|
| ||
CONSUMER STAPLES 4.4% |
|
|
|
|
|
|
Food & Staples Retailing 1.1% |
|
|
|
|
|
|
Kroger Co. |
| 776 |
|
| 16,630 |
|
|
|
|
|
| ||
Food Products 2.9% |
|
|
|
|
|
|
Corn Products International, Inc. |
| 517 |
|
| 14,693 |
|
Sara Lee Corp. |
| 2,543 |
|
| 30,872 |
|
|
|
|
|
| ||
|
|
|
|
| 45,565 |
|
|
|
|
|
| ||
Household Products 0.4% |
|
|
|
|
|
|
Energizer Holdings, Inc. * |
| 119 |
|
| 6,604 |
|
|
|
|
|
| ||
ENERGY 3.9% |
|
|
|
|
|
|
Energy Equipment & Services 1.8% |
|
|
|
|
|
|
Atwood Oceanics, Inc. * |
| 811 |
|
| 27,185 |
|
|
|
|
|
| ||
Oil, Gas & Consumable Fuels 2.1% |
|
|
|
|
|
|
Cimarex Energy Co. |
| 678 |
|
| 33,364 |
|
|
|
|
|
| ||
FINANCIALS 23.0% |
|
|
|
|
|
|
Commercial Banks 11.4% |
|
|
|
|
|
|
BOK Financial Corp. |
| 555 |
|
| 26,313 |
|
First Citizens Bancshares, Inc., Class A |
| 427 |
|
| 71,612 |
|
Huntington Bancshares, Inc. |
| 4,972 |
|
| 23,816 |
|
KeyCorp |
| 3,355 |
|
| 24,089 |
|
TCF Financial Corp. |
| 1,155 |
|
| 16,909 |
|
UMB Financial Corp. |
| 400 |
|
| 15,804 |
|
|
|
|
|
| ||
|
|
|
|
| 178,543 |
|
|
|
|
|
| ||
Insurance 11.6% |
|
|
|
|
|
|
Assured Guaranty, Ltd. |
| 617 |
|
| 13,981 |
|
Brown & Brown, Inc. |
| 3,064 |
|
| 53,926 |
|
Fidelity National Financial, Inc., Class A |
| 3,162 |
|
| 40,790 |
|
Validus Holdings, Ltd. |
| 530 |
|
| 14,045 |
|
White Mountains Insurance Group, Ltd. |
| 182 |
|
| 58,326 |
|
|
|
|
|
| ||
|
|
|
|
| 181,068 |
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
HEALTH CARE 9.6% |
|
|
|
|
|
|
Biotechnology 3.1% |
|
|
|
|
|
|
Cephalon, Inc. * |
| 500 |
| $ | 31,920 |
|
Genzyme Corp. * |
| 302 |
|
| 16,387 |
|
|
|
|
|
| ||
|
|
|
|
| 48,307 |
|
|
|
|
|
| ||
Health Care Providers & Services 1.3% |
|
|
|
|
|
|
Omnicare, Inc. |
| 830 |
|
| 20,750 |
|
|
|
|
|
| ||
Life Sciences Tools & Services 1.2% |
|
|
|
|
|
|
Pharmaceutical Product Development, Inc. |
| 823 |
|
| 19,225 |
|
|
|
|
|
| ||
Pharmaceuticals 4.0% |
|
|
|
|
|
|
Biovail Corp. |
| 2,164 |
|
| 31,421 |
|
Endo Pharmaceuticals Holdings, Inc. * |
| 1,162 |
|
| 23,368 |
|
Forest Laboratories, Inc. * |
| 241 |
|
| 7,143 |
|
|
|
|
|
| ||
|
|
|
|
| 61,932 |
|
|
|
|
|
| ||
INDUSTRIALS 8.2% |
|
|
|
|
|
|
Commercial Services & Supplies 0.3% |
|
|
|
|
|
|
R.R. Donnelley & Sons Co. |
| 274 |
|
| 5,431 |
|
|
|
|
|
| ||
Construction & Engineering 0.5% |
|
|
|
|
|
|
KBR, Inc. |
| 425 |
|
| 7,960 |
|
|
|
|
|
| ||
Electrical Equipment 3.4% |
|
|
|
|
|
|
General Cable Corp. * |
| 1,849 |
|
| 53,806 |
|
|
|
|
|
| ||
Machinery 0.9% |
|
|
|
|
|
|
Mueller Industries, Inc. |
| 542 |
|
| 13,328 |
|
|
|
|
|
| ||
Marine 1.5% |
|
|
|
|
|
|
Kirby Corp. * |
| 733 |
|
| 23,778 |
|
|
|
|
|
| ||
Road & Rail 1.6% |
|
|
|
|
|
|
Con-Way, Inc. |
| 848 |
|
| 24,270 |
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 11.1% |
|
|
|
|
|
|
Computers & Peripherals 3.7% |
|
|
|
|
|
|
Imation Corp. * |
| 3,239 |
|
| 28,957 |
|
Lexmark International, Inc., Class A * |
| 1,089 |
|
| 28,085 |
|
|
|
|
|
| ||
|
|
|
|
| 57,042 |
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 0.3% |
|
|
|
|
|
|
Molex, Inc., Class A |
| 242 |
|
| 4,266 |
|
|
|
|
|
| ||
Internet Software & Services 1.8% |
|
|
|
|
|
|
IAC/InterActiveCorp. * |
| 1,406 |
|
| 28,233 |
|
|
|
|
|
| ||
IT Services 2.0% |
|
|
|
|
|
|
Global Payments, Inc. |
| 312 |
|
| 13,884 |
|
Total System Services, Inc. |
| 1,231 |
|
| 17,616 |
|
|
|
|
|
| ||
|
|
|
|
| 31,500 |
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
COMMON STOCKS continued |
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
Semiconductors & Semiconductor Equipment 0.8% |
|
|
|
|
|
|
LSI Corp. * |
| 1,616 |
| $ | 8,176 |
|
Maxim Integrated Products, Inc. |
| 263 |
|
| 4,631 |
|
|
|
|
|
| ||
|
|
|
|
| 12,807 |
|
|
|
|
|
| ||
Software 2.5% |
|
|
|
|
|
|
Electronic Arts, Inc. * |
| 1,482 |
|
| 24,127 |
|
Novell, Inc. * |
| 3,343 |
|
| 14,943 |
|
|
|
|
|
| ||
|
|
|
|
| 39,070 |
|
|
|
|
|
| ||
MATERIALS 12.4% |
|
|
|
|
|
|
Chemicals 1.3% |
|
|
|
|
|
|
Ashland, Inc. |
| 518 |
|
| 20,932 |
|
|
|
|
|
| ||
Construction Materials 2.0% |
|
|
|
|
|
|
Martin Marietta Materials, Inc. |
| 397 |
|
| 31,435 |
|
|
| �� |
|
| ||
Containers & Packaging 3.0% |
|
|
|
|
|
|
Silgan Holdings, Inc. |
| 891 |
|
| 46,198 |
|
|
|
|
|
| ||
Metals & Mining 0.7% |
|
|
|
|
|
|
Commercial Metals Co. |
| 757 |
|
| 10,401 |
|
|
|
|
|
| ||
Paper & Forest Products 5.4% |
|
|
|
|
|
|
International Paper Co. |
| 1,894 |
|
| 43,392 |
|
Weyerhaeuser Co. |
| 1,049 |
|
| 41,855 |
|
|
|
|
|
| ||
|
|
|
|
| 85,247 |
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 1.0% |
|
|
|
|
|
|
Wireless Telecommunication Services 1.0% |
|
|
|
|
|
|
Telephone & Data Systems, Inc. |
| 490 |
|
| 15,460 |
|
|
|
|
|
| ||
UTILITIES 5.7% |
|
|
|
|
|
|
Electric Utilities 2.9% |
|
|
|
|
|
|
Allete, Inc. |
| 408 |
|
| 12,770 |
|
Westar Energy, Inc. |
| 1,496 |
|
| 31,910 |
|
|
|
|
|
| ||
|
|
|
|
| 44,680 |
|
|
|
|
|
| ||
Gas Utilities 1.4% |
|
|
|
|
|
|
Atmos Energy Corp. |
| 812 |
|
| 22,427 |
|
|
|
|
|
| ||
Multi-Utilities 1.4% |
|
|
|
|
|
|
Ameren Corp. |
| 867 |
|
| 22,152 |
|
|
|
|
|
| ||
Total Common Stocks (cost $1,312,166) |
|
|
|
| 1,382,560 |
|
|
|
|
|
| ||
EXCHANGE TRADED FUND 3.2% |
|
|
|
|
|
|
iShares Russell Midcap Value Index Fund (cost $50,574) |
| 1,402 |
|
| 50,374 |
|
|
|
|
|
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| |
| ||||||
SHORT-TERM INVESTMENTS 5.5% |
|
|
|
|
|
|
MUTUAL FUND SHARES 5.5% |
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I , 0.01% q ø (cost $86,326) |
| 86,326 |
| $ | 86,326 |
|
|
|
|
|
| ||
Total Investments (cost $1,449,066) 97.1% |
|
|
|
| 1,519,260 |
|
Other Assets and Liabilities 2.9% |
|
|
|
| 45,010 |
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
| $ | 1,564,270 |
|
|
|
|
|
|
* | 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. |
The following table shows the percent of total long-term investments by sector as of January 31, 2010:
Financials |
| 25.0 | % |
Materials |
| 13.6 | % |
Information Technology |
| 12.1 | % |
Health Care |
| 10.5 | % |
Consumer Discretionary |
| 10.0 | % |
Industrials |
| 9.0 | % |
Utilities |
| 6.2 | % |
Consumer Staples |
| 4.8 | % |
Energy |
| 4.2 | % |
Telecommunication Services |
| 1.1 | % |
Other |
| 3.5 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
14
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $1,362,740) |
| $ | 1,432,934 |
|
Investments in affiliated issuers, at value (cost $86,326) |
|
| 86,326 |
|
| ||||
Total investments |
|
| 1,519,260 |
|
Receivable for securities sold |
|
| 77,532 |
|
Dividends receivable |
|
| 1,351 |
|
Receivable for Fund shares sold |
|
| 27 |
|
Receivable from investment advisor |
|
| 917 |
|
Prepaid expenses and other assets |
|
| 45,854 |
|
| ||||
Total assets |
|
| 1,644,941 |
|
| ||||
Liabilities |
|
|
|
|
Payable for securities purchased |
|
| 65,692 |
|
Distribution Plan expenses payable |
|
| 81 |
|
Due to other related parties |
|
| 231 |
|
Printing and postage expenses payable |
|
| 8,578 |
|
Accrued expenses and other liabilities |
|
| 6,089 |
|
| ||||
Total liabilities |
|
| 80,671 |
|
| ||||
Net assets |
| $ | 1,564,270 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 2,176,829 |
|
Undistributed net investment income |
|
| 1,001 |
|
Accumulated net realized losses on investments |
|
| (683,754 | ) |
Net unrealized gains on investments |
|
| 70,194 |
|
| ||||
Total net assets |
| $ | 1,564,270 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 493,664 |
|
Class B |
|
| 315,849 |
|
Class C |
|
| 535,826 |
|
Class I |
|
| 218,931 |
|
| ||||
Total net assets |
| $ | 1,564,270 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 58,010 |
|
Class B |
|
| 37,254 |
|
Class C |
|
| 63,185 |
|
Class I |
|
| 25,703 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 8.51 |
|
Class A—Offering price (based on sales charge of 5.75%) |
| $ | 9.03 |
|
Class B |
| $ | 8.48 |
|
Class C |
| $ | 8.48 |
|
Class I |
| $ | 8.52 |
|
|
See Notes to Financial Statements
15
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends (net of foreign withholding taxes of $27) |
| $ | 13,396 |
|
Income from affiliated issuers |
|
| 42 |
|
| ||||
Total investment income |
|
| 13,438 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 4,962 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 579 |
|
Class B |
|
| 1,507 |
|
Class C |
|
| 2,735 |
|
Administrative services fee |
|
| 763 |
|
Transfer agent fees |
|
| 2,531 |
|
Trustees’ fees and expenses |
|
| 621 |
|
Printing and postage expenses |
|
| 7,878 |
|
Custodian and accounting fees |
|
| 1,891 |
|
Registration and filing fees |
|
| 32,858 |
|
Professional fees |
|
| 14,355 |
|
Other |
|
| 672 |
|
| ||||
Total expenses |
|
| 71,352 |
|
Less: Fee waivers and expense reimbursements |
|
| (58,898 | ) |
| ||||
Net expenses |
|
| 12,454 |
|
| ||||
Net investment income |
|
| 984 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized gains on securities in unaffiliated issuers |
|
| 209,379 |
|
Net change in unrealized gains or losses on securities in unaffiliated issuers |
|
| (24,334 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
| 185,045 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 186,029 |
|
|
See Notes to Financial Statements
16
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
| $ | 984 |
|
|
| $ | 7,323 |
|
Net realized gains or losses on investments |
|
|
|
| 209,379 |
|
|
|
| (875,831 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| (24,334 | ) |
|
|
| 254,967 |
|
| |||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
| 186,029 |
|
|
|
| (613,541 | ) |
| |||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
| (4,097 | ) |
|
|
| (1,775 | ) |
Class B |
|
|
|
| (810 | ) |
|
|
| 0 |
|
Class C |
|
|
|
| 0 |
|
|
|
| (3,405 | ) |
Class I |
|
|
|
| (2,399 | ) |
|
|
| (2,472 | ) |
| |||||||||||
Total distributions to shareholders |
|
|
|
| (7,306 | ) |
|
|
| (7,652 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 4,877 |
|
| 41,288 |
| 84,028 |
|
| 759,065 |
|
Class B |
| 4,185 |
|
| 34,532 |
| 10,557 |
|
| 71,818 |
|
Class C |
| 961 |
|
| 7,799 |
| 74,157 |
|
| 599,450 |
|
Class I |
| 323 |
|
| 2,703 |
| 40,030 |
|
| 268,437 |
|
| |||||||||||
|
|
|
|
| 86,322 |
|
|
|
| 1,698,770 |
|
| |||||||||||
Net asset value of shares issued in reinvestment of distributions |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 271 |
|
| 2,240 |
| 117 |
|
| 772 |
|
Class B |
| 26 |
|
| 212 |
| 0 |
|
| 0 |
|
Class C |
| 0 |
|
| 0 |
| 427 |
|
| 2,798 |
|
Class I |
| 10 |
|
| 79 |
| 186 |
|
| 1,227 |
|
| |||||||||||
|
|
|
|
| 2,531 |
|
|
|
| 4,797 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 98 |
|
| 808 |
| 313 |
|
| 2,144 |
|
Class B |
| (99 | ) |
| (808 | ) | (314 | ) |
| (2,144 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (1,347 | ) |
| (11,147 | ) | (72,860 | ) |
| (624,997 | ) |
Class B |
| (3,842 | ) |
| (31,762 | ) | (7,001 | ) |
| (47,506 | ) |
Class C |
| (7,767 | ) |
| (64,117 | ) | (125,734 | ) |
| (817,656 | ) |
Class I |
| (326 | ) |
| (2,801 | ) | (65,133 | ) |
| (455,897 | ) |
| |||||||||||
|
|
|
|
| (109,827 | ) |
|
|
| (1,946,056 | ) |
| |||||||||||
Net decrease in net assets resulting from capital share transactions |
|
|
|
| (20,974 | ) |
|
|
| (242,489 | ) |
| |||||||||||
Total increase (decrease) in net assets |
|
|
|
| 157,749 |
|
|
|
| (863,682 | ) |
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 1,406,521 |
|
|
|
| 2,270,203 |
|
| |||||||||||
End of period |
|
|
| $ | 1,564,270 |
|
|
| $ | 1,406,521 |
|
| |||||||||||
Undistributed net investment income |
|
|
| $ | 1,001 |
|
|
| $ | 7,323 |
|
|
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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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 had 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices.
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.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
18
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
b. Security transactions and investment
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 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, 2010 the advisory fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
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, 2010, EIMC voluntarily waived its advisory fee in the amount of $4,962 and reimbursed other expenses in the amount of $53,936.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers 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
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
daily net assets of the Evergreen funds (excluding money market funds) increase. For the six months ended January 31, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.33% of the Fund’s average daily net assets.
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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 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.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $1,158,839 and $1,176,716, respectively, for the six months ended January 31, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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.
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of January 31, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 1,382,560 |
| $ | 0 |
| $ | 0 |
| $ | 1,382,560 |
|
Other |
|
| 50,374 |
|
|
|
|
|
|
|
| 50,374 |
|
Short-term investments |
|
| 86,326 |
|
| 0 |
|
| 0 |
|
| 86,326 |
|
| |||||||||||||
|
| $ | 1,519,260 |
| $ | 0 |
| $ | 0 |
| $ | 1,519,260 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $1,543,399. The gross unrealized appreciation and depreciation on securities based on tax cost was $43,676 and $67,815, respectively, with a net unrealized depreciation of $24,139.
As of July 31, 2009, the Fund had $15,780 in capital loss carryovers for federal income tax purposes expiring in 2017.
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, 2009, the Fund incurred and elected to defer post-October losses of $726,531.
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, 2010, the Fund did not participate in the interfund lending program.
7. 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.
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
8. 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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata. During the six months ended January 31, 2009, the Fund had no borrowings.
9. 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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
10. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
11. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Mid Cap Disciplined Fund, a series of Wells Fargo Funds Trust, will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Mid Cap Disciplined Fund.
A special meeting of shareholders of the Fund will be held in June 2010 to consider and vote on the Plan. In April 2010, materials for this meeting will be mailed to shareholders of record on March 10, 2010. If approved by the shareholders at this meeting, the reorganization will take place in July 2010.
23
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the information that EIMC and Keil provided. In addition, the Trustees
24
ADDITIONAL INFORMATION (unaudited) continued
considered information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
25
ADDITIONAL INFORMATION (unaudited) continued
Information reviewed. The Board of Trustees and committees of the Board of Trustees met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the 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 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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 fees 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. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds
26
ADDITIONAL INFORMATION (unaudited) continued
Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (inclu ding amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 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 Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and
27
ADDITIONAL INFORMATION (unaudited) continued
broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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. They determined that the nature and scope of the services provided by EIMC were consistent with EIMC’s duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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, 2008, the Fund’s Class A shares had outperformed the Fund’s benchmark index, the Russell Midcap Value Index, and had performed in the first quintile of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that the Fund had recently commenced operations and had a relatively short track record of performance that limited their ability to draw meaningful conclusions about 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 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
28
ADDITIONAL INFORMATION (unaudited) continued
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 management 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
29
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30
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31
TRUSTEES AND OFFICERS
TRUSTEES1 |
|
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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
32
TRUSTEES AND OFFICERS continued
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: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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.
33
120964 581828 rv2 03/2010
Evergreen Golden Core Opportunitites 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 |
25 |
| ADDITIONAL INFORMATION |
32 |
| 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 2010, 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 broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
March 2010
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Golden Core Opportunitites Fund for the six-month period ended January 31, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of six consecutive quarterly declines. Gross domestic product (“GDP”) growth was 2.2% for the third quarter of 2009 and 5.7% for the fourth quarter, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. The Labor Department reported that 20,000 jobs were lost in January 2010, a significant improvement from the monthly job losses of approximately 700,000 at the height of the recession. Other encouraging news in January included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (the “FOMC”) held the federal funds rate at the range of 0% to 0.25% that it first targeted in
1
LETTER TO SHAREHOLDERS continued
December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010. In its final statement during the period, the FOMC noted the signs of economic improvement but reiterated that it was likely to keep the federal funds rate at exceptionally low levels for an extended period because of the continued substantial economic slack.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period before staging a moderate pullback in the final weeks of January 2010. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement. The broad market, as represented by the S&P 500 Index, rose more than 26% for all of 2009, with a gain of nearly 65% from the March 9th low through year-end.
During the period, 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.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors, staying focused on a long-term strategy based on individual goals and risk tolerance can help avoid missing potential periods of strong recovery.
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
Notice to Shareholders:
The Evergreen Funds’ Board of Trustees has unanimously approved the reorganizations of the Evergreen Funds, including the Fund in this report, into Wells Fargo Advantage Funds®. Each reorganization is subject to the satisfaction of a number of conditions, including approval by the Evergreen Fund’s shareholders at a meeting expected to be held in June 2010. It is anticipated that the reorganizations, if they are approved by shareholders and all conditions to the closing are satisfied, will occur in July 2010. Additional information, including a description of the applicable reorganization and information about fees, expenses, and risk factors, will be provided to shareholders of each Evergreen Fund in a Prospectus/Proxy Statement that is expected to be mailed in April, 2010.
The foregoing is not an offer to sell, nor is it a solicitation of an offer to buy, shares of any Wells Fargo Advantage Fund, nor is it a solicitation of any proxy. For more information, or to receive a free copy of the Prospectus/Proxy Statement once a registration statement relating to a proposed reorganization has been filed with the Securities and Exchange Commission and becomes effective, please call 1.800.343.2898 or visit Evergreeninvestments.com. The Prospectus/Proxy Statement will also be available for free on the Securities and Exchange Commission’s website (www.sec.gov). Please read the Prospectus/Proxy Statement carefully before making any investment decisions.
3
FUND AT A GLANCE
as of January 31, 2010
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 12/31/2009.
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 A | Class B | Class C | Class I |
Class inception date | 12/17/2007 | 12/17/2007 | 12/17/2007 | 12/17/2007 |
Nasdaq symbol | ECOAX | ECOBX | ECOCX | ECOIX |
6-month return with sales charge | 1.65% | 2.37% | 6.37% | N/A |
6-month return w/o sales charge | 7.78% | 7.37% | 7.37% | 7.90% |
Average annual return* |
|
|
|
|
1-year with sales charge | 22.12% | 23.60% | 27.60% | N/A |
1-year w/o sales charge | 29.58% | 28.60% | 28.60% | 29.85% |
Since portfolio inception | -18.96% | -18.37% | -17.19% | -16.44% |
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.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A Fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
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.
Class B shares are closed to new investments by new and existing shareholders.
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.
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.
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.
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.
All data is as of January 31, 2010, 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, 2009 to January 31, 2010.
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 |
|
| $ | 1,077.78 |
|
| $ | 7.91 |
|
|
Class B |
| $ | 1,000.00 |
|
| $ | 1,073.72 |
|
| $ | 11.81 |
|
|
Class C |
| $ | 1,000.00 |
|
| $ | 1,073.72 |
|
| $ | 11.81 |
|
|
Class I |
| $ | 1,000.00 |
|
| $ | 1,078.99 |
|
| $ | 6.55 |
|
|
Hypothetical |
|
|
|
|
|
|
|
|
|
|
|
|
|
(5% return before expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
| $ | 1,000.00 |
|
| $ | 1,017.59 |
|
| $ | 7.68 |
|
|
Class B |
| $ | 1,000.00 |
|
| $ | 1,013.81 |
|
| $ | 11.47 |
|
|
Class C |
| $ | 1,000.00 |
|
| $ | 1,013.81 |
|
| $ | 11.47 |
|
|
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 (1.51% for Class A, 2.26% for Class B, 2.26% 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 July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 6.30 |
| $ | 9.06 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0 |
|
| 0 |
|
| (0.02 | ) |
Net realized and unrealized gains or losses on investments |
|
| 0.49 |
|
| (2.76 | ) |
| (0.92 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.49 |
|
| (2.76 | ) |
| (0.94 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 6.79 |
| $ | 6.30 |
| $ | 9.06 |
|
| ||||||||||
Total return2 |
|
| 7.78 | % |
| (30.46 | )% |
| (9.40 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 14,155 |
| $ | 14,915 |
| $ | 563 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.51 | %3 |
| 1.50 | % |
| 1.50 | %3 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.30 | %3 |
| 2.35 | % |
| 5.15 | %3 |
Net investment loss |
|
| (0.04 | )%3 |
| (0.07 | )% |
| (0.44 | )%3 |
Portfolio turnover rate |
|
| 12 | % |
| 230 | % |
| 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 July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 6.24 |
| $ | 9.04 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
| (0.04 | ) |
| (0.05 | )2 |
| (0.06 | ) |
Net realized and unrealized gains or losses on investments |
|
| 0.50 |
|
| (2.75 | ) |
| (0.90 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.46 |
|
| (2.80 | ) |
| (0.96 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 6.70 |
| $ | 6.24 |
| $ | 9.04 |
|
| ||||||||||
Total return3 |
|
| 7.37 | % |
| (30.97 | )% |
| (9.60 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 2,585 |
| $ | 3,134 |
| $ | 533 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.26 | %4 |
| 2.25 | % |
| 2.25 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 3.05 | %4 |
| 3.10 | % |
| 5.90 | %4 |
Net investment loss |
|
| (0.78 | )%4 |
| (0.80 | )% |
| (1.18 | )%4 |
Portfolio turnover rate |
|
| 12 | % |
| 230 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Per share amount 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 July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 6.24 |
| $ | 9.04 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
| (0.04 | ) |
| (0.05 | )2 |
| (0.07 | ) |
Net realized and unrealized gains or losses on investments |
|
| 0.50 |
|
| (2.75 | ) |
| (0.89 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.46 |
|
| (2.80 | ) |
| (0.96 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 6.70 |
| $ | 6.24 |
| $ | 9.04 |
|
| ||||||||||
Total return3 |
|
| 7.37 | % |
| (30.97 | )% |
| (9.60 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 3,047 |
| $ | 3,553 |
| $ | 477 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 2.26 | %4 |
| 2.25 | % |
| 2.25 | %4 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 3.05 | %4 |
| 3.10 | % |
| 5.90 | %4 |
Net investment loss |
|
| (0.78 | )%4 |
| (0.80 | )% |
| (1.18 | )%4 |
Portfolio turnover rate |
|
| 12 | % |
| 230 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Per share amount 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 July 31, |
| |||||
| ||||||||||
2009 |
| 20081 |
| |||||||
| ||||||||||
Net asset value, beginning of period |
| $ | 6.33 |
| $ | 9.07 |
| $ | 10.00 |
|
| ||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
| 0.02 |
|
| 0 |
|
| (0.01 | ) |
Net realized and unrealized gains or losses on investments |
|
| 0.48 |
|
| (2.74 | ) |
| (0.92 | ) |
|
|
| ||||||||
Total from investment operations |
|
| 0.50 |
|
| (2.74 | ) |
| (0.93 | ) |
| ||||||||||
Net asset value, end of period |
| $ | 6.83 |
| $ | 6.33 |
| $ | 9.07 |
|
| ||||||||||
Total return |
|
| 7.90 | % |
| (30.21 | )% |
| (9.30 | )% |
| ||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (thousands) |
| $ | 6,625 |
| $ | 9,521 |
| $ | 3,221 |
|
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements but excluding expense reductions |
|
| 1.25 | %2 |
| 1.25 | % |
| 1.25 | %2 |
Expenses excluding waivers/reimbursements and expense reductions |
|
| 2.04 | %2 |
| 2.10 | % |
| 4.90 | %2 |
Net investment income (loss) |
|
| 0.23 | %2 |
| 0.22 | % |
| (0.18 | )%2 |
Portfolio turnover rate |
|
| 12 | % |
| 230 | % |
| 23 | % |
|
1 | For the period from December 17, 2007 (commencement of class operations), to July 31, 2008. |
2 | Annualized |
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS 98.7% |
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 13.8% |
|
|
|
|
|
|
|
Leisure Equipment & Products 2.2% |
|
|
|
|
|
|
|
Hasbro, Inc. |
|
| 19,480 |
| $ | 595,114 |
|
|
|
|
|
|
| ||
Media 2.0% |
|
|
|
|
|
|
|
DreamWorks Animation SKG, Inc., Class A * |
|
| 13,525 |
|
| 526,663 |
|
|
|
|
|
|
| ||
Multiline Retail 3.6% |
|
|
|
|
|
|
|
Big Lots, Inc. * |
|
| 17,720 |
|
| 503,425 |
|
Family Dollar Stores, Inc. |
|
| 14,305 |
|
| 441,739 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 945,164 |
|
|
|
|
|
|
| ||
Specialty Retail 2.1% |
|
|
|
|
|
|
|
Ross Stores, Inc. |
|
| 11,975 |
|
| 550,012 |
|
|
|
|
|
|
| ||
Textiles, Apparel & Luxury Goods 3.9% |
|
|
|
|
|
|
|
Carter’s, Inc. * |
|
| 19,505 |
|
| 504,399 |
|
Wolverine World Wide, Inc. |
|
| 19,940 |
|
| 527,413 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,031,812 |
|
|
|
|
|
|
| ||
CONSUMER STAPLES 4.1% |
|
|
|
|
|
|
|
Food & Staples Retailing 1.9% |
|
|
|
|
|
|
|
Casey’s General Stores, Inc. |
|
| 16,070 |
|
| 493,028 |
|
|
|
|
|
|
| ||
Personal Products 2.2% |
|
|
|
|
|
|
|
Alberto-Culver Co. |
|
| 20,370 |
|
| 578,304 |
|
|
|
|
|
|
| ||
ENERGY 6.5% |
|
|
|
|
|
|
|
Energy Equipment & Services 6.5% |
|
|
|
|
|
|
|
Cameron International Corp. * |
|
| 14,020 |
|
| 527,993 |
|
Helmerich & Payne, Inc. |
|
| 15,125 |
|
| 632,679 |
|
Noble Corp. |
|
| 14,055 |
|
| 566,697 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,727,369 |
|
|
|
|
|
|
| ||
FINANCIALS 15.7% |
|
|
|
|
|
|
|
Capital Markets 2.0% |
|
|
|
|
|
|
|
Federated Investors, Inc. |
|
| 20,785 |
|
| 527,523 |
|
|
|
|
|
|
| ||
Commercial Banks 3.9% |
|
|
|
|
|
|
|
Commerce Bancshares, Inc. |
|
| 13,867 |
|
| 548,856 |
|
Cullen/Frost Bankers, Inc. |
|
| 9,200 |
|
| 472,144 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,021,000 |
|
|
|
|
|
|
| ||
Diversified Financial Services 1.4% |
|
|
|
|
|
|
|
NASDAQ OMX Group, Inc. * |
|
| 20,880 |
|
| 375,631 |
|
|
|
|
|
|
| ||
Insurance 6.1% |
|
|
|
|
|
|
|
American Financial Group, Inc. |
|
| 21,750 |
|
| 539,618 |
|
HCC Insurance Holdings, Inc. |
|
| 20,250 |
|
| 548,775 |
|
Platinum Underwriters Holdings, Ltd. |
|
| 14,435 |
|
| 523,413 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,611,806 |
|
|
|
|
|
|
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
Real Estate Investment Trusts (REITs) 2.3% |
|
|
|
|
|
|
|
Digital Realty Trust, Inc. |
|
| 12,640 |
| $ | 606,720 |
|
|
|
|
|
|
| ||
HEALTH CARE 14.7% |
|
|
|
|
|
|
|
Health Care Equipment & Supplies 1.5% |
|
|
|
|
|
|
|
STERIS Corp. |
|
| 15,355 |
|
| 400,458 |
|
|
|
|
|
|
| ||
Health Care Providers & Services 4.7% |
|
|
|
|
|
|
|
AmerisourceBergen Corp. |
|
| 25,765 |
|
| 702,354 |
|
Laboratory Corporation of America Holdings * |
|
| 7,585 |
|
| 539,294 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,241,648 |
|
|
|
|
|
|
| ||
Life Sciences Tools & Services 4.6% |
|
|
|
|
|
|
|
Life Technologies Corp. * |
|
| 12,205 |
|
| 606,711 |
|
Waters Corp. * |
|
| 10,530 |
|
| 599,999 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,206,710 |
|
|
|
|
|
|
| ||
Pharmaceuticals 3.9% |
|
|
|
|
|
|
|
Endo Pharmaceuticals Holdings, Inc. * |
|
| 21,245 |
|
| 427,237 |
|
Watson Pharmaceuticals, Inc. * |
|
| 15,830 |
|
| 607,397 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,034,634 |
|
|
|
|
|
|
| ||
INDUSTRIALS 10.6% |
|
|
|
|
|
|
|
Aerospace & Defense 1.4% |
|
|
|
|
|
|
|
DynCorp International, Inc., Class A * |
|
| 29,800 |
|
| 357,898 |
|
|
|
|
|
|
| ||
Commercial Services & Supplies 1.2% |
|
|
|
|
|
|
|
Brink’s Co. |
|
| 13,340 |
|
| 311,889 |
|
|
|
|
|
|
| ||
Electrical Equipment 3.9% |
|
|
|
|
|
|
|
Cooper Industries plc |
|
| 13,715 |
|
| 588,374 |
|
GrafTech International, Ltd. * |
|
| 35,780 |
|
| 449,397 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,037,771 |
|
|
|
|
|
|
| ||
Machinery 4.1% |
|
|
|
|
|
|
|
Bucyrus International, Inc. |
|
| 9,780 |
|
| 512,276 |
|
Pall Corp. |
|
| 16,840 |
|
| 580,475 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,092,751 |
|
|
|
|
|
|
| ||
INFORMATION TECHNOLOGY 18.9% |
|
|
|
|
|
|
|
Communications Equipment 3.1% |
|
|
|
|
|
|
|
Cogo Group, Inc. * |
|
| 56,435 |
|
| 358,927 |
|
Harris Corp. |
|
| 10,800 |
|
| 463,536 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 822,463 |
|
|
|
|
|
|
| ||
Electronic Equipment, Instruments & Components 3.9% |
|
|
|
|
|
|
|
Amphenol Corp., Class A |
|
| 14,195 |
|
| 565,529 |
|
Vishay Intertechnology, Inc. * |
|
| 63,700 |
|
| 480,298 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,045,827 |
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
January 31, 2010 (unaudited)
|
| Shares |
| Value |
| ||
| |||||||
COMMON STOCKS continued |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
Internet Software & Services 1.5% |
|
|
|
|
|
|
|
ValueClick, Inc. * |
|
| 42,485 |
| $ | 392,986 |
|
|
|
|
|
|
| ||
IT Services 4.1% |
|
|
|
|
|
|
|
Genpact, Ltd. * |
|
| 38,835 |
|
| 538,642 |
|
NeuStar, Inc., Class A * |
|
| 23,885 |
|
| 536,457 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,075,099 |
|
|
|
|
|
|
| ||
Software 6.3% |
|
|
|
|
|
|
|
BMC Software, Inc. * |
|
| 14,185 |
|
| 548,108 |
|
Sybase, Inc. * |
|
| 13,963 |
|
| 567,875 |
|
TIBCO Software, Inc. * |
|
| 61,255 |
|
| 548,845 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,664,828 |
|
|
|
|
|
|
| ||
MATERIALS 6.3% |
|
|
|
|
|
|
|
Chemicals 6.3% |
|
|
|
|
|
|
|
FMC Corp. |
|
| 11,570 |
|
| 589,376 |
|
H.B. Fuller Co. |
|
| 25,075 |
|
| 502,001 |
|
Olin Corp. |
|
| 33,980 |
|
| 560,670 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,652,047 |
|
|
|
|
|
|
| ||
TELECOMMUNICATION SERVICES 2.2% |
|
|
|
|
|
|
|
Diversified Telecommunication Services 2.2% |
|
|
|
|
|
|
|
CenturyTel, Inc. |
|
| 17,135 |
|
| 582,761 |
|
|
|
|
|
|
| ||
UTILITIES 5.9% |
|
|
|
|
|
|
|
Gas Utilities 4.1% |
|
|
|
|
|
|
|
Energen Corp. |
|
| 13,000 |
|
| 571,350 |
|
National Fuel Gas Co. |
|
| 11,000 |
|
| 516,120 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| 1,087,470 |
|
|
|
|
|
|
| ||
Multi-Utilities 1.8% |
|
|
|
|
|
|
|
MDU Resources Group, Inc. |
|
| 21,685 |
|
| 477,504 |
|
|
|
|
|
|
| ||
Total Common Stocks (cost $25,930,701) |
|
|
|
|
| 26,074,890 |
|
|
|
|
|
|
| ||
SHORT-TERM INVESTMENTS 1.2% |
|
|
|
|
|
|
|
MUTUAL FUND SHARES 1.2% |
|
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I, 0.01% q ø (cost $323,791) |
|
| 323,791 |
|
| 323,791 |
|
|
|
|
|
|
| ||
Total Investments (cost $26,254,492) 99.9% |
|
|
|
|
| 26,398,681 |
|
Other Assets and Liabilities 0.1% |
|
|
|
|
| 13,677 |
|
|
|
|
|
|
| ||
Net Assets 100.0% |
|
|
|
| $ | 26,412,358 |
|
|
|
|
|
|
|
* | 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, 2010 (unaudited)
The following table shows the percent of total long-term investments by sector as of January 31, 2010:
Information Technology |
| 19.2 | % |
Financials |
| 15.9 | % |
Health Care |
| 14.9 | % |
Consumer Discretionary |
| 14.0 | % |
Industrials |
| 10.7 | % |
Energy |
| 6.6 | % |
Materials |
| 6.3 | % |
Utilities |
| 6.0 | % |
Consumer Staples |
| 4.2 | % |
Telecommunication Services |
| 2.2 | % |
|
|
| |
|
| 100.0 | % |
|
|
|
See Notes to Financial Statements
14
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2010 (unaudited)
Assets |
|
|
|
|
Investments in unaffiliated issuers, at value (cost $25,930,701) |
| $ | 26,074,890 |
|
Investments in affiliated issuers, at value (cost $323,791) |
|
| 323,791 |
|
| ||||
Total investments |
|
| 26,398,681 |
|
Dividends receivable |
|
| 9,097 |
|
Receivable for Fund shares sold |
|
| 10,265 |
|
Receivable from investment advisor |
|
| 345 |
|
Prepaid expenses and other assets |
|
| 49,395 |
|
| ||||
Total assets |
|
| 26,467,783 |
|
| ||||
Liabilities |
|
|
|
|
Payable for Fund shares redeemed |
|
| 36,521 |
|
Distribution Plan expenses payable |
|
| 766 |
|
Due to other related parties |
|
| 2,005 |
|
Trustees’ fees and expenses payable |
|
| 6,874 |
|
Printing and postage expenses payable |
|
| 4,539 |
|
Accrued expenses and other liabilities |
|
| 4,720 |
|
| ||||
Total liabilities |
|
| 55,425 |
|
| ||||
Net assets |
| $ | 26,412,358 |
|
| ||||
Net assets represented by |
|
|
|
|
Paid-in capital |
| $ | 53,648,882 |
|
Undistributed net investment loss |
|
| (25,639 | ) |
Accumulated net realized losses on investments |
|
| (27,355,074 | ) |
Net unrealized gains on investments |
|
| 144,189 |
|
| ||||
Total net assets |
| $ | 26,412,358 |
|
| ||||
Net assets consists of |
|
|
|
|
Class A |
| $ | 14,155,486 |
|
Class B |
|
| 2,584,718 |
|
Class C |
|
| 3,047,180 |
|
Class I |
|
| 6,624,974 |
|
| ||||
Total net assets |
| $ | 26,412,358 |
|
| ||||
Shares outstanding (unlimited number of shares authorized) |
|
|
|
|
Class A |
|
| 2,083,896 |
|
Class B |
|
| 385,750 |
|
Class C |
|
| 454,552 |
|
Class I |
|
| 969,957 |
|
| ||||
Net asset value per share |
|
|
|
|
Class A |
| $ | 6.79 |
|
Class A — Offering price (based on sales charge of 5.75%) |
| $ | 7.20 |
|
Class B |
| $ | 6.70 |
|
Class C |
| $ | 6.70 |
|
Class I |
| $ | 6.83 |
|
|
See Notes to Financial Statements
15
STATEMENT OF OPERATIONS
Six Months Ended January 31, 2010 (unaudited)
Investment income |
|
|
|
|
Dividends |
| $ | 213,164 |
|
Income from affiliated issuers |
|
| 169 |
|
| ||||
Total investment income |
|
| 213,333 |
|
| ||||
Expenses |
|
|
|
|
Advisory fee |
|
| 115,920 |
|
Distribution Plan expenses |
|
|
|
|
Class A |
|
| 18,830 |
|
Class B |
|
| 14,053 |
|
Class C |
|
| 16,780 |
|
Administrative services fee |
|
| 14,490 |
|
Transfer agent fees |
|
| 100,936 |
|
Trustees’ fees and expenses |
|
| 1,052 |
|
Printing and postage expenses |
|
| 15,603 |
|
Custodian and accounting fees |
|
| 4,551 |
|
Registration and filing fees |
|
| 30,477 |
|
Professional fees |
|
| 11,633 |
|
Interest expense |
|
| 624 |
|
Other |
|
| 1,507 |
|
| ||||
Total expenses |
|
| 346,456 |
|
Less: Expense reductions |
|
| (3 | ) |
Fee waivers |
|
| (114,754 | ) |
| ||||
Net expenses |
|
| 231,699 |
|
| ||||
Net investment loss |
|
| (18,366 | ) |
| ||||
Net realized and unrealized gains or losses on investments |
|
|
|
|
Net realized losses on securities in unaffiliated issuers |
|
| (704,928 | ) |
Net change in unrealized gains or losses on securities in unaffiliated issuers |
|
| 3,099,776 |
|
| ||||
Net realized and unrealized gains or losses on investments |
|
| 2,394,848 |
|
| ||||
Net increase in net assets resulting from operations |
| $ | 2,376,482 |
|
|
See Notes to Financial Statements
16
STATEMENTS OF CHANGES IN NET ASSETS
|
| Six Months Ended |
| Year Ended |
| ||||||
| |||||||||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
|
| $ | (18,366 | ) |
|
| $ | (37,595 | ) |
Net realized losses on investments |
|
|
|
| (704,928 | ) |
|
|
| (16,905,280 | ) |
Net change in unrealized gains or losses on investments |
|
|
|
| 3,099,776 |
|
|
|
| (1,007,220 | ) |
| |||||||||||
Net increase (decrease) in net assets resulting from operations |
|
|
|
| 2,376,482 |
|
|
|
| (17,950,095 | ) |
| |||||||||||
|
| Shares |
|
|
|
| Shares |
|
|
|
|
| |||||||||||
Capital share transactions |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 62,686 |
|
| 427,788 |
| 212,416 |
|
| 1,207,845 |
|
Class B |
| 0 |
|
| 0 |
| 53,566 |
|
| 326,554 |
|
Class C |
| 7,601 |
|
| 50,194 |
| 75,680 |
|
| 547,487 |
|
Class I |
| 20,014 |
|
| 137,089 |
| 368,742 |
|
| 2,000,188 |
|
| |||||||||||
|
|
|
|
| 615,071 |
|
|
|
| 4,082,074 |
|
| |||||||||||
Automatic conversion of Class B shares to Class A shares |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 32,939 |
|
| 219,391 |
| 116,039 |
|
| 633,019 |
|
Class B |
| (33,324 | ) |
| (219,391 | ) | (116,835 | ) |
| (633,019 | ) |
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 0 |
|
| |||||||||||
Payment for shares redeemed |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| (378,111 | ) |
| (2,562,745 | ) | (858,082 | ) |
| (4,905,601 | ) |
Class B |
| (83,156 | ) |
| (554,985 | ) | (246,647 | ) |
| (1,354,579 | ) |
Class C |
| (122,194 | ) |
| (820,471 | ) | (193,477 | ) |
| (1,063,487 | ) |
Class I |
| (554,169 | ) |
| (3,764,262 | ) | (1,180,566 | ) |
| (6,531,496 | ) |
| |||||||||||
|
|
|
|
| (7,702,463 | ) |
|
|
| (13,855,163 | ) |
| |||||||||||
Net asset value of shares issued in acquisition |
|
|
|
|
|
|
|
|
|
|
|
Class A |
| 0 |
|
| 0 |
| 2,833,905 |
|
| 24,782,753 |
|
Class B |
| 0 |
|
| 0 |
| 753,186 |
|
| 6,561,636 |
|
Class C |
| 0 |
|
| 0 |
| 634,129 |
|
| 5,526,161 |
|
Class I |
| 0 |
|
| 0 |
| 1,960,986 |
|
| 17,182,046 |
|
| |||||||||||
|
|
|
|
| 0 |
|
|
|
| 54,052,596 |
|
| |||||||||||
Net increase (decrease) in net assets resulting from capital share transactions |
|
|
|
| (7,087,392 | ) |
|
|
| 44,279,507 |
|
| |||||||||||
Total increase (decrease) in net assets |
|
|
|
| (4,710,910 | ) |
|
|
| 26,329,412 |
|
Net assets |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
| 31,123,268 |
|
|
|
| 4,793,856 |
|
| |||||||||||
End of period |
|
|
| $ | 26,412,358 |
|
|
| $ | 31,123,268 |
|
| |||||||||||
Undistributed net investment loss |
|
|
| $ | (25,639 | ) |
|
| $ | (7,273 | ) |
|
See Notes to Financial Statements
17
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 available for purchase only through (i) an exchange transaction in which Class B shares of another Evergreen fund are exchanged or (ii) the Fund’s dividend reinvestment program. 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. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
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. If there has been no sale, the securities are valued at the mean between bid and asked prices.
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.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
18
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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 those returns are subject to examination by the federal, Massachusetts and Delaware revenue authorities for all taxable years since the commencement of operations.
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, 2010, 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.
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, 2010, EIMC contractually waived its advisory fee in the amount of $114,754.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers on the Statement of Operations.
19
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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, 2010, the administrative services fee was equivalent to an annual rate of 0.10% of the Fund’s average daily net assets.
Evergreen Service Company, LLC (“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, 2010, the transfer agent fees were equivalent to an annual rate of 0.70% of the Fund’s average daily net assets.
4. DISTRIBUTION PLANS
Wells Fargo Funds Distributor, LLC (“WFFD”), a wholly-owned subsidiary of Wells Fargo serves as distributor of the Fund’s shares. Prior to January 4, 2010, Evergreen Investment Services, Inc. (“EIS”), an affiliate of EIMC and a subsidiary of Wells Fargo, served 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, 2010, EIS received $261 from the sale of Class A shares and $13, $2,443 and $62 in contingent deferred sales charges from redemptions of Class A, 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 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 $54,052,596, respectively. The aggregate net assets of the Fund immediately after the acquisition were $58,981,968.
20
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
6. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $3,282,789 and $10,246,232, respectively, for the six months ended January 31, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized 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, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
Investments in Securities |
| Quoted Prices |
| Significant |
| Significant |
| Total |
| ||||
| |||||||||||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
| $ | 26,074,890 |
| $ | 0 |
| $ | 0 |
| $ | 26,074,890 |
|
Short-term investments |
|
| 323,791 |
|
| 0 |
|
| 0 |
|
| 323,791 |
|
| |||||||||||||
|
| $ | 26,398,681 |
| $ | 0 |
| $ | 0 |
| $ | 26,398,681 |
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
On January 31, 2010, the aggregate cost of securities for federal income tax purposes was $26,254,492. The gross unrealized appreciation and depreciation on securities based on tax cost was $2,385,580 and $2,241,391, respectively, with a net unrealized appreciation of $144,189.
As of July 31, 2009, the Fund had $13,638,891 in capital loss carryovers for federal income tax purposes expiring in 2017.
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, 2009, the Fund incurred and elected to defer post-October losses of $13,011,255.
21
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
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, 2010, 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 the higher of the Federal Funds rate plus 1.25% or LIBOR plus 1.25%. All of the participating funds are charged an annual commitment fee of 0.145% on the unused balance, which is allocated pro rata.
During the six months ended January 31, 2010, the Fund had average borrowings outstanding of $42,162 (on an annualized basis) at an average rate of 1.48% and paid interest of $624.
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.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s
22
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also 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 settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund 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, including the Fund.
12. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements.
23
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
13. REORGANIZATION
At a meeting of the Board of Trustees held on December 30, 2009, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Advantage Small Mid Cap Core Fund, which will be a series of Wells Fargo Funds Trust created in order to receive the assets of the Fund upon completion of the reorganization, will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Advantage Small Mid Cap Core Fund.
A special meeting of shareholders of the Fund will be held in June 2010 to consider and vote on the Plan. In April 2010, materials for this meeting will be mailed to shareholders of record on March 10, 2010. If approved by the shareholders at this meeting, the reorganization will take place in July 2010.
24
ADDITIONAL INFORMATION (unaudited)
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, 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, Golden Capital Management, LLC (the “Sub-Advisor”), or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Golden Core Opportunities 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 Evergreen 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 their 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 are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 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 areas of review and requested specific information as to those areas of review.
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the
25
ADDITIONAL INFORMATION (unaudited) continued
information that EIMC, the Sub-Advisor, and Keil provided. In addition, the Trustees considered information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain 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.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. 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 for each of the funds 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.
26
ADDITIONAL INFORMATION (unaudited) continued
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 met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, 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 the teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds, EIMC, and the Sub-Advisor 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 and the Sub-Advisor. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of 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. 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 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.
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ADDITIONAL INFORMATION (unaudited) continued
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 fees 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. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also 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 on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds pay sub-transfer agency fees to various financial institutions, including Wells Fargo Advisors 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 the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar for 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 Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (inclu ding amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
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 and the Sub-Advisor formulate and implement 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 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.
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ADDITIONAL INFORMATION (unaudited) continued
The Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides 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.
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 independent 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 the Sub-Advisor and EIMC, including services provided by EIMC under its administrative services agreements with the funds. They determined that the nature and scope of the services provided by EIMC and the Sub-Advisor were consistent with EIMC’s and the Sub-Advisor’s respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of 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, 2008, the Fund’s Class A shares had underperformed the Fund’s benchmark index, the Russell 2500 Index, and had performed in the fifth quintile of the mutual funds against which the Trustees compared the Fund’s performance. The Trustees noted that the Fund had recently commenced operations and had a relatively short track record of performance that limited their ability to draw meaningful conclusions about 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 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.
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ADDITIONAL INFORMATION (unaudited) continued
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 other mutual funds against which the Trustees compared the Fund’s management fee due in large part to a fee waiver by EIMC, and that the level of profitability realized by EIMC in respect of the fee did not appear excessive. The Trustees also considered the management fee the Fund would have paid absent the fee 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. They reviewed the breakpoints in the Fund’s advisory fee structure, which operate generally to reduce the effective management fee rate of the Fund (as a percentage of Fund assets) as the Fund grows in size. They considered that, as a fund shrinks in size, breakpoints result in increasing fee levels. 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 to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
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TRUSTEES AND OFFICERS
TRUSTEES1 |
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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. | Chairman, Bloc Global Services (development and construction); Former 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. |
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 | Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); 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 | Director, Rogers, Townsend & Thomas, PC (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 Vice President, Kellam & Pettit, P.A. (law firm); 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. |
Michael S. Scofield | Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
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TRUSTEES AND OFFICERS continued
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 |
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W. Douglas Munn4 | Principal occupations: President and Chief Executive Officer, Evergreen Investment Company, Inc.; 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; Assistant Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc.; Former Assistant Vice President, Evergreen Investment Services, Inc. |
Michael H. Koonce4 | Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, 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.; Compliance Manager, Wells Fargo Funds Management Group; 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 74 Evergreen funds as of December 31, 2009. 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.
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120965 581816 rv2 03/2010
Evergreen Golden Large Cap Core Fund
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