EVERGREEN
BLUE CHIP
FUND
FEBRUARY 28, 1998
SEMIANNUAL REPORT
[EVERGREEN LOGO APPEARS HERE]
EVERGREEN FUNDS(SM)
SINCE 1932
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ...................... 1
Fund at a Glance ............................ 2
Portfolio Manager Interview ................. 3
Financial Highlights ........................ 6
Schedule of Investments ..................... 9
Statement of Assets and Liabilities ......... 11
Statement of Operations ..................... 12
Statements of Changes in Net Assets ......... 13
Notes to Financial Statements ............... 14
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $46 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products
and services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
Mutual Funds:
<TABLE>
<S> <C>
ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
Copyright 1998.
<PAGE>
Letter to Shareholders
----------------------
April 1998
Dear Shareholders:
[PHOTO OF WILLIAM
M. ENNIS APPEARS HERE] The six-month period that ended on February 28,
1998, demonstrated again the importance of
William M. Ennis patiently maintaining a long-term investment
Managing Director plan and not changing strategies with every
turn in the market. The U.S. stock
market, as reflected by both the
Dow Jones Industrial Average and the Standard &
Poor's 500 Index, roared to new heights during the period. And yet, the
impressive performance came even after a dramatic market correction in October
1997 in the wake of news of the financial and currency crisis in Asia. In a
single day, the Dow Jones Average fell by 508 points. Despite this, the market
recovered, rewarding patient investors as it surged to record high levels by
the end of February.
During the period, the Evergreen Blue Chip Fund, formerly the Keystone Growth
and Income Fund (S-1), continued to build on its durable, long-term record,
providing solid returns while sticking to its moderate investment style.
Consistent Strategy
Consistency and emphasis on large-capitalization, blue chip stocks have been
the hallmarks of the Fund's investment style since its founding in 1935. While
its name has been changed recently to emphasize its primary investment
concentration and to underscore that it is part of the Evergreen Fund Family,
the Fund continues to follow the same, consistent disciplines and strategies.
The Blue Chip Fund also continues to be managed by the Growth and Income Group
at Keystone Investment Management Company, with Judith A. Warners as the
portfolio manager.
New Shareholders
With the beginning of a new fiscal period in March 1998, investors of the
former Blanchard Growth and Income Fund have become shareholders of the
Evergreen Blue Chip Fund following a merger of the two funds. I again welcome
them to the Evergreen Fund Family and encourage them to read the interview with
Ms. Warners on the following pages, in which she reviews the recent fiscal
period and discusses the Fund's investment style and strategy. I believe they
will find many of the same themes that attracted them to the Blanchard Growth
and Income Fund.
Evergreen Funds
At Evergreen Funds, we are committed to providing a strong array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances. We recommend shareholders periodically review their portfolios with
professional investment advisors to make sure their allocations continue to be
in line with their financial plans.
We can assist by providing the information you require about Evergreen Funds.
If you have any questions about the Evergreen Blue Chip Fund or other Evergreen
Funds, please consult your financial advisor or call us at 800-343-2898.
Sincerely,
/s/ Bill Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
EVERGREEN
Blue Chip Fund
Fund at a Glance as of February 28, 1998
We continued to emphasize blue chip, large-capitalization stocks, although we
did have a sprinkling of high quality growth companies from the mid-cap area.
Portfolio
Management
-------------
[PHOTO OF JUDITH A. WARNERS APPEARS HERE]
Judith A. Warners
Keystone Investment
Management Company
Tenure: January 1995
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception Date 1/20/98 9/11/35 1/22/98
Average Annual Returns
6 months with sales charge - 11.88% -
6 months w/o sales charge - 16.81% -
One year with sales charge - 28.14% -
One year w/o sales charge - 33.14% -
3 years - 28.10% -
5 years - 17.29% -
10 years - 14.09% -
Since Inception 7.23% 9.05% 6.10%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
30-day SEC Yield 0.41% (0.29%) 0.62%
6 month dividends per share - $ 0.07 -
6 month capital gain
distributions per share - $ 4.96 -
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[LINE GRAPH APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
2/88 2/90 2/92 2/94 2/96 2/98
---- ---- ---- ---- ---- ----
Class B Shares $10,000 $12,637 $16,295 $17,939 $23,080 $37,353
S&P 500 10,000 13,304 17,694 21,211 30,676 52,246
Consumer Price Index (CPI) 10,000 11,034 11,948 12,647 13,343 13,957
Comparison of a $10,000 investment in Evergreen Blue Chip Fund, Class B, versus
a similar investment in the S&P 500 Index and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The S&P 500 Index is an unmanaged index. The
index does not include transaction costs associated with buying and selling
securities nor any management fees. The Consumer Price Index, a measure of
inflation, is through February 28, 1998.
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE
[GRAPHIC OMITTED]
Morningstar's Style Box is based on a portfolio date as of
12/31/97. The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book ratio relative
to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
2
<PAGE>
EVERGREEN
Blue Chip Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
The Fund performed well, consistent with its strategy of seeking growth
and income by concentrating on quality, large-company stocks. For the
six-month period that ended on February 28, 1998, the Evergreen Blue Chip
Fund (Class B) had a total return of 16.81%, unadjusted for any sales
charge. During the same period, the Standard and Poor's 500 Index had a
return of 17.62%.
Portfolio Characteristics
(as of 2/28/98 unless noted)
Total Net Assets $347,942,912
Number of Holdings 94
P/E Ratio* 27.0x
Beta* 0.94
*as of 12/31/97
- --------------------------------------------------------------------------------
What was the investment environment
like during the period?
It was a period when the domestic stock market, as measured by both the
Dow Jones Industrial Average and the S&P 500 Index, soared to new highs,
despite some interim volatility and rotation of market leadership from one
sector to another. The market was supported by a continuation of the
favorable economic backdrop of moderate growth, low inflation and
declining interest rates in the United States. International problems,
most notably the Asian financial crisis and the threat of conflict in the
Middle East, created a great deal of uncertainty in the market.
After a very difficult August, the period began in September with
continued volatility as evidence of the extent of the Asian financial and
currency problems mounted. The volatility culminated in a major market
correction in October, when the Dow Jones Industrial Average fell by 508
points in one day. In November, the market started stabilizing, and began
recouping some of the losses experienced during the extreme volatility in
October. The equity markets continued recovering in December, January and
February, which were favorable months for the Fund's investment style,
emphasizing the stocks of well-known, high-quality companies.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
[A PIE CHART APPEARS BELOW WITH THE FOLLOWING INFORMATION:]
Common Stock 93.7%
Cash & Cash Equivalents 3.2%
Convertibles 3.1%
- --------------------------------------------------------------------------------
What were your principal strategies
during the period?
We continued to emphasize blue chip, large-capitalization stocks, although
we did have a sprinkling of high quality growth companies from the mid-cap
area. We also continued to emphasize the finance sector and the consumer,
non-durable sector, most noticeably the pharmaceutical companies.
We made some adjustments because of the Asian financial crisis by
de-emphasizing cyclical, multi-national companies and focusing more on
companies whose primary business was domestic. These included companies
such as Cendant Corp., a diversified consumer marketing and franchising
company; Dollar General, a low-price retailer in the Southeast; and Home
Depot, the hardware and building materials retailer.
3
<PAGE>
EVERGREEN
Blue Chip Fund
Portfolio Manager Interview
Top 10 Sectors
Banks, Finance & Insurance 19.9%
Healthcare Products & Services 15.7%
Information Services & Technology 10.5%
Oil/Energy 8.5%
Real Estate 5.5%
Consumer Products & Services 4.3%
Retailing & Wholesale 4.2%
Electrical Equipment & Services 3.5%
Utilities - Telephone 2.7%
Food & Beverage Products 2.3%
- --------------------------------------------------------------------------------
What types of companies did you emphasize in the banking and finance
sector, which was the largest industry weighting at 19.9% of net assets at
the end of the period?
Within the banking and finance area, the Fund continued to emphasize
financial service companies such as Associates First, a consumer lender;
the Student Loan Marketing (Sallie Mae) Corp.; and Nationwide Finance, a
variable annuity company. Recently, we added PMI Group, a mortgage
insurance company that is a beneficiary of the wave of mortgage
refinancings and new home purchases.
The consolidation trend in financial services, particularly among banks,
was an important factor. We sought to take advantage by emphasizing
mid-sized financial companies, including thrift institutions and regional
banks, which could become acquisition targets. These ranged from Astoria
Financial Corp., a Long Island banking corporation, to Fleet Financial and
Mellon Bank, two major regional institutions.
While the Fund continues to emphasize finance, we have taken profits by
selling some of the stock of major investments in this sector that have
helped the Fund during the past three years. We are watching this sector
very carefully because it has been such a strong performer, and we want to
be ready if there is any change in market sentiment.
Top 10 Equity Holdings
General Electric Co. 3.5%
Johnson & Johnson 2.5%
Merck & Co., Inc. 2.4%
British Petroleum Plc, ADR 2.0%
Intel Corp. 1.8%
Microsoft Corp. 1.8%
Mellon Bank Corp. 1.6%
American Home Products Corp. 1.6%
Exxon Corp. 1.6%
Greenpoint Financial Corp. 1.5%
- --------------------------------------------------------------------------------
Healthcare Products & Services had the second largest weighting, at 15.7%
of net assets at the end of the period. What types of companies did you
emphasize?
The drug industry has had terrific revenue growth during the past two
years, which is remarkable in a period of very low inflation. The primary
factor helping this industry is the continued flow of new products
resulting from research and development efforts. The demand for these
products is increasing, primarily because of demographic factors as the
baby boom generation gets older. In addition, many HMOs are fairly
aggressive in disease management and prevention, which supports the need
for new products.
This is an industry that also is undergoing consolidation, including
mergers of the major companies. These very large mergers increase the
power of companies to invest in research and development, which in turn
increases the flow of new drugs into the market.
4
<PAGE>
EVERGREEN
Blue Chip Fund
Portfolio Manager Interview
Four major pharmaceutical companies in the Fund's top 13 holdings at the
end of the period were: Johnson & Johnson, Merck & Co., American Home
Products, and Bristol-Myers Squibb.
- --------------------------------------------------------------------------------
What companies were particularly strong
performers for the Fund?
The Fund's largest holding, General Electric, continued to be a strong
contributor to Fund performance. Another significant contributor was AT&T,
which was added to the portfolio during the six-month period. We purchased
stock in AT&T based on the major re-structuring that began when a new
management team was installed this summer. Recently, Worldcom, a company
highlighted in the annual report, has been a very strong performer for the
Fund. This communications company, regarded by some as a maverick in the
industry, is poised to be an industry leader with its pending acquisition
of MCI. Pharmaceutical companies that helped performance included Pfizer
and Bristol-Myers Squibb. Two mid-cap growth companies that were excellent
investments were Royal Caribbean Cruises and HBO & Co., a computer systems
company serving the medical market.
- --------------------------------------------------------------------------------
What is your outlook?
We see opportunities, especially among quality growth stocks, although we
continue to approach the market with caution. We don't believe we have yet
seen the full impact the Asian financial crisis will have on the earnings
of American companies. The international tensions over Iraq also have
potential investment implications, and we recently have increased emphasis
on selected energy stocks. We would expect the market will continue to
have rotational leadership. By that, we mean that one industry will
replace another as a performance leader and we will continue to look for
developing trends, taking profits from successful investments and
re-investing in other areas. Given this unsettled situation, we believe
the quality and liquidity of the blue chip stocks emphasized by the Fund
should help support performance, even if volatility should increase.
While there are some warning signals, the stock market has shown
remarkable resilience, with the Dow Jones and S&P indexes reaching new
highs in March. The United States economy continues to grow at a moderate
pace, with declining interest rates and very low inflation. Although we
are not forecasting any change in the direction of interest rates, such a
change could cause problems if it occurs.
We are watching company fundamentals very carefully, and trying to avoid
any negative surprises in earnings reports.
5
<PAGE>
EVERGREEN
Blue Chip Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
February 28, 1998
(Unaudited)*
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 27.39
===========
Income from investment operations
Net investment income 0.03**
Net realized and unrealized gain on investments and
foreign currency related transactions 1.95
------------
Total from investment operations 1.98
------------
Net asset value end of period $ 29.37
============
Total Return+ 7.23%
Ratios/supplemental data
Ratios to average net assets
Total expenses 1.20%++
Total expenses, excluding indirectly paid expenses 1.20%++
Net investment income 0.91%++
Portfolio turnover rate 54%
Average commission rate paid $ 0.0577
Net assets end of period (thousands) $ 262,184
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
February 28, 1998.
** Net investment income is based on average shares outstanding during the
period.
See Notes to Financial Statements.
6
<PAGE>
EVERGREEN
Blue Chip Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1998
(Unaudited)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 29.79
==========
Income from investment operations
Net investment income 0.01*
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 4.58
----------
Total from investment operations 4.59
----------
Less distributions
From net investment income ( 0.01)
In excess of net investment income ( 0.06)
From net realized gain on investments ( 4.96)
----------
Total distributions ( 5.03)
----------
Net asset value end of period $ 29.35
==========
Total Return+ 16.81%
Ratios/supplemental data
Ratios to average net assets
Total expenses 1.65%++
Total expenses, excluding indirectly paid
expenses 1.65%++
Net investment income 0.04%++
Portfolio turnover rate 54%
Average commission rate paid $ 0.0577
Net assets end of period (thousands) $ 85,740
<CAPTION>
Year Ended August 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 25.05 $ 22.98 $ 23.21 $ 25.42 $ 23.17
============ ============ ========= ========== =========
Income from investment operations
Net investment income 0.15 0.12 0.25 0.16 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 7.97 3.69 2.66 (0.35) 3.11
------------ ------------ --------- ---------- ---------
Total from investment operations 8.12 3.81 2.91 (0.19) 3.22
------------ ------------ --------- ---------- ---------
Less distributions
From net investment income (0.15) (0.54) (0.25) (0.23) (0.11)
In excess of net investment income (0.05) (0.22) (0.11) (0.05) (0.17)
From net realized gain on investments (3.18) (0.98) (2.78) (1.74) (0.69)
------------ ------------ ---------- ---------- ----------
Total distributions (3.38) (1.74) (3.14) (2.02) (0.97)
------------ ------------ ---------- ---------- ----------
Net asset value end of period $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42
============ ============ ========== ========== ==========
Total Return+ 34.76% 17.31% 13.87% (0.72%) 14.31%
Ratios/supplemental data
Ratios to average net assets
Total expenses 1.57% 1.85% 1.75% 2.07% 2.28%
Total expenses, excluding indirectly paid
expenses 1.56% 1.84% N/A N/A N/A
Net investment income 0.55% 0.52% 1.09% 0.67% 0.47%
Portfolio turnover rate 109% 139% 115% 73% 96%
Average commission rate paid $ 0.0598 $ 0.0635 N/A N/A N/A
Net assets end of period (thousands) $ 312,935 $ 224,819 $ 199,456 $ 208,532 $ 234,688
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 25.12 $ 22.97 $ 24.82 $ 18.93 $ 27.23
========= ========= ========= ========= =========
Income from investment operations
Net investment income 0.15 0.19 0.22 0.32 0.46
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions (0.11) 4.72 (1.29) 6.16 (6.77)
---------- --------- --------- --------- --------
Total from investment operations 0.04 4.91 (1.07) 6.48 (6.31)
---------- --------- --------- --------- --------
Less distributions
From net investment income (0.15) (0.26) (0.65) (0.59) (0.46)
In excess of net investment income (0.17) (0.25) (0.09) 0 0
From net realized gain on investments (1.67) (2.25) (0.04) 0 (1.53)
---------- ---------- --------- ---------- -------
Total distributions (1.99) (2.76) (0.78) (0.59) (1.99)
---------- ---------- --------- ---------- -------
Net asset value end of period $ 23.17 $ 25.12 $ 22.97 $ 24.82 $ 18.93
========== ========== ========= ========== ========
Total Return+ 0.38% 24.82% (4.56%) 34.99% (24.55%)
Ratios/supplemental data
Ratios to average net assets
Total expenses 2.08% 2.33% 2.35% 2.05% 1.77%
Total expenses, excluding indirectly paid expenses N/A N/A N/A N/A N/A
Net investment income 0.61% 0.93% 1.36% 2.16% 2.28%
Portfolio turnover rate 95% 64% 47% 44% 82%
Average commission rate paid N/A N/A N/A N/A N/A
Net assets end of period (thousands) $ 204,004 $ 176,985 $ 154,124 $ 187,696 $ 195,375
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* Net investment income is based on average shares outstanding during the
period.
See Notes to Financial Statements.
7
<PAGE>
EVERGREEN
Blue Chip Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
February 28, 1998
(Unaudited)*
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 27.70
=========
Income from investment operations
Net investment income 0.03**
Net realized and unrealized gain on investments
and foreign currency related transactions 1.66
----------
Total from investment operations 1.69
----------
Net asset value end of period $ 29.39
==========
Total Return+ 6.10%
Ratios/supplemental data
Ratios to average net assets
Total expenses 1.00%++
Total expenses, excluding indirectly paid expenses 1.00%++
Net investment income 0.11%++
Portfolio turnover rate 54%
Average commission rate paid $ 0.0577
Net assets end of period (thousands) $ 18
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 22, 1998 (commencement of class operations) to
February 28, 1998.
** Net investment income is based on average shares outstanding during the
period.
See Notes to Financial Statements.
8
<PAGE>
EVERGREEN
Blue Chip Fund
Schedule of Investments
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 93.7%
Automotive Equipment &
Manufacturing - 1.7%
55,000 Ford Motor Co. ........ $3,110,938
50,000 * Lear Corp. ............ 2,643,750
----------
5,754,688
----------
Banks - 8.1%
73,000 Astoria Financial Corp. . 4,088,000
46,500 BankBoston Corp. ...... 4,635,469
65,000 First American Corp. .. 3,103,750
65,000 Fleet Financial Group, 5,122,813
Inc.
91,000 Mellon Bank Corp. ..... 5,670,437
100,000 North Fork Bancorp, Inc. 3,418,750
60,000 TCF Financial Corp. ... 1,983,750
----------
28,022,969
----------
Building, Construction &
Furnishings - 1.3%
72,000 Home Depot, Inc. ...... 4,594,500
----------
Chemical & Agricultural
Products - 1.9%
70,000 Monsanto Co. .......... 3,561,250
100,000 Morton International,
Inc. ................. 3,306,250
----------
6,867,500
----------
Communication Systems &
Services - 1.8%
54,000 * Cisco Systems, Inc. ... 3,558,937
75,000 * WorldCom, Inc. ........ 2,866,410
----------
6,425,347
----------
Consumer Products &
Services - 4.3%
105,000 * Cendant Corp. ......... 3,937,500
22,000 Gillette Co. .......... 2,373,250
59,000 Procter & Gamble Co. .. 5,011,312
75,400 Stewart Enterprises, Inc.
Cl. A ................. 3,548,513
----------
14,870,575
----------
Diversified
Companies - 1.0%
70,000 Tyco International Ltd. . 3,552,500
----------
Electrical Equipment &
Services - 3.5%
154,500 General Electric Co. .. 12,012,375
----------
Finance &
Insurance - 10.7%
30,000 American International
Group, Inc. ........... 3,605,625
38,300 Associates First Capital
Corp. Cl. A ........... 3,064,000
14,000 CIGNA Corp. ........... 2,674,000
70,000 Federal National Mortgage
Association ........... 4,466,875
71,900 Greenpoint Financial
Corp. ................. 5,338,575
65,000 Hartford Life, Inc. Cl. A 2,799,062
86,000 Nationwide Financial
Services,
Inc. Cl. A ............ 3,784,000
50,000 PMI Group, Inc. ....... 3,637,500
112,000 SLM Holding Corp. ..... 4,627,000
80,000 Travelers Property
Casualty Corp. Cl. A .. 3,280,000
----------
37,276,637
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Food & Beverage
Products - 2.3%
53,000 Coca Cola Co. ......... $3,640,438
103,500 Philip Morris Companies,
Inc. .................. 4,495,781
----------
8,136,219
----------
Healthcare Products &
Services - 15.7%
60,000 American Home Products
Corp. ................. 5,625,000
50,000 Bristol-Myers Squibb Co. 5,009,371
22,600 Guidant Corp. ......... 1,648,388
80,000 HBO & Co. ............. 4,332,500
87,000 * Health Care & Retirement
Corp. ................. 3,817,125
130,000 * Health Management
Associates,
Inc. Cl. A ............ 3,615,625
130,000 * Healthsouth Corp. ..... 3,510,000
115,000 Johnson & Johnson ..... 8,682,500
56,000 Medtronic, Inc. ....... 2,975,000
65,000 Merck & Co., Inc. ..... 8,291,562
45,000 Pfizer, Inc. .......... 3,982,500
80,000 Pharmacia & Upjohn, Inc. 3,165,000
----------
54,654,571
----------
Information Services &
Technology - 10.5%
80,000 * Analog Devices, Inc. .. 2,580,000
38,000 * BMC Software, Inc. .... 2,908,188
100,000 Compaq Computer Corp. . 3,206,250
40,000 Electronic Data Systems
Corp. .............. 1,752,500
102,000 * EMC Corp. ............. 3,901,500
68,300 Intel Corp. ........... 6,123,522
36,000 International Business
Machines Corp. ........ 3,759,750
72,200 * Microsoft Corp. ....... 6,121,206
30,000 * Parametric Technology
Corp. ................. 1,816,875
94,000 * Peoplesoft, Inc. ...... 4,197,687
----------
36,367,478
----------
Leisure & Tourism - 2.2%
34,000 Disney (Walt) Co. ..... 3,805,875
72,500 Royal Caribbean Cruises
Ltd. .................. 3,969,375
----------
7,775,250
----------
Oil/Energy - 8.5%
50,000 Anadarko Petroleum Corp. 3,225,000
86,000 British Petroleum Plc,
ADR ................... 7,111,125
86,000 Exxon Corp. ........... 5,493,250
30,000 Mobil Corp. ........... 2,173,125
92,000 Royal Dutch Petroleum Co. 4,996,750
85,000 Texaco, Inc. .......... 4,744,062
45,000 Unocal Corp. .......... 1,695,938
----------
29,439,250
----------
Oil Field Services - 1.7%
40,000 Camco International, Inc. 2,340,000
39,800 * Cooper Cameron Corp. .. 2,134,275
50,000 * R & B Falcon Corp. .... 1,325,000
----------
5,799,275
----------
</TABLE>
9
<PAGE>
EVERGREEN
Blue Chip Fund
Schedule of Investments (continued)
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Publishing, Broadcasting &
Entertainment - 2.1%
120,000 CBS Corp. ............................. $ 3,712,500
75,000 * Viacom, Inc. Cl. B .................... 3,600,000
------------
7,312,500
------------
Real Estate - 5.5%
70,000 Arden Realty Group, Inc. REIT ......... 1,999,375
52,600 Boston Properties, Inc. REIT .......... 1,788,400
65,000 Camden Property Trust REIT ............ 1,880,937
112,504 Equity Office Properties Trust REIT ... 3,318,868
80,000 First Industrial Realty Trust, Inc. REIT 2,890,000
115,001 Patriot American Hospitality, Inc. REIT . 2,875,025
40,000 Spieker Properties, Inc. REIT ......... 1,587,500
70,000 TriNet Corporate Realty Trust, Inc. REIT 2,712,500
------------
19,052,605
------------
Retailing & Wholesale - 4.2%
52,000 * Costco Companies, Inc. ................ 2,543,125
74,500 Dollar General Corp. .................. 3,436,312
20,000 Ethan Allen Interiors, Inc. ........... 1,115,000
100,000 * General Nutrition Companies, Inc. ..... 3,987,500
30,000 Pier 1 Imports, Inc. .................. 802,500
60,000 Wal-Mart Stores, Inc. ................. 2,778,750
------------
14,663,187
------------
Telecommunication Services &
Equipment - 1.4%
38,000 * Ciena Corp. ........................... 1,594,813
60,000 * Teleport Communications Group Cl. A ... 3,279,375
------------
4,874,188
------------
Transportation - 1.2%
65,000 Canadian National Railway Co. ......... 4,038,125
------------
Utilities - Electric - 1.4%
73,500 Carolina Power & Light Co. ............ 3,068,625
45,000 Pinnacle West Capital Corp. ........... 1,836,563
------------
4,905,188
------------
Utilities - Telephone - 2.7%
40,000 Ameritech Corp. ....................... 1,667,500
67,000 AT&T Corp. ............................ 4,078,625
70,000 GTE Corp. ............................. 3,788,750
------------
9,534,875
------------
Total Common Stocks
(cost $244,879,539).................... 325,929,802
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
CONVERTIBLE PREFERRED - 3.1%
Automotive Equipment &
Manufacturing - 1.0%
70,000 BTI Capital Trust
6.50%, 144A ........................... $ 3,701,250
------------
Finance & Insurance - 1.1%
70,000 Newell Financial Trust I
5.25%, 144A ........................... 3,828,125
------------
Telecommunication Services &
Equipment - 1.0%
50,000 Loral Space & Communications Ltd.
6.00%, 144A ........................... 3,496,600
------------
Total Convertible Preferred
(cost $9,578,750)...................... 11,025,975
------------
Principal
Amount Value
CONVERTIBLE DEBENTURES - 0.0%
Iron & Steel - 0.0%
110,000 Compania Vale do Rio Doce
Navegacao SA
1.00%, 12/31/99 ....................... 10
------------
Total Convertible Debentures
(cost $0).............................. 10
------------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT - 3.0%
<S> <C> <C> <C>
$10,351,000 Keystone Joint Repurchase
Agreement,
Investments in repurchase
agreements, in a joint trading
account
purchased 2/27/98, 5.67%, maturing
3/2/98, maturity value $10,355,891
(cost - $10,351,000)(a) ......... 10,351,000
----------
Total Investments -
(cost $264,809,289)..... 99.8% 347,306,787
Other Assets and
Liabilities - net ...... 0.2 636,125
----- ------------
Net Assets ............. 100.0% $347,942,912
===== ============
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices plus accrued interest at
February 28, 1998.
144A Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
Legend of Portfolio Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
10
<PAGE>
EVERGREEN
Blue Chip Fund
Statement of Assets and Liabilities
February 28, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments at value (identified cost - $264,809,289).................................... $347,306,787
Receivable for investments sold ......................................................... 906,735
Dividends and interest receivable ....................................................... 427,869
Receivable for Fund shares sold ......................................................... 203,295
Prepaid expenses and other assets ....................................................... 72,825
- ------------------------------------------------------------------------------------------ ------------
Total assets .......................................................................... 348,917,511
- ------------------------------------------------------------------------------------------ ------------
Liabilities
Payable for Fund shares redeemed ........................................................ 591,599
Advisory fee payable .................................................................... 167,110
Distribution plan expense payable ....................................................... 183,686
Due to related parties .................................................................. 18,800
Accrued expenses and other liabilities .................................................. 13,404
- ------------------------------------------------------------------------------------------ ------------
Total liabilities ..................................................................... 974,599
- ------------------------------------------------------------------------------------------ ------------
Net assets ............................................................................... $347,942,912
========================================================================================== ============
Net assets represented by
Paid-in capital ......................................................................... $249,851,724
Accumulated distributions in excess of net investment income ............................ (408,502)
Accumulated net realized gain on investments and foreign currency related transactions .. 16,002,192
Net unrealized appreciation on investments and foreign currency related transactions .... 82,497,498
- ------------------------------------------------------------------------------------------ ------------
Total net assets ...................................................................... $347,942,912
========================================================================================== ============
Net asset value
Class A shares
Net assets of $262,184,141/8,927,035 shares outstanding................................ $ 29.37
Offering price (based on sales charge of 4.75%) ....................................... $ 30.83
Class B shares
Net assets of $85,740,375/2,921,736 shares outstanding................................. $ 29.35
Class C shares
Net assets of $18,396/626 shares outstanding........................................... $ 29.39
========================================================================================== ============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
EVERGREEN
Blue Chip Fund
Statement of Operations
Six Months Ended February 28, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment income
Dividends (net of foreign taxes of $37,072)................................... $ 2,249,849
Interest ..................................................................... 607,394
- -------------------------------------------------------------------------------- ------------
Total income ............................................................... 2,857,243
- -------------------------------------------------------------------------------- ------------
Expenses
Advisory fee ................................................................. 1,045,515
Distribution Plan expenses ................................................... 963,500
Transfer agent fees .......................................................... 341,397
Administrative service fees .................................................. 23,893
Trustees' fees ............................................................... 13,331
Miscellaneous ................................................................ 157,541
- ------------------------------------------------------------------------------- ------------
Total expenses ............................................................. 2,545,177
Less: Indirectly paid expenses ............................................... (1,504)
- ------------------------------------------------------------------------------- ------------
Net expenses ............................................................... 2,543,673
- -------------------------------------------------------------------------------- ------------
Net investment income ........................................................ 313,570
================================================================================ ============
Net realized and unrealized gain (loss) on investments and foreign currency
related transactions
Net realized gain (loss) on
Investments ................................................................ 29,321,373
Foreign currency related transactions ...................................... (53,462)
- ------------------------------------------------------------------------------- ------------
Net realized gain on investments and foreign currency related transactions ... 29,267,911
- -------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation of investments and foreign currency
related transactions ....................................................... 21,549,984
- -------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and foreign currency related
transactions ............................................................... 50,817,895
- -------------------------------------------------------------------------------- ------------
Net increase in net assets resulting from operations .......................... $51,131,465
================================================================================ ============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
EVERGREEN
Blue Chip Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended
February 28, 1998 Year Ended
(Unaudited) August 31, 1997
------------------- ----------------
<S> <C> <C>
Operations
Net investment income ............................................................ $ 313,570 $ 1,381,103
Net realized gain on investments and foreign currency related transactions ....... 29,267,911 42,377,987
Net change in unrealized appreciation of investments and foreign currency
related transactions ............................................................ 21,549,984 35,362,301
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase in net assets resulting from operations ............................ 51,131,465 79,121,391
- ----------------------------------------------------------------------------------- ------------- -------------
Distributions to shareholders
From net investment income
Class B ......................................................................... (58,754) (1,381,103)
In excess of net investment income
Class B ......................................................................... (647,130) (640,844)
From net realized gain on investments
Class B ......................................................................... (51,043,219) (30,039,258)
- ----------------------------------------------------------------------------------- ------------- -------------
Total distributions to shareholders ........................................... (51,749,103) (32,061,205)
- ----------------------------------------------------------------------------------- ------------- -------------
Capital share transactions
Proceeds from shares sold ........................................................ 52,143,735 103,353,377
Payments for shares redeemed ..................................................... (61,962,609) (89,890,447)
Net asset value of shares issued in reinvestment of distributions ................ 45,443,943 27,593,101
- ----------------------------------------------------------------------------------- ------------- -------------
Net increase in net assets resulting from capital share transactions ............ 35,625,069 41,056,031
- ----------------------------------------------------------------------------------- ------------- -------------
Total increase in net assets .................................................. 35,007,431 88,116,217
- ----------------------------------------------------------------------------------- ------------- -------------
Net assets
Beginning of period .............................................................. 312,935,481 224,819,264
- ----------------------------------------------------------------------------------- ------------- -------------
End of period (including accumulated distributions in excess of net investment
income of $408,502 and $16,188, respectively).................................... $ 347,942,912 $ 312,935,481
=================================================================================== ============= =============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Notes To Financial Statements(Unaudited)
Evergreen Blue Chip Fund, formerly Keystone Growth and Income Fund (S-1), (the
"Fund") is a series of Evergreen Equity Trust, a Delaware business trust which
was organized on September 17, 1997. Prior to September 17, 1997, the Fund was
organized as a Pennsylvania trust. Keystone Investment Management Company
("Keystone") is the Fund's investment advisor and manager. Keystone is a
subsidiary of First Union Corporation ("First Union"). The Fund is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, open-end investment company. The Fund's investment objective is
growth of capital and long-term growth of income.
Effective January 9, 1998, the Fund added two classes of shares designated as
Class A and Class C and designated its existing class of shares as Class B.
Class A shares are sold with a maximum front-end sales charge of 4.75%. Class B
and Class C shares are sold without a front-end sales charge, but pay higher
ongoing distribution fees than Class A. Class B shares are sold 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
subject to a contingent deferred sales charge payable on shares redeemed within
one year after the month of purchase. Shareholders of the Fund who, on January
16, 1998, held Class B shares acquired before January 1, 1995 and certain other
non-commissionable Class B shares had such shares converted to Class A shares
having an aggregate value equal to that of the shareholder's Class B shares
prior to the conversion.
1. 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, which
require management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
A. Valuation of Securities
The Fund values securities traded on a national securities exchange or included
on the NASDAQ National Market System ("NMS") at the last reported sales price
on the exchange where primarily traded. Securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the
over-the-counter market are valued at the mean between the last reported bid
and asked price. Securities for which valuations are not available from an
independent pricing service, including restricted securities, are valued at
fair value as determined in good faith according to procedures approved by the
Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other funds managed by Keystone, may
transfer uninvested cash balances into a joint trading account. These balances
are invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
14
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
C. Foreign Currency
The books and records of the Fund are maintained in United States ("U.S.")
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include: foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency related
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amount actually received. Such gains
and losses are included in realized gain (loss) on foreign currency related
transactions. The portion of foreign currency gains and losses related to
fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain (loss) on foreign
currency related transactions.
D. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or
liabilities. Forward contracts are recorded at the forward rate and are
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date.
F. Federal Taxes
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund will not incur any federal income tax liability since
it is expected to distribute all of its net taxable investment income and net
taxable capital gains, if any, to its shareholders. The Fund intends to avoid
any excise tax liability by making the required distributions under the Code.
Accordingly, no provision for federal income or excise tax is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is the Fund's policy not to distribute such gains.
G. Distributions
The Fund distributes net investment income quarterly and net capital gains, if
any, at least annually. Distributions to shareholders are recorded at the close
of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatment for net realized gains from foreign currency related
transactions and certain distributions received from investments in real estate
investment trusts.
15
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
2. CAPITAL SHARE TRANSACTIONS
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest with a par value of $1.00. Shares of
beneficial interest of the Fund are currently divided into Class A, Class B and
Class C. Transactions in shares of the Fund were as follows:
<TABLE>
<S> <C> <C>
January 20, 1998
(Commencement of
Class operations) through
February 28, 1998 (Unaudited)
-----------------------------
Share s Amount
--------- --------
Class A
Shares sold ............................................. 98,947 $ 2,787,988
Automatic conversion of Class B shares to Class A shares 9,140,448 250,374,069
Shares redeemed ......................................... (312,360) (8,839,911)
Shares issued in reinvestment of distributions .......... 0 0
- --------------------------------------------------------- ---------- -------------
Net increase ............................................ 8,927,035 $244,322,146
========================================================= ========== =============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended
February 28, 1998 Year Ended
(Unaudited) August 31, 1997
------------------------------- --------------------------------
Shares Amount Shares Amount
---------- --------- ---------- --------
Class B
Shares sold ............................................. 1,711,756 $ 49,337,892 3,800,615 $ 103,353,377
Automatic conversion of Class B shares to Class A shares (9,140,448) (250,374,069) 0 0
Shares redeemed ......................................... (1,831,593) (53,122,698) (3,349,695) (89,890,447)
Shares issued in reinvestment of distributions .......... 1,677,252 45,443,943 1,079,325 27,593,101
- --------------------------------------------------------- ------------- --------------- ------------- --------------
Net increase (decrease) ................................. (7,583,033) ($ 208,714,932) 1,530,245 $ 41,056,031
========================================================= ============= =============== ============= ==============
</TABLE>
<TABLE>
<S> <C> <C>
January 22, 1998
(Commencement of
Class operations) through
February 28, 1998 (Unaudited)
----------------------------
Shares Amount
------ -------
Class C
Shares sold .......... 626 $17,855
- ---------------------- ------ --------
Net increase ......... 626 $17,855
====================== ====== ========
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the six months ended February 28, 1998 were
$162,567,997 and $177,348,419, respectively.
16
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
4. DISTRIBUTION PLAN
Evergreen Distributors, Inc. ("EDI"), formerly Evergreen Keystone Distributor,
Inc., a wholly-owned subsidiary of The BISYS Group, Inc. ("BISYS") serves as
principal underwriter to the Fund.
The Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the Funds to reimburse
its principal underwriter for costs related to selling shares of the Fund and
for various other services. These costs, which consist primarily of commissions
and services fees to broker-dealers who sell shares of the fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each Class
currently pays a service fee equal to 0.25% of the average daily net asset of
the class. Class B and Class C also presently pay distribution fees equal to
0.75% of the average daily net assets of the Class. Distribution Plan expenses
are calculated daily and paid monthly.
With respect to Class B and Class C shares, the principal underwriter may pay
distribution costs greater than the allowable annual amounts the Fund is
permitted to pay. The Fund may reimburse the principal underwriter for such
excess amounts in later years with annual interest at the prime rate plus
1.00%.
During the six months ended February 28, 1998, amounts paid to EDI and/or its
predecessor pursuant to the Fund's Class A, Class B and Class C Distribution
Plans were $70,177, $893,323 and $0, respectively.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, and subject to the discretion of the Independent Trustees, payments to
EDI or its predecessor may continue as compensation for services which had been
provided while the Distribution Plan was in effect.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
5. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone serves as the investment advisor and manager to the Fund. Keystone
provides the Fund with investment advisory and management services. In return,
Keystone is paid a management fee, computed daily and paid monthly, which is
determined by applying percentage rates starting at 0.70% and declining as net
assets increase to 0.35% per annum, to the average daily net asset value of the
Fund.
During the six months ended February 28, 1997, the Fund paid or accrued $23,893
to Keystone for certain administration and accounting services. Additionally,
Evergreen Service Company ("ESC"), formerly Evergreen Keystone Service Company,
a wholly-owned subsidiary of Keystone, serves as the Fund's transfer and
dividend disbursing agent.
BISYS Fund Services, Inc. ("BISYS"), an affiliate of EDI, serves as the Fund's
sub-administrator. As sub-administrator, BISYS provides the officers of the
Fund. For this service, BISYS is paid a fee by Keystone, which is not a Fund
expense.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
17
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
6. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank & Trust ("State Street") and a group of Banks (the "Banks")
became effective. Under this agreement, the Banks provide an unsecured credit
facility in the aggregate amount of $400 million ($275 million committed and
$125 million uncommitted). The credit facility is allocated, under the terms of
the financing agreement, among the Banks. The credit facility is to be accessed
by the Funds for temporary or emergency purposes only and is subject to each
Fund's borrowing restrictions. Borrowings under this facility bear interest at
0.50% per annum above the Federal Funds rate. A commitment fee of 0.065% per
annum will be incurred on the unused portion of the committed facility, which
will be allocated to all funds. For its assistance in arranging this financing
agreement, the Capital Market Group of First Union was paid a one time
arrangement fee of $27,500. State Street serves as administrative agent for the
Banks, and as administrative agent is entitled to a fee of $20,000 per annum
which is allocated to all of the Funds.
During the six month period ended February 28, 1998, the Fund had no borrowings
under this agreement.
7. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
8. DISTRIBUTIONS TO SHAREHOLDERS
Distributions of $0.045, $0.016 and $0.016 per share from net investment income
were declared on March 23, 1998 for Class A, Class B and Class C, respectively.
These distributions were payable on March 24, 1998 to shareholders of record at
the close of business on March 20, 1998. These distributions are not reflected
in the financial statements.
9. SUBSEQUENT EVENT - ACQUISITION OF BLANCHARD GROWTH AND INCOME FUND
Effective on March 2, 1998, the Fund acquired the net assets of Blanchard
Growth and Income Fund, an open-end management investment company registered
under the 1940 Act in an exchange of shares. The net assets were exchanged
through a non-taxable exchange for 596,231 Class A shares of the Fund. The
acquired net assets consisted primarily of portfolio securities with unrealized
appreciation of $6,014,244. The aggregate net assets of the Fund and Blanchard
Growth and Income Fund immediately prior to the acquisition were $347,931,473
and $17,510,672, respectively. The aggregate net assets of Aggressive Growth
immediately after the acquisition were $365,442,145.
18
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
10. SPECIAL MEETING OF SHAREHOLDERS
On December 15, 1997, a special meeting of shareholders was held to consider a
number of proposals. On October 16, 1997, the record date for the meeting, the
Fund had the following shares outstanding and shares represented at the
December 15, 1997 meeting:
<TABLE>
<S> <C>
Record date shares outstanding ......................... 10,413,856
Shares represented at meeting .......................... 6,064,989
Percentage of record date shares represented at meeting 58.2%
</TABLE>
The votes recorded at the meeting, by proposal, were as follows:
<TABLE>
<S> <C>
Proposal 1 - The proposed reorganization of each Fund as a series of the Evergreen Equity
Trust, a Delaware business trust:
Shares voted "For" ....................................................................... 5,541,894
Shares voted "Against" ................................................................... 148,157
Shares voted "Abstain" ................................................................... 374,938
Proposal 2 - Reclassification as non-fundamental of the investment objective currently
classified as fundamental:
Shares voted "For" ....................................................................... 5,457,406
Shares voted "Against" ................................................................... 219,163
Shares voted "Abstain" ................................................................... 388,420
Proposal 3 - Changes to Fundamental investment restrictions:
Proposal 3A - To amend the Fundamental restriction concerning diversification of
investments:
Shares voted "For" ....................................................................... 5,436,364
Shares voted "Against" ................................................................... 198,277
Shares voted "Abstain" ................................................................... 430,348
Proposal 3B - To amend the Fundamental restriction concerning concentration of the Fund's
assets in a particular industry:
Shares voted "For" ....................................................................... 5,445,236
Shares voted "Against" ................................................................... 189,405
Shares voted "Abstain" ................................................................... 430,348
Proposal 3C - To amend the Fundamental restriction concerning the issuance of senior
securities:
Shares voted "For" ....................................................................... 5,442,497
Shares voted "Against" ................................................................... 192,145
Shares voted "Abstain" ................................................................... 430,347
Proposal 3D - To amend the Fundamental restriction concerning borrowing:
Shares voted "For" ....................................................................... 5,438,711
Shares voted "Against" ................................................................... 195,930
Shares voted "Abstain" ................................................................... 430,348
Proposal 3E - To amend the Fundamental restriction concerning underwriting:
Shares voted "For" ....................................................................... 5,445,652
Shares voted "Against" ................................................................... 188,990
Shares voted "Abstain" ................................................................... 430,347
Proposal 3F - To amend the Fundamental restriction concerning investments in Real Estate:
Shares voted "For" ....................................................................... 5,445,700
Shares voted "Against" ................................................................... 188,941
Shares voted "Abstain" ................................................................... 430,348
Proposal 3G - To amend the Fundamental restriction concerning commodities:
Shares voted "For" ....................................................................... 5,444,578
Shares voted "Against" ................................................................... 190,063
Shares voted "Abstain" ................................................................... 430,348
Proposal 3H - To amend the Fundamental restriction concerning lending:
Shares voted "For" ....................................................................... 5,442,494
Shares voted "Against" ................................................................... 192,470
Shares voted "Abstain" ................................................................... 430,025
</TABLE>
19
<PAGE>
Notes To Financial Statements(Unaudited) (continued)
<TABLE>
<S> <C>
Proposal 3J9 - Reclassification as nonfundamental of current fundamental restriction:
Unseasoned Issuers
Shares voted "For" ....................................................................... 5,436,445
Shares voted "Against" ................................................................... 189,321
Shares voted "Abstain" ................................................................... 439,223
Proposal 3J10 - Reclassification as nonfundamental of current fundamental restriction:
Control or Management
Shares voted "For" ....................................................................... 5,436,834
Shares voted "Against" ................................................................... 188,932
Shares voted "Abstain" ................................................................... 439,223
Proposal 3J11 - Reclassification as nonfundamental of current fundamental restriction:
Short Sales
Shares voted "For" ....................................................................... 5,436,170
Shares voted "Against" ................................................................... 189,488
Shares voted "Abstain" ................................................................... 439,331
Proposal 3J12 - Reclassification as nonfundamental of current fundamental restriction:
Margin Purchases
Shares voted "For" ....................................................................... 5,436,122
Shares voted "Against" ................................................................... 189,536
Shares voted "Abstain" ................................................................... 439,331
Proposal 3J13 - Reclassification as nonfundamental of current fundamental restriction:
Other Investment Companies
Shares voted "For" ....................................................................... 5,438,300
Shares voted "Against" ................................................................... 188,659
Shares voted "Abstain" ................................................................... 438,030
</TABLE>
20
<PAGE>
Evergreen Funds
MONEY MARKET
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
TAX EXEMPT
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
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INCOME
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
BALANCED
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
GROWTH & INCOME
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
DOMESTIC GROWTH
Evergreen Fund
Omega Fund
Small Company Growth Fund
Strategic Growth Fund
Aggressive Growth Fund
Micro Cap Fund
GLOBAL INTERNATIONAL
Global Leaders Fund
International Growth Fund
International Equity Fund
Global Opportunities Fund
Natural Resources Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
EXPRESS LINE
800-346-3858
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800-343-2898
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800-247-4075
www.evergreenfunds.com
67284 543521 RV00 4/98
BULK RATE
U.S. POSTAGE
PAID
CHARLOTTE, NC
PERMIT NO. 136
[EVERGREEN LOGO APPEARS HERE]
Evergreen Funds(SM)
201 South College St.
Charlotte, NC 28288
