1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN EQUITY TRUST
(Evergreen Fund and Evergreen Micro Cap Fund)
[Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025 Connecticut Avenue,
N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 333-50059); accordingly, no fee is payable
herewith. Pursuant to Rule 429, this Registration Statement relates to the
aforementioned registration on Form N-1A. A Rule 24f-2 Notice for the
Registrant's fiscal year ended July 31, 1998 was filed with the Commission on or
about September 29, 1998.
It is proposed that this filing will become effective on May 14, 1999
pursuant to Rule 488 of the Securities Act of 1933.
EVERGREEN EQUITY TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/
Item of Part A of Form N-14 Proxy Statement
- --------------------------- -----------------------
1. Beginning of Registration Cross Reference Sheet;
Statement and Outside Cover Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary;
Comparison of Investment
Objectives and Policies;
Risks
4. Information About the Summary; Reasons for the
Transaction Reorganizations;
Comparative Information on
Shareholders' Rights;
Exhibits A-1 and A-2
(Agreements and Plans of
Reorganization)
5. Information about the Cover Page; Summary;
Registrant Risks; Comparison of
Investment Objectives and
Policies; Comparative
Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary;
Company Being Acquired Risks; Comparison of
Investment Objective and
Policies; Comparative
Information on
Shareholders' Rights;
Additional Information
7. Voting Information Cover Page; Summary;
Voting Information
Concerning the Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Location in Prospectus/
Item of Part B of Form N-14 Proxy Statement
- --------------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of the
Evergreen Equity Trust Income and
Growth Fund Dated April 1, 1998.
Location in
13. Additional Information Statement of Additional
about the Company Being Information of American
Acquired Retirement Fund dated
August 1, 1998;
14. Financial Statements Financial Statement
of Income and Growth
dated March 31, 1998
Financial Statement of
Evergreen Fund dated
September 30, 1998.
Location in Prospectus/
Item of Part C of Form N-14 Proxy Statement
- --------------------------- -----------------------
Incorporated by Reference
15. Indemnification to Part A Caption -
"Comparative Information
on Shareholders' Rights -
Liability and
Indemnification of
Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
[Logo] Prospectus/Proxy StatementJune 1999
Important News For Evergreen Shareholders
We encourage you to read the attached Prospectus/Proxy Statement in full;
however, the following answers to common shareholder questions may provide
helpful information.
Q. Why is Evergreen sending me this prospectus /proxy statement?
Mutual fund companies are required to obtain shareholders' votes for
certain types of changes affecting their funds. As a shareholder, you
have the right to vote on major policy decisions, such as those
included here.
Q. What are the issues contained in this prospectus/proxy statement?
We would like you to vote to approve a proposal to merge the Evergreen
American Retirement Fund into the Evergreen Income and Growth Fund.
Q. Why is Evergreen proposing this fund merger?
There were a number of factors behind the decision to merge American
Retirement Fund into Income and Growth Fund, including the lack of
demand for American Retirement Fund and its declining performance. The
decision to merge this fund into Evergreen Income and Growth Fund was
logical for three primary reasons: the funds have similar mid-cap
investment styles, similar risk characteristics, and are managed by
Irene O'Neill.
Q. How will these changes affect shareholders?
The reorganization of this fund into the Evergreen Income and Growth
Fund means that the Evergreen American Retirement Fund would no longer
exist after July 23, 1999. Shareholders would receive shares of the new
fund in the same class, with comparable or lower fees and the same
contingent deferred sales charges as the shares held prior to the
reorganization. This is a non-taxable event for shareholders.
Q. How do the board members of my fund recommend I vote?
The Board members of each fund recommend you vote in favor of or FOR
the proposal on the enclosed proxy card.
Q. Whom do I call for more information or to place my vote?
Please call Shareholder Communications Corporation at 1-800-733-8481
ext. 404 for additional information. You may vote using any of the
following methods:
Use the enclosed proxy card to record your vote either FOR, AGAINST or
ABSTAIN, then return the card in the postpaid envelope provided, or
Complete the enclosed proxy card and FAX to 1-800-733-1885, or
Call 1-800-733-8481 ext. 404 and record your vote by telephone, or
Vote online by...
PART A
PROSPECTUS/PROXY STATEMENT
LOGO
June 2, 1999
Dear Shareholder,
As a shareholder of Evergreen American Retirement Fund ("American
Retirement Fund"), you are invited to vote on an important matter affecting your
Fund. Specifically, you are invited to vote on a proposal to merge American
Retirement Fund into Evergreen Income and Growth Fund ("Income and Growth
Fund"). Income and Growth Fund is another mutual fund managed by Evergreen Asset
Management Corp. that invests primarily in common stocks and stocks,
securities convertible into or exchangeable for common stocks and fixed income
securities.
If the merger is approved you will receive shares of Income and Growth Fund
having the same total value as the shares of American Retirement Fund you
currently own. Details about Income and Growth Fund's investment objective,
portfolio management team, performance, etc., along with additional information
about the proposed merger, are contained in the attached Prospectus/Proxy
Statement. You will not incur any Federal income taxes as a result of the
merger.
The Board of Trustees of Evergreen Equity Trust has approved the merger and
recommends that you vote FOR this proposal.
I realize that the attached Prospectus/Proxy Statement will take time to
review, but your vote is very important. Please take the time to familiarize
yourself with this information. Votes on the proposal will be cast at a special
meeting of American Retirement Fund shareholders to be held on July 23, 1999.
Although you are welcome to attend the meeting in person, you do not need to do
so in order to vote your shares. If you do not expect to attend the meeting,
please complete, date, sign and return the enclosed proxy card in the enclosed
postage paid envelope. Instructions on how to complete the proxy card are
included immediately after the Notice of Special Meeting.
If you have any questions about the proposal or the proxy card, please call
Evergreen Service Company at 800-343-2898. You may also FAX your completed and
signed proxy card to Alamo Direct, our proxy tabulator, at 800-796-9932.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
[ Signature ]
William M. Ennis
Managing Director
Evergreen Funds
<PAGE>
[SUBJECT TO COMPLETION, APRIL 12, 1999 - PRELIMINARY COPY]
EVERGREEN AMERICAN RETIREMENT FUND
200 Berkeley Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Evergreen American Retirement Fund ("American Retirement Fund"),
a series of Evergreen Equity Trust, will be held at the offices of the Evergreen
funds, 26th Floor, 200 Berkeley Street, Boston, Massachusetts 02116, on July 23,
1999 at 2:00 p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of April 30, 1999, providing for the acquisition of
all of the assets of American Retirement Fund by Evergreen Income
and Growth Fund ("Income and Growth Fund"), a series of Evergreen Equity
Trust, in exchange for shares of Income and Growth Fund and the assumption
by Income and Growth Fund of the identified liabilities of American
Retirement Fund. The Plan also provides for distribution of these shares of
Income and Growth Fund to shareholders of American Retirement Fund in
liquidation and subsequent termination of American Retirement Fund. A vote
in favor of the Plan is a vote in favor of the liquidation and dissolution
of American Retirement Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of American Retirement Fund, the Trustees of Evergreen Equity
Trust have fixed the close of business on May 5, 1999 as the record date for the
determination of shareholders of the Fund entitled to notice of and to vote at
the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Michael H. Koonce
Secretary
June 2, 1999
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 2, 1999
Acquisition of Assets of
EVERGREEN AMERICAN RETIREMENT FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN INCOME AND GROWTH FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being sent to shareholders of Evergreen
American Retirement Fund ("American Retirement Fund") to ask them to approve the
Agreement and Plan of Reorganization (the "Plan") at a Special Meeting of
Shareholders to be held on July 23, 1999 at 2:00 p.m. at the offices of the
Evergreen funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and any adjournments thereof (the "Meeting").
Under the Plan, American Retirement Fund will be merged into
Evergreen Income and Growth Fund ("Income and Growth Fund"). This will be
accomplished by Income and Growth Fund acquiring all of the assets of American
Retirement Fund in exchange for shares of Income and Growth Fund. Along with
acquiring the assets of American Retirement Fund, Income and Growth Fund will
also assume the identified liabilities of American Retirement Fund. This
transaction will be referred to as the "Merger" for the rest of this
Prospectus/Proxy Statement. American Retirement Fund and Income and Growth Fund
are sometimes referred to each as the "Fund" or together as the "Funds" in this
Prospectus/Proxy Statement. After the Merger, American Retirement Fund
shareholders will receive shares of Income and Growth Fund and American
Retirement Fund will be terminated. American Retirement Fund shareholders will
receive Income and Growth Fund shares that have the same letter description
(i.e. Class A, Class B, Class C or Class Y), and the same distribution-related
fees, shareholder servicing-related fees and contingent deferred sales charges
("CDSCs"), if any, as the shares they currently hold ("Corresponding Shares").
American Retirement Fund shareholders will incur no fees in connection with
receiving the Corresponding Shares. American Retirement Fund shareholders will
receive Corresponding Shares that have the same aggregate net asset value as the
shares they hold. The Merger is being structured as a tax-free reorganization
for federal income tax purposes.
American Retirement Fund and Income and Growth Fund are each a separate
series of Evergreen Equity Trust, an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The investment objective of Income and Growth Fund is to seek current
income and capital appreciation in the value of its shares. The investment
objective of American Retirement Fund is to seek conservation of capital,
reasonable income and capital growth.
This Prospectus/Proxy Statement, which should be kept for future reference,
sets forth concisely the information about Income and Growth Fund that American
Retirement Fund shareholders should know before voting on the Merger. Certain
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference
to (which means, legally considered to be part of) this Prospectus/Proxy
Statement. A Statement of Additional Information dated June 2, 1999 relating to
this Prospectus/Proxy Statement and the Merger, which includes the most recent
annual and semi-annual financial statements of Income and Growth Fund and
American Retirement Fund, has been filed with the SEC and is legally considered
to be part of this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Income and Growth Fund at 200 Berkeley Street, Boston, Massachusetts 02116 or
by calling toll-free 1-800-343-2898.
The two Prospectuses of Income and Growth Fund, one offering Class A, Class
B and Class C shares and the other offering Class Y shares, dated December 1,
1998, its Annual Report for the fiscal year ended July 31, 1998 and its
Semi-Annual Report for the six month period ended January 31, 1999 are legally
considered to be part of this Prospectus/Proxy Statement insofar as they relate
to Income and Growth Fund only and not to any other fund described thereon.
Along with this Prospectus/Proxy Statement, shareholders of American Retirement
Fund will receive copies of the Prospectus pertaining to the class of shares of
Income and Growth Fund that they will receive as a result of the Merger.
Additional information about Income and Growth Fund is contained in its
Statement of Additional Information dated December 1, 1998, which has been filed
with the SEC and which is available upon request and without charge by writing
to or calling Income and Growth Fund at the address or telephone number listed
in the paragraph above.
The two Prospectuses of American Retirement Fund, one offering Class A,
Class B and Class C shares and the other offering Class Y shares, dated August
1, 1998 are legally considered to be part of this Prospectus/Proxy Statement
insofar as they relate to American Retirment Fund only and not to any other fund
described therein. Copies of the Prospectuses, the related Statement of
Additional Information, the Annual Report for the fiscal year ended March 31,
1998 and the Semi-Annual Report for the six month period ended September 30,
1998 are available upon request and without charge by writing to American
Retirement Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-343-2898.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits or
obligations of any bank and are not insured or otherwise protected by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency and involve investment risk, including possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES.......................................... 7
SUMMARY . 10
Proposed Plan of Reorganization..................................... 10
Tax Consequences.................................................... 11
Investment Objectives and Policies of the Funds..................... 11
Comparative Performance Information for each Fund................... 11
Management of the Funds............................................. 12
Investment Advisors................................................. 12
Administrator....................................................... 12
Portfolio Management................................................ 13
Distribution of Shares.............................................. 13
Purchase and Redemption Procedures.................................. 15
Exchange Privileges................................................. 15
Dividend Policy..................................................... 15
Risks............................................................... 16
REASONS FOR THE MERGER................................................... 17
Agreement and Plan of Reorganization................................ 18
Federal Income Tax Consequences..................................... 19
Pro-forma Capitalization............................................ 20
Shareholder Information............................................. 21
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................... 22
INFORMATION ON SHAREHOLDERS' RIGHTS...................................... 22
Form of Organization................................................ 22
Capitalization...................................................... 23
Shareholder Liability............................................... 23
Shareholder Meetings and Voting Rights.............................. 23
Liquidation or Dissolution.......................................... 24
Liability and Indemnification of Trustees........................... 24
ADDITIONAL INFORMATION................................................... 24
VOTING INFORMATION CONCERNING THE MEETING................................ 25
FINANCIAL STATEMENTS AND EXPERTS......................................... 26
LEGAL MATTERS............................................................ 26
OTHER BUSINESS........................................................... 26
EXHIBIT A................................................................ A-1
EXHIBIT B................................................................ B-1
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts of fees and expenses for Class A, Class B, Class C and Class Y
shares of American Retirement Fund and Income and Growth Fund are set forth in
the following tables and in the examples. The amounts given are based on the
actual expenses of American Retirement Fund for the fiscal year ended March 31,
1998 and Income and Growth Fund for the fiscal year ended July 31, 1998. The
pro forma amounts for Class A, Class B, Class C and Class Y shares of Income
and Growth Fund are based on what the estimated combined expenses of Income
and Growth Fund would be for the period ended January 31, 1999.
The following tables show:
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B,
Class C and Class Y shares of each American Retirement Fund and
Income and Growth Fund, and
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B,
Class C and Class Y shares of Income and Growth Fund assuming the
Merger takes place ("Income and Growth Fund Pro Forma").
Comparison of Class A, Class B, Class C and Class Y Shares
of Income and Growth Fund With Class A, Class B, Class C and Class Y Shares
of American Retirement Fund
<TABLE>
Income and Growth Fund American Retirement Fund
Class A Class B Class C Class Y Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Sales
Load Imposed on
Purchases (as a
Percentage of
Offering price)...... 4.75% None None None 4.75% None None None
Contingent Deferred
Sales Charge (as
A percentage of
Original purchase
Price or
Redemption
Proceeds,
Whichever is
Lower)............... None(1) 5.00% in 1.00% in None None(1) 5.00% in 1.00% in None
the the first year the first the first
first and 0.00% year year
year thereafter declining to and 0.00%
declining 1.00% in thereafter
to the sixth
1.00% in year and
the sixth 0.00%
year and thereafter
0.00%
thereafter
Income and Growth Fund American Retirement Fund
Class A Class B Class C Class Y Class A Class B Class C Class Y
Annual Fund Operating Expenses (as a
Percentage of average daily net assets)
Management Fee ........................... 0.99% 0.99% 0.99% 0.99% 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (2)........................... 0.25% 1.00% 1.00% None 0.25% 1.00% 1.00% None
Other Expenses............................ 0.26% 0.26% 0.26% 0.26% 0.40% 0.40% 0.40% 0.39%
----- ----- ----- ----- ----- ----- ----- -----
Annual Fund Operating Expenses ........... 1.50% 2.25% 2.25% 1.25% 1.40% 2.15% 2.15% 1.14%
Income and Growth Fund Pro Forma
Class A Class B Class C Class Y
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
Percentage of offering price)...................... 4.75% None None None
Contingent Deferred Sales Charge (as a percentage
Of original purchase price or redemption
Proceeds, whichever is lower)...................... None(1) 5.00% in the 1.00% in the firstNone
first year and 0.00%
year declining thereafter
to
1.00% in the
sixth year and
0.00%
thereafter
Annual Fund Operating Expenses (as a
Percentage of average daily net assets)
Management Fee (After Waiver)(3)...................... 0.88% 0.88% 0.88% 0.88%
12b-1 Fees (2)........................................ 0.25% 1.00% 1.00% None
Other Expenses........................................ 0.26% 0.26% 0.26% 0.26%
----- ----- ----- -----
Annual Fund Operating Expenses........................ 1.39% 2.14% 2.14% 1.14%
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
(2) Class A shares can pay up to 0.75% of average daily net assets as a 12b-1
fee. For the foreseeable future, the Class A 12b-1 fees will be limited to
0.25% of average daily net assets.
(3) The merged Fund will have a 0.07% management fee waiver for the fiscal year
after the merger occurs.
</TABLE>
<PAGE>
Examples. The following tables show for Income and Growth Fund and American
Retirement Fund, and for Income and Growth Fund pro forma, assuming the Merger
takes place, examples of the cumulative effect of shareholder transaction
expenses and annual fund operating expenses indicated above on a $10,000
investment in each class of shares for the periods specified, assuming (i)
a 5% annual return, and (ii) redemption at the end of such period. For Class B
and Class C shares, the tables also show the effect of shareholder expenses
assuming the shares are not redeemed. In the case of Income and Growth Fund pro
forma, the examples do not reflect the imposition of the 4.75% maximum
sales load on purchases since American Retirement Fund shareholders who
receive Class A shares of Income and Growth Fund in the Merger will not incur
any sales load.
<TABLE>
<CAPTION>
Income and Growth Fund
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class A........................................................ $620 $927 $1,255 $2,180
Class B (assuming redemption at the end of the period)......... $728 $1,003 $1,405 $2,308
Class B (assuming no redemption at the end of the period)...... $228 $703 $1,205 $2,308
Class C (assuming redemption at the end of the period)......... $328 $703 $1,205 $2,585
Class C (assuming no redemption at the end of the period)...... $228 $703 $1,205 $2,585
Class Y........................................................ $127 $397 $686 $1,511
American Retirement
Fund
Three Five
One Year Years Years Ten Years
Class A........................................................ $611 $897 $1,204 $2,075
Class B (assuming redemption at the end of the period)......... $718 $973 $1,354 $2,203
Class B (assuming no redemption at the end of the period)...... $218 $673 $1,154 $2,203
Class C (assuming redemption at the end of the period)......... $318 $673 $1,154 $2,483
Class C (assuming no redemption at the end of the period)...... $218 $673 $1,154 $2,483
Class Y........................................................ $116 $362 $628 $1,386
Income and Growth Fund Pro
Forma
Three Five
One Year Years Years Ten Years
Class A........................................................ $142 $440 $761 $1,669
Class B (assuming redemption at the end of the period)......... $717 $970 $1,349 $2,192
Class B (assuming no redemption at the end of the period)...... $217 $670 $1,149 $2,192
Class C (assuming redemption at the end of the period)......... $317 $670 $1,149 $2,472
Class C (assuming no redemption at the end of the period)...... $217 $670 $1,149 $2,472
Class Y........................................................ $116 $362 $628 $1,386
The purpose of the foregoing examples is to assist American Retirement Fund
shareholders in understanding the various costs and expenses that an investor in
Income and Growth Fund as a result of the Merger would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in American Retirement Fund. These examples should not be
considered a representation of past or future expenses or annual return. Actual
expenses may be greater or less than those shown.
</TABLE>
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of Income and Growth Fund and American Retirement Fund dated August
1, 1998 (which are legally considered to be a part of this Prospectus/Proxy
Statement) and the Plan, the form of which is attached to this Prospectus/Proxy
Statement as Exhibit A.
Proposed Plan of Reorganization
The Plan generally provides for the following:
o the transfer of all of the assets of American Retirement Fund in
exchange for shares of Income and Growth Fund, and
o the assumption by Income and Growth Fund of the identified
liabilities of American Retirement Fund. (The identified
liabilities consist only of those liabilities reflected on
American Retirement Fund's statement of assets and liabilities
determined immediately preceding the Merger.)
The Plan also calls for the distribution of shares of Income and Growth
Fund to American Retirement Fund's shareholders in liquidation of American
Retirement Fund as part of the Merger. After the Merger, the shareholders of
American Retirement Fund will own Corresponding Shares of Income and Growth Fund
having the same aggregate net asset value as that of the shareholders' shares of
American Retirement Fund, as of the close of business immediately prior to the
date that American Retirement Fund's assets are exchanged for shares of Income
and Growth Fund. See "Reasons for the Merger--Agreement and Plan of
Reorganization."
The Trustees of Evergreen Equity Trust, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Merger would be in the best interests of
American Retirement Fund shareholders, and that their interests will not be
diluted as a result of the Merger. Accordingly, the Trustees have submitted the
Plan for the approval of American Retirement Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN EQUITY TRUST
RECOMMENDS APPROVAL BY SHAREHOLDERS OF AMERICAN RETIREMENT FUND
OF THE PLAN EFFECTING THE MERGER.
The Trustees of Evergreen Equity Trust have also approved the Plan on
behalf of Income and Growth Fund.
Approval of the Merger will require the following:
o In order to have the Meeting, at least 25% (a "quorum") of the
outstanding shares of American Retirement Fund entitled to vote must
be represented at the Meeting in person or by shareholders sending in
a proxy card.
o All classes of American Retirement Fund will vote together as if
they were a single class.
o A majority (greater than 50%) of American Retirement Fund shares
voted must vote FOR the Merger.
See "Voting Information Concerning the Meeting."
The Merger is scheduled to take place on or about July 30, 1999. If
American Retirement Fund shareholders do not vote to approve the Merger, the
Trustees will consider other possible courses of action in the best interests of
shareholders.
<PAGE>
Tax Consequences
Prior to or at the completion of the Merger, American Retirement Fund will
have received an opinion of Sullivan & Worcester LLP that the Merger has been
structured so that no gain or loss will be realized by the Fund or its
shareholders for federal income tax purposes as a result of receiving Income and
Growth Fund shares in connection with the Merger. The holding period and
aggregate tax basis of shares of Income and Growth Fund that are received by
American Retirement Fund's shareholders will be the same as the holding period
and aggregate tax basis of shares of the Fund previously held by such
shareholders, provided that shares of the Fund are held as capital assets. In
addition, the holding period and tax basis of the assets of American Retirement
Fund in the hands of Income and Growth Fund as a result of the Merger will be
the same as in the hands of the Fund immediately prior to the Merger, and no
gain or loss will be recognized by Income and Growth Fund upon the receipt of
the assets of the Fund in exchange for shares of Income and Growth Fund and the
assumption by Income and Growth Fund of American Retirement Fund's identified
liabilities.
Investment Objectives and Policies of the Funds
The investment objectives of Income and Growth Fund and American
Retirement Fund are substantially similar.
The investment objective of Income and Growth Fund is to seek current
income and capital growth in the value of its shares. The Fund invests primarily
in common stocks and securities convertible into common stocks that on the
purchase date pays a yield higher than the average yield of companies included
in the S&P 500. Also, the Fund may invest up to 50% of its total assets
in the securities of foreign issuers or other securities convertible into
securities of foreign issuers, and up to 25% in bonds.
The investment objectives of American Retirement Fund in order of
priority are to seek conservation of capital, reasonable income and capital
growth. The Fund offers a structured investment approach designed
specifically for retirees and persons contemplating retirement which may
also be appropriate for the qualified retirement plans of smaller companies.
See "Comparison of Investment Objectives and Polices" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained in
the Prospectus and Statement of Additional Information of the American
Retirement Fund and in the Statement of Additional Information of Income and
Growth Fund. The following tables set forth, as applicable, the total return of
the Class A, Class B, Class C and Class Y shares of Income and Growth Fund and
American Retirement Fund for the periods of time specified below. The
calculations of total return assume the reinvestment of all dividends and
capital gains distributions on the reinvestment date and the deduction of all
recurring expenses (including sales charges) that were charged to shareholders'
accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year Ended 5 Years Ended 10 Years Ended From Inception Inception
Jan. 31, 1999 Jan. 31, Jan. 31, 1999 To Jan. 31, 1999 Date
1999
<S> <C> <C> <C> <C> <C>
Income and Growth Fund(2)
Class A shares..... -4.79% 8.95% 9.52% 13.57% 01/03/95
Class B shares..... -5.08% 9.08% 9.73% 13.67% 01/03/95
Class C shares..... -1.65% 9.35% 9.72% 13.67% 01/03/95
Class Y shares..... 0.26% 10.22% 10.16% 13.89% 08/31/78
American Retirement
Fund(2)
Class A shares..... -3.96% 9.01% 10.11% 10.09% 01/03/95
Class B shares..... -4.79% 9.11% 10.30% 10.27% 01/03/95
Class C shares..... -0.86% 9.41% 10.31% 10.28% 01/03/95
Class Y shares..... 1.11% 10.25% 10.73% 10.67% 03/14/88
</TABLE>
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total returns during the periods would have been lower.
(2) Historical performance shown for Classes A, B and C prior to their
inception is based on the performance of Class Y, the original class
offered. These historical returns for Classes A, B, and C have not
been adjusted to reflect the effect of each class' 12b-1 fees. These
fees for Classes A, B, and C are .25%, 1.00%, and 1.00%, respectively.
Class Y does not pay a 12b-1 fee. If these fees had been reflected,
returns would have been lower.
Important information about Income and Growth Fund is also contained in
management's discussion of Income and Growth Fund's performance, attached hereto
as Exhibit B. This information also appears in Income and Growth Fund's most
recent Annual Report.
Management of the Funds
The overall management of Income and Growth Fund and of American
Retirement Fund is the responsibility of, and is supervised by, the Board of
Trustees of Evergreen Equity Trust.
Investment Advisors
The investment advisor to Income and Growth Fund and American Retirement
Fund is Evergreen Asset Management Corp. ("Evergreen Asset"). Evergreen Asset is
an indirect wholly owned subsidiary of First Union National Bank ("FUNB"). FUNB
is a subsidiary of First Union Corporation ("First Union"), the 6th largest bank
holding company in the United States based on total assets as of December 31,
1998. Evergreen Asset, with its predecessors, has served as an investment
advisor to the Funds since 1971, and currently manages over $18.7 billion in
assets for 21 of the Evergreen funds. Evergreen Asset is located at 2500
Westchester Avenue, Purchase, New York 10577. Leiber & Company is sub-advisor to
the Funds. Leiber & Company is an indirect, wholly owned subsidiary of FUNB and
is located at 2500 Westchester Avenue, Purchase, New York 10577. Evergreen
Asset and its affiliates manage the Evergreen family of mutual funds with assets
of approximately $237 billion as of December 31,1998. For further information
regarding Evergreen Asset, FUNB and First Union, see "General Information - The
Funds' Investment Advisors" in the Prospectuses of Income and Growth Fund and
see "Organization and Service Providers - Service Providers" in the
Prospectuses of American Retirement Fund.
Evergreen Asset manages investments and supervises the daily business
affairs of Income and Growth Fund and American Retirement Fund subject to the
authority of the Trustees. Evergreen Asset is entitled to receive from Income
and Growth Fund an annual fee equal to 1.00% of the first $750 million of the
Fund's average daily net assets, plus 0.90% of the next $250 million, plus 0.80%
of the amounts over $1 billion. Evergreen Asset is entitled to receive from
American Retirement Fund an annual fee equal to 0.75% of the first $750 million
of the Fund's average daily net assets, plus: 0.70% of the amount over
$750 million.
Evergreen Asset may, at its discretion, reduce or waive its fee or
reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Evergreen Asset may also reduce or cease these voluntary waivers
and reimbursements at any time.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, Income and Growth Fund could be
adversely affected if the computer systems used by Evergreen Asset and the
Fund's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Evergreen Asset is taking steps to
address the Year 2000 Problem with respect to the computer systems that it uses
and to obtain assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
Portfolio Management
The day-to-day management of the Income and Growth Fund is handled by Nola
Maddox Falcone, who is also President and Co-Chief Officer of the Evergreen
Asset. Ms. Falcone has been the Fund's portfolio manager since its inception in
1978.
Co-manager of the Fund is Irene O'Neill. Ms. O'Neill has over 19 years of
investment management experience and has been co-portfolio
manager since December 1997. She has been with Evergreen Asset since 1981.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services
("BISYS"), acts as underwriter of shares of Income and Growth Fund and American
Retirement Fund. EDI distributes each Fund's shares directly or through broker-
dealers, banks (including FUNB), or other financial intermediaries. Each Fund
offers four classes of shares: Class A, Class B, Class C and Class Y. Each
class has separate distribution arrangements and bears its own distribution
expenses. (See "Distribution-Related and Shareholder Servicing-Related Expenses"
below.)
In the proposed Merger, American Retirement Fund shareholders will receive
the Corresponding Shares of Income and Growth Fund. The Corresponding Shares of
Income and Growth Fund that American Retirement Fund shareholders will receive
have identical arrangements with respect to the imposition of Rule 12b-1
distribution and service fees as the shares they currently hold. Because the
Merger will be effected at net asset value without the imposition of a sales
charge, American Retirement Fund shareholders will receive Income and Growth
Fund shares without paying any initial sales charge or CDSC as a result of the
Merger. Income and Growth Fund Class B and Class C shares received by American
Retirement Fund shareholders as a result of the Merger will continue to be
subject to a CDSC upon subsequent redemption, but the CDSC will be based
on the date of the original purchase of American Retirement Fund shares.
The following is a summary description of charges and fees for the Class A,
Class B, Class C and Class Y shares of Income and Growth Fund which will be
received by American Retirement Fund shareholders in the Merger. More detailed
descriptions of the distribution arrangements applicable to the classes of
shares are contained in the Income and Growth Fund and American Retirement
Fund Prospectuses and in the Funds' Statement of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge and, as indicated below, are subject to distribution-related fees.
For a description of the initial sales charges applicable to purchases of Class
A shares see "Purchase and Redemption of Shares - How to Buy Shares" in the
Prospectus of Income and Growth Fund offering Class A shares. No initial sales
charge will be imposed on Class A shares of Income and Growth Fund received by
American Retirement Fund.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed during
the first six years after the month of purchase. In addition, Class B shares are
subject to distribution-related fees and shareholder servicing-related fees as
described below. For purposes of determining when Class B shares issued in the
Merger to shareholders of American Retirement Fund will convert to Class A
shares, such shares will be deemed to have been purchased as of the date Class B
shares of American Retirement Fund were originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). The higher fees mean a higher expense ratio, so
Class B shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares of the Fund.
Class C Shares. Class C shares are sold without initial sales charges but,
as indicated below, are subject to distribution-related and
shareholder servicing-related fees. Class C shares are subject to a 1% CDSC if
such shares are redeemed within 13 months of purchase. No CDSC is imposed
on amounts redeemed thereafter. Class C shares incur higher distribution-
related and shareholder servicing-related fees than Class A shares, but
unlike Class B shares, do not convert to any other class of shares.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related or
shareholder servicing-related fees. Class Y shares are only available to certain
classes of investors as is more fully described in the Class Y Prospectus for
Income and Growth Fund.
Additional information regarding the classes of shares of each Fund is
included in its Prospectuses and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses. Each Fund
has adopted a Rule 12b-1 plan with respect to its Class A shares under which the
Class may pay for distribution-related expenses at an annual rate which may not
exceed 0.75% of average daily net assets attributable to the Class. Payments
with respect to Class A shares are currently limited to 0.25% of average daily
net assets attributable to the Class. This amount may be increased to the full
plan rate for each Fund by the Trustees without shareholder approval.
Each Fund has also adopted a 12b-1 plan with respect to its Class B and
Class C shares under which the Class may pay for distribution-related expenses
at an annual rate which may not exceed 1.00%. Of the total 1.00% 12b-1 fees, up
to 0.25% may be for payment in respect of "shareholder services." Consistent
with the requirements of Rule 12b-1 and the applicable rules of the National
Association of Securities Dealers, Inc., following the Merger, Income and Growth
Fund may make distribution-related and shareholder servicing-related payments
with respect to American Retirement Fund shares sold prior to the Merger.
Additional information regarding the Rule 12b-1 plans adopted by each Fund
is included in its Prospectuses and Statement of Additional Information.
No 12b-1 plan has been adopted for the Class Y shares of either Fund.
Purchase and Redemption Procedures
Information concerning applicable sales charges and distribution-related
and shareholder servicing-related fees is provided above. Investments in the
Funds are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of either Fund.
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value, less any CDSC, as next determined after receipt of a redemption request
on each day the New York Stock Exchange ("NYSE") is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in the Funds' Prospectuses.
Each Fund may involuntarily redeem shareholders' accounts that have less than
$1,000 of invested funds. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Holders of shares of a class of each Fund may exchange their shares for
shares of the same class of any other Evergreen fund. Each Fund limits exchanges
to five per calendar year and three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in the Funds' Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund distributes its investment company taxable income quarterly and
its net realized gains at least annually. Shareholders begin to earn dividends
on the first business day after shares are purchased unless shares were not paid
for, in which case dividends are not earned until the next business day after
payment is received. Dividends and distributions are reinvested in additional
shares of the same class of the respective Fund, or paid in cash, as a
shareholder has elected. See the Funds' Prospectuses for further information
concerning dividends and distributions.
After the Merger, shareholders of American Retirement Fund who have elected
to have their dividends and/or distributions reinvested will have dividends
and/or distributions received from Income and Growth Fund reinvested in shares
of Income and Growth Fund. Shareholders of American Retirement Fund who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Income and Growth Fund in cash after the Merger,
although they may, after the Merger, elect to have such dividends and/or
distributions reinvested in additional shares of Income and Growth Fund.
Each of Income and Growth Fund and American Retirement Fund has qualified
and intends to continue to qualify to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). While
so qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
An investment in each Fund is subject to certain risks. There is no
assurance that investment performances will be positive and that the Funds will
meet their investment objectives. For a discussion of each Fund's objectives and
policies, see "Comparison of Investment Objectives and Policies."
Each Fund may invest in foreign securities. Incoma and Growth Fund may
invest up to 50% of its assets in foreign securities and American Retirement may
invest up to 20% of its assets in foreign securities. Investments in foreign
securities require consideration of certain factors not normally
associated with investments in securities of U.S. issuers. For example, a change
in the value of any foreign currency relative to the U.S. dollar will result in
a corresponding change in the U.S. dollar value of securities denominated in
that currency. Securities markets of foreign countries generally are not subject
to the same degree of regulation as the U.S. markets and may be more volatile
and less liquid. Lack of liquidity may affect a Fund's ability to purchase or
sell large blocks of securities and thus obtain the best price. In addition, a
Fund may incur costs associated with currency hedging and the conversion of
foreign currency into U.S. dollars and may be adversely affected by restrictions
on the conversion or transfer of foreign currency. Other considerations include
political and social instability, expropriation, the lack of available
information, higher transaction costs (including brokerage charges), increased
custodian charges associated with holding foreign securities and different
securities settlement practices.
American Retirement Fund may invest a portion of its assets in
securities rated below Baa by Moody's or BBB by S&P (commonly known as "junk
bonds"). These lower rated securities will likely have some quality and
protective characteristics that are outweighed by large uncertainties or major
risk exposures to adverse conditions. However, while the market values of
lower-rated securities tend to react less to fluctuations in interest rate
levels than the market values of higher rated securities, the market values of
certain lower-rated securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-rated
securities. In addition, lower-rated securities generally present a higher
degree of credit risk. Issuers of lower-rated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
lower-rated securities generally are unsecured and frequently are subordinated
to the prior payment of senior indebtedness.
Both Funds may invest their assets in investments related
to real estate. The risks associated with investment in securities of companies
in the real estate industry include: declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates. In addition, equity real estate investment trusts
may be affected by changes in the value of the underlying property owned by the
trusts, while mortgages real estate investment trusts may be affected by the
quality of credit extended.
Both Funds are subject to interest rate risk. Interest rate risk is
triggered by the tendency for the value of debt securities to fall when interest
rates go up. Since both Funds invest a significant portion of their portfolio in
debt securities, if interest rates rise, then the value of the Funds' securities
may decline. When interest rates go down, interest earned by the Funds on their
investments may also decline, which could cause the Funds to reduce the dividend
they pay.
Both Funds are subject to stock market risk. The Funds' value will be
affected by general economic conditions such as prevailing economic growth,
inflation and interest rates, When economic growth slows, or interest or
inflation rates increase, securities tend to decline in value. Such events could
also cause companies to decrease the dividends they pay. If these events were to
occur, the value of an dividend yield and total return earned on a shareholder's
investment in the Funds' would likely decline. Even if general economic
conditions do not change, a shareholder's investment in the Funds may decline in
value if the particular industries, issuers or sectors the Funds invest in do
not perform well.
Both Funds are also subject to credit risk. The value of a debt
security is directly affected by the issuer's ability to repay principal and pay
interest on time. If the Funds invest in debt securities then the value of
and total return earned on a shareholder's investment in the Funds may decline
if an issuer fails to pay an obligation on a timely basis.
REASONS FOR THE MERGER
At a regular meeting held on March 12, 1999, all of the Trustees of
Evergreen Equity Trust, including the Independent Trustees, considered and
approved the Merger as in the best interests of shareholders of American
Retirement Fund and determined that the interests of existing shareholders of
American Retirement Fund will not be diluted as a result of the transactions
contemplated by the Merger. During their consideration of the Merger, the
Trustees met with Fund counsel to the Independent Trustees regarding the legal
issues involved.
Before approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Merger. The Trustees considered among other things:
o the terms and conditions of the Merger;
o whether the Merger would result in the dilution of shareholders' interests;
o expense ratios, fees and expenses of Income and Growth Fund and
American Retirement Fund;
o the comparative performance records of each of the Funds;
o compatibility of their investment objectives and policies;
o the investment experience, expertise and resources of Evergreen Asset;
o the service and distribution resources available to the Evergreen funds
and the broad array of investment alternatives available to shareholders of
the Evergreen funds;
- -- the personnel and financial resources of First Union and its affiliates;
- -- the fact that FUNB will bear the expenses incurred by American Retirement
Fund in connection with the Merger;
- -- the fact that Income and Growth Fund will assume the identified liabilities
of American Retirement Fund;
- -- the expected federal income tax consequences of the Merger. and of
alternatives available to shareholders of American Retirement Fund, including
the ability to redeem their shares.
In approving the Merger, the Trustees considered the relative size of
American Retirement Fund as well as investment style. The Trustees evaluated the
potential economies of scale associated with larger mutual funds and concluded
that operational efficiencies may be achieved by combining American Retirement
Fund with Income and Growth Fund. As of December 31, 1998, Income and Growth
Fund's total assets were approximately $892.9 million and American Retirement
Fund's total assets were approximately $228.3 million. The Trustees also
considered that although Income and Growth Fund has a larger stock component
than American Retirement Fund, both Funds have exhibited similar portfolio
characteristics. For example, Income and Growth Fund has 136 holdings and a
median market capitalization of $2.7 billion, while American Retirement Fund has
147 holdings and a median market capitalization of $2.5 billion. By merging into
Income and Growth Fund, shareholders of American Retirement Fund would have the
benefit of a larger fund with greater investment flexibility than American
Retirement Fund, which is more conservative in nature.
Although the past year's performance has been higher for American
Retirement Fund than for Income and Growth Fund, the Trustees considered
American Retirement Fund's redemption activity. The Evergreen Fund Family
currently consists of four balanced funds, one of which is American Retirement
Fund. Although total net assets in the balanced funds increased over 1998, there
was a decline in overall gross sales and American Retirement Fund experienced
net redemptions during the last few months of 1998. Concurrently, during the
last quarter of 1998 Income and Growth Fund outperformed American Retirement
Fund by approximately 3 basis points. The Trustees also considered that during
the first quarter of 1999, net assets decreased in American Retirement Fund
by $20 million.
The Trustees also considered the relative expenses of the Funds. Currently,
the expense ratio of American Retirement Fund is lower than that of Income and
Growth Fund. If the Merger takes place, the advisory contract of Income and
Growth Fund would be amended to lower the advisory fee . This change in
advisory fee as well as the efficiencies achieved in operating a larger
mutual fund would result in the combined fund having comparable expenses to
American Retirement Fund.
Due to its relative size and recent high redemption activity, merging
American Retirement Fund into Income and Growth Fund would provide greater
potential benefit to shareholders. Accordingly, for the reasons noted above and
recognizing that there can be no assurance that any economies of scale or other
benefits will be realized, the Trustees believe that the proposed Merger would
be in the best interests of each Fund and its shareholders.
THE TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMEND
THAT THE SHAREHOLDERS OF AMERICAN RETIREMENT FUND APPROVE
THE PROPOSED MERGER.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that Income and Growth Fund will acquire all of the
assets of American Retirement Fund in exchange for shares of Income and Growth
Fund and the assumption by Income and Growth Fund of the identified liabilities
of American Retirement Fund on or about July 30, 1999 or such other date as may
be agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
American Retirement Fund will endeavor to discharge all of its known liabilities
and obligations. Income and Growth Fund will not assume any liabilities or
obligations of American Retirement Fund other than those reflected in an
un-audited statement of assets and liabilities of American Retirement Fund
prepared as of the close of regular trading on the NYSE, currently 4:00 p.m.
Eastern time, on the business day immediately prior to the Closing Date. The
number of full and fractional shares of each class of Income and Growth Fund to
be received by the shareholders of American Retirement Fund will be determined
by multiplying the respective outstanding class of shares of American Retirement
Fund by a factor which shall be computed by dividing the net asset value per
share of the respective class of shares of American Retirement Fund by the net
asset value per share of the respective class of shares of Income and Growth
Fund. Such computations will take place as of the close of regular trading on
the NYSE on the business day immediately prior to the Closing Date. The net
asset value per share of each class will be determined by dividing assets, less
liabilities, in each case attributable to the respective class, by the total
number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of Income and Growth Fund,
Rule 22c-1 under the 1940 Act, and with the interpretations of such Rule by the
SEC's Division of Investment Management.
At or prior to the Closing Date, American Retirement Fund will have
declared a dividend or dividends and distribution or distributions which,
together with all previous dividends and distributions, shall have the effect of
distributing to the Fund's shareholders (in shares of the Fund, or in cash, as
the shareholder has previously elected) all of the Fund's net investment company
taxable income for the taxable period ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized in all taxable periods ending on the Closing Date (after
reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, American
Retirement Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of Income and Growth Fund received by American Retirement Fund. Such liquidation
and distribution will be accomplished by the establishment of accounts in the
names of American Retirement Fund's shareholders on Income and Growth Fund's
share records of its transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of Income and Growth Fund due to
the Fund's shareholders. All issued and outstanding shares of American
Retirement Fund, including those represented by certificates, will be canceled.
The shares of Income and Growth Fund to be issued will have no preemptive or
conversion rights. After these distributions and the winding up of its affairs,
American Retirement Fund will be terminated.
The consummation of the Merger is subject to the conditions set forth in
the Plan, including approval by American Retirement Fund's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel, including opinions with respect to those matters referred to in
"Federal Income Tax Consequences" below. Notwithstanding approval of American
Retirement Fund's shareholders, the Plan may be terminated (a) by the mutual
agreement of American Retirement Fund and Income and Growth Fund; or (b) at or
prior to the Closing Date by either party (i) because of a breach by the other
party of any representation, warranty, or agreement contained therein to be
performed at or prior to the Closing Date if not cured within 30 days, or (ii)
because a condition to the obligation of the terminating party has not been met
and it reasonably appears that it cannot be met.
Whether or not the Merger is consummated, FUNB will pay the expenses
incurred by American Retirement Fund in connection with the Merger (including
the cost of any proxy soliciting agent). No portion of the expenses will be
borne directly or indirectly by American Retirement Fund or its shareholders.
If American Retirement Fund shareholders do not approve the Merger, the
Trustees will consider other possible courses of action which may be in the best
interests of shareholders.
Federal Income Tax Consequences
The Merger is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a) of the Code. As a condition to the
closing of the Merger, American Retirement Fund will receive an opinion of
Sullivan & Worcester LLP to the effect that, on the basis of the existing
provisions of the Code, U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court decisions, for federal income tax
purposes, upon consummation of the Merger:
(1) The transfer of all of the assets of American Retirement Fund
solely in exchange for shares of Income and Growth Fund and the assumption
by Income and Growth Fund of the identified liabilities, followed by the
distribution of Income and Growth Fund's shares by American Retirement Fund
in dissolution and liquidation of American Retirement Fund, will constitute
a "reorganization" within the meaning of section 368(a)(1)(C) of the Code,
and Income and Growth Fund and American Retirement Fund will each be a
"party to a reorganization" within the meaning of section 368(b) of the
Code;
(2) No gain or loss will be recognized by American Retirement Fund on
the transfer of all of its assets to Income and Growth Fund solely in
exchange for Income and Growth Fund's shares and the assumption by Income
and Growth Fund of the identified liabilities of American Retirement Fund
or upon the distribution of Income and Growth Fund's shares to American
Retirement Fund's shareholders in exchange for their shares of American
Retirement Fund;
(3) The tax basis of the assets transferred will be the same to Income
and Growth Fund as the tax basis of such assets to American Retirement Fund
immediately prior to the Merger, and the holding period of such assets in
the hands of Income and Growth Fund will include the period during which
the assets were held by American Retirement Fund;
(4) No gain or loss will be recognized by Income and Growth Fund upon
the receipt of the assets from American Retirement Fund solely in exchange
for the shares of Income and Growth Fund and the assumption by Income and
Growth Fund of the identified liabilities of American Retirement Fund;
(5) No gain or loss will be recognized by American Retirement Fund's
shareholders upon the issuance of the shares of Income and Growth Fund to
them, provided they receive solely such shares (including fractional
shares) in exchange for their shares of American Retirement Fund; and
(6) The aggregate tax basis of the shares of Income and Growth Fund,
including any fractional shares, received by each of the shareholders of
American Retirement Fund pursuant to the Merger will be the same as the
aggregate tax basis of the shares of American Retirement Fund held by such
shareholder immediately prior to the Merger, and the holding period of the
shares of Income and Growth Fund, including fractional shares, received by
each such shareholder will include the period during which the shares of
American Retirement Fund exchanged therefor were held by such shareholder
(provided that the shares of American Retirement Fund were held as a
capital asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of American Retirement Fund would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Income and Growth
Fund shares he or she received. Shareholders of American Retirement Fund should
consult their tax advisers regarding the effect, if any, of the proposed Merger
in light of their individual circumstances. It is not anticipated that the
securities of the combined portfolio will be sold in significant amounts in
order to comply with the policies and investment practices of Income and Growth
Fund. Since the foregoing discussion relates only to the federal income tax
consequences of the Merger, shareholders of American Retirement Fund should also
consult their tax advisers as to the state and local tax consequences, if any,
of the Merger.
Capital loss carryforwards of American Retirement Fund will be available to
Income and Growth Fund to offset capital gains recognized after the Merger,
subject to limitations imposed by the Code. These limitations provide generally
that the amount of loss carryforward which may be used in any year following the
closing is an amount equal to the value of all of the outstanding stock of
American Retirement Fund immediately prior to the Merger, multiplied by a
long-term tax-exempt bond rate determined monthly by the Internal Revenue
Service. The rate for April, 1999 was 4.78%. A capital loss carryforward may
generally be used without any limit to offset gains recognized on sale of assets
transferred by American Retirement Fund to Income and Growth Fund pursuant to
the Merger, to the extent of the excess of the value of any such asset on the
Closing Date over its tax basis.
Pro-forma Capitalization
The following table sets forth the capitalizations of American Retirement
Fund and Income and Growth Fund as of January 31, 1999 and the capitalization of
Income and Growth Fund on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value. The pro forma data
reflects an exchange ratio of approximately 0.741622, 0.743753, 0.745713 and
0.741262 for Class A, Class B, Class C and Class Y shares, respectively, of
Income and Growth Fund issued for each Class A, Class B, Class C and Class Y
share, respectively, of American Retirement Fund.
Capitalization of American Retirement Fund,
Income and Growth Fund and Income and Growth Fund (Pro Forma)
American Income and Income and Growth
Retirement Growth Fund Fund (After Merger)
Fund
Net Assets
Class A.................. $28,166,519 $13,379,023 $41,545,542
Class B.................. $157,742,467 $51,033,169 $208,775,636
Class C.................. $2,195,110 $1,074,297 $3,269,407
Class Y.................. $34,013,389 $806,846,513 $840,859,902
----------- ------------ ------------
Total Net Assets......... $222,117,485 $872,333,002 $1,094,450,487
Net Asset Value Per Share
Class A.................. $15.27 $20.59 $20.59
Class B.................. $15.18 $20.41 $20.41
Class C.................. $15.22 $20.41 $20.41
Class Y.................. $15.27 $20.60 $20.60
Shares Outstanding
Class A.................. 1,844,690 649,834 2,017,897
Class B.................. 10,388,825 2,500,100 10,226,820
Class C.................. 144,220 52,629 160,176
Class Y.................. 2,226,978 39,171,763 40,822,537
--------- ---------- ----------
All Classes.............. 14,604,713 42,374,326 53,227,430
The table set forth above should not be relied upon to reflect the number
of shares to be received in the Merger; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Merger.
Shareholder Information
As of May 5, 1999 (the "Record Date "), the following number of each
Class of shares of beneficial interest of American Retirement Fund was
outstanding:
Class of Shares
Class A........
Class B........
Class C........
Class Y........
All Classes....
As of the Record Date, the officers and Trustees of Evergreen Equity Trust
beneficially owned as a group less than 1% of the outstanding shares of American
Retirement Fund. To Evergreen Equity's knowledge, the following persons owned
beneficially or of record more than 5% of American Retirement Fund's total
outstanding shares as of the Record Date:
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares of Shares of
Class Before Class After
Name and Class No. of Shares Merger Merger
Address
[ to be supplied]
<S> <C> <C> <C> <C>
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the Prospectuses and Statement of Additional Information of the
Funds. The investment objectives, policies and restrictions of each Fund can be
found in the Prospectuses for Income and Growth Fund under the caption "Fund
Summaries-Evergreen Income and Growth Fund" and in the Prospectuses for American
Retirement Fund under the caption "Description of the Funds-Investment
Objectives and Policies." The Prospectuses for Income and Growth Fund and
American Retirement Fund also offer additional funds advised by FUNB or its
affiliates. These additional funds are not involved in the Merger, their
investment objectives and policies are not discussed in the Prospectus/Proxy
Statement and their shares are not offered hereby. The investment objective of
each Fund is non-fundamental and can be changed by the Board of Trustees without
shareholder approval.
The investment objective of Income and Growth Fund is to seek current
income and capital growth in the value of its shares by investing in common
stocks, preferred stocks, securities convertible into common stocks and fixed
income securities. The Fund may invest up to 50% of its total assets in the
securities of foreign securities and up to 25% in bonds. The Fund's portfolio
will vary over time depending upon the economic outlook and market conditions
and the composition of the portfolio will be subject to the discretion of the
investment advisor.
Ordinarily the Income and Growth Fund anticipates that approximately
75% of its portfolio will consist of equity securities (including convertible
preferred stock) and the other 25% of debt securities (including convertible
debt securities). In seeking capital appreciation, the Fund expects that its
investments will provide growth over the long-term.
The investment objectives of American Retirement Fund in order of
priority are conservation of capital, reasonable income and capital growth. The
Fund invests in a diversified and balanced portfolio of equity and fixed income
securities, with an emphasis on income-producing securities which appear to have
potential for capital enhancement. The Fund's investment advisor may vary the
amount invested in each type of security in response to changing market
conditions to take advantage of relative undervaluation in either the stock or
bond markets. The Fund anticipates that approximately 50% of its portfolio will
consist of equity securities (including securities convertible into equity
securities) and 50% of fixed income securities. Generally, approximately half of
the equity portion of the Fund's portfolio will be invested in common stocks and
half in bonds and preferred stocks convertible into common stock. In addition,
the Fund may invest up to 20% of its assets in securities of foreign issuers.
The American and Retirement Fund anticipates that approximately half of
the fixed income portion of the Fund's portfolio will be invested in marketable
obligations of, or guaranteed by, the U.S. government. The balance will be
invested in corporate obligations rated no lower than A by Moody's or S&P. The
Fund may at times emphasize the generation of interest income by investing in
high-yielding debt securities, with short and medium to long-term maturities.
The characteristics of each investment policy and the associated risks
are described in the Funds' Prospectus and Statement of Additional Information.
The Funds have other investment policies and restrictions which are also set
forth in the Statement of Additional Information.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Evergreen Equity Trust is an open-end management investment company
registered with the SEC under the 1940 Act, which continuously offers shares to
the public. Evergreen Equity Trust is organized as a Delaware business trust and
is governed by its Declaration of Trust, By-Laws, a Board of Trustees and by
applicable Delaware and federal law. Income and Growth Fund and American
Retirement Fund are series of Evergreen Equity Trust.
Capitalization
The beneficial interests in Income and Growth Fund and American Retirement
Fund are represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Equity Trust's Declaration of
Trust permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Funds. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by Fund as
to matters, such as approval of or amendments to investment advisory agreements
or proposed mergers, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are entitled
to the same limitation of personal liability extended to stockholders of
Delaware corporations. No similar statutory or other authority limiting business
trust shareholder liability exists in any other state. As a result, to the
extent that Evergreen Equity Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Equity
Trust to liability. To guard against this risk, the Declaration of Trust of
Evergreen Equity Trust (a) provides that any written obligation of the Trust may
contain a statement that such obligation may only be enforced against the assets
of the Trust or the particular series in question and the obligation is not
binding upon the shareholders of the Trust; however, the omission of such a
disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of the Trust. Accordingly, the risk
of a shareholder of Evergreen Equity Trust incurring financial loss beyond that
shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Equity Trust is remote.
Shareholder Meetings and Voting Rights
Evergreen Equity Trust on behalf of Income and Growth Fund and American
Retirement Fund is not required to hold annual meetings of shareholders.
However, a meeting of shareholders for the purpose of voting upon the question
of removal of a Trustee must be called when requested in writing by the holders
of at least 10% of the outstanding shares of Evergreen Equity Trust. In
addition, Evergreen Equity Trust is required to call a meeting of shareholders
for the purpose of electing Trustees if, at any time, less than a majority of
the Trustees then holding office were elected by shareholders. Evergreen Equity
Trust does not currently intend to hold regular shareholder meetings. Cumulative
voting is not permitted. Except when a larger quorum is required by applicable
law, with respect to both Funds, 25% of the outstanding shares entitled to vote
constitutes a quorum for consideration of a matter. For each Fund, a majority
(greater than 50%) of the votes cast and entitled to vote is sufficient to act
on a matter (unless otherwise specifically required by the applicable governing
documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Equity Trust, each share of
Income and Growth Fund and American Retirement Fund will be entitled to one vote
for each dollar of net asset value applicable to such share.
Liquidation or Dissolution
In the event of the liquidation of Income and Growth Fund or American
Retirement Fund, the shareholders are entitled to receive, when and as declared
by the Trustees, the excess of the assets belonging to such Fund or attributable
to the class over the liabilities belonging to the Fund or attributable to the
class. In either case, the assets so distributable to shareholders of the Fund
will be distributed among the shareholders in proportion to the number of shares
of a class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
Under the Declaration of Trust of Evergreen Equity Trust, a Trustee is
liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Equity Trust, its By-Laws
and Delaware law and is not a complete description of those documents or law.
Shareholders should refer to the provisions of such Declaration of Trust,
By-Laws and Delaware law directly for more complete information.
ADDITIONAL INFORMATION
Income and Growth Fund. Information concerning the operation and management
of Income and Growth Fund is incorporated herein by reference from the
Prospectuses dated December 1, 1998, copies of which are enclosed, and Statement
of Additional Information of the same date. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Income and Growth Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
American Retirement Fund. Information about the Fund is included in its
current Prospectuses dated August 1, 1998 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to American Retirement Fund at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Income and Growth Fund and American Retirement Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
The SEC maintains a Web site (http://www.sec.gov) that contains the Funds'
Statements of Additional Information and other material incorporated by
reference herein together with other information regarding Income and Growth
Fund and American Retirement Fund.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of American
Retirement Fund in connection with a solicitation of proxies by the Trustees of
Equity Trust, to be used at the Special Meeting of Shareholders to be held at
2:00 p.m., July 23, 1999, at the offices of the Evergreen funds, 200 Berkeley
Street, 26th Floor, Boston, Massachusetts 02116, and at any adjournments
thereof. This Prospectus/Proxy Statement, along with a Notice of the Meeting and
a proxy card, is first being mailed to shareholders of American Retirement Fund
on or about June 2, 1999. Only shareholders of record as of the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Meeting or any adjournment thereof. The holders of 25% of the outstanding shares
entitled to vote at the close of business on the Record Date present in person
or represented by proxy will constitute a quorum for the Meeting. If the
enclosed form of proxy is properly executed and returned in time to be voted at
the Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with the instructions marked thereon. Unmarked proxies will
be voted FOR the proposed Merger and FOR any other matters deemed appropriate.
Proxies that reflect abstentions and "broker non-votes" (i.e., shares held by
brokers or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote or (ii) the broker or nominee
does not have discretionary voting power on a particular matter) will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will not have the effect of being counted as votes
against the Plan, which must be approved by a majority of the votes cast and
entitled to vote. A proxy may be revoked at any time on or before the Meeting by
written notice to the Secretary of Evergreen Equity Trust at the address set
forth on the cover of this Prospectus/Proxy Statement. Unless revoked, all valid
proxies will be voted in accordance with the specifications thereon or, in the
absence of such specifications, FOR approval of the Plan and the Merger
contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority of the
votes cast and entitled to vote, with all classes voting together as a single
class at the Meeting at which a quorum of the Fund's shares is present. Each
share outstanding is entitled to one vote for each dollar of net asset value
applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, email or personal solicitations conducted by
officers and employees of FUNB, its affiliates or other representatives of
American Retirement Fund (who will not be paid for their soliciting activities).
If you wish to participate in the Meeting, you may submit the proxy card
included with this Prospectus/Proxy Statement, vote by fax or attend in person.
Any proxy given by you is revocable.
In the event that sufficient votes to approve the Merger are not received
by July 23, 1999, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy at the Meeting. The persons
named as proxies will vote upon such adjournment after consideration of all
circumstances which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Merger will not be entitled under
either Delaware law or the Declaration of Trust of Evergreen Equity Trust to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Merger as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Merger is consummated, shareholders will be free to redeem the
shares of Income and Growth Fund which they receive in the transaction at their
then-current net asset value. Shares of American Retirement Fund may be redeemed
at any time prior to the consummation of the Merger. Shareholders of American
Retirement Fund may wish to consult their tax advisers as to any differing
consequences of redeeming Fund shares prior to the Merger or exchanging such
shares in the Merger.
American Retirement Fund does not hold annual shareholder meetings. If the
Merger is not approved, shareholders wishing to submit proposals to be
considered for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of Evergreen Equity
Trust at the address set forth on the cover of this Prospectus/Proxy Statement
so that they will be received by the Fund in a reasonable period of time prior
to the meeting.
The votes of the shareholders of Income and Growth Fund are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Merger.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise American Retirement Fund whether other persons are beneficial
owners of shares for which proxies are being solicited and, if so, the number of
copies of this Prospectus/Proxy Statement needed to supply copies to the
beneficial owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Income and Growth Fund as of July 31, 1998, and the
financial statements and financial highlights for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of PricewaterhouseCoopers LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The Annual Report of American Retirement Fund as of March 31, 1998, and the
financial highlights and financial statements for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Income and
Growth Fund will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Equity Trust do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMEND APPROVAL OF THE PLAN AND
ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
June 2, 1999
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of April, 1999, by and between Evergreen Equity Trust, a Delaware
business trust, with its principal place of business at 200 Berkeley Street,
Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen Income
and Growth Fund series (the "Acquiring Fund"), and the Trust, with respect to
its Evergreen American Retirement Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of all of the assets of the
Selling Fund in exchange solely for Class A, Class B, Class C and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Selling Fund for Acquiring Fund Shares and the assumption
of the identified liabilities of the Selling Fund by the Acquiring Fund on the
terms and conditions hereinafter set forth are in the best interests of the
Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including, without limitation,
all cash, securities, commodities, interests in futures and dividends or
interest receivables, that is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 Liquidation and Distribution. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Class A, Class B, Class
C and Class Y shares of the Selling Fund will receive Class A, Class B, Class C
and Class Y shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or about
July 30, 1999 or such other date as the parties may agree to in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously immediately prior to the opening of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the
offices of the Evergreen funds, 200 Berkeley Street, Boston, MA 02116, or at
such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents
and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectuses and statement of additional information
of the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not
result, in violation of any provision of the Trust's Declaration of Trust
or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date, except for liabilities, if any, to be discharged
or reflected in the Statement of Assets and Liabilities as provided in
paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business, or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(g) The financial statements of the Selling Fund at March 31, 1998 are
in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Selling Fund
as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since March 31, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Selling Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and reports
of the Selling Fund required by law to have been filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer, and deliver such assets hereunder,
and, upon delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by
the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Selling Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating
to or affecting creditors' rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7) (other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund
represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at July 31, 1998
are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been
furnished to the Selling Fund) fairly reflect the financial condition of
the Acquiring Fund as of such date, and there are no known contingent
liabilities of the Acquiring Fund as of such date not disclosed therein.
(g) Since July 31, 1998 there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any
Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG Peat
Marwick LLP and certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any case
within sixty days after the Closing Date, the Acquiring Fund shall cause KPMG
Peat Marwick LLP, and the Selling Fund shall cause KPMG Peat Marwick LLP to
issue a letter addressed to the Acquiring Fund and the Selling Fund, in form and
substance satisfactory to the Funds, setting forth the federal income tax
implications relating to capital loss carry forwards (if any) of the Selling
Fund and the related impact, if any, of the proposed transfer of all of the
assets of the Selling Fund to the Acquiring Fund and the ultimate dissolution of
the Selling Fund, upon the shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect
thereof.
(e) The Registration Statement, to such counsel's knowledge, has been
declared effective by the Commission and no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or the State of Delaware is required for
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be bound or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment, or decree
to which the Acquiring Fund is a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on
or before the effective date of the Registration Statement or the Closing
Date required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed
as required.
(i) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business,
other than as previously disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered by
the Selling Fund and, assuming due authorization, execution, and delivery
of this Agreement by the Acquiring Fund, is a valid and binding obligation
of the Selling Fund enforceable against the Selling Fund in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or
the imposition of any penalty, under any agreement, judgment, or decree to
which the Selling Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the descriptions
in the Prospectus and Proxy Statement of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present
the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement which
are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its
respective properties or assets and the Selling Fund is neither a party to
nor subject to the provisions of any order, decree or judgment of any court
or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and
the Selling Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period
of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Selling Fund
immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement
has been obtained from and is consistent with the accounting records of the
Selling Fund; and
(c) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus
and Proxy Statement were prepared based on the valuation of the Selling
Fund's assets in accordance with the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information pursuant to procedures customarily utilized by the Acquiring
Fund in valuing its own assets;
(d) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying
accounting records of the Selling Fund or with written estimates by Selling
Fund's management and were found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund shall
have received from KPMG Peat Marwick LLP a letter addressed to the Acquiring
Fund dated on the Closing Date, in form and substance satisfactory to the
Acquiring Fund, to the effect that on the basis of limited procedures agreed
upon by the Acquiring Fund (but not an examination in accordance with generally
accepted auditing standards), the calculation of net asset value per share of
the Selling Fund as of the Valuation Date was determined in accordance with
generally accepted accounting principles and the portfolio valuation practices
of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and
the applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of any
unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the Trust responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the published rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the
Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the Selling Fund
(but not an examination in accordance with generally accepted auditing
standards), the data utilized in the calculations of the projected expense
ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were
found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears that
it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund and
the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the
date first written above.
EVERGREEN EQUITY TRUST
On behalf of Evergreen Income and Growth Fund
By:_____________________________
Name:
Title:
EVERGREEN EQUITY TRUST
On behalf of Evergreen American Retirement Fund
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT B
EVERGREEN
Income and Growth Fund
-------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: August 1978
[PICTURE OF IRENE D. O'NEILL APPEARS HERE]
Irene D. O'Neill
Tenure: December 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 8/31/78
<S> <C> <C> <C> <C>
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 2.80% 2.29% 6.16% n/a
................................................................................
1 year w/o sales charge 7.93% 7.13% 7.13% 8.16%
................................................................................
3 years 12.55% 12.77% 13.56% 14.68%
................................................................................
5 years -- -- -- 10.90%
................................................................................
10 years -- -- -- 10.78%
................................................................................
Since Inception 14.85% 14.99% 15.56% 14.25%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.16% 1.50% 1.60% 2.53%
...............................................................................
12-month income dividends
per share $ 1.02 $ 0.85 $ 0.85 $ 1.08
................................................................................
12-month capital gain
distributions per share $ 1.59 $ 1.59 $ 1.59 $ 1.59
................................................................................
</TABLE>
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Wilshire 5000 LIFA CPI
1/3/95 9,525 10,000 10,000 10,000
Jul-95 10,962 12,415 11,504 10,187
Jul-96 11,847 14,239 12,602 10,485
Jul-97 15,210 20,960 15,440 10,721
Jul-98 16,409 25,821 16,727 10,902
Comparison of change in value of a $10,000 investment in Evergreen Income and
Growth Fund Class A, the Wilshire 5000 Index, the Lipper Income Funds Average
(LIFA), 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 Wilshire 5000 Index and the Lipper Income Funds Average
are unmanaged market indexes and do not include transaction costs associated
with buying and selling securities nor any management fees. 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.
0
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the year?
In the fiscal year ended July 31, 1998, the Fund sustained its above-average
dividend distributions. For Class Y shares, the oldest class, these dividends
were $0.27 per share each quarter, providing a yield in the top quartile of the
Lipper Income Funds category. The Class Y shares have been able to sustain at
least this level of dividend for the past 13 years. Yet, the Class Y shares have
had an average annual total return of 14.25% since inception of the Fund on
August 31, 1978. During the 12-month period that ended on July 31, 1998, the
Fund's Class Y shares had a return of 8.16%. Class A, B and C shares had total
returns of 7.93%, 7.13% and 7.13% respectively, unadjusted for applicable sales
charges. During the same period the average return on the Lipper Income Funds
category was 8.37% and the Wilshire 5000 Index had a return of 17.05%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $950,653,827
................................................................................
Number of Holdings 150
................................................................................
P/E Ratio* 18.8x
................................................................................
Beta* 0.87
................................................................................
*as of 6/30/98
How would you describe the long-term strategy of the Fund?
The Fund is designed to be an income-producing alternative to bond investing
while providing growth for greater protection against inflation. The investment
strategy uses high yield undervalued convertible bonds, convertible preferred
stocks, and common stocks to enhance both the Fund's income and defensive
quality while aiming for significant capital appreciation.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE] Common Stock -- 65.7%
Convertible Preferred Stock -- 30.1% Convertible
Debentures -- 3.3% Cash/Cash Equivalents -- 0.9%
What were some of the major contributors to performance?
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Within the general health group, a leading performer was Bristol-Myers Squibb
Co., which has produced a steady flow of new products that helped propel the
company stock to a 44.7% return during the year. Another leading performer in
the health group was ADAC Laboratories. This company has introduced an important
imaging device that helps determine the spread of cancer. With strong revenue
growth, this company's stock had a return of 39.8% during the fiscal year. A
third health-related company that was a significant performer was Shared Medical
Systems Corp., which provides computerization services that help hospitals and
other health providers increase their operating efficiency. The stock in this
company was up 41.4% during the fiscal year.
One of the principal investment themes at Evergreen is to invest in companies
that we believe are temporarily
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
out of favor in the stock market, but have attractive underlying value. We call
this the "value timing" strategy. A good example of this strategy in action was
the Fund's investment in American Home Products, a major pharmaceutical company.
The Fund purchased the stock on September 18, 1997, after the company's stock
price had suffered a steep decline in the face of the controversy over the
effects of the weight-control drug Fen-Phen. Our analysis indicated that the
market had over-reacted to the potential liability and that the company's stock
price was significantly undervalued. The stock produced a return of 46.4% for
the Fund from the investment to the end of the fiscal year.
Consolidation has helped the investments in the bank and thrift industries,
despite a slowdown in merger announcements by smaller banking institutions
during the second half of the fiscal year as attention turned to merger
announcements of very large banks. Among the investments that generated large
returns for the Fund were several banks and thrifts that were acquired by larger
banks. They included Firstbank of Illinois Co., which produced a return of 365%
since the initial investment in March, 1991; Hudson Chartered Bancorp Inc.,
produced a 367% return since the Fund's investment in December, 1992; and Eagle
Financial Corp., which produced a 280% return since the investment in November,
1992.
Among banks that have not been taken over, the best performers were M&T Bank
Corp. (formerly First Empire) of Buffalo, New York, which rose 59.3% during the
year, and First American Corp. of Tenn., which took over another Fund holding;
Deposit Guaranty Corp. The investment in First American returned 67.3% during
the year.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
Telecom Corp. New Zealand Ltd. 4.1%
................................................................................
AirTouch Communications, Inc., 6.00%, Conv. Pfd. 3.6%
................................................................................
Qualcomm Financial Trust I, 5.75%, Conv. Pfd. 3.3%
...............................................................................
Marketspan Corp. 3.0%
................................................................................
Wendy's Financing I, 5.00%, TECONS 2.8%
................................................................................
Houston Industries, Inc., 7.00%, ACES 2.8%
................................................................................
Armstrong World Industries, Inc. 2.1%
................................................................................
Meditrust Co. REIT 2.0%
................................................................................
Bankers Trust Corp. 2.0%
................................................................................
Peoples Energy Corp. 1.9%
................................................................................
Telecommunications-related investments helped the Fund significantly. In fact,
the leading contributor to performance during the fiscal year was Frontier
Corp., which was up 67.3%. This company, the former Rochester Telephone Company,
has expanded its long distance footprint through a savvy investment in the Quest
Communications network, a nationwide state of the art fiber optic network which
provides integrated voice, data and video communications. Frontier is also a
potential acquisition candidate. Another telecommunications investment that
helped the Fund's performance was the Air Touch Communications Convertible
Preferred shares which were up 52% in the year. This company provides
telecommunications services around the world. Worldcom, Inc. which has announced
its intention to buy MCI, also provided a return of 54.8% for the Fund during
the year as investors began to understand the potential for global growth in the
telecommunications industry. These three telecommunications companies have
potential to make inroads in telecom markets less encumbered by regulation such
as that which impacts the Regional Bell Operating Companies.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Consumer-related stocks were a fourth group that helped performance. One of the
leading contributors was La-Z-Boy Chair Co., which had a 51.5% return since the
Fund's investment on August 4, 1997.
The primary weak areas were in the investments in foreign stocks, energy stocks
and real estate investment trusts (REITs). Foreign investments, particularly
Australian investments, suffered in sympathy with the economic crisis in Asia.
During the year, we significantly reduced the foreign weighting in the Fund to
decrease the vulnerability to problems in Asia.
Energy-related stocks were hurt by the mild winter reducing the need for heat
and the worldwide slump in oil prices, while real estate stocks in general
lagged the overall market.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Banks 16.1%
...............................................................................
Utilities - Electric 9.2%
................................................................................
Real Estate 7.4%
................................................................................
Telecommunication Services & Equipment 7.4%
................................................................................
Utilities - Gas 7.1%
................................................................................
What Is your Outlook?
We expect the U.S. economy to grow with inflation remaining low. The equity
market should be positive, particularly with the continued flow of funds into
stocks and the persistence of merger-and-acquisition activity. We do have
concerns, however, about the slowdown in Asia and the effect it is having on
manufacturing employment in the United States. Because of this, we believe the
market may experience continued volatility, which should produce opportunities
for our value timing strategy. During the past year, the performance of the
major market indices has been helped chiefly by a very narrow base of stocks of
a relatively few large companies. We believe this has left very attractive
investment opportunities in the securities of other companies. We believe our
research discipline should enable us to identify opportunities to buy
high-quality issues with attractive yield at attractive valuations. This
positive outlook, combined with the possibility of further gains from
merger-and- acquisition activity, gives us confidence for improving performance
during the coming year.
EXHIBIT A
EVERGREEN
American Retirement Fund
Fund at a Glance as of March 31, 1998
We manage the Fund to participate in the growth opportunities in the stock
market, while seeking to protect investors' principal and avoid taking too much
risk.
Portfolio
Management
----------------------------------------
(Photo of Irene D. O'Neill)
Irene D. O'Neill, CFA
Tenure: March 1988
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as here)
of 3/31/98.
(Graphic appears The Equity Style Box placement is based on a fund's
here) 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.
The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average
credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/3/95 1/3/95 1/3/95 3/14/88
Average Annual Returns
One year with sales charge 21.94% 22.06% 26.08% n/a
One year w/o sales charge 28.02% 27.06% 27.08% 28.34%
3 years 17.39% 17.68% 18.42% 19.51%
5 years - - - 13.59%
10 years - - - 12.25%
Since Inception 18.07% 18.32% 18.97% 12.18%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 3.30% 2.72% 2.72% 3.71%
12-month income dividends
per share $ 0.48 $ 0.36 $ 0.36 $ 0.52
12-month capital gain
distributions per share $ 0.34 $ 0.34 $ 0.34 $ 0.34
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Chart appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 9,525 10,099 11,362 12,294 12,740 13,390 15,903 17,140
Consumer Price
Index (CPI) 10,000 10,113 10,234 10,389 10,541 10,688 10,768 10,835
Lehman Brothers
Government/Corporate
Bond Index 10,000 10,498 11,393 11,645 11,906 12,164 13,048 13,673
Wilshire 5000 10,000 10,906 13,014 14,415 15,476 16,651 21,362 26,405
</TABLE>
Comparison of a $10,000 investment in Evergreen American Retirement Fund, Class
A shares, versus a similar investment in the Wilshire 5000 Index, the Lehman
Brothers Government/Corporate Bond 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 Wilshire 5000 Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices. These indices do not
include transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
March 31, 1998.
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the year?
The Fund had very good performance. For the 12 months ended March 31, 1998,
the Fund's Class A shares had a total return of 28.02%, while B and C
shares had returns of 27.06% and 27.08%, respectively. The Fund's Class Y
shares had a total return of 28.34% for the 12 months. These returns are
unadjusted for any applicable sales charges.
Portfolio Characteristics
Total Net Assets $233,819,342
Number of Holdings 184
Beta 0.48
P/E Ratio 16.5x
- --------------------------------------------------------------------------------
What was the investment environment like during the 12 months, and how did
that affect strategy?
Clearly, over the 12-month period, we had strong markets in both stocks and
bonds. The Asian financial and currency crisis caused a great deal of
turmoil in the stock market during the fourth quarter of 1997. After the
end of the year, however, the tone of the market changed and the growth
stocks that had led the market for most of 1997 took over again. In
general, the large-capitalization, low-yielding stocks of companies like
General Electric, IBM and the growth stocks selling at high multiples of
earnings outperformed the value stocks on which we focus.
We remained true to our long-term strategy, emphasizing the stocks of
undervalued, higher-yielding companies as well as convertible preferred
stocks and bonds. The fixed-income strategy focuses on high quality issues
that add stability to the portfolio. We manage the Fund to participate in
the growth opportunities in the stock market, while seeking to protect
investors' principal and avoid taking too much risk.
At the end of the fiscal year on March 31, 1998, 44% of the Fund's assets
were invested in common stocks, 27.2% in convertible securities, and 26.8%
in bonds, with the remainder in cash.
- --------------------------------------------------------------------------------
ASSET ALLOCATION AS OF MARCH 31, 1998
(Pie chart appears with the following values.)
Common Stocks--44.0%
Fixed Income--26.8%
Convertible Preferred Stocks--16.7%
Convertible Debentures--10.5%
Cash/Cash Equivalents--2.0%
- --------------------------------------------------------------------------------
What were your primary strategies during the year?
We continued to invest in convertible securities as a way to participate in
growth opportunities while also receiving income and reducing overall
volatility. In particular, we invested in a number of companies that issued
convertible stocks or bonds as a means of raising capital to make
acquisitions to drive stronger earnings growth. Four investments that
illustrate this emphasis are: Ingersoll Rand, a heavy equipment
manufacturer; Pioneer Standard, a distributor of electronics and computer
equipment; EVI, a company involved in oil field services; and Family Golf
Centers, an operator of golf driving ranges.
We also invested in the common stocks of a number of companies that were
attempting to increase their earnings growth through restructurings. These
included J.C. Penney, the retailer; Echlin and Dana, two auto
3
<PAGE>
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
parts companies; Stride Rite, a shoe company; and Union Pacific, the
railroad company. These were all companies that recognized the need to
improve their rate of earnings growth and are taking action to achieve it.
Top 10 Equity Holdings
(as a percentage of net assets)
Central Garden & Pet Co. 1.4%
Family Golf Centers, Inc. 1.3%
Nabors Industries, Inc. 1.2%
Proffits, Inc. 1.1%
Pioneer Standard Financial Trust 1.1%
Carpenter Technology Corp. 1.0%
Shared Medical System Corp. 1.0%
Thomas & Betts Corp. 1.0%
Houston Industries, Inc. 1.0%
Equitable Companies, Inc. 0.9%
- --------------------------------------------------------------------------------
What was the best performing industry for the Fund during the year?
Four industries stood out: broadcasting and entertainment; banks and
thrifts; healthcare; and retailing. The best performing group was
broadcasting and entertainment, particularly the stocks of radio and cable
television companies. In most cases, we owned the convertible security,
rather than the common stock. The best performing investment for the Fund,
however, was the common stock of Chancellor Media, a company that owns a
group of radio stations. This stock, which was originally purchased as a
convertible, was up 212.9% during the year. The entire group of radio
company stocks performed very well, benefiting from stable audience trends
and robust pricing power. Consolidation of station ownership has reduced
competition, thereby driving strong revenue and cash flow growth of the
stations.
In the same industry category, we owned the convertible securities of a
number of cable television companies, which performed well. Investors are
expecting these companies to enjoy faster revenue growth by offering
digital cable TV with expanded channel offerings and by raising prices.
These companies are also beginning to offer interactive services, such as
Internet access, which will drive future growth.
Industry Allocation-Equity
Banks 7.5%
Utilities - Electric 5.8%
Finance & Insurance 5.5%
Oil Field Services 5.1%
Publishing, Broadcasting & Entertainment 4.4%
- --------------------------------------------------------------------------------
What was responsible for the good performance of banks and thrifts,
healthcare and retailing companies?
In banks and thrifts, we emphasized regional institutions benefiting from a
growing economy coupled with low inflation. These factors, combined with
low interest rates are supporting earnings for the industry by reducing
credit quality problems. These companies should continue to have good
earnings growth, reflecting improvements in their operational efficiencies
and modest loan growth. Stock prices of banks and thrifts also have been
rising because ongoing consolidation of the industry has been driving
valuations higher.
The healthcare industry also enjoyed double-digit sales and earnings
growth. Pharmaceutical stocks in particular performed very well, although
the best-performing stock within the group was Shared Medical Systems,
which provides information systems for hospitals and large healthcare
networks. This company is experiencing strong growth as healthcare
providers seek ways to cope with the pressures of managed care by reducing
costs.
The retailing industry was supported by strong gains in the disposable
income of consumers. Two companies in particular drove the performance of
this group:
J.C. Penney, the national department store chain; and
4
<PAGE>
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
Proffitt's, a regional department store chain that is growing through
acquisitions.
It is interesting to note that all four of these industries - broadcasting
and entertainment, banks and thrifts, healthcare and retailing - were
relatively untouched by the market uncertainty brought on by the Asian
crisis.
Industry Allocation-Bonds
Government Agency Notes & Bonds 24.4%
Finance & Insurance 0.9%
Treasury Notes & Bonds 0.7%
Banks 0.4%
Telecommunication Services & Equipment 0.4%
- --------------------------------------------------------------------------------
Were there any disappointing areas?
The weakest area was energy, which we still believe has good long-term
prospects. The performance of this group was directly tied to the price of
crude oil, which started declining in the fall of 1997. The performance of
the entire energy industry was influenced by fear of expanding energy
supplies from OPEC combined with weaker energy demand caused by the Asian
crisis, and the mild winter in the United States related to the El Nino
effect.
We are optimistic, however, that energy prices will recover. Weather
effects are never permanent. Globally, demand for energy is growing at
about 2% a year and this should continue. As emerging economies work
through their current problems, demand will start increasing again. We
think that energy is one of the more undervalued areas in the stock market
today.
- --------------------------------------------------------------------------------
How is the fixed income portion of the portfolio invested?
We continue to emphasize very high credit quality, with the great majority
of the bonds in U.S. government or agency securities. The average credit
quality is AAA. We also have kept average maturity relatively short. We
manage the fixed income portfolio to seek healthy yields while trying to
reduce the overall volatility of the portfolio by maintaining high credit
quality and short maturities.
Top 5 Bond Holdings
(as a percentage of net assets)
Federal National Mortgage Association 10.1%
Federal Home Loan Bank 9.4%
Federal Home Loan Mortgage Corp. 3.9%
U.S. Treasury Bond 0.7%
American General Finance Corp. 0.4%
- --------------------------------------------------------------------------------
What is your outlook?
We will continue to look for undervalued situations and good investment
opportunities we believe haven't been recognized by the market. The Fund is
managed conservatively, emphasizing companies with relatively higher yields
so that no matter what the market condition, the Fund will continue to seek
the stability we think shareholders expect.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
OF
INCOME AND GROWTH FUND
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN AMERICAN RETIREMENT FUND
A Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN INCOME AND GROWTH FUND
a Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen American Retirement
Fund (the "American Retirement Fund"), a series of Evergreen Equity Trust, in
exchange for Class A shares (to be issued to holders of Class A shares of
American Retirement Fund), Class B shares (to be issued to holders of Class B
shares of American Retirement Fund) and Class Y shares (to be issued to holders
of Class Y shares of American Retirement Fund) of beneficial interest, $.001 par
value per share, of Income and Growth Fund, consists of this cover page and the
following described documents, each of which is attached hereto and incorporated
by reference herein.
(1) The Statement of Additional Information of Income and Growth Fund dated
April 1, 1998.
(2) The Statement of Additional Information of American Retirement Fund
dated August 1, 1998.
(3) Annual Report of American Retirement Fund for the year ended
March 31, 1998.
(4) Semi-Annual Report of American Retirement Fund for the six month
period ended September 30, 1998.
(5) Annual Report of Income and Growth Fund for the year ended
July 31, 1998.
(6) Semi-Annual Report of Income and Growth Fund for the six-month period
ended January 31, 1999.
(7) Pro Forma Financial Statements for January 31, 1999.
This Statement of Additional Information, which is not a
prospectus, supplements, and should be read in conjunction with, the
Prospectus/Proxy Statement of Income and Growth Fund and Evergreen
American Retirement Fund dated June 2, 1999. A copy of the
Prospectus/Proxy Statement may be obtained without charge by calling or
writing to Evergreen Equity Trust at the telephone numbers or addresses
set forth above.
The date of this Statement of Additional Information is April
1, 1998.
EVERGREEN EQUITY TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700
GROWTH AND INCOME FUNDS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
EVERGREEN BLUE CHIP FUND ("BLUE CHIP")
EVERGREEN GROWTH AND INCOME FUND ("GROWTH/INCOME")
EVERGREEN INCOME AND GROWTH FUND ("INCOME/GROWTH")
EVERGREEN SMALL CAP EQUITY INCOME FUND ("SMALL CAP")
EVERGREEN FUND FOR TOTAL RETURN ("TOTAL RETURN")
EVERGREEN UTILITY FUND ("UTILITY")
EVERGREEN VALUE FUND ("VALUE")
(EACH A "FUND"; TOGETHER, THE "FUNDS")
EACH FUND IS A SERIES OF AN OPEN-END
MANAGEMENT INVESTMENT COMPANY KNOWN AS
EVERGREEN EQUITY TRUST (THE "TRUST").
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus and should
be read in conjunction with the Funds' prospectuses dated April 1, 1998, as
supplemented from time to time. The Funds are offered through two separate
prospectuses: one offering Class A, Class B and Class C shares of each Fund and
one offering Class Y shares of each Fund. You may obtain these prospectuses from
Evergreen Distributor, Inc.
<PAGE>
TABLE OF CONTENTS
FUND INVESTMENTS..................................................3
General Information....................................3
Fundamental Policies....................................10
Investment Guidelines...................................11
MANAGEMENT OF THE TRUST..........................................12
PRINCIPAL HOLDERS OF FUND SHARES.................................15
INVESTMENT ADVISORY AND OTHER SERVICES...........................21
Investment Adviser......................................21
Investment Advisory Agreements..........................22
Distributor.............................................23
Distribution Plans and Agreements.......................23
Additional Service Providers............................25
BROKERAGE........................................................25
Brokerage Commissions...................................26
Selection of Brokers....................................26
Simultaneous Transactions...............................27
TRUST ORGANIZATION...............................................27
Form of Organization....................................27
Description of Shares...................................27
Voting Rights...........................................27
Limitation of Trustees' Liability.......................28
PURCHASE, REDEMPTION AND PRICING OF SHARES.......................28
How the Funds Offer Shares to the Public................28
Contingent Deferred Sales Charge......................29
Sales Charge Waivers or Reductions......................29
Exchanges...............................................31
Calculation of Net Asset Value Per Share................32
Valuation of Portfolio Securities.......................32
Shareholder Services....................................32
PRINCIPAL UNDERWRITER............................................33
ADDITIONAL TAX INFORMATION.......................................34
Requirements for Qualification as a
Registered Investment Company.....................34
Taxes on Distributions.................................34
Taxes on the Sale or Exchange of Fund Shares...........35
Other Tax Considerations...............................35
FINANCIAL INFORMATION............................................36
Expenses................................................36
Brokerage Commissions Paid..............................39
Computation of Class A Offering Price...................40
Performance.............................................40
ADDITIONAL INFORMATION...........................................42
APPENDIX A......................................................A-1
2
<PAGE>
FUND INVESTMENTS
GENERAL INFORMATION
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in each Fund's
prospectus. The following expands upon the discussion in the prospectuses
regarding certain investments of the Fund.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. Government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
3
<PAGE>
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions (Blue Chip,
Total Return, Utility and Value)
The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Funds may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more
at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis, a Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions are a form of leveraging and may
involve the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to the fund. In addition, when a Fund engages in such purchases, it relies
on the other party to consummate the sale. If the other party fails to perform
its obligations, the Fund may miss the opportunity to obtain a security at a
favorable price or yield.
Loans of Securities
To generate income, each Fund may lend portfolio securities to
broker-dealers and other financial institutions. A Fund will require borrowers
to provide collateral in cash or government securities at least equal to the
value of the securities loaned. A Fund may invest such collateral in additional
portfolio securities, such as U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest-bearing cash equivalents.
While securities are on loan, the borrower will pay a Fund any income accruing
on the security.
Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. If a borrower fails financially, a Fund may have difficulty
recovering the securities lent or may lose its right to the collateral.
Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.
4
<PAGE>
Repurchase Agreements
The Funds may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Adviser (as defined later) to be creditworthy. In a repurchase agreement, a Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, a Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Each Fund's Adviser believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the
investment adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Reverse Repurchase Agreements (Blue Chip, Small Cap, Total Return, Utility and
Value)
Each Fund may enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options
The Funds may buy or sell (i.e., write) put and call options on
securities they hold or intends to acquire. The Funds may also buy and sell
options on financial futures contracts. The Funds will use options as a hedge
against decreases or increases in the value of securities it holds or intends to
acquire. The Funds may purchase put and call options for the purpose of
5
<PAGE>
offsetting previously written put and call options of the same series.
The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions
Each Fund may enter into currency and other financial futures contracts
and write options on such contracts. Each Fund intends to enter into such
contracts and related options for hedging purposes. Each Fund will enter into
futures contracts on securities, currencies or indices in order to hedge against
changes in interest or exchange rates or securities prices. A futures contract
on securities or currencies is an agreement to buy or sell securities or
currencies at a specified price during a designated month. A futures contract on
a securities index does not involve the actual delivery of securities, but
merely requires the payment of a cash settlement based on changes in the
securities index. A Fund does not make payment or deliver securities upon
entering into a futures contract. Instead, it puts down a margin deposit, which
is adjusted to reflect changes in the value of the contract and which continues
until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures
contract is sold by a Fund, the value of the contract will tend to rise when the
value of the underlying securities declines and to fall when the value of such
securities or currencies increases. Thus, each Fund sells futures contracts in
order to offset a possible decline in the value of its securities or currencies.
If a futures contract is purchased by a Fund, the value of the contract will
tend to rise when the value of the underlying securities or currencies increases
and to fall when the value of such securities or currencies declines. Each Fund
intends to purchase futures contracts in order to establish what is believed by
the Adviser to be a favorable price and rate of return for securities, or
favorable exchange rate for currencies, the Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in
order to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. A Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that a Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
6
<PAGE>
market risk on the transaction.
Although futures and options transactions are intended to enable a Fund
to manage market, interest rate or exchange rate risk, unanticipated changes in
market prices, interest rates or exchange rates could result in poorer
performance than if it had not entered into these transactions. Even if the
Adviser correctly predicts interest or exchange rate movements, a hedge could be
unsuccessful if changes in the value of a Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between a Fund's futures and securities or currencies positions may be caused by
differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying a Fund's futures
position and the securities or currencies held by or to be purchased for a Fund.
Each Fund's Adviser will attempt to minimize these risks through careful
selection and monitoring of the Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund.
Each Fund will not change these policies without supplementing the information
in the prospectus and SAI.
The Funds will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, each Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather, each Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by a Fund to finance the transactions. Initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a Fund pays or
receives cash, called "variation margin", equal to the daily change in value of
the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by a Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Funds are also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities (excluding Growth/Income)
Each Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of
7
<PAGE>
foreign banks, including invest in foreign securities or U.S. securities traded
in foreign markets. Permissible investments may consist of obligations of
foreign branches of U.S. banks and of foreign banks, including European
certificates of deposit, European time deposits, Canadian time deposits and
Yankee certificates of deposit, and investments in Canadian commercial paper,
foreign securities and Europaper. These instruments may subject a Fund to
investment risks that differ in some respects from those related to investments
in obligations of U.S. issuers. Such risks include future adverse political and
economic developments; the possible imposition of withholding taxes on interest
or other income; the possible seizure, nationalization, or expropriation of
foreign deposits; the possible establishment of exchange controls or taxation at
the source; greater fluctuations in value due to changes in exchange rates, or
the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
Foreign Currency Transactions (excluding Growth/Income)
As one way of managing exchange rate risk, each Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency a Fund will deliver and receive when the contract is completed) is
fixed when a Fund enters into the contract. A Fund usually will enter into these
contracts to stabilize the U.S. dollar value of a security it has agreed to buy
or sell. Each Fund intends to use these contracts to hedge the U.S. dollar value
of a security it already owns, particularly if a Fund expects a decrease in the
value of the currency in which the foreign security is denominated. Although
each Fund will attempt to benefit from using forward contracts, the success of
its hedging strategy will depend on the Adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollar, and a Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by each Fund. Each Fund may also purchase and sell options related
to foreign currencies in connection with hedging strategies.
High Yield Bonds (Growth/Income and Total Return)
Each Fund may invest in high yield, high risk bonds, commonly known as
"junk bonds." While investment in high yield bonds provides opportunities to
maximize return over time, investors should be aware of the following risks
associated with high yield bonds:
(1) High yield bonds are rated below investment grade, i.e., BB or
lower by Standard & Poor's Ratings Group ("S&P") or Ba or lower by Moody's
Investors Service ("Moody's"). Securities so rated are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments.
(2) The lower ratings of these securities reflect a greater possibility
that adverse
8
<PAGE>
changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by specific corporate developments or
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. Also, an economic downturn or an
increase in interest rates may increase the potential for default by the issuers
of these securities.
(3) Their value may be more susceptible to real or perceived adverse
economic, company or industry conditions and publicity than is the case for
higher quality securities.
(4) Their value, like those of other fixed income securities,
fluctuates in response to changes in interest rates, generally rising when
interest rates decline and falling when interest rates rise. For example, if
interest rates increase after a fixed income security is purchased, the
security, if sold prior to maturity, may return less than its cost. The prices
of below-investment grade bonds, however, are generally less sensitive to
interest rate changes than the prices of higher-rated bonds, but are more
sensitive to adverse or positive economic changes or individual corporate
developments.
(5) The secondary market for such securities may be less liquid at
certain times than the secondary market for higher quality debt securities,
which may adversely effect (1) the market price of the security, (2) the Fund's
ability to dispose of particular issues and (3) the Fund's ability to obtain
accurate market quotations for purposes of valuing its assets.
(6) Zero coupon bonds and PIKs involve additional special
considerations. For example, zero coupon bonds pay no interest to holders prior
to maturity of interest. PIKs are debt obligations that provide that the issuer
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments may experience greater fluctuation
in value due to changes in interest rates than debt obligations that pay
interest currently. Even though these investments do not pay current interest in
cash, the Fund is, nonetheless, required by tax laws to accrue interest income
on such investments and to distribute such amounts at least annually to
shareholders. Thus, the Fund could be required at times to liquidate investments
in order to fulfill its intention to distribute substantially all of its net
income as dividends. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions, and its current
income ultimately may be reduced as a result.
Each Fund may invest in securities rated as low as D by S&P or C- by
Moody's. Such securities may have defaulted on payments of principal and/or
interest at the time of investment. (Rating categories are described in the
Appendix.) A Fund will invest in debt so rated only when the investment adviser
believes the issuer's financial condition will improve through reorganization or
other measures. Each Fund may also invest in high yield, high risk securities
which are unrated or rated under a different system if a Fund's investment
adviser believes they are comparable to high yield securities in which each Fund
may otherwise invest.
The investment adviser considers the ratings of S&P and Moody's
assigned to various securities, but does not rely solely on these ratings
because (1) S&P and Moody's assigned ratings are based largely on historical
financial data and may not accurately reflect the current financial outlook of
companies; and (2) there can be large differences among the current financial
conditions of issuers within the same category.
9
<PAGE>
FUNDAMENTAL POLICIES
The Funds have adopted the fundamental investment restrictions set
forth below which may not be changed without the vote of a majority of each
Fund's outstanding shares, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). Unless otherwise stated, all references to the assets
of a Fund are in terms of current market value.
Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in a particular industry (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities),
except that Utility will concentrate its investments in utility industries.
Issuing Senior Securities
Except as permitted under in the 1940 Act, each Fund may not issue
senior securities.
Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities except to the extent that each Fund may engage in financial futures
contacts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law, and without registering as a
commodity pool operator under the Commodity Exchange Act.
Loans to Other Persons
Each Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other
23602
10
<PAGE>
investment instruments shall not be deemed to be the making of a loan.
INVESTMENT GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are in terms of current
market value.
Diversification
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to the 75% of its
total assets, a diversified investment company may not invest more than 5% of
its total assets, determined at market or other fair value at the time of
purchase, in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Borrowings
Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total assets from banks or others. Each Fund may
borrow only as a temporary measure for extraordinary or emergency purposes. Each
Fund will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights. Each Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. Each Fund may purchase securities on margin
to the extent permitted by applicable law.
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
Each Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determine
the liquidity of Rule 144A securities, the Trustees will consider: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding
11
<PAGE>
voting stock of another investment company, (2) invest more than 5% of its
assets in any single investment company, and (3) invest more than 10% of its
assets in investment companies. However, each Fund may invest all of its
investable assets in securities of a single open-end management investment
company with substantially the same fundamental investment objectives, policies
and limitations as each Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen fund complex, other than Evergreen
Variable Trust of which Messrs. Howell, Salton and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- ------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management
Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus and
Director,
American
Institute
of Food and
Wine;
Chairman
and
President,
Oldways
Preservation
and
Exchange
Trust
(education);
former
Chairman of
the Board,
Director,
and
Executive
Vice
President,
The London
Harness
Company;
former
Managing
Partner,
Roscommon
Capital
Corp.;
former
Chief
Executive
Officer,
Gifford
Gifts of
Fine Foods;
former
Chairman,
Gifford,
Drescher &
Associates
(environmental
consulting);
and former
Director,
Keystone
Investments,
Inc.
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -----------------------------------------
<S> <C> <C>
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix Total
Return Fund
and
Equifax,
Inc.;
Trustee of
Phoenix
Series
Fund,
Phoenix
Multi-Portfolio
Fund, and
The Phoenix
Big Edge
Series
Fund; and
former
President,
Morehouse
College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of
(DOB: 8/2/39) Rexham Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55) David M. Richardson Trustee Vice Chair and
former Executive Vice President, (DOB: 9/14/41) DHR
International, Inc. (executive recruitment); former
Senior Vice President, Boyden International Inc.
(executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411
International, Inc., and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake Beam Morin,
Inc. (executive outplacement);
Director of Connecticut
Natural Gas Corporation,
Hartford Hospital,
Old State House
Association, Middlesex
Mutual Assurance
Company, and Enhance
Financial Services, Inc.;
Chairman, Board of Trustees,
Hartford Graduate Center;
Trustee, Greater
Hartford YMCA;
former Director,
Vice Chairman
and Chief Investment
Officer, The Travelers
Corporation; former
Trustee, Kingswood-Oxford
School; and former
Managing Director and
Consultant, Russell
Miller, Inc.
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
<S> <C> <C>
- ------------------------ -------------------------- ----------------------------------------------
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BISYS Fund Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, Evergreen Asset
Management Corp./First Union Bank; former Senior
Tax Consulting/Acting Manager, Investment
Companies Group, Price Waterhouse, LLP, New
York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund
(DOB: 3/30/59) Services
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
The officers of the Trust are all officers and/or employees of BISYS
Fund Services.
Trustee Compensation
Listed below is the Trustee compensation for the twelve-month period
ended July 31, 1997.
COMPENSATION FROM COMPENSATION FROM
TRUSTEE TRUST TRUST AND FUND COMPLEX
Laurence B. Ashkin $9,657 $60,900
Charles A. Austin III $811 $45,700
K. Dun Gifford $781 $42,100
James S. Howell $16,807 $99,210
Leroy Keith Jr. $761 $42,700
Gerald M. McDonnell $13,996 $84,250
Thomas L. McVerry $16,201 $89,750
William Walt Pettit $15,801 $87,542
David M. Richardson $811 $45,700
Russell A. Salton, III $15,705 $90,406
Michael S. Scofield $14,941 $91,606
Richard J. Shima $3,772 $63,825
14
<PAGE>
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust
owned as a group less than 1% of the outstanding of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of a
Fund's outstanding shares as of February 28, 1998.
BLUE CHIP CLASS A
None
BLUE CHIP CLASS B
MLPF&S For the Sole Benefit 9.712%
of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6468
BLUE CHIP CLASS C
DONALD C. MOORE AND 55.982%
JUNE I. MOORE JTTEN
649 LAKE WORTH CIRCLE
HEATHROW, FL 32746-2429
First Trust Corp TTEE 38.819%
U/A DTD 1/10/94
Julia E. Welch IRA
A/C #617143-0001
PO Box 173301
Denver, CO 80217-3301
15
<PAGE>
GROWTH/INCOME CLASS A
NONE
GROWTH/INCOME CLASS B
NONE
GROWTH/INCOME CLASS C
MLPF&S FOR THE SOLE BENEFIT 23.228%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR. E 3RD FLOOR
JACKSONVILLE, FL 32246-6484
GROWTH/INCOME CLASS Y
FIRST UNION NATIONAL BANK/EB/INT 50.581%
REINVEST ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S TRYON ST., 3RD FL CMG 1151
CHARLOTTE, NC 28202-1911
FIRST UNION NATIONAL BANK/EB/INT 26.579%
CASH ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S TRYON ST., 3RD FL CMG 1151
CHARLOTTE, NC 28202-1911
INCOME/GROWTH CLASS A
NONE
INCOME/GROWTH CLASS B
NONE
16
<PAGE>
INCOME/GROWTH CLASS C
MLPF&S FOR THE SOLE BENEFIT 7.133%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR. E 3RD FLOOR
JACKSONVILLE, FL 32246-6484
FUBS & CO. FEBO 6.266%
LAST STOP INC.
8661 COLESVILLE RD #D149
SILVER SPRING, MD 20910-3933
FIRST UNION NATL BANK-FL/C/F, INC. 5.35%
FRED W. COOKSON IRA
6704 WILLOW LN BRADEN WOODS
BRADENTON, FL 34202-9632
INCOME/GROWTH CLASS Y
NONE
SMALL CAP CLASS A
MLPF&S FOR THE SOLE BENEFIT 5.681%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR. E 3RD FLOOR
JACKSONVILLE, FL 32246-6468
SMALL CAP CLASS B
MLPF&S FOR THE SOLE BENEFIT 10.990%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR E 3RD FLOOR
JACKSONVILLE, FL 32246-6468
17
<PAGE>
SMALL CAP CLASS C
MLPF&S FOR THE SOLE BENEFIT 27.347%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR. E 3RD FLOOR
JACKSONVILLE, FL 32246-6484
SMALL CAP CLASS Y
FIRST UNION NATIONAL BANK/EB/INT 56.008%
CASH ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST, 3RD FL CMG 1151
CHARLOTTE, NC 28202-1191
FIRST NATIONAL BANK/EB/INT 23.473%
REINVEST ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST 3RD FLR CMG 1151
CHARLOTTE, NC 28202-1911
CITIBANK, NA 6.876%
DELTA AIRLINES MASTER TRUST 308235
JOE VILLELLA CITICORP SERVICES
1410 N WESTSHORE BLVD., FLOOR 5
TAMPA, FL 33607-4519
TOTAL RETURN CLASS A
MLPF&S FOR SOLE BENEFIT 6.075%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR E 3RD FLOOR
JACKSONVILLE, FL 32246-6484
TOTAL RETURN CLASS B
MLPF&S FOR SOLE BENEFIT 9.895%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DR E 3RD FLOOR
JACKSONVILLE, FL 32246-6484
18
TOTAL RETURN CLASS C
LAVEDNA ELLINGSON 13.982%
DOUGLAS ELLINGSON TTEES
LAVEDNA ELLINGSON MARITAL TRUST
U/A DTD 5/1/86
8510 MCCLINTOCK
TEMPE, AZ 85284-2527
MLPF&S FOR SOLE BENEFIT 11.370%
OF ITS CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E 3RD FLOOR
JACKSONVILLE, FL 32246-6468
TOTAL RETURN CLASS Y
SSB Cust IRA Rollover 63.126%
Gail L. Gulbenkian
3768 McCoy Road
Blacksburg, VA 24060-0652
STATE STREET BANK & TRUST CO CUST 23.859%
IRA FBO
KATHERINE ANN MEWHINNEY
2323 FAIRWAY DRIVE
WINSTON SALEM, NC 27103-3653
UTILITY CLASS A
NONE
UTILITY CLASS B
NONE
19
UTILITY CLASS C
FUBS & CO FEBO 19.699%
ELSIE B. STROM
LEWIS F. STROM
906 WELLS STREET
BENNETTSVILLE, SC 29512-3240
FUBS & CO FEBO 6.725%
THOMAS MCKINNEY AND
LOTTIE MCKINNEY
170 SCOTT BLVD
TYRONE, GA 30290-9767
FIRST UNION BROKERAGE SERVICES 6.413%
MAX RAY AND
JERALYNE RAY JTWROS
A/C 6993-2676
ROUTE 2 BOX 498
GREENMOUNTAIN, NC 28740-9209
FUBS & CO FEBO 5.527%
EVELYN L. SMITH
CREG SMITH
3294 MYRTLE STREET
HAPEVILLE, GA 30354-1418
UTILITY CLASS Y
FIRST UNION NATIONAL BANK 61.639%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR CMG-1151
301 S TRYON STREET
CHARLOTTE, NC 28288-0002
FIRST UNION NATIONAL BANK 18.724%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR, CMG-1151
301 S TRYON STREET
CHARLOTTE, NC 28288-0002
KHALID IQBAL C/F 5.198%
FATIMA KHALID IQBAL
UNIF GIFT MIN ACCOUNT KY
401 BOGLE STREET
SOMERSET, KY 42503-2870
20
VALUE CLASS A
NONE
VALUE CLASS B
NONE
VALUE CLASS C
NONE
VALUE CLASS Y
FIRST UNION NATIONAL BANK 69.819%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
CMG-1151 11TH FLOOR
301 S TRYON STREET
CHARLOTTE, NC 28288-0002
FIRST UNION NATIONAL BANK 23.262%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR CMG-1151
301 S TRYON STREET
CHARLOTTE, NC 28288-0002
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Each Fund has its own investment adviser (the "Adviser"). Each Adviser
is a subsidiary of First Union Corporation ("First Union"), a bank holding
company headquartered at 201 South College Street, Charlotte, North Carolina
28288-0630. First Union and its subsidiaries provide a broad range of financial
services to individuals and businesses throughout the United States.
Some of the Funds also have an investment subadviser (the
"Subadviser"). Each Fund's Adviser and, if applicable, its Subadviser, is
discussed below, including a description of fees.
21
Blue Chip
Keystone Investment Management Company ("Keystone"), 200 Berkeley
Street, Boston, Massachusetts 02116, is the Adviser to Blue Chip, which pays
Keystone an annual percentage of the Fund's average daily net assets, as
follows: 0.70% of the first $100 million; 0.65% of the next $100 million; 0.60%
of the next $100 million; 0.55% of the next $100 million; 0.50% of the next $100
million; 0.45% of the next $500 million; 0.40% of the next $500 million; plus
0.35% of amounts over $1.5 billion.
Growth/Income, Income/Growth and Small Cap
Evergreen Asset Management Corp. ("Evergreen Asset"), 2500 Westchester
Avenue, Purchase, New York 10577, is the Adviser to Growth/Income, Income/Growth
and Small Cap, each of which pays Evergreen Asset an annual percentage of its
average daily net assets, as follows: 1.00% of the first $750 million; 0.90% of
the next $250 million; and 0.80% of amounts over $1 billion. Lieber & Company,
2500 Westchester Avenue, Purchase, New York 10577, is the Subadviser to
Growth/Income, Income/Growth and Small Cap. Lieber & Company is reimbursed by
Evergreen Asset for the direct and indirect costs of providing subadvisory
services to each Fund.
Total Return
Keystone is the Adviser to Total Return, which pays Keystone an annual
fee equal to 1.5% of the Fund's gross dividend and interest income plus an
annual percentage of the Fund's average daily net assets, as follows: 0.60% of
the first $100 million; 0.55% of the next $100 million; 0.50% of the next $100
million; 0.45% of the next $100 million; 0.40% of the next $100 million; 0.35%
of the next $500 million; plus 0.30% of amounts over $1 billion.
Utility and Value
The Capital Management Group of First Union National Bank (FUNB) is the
Adviser to Utility and Value, each of which pays FUNB an annual fee equal to
0.50% of the Fund's average daily net assets.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each if its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements") .
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Adviser furnishes to the appropriate Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The Adviser pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Adviser, including, but not limited to, (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees; (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable) (8) taxes and
trust fees payable to governmental agencies; (9) the cost of share certificates;
(10) fees and expenses of the registration and qualification of such Fund and
its shares with the Securities and Exchange Commission ("SEC") or under state or
other securities
22
laws; (11) expenses of preparing, printing and mailing prospectuses, SAIs,
notices, reports and proxy materials to shareholders of each Fund; (12) expenses
of shareholders' and Trustees' meetings; (13) charges and expenses of legal
counsel for each Fund and for the Independent Trustees of the Trust on matters
relating to such Fund; (14) charges and expenses of filing annual and other
reports with the SEC and other authorities; and all extraordinary charges and
expenses of such Fund. (See also the section entitled "Financial Information.")
Each Advisory Agreement continues in effect for two years from its effective
date and, thereafter, from year to year only if approved at least annually by
the Board of Trustees of the Trust or by a vote of a majority of each Fund's
outstanding shares. In either case, the terms of the Advisory Agreement and
continuance thereof must be approved by the vote of a majority of the
Independent Trustees (Trustees who are not interested persons of a Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union is an investment adviser. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment adviser. The Funds may engage in such transaction
if they are equitable to each participant and consistent with each participant's
investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is 125
W. 55th Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of the Trust reports the
amounts expended under the Plans for each Fund and the purposes for which such
expenditures were made to the Trustees of the Trust for their review on
23
a quarterly basis. Also, each Plan provides that the selection and nomination of
the disinterested Trustees are committed to the discretion of such disinterested
Trustees then in office.
The Adviser may from time to time from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
FUNB or its affiliates may finance the payments made by the Distributor
to compensate broker-dealers or other persons for distributing shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that class or classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such class or classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan or Distribution
Agreement may be terminated (i) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by class or by a majority vote of the disinterested Trustees,
or (ii) by the
24
Distributor. To terminate any Distribution Agreement, any party must give the
other parties 60 days' written notice; to terminate a Plan only, the Fund need
give no notice to the Distributor. Any Distribution Agreement will terminate
automatically in the event of its assignment. (See also the section entitled
"Financial Information.")
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Utility and Value, subject to the supervision and control of the Trust's Board
of Trustees. EIS provides each Fund with facilities, equipment and personnel and
is entitled to receive a fee from the Fund based on the total assets of all
mutual funds advised by First Union subsidiaries, as follows: 0.060% of the
first $7 billion; 0.425% of the next $3 billion; 0.035% of the next $5 billion;
0.025% of the next $10 billion; 0.019% of the next $5 billion and 0.014% of
amounts over $30 billion.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union, is the
Funds' transfer agent. The transfer agent issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is Box 2121, Boston,
Massachusetts 02106-2121.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the annual financial statements of Global Opportunities, Latin America,
Natural Resources, Precious Metals and International Growth.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
10036, audits the annual financial statements of Emerging Markets, Global
Leaders and International Equity.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
Due to regulatory developments affecting the securities exchanges and
brokerage practices, the Board of Trustees may modify or eliminate any of the
following policies.
25
BROKERAGE COMMISSIONS
Generally, each Fund expects to purchase and sell its equity securities
through brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, each Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
Each Fund expects to buy and sell its fixed income securities directly
from the issuer or an underwriter or market maker for the securities. Generally,
each Fund will not pay brokerage commissions for such purchases. When a Fund
buys a security from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities bought
from dealers serving as market makers will similarly include the dealer's mark
up or reflect a dealer's mark down. When a Fund executes transactions in the
over-the-counter market, it will deal with primary market makers unless more
favorable prices are otherwise obtainable.
SELECTION OF BROKERS
When buying and selling portfolio securities, each Adviser seeks
brokers who can provide the most benefit to the Fund or Funds for which a trade
is being made. When selecting a broker, an Advisor will primarily look for the
best price at the lowest commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
Under each Advisory Agreement, each Fund may pay higher brokerage
commissions to a broker providing it with research services, as defined in item
6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this
practice is permitted if the commission is reasonable in relation to the
brokerage and research services provided. Research services provided by a broker
to an Adviser do not replace, but supplement, the services an Adviser is
required to deliver to a Fund under the Advisory Agreement. It is impracticable
for an Adviser to allocate the cost, value and specific application of such
research services among its clients because research services intended for one
client may indirectly benefit another.
When selecting a broker for portfolio trades, an Adviser may also
consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
Lieber & Company, an affiliate of Evergreen Asset and a member of the
New York and American Stock Exchanges, will to the extent practicable effect
substantially all of the portfolio transactions for Global Leaders effected on
those exchanges.
26
SIMULTANEOUS TRANSACTIONS
Each Adviser makes investment decisions for each Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an Adviser
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. Each Adviser strives for an equitable result in such
transactions by using an allocation formula. The high volume involved in some
simultaneous transactions can result in greater value to the Funds, but the
ideal price or trading volume may not always be achieved for an individual Fund.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment company,
known as "Evergreen Equity Trust" (the "Trust"). The Trust was formed as a
Delaware business trust on September 17, 1997 (the "Declaration of Trust"). A
copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. This summary is qualified
in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
27
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers up to four classes of shares that
differ primarily with respect to sales charges and distribution fees. Depending
upon the class of shares, you will pay an initial sales charge when you buy a
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem a
Fund's shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge equal to 4.75% of the offering price. (The prospectus
contains a complete table of applicable sales charges and a discussion of sales
charge reductions or waivers that may apply to purchases. See also the section
in this SAI entitled "Financial Information" for an example of the method of
computing the offering price of Class A shares.) If you purchase Class A shares
in the amount of $1 million or more, without an initial sales charge, the Funds
will charge a CDSC of 1.00% if you redeem during the month of your purchase and
the 12-month period following the month of your purchase (see "Contingent
Deferred Sales Charge", below).
Class B Shares
The Funds offer Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Funds will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..................5.00%
Second twelve-month period following the month of purchase.......4.00%
Third twelve-month period following the month of purchase........3.00%
Fourth twelve-month period following the month of purchase.......3.00%
Fifth twelve-month period following the month of purchase........2.00%
Sixth twelve-month period following the month of purchase........1.00%
Thereafter.......................................................0.00%
Class B shares that have been outstanding for seven years after the month of
purchase will
28
automatically convert to Class A shares without imposition of a front-end sales
charge or exchange fee. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificate to ESC.)
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Funds
offer Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Funds will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by
Evergreen Asset, (2) certain institutional investors and (3) investment advisory
clients of FUNB, Evergreen Asset, Keystone, or their affiliates. Class Y shares
are offered at net asset value without a front-end or back-end sales charge and
do not bear any Rule 12b-1 distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, a Fund will first seek to redeem shares
not subject to the CDSC and/or shares held the longest, in that order. The CDSC
on any redemption is, to the extent permitted by the National Association of
Securities Dealers, Inc. ("NASD"), paid to the Distributor or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
29
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Funds may sell their shares at net asset value without an initial
sales charge to:
1. purchases of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor has entered into an
agreement to sell shares of the Funds, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust
30
company as trustee if the initial investment in or any
Evergreen fund made pursuant to this waiver is at least
$500,000 and any commission paid at the time of such purchase
is not more than 1% of the amount invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCS
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. financial hardship withdrawals made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
the prospectus. Before you make an exchange, you should read the prospectus of
the Evergreen fund into which you want to
31
exchange. The Trust's Board of Trustees reserves the right to discontinue,
alter or limit the exchange privilege at any time.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each class of shares of a Fund is calculated by dividing the
value of a Fund's net assets attributable to that class by the number of all
shares issued for that class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded or
on the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than sixty days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in a Fund's opinion, the last sales price does not reflect a
current market value; and other assets are valued at prices deemed in
good faith to be fair under procedures established by the Board of
Trustees.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive
their dividends and capital grains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates their address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
32
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ("Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
33
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT COMPANY
Each Fund intends to qualify for and elect the tax treatment
applicable to a regulated investment company (a "RIC") under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). (Such qualification does not involve
supervision of management or investment practices or policies by the Internal
Revenue Service.) In order to qualify as a RIC, a Fund must, among other things,
(i) derive at least 90% of its gross income from dividends, interest, payments
with respect to proceeds from securities loans, gains from the sale or other
disposition of securities or foreign currencies and other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in such securities; and (ii) diversify its holdings so
that, at the end of each quarter of its taxable year, (a) at least 50% of the
market value of the Fund's total assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies).
By so qualifying, a Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on a Fund to the extent it
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. The Fund anticipates that all or a portion of the ordinary
dividends which it pays will qualify for the 70% dividends-received deduction
for corporations. The Fund will inform shareholders of the amounts that so
qualify.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by a Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will
34
receive what is in effect a return of capital. Nevertheless, the shareholder may
incur taxes on the distribution. Therefore, shareholders should carefully
consider the tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax adviser to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a taxable
gain or loss depending on his or her basis in the shares. A shareholder must
treat such gains or losses as a capital gain or loss if the shareholder held the
shares as capital assets. Capital gain on assets held for more than eighteen
months is generally subject to a maximum federal income tax rate of 20% for an
individual. The maximum capital gains tax rate for capital assets held by an
individual for more than twelve months but not more than eighteen months is
generally 28%. Generally, the Code will not allow a shareholder to realize a
loss on shares he or she has sold or exchanged and replaced within a
sixty-one-day period beginning thirty days before and ending thirty days after
he or she sold or exchanged the shares. The Code will treat a shareholder's loss
on shares held for six months or less as a long-term capital loss to the extent
the shareholder received capital gain dividends on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to federal,
35
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
FINANCIAL INFORMATION
EXPENSES
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements," "Principal Underwriter" and "Purchase, Redemption and
Pricing of Shares."
<TABLE>
<CAPTION>
1997 FUND EXPENSES
Total Underwriting
Class A Class B Class C Underwriting Commissions
FUND Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
====================== =================== =============== ================ =============== ================= ===============
<S> <C> <C> <C> <C> <C> <C>
Blue Chip (1) $1,794,364 N/A $1,535,556* N/A $1,017,961 $363,862
Growth/Income (2) $5,736,248 $175,321 $2,170,223 $91,676 $1,796,199 $169,177
Income/Growth (3) $4,371,784 $13,129 $186,670 $4,556 $41,996 $4,196
Income/Growth (4) $8,823,541 $18,106 $252,431 $8,509 $187,403 $20,208
Small Cap (2) $180,153(a) $1,710 $15,062 $5,553 $72,045 $8,281
Total Return (5) $546,092 $66,585 $460,418 $119,908 $128,762 $7,709
Utility (2) $382,537(b) $134,715 $214,190 $2,114 $15,633 $1,789
Value (2) $4,753,235 $509,860 $1,337,333 $10,924 $479,927 $51,343
</TABLE>
(1) Year ended 8/31/97
(2) Seven months ended 7/31/97
(3) Six months ended 7/31/97
(4) Year ended 1/31/97
(5) Eight months ended 7/31/97
(a) Of that amount, $35,183 waived or reimbursed by Adviser.
(b) Of that amount, $146,640 waived or reimbursed by Adviser.
* Not multiple class during this period; amount reflects all 12b-1 fees.
36
<TABLE>
<CAPTION>
1996 FUND EXPENSES
Total Underwriting
Class A Class B Class C Underwriting Commissions
FUND Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
=================== ===================== =============== ================== ================== ================== ==============
<S> <C> <C> <C> <C> <C> <C>
Blue Chip (1) $1,492,757 N/A $1,738,556* N/A $1,415,505 $334,606
Growth/Income (2) $5,287,338 $122,222 $1,254,549 $48,073 $1,473,258 $158,858
Income/Growth (3) $9,343,195 (a) $18,106 $62,182 $2,021 $98,890 $10,733
Small Cap (2) $63,333 (b) $618 $4,265 $356 $3,568 $340
Total Return (4) $448,266 -0- $260,237 $112,995 $355,043 ($595,877)
Utility (2) $725,733 (c) $252,753 $378,500 $3,791 $74,988 $7,857
Value (2) $6,950,730 $767,254 $1,674,133 $11,608 $522,573 $56,609
</TABLE>
(1) Year ended 8/31/96
(2) Year ended 12/31/96
(3) Year ended 1/31/96
(4) Year ended 11/30/96
(a) Of that amount, $53,576 waived or reimbursed by Adviser.
(b) Of that amount, $133,406 waived or reimbursed by Adviser.
(c) Of that amount, $396,483 waived or reimbursed by Adviser.
* Not multiple class during this period; amount reflects all 12b-1 fees.
37
1995 FUND EXPENSES*
Total Underwriting
Underwriting Commissions
FUND Advisory Fees Commissions Retained
===================== ===================== ================== =================
Blue Chip (1) $1,318,897 $1,083,702 $629,377
Growth/Income (2) $1,332,685 (a) $326,249 $37,300
Income/Growth (3) $8,542,289 $4,585 -0-
Small Cap (2) $45,397 (b) $778 $284
Total Return (4) $300,290 $190,327 ($243,621)
Utility (2) $456,021 (c) $36,650 $3,955
Value (2) $5,120,579 $114,855 $12,616
(1) Year ended 8/31/95
(2) Year ended 12/31/95
(3) Year ended 1/31/95
(4) Year ended 11/30/95
(a) Of that amount, $38,106 waived or reimbursed by Adviser.
(b) Entire amount waived or reimbursed by Adviser.
(c) Of that amount, $350,922 waived or reimbursed by Adviser.
* 12b-1 fees not included.
38
BROKERAGE COMMISSIONS PAID
The table below shows (1) total amounts paid by each Fund in brokerage
commissions and (2) brokerage commissions paid by each Fund to Lieber & Company,
an affiliate of FUNB, during each of the fiscal periods specified.
<TABLE>
<CAPTION>
1997 1996
FUND
Total Paid to Lieber Total Paid to Lieber Total
<S> <C> <C> <C> <C> <C>
Blue Chip $656,022 (a) -0- (a) $684,496 (a) -0- (a) $621,829 (a)
Growth/Income $412,968 (b) $348,590 (a) $519,064 (b) $429,888 (b) $210,923 (b)
Income/Growth $1,575,483 (c) $1,066,378 (c) $3,255,068(c) $2,982,640 (c) $3,755,606 (c)
$3,529,313 (d) $2,835,293 (d)
Small Cap $74,018 (b) $61,390 (b) $14,647 (b) $13,246 (b) $5,968 (b)
Total Return $153,935 (e) -0- (e) $227,013 (d) -0- (d) $92,665 (d)
Utility $220,091 (b) -0 - (b) $323,978 (b) -0- (b) $272,806 (b)
Value $273,045 (b) -0- (b) $3,164,292(b) -0- (b) $1,644,077 (b)
1995
Paid to Lieber
FOOTNOTES
-0- (a)
$160,659 (b) (a) Year ended 8/31/97
$3,465,900 (c) (b) Seven months ended 7/31/97
(c) Six months ended 7/31/97
$4,863 (b) (d) Year ended 1/31/97
-0- (d) (e) Eight months ended 7/31/97
-0- (b)
-0- (b)
1996 FOOTNOTES:
(a) Year ended 8/31/96
(b) Year ended 12/31/96
(c) Year ended 1/31/96
(d) Year ended 11/30/96
1995 FOOTNOTES:
(a) Year ended 8/31/95
(b) Year ended 12/31/95
(c) Year ended 1/31/95
(d) Year ended 11/30/95
</TABLE>
39
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase aggregating less than $50,000 subject to
the schedule of sales charges set forth in the prospectus at a price based upon
the NAV of each Fund's Class A shares as of July 31, 1997.
FUND* NET ASSET PER SHARE OFFERING PRICE
VALUE SALES CHARGE PER SHARE
=================== ==================== =================== ===============
Growth/Income $27.26 $1.36 $28.62
Income/Growth $23.94 $1.19 $25.13
Small Cap $15.69 $0.78 $16.47
Total Return $20.69 $1.03 $21.72
Utility $11.45 $0.57 $12.02
Value $24.64 $1.23 $25.87
*Excludes Blue Chip, which had not yet offered Class A shares.
PERFORMANCE
Total Return
Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of each period.
The average annual total returns for each class of shares of the Funds
(including applicable sales charges) as of August 31, 1997 for Blue Chip and
July 31, 1997 for the other Funds are as follows:
40
TEN YEARS OR
SINCE INCEPTION
FUND/CLASS ONE YEAR FIVE YEARS INCEPTION DATE
=============== =============== =============== =================== ===========
BLUE CHIP* 31.76% 15.36% 9.54% 9/11/35
GROWTH/INCOME
Class A 33.71% -- 28.25% 1/3/95
Class B 34.32% -- 29.00% 1/3/95
Class C 38.25% -- 29.80% 1/3/95
Class Y 40.66% 20.43% 15.06% 10/15/86
INCOME/GROWTH
Class A 22.24% -- 17.65% 1/3/95
Class B 22.40% -- 18.13% 1/3/95
Class C 26.37% -- 19.00% 1/3/95
Class Y 28.70% 11.99% 9.54% 8/31/78
SMALL CAP
Class A 36.08% -- 26.18% 1/3/95
Class B 36.69% -- 26.83% 1/3/95
Class C 41.71% -- 27.76% 1/24/95
Class Y 43.24% -- 18.98% 10/1/93
TOTAL RETURN
Class A 36.84% 16.32% 12.40% 2/13/87
Class B 37.44% -- 16.33% 2/1/93
Class C 41.58% -- 16.61% 2/1/93
Class Y -- -- 17.22% 1/13/97
UTILITY
Class A 15.56% -- 8.95% 1/4/94
Class B 15.42% -- 9.00% 1/4/94
Class C 19.42% -- 13.55% 9/2/94
Class Y 21.54% -- 12.58% 2/28/94
VALUE
Class A 35.47% 15.86% 12.37% 4/12/85
Class B 36.20% -- 16.82% 2/2/93
Class C 40.24% -- 22.25% 9/2/94
Class Y 42.58% 17.32% 17.96% 1/1/91
* Not multiple class during this period.
41
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
General
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, or any other commonly quoted index of common stock prices.
The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average and the Russell 2000 Index are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Financial Statements
The audited financial statements and the reports thereon are hereby
incorporated by reference to each Fund's Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, each
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in a Fund's prospectus,
SAI or in supplemental sales literature issued by such Fund or the Distributor,
and no person is entitled to rely on any information or representation not
contained therein.
Each Fund's prospectus and SAI omit certain information contained in
the Trust's registration statement, which you may obtain for a fee from the SEC
in Washington, D.C.
42
APPENDIX A
S&P AND MOODY'S BOND RATINGS
S&P Bond Ratings
An S&P bond rating is a current assessment of the creditworthiness of
an obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default and capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
S&P bond ratings are as follows:
a. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
b. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-1
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Moody's Bond Ratings
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
A-2
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in defauolt or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase
A-1 by S&P or Prime-1 by Moody's or F-1 by Fitch Investor Services, L.P. If not
rated, commercial paper will be issued by companies which have an outstanding
debt issue rated at the time of purchase Aaa, Aa or A by Moody's or AAA, AA or A
by S&P or Fitch, or will be determined by a Fund's investment adviser to be of
comparable quality. A. S&P Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting institutions) are
deemed to have a superior capacity for
A-3
repayment of short term promissory obligations. Repayment capacity of
Prime-1 issuers is normally evidenced by the following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate
reliance on debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and
5) well established access to a range of financial markets and
assured sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
C. Fitch Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned to this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F- 1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned to this rating are in actual or imminent
payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
A-4
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
OF
AMERICAN RETIREMENT FUND
<PAGE>
EVERGREEN EQUITY TRUST
STATEMENT OF ADDITIONAL INFORMATION
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
BALANCED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Evergreen Foundation Fund ("Foundation")
Evergreen Tax Strategic Foundation Fund ("Tax Strategic")
Evergreen American Retirement Fund ("American Retirement")
Evergreen Balanced Fund ("Balanced")
(Each a "Fund;" together, the "Funds")
Each Fund is a series of an open-end management investment company
known as Evergreen Equity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus and
should be read in conjunction with the Funds' prospectuses dated August 1,
1998, as supplemented from time to time. The Funds are offered through two
separate prospectuses: one offering Class A, Class B and Class C shares of
each Fund and one offering Class Y shares of each Fund. You may obtain
these prospectuses from Evergreen Distributor, Inc.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES
Fundamental Investment Policies
Additional Information on Securities and Investment Practices
MANAGEMENT OF THE TRUST
PRINCIPAL HOLDERS OF FUND SHARES
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisors
Investment Advisory Agreements
Distributor
Distribution Plans and Agreements
Additional Service Providers
BROKERAGE
Brokerage Commissions
Selection of Brokers
Simultaneous Transactions
TRUST ORGANIZATION
Form of Organization
Description of Shares
Voting Rights
Limitation of Trustees' Liability
PURCHASE,REDEMPTION AND PRICING OF SHARES How the Funds Offer Shares to the
Public Contingent Deferred Sales Charge Sales Charge Waivers or
Reductions Exchanges Calculation of Net Asset Value Per Share ("NAV")
Valuation of Portfolio Securities Shareholder Services
PRINCIPAL UNDERWRITER
ADDITIONAL TAX INFORMATION
Requirements for Qualification as a Regulated Investment Company
Taxes on Distributions
Taxes on the Sale or Exchange of Fund Shares
Other Tax Considerations
Special Tax Considerations for Tax Strategic
FINANCIAL INFORMATION
Expenses
Brokerage Commissions Paid
Computation of Class A Offering Price
Performance
ADDITIONAL INFORMATION
APPENDIX A
2
<PAGE>
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Where necessary, an explanation beneath a fundamental policy
describes a Fund's practices with respect to that policy, as allowed by current
law. If the law governing a policy changes, the Fund's practices may change
accordingly without a shareholder vote. Unless otherwise stated, all references
to the assets of a Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, a Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value , in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy: Each Fund may borrow from
banks in an amount up to 33 1/3% of its total assets, taken at market value.
Each Fund may also borrow up to an additional 5% of its total assets from banks
or others. A Fund may borrow only as a temporary measure for extraordinary or
emergency purposes such as the redemption of Fund shares. A Fund may not
purchase securities while borrowings are outstanding except to exercise prior
commitments and to exercise subscription rights (as defined in the 1940 Act) or
enter into reverse repurchase agreements, in amounts up to 33 1/3% of its total
assets (including the amount borrowed). Each Fund may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities. A Fund may purchase securities
3
<PAGE>
on margin and engage in short sales to the extent permitted by applicable law.
In addition to borrowing for temporary or emergency purposes, American
Retirement intends to borrow for the purpose of leveraging.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that each Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that each Fund
may lend its portfolio securities in accordance with applicable law. The
acquisition of investment securities or other investment instruments shall not
be deemed to be the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay each Fund any income accruing on the security. Each
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect each Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. Each Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. Each Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. Each Fund may pay reasonable fees in connection with such loans.
9. Investments in Federally Tax-Exempt Securities (Tax Strategic)
Tax Strategic will, during periods of normal market conditions, invest
its assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission ("SEC") or its staff concerning investment in tax-exempt
securities for funds with the words tax-exempt, tax free or municipal in their
names.
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ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
The investment objectives of each Fund and a description of the
securities in which each Fund may invest are set forth in the Funds'
prospectuses. The following expands upon the discussion in the prospectuses
regarding certain investments of the Funds.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, including issues of the U.S.
Treasury. These securities are either backed by the discretionary authority of
the U.S. government to purchase certain obligations of agencies or
instrumentalities or the credit of the agency or instrumentality issuing the
obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds may invest in securities issued by the GNMA, a
corporation wholly-owned by the U.S. government. GNMA securities or
"certificates" represent ownership in a pool of underlying mortgages. The timely
payment of principal and interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is
not paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary
due not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those
available from other types of U.S. government securities, they may be less
effective as a means of locking in attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, prepayments are
likely to increase as the holders of the underlying mortgages seek refinancing.
As a result, the value of a GNMA certificate is not likely to rise as much as
the value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause a GNMA certificate originally purchased at
a premium to decline in price compared to its par value, which may result in a
loss.
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Equity Securities
The Funds may invest in equity securities consist primarily of
common stocks and securities convertible into common stocks. Investing in common
stocks, particularly those having growth characteristics, frequently involves
greater risks (and possibly greater rewards) than investing in other types of
securities. Common stock prices tend to be more volatile and companies having
growth characteristics may sometimes be unproven.
Investing in companies with medium market capitalizations involves
greater risk than investing in larger companies. The stock prices of mid-cap
companies can rise quickly and drop substantially in a short period of time.
This volatility results from a number of factors, including reliance by these
companies on relatively limited product lines, markets, and financial resources.
These and other factors may make mid-cap companies more susceptible to setbacks
or downturns.
Investing in companies with small market capitalizations involves
greater risk than investing in larger companies. Their stock prices can rise
very quickly and drop dramatically in a short period of time. This volatility
results from a number of factors, including reliance by these companies on
limited product lines, markets, and financial and management resources. These
and other factors may make small cap companies more susceptible to setbacks or
downturns. These companies may experience higher rates of bankruptcy or other
failures than larger companies. They may be more likely to be negatively
affected by changes in management. In addition, the stock of small cap companies
may be thinly traded.
Derivatives (Balanced and American Retirement)
Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives may be standardized, exchange-traded contracts or customized,
privately negotiated contracts. Exchange-traded derivatives tend to be more
liquid and subject to less credit risk than those that are privately negotiated.
There are four principal types of derivative instruments -options,
futures, forwards, and swaps -- from which virtually any type of derivative
transaction can be created. Debt instruments that incorporate one or more of
these building blocks for the purpose of determining the principal amount of
and/or rate of interest payable on the debt instruments are often referred to as
"structured securities." An example of this type of structured security is
indexed commercial paper. The term is also used to describe certain securities
issued in connection with the restructuring of certain foreign obligations. The
term "derivative" is also sometimes used to describe securities involving rights
to a portion of the cash flows from an underlying pool of mortgages or other
assets from which payments are passed through to the owner of, or that
collateralize, the securities.
The Funds can use derivatives to earn income, to enhance returns,
to hedge or adjust the risk profile of the portfolio, in place of more
traditional direct investments or to obtain exposure to otherwise inaccessible
markets. A Fund's use of derivatives for non-hedging purposes entails greater
risks than if a Fund were to use derivatives solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to a Fund's shareholders.
The Funds' investment advisor is not an aggressive user of
derivatives with respect to the Funds. However, the Funds may take positions in
those derivatives that are within their investment policies if, in the Advisor's
(as hereinafter defined) judgment, this represents an effective response to
current or anticipated market conditions. The Advisor's use of derivatives is
subject to continuous risk assessment and control from the standpoint of the
Funds' investment objective and policies. While the judicious use of derivatives
by experienced investment managers, such as the Advisor, can be beneficial,
derivatives also involve risks different from, and, in certain cases, greater
than, the risks presented by more traditional
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investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Funds.
Market Risk -- This is the general risk attendant to all
investments that the value of a particular investment will decline or otherwise
change in a way detrimental to the Funds' interest.
Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the derivative
itself, without the benefit of observing the performance of the derivative under
all possible market conditions. Because derivatives are complex, a Fund and its
Advisor must (1) maintain controls to monitor the transactions entered into, (2)
assess the risk that a derivative adds to a Fund's portfolio and (3) forecast
price, interest rate or currency exchange rate movements correctly.
Credit Risk -- This is the risk that a Fund may lose money because
the other party to a derivative (usually called a "counter party") failed to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately negotiated
derivatives, since the clearing house, which is the issuer or counter party to
each exchange-traded derivative, guarantees performance. This guarantee is
supported by a daily payment system (i.e., margin requirements) operated by the
clearing house to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore, a Fund
considers the creditworthiness of each counter party to a privately negotiated
derivative in evaluating potential credit risk.
Liquidity Risk -- Liquidity risk is the possibility that a Fund
will have difficulty buying or selling a particular instrument. If a derivative
transaction is particularly large or if the relevant market is illiquid (as is
the case with many privately negotiated derivatives), a Fund may not be able to
initiate a transaction or liquidate a position at an advantageous price.
Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
Other Risks -- Other risks in using derivatives include the risk
of mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates, and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counter parties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
Options Transactions (Balanced and American Retirement)
Writing Covered Options. A Fund may write (i.e., sell) covered
call and put options. By writing a call option, a Fund becomes obligated during
the term of the option to deliver the securities underlying the option upon
payment of the exercise price. Writing a put option obligates a Fund during the
term of the option to purchase the securities underlying the option at the
exercise price if the option buyer exercises the option. A Fund also may write
straddles (combinations of covered puts and calls on the same underlying
security).
A Fund may only write "covered" options. This means that while a
Fund is obligated as the writer of a call option it will own the underlying
securities subject to the option or, with call options on U.S.
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Treasury bills, it might own similar U.S. Treasury bills. If a Fund has written
options against all of its securities that are available for writing options,
the Fund may be unable to write additional options unless it sells some of its
portfolio holdings to obtain new securities against which it can write options.
If this were to occur, higher portfolio turnover and correspondingly greater
brokerage commissions and other transaction costs may result. A Fund does not
expect, however, that this will occur. A Fund will be considered "covered" with
respect to a put option it writes if, while it is obligated as the writer of the
put option, it deposits and maintains with its custodian in a segregated account
liquid assets having a value equal to or greater than the exercise price of the
option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. A Fund receives a premium from writing a
call or put option, which it retains whether or not the option is exercised. By
writing a call option, a Fund might lose the potential for gain on the
underlying security while the option is open, and, by writing a put option, a
Fund might become obligated to purchase the underlying security for more than
its current market price upon exercise.
Purchasing Options. A Fund may purchase put or call options,
including put or call options for offsetting previously written put or call
options of the same series. Once a Fund has written a covered option, it will
continue to hold the segregated securities or assets until it effects a closing
purchase transaction. If a Fund is unable to close the option position, it must
hold the segregated securities or assets until the option expires or is
exercised. An option position may be closed out only in a secondary market for
an option of the same series. Although a Fund generally writes only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and, for some options, no secondary market may exist. In
such event, effecting a closing transaction for a particular option might not be
possible.
Options on some securities are relatively new, and predicting how
much trading interest there will be for such options is impossible. There can be
no assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair a Fund's ability to
use such options to achieve its investment objective.
Options Trading Markets. A Fund trades in options that are
generally listed on national securities exchanges, currently including the
Chicago Board Options Exchange and the New York, American, Pacific and
Philadelphia Stock Exchanges. Options on some securities are traded in the
over-the-counter market, and may not be listed on any exchange. Options traded
in the over-the- counter market involve a greater risk that the securities
dealers participating in the transactions could fail to meet their obligations
to a Fund.
A Fund will include the premiums it has paid for the purchase of
unlisted options and the value of securities used to cover options it has
written for purposes of calculating whether the Fund has complied with its
policies on illiquid securities.
Futures Transactions and Related Options Transactions (Balanced and American
Retirement)
A Fund may enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by the Fund or as a hedge against
changes in the prices of securities held by the Fund or to be acquired by the
Fund. A Fund's hedging may include sales of futures as an offset against the
effect of expected increases in interest rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest rates.
For example, when a Fund anticipates a significant market or
market sector advance, it will purchase a stock index futures contract as a
hedge against not participating in such advance at a time when the Fund is not
fully invested. The purchase of a futures contract serves as a temporary
substitute for the
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purchase of individual securities which may then be purchased in an orderly
fashion. As such purchases are made, an equivalent amount of index based futures
contracts would be terminated by offsetting sales. In contrast, a Fund would
sell stock index futures contracts in anticipation of or in a general market or
market sector decline that may adversely affect the market value of the Fund's
portfolio. To the extent that a Fund's portfolio changes in value in correlation
with a given index, the sale of futures contracts on that index would
substantially reduce the risk to the portfolio of a market decline or change in
interest rates, and, by doing so, provide an alternative to the liquidation of
the Fund's securities positions and the resulting transaction costs.
A Fund intends to engage in options transactions which are related
to financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures
contracts and related options transactions could be used to reduce a Fund's
exposure to interest rate and/or market fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost through using
futures contracts and related options transactions. While a Fund does not intend
to take delivery of the instruments underlying futures contracts it holds, the
Fund does not intend to engage in such futures contracts for speculation.
Futures Contracts (Balanced and American Retirement)
Futures contracts are transactions in the commodities markets
rather than in the securities markets. A futures contract creates an obligation
by the seller to deliver to the buyer the commodity specified in the contract at
a specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the specified
commodity at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures
exchanges and are standardized as to maturity date and underlying financial
instrument. The principal financial futures exchanges in the United States are
The Board of Trade of the City of Chicago, the Chicago Mercantile Exchange, the
International Monetary Market (a division of the Chicago Mercantile Exchange),
the New York Futures Exchange and the Kansas City Board of Trade. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
Interest Rate Futures Contracts. The sale of an interest rate
futures contract creates an obligation by a Fund, as seller, to deliver the type
of financial instrument specified in the contract at a specified future time for
a specified price. The purchase of an interest rate futures contract creates an
obligation by a Fund, as purchaser, to accept delivery of the type of financial
instrument specified at a specified future time for a specified price. The
specific securities delivered or accepted, respectively, at settlement date, are
not determined until at or near that date. The determination is in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Currently, interest rate futures contracts can be purchased or
sold on 90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes
with maturities between 6 1/2 and 10 years, (GNMA) certificates, 90-day domestic
bank certificates of deposit, 90-day commercial paper, and 90-day Eurodollar
certificates of deposit. It is expected that futures contracts trading in
additional financial instruments will be
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authorized. The standard contract size is $100,000 for futures contracts in
U.S. Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000
for the other designated contracts. While U.S. Treasury bonds, U.S. Treasury
bills, U.S. Treasury notes and GNMA certificates are backed by the full faith
and credit of the U.S. government, futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
Index Based Futures Contracts, Other Than Stock Index Based. It is
expected that bond index and other financially based index futures contracts
will be developed in the future. It is anticipated that such index based futures
contracts will be structured in the same way as stock index futures contracts
but will be measured by changes in interest rates, related indexes or other
measures, such as the consumer price index. In the event that such futures
contracts are developed, a Fund may sell interest rate index and other index
based futures contracts to hedge against changes which are expected to affect
the Fund's portfolio.
The purchase or sale of a futures contract differs from the
purchase or sale of a security, in that no price or premium is paid or received.
Instead, to initiate trading an amount of cash, cash equivalents, money market
instruments, or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of
the contract amount must be deposited by a Fund with the Broker. This amount is
known as initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to a Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and
from the Broker, are made on a daily basis as the value of the underlying
instrument or index fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as mark-to-market. For
example, when a Fund has purchased a futures contract and the price of the
underlying financial instrument or index has risen, that position will have
increased in value, and a Fund will receive from the Broker a variation margin
payment equal to that increase in value. Conversely, where a Fund has purchased
a futures contract and the price of the underlying financial instrument or index
has declined, the position would be less valuable and the Fund would be required
to make a variation margin payment to the Broker. At any time prior to
expiration of the futures contract, a Fund may elect to close the position. A
final determination of variation margin is then made, additional cash is
required to be paid to or released by the Broker, and the Fund realizes a loss
or gain.
The Trust intends to enter into arrangements with its custodian
and with Brokers to enable the initial margin of a Fund and any variation margin
to be held in a segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which a Fund enters into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument or index and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which a Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of a Fund's gain or loss on any transaction is
reduced or increased, respectively, by the amount of
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any transaction costs incurred by the Fund.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one contract of September U.S. Treasury
bills on an exchange may be fulfilled at any time before delivery of the
contract is required (i.e. on a specified date in September, the "delivery
month") by the purchase of one contract of September U.S. Treasury bills on the
same exchange. In such instance the difference between the price at which the
futures contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to a Fund.
There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular contract at a
particular time. If a Fund is not able to enter into an offsetting transaction,
the Fund will continue to be required to maintain the margin deposits on the
contract and to complete the contract according to its terms.
Options on Financial Futures. A Fund may purchase call and put options on
financial futures contracts and sell such options to terminate an existing
position. Options on futures are similar to options on stocks except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) rather than to
purchase or sell stock at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and value of
the futures contract.
A Fund intends to use options on financial futures contracts in
connection with hedging strategies. In the future the Fund may use such options
for other purposes.
Purchase of Put Options on Futures Contracts. The purchase of
protective put options on financial futures contracts is analogous to the
purchase of protective puts on individual stocks, where an absolute level of
protection is sought below which no additional economic loss would be incurred
by a Fund. Put options may be purchased to hedge a portfolio of stocks or debt
instruments or a position in the futures contract upon which the put option is
based.
Purchase of Call Options on Futures Contracts. The purchase of
call options on financial futures contracts represents a means of obtaining
temporary exposure to market appreciation at limited risk. It is analogous to
the purchase of a call option on an individual stock, which can be used as a
substitute for a position in the stock itself. Depending on the pricing of the
option compared to either the futures contract upon which it is based, or upon
the price of the underlying financial instrument or index itself, purchase of a
call option may be less risky than the ownership of the interest rate or index
based futures contract or the underlying securities. Call options on commodity
futures contracts may be purchased to hedge against an interest rate increase or
a market advance when a Fund is not fully invested.
Use of New Investment Techniques Involving Financial Futures
Contracts or Related Options. A Fund may employ new investment techniques
involving financial futures contracts and related options. A Fund intends to
take advantage of new techniques in these areas which may be developed from time
to time and which are consistent with the Fund's investment objective. The Trust
believes that no additional techniques have been identified for employment by a
Fund in the foreseeable future other than those described above.
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Limitations on Purchase and Sale of Futures Contracts and Related
Options on Such Futures Contracts. A Fund will not enter into a futures contract
if, as a result thereof, more than 5% of the Fund's total assets (taken at
market value at the time of entering into the contract) would be committed to
margin deposits on such futures contracts, including any premiums paid for
options on futures.
A Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that a Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
A Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by a
Fund, an amount of cash and cash equivalents equal to the market value of the
futures contracts will be deposited in a segregated account and/or in a margin
account with a Broker to collateralize the position and thereby insure that the
use of such futures is unleveraged.
Risks of Futures Contracts. Financial futures contracts prices are
volatile and are influenced, among other things, by changes in stock prices,
market conditions, prevailing interest rates and anticipation of future stock
prices, market movements or interest rate changes, all of which in turn are
affected by economic conditions, such as government fiscal and monetary policies
and actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures
contracts and of the securities being hedged can be only approximate. The degree
of imperfection of correlation depends upon various circumstances, such as
variations in speculative market demand for futures contracts and for
securities, including technical influences in futures contracts trading; and
differences between the securities being hedged and the financial instruments
and indexes underlying the standard futures contracts available for trading, in
such respects as interest rate levels, maturities and creditworthiness of
issuers, or identities of securities comprising the index and those in a Fund's
portfolio. In addition, futures contract transactions involve the remote risk
that a party may be unable to fulfill its obligations and that the amount of the
obligation will be beyond the ability of the clearing broker to satisfy. A
decision of whether, when and how to hedge involves the exercise of skill and
judgment, and even a well conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a 10% decrease
in the value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs. If the account was then
closed out at a total decrease of 15% of the futures contract, it would result
in a loss equal to 150% of the original margin deposit. Thus, a purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the futures contract. However, a Fund would presumably have sustained comparable
losses if, instead of entering into the futures contract, it had invested in the
underlying financial instrument. Furthermore, in order to be certain that a Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund will establish a segregated account in connection with its futures
contracts which will hold cash or cash equivalents equal in value to the current
value of the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of
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unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Risks of Options on Futures Contracts. In addition to the risks
described above for financial futures contracts, there are several special risks
relating to options on futures contracts. The ability to establish and close out
positions on such options will be subject to the development and maintenance of
a liquid secondary market. There is no assurance that a liquid secondary market
will exist for any particular contract or at any particular time. A Fund will
not purchase options on any futures contract unless and until it believes that
the market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection with
the futures contracts. Compared to the use of futures contracts, the purchase of
options on such futures involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to a Fund, even though the use of a
futures contract would not, such as when there is no movement in the level of
the futures contract.
Investment Company Securities
Securities of other investment companies may be acquired by a Fund
to the extent permitted under the 1940 Act. These limits require that, as
determined immediately after a purchase is made, (i) not more than 5% of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund. As a shareholder of another investment company,
a Fund would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that the Fund bears
directly in connection with its own operations. However, a Fund may invest all
of its investable assets in securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, polices and limitations as the Fund.
Repurchase Agreements
A Fund may enter into repurchase agreements with entities that are
registered U.S. government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
Fund's Advisor to be creditworthy. A repurchase agreement is an agreement by
which a person (e.g., a Fund) obtains a security and simultaneously commits to
return the security to the seller (a member bank of the Federal Reserve System
or recognized securities dealer) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from a Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. A Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. A
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the Advisor
13
<PAGE>
to be creditworthy pursuant to guidelines established by the Trustees.
Reverse Repurchase Agreements
A Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Illiquid and Restricted Securities
A Fund may not invest more than 15% of its net assets in
securities that are illiquid. A security is illiquid when a Fund cannot dispose
of it in the ordinary course of business within seven days at approximately the
value at which the Fund has the investment on its books.
A Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determining
the liquidity of Rule 144A securities, the Trustees will consider: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
A Fund may purchase securities on a when-issued or
delayed-delivery basis and may purchase or sell securities on a forward
commitment basis. These transactions involve the purchase of debt obligations
with delivery and payment normally taking place within a month or more after the
date of commitment to purchase. A Fund will only make commitments to purchase
obligations on a when-issued basis with the intention of actually acquiring the
securities, but may sell them before the settlement date. The when-issued
securities are subject to market fluctuation, and no interest accrues on the
security to the purchaser during this period. The payment obligation and the
interest rate that will be received on the securities are each fixed at the time
the purchaser enters into the commitment.
Segregated accounts will be established and a Fund will maintain
liquid assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market when
the delivery takes place may actually be higher than those
14
<PAGE>
obtained in the transaction itself. In that case there could be an unrealized
loss at the time of delivery.
A Fund uses when-issued, delayed-delivery and forward commitment
transactions to secure what it considers to be an advantageous price and yield
at the time of purchase. When a Fund engages in when-issued, delayed-delivery
and forward commitment transactions, it relies on the buyer or seller, as the
case may be, to consummate the sale. If the buyer or seller fails to complete
the sale, then the Fund may miss the opportunity to obtain the security at a
favorable price or yield.
Typically, no income accrues on securities a Fund has committed to
purchase prior to the time delivery of the securities is made, although the Fund
may earn income on securities it has in a segregated account. When purchasing a
security on a when-issued, delayed-delivery, or forward commitment basis, a Fund
assumes the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value. Because a Fund is not required to pay for the
security until the delivery date, these risks are in addition to the risks
associated with the Fund's other investments.
Foreign Currency Transactions
As one way of managing exchange rate risk, a Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency a Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. A Fund usually will
enter into these contracts to stabilize the U.S. dollar value of a security it
has agreed to buy or sell. Each Fund intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if the Fund's
advisor expects a decrease in the value of the currency in which the foreign
security is denominated. Although a Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on the
Advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of a Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by a Fund. A Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Foreign Securities
A Fund may invest in foreign securities or U.S. securities traded
in foreign markets. Permissible investments may consist of obligations of
foreign branches of U.S. banks and of foreign banks, including European
certificates of deposit, European time deposits, Canadian time deposits and
Yankee certificates of deposit, and investments in Canadian commercial paper,
foreign securities and Europaper. These instruments may subject a Fund to
investment risks that differ in some respects from those related to investments
in obligations of U.S. domestic issuers. Such risks include future adverse
political and economic developments; the possible imposition of withholding
taxes on interest or other income; the possible seizure, nationalization, or
expropriation of foreign deposits; the possible establishment of exchange
controls; or taxation at the source; greater fluctuations in value due to
changes in exchange rates, or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. Such investments may also entail higher custodial fees and
sales commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
15
<PAGE>
Lower Rated Bonds (Balanced and American Retirement)
Balanced and American Retirement may invest in high yield, high
risk bonds, commonly known as "junk bonds." While investment in high yield, high
risk bonds provides opportunities to maximize return over time, investors should
be aware of the following risks associated with high yield, high risk bonds:
(1) High yield, high risk bonds are rated below investment grade, i.e.,
BB or lower by Standard & Poor's Ratings Group ("S&P") or Ba or lower by Moody's
Investors Service ("Moody's"). Securities so rated are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. Balanced and American Retirement may also invest in unrated
securities that, in their Advisor's judgment, offer comparable yields and risks
as securities that are rated as low as D by S&P or Cby Moody's. It is possible
for securities rated D or C-, respectively, to have defaulted on payments of
principal and/or interest at the time of investment. (See Appendix A to this SAI
for a description of these rating categories.) Balanced and American Retirement
intend to invest in D rated debt only in cases when, in their Advisor's
judgment, there is a distinct prospect of improvement in the issuer's financial
position as a result of the completion of reorganization or otherwise.
(2) The lower ratings of these securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates may
impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.
(3) The value of high yield, high risk bonds may be more susceptible to
real or perceived adverse economic, company or industry conditions and publicity
than is the case for higher quality securities.
(4) The value, of high yield, high risk bonds like that of other fixed
income securities, fluctuates in response to changes in interest rates,
generally rising when interest rates decline and falling when interest rates
rise. For example, if interest rates increase after a fixed income security is
purchased, the security, if sold prior to maturity, may return less than its
cost. The prices of below-investment grade bonds, however, are generally less
sensitive to interest rate changes than the prices of higher-rated bonds, but
are more sensitive to adverse or positive economic changes or individual
corporate developments.
(5) The secondary market for such securities may be less liquid at
certain times than the secondary market for higher quality debt securities,
which may adversely effect (1) the market price of the security, (2) a Fund's
ability to dispose of particular issues and (3) a Fund's ability to obtain
accurate market quotations for purposes of valuing its assets.
(6) Zero coupon bonds and payment-in-kind securities ("PIKs") involve additional
special considerations. For example, zero coupon bonds pay no interest to
holders prior to maturity of interest. PIKs are debt obligations that provide
that the issuer may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments may experience greater
fluctuation in value due to changes in interest rates than debt obligations that
pay interest currently. Even though these investments do not pay current
interest in cash, a Fund is, nonetheless, required by tax laws to accrue
interest income on such investments and to distribute such amounts at least
annually to shareholders. Thus, a Fund could be required at times to liquidate
investments in order to fulfill its intention to distribute substantially all of
its net income as dividends. A Fund will not be able to purchase additional
income producing securities with cash used to make such distributions, and its
current income ultimately may be reduced as a result.
An Advisor considers the ratings of S&P and Moody's assigned to various
securities, but does not rely solely on these ratings because (1) S&P's and
Moody's assigned ratings are based largely on historical
16
<PAGE>
financial data and may not accurately reflect the current financial outlook of
companies; and (2) there can be large differences among the current financial
conditions of issuers within the same category.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and their affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen fund complex.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- ------------------------- -----------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) former Director, Executive Vice President and
Treasurer, State Street Research & Management
Company (investment advice); Director, The Andover
Companies (Insurance); and Trustee, Arthritis
Foundation of New England
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
<S> <C> <C> <C>
- ------------------------------- ------------------------- -----------------------------------------------------------------
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and
Wine; Chairman and
President, Oldways
Preservation and
Exchange Trust
(education); former
Chairman of the
Board, Director, and
Executive Vice
President, The London
Harness Company;
former Managing
Partner, Roscommon
Capital Corp.; former
Chief Executive
Officer, Gifford
Gifts of Fine Foods;
and former Chair man,
Gifford, Drescher &
Associates
(environmental
consulting)
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company; Director of Phoenix Total Return Fund and
Equifax, Inc.;
Trustee of Phoenix
Series Fund, Phoenix
Multi-Portfolio Fund,
and The Phoenix Big
Edge Series Fund; and
former President,
Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc. (steel
(DOB: 7/14/39) producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR
(DOB: 9/14/41) International, Inc. (executive recruitment); former
Senior Vice President, Boyden International Inc.
(executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411
International, Inc., and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
</TABLE>
16
<PAGE>
<TABLE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
<S> <C> <C>
- ------------------------------- ------------------------- -----------------------------------------------------------------
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant, Drake Beam Morin, Inc.
(executive outplacement); Director of
Connecticut Natural Gas Corporation,
Hartford Hospital, Old State House
Association, Middlesex Mutual Assurance Company,
and Enhance Financial Services, Inc.;
Chairman, Board of Trustees, Hartford
Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice
Chairman and Chief Investment Officer,
The Travelers Corporation; former
Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell
Miller, Inc.
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB: 8/30/58) Treasurer BISYS Fund Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, Evergreen Asset
Management Corp./First Union
National Bank; former Senior Tax
Consulting/Acting Manager, Investment
Companies Group, Price Waterhouse LLP,
New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund Services.
(DOB: 3/30/59)
</TABLE>
*Address: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-8001
18
<PAGE>
Trustee Compensation
Listed below is the Trustee compensation for the fiscal year ended
March 31, 1998.
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation
Compensation Accrued As Part of Benefits Upon from Trust and
Trustee from Trust Fund Expenses Retirement Fund Complex
<S> <C> <C> <C> <C>
Laurence B. Ashkin $ 9,856 $ 0 $ 0 $ 72,681
Charles A. Austin III 6,993(a) 0 0 49,297(b)
Foster Bam* 7,722 0 0 53,236
K. Dun Gifford 6,468 0 0 46,061
James S. Howell 12,072(c) 0 0 109,570(d)
Robert J. Jeffries* 2,167 0 0 18,222
Leroy Keith Jr. 6,633 0 0 46,461
Gerald M. McDonnell ** 10,718 0 0 94,500
Thomas L. McVerry ** 10,825 0 0 96,805
William Walt Pettit ** 9,700 0 0 86,613
David M. Richardson 6,927 0 0 48,673
Russell A. Salton, III ** 10,424 0 0 95,031
Michael S. Scofield 10,835 0 0 97,794
Richard J. Shima 8,681 0 0 67,325
</TABLE>
(a) $1,049 of this amount payable in later years as deferred compensation. (b)
$7,395 of this amount payable in later years as deferred compensation. (c)
$9,658 of this amount payable in later years as deferred compensation. (d)
$87,656 of this amount payable in later years as deferred compensation.
* Former Trustee; retired as of December 31, 1997 ** Entire amount payable in
later years as deferred compensation.
PRINCIPAL HOLDERS OF FUND SHARES
As of July 1, 1998, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record 5% or more of a class of each
Fund's outstanding shares as of July 1, 1998.
Foundation Class A None
Foundation Class B None
19
<PAGE>
Foundation Class C
MLPF&S for the sole benefit of its customers
Attn: Fund Administration 26.21%
4800 Deer Lake Dr. East 2nd fl.
Jacksonville, FL 32246-6484
Foundation Class Y
First Union National Bank/EB/INT, Cash Account
Attn: Trust Operations Fund Group 10.43%
401 S. Tryon Street; 3rd Floor CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT, Reinvest Account
Attn: Trust Operations Fund Group 36.39%
401 S. Tryon Street;3rd Floor CMG 1151
Charlotte, NC 29202-1911 Mac & Co.
Aetna Retirement Services/Central Valuation Unit 12.01%
Attn: Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
AETNA Life Insurance
Life & Annuity/Central Valuation Unit 5.41%
Attn: Jackie Johnson, Conveyor TS31
151 Farminton Ave.
Hartford, CT 06156-0001
Charles Schwab & Co. Inc.
Special Custody Account fo r the Exclusive Benefit of Customers 6.46%
Reinvest Account Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Tax Strategic Class A None
Tax Strategic Class B
MLPF&S for the sole benefit of its customers
Attn: Fund Administration 97H99 10.52%
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484
Tax Strategic Class C
MLPF&S for the sole benefit of its customers
Attn: Fund Administration 29.86%
4800 Deer Lake Dr., East 2nd Fl.
Jacksonville, FL 32246-6484
Tax Strategic Class Y
Nola Maddox Falcone
70 Drake Rd. 7.81%
Scarsdale, NY 10583-6447
First Union National Bank, EB/INT, Cash Account
Attn: Trust Operations Fund Group 7.79%
401 S. Tryon St. 3rd Floor CMG 1151
Charlotte, NC 28202-1911
Stephen A. Lieber
1210 Greacen Point Rd. 39.63%
Mamaroneck, NY 10543-4613
20
<PAGE>
First Union National Bank EB/INT/ Cash Account
Attn: Trust Operations Fund Group 7.27%
401 S. Tryon St., 3rd Fl
Charlotte, NC 28202-1911
American Retirement Class A None
American Retirement Class B None
American Retirement Class C None
American Retirement Class Y
Charles Schwab & Co. Inc.
Special Custody Account FBO Exclusive Benefit of Customers 21.21%
Reinvest Account, Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
First Union National Bank/EB/INT, Reinvest Account
Attn: Trust Operations Fund Group 18.70%
401 S. Tryon Street, 3rd Fl., CMG 1151
Charlotte, NC 28202-1911
Balanced Class A None
Balanced Class B None
Balanced Class C
MLPF&S for the sole benefit of its customers
Attn: Fund Administration 15.72%
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484
FUBS & Co. FEBO
FUNB NC FBO Goldstein S. Bldg./Supply Loan Account 5.81%
Attn: Frank Pierce Loan Ofcs.
P.O. Box 3008, 6th Fl.
Raleigh, NC 27602-3008
Donaldson Lufkin Jenrette
Securities Corporation Inc. 5.16%
P.O. Box 2052
Jersey City, NJ 07303-2052
State Street Bank and Trust Company
Rollover IRA FBO Rita E. Resina 6.77%
291 Minneford
Bronx, NY 10464-1421
Balanced Class Y
First Union National Bank
Trust Accounts/ Attn: Ginny Batten 65.77%
11th Floor CMG - 1151
301 S. Tryon St.
Charlotte, NC 28202-1910
First Union National Bank
Trust Accounts Attn: Ginny Batten 30.89%
11th Floor CMG - 1151
301 S. Tryon St.
Charlotte, NC 28202-1910
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
Each Fund has its own investment advisor (the "Advisor"). Each Advisor
is a direct or indirect subsidiary of First Union Corporation ("First Union"), a
bank holding company headquartered at 301 South College Street, Charlotte, North
Carolina 28288-0630. First Union and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
Some of the Funds also have an investment subadvisor (the
"Subadvisor"). Each Fund's Advisor and, if applicable, its Subadvisor, is
discussed below, including a description of fees. For a summary of amounts paid
by the Funds to their Advisor for the last three fiscal years see the section
"Financial Information" below.
Evergreen Asset Management Corp. ("Evergreen Asset"), 2500 Westchester
Avenue, Purchase, New York 10577, is the Advisor to Foundation, Tax Strategic
and American Retirement, each of which pays Evergreen Asset an annual percentage
of its average daily net assets, as follows:
Agregate Net Asset Value of
Management Fee the Shares of a Fund
Foundation and Tax Strategic:
0.875% of the first $750,000,000; and
0.750% of the next $250,000,000; and
0.700% of amounts over $1,000,000,000.
Aggregate Net Asset Value of
Management Fee the Shares of a Fund
American Retirement:
0.75% of the first $750,000,000; and
0.70% of amounts over $750,000,000.
Keystone Investment Management Company ("Keystone"), 200 Berkeley
Street, Boston, Massachusetts 02116, is the Advisor to Balanced.
Balanced pays Keystone a fee for its services at the annual rate set
forth below
1.5% of Gross Dividend
and Interest Income
Aggregate Net Plus Aggregate Net Asset Value
Management Fee of the Shares of the Fund
- -------------- ---------------------------
0.60% of the first $100,000,000; plus
0.55% of the next $100,000,000; plus
0.50% of the next $100,000,000; plus
0.45% of the next $100,000,000; plus
0.40% of the next $100,000,000; plus
0.35% of the next $500,000,000; plus
0.30% of amounts over $1,000,000,000.
Keystone's fee is computed as of the close of business each
business day and is payable monthly.
21
<PAGE>
Lieber & Company, 2500 Westchester Avenue, Purchase, New York 10577, is the
Subadvisor to Foundation, Tax Strategic and American Retirement. Lieber &
Company is reimbursed by Evergreen Asset for the direct and indirect costs of
providing subadvisory services to a Fund.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an
investment advisory agreement with each Advisor (the "Advisory Agreements").
Under each Advisory Agreement, and subject to the supervision of the Trust's
Board of Trustees, the Advisor furnishes to the appropriate Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The Advisor pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Advisor, including, but not limited to: (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees of the Trust
(Trustees who are not interested persons of the Fund, as defined in the 1940
Act); (5) brokerage commissions, brokers' fees and expenses; (6) issue and
transfer taxes; (7) costs and expenses under the Distribution Plan (as
applicable); (8) taxes and trust fees payable to governmental agencies; (9) the
cost of share certificates; (10) fees and expenses of the registration and
qualification of such Fund and its shares with the SEC or under state or other
securities laws; (11) expenses of preparing, printing and mailing prospectuses,
SAIs, notices, reports and proxy materials to shareholders of such Fund; (12)
expenses of shareholders' and Trustees' meetings; (13) charges and expenses of
legal counsel for such Fund and for the Independent Trustees of the Trust on
matters relating to such Fund; (14) charges and expenses of filing annual and
other reports with the SEC and other authorities; and (15) all extraordinary
charges and expenses of such Fund. (See also the section entitled "Financial
Information.")
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of a
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 under the
1940 Act ("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to
buy or sell securities from another investment company for which a subsidiary of
First Union is an investment advisor. The Rule 17a-7 Procedures also allow the
Funds to buy or sell securities from other advisory clients for whom a
subsidiary of First Union is an investment advisor. The Funds may engage in such
transactions if they are equitable to each participant and consistent with each
participant's investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A,
Class B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class
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C shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of a Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by
each Fund with respect to each of its Class A, Class B and Class C shares (each
a "Plan" and collectively, the "Plans"), the Treasurer of the Trust reports the
amounts expended under the Plans for a Fund and the purposes for which such
expenditures were made to the Trustees of the Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
the Independent Trustees are committed to the discretion of such Independent
Trustees then in office.
Each Advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to the Distributor; the latter may in turn pay part or all
of such compensation to brokers or other persons for their distribution
assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to a Fund and holders of Class A, Class B
and Class C shares, and (ii) stimulate administrators to render administrative
support services to a Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to, providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as a Fund
reasonably requests for its Class A, Class B and Class C shares.
In the event that a Plan or Distribution Agreement is terminated
or not continued with respect to one or more Classes of a Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by Fund to the Distributor with respect to that Class or Classes, and (ii)
the Fund would not be obligated to pay the Distributor for any amounts expended
under the Distribution Agreement not previously recovered by the Distributor
from distribution services fees in respect of shares of such Class or Classes
through deferred sales charges.
All material amendments to any Plan or Distribution Agreement must
be approved by a vote of the Trustees of the Trust or the holders of a Fund's
outstanding voting securities, voting separately by class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular class of shares of a Fund may bear pursuant to a Plan or Distribution
Agreement without the approval of a majority of the holders of the outstanding
voting shares of the Class affected. Any Plan or Distribution Agreement may be
terminated (i) by a Fund without penalty at
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any time by a majority vote of the holders of the outstanding voting securities
of a Fund, voting separately by Class or by a majority vote of the Independent
Trustees, or (ii) by the Distributor. To terminate any Distribution Agreement,
any party must give the other parties 60 days' written notice; to terminate a
Plan only, a Fund need give no notice to the Distributor. Any Distribution
Agreement will terminate automatically in the event of its assignment.
For a summary of distribution fees paid by the Funds for the last three fiscal
years see "Financial Information" below.
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street,
Boston, Massachusetts 02116-5034, serves as administrator to the Funds, subject
to the supervision and control of the Trust's Board of Trustees. EIS provides
each Fund with facilities, equipment and personnel and is entitled to receive a
fee from the Fund at a rate based on the total assets of all mutual funds
advised by First Union subsidiaries, and for which EIS serves as administrator,
as follows:
Total assets of
Administrator Fee First Union subsidiaries
Foundation, Tax Strategic and American Retirement:
0.060% of the first $7 billion
0.0425% of the next $3 billion
0.035% of the next $5 billion
0.025% of the next $10 billion
0.019% of the next $5 billion
0.014% of amounts over $30 billion
Aggregate Net Total assets of
Administrator Fee First Union subsidiaries
Balanced:
0.050% of the first $7 billion
0.035% of the next $3 billion
0.030% of the next $5 billion
0.020% of the next $10 billion
0.015% of the next $5 billion
0.010% of amounts over $30 billion
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union, is
the Funds' transfer agent. The transfer agent issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. ESC's address is 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Independent Auditors
KPMG Peat Marwick LLP, is the Funds' independent auditor. The
independent auditor audits the Funds' annual financial statements. The address
of KPMG Peat Marwick LLP is 99 High Street, Boston, Massachusetts 02110.
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Custodian
State Street Bank and Trust Company is the Funds' custodian. The custodian
keeps custody of each Fund's securities and cash and performs other related
duties. State Street Bank and Trust Company's address is P.O. Box 9021, Boston,
Massachusetts 02205-9827.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
The Board of Trustees periodically reviews each Fund's brokerage
policy. Due to future regulatory developments affecting the securities exchanges
and brokerage practices, the Board of Trustees may modify or eliminate any of
the following policies.
BROKERAGE COMMISSIONS
Generally, a Fund expects to purchase and sell its equity
securities through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers will include a
dealer's mark-up or reflect a dealer's mark-down.
A Fund expects to purchase and sell its fixed income securities
through principal transactions directly from the issuer or an underwriter or
market maker for the securities. Generally, a Fund will not pay brokerage
commissions for such purchases. When a Fund buys a security from an underwriter,
the purchase price will usually include an underwriting commission or
concession. The purchase price for securities bought from dealers serving as
market makers will similarly include the dealer's mark-up or reflect a dealer's
mark-down. When a Fund executes transactions in the over-the-counter market, it
will deal with primary market makers unless more favorable prices are otherwise
obtainable.
SELECTION OF BROKERS
When buying and selling portfolio securities, each Advisor seeks
brokers who can provide the most benefit to a Fund or Funds for which a trade is
being made. When selecting a broker, an Advisor will primarily look for the best
price at the lowest commission, but in the context of the broker's:
1. ability to provide the best net financial result to a Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors, and (b) other information useful in making
investment decisions.
A Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commission paid.
Research services provided by a broker to an Advisor do not
replace, but supplement, the services an Advisor is required to deliver to a
Fund under the Advisory Agreement. It is impracticable for an Advisor to
allocate the cost, value and specific application of such research services
among its clients
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because research services intended for one client may indirectly benefit
another. Under its Investment Advisory Agreement, Keystone is permitted to pay
higher brokerage commissions for brokerage and research services in accordance
with Section 28(e) of the 1934 Act. In the event Keystone follows such a
practice, it will do so on a basis that is fair and equitable to Balanced.
The Trust's Board of Trustees has determined that the Funds may
consider sales of Fund shares as a factor in the selection of brokers to execute
portfolio transactions, subject to the requirements of best execution described
above.
Lieber & Company ("Lieber"), an affiliate of Evergreen Asset and a
member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions for
Foundation, Tax Strategic and American Retirement effected on those exchanges.
Under Section 11(a) of the Securities Exchange Act of 1934 (the
"1934 Act"), as amended, and the rules adopted thereunder by the SEC, Lieber may
be compensated for effecting transactions in the rules are met. Each Fund
advised by Evergreen Asset has entered into an agreement with Lieber authorizing
Lieber to retain compensation fro brokerage services. In accordance with such
agreement, it is contemplated that Lieber, a member of the New York and American
Stock Exchanges, will, to the extent practicable, provide brokerage services to
Foundation, Tax Strategic and American Retirement with respect to substantially
all securities transactions effected on the New York and American Stock
Exchanges. In such transactions, the Advisor will seek the best execution at the
most favorable price while paying a commission rate no higher than that offered
to other clients of Lieber or that comparable execution capability in a similar
transaction. However, no Fund will engage in transactions in which Lieber would
be a principal. While no Fund advised by Evergreen Asset contemplates any
ongoing arrangements with other brokerage firms, brokerage business may be given
from time to time to the firms. In addition, the Trustees have adopted
procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
brokerage transactions with Lieber, as an affiliated broker-dealer, are fair and
reasonable.
SIMULTANEOUS TRANSACTIONS
An Advisor makes investment decisions for a Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an Advisor
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. Each Advisor strives for an equitable result in such
transactions by using an allocation formula. The high volume involved in some
simultaneous transactions can result in greater value to the Funds, but the
ideal price or trading volume may not always be achieved for an individual Fund.
In order to take advantage of the availablility of lower purchase prices, the
Funds may occasionally participate in group bidding for the direct purchase from
an issuer of certain securities.
For a summary of brokerage commission paid by the Funds for the
last three fiscal years see "Financial Information" below.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment
company, known as Evergreen Equity Trust. The Trust was formed as a Delaware
business trust under an Agreement and Declaration of Trust dated September 18,
1997 (the "Declaration of Trust"). A copy of the Declaration of Trust is on file
at the SEC as an exhibit to the Trust's Registration Statement, of which this
SAI is a part. This summary is qualified in its entirety by reference to the
Declaration of Trust.
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DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest of series and classes of shares. Each
share of each Fund represents an equal proportionate interest with each other
share of that series and/or class. Upon liquidation, shares are entitled to a
pro rata share of the Trust based on the relative net assets of each series
and/or class. Shareholders have no preemptive or conversion rights. Shares are
redeemable and transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not
required to hold annual shareholder meetings. At meetings called for the initial
election of Trustees or to consider other matters, each share is entitled to one
vote for each dollar of net asset value applicable to such share. Shares
generally vote together as one class on all matters. Classes of shares of each
Fund have equal voting rights. No amendment may be made to the Declaration of
Trust that adversely affects any class of shares without the approval of a
majority of the votes applicable to the shares of that class. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the votes applicable to shares voting for the election of Trustees can elect
100% of the Trustees to be elected at a meeting and, in such event, the holders
of the remaining shares voting will not be able to elect any Trustees.
After the initial meeting as described above, no further
shareholder meetings for the purpose of electing Trustees will be held, unless
required by law, unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties involved in the conduct of his
office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Distributor,
broker-dealers that have entered into special agreements with the Distributor or
certain other financial institutions. Each Fund offers four classes of shares
that differ primarily with respect to sales charges and distribution fees.
Depending upon the class of shares, you will pay an initial sales charge when
you buy a Fund's shares, a contingent deferred sales charge (a "CDSC") when you
redeem a Fund's shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will
pay a maximum sales charge equal to 4.75% of the offering price. (The
prospectuses contain a complete table of applicable sales charges and a
discussion of sales charge reductions or waivers that may apply to purchases.
See also the section in this SAI entitled "Financial Information" for an example
of the method of computing the offering price of Class A shares.) If you
purchase Class A shares in the amount of $1 million or more, without an initial
sales charge, the Funds will charge a CDSC of 1.00% if you redeem during the
month of your purchase and the 12-month period following the month of your
purchase. See "Contingent Deferred Sales Charge" below.
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Class B Shares
The Funds offer Class B shares at net asset value without an
initial sales charge. With certain exceptions, however, the Funds will charge a
CDSC on shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase 5.00%
Second twelve-month period following the month of purchase 4.00%
Third twelve-month period following the month of purchase 3.00%
Fourth twelve-month period following the month of purchase 3.00%
Fifth twelve-month period following the month of purchase 2.00%
Sixth twelve-month period following the month of purchase 1.00%
Thereafter 0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. (Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.)
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Funds
offer Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Funds will charge a CDSC of 1.00% on shares you
redeem within 12 months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by
Evergreen Asset, (2) certain institutional investors and (3) investment advisory
clients of First Union national Bank ("FUNB"), Evergreen Asset, Keystone, or
their affiliates. Class Y shares are offered at net asset value without a
front-end or back-end sales charge and do not bear any Rule 12b-1 distribution
expenses.
CONTINGENT DEFERRED SALES CHARGE
A Funds charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, a Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, a Fund will first seek to redeem shares
not subject to the CDSC and/or shares held the longest, in that order. The CDSC
on any redemption is, to the extent permitted by the National Association of
Securities Dealers, Inc., paid to the Distributor or its predecessor.
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SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in the Evergreen funds and take advantage
of lower sales charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Funds may sell their shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization having
100 or more eligible employees (a "Qualifying Plan") or a TSA
plan sponsored by a public educational entity having 5,000 or
more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust departments
and registered investment advisers;
4. investment advisers, consultants or financial planners who place
trades for their own accounts or the accounts of their clients
and who charge such clients a management, consulting, advisory or
other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisers or financial planners
on the books of the broker-dealer through whom shares are
purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained
with a Fund by the broker-dealer;
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7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor, has entered into an
agreement to sell shares of the Funds, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and the
immediate families of such persons; or
9. a bank or trust company in a single account in the name of such
bank or trust company as trustee if the initial investment in or
any Evergreen fund made pursuant to this waiver is at least
$500,000 and any commission paid at the time of such purchase is
not more than 1% of the amount invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by a Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSC
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such shares;
2. certain shares for which a Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of
1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder who
is a least 59 1/2 years old;
6. shares in an account that a Fund has closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Withdrawal Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
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EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
the prospectuses. Before you make an exchange, you should read the prospectus of
the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the prospectuses. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each class of shares of a Fund is calculated by dividing the
value of a Fund's net assets attributable to that class by the number of all
shares issued for that class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
(1) An independent pricing service values each Fund's municipal bonds
at fair value using a variety of factors which may include yield, liquidity,
interest rate risk, credit quality, coupon, maturity and type of issue.
(2) Short-term investments with remaining maturities of sixty days or
less are carried at amortized cost, which approximates market value.
(3) Securities for which valuations are not available from an
independent pricing service, including restricted securities, are valued at fair
value according to procedures established by the Trust's Board of Trustees.
SHAREHOLDER SERVICES
As described in the prospectuses, a shareholder may elect to receive
his or her dividends and capital gains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ("Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain
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orders from broker-dealers, and others, acting as principals, for sales of
shares to them. The Underwriting Agreement provides that the Distributor will
bear the expense of preparing, printing, and distributing advertising and sales
literature and prospectuses used by it.
All subscriptions and sales of shares by the Distributor are at the
public ofering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly comply
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to a regulated investment company (a "RIC")
under the Code. (Such qualification does not involve supervision of management
or investment practices or policies by the Internal Revenue Service.) In order
to qualify as a RIC, a Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, a Fund is
not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
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excise tax will be imposed on a Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions will be taxable to shareholders whether made in
additional shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share of a
Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by a Fund from its investment
company taxable income (net taxable investment income plus net realized
short-term capital gains, if any). A Fund will include dividends it receives
from domestic corporations when it calculates its gross investment income. A
Fund anticipates that all or a portion of the ordinary dividends which it pays
will qualify for the 70% dividends-received deduction for corporations. A Fund
will inform shareholders of the amounts that so qualify.
From time to time, a Fund will distribute the excess of its net
long-term capital gains over its short-term capital losses to shareholders
(i.e., capital gain dividends). For federal tax purposes, shareholders must
include such capital gain dividends when calculating their net long-term capital
gains. Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares. Each Fund
will inform its shareholders of the portion, if any, of a long-term capital gain
distribution which is subject to tax at the maximum 28% rate and the portion, if
any, of a long term capital gain distribution which is subject to tax at the
maximum 20% rate. Distributions of long-term capital gains are taxable as such
to a shareholder, no matter how long the shareholder has held the shares.
Distributions by a Fund reduce its NAV. A distribution that reduces a
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before a Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in additional shares or cash, must
be reported by each shareholder on his or her federal income tax return. Each
shareholder should consult his or her tax advisor to determine the state and
local tax implications of Fund distributions.
If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss
34
<PAGE>
depending on his or her basis in the shares. A shareholder must treat such gains
or losses as a capital gain or loss if the shareholder held the shares as
capital assets. Capital gain on assets held for more than eighteen months is
generally subject to a maximum federal income tax rate of 20% for an individual.
The maximum capital gains tax rate for capital assets held by an individual for
more than twelve months but not more than eighteen months is generally 28%.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will treat a shareholder's loss on shares held
for six months or less as a long-term capital loss to the extent the shareholder
received capital gain dividends on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by a Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisors regarding specific questions relating to federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
SPECIAL TAX CONSIDERATIONS FOR TAX STRATEGIC
With respect to Tax Strategic, to the extent that the Fund distributes
exempt-interest dividends to a shareholder, interest on indebtedness incurred or
continued by such shareholder to purchase or carry shares of the Fund is not
deductible. Furthermore, entities or persons who are "substantial users" (or
related persons) of facilities financed by "private activity" bonds (some of
which were formerly referred to as "industrial development" bonds) should
consult their tax advisors before purchasing shares of Tax Strategic.
"Substantial user" is defined generally as including a "non-exempt person" who
regularly uses in its trade or business a part of a facility financed from the
proceeds of industrial development bonds.
The percentage of the total dividends paid by Tax Strategic with
respect to any taxable year that qualifies as exempt-interest dividends will be
the same for all shareholders of Tax Strategic receiving dividends with respect
to such year. If a shareholder receives an exempt-interest dividend with respect
to any share and such share has been held for six months or less, any loss on
the sale or exchange of such shares will be disallowed to the extent of the
exempt-interest dividend amount.
FINANCIAL INFORMATION
EXPENSES
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements" and "Purchase, Redemption and Pricing of Shares."
35
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C
Advisory Distribution Distribution Distribution Class B Class C
Fees Fees Fees Fees Service Fees Service Fees
1998 Fund Expenses
<S> <C> <C> <C> <C> <C> <C>
Foundation $16,156,433 $695,844 $6,237,105 $274,265 $2,079,035 $91,422
Tax Strategic $1,451,786 $94,260 $734,118 $95,227 $244,706 $31,743
American Retirement $1,350,506 $54,682 $870,882 $15,708 $290,294 $5,236
Balanced(d) $5,534,574 $611,968 $4,710,580 $907 $2,330,725 $303
1997 Fund Expenses
Expenses
Foundation(a) $3,246,270 $135,502 $1,113,659 $51,839 $371,220 $17,280
Tax Strategic(a) $143,945 $8,004 $62,195 $8,824 $20,732 $2,941
American Retirement(a) $255,438 $7,950 $124,370 $2,995 $41,475 $998
Balanced $1,170,691 $26,750 $205,485 $710 $68,495 $237
1996 Fund Expenses
Foundation $11,140,780 $414,289 $3,487,899 $152,488 $1,162,633 $50,829
Tax Strategic $354,958(b) $16,426 $131,282 $16,493 $43,761 $5,498
American Retirement $549,949(c) $14,426 $199,829 $5,713 $66,610 $1,904
Balanced $4,765,912 $107,023 $810,803 $1,883 $270,267 $628
</TABLE>
(a) Foundation, Tax Strategic and American Retirement changed their fiscal
year end from December 31 to March 31, effective March 31, 1997. The
expenses at March 31, 1997 reflect a 3 month period.
(b) Of that amount $90,551 was waived by the Advisor. (c) Of that
amount, $24,841 was waived by the Advisor.
(d) Balanced changed its fiscal year end from June 30 to March 31,
effective March 31, 1998. The expenses at March 31, 1998 reflect a nine
month period.
BROKERAGE COMMISSIONS PAID
The table below shows (1) total amounts paid by each Fund in brokerage
commissions and (2) brokerage commissions paid by each Fund to Lieber & Company,
an affiliate of FUNB, during each of the fiscal periods specified.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase aggregating less than $50,000 subject to
the schedule of sales charges set forth in the Class A prospectus at a price
based upon the NAV of each Fund's Class A shares as of March 31, 1998.
36
<PAGE>
Per Share Offering Price
Fund: Net Asset Value Sales Charge Per Share
Foundation $20.44 $1.02 $21.46
Tax Strategic $16.36 $0.82 $17.18
American Retirement $16.70 $0.83 $17.53
Balanced $12.87 $0.64 $13.51
PERFORMANCE
Total Return
Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. All dividends and
distributions are added to the initial investment, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of each period.
The average annual total returns for each class of shares of the Funds
(including applicable sales charges) as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Ten Years
or Since Inception
Fund/Class One Year Five Years Inception Date
Foundation
<S> <C> <C> <C> <C> <C>
Class A 27.52% -- 20.64% 01/03/95
Class B 27.81% -- 20.92% 01/03/95
Class C 31.81% -- 21.47% 01/03/95
Class Y 34.12% 15.72% 17.83% 01/02/90
Tax Strategic
Class A 18.49% -- 18.50% 01/17/95
Class B 18.44% -- 19.15% 01/06/95
Class C 22.49% -- 19.40% 03/03/95
Class Y 24.73% -- 16.86% 11/02/93
American Retirement
Class A 21.94% -- 18.07% 01/03/95
Class B 22.06% -- 18.32% 01/03/95
Class C 26.08% -- 18.97% 01/03/95
Class Y 28.34% 13.59% 12.25% 03/14/88
Balanced
Class A -- -- 2.28% 01/20/98
Class B 21.77% 13.24% 12.29% 09/11/35
Class C -- -- 5.58% 01/22/98
Class Y -- -- 7.79% 01/26/98
</TABLE>
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing a Fund's interest income (as defined in the SEC
37
<PAGE>
yield formula) for a given 30-day or one month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. The formula for calculating yield is as
follows:
YIELD = 2[(a-b/cd + 1)6-1]
Where a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period that were entitled to
receive dividends d = The maximum offering price per share on the last
day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rates of distributions the Fund paid over the same
period, or the net investment income reported in the Fund's financial
statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in a Fund's investment
portfolios, portfolio maturity, operating expenses and market conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of Foundation, Tax Strategic, American Retirement and
Balanced for the thirty-day period ended March 31, 1998 for each class of shares
offered by the Funds is set forth in the table below:
<TABLE>
<CAPTION>
Yield Tax-Equivalent Yield Yield Tax-Equivalent Yield
AMERICAN
FOUNDATION RETIREMENT
<S> <C> <C> <C> <C> <C>
Class A 1.83% N/A Class A 3.30% N/A
Class B 1.18% N/A Class B 2.72% N/A
Class C 1.18% N/A Class C 2.72% N/A
Class Y 2.17% N/A Class Y 3.71% N/A
TAX BALANCED
STRATEGIC
Class A 1.95% % Class A 2.76% N/A
Class B 1.31% % Class B 2.16% N/A
Class C 1.31% % Class C 2.16% N/A
Class Y 2.30% % Class Y 3.15% N/A
</TABLE>
Non-Standardized Performance
38
<PAGE>
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
General
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, or any other commonly quoted index of common stock prices.
The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average and the Russell 2000 Index are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Financial Statements
The audited financial statements and the reports thereon are hereby
incorporated by reference to each Fund's Annual Report, a copy of which may be
obtained without charge from ESC by calling toll-free 1-800-633-2700 or by
writing to ESC at P.O. Box 2121, Boston, Massachusetts 02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses or required by law, a
Fund reserves the right to change the terms of the offer stated in its
prospectuses without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in a Fund's
prospectuses, SAI or in supplemental sales literature issued by such Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
Each Fund's prospectuses and SAI omit certain information contained in
the Trust's Registration Statement, which you may obtain for a fee from the SEC
in Washington, D.C.
39
<PAGE>
APPENDIX A
S&P AND MOODY'S BOND RATINGS
S&P Bond Ratings
An S&P bond rating is a current assessment of the creditworthiness of
an obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default and capacity and willingness of the obligor to
make the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
S&P bond ratings are as follows:
a. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
b. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are
A-1
<PAGE>
outweighed by large uncertainties or major risk exposures to adverse conditions.
Moody's Bond Ratings
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative to a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
A-2
<PAGE>
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase
A-1 by S&P or Prime-1 by Moody's or F-1 by Fitch IBCA Inc. ("Fitch"). If not
rated, commercial paper will be issued by companies which have an outstanding
debt issue rated at the time of purchase Aaa, Aa or A by Moody's or AAA, AA or A
by S&P or Fitch, or will be determined by a Fund's investment advisor to be of
comparable quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions as to the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of Prime-1 issuers is normally evidenced by the
following characteristics:
a) leading market positions in well-established industries;
b) high rates of return on funds employed;
c) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
d) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
e) well established access to a range of financial markets and
assured sources of alternate liquidity.
A-3
<PAGE>
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
C. Fitch Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned to this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
D: Default. Issues assigned to this rating are in actual or imminent
payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
A-4
<PAGE>
Evergreen
Balanced
Funds
March 31, 1998
Annual Report
(picture of two businessmen shaking
hands)
(Evergreen Funds(SM) logo appears here)
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ......................... 1
Evergreen American Retirement Fund
Fund at a Glance ............................ 2
Portfolio Manager Interview ................. 3
Evergreen Balanced Fund
Fund at a Glance ............................ 6
Portfolio Manager Interview ................. 7
Evergreen Foundation Fund
Fund at a Glance ............................ 10
Portfolio Manager Interview ................. 11
Evergreen Tax Strategic Foundation
Fund
Fund at a Glance ............................ 14
Portfolio Manager Interview ................. 15
</TABLE>
<TABLE>
<S> <C>
Financial Highlights
Evergreen American Retirement Fund .......... 18
Evergreen Balanced Fund ..................... 21
Evergreen Foundation Fund ................... 24
Evergreen Tax Strategic Foundation Fund ..... 27
Schedules of Investments
Evergreen American Retirement Fund .......... 29
Evergreen Balanced Fund ..................... 34
Evergreen Foundation Fund ................... 40
Evergreen Tax Strategic Foundation Fund ..... 45
Statements of Assets and Liabilities ........... 52
Statements of Operations ....................... 53
Statements of Changes in Net Assets ............ 54
Combined Notes to Financial
Statements .................................... 57
Independent Auditors' Report:
KPMG Peat Marwick LLP ....................... 65
Additional Information ......................... 66
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 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 annual 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.
<TABLE>
<S> <C>
Mutual Funds: 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
May 1998
Dear Shareholders:
(picture of Wiiliam M. Ennis The Evergreen Balanced Funds enjoyed an
appears here) exceptional year during the 12-month period
that ended on March 31, 1998, each
delivering healthy returns, consistent with
the goals and strategies of each portfolio.
Each fund has been designed for a specific
William M. Ennis investor need, with its own distinct
Managing Director strategy and risk profile.
Over the full 12 months, the funds and the financial markets weathered some
significant short-term volatility, including the onset of a currency and
financial crisis in Asia that contributed to a significant stock market
correction in October 1997. Over the full 12 months, however, both the domestic
stock and bond markets overcame short-term worries to post exceptional returns.
The Standard & Poor's 500 Index had a return of 48% for the 12 months. Bonds
also had above-average performance, although certainly not as spectacular as
the stock market. To illustrate, the Lehman Aggregate Bond Index had a return
of 11.99% for the 12 months.
Balanced Strategies
It is not common for both the stock and bond markets to post strong relative
returns at the same time. For that reason, the Evergreen Balanced Funds were
designed to have the ability to take advantage of different
investment opportunities and to reduce overall portfolio risk by pursuing
diversified strategies.
We believe these balanced strategies have a place in the portfolios of most
investors, particularly for the longer-term investor who plans to follow a
consistent, diversified strategy through the ups and downs of market cycles.
Evergreen Funds
At Evergreen Funds, we are committed to providing a broad 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.
If you have any questions about the Evergreen Balanced Funds or other Evergreen
Funds, we encourage you to consult your financial advisor or call us at
800-343-2898.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
EVERGREEN
American Retirement Fund
Fund at a Glance as of March 31, 1998
We manage the Fund to participate in the growth opportunities in the stock
market, while seeking to protect investors' principal and avoid taking too much
risk.
Portfolio
Management
- ----------------------------------------
(Photo of Irene D. O'Neill)
Irene D. O'Neill, CFA
Tenure: March 1988
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as
here) of 3/31/98.
(Graphic appears The Equity Style Box placement is based on a fund's
here) 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.
The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average
credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/3/95 1/3/95 1/3/95 3/14/88
Average Annual Returns
One year with sales charge 21.94% 22.06% 26.08% n/a
One year w/o sales charge 28.02% 27.06% 27.08% 28.34%
3 years 17.39% 17.68% 18.42% 19.51%
5 years - - - 13.59%
10 years - - - 12.25%
Since Inception 18.07% 18.32% 18.97% 12.18%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 3.30% 2.72% 2.72% 3.71%
12-month income dividends
per share $ 0.48 $ 0.36 $ 0.36 $ 0.52
12-month capital gain
distributions per share $ 0.34 $ 0.34 $ 0.34 $ 0.34
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Chart appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 9,525 10,099 11,362 12,294 12,740 13,390 15,903 17,140
Consumer Price
Index (CPI) 10,000 10,113 10,234 10,389 10,541 10,688 10,768 10,835
Lehman Brothers
Government/Corporate
Bond Index 10,000 10,498 11,393 11,645 11,906 12,164 13,048 13,673
Wilshire 5000 10,000 10,906 13,014 14,415 15,476 16,651 21,362 26,405
</TABLE>
Comparison of a $10,000 investment in Evergreen American Retirement Fund, Class
A shares, versus a similar investment in the Wilshire 5000 Index, the Lehman
Brothers Government/Corporate Bond 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 Wilshire 5000 Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices. These indices do not
include transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
March 31, 1998.
2
<PAGE>
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
year?
The Fund had very good performance. For the 12 months ended March 31,
1998, the Fund's Class A shares had a total return of 28.02%, while B and
C shares had returns of 27.06% and 27.08%, respectively. The Fund's Class
Y shares had a total return of 28.34% for the 12 months. These returns are
unadjusted for any applicable
sales charges.
Portfolio Characteristics
Total Net Assets $233,819,342
Number of Holdings 184
Beta 0.48
P/E Ratio 16.5x
- --------------------------------------------------------------------------------
What was the investment environment like during the 12 months, and how did
that affect strategy?
Clearly, over the 12-month period, we had strong markets in both stocks
and bonds. The Asian financial and currency crisis caused a great deal of
turmoil in the stock market during the fourth quarter of 1997. After the
end of the year, however, the tone of the market changed and the growth
stocks that had led the market for most of 1997 took over again. In
general, the large-capitalization, low-yielding stocks of companies like
General Electric, IBM and the growth stocks selling at high multiples of
earnings outperformed the value stocks on which we focus.
We remained true to our long-term strategy, emphasizing the stocks of
undervalued, higher-yielding companies as well as convertible preferred
stocks and bonds. The fixed-income strategy focuses on high quality issues
that add stability to the portfolio. We manage the Fund to participate in
the growth opportunities in the stock market, while seeking to protect
investors' principal and avoid taking too much risk.
At the end of the fiscal year on March 31, 1998, 44% of the Fund's assets
were invested in common stocks, 27.2% in convertible securities, and 26.8%
in bonds, with the remainder in cash.
- --------------------------------------------------------------------------------
ASSET ALLOCATION AS OF MARCH 31, 1998
(Pie chart appears with the following values.)
Common Stocks--44.0%
Fixed Income--26.8%
Convertible Preferred Stocks--16.7%
Convertible Debentures--10.5%
Cash/Cash Equivalents--2.0%
- --------------------------------------------------------------------------------
What were your primary strategies during
the year?
We continued to invest in convertible securities as a way to participate
in growth opportunities while also receiving income and reducing overall
volatility. In particular, we invested in a number of companies that
issued convertible stocks or bonds as a means of raising capital to make
acquisitions to drive stronger earnings growth. Four investments that
illustrate this emphasis are: Ingersoll Rand, a heavy equipment
manufacturer; Pioneer Standard, a distributor of electronics and computer
equipment; EVI, a company involved in oil field services; and Family Golf
Centers, an operator of golf driving ranges.
We also invested in the common stocks of a number of companies that were
attempting to increase their earnings growth through restructurings. These
included J.C. Penney, the retailer; Echlin and Dana, two auto
3
<PAGE>
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
parts companies; Stride Rite, a shoe company; and Union Pacific, the
railroad company. These were all companies that recognized the need to
improve their rate of earnings growth and are taking action to
achieve it.
Top 10 Equity Holdings
(as a percentage of net assets)
Central Garden & Pet Co. 1.4%
Family Golf Centers, Inc. 1.3%
Nabors Industries, Inc. 1.2%
Proffits, Inc. 1.1%
Pioneer Standard Financial Trust 1.1%
Carpenter Technology Corp. 1.0%
Shared Medical System Corp. 1.0%
Thomas & Betts Corp. 1.0%
Houston Industries, Inc. 1.0%
Equitable Companies, Inc. 0.9%
- --------------------------------------------------------------------------------
What was the best performing industry
for the Fund during the year?
Four industries stood out: broadcasting and entertainment; banks and
thrifts; healthcare; and retailing. The best performing group was
broadcasting and entertainment, particularly the stocks of radio and cable
television companies. In most cases, we owned the convertible security,
rather than the common stock. The best performing investment for the Fund,
however, was the common stock of Chancellor Media, a company that owns a
group of radio stations. This stock, which was originally purchased as a
convertible, was up 212.9% during the year. The entire group of radio
company stocks performed very well, benefiting from stable audience trends
and robust pricing power. Consolidation of station ownership has reduced
competition, thereby driving strong revenue and cash flow growth of the
stations.
In the same industry category, we owned the convertible securities of a
number of cable television companies, which performed well. Investors are
expecting these companies to enjoy faster revenue growth by offering
digital cable TV with expanded channel offerings and by raising prices.
These companies are also beginning to offer interactive services, such as
Internet access, which will drive future growth.
Industry Allocation-Equity
Banks 7.5%
Utilities - Electric 5.8%
Finance & Insurance 5.5%
Oil Field Services 5.1%
Publishing, Broadcasting & Entertainment 4.4%
- --------------------------------------------------------------------------------
What was responsible for the good
performance of banks and thrifts,
healthcare and retailing companies?
In banks and thrifts, we emphasized regional institutions benefiting from
a growing economy coupled with low inflation. These factors, combined with
low interest rates are supporting earnings for the industry by reducing
credit quality problems. These companies should continue to have good
earnings growth, reflecting improvements in their operational efficiencies
and modest loan growth. Stock prices of banks and thrifts also have been
rising because ongoing consolidation of the industry has been driving
valuations higher.
The healthcare industry also enjoyed double-digit sales and earnings
growth. Pharmaceutical stocks in particular performed very well, although
the best-performing stock within the group was Shared Medical Systems,
which provides information systems for hospitals and large healthcare
networks. This company is experiencing strong growth as healthcare
providers seek ways to cope with the pressures of managed care by reducing
costs.
The retailing industry was supported by strong gains in the disposable
income of consumers. Two companies in particular drove the performance of
this group:
J.C. Penney, the national department store chain; and
4
<PAGE>
EVERGREEN
American Retirement Fund
Portfolio Manager Interview
Proffitt's, a regional department store chain that is growing through
acquisitions.
It is interesting to note that all four of these industries - broadcasting
and entertainment, banks and thrifts, healthcare and retailing - were
relatively untouched by the market uncertainty brought on by the Asian
crisis.
Industry Allocation-Bonds
Government Agency Notes & Bonds 24.4%
Finance & Insurance 0.9%
Treasury Notes & Bonds 0.7%
Banks 0.4%
Telecommunication Services & Equipment 0.4%
- --------------------------------------------------------------------------------
Were there any disappointing areas?
The weakest area was energy, which we still believe has good long-term
prospects. The performance of this group was directly tied to the price of
crude oil, which started declining in the fall of 1997. The performance of
the entire energy industry was influenced by fear of expanding energy
supplies from OPEC combined with weaker energy demand caused by the Asian
crisis, and the mild winter in the United States related to the El Nino
effect.
We are optimistic, however, that energy prices will recover. Weather
effects are never permanent. Globally, demand for energy is growing at
about 2% a year and this should continue. As emerging economies work
through their current problems, demand will start increasing again. We
think that energy is one of the more undervalued areas in the stock market
today.
- --------------------------------------------------------------------------------
How is the fixed income portion of the
portfolio invested?
We continue to emphasize very high credit quality, with the great majority
of the bonds in U.S. government or agency securities. The average credit
quality is AAA. We also have kept average maturity relatively short. We
manage the fixed income portfolio to seek healthy yields while trying to
reduce the overall volatility of the portfolio by maintaining high credit
quality and short maturities.
Top 5 Bond Holdings
(as a percentage of net assets)
Federal National Mortgage Association 10.1%
Federal Home Loan Bank 9.4%
Federal Home Loan Mortgage Corp. 3.9%
U.S. Treasury Bond 0.7%
American General Finance Corp. 0.4%
- --------------------------------------------------------------------------------
What is your outlook?
We will continue to look for undervalued situations and good investment
opportunities we believe haven't been recognized by the market. The Fund
is managed conservatively, emphasizing companies with relatively higher
yields so that no matter what the market condition, the Fund will continue
to seek the stability we think shareholders expect.
5
<PAGE>
EVERGREEN
Balanced Fund
Fund at a Glance as of March 31, 1998
In the equity portion of the portfolio, we have emphasized large-
capitalization, dividend-paying stocks, consistent with our long-term strategy.
In the fixed income portion of the portfolio, we emphasized higher quality
bonds.
Portfolio
Management
----------------------------------------
(Photo of Walter McCormick)
Walter McCormick, CFA
Tenure: January 1984
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as
here) of 3/31/98.
(Graphic appears The Equity Style Box placement is based on a fund's
here) 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.
The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average
credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A** Class B Class C** Class Y**
<S> <C> <C> <C> <C>
Inception Date 1/20/98 9/11/35 1/22/98 1/26/98
Average Annual Returns
One year with sales charge - 21.77% - -
One year w/o sales charge - 26.77% - -
3 years - 19.91% - -
5 years - 13.24% - -
10 years - 12.29% - -
Since Inception 2.28% 8.55% 5.58% 7.79%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC yield 2.76% 2.16% 2.16% 3.15%
12-month income dividends
per share $ 0.12 $ 0.34 $ 0.09 $ 0.09
12-month capital gain
distributions per share $ 0.26 $ 1.59 $ 0.26 -
</TABLE>
*Adjusted for maximum sales charge.
**The Fund's Class A, C, and Y shares have new inception dates due to the
reorganization of the Keystone Balanced Fund and the Evergreen Balanced Fund
in January 1998.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Graph appears here. See the table below for the plot points.)
<TABLE>
<CAPTION>
3/88 3/90 3/92 3/94 3/96 3/98
<S> <C> <C> <C> <C> <C> <C>
Class B Shares 10,000 12,478 15,255 17,045 22,292 31,862
Consumer Price
Index (CPI) 10,000 11,047 11,957 12,635 13,350 13,923
Lehman Brothers
Government/Corporate
Bond Index 10,000 11,729 14,696 17,263 20,025 23,511
S&P 500 10,000 14,091 17,903 20,933 31,957 56,672
</TABLE>
Comparison of a $10,000 investment in Evergreen Balanced Fund, Class A shares,
versus a similar investment in the S & P 500 Index, the Lehman Brothers
Government/Corporate Bond 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 and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices. These indices do not
include transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
March 31, 1998.
6
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
The Fund had a good year. For the 12 months ended March 31, 1998, the
Fund's Class B shares had a total return of 26.77%, unadjusted for any
sales charges. This is a healthy return, especially considering the
conservative nature of the Fund. The Fund's assets grew by $214,923,155
with the merger between the former Keystone Balanced Fund and the
Evergreen Balanced Fund on January 23, 1998.
Portfolio Characteristics
-------------------------
Total Net Assets $1,897,153,741
Number of Holdings 741
Beta 0.66
P/E Ratio 21.0x
- --------------------------------------------------------------------------------
How would you describe the investment
environment during the 12 months?
It was a spectacular year, especially for the stock market. The underlying
conditions were good corporate earnings with low and declining inflation
and interest rates. The markets also were supported by strong cash flows
into mutual funds and institutional portfolios from investors who saw the
best relative returns coming from financial assets.
Within the equity market, the large-company stocks the Fund emphasizes
were the market leaders. The healthcare and financial sectors were
particularly strong contributors to market performance, as were individual
dominant companies such as General Electric, Proctor
& Gamble and Microsoft.
Within the bond market, longer-maturity bonds tended to outperform
shorter-maturity bonds as long-term rates declined substantially. The
yield on the 30-year Treasury bond, for example, declined from 7.07% to
5.93% during the 12 months. Corporate bonds also turned in solid
performance, supported by the same factors that helped the
stock market.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears here with the following values.)
Common Stock--56.3%
Corporate Notes/Bonds--18.2%
Mortgage-Backed Securities--7.8%
Asset-Backed Securities--5.2%
Foreign Bonds--5.1%
Convertibles--3.9%
Government Agency/Notes Bonds--2.0%
Cash/Short-Term Investments--1.5%
- --------------------------------------------------------------------------------
What were your primary strategies during
the 12 months?
Throughout the fiscal year, we kept a consistent asset allocation target
of 60% stocks and 40% bonds. At the close of the year, stocks comprised
60.2% of net assets, bonds accounted for 38.3% of net assets, with the
remaining 1.5% in cash and cash equivalents.
In the equity portion of the portfolio, we have emphasized
large-capitalization, dividend-paying stocks, consistent with our
long-term strategy. In the fixed income portion of the portfolio, we
emphasized higher quality bonds.
7
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
Top 10 Equity Holdings
(as a percentage of net assets)
General Electric Co. 3.9%
Johnson & Johnson 2.5%
Pfizer, Inc. 1.7%
BankBoston Corp. 1.6%
American Home Products Corp. 1.5%
Merck & Co., Inc. 1.4%
Mobil Corp. 1.3%
Philip Morris Companies, Inc. 1.3%
Fleet Financial Group, Inc. 1.2%
Atlantic Richfield Co. 1.2%
Industry Allocation-Equity
Healthcare Products & Services 11.6%
Banks/Finance & Insurance 10.6%
Oil/Energy 6.2%
Electrical Equipment & Services 4.5%
Chemical & Agricultural Products 3.7%
Consumer Products & Services 3.6%
- --------------------------------------------------------------------------------
What industries did you emphasize in
equities?
During the year, our largest concentrations were in healthcare and finance
stocks. Both these sectors performed very well for the Fund, as did the
Fund's largest holding, General Electric, which had another terrific year,
substantially outperforming the market.
Healthcare stocks accounted for 11.6% of the portfolio at the end of the
fiscal year, while Banks and Finance stocks accounted for 10.6%.
Pharmaceutical companies are benefiting from strong secular trends as the
aging population increases the demand for drugs. In addition, a strong
flow of important new drugs continues to move into the market. Four of the
top 10 holdings in the Fund at the end of the year were pharmaceutical
companies: Johnson & Johnson, Pfizer, American Home Products and Merck &
Co.
The finance sector was helped by the strong performance of the capital
markets, the combination of the healthy economy, declining interest rates
and industry consolidation. The two finance stocks among the top 10
holdings, BankBoston Corp., and Fleet Financial Group, both are potential
candidates for acquisitions.
The largest disappointment among the top ten stock holdings was Philip
Morris, whose performance has been hurt by the continuing uncertainty and
controversy over the proposed tobacco settlement.
Energy stocks also did not do as well as the overall market during the
year, as the price of crude oil has declined from the relatively high
levels of a year ago. Over the longer term, we think the price of crude
will migrate somewhat higher. We have representation in this industry
because of its relative stability, the dividend income and the
consideration that energy stocks can serve as a potential hedge against
inflation.
Top 5 Bond Holdings
(as a percentage of net assets)
Federal National Mortgage Association 2.9%
Realkredit Danmark 1.5%
Nykredit 1.4%
U.S. Treasury Bonds 0.9%
Green Tree Financial Corp. 0.6%
Industry Allocation-Bonds
Finance & Insurance 7.3%
Asset-Backed Securities 5.2%
Collateralized Mortgage Obligations 5.2%
Mortgage Pass-Through Certificates 2.7%
Oil/Energy 1.2%
8
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What was the principal strategy in the
Fund's bond portfolio?
The bond portion of the portfolio is managed by
Christopher Conkey, Senior Vice President and Chief Investment Officer,
Fixed Income. In bonds, the Fund continued to concentrate on relatively
high credit quality. We actively manage the bond portfolio in terms of
maturity and duration. The primary purpose of the
bond portion of the portfolio is to produce income for the Fund.
At the end of the fiscal year, the average credit quality of bonds
remained at AA. Maturities were gradually lengthened during the year to
take advantage of the declining interest rate environment. On March 31,
the average weighted maturity of the bond portion of the portfolio was
10.6 years.
- --------------------------------------------------------------------------------
What is your outlook?
We remain optimistic as long as conditions continue in the current
favorable balance of low inflation, low interest rates and strong
corporate balance sheets and earnings. We think growth in the first half
of the year may be somewhat slower than occurred in the first half of
1997, influenced by lower energy profits. We believe the outlook for the
second half of 1998 looks stronger. We would not be surprised, however, if
some consolidation or market correction were to occur. In fact, we would
welcome it as a way to vent whatever steam has been building in the
market.
Right now, we think the domestic economy is strong enough to contain any
problems from the Asian financial crisis. This crisis has had its greatest
effect on industrial, commodity and technology industries. Over time,
however, we think these industries will overcome the challenges. The
biggest risk to the markets would be if all the economies of the world
were to move together into a period of strong growth. This could lead to
inflationary pressures, which would force the Federal Reserve to respond
by increasing short-term interest rates. We don't see signs of this
happening at this time, however.
This is the most positive environment I've seen in the market in 28 years
of investing professionally. While one might be tempted to be overly
concerned about the strong recent performance and the high stock valuation
levels, the current confluence of positive factors shows no sign of
reversing any time soon. It's steady as she goes.
9
<PAGE>
EVERGREEN
Foundation Fund
Fund at a Glance as of March 31, 1998
Mergers and acquisitions once again yielded significant capital appreciation,
reflecting the fact that we had bought shares for the Fund, which other
companies considered to be undervalued.
Portfolio
Management
----------------------------------------
(Photo of Stephen A. Lieber)
Stephen A. Lieber
Tenure: January 1990
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as
here) of 3/31/98.
(Graphic appears The Equity Style Box placement is based on a fund's
here) 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.
The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average
credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/3/95 1/3/95 1/3/95 1/2/90
Average Annual Returns
One year with sales charge 27.52% 27.81% 31.81% n/a
One year w/o sales charge 33.88% 32.81% 32.81% 34.12%
3 years 19.80% 20.15% 20.83% 22.03%
5 years - - - 15.72%
10 years - - - -
Since Inception 20.64% 20.92% 21.47% 17.83%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 1.83% 1.18% 1.18% 2.17%
12-month income dividends
per share $ 0.44 $ 0.31 $ 0.31 $ 0.49
12-month capital gain
distributions per share $ 0.43 $ 0.43 $ 0.43 $ 0.43
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Chart appears here. See the table below for the plot points.)
<TABLE>
<CAPTION>
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 9,525 10,180 11,742 12,166 12,761 13,727 16,608 18,379
Consumer Price
Index (CPI) 10,000 10,113 10,234 10,389 10,541 10,688 10,768 10,835
Lipper Balanced Funds
Average 10,000 10,632 12,042 12,893 13,573 14,305 16,901 18,459
S&P 500 10,000 10,974 12,977 14,496 15,615 17,370 21,931 25,707
</TABLE>
Comparison of a $10,000 investment in Evergreen Foundation Fund, Class A
shares, versus a similar investment in the S & P 500 Index, the Lipper Balanced
Funds Average, 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 and the Lipper Balanced Funds
Average are unmanaged indices. These indices do not include transaction costs
associated with buying and selling securities
nor any management fees. The Consumer Price Index, a measure of inflation, is
through March 31, 1998.
10
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform for the year?
The Foundation Fund had another very strong year. For the twelve month
fiscal period that ended on March 31, 1998, the Fund's original Class Y
shares had a total return of 34.12%. During the same year, the Class A
shares had a total return of 33.88%, while the B and C Classes each had
returns of 32.81%, unadjusted for any sales charges. This brings the
Foundation Fund's cumulative annual returns since inception in 1990 to
287.06%, equal to 17.83% per annum compounded (Class Y).
Portfolio Characteristics
Total Net Assets $2,641,227,612
Number of Holdings 295
Beta 0.66
P/E Ratio 18.5x
- --------------------------------------------------------------------------------
How would you describe the basic investment strategy of the Foundation
Fund?
The Foundation Fund is intended to provide both investment risk reduction
and the opportunity for capital appreciation which together make for the
foundation of an investment portfolio. Assets are allocated between fixed
income, equities, and cash equivalents in varying amounts intending to
provide both opportunity for gain and risk avoidance. The fixed income
portion is invested exclusively in United States government obligations
with the goal of achieving both consistent and secure returns, as well as
capital appreciation from the appropriate positioning in interest rate
cycles. Stocks are bought for the Fund with the intention of achieving
capital growth through the careful purchase and holding of securities
believed to be undervalued, as compared with both their own potentials and
the general level of the market. With a risk avoidance focus, the equities
are principally held in companies with large market capitalizations and
high liquidity.
We believe this investment strategy has provided strong returns. For the
twelve months ended on March 31, 1998, the equity portion of the portfolio
had a return of 48.4%. Since inception of the Fund in January 1990, the
equity performance of the portfolio has surpassed the return of the S & P
500 in each year.
The fixed income portion of the portfolio provided a return of 19.9% for
the twelve months ended March 31, 1998. The emphasis has been on longer
maturity bonds, which have provided above-average returns both in
terms of current yield and in capital appreciation.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears here with the following values.)
Common Stock--60.8%
Treasury Notes/Bonds--25.7%
Government Agency Notes/Bonds--0.8%
Convertibles--0.8%
Short-Term--11.3%
Cash, other--0.6%
- --------------------------------------------------------------------------------
How do you manage the asset allocation
between stocks and bonds?
In the effort to achieve maximum opportunity and reduced risk, a principle
approach is asset allocation - having the Fund's portfolio concentrate in
the right areas at the right time. Asset allocation is not static, it
reflects a constant evaluation of the economic outlook in the effort to
have the Fund benefit from anticipated trends. Illustratively, when the
stock market was under severe pressure after the invasion of Kuwait in
1990, we perceived an excellent opportunity for the purchase of
11
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
stocks on an undervalued basis. The allocation to equities then rose to
more than 80% of the portfolio. Recently, equities have been in the range
of just over 60% of the portfolio. A cash equivalent reserve of plus or
minus 10% was held during the latter part of the recent fiscal year in
order to be able to take advantage of volatility in the market, either
overall market declines, or temporary under-valuations of specific stocks
or sectors of the market.
Industry Allocation-Equity
Finance & Insurance 9.1%
Banks 7.7%
Information Services & Technology 6.3%
Real Estate 6.2%
Healthcare Products & Services 6.0%
Industry Allocation-Bonds
Treasury Notes & Bonds 25.7%
Government Agency Notes & Bonds 0.8%
- --------------------------------------------------------------------------------
What were some of the top performing
investments of the year?
The top spot went to Lennar Corp., which returned 212.9% during the fiscal
year. That position was established through the purchase of Pacific
Greystone Corp., a California home-builder which was acquired by Lennar
Corp. during the year. The next best performer was another home-building
corporation, Continental Homes Holding Corp., which returned 178.8% for
the fiscal year. It, in turn, had an acquisition bid from D.R. Horton,
Inc. Lucent Technologies, Inc. provided a return of 141.3% during the
year. It was originally a spin-off from American Telephone and Telegraph
Co. Healthcare related companies were major contributors: Guidant Corp.,
+137.8%, Pfizer, Inc., +137.7%, and Schering-Plough Corp., +123.6%. Others
among the top ten performers were Trinity Industries, Inc., +127.0%,
Computer Associates International, Inc., +122.1%, and First of America
Bank Corp., +116.5%.
- --------------------------------------------------------------------------------
Did corporate consolidations continue
to be a theme?
Mergers and acquisitions once again yielded significant capital
appreciation, reflecting the fact that we had bought shares for the Fund,
which other companies considered to be undervalued. During the fiscal
year, twenty-four Foundation Fund holdings received merger or acquisition
offers, or completed previously announced offers. The average return to
the end of the fiscal year on completed acquisitions was 67.57%. The
largest single gain was in the shares of First of America Bank Corp.,
which provided a gain of 215.1% from purchase to the receipt of its
acquisition bid. Other banks or thrifts acquired, or with transactions
pending at the end of the fiscal year included: Barnett Banks, Inc.,
+160.6%, Central Fidelity Banks, Inc., +158.9%, and Standard Federal
Bancorporation, Inc., +38.8%. While banks were the largest group among
these merger and acquisition issues, the variety of companies bid for was
quite large, including: Conrail, Inc., to PHH Corp., Living Centers of
America, Inc., Reading & Bates Corp., Wyle Electronics, Columbus Realty
Trust, Arbor Property Trust, Interstate Hotels Co., and 360- Communications
Co.
Top 10 Equity Holdings
(as a percentage of net assets)
Intel Corp. 2.4%
Federal National Mortgage Association 1.7%
General Electric Co. 1.7%
BankBoston Corp. 1.6%
Du Pont (E.I.) De Nemours & Co. 1.5%
Hewlett-Packard Co. 1.3%
Microsoft Corp. 1.2%
Merrill Lynch & Co., Inc. 1.0%
First of America Bank Corp. 1.0%
Marsh & Mclennan Co., Inc. 0.9%
12
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What significant recent acquisitions has
the Fund made?
The Fund has been an active buyer of a broad variety of issues. Reflecting
the underlying investment strategy, many commitments were made in recent
months during periods of investor apprehension either about sectors of the
market, industries, or companies. Illustratively, when the financial
difficulties of the Asian nations became a negative preoccupation of the
market, many companies directly involved in Asian commerce or perceived to
be potentially impacted saw their shares rapidly sold down. The Fund made
new commitments, or added to commitments, in a number of these companies
where we saw the market as over-emphasizing the negative and ignoring
significant growth potential. Among the issues purchased which have
subsequently shown substantial capital gains were AFLAC, Inc. (the largest
seller of cancer insurance in Japan), American International Group, Inc.
(the largest American-based company in Asian insurance activities in
Asia), Avon Products, Inc. (with substantial Asian sales), and United
Technologies Corp. (active in Asia through both the Otis and Carrier
Divisions, as well as provider of aircraft engines). By the end of the
fiscal year, these recent purchases had provided significant gains ranging
from 17% in Avon Products, Inc., to 38% in United Technologies Corp.
The same principle of the search for undervaluation due to temporary
adversities was also a factor in the Fund's purchase of major additions to
its position in Union Pacific Corp., where the railroad has been
handicapped by traffic congestion as a consequence of its integration of
the recently acquired Southern Pacific Rail Corp.
Top Bond Holdings
(as a percentage of net assets)
U.S. Treasury Bonds, Various
Coupon/Maturity 24.4%
Tennessee Valley Authority,
Various Coupon/Maturity 0.7%
Federal National Mortgage Assn. 0.1%
- --------------------------------------------------------------------------------
What is your outlook?
At the beginning of the new fiscal year, the Fund is positioned for an
outlook of sustained growth in the United States, with still minimal
inflation.
We anticipate that world commodity and manufactured goods conditions will
continue to be highly competitive, and that this will tend to restrict
price increases. This should be an environment which will continue to
support a strong bond market, particularly as the real interest rate
return remains at historically high levels, and the perception is that the
U.S. Federal Reserve will remain watchful over the need to act in a
restrictive fashion if the economy accelerates too rapidly. This should be
an environment where equity markets find particular support from increased
savings. Great investment opportunities will emerge from those
corporations which generate exceptional profits. The goal of our
investment management is to concentrate on the search for an investment in
exceptional performance among equities.
13
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Fund at a Glance as of March 31, 1998
The Fund's equity holdings powered the performance, as evidenced by the 51.0%
return of the equity portfolio.
Portfolio
Management
----------------------------------------
(Photo of Stephen A. Lieber)
Stephen A. Lieber
Tenure: November 1993
(Photo of James Colby III)
James Colby III
Tenure: November 1993
-------------------------------------------------------
CURRENT INVESTMENT STYLE
(Graphic appears Morningstar's Style Box is based on a portfolio date as
here) of 3/31/98.
(Graphic appears The Equity Style Box placement is based on a fund's
here) 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.
The Fixed-Income Style Box placement is based on a fund's
average effective maturity or duration and the average
credit rating of the bond portfolio.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 1/17/95 1/6/95 3/3/95 11/2/93
Average Annual Returns
One year with sales charge 18.49% 18.44% 22.49% n/a
One year w/o sales charge 24.40% 23.44% 23.49% 24.73%
3 years 18.43% 18.83% 19.49% 20.71%
Since Inception 18.50% 19.15% 19.40% 16.86%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 1.95% 1.31% 1.31% 2.30%
12-month income dividends
per share $ 0.30 $ 0.20 $ 0.20 $ 0.36
12-month capital gain
distributions per share $ 0.18 $ 0.18 $ 0.18 $ 0.18
</TABLE>
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
(Chart appears here. See the table below for the plot points.)
<TABLE>
<CAPTION>
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 9,525 9,880 11,322 11,968 12,964 13,853 16,046 17,222
Consumer Price
Index (CPI) 10,000 10,113 10,234 10,389 10,541 10,688 10,768 10,835
Lehman Brothers Municipal
Bond Index 10,000 10,707 11,280 11,604 11,961 12,237 13,040 13,547
S&P 500 10,000 10,974 12,977 14,496 15,615 17,370 21,931 25,707
</TABLE>
Comparison of a $10,000 investment in Evergreen Tax Strategic Foundation Fund,
Class A shares, versus a similar investment in the S&P 500 Index, the Lehman
Brothers Municipal Bond 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 and the Lehman Brothers Municipal
Bond Index are unmanaged indices. These indices do not include transaction
costs associated with buying and selling securities nor any management fees.
The Consumer Price Index, a measure of inflation, is through March 31, 1998.
14
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform during the
fiscal year?
The Fund performed very well in achieving its primary objective of growth
with minimal taxable income or gains for shareholders. During the twelve
month period ended March 31, 1998, the Fund's original Class Y shares had
a total return of 24.73%. During the same period, the A share class had a
return of 24.32%, while the B and C share classes had returns of 23.44%
and 23.49%, respectively. These returns are unadjusted for any sales
charges. Since inception of the Fund on November 2, 1993, the original
Class Y shares had a compound annualized return of 16.86%.
Portfolio Characteristics
Total Net Assets $302,501,240
Number of Holdings 278
Beta 0.34
P/E Ratio 16.9x
- --------------------------------------------------------------------------------
The Evergreen Tax Strategic Foundation Fund has a very distinct objective
and strategy. How do you describe it?
The Fund is an outgrowth of the Evergreen Foundation Fund. We came to
realize that many investors in the Foundation Fund were tax averse, and
yet were in a Fund which was producing sizable taxable income and taxable
gains. We decided we could help meet the needs of these investors by
developing a Fund that would seek to produce the combination of defensive
and growth characteristics of the Foundation Fund in a tax efficient
manner; using tax exempt bonds and equities in the tax efficient portfolio
strategy. Up until the Tax Strategic Foundation Fund's founding in 1993,
there were no balanced funds using tax exempt bonds, and there were
virtually no equity funds with a tax efficient management strategy.
We developed this Fund with the goal of providing tax-exempt income and
aiming for long-term capital appreciation, while managing the portfolio to
reduce current taxable income and capital gains. We use a variety of
selection techniques, especially including investment in companies whose
policy is to use retained earnings to buy back stock in preference to
paying out taxable dividends.
The overall stock selection criteria are similar to those of the
Foundation Fund - the search for growth opportunities which are
comparatively undervalued. During the fiscal year, the Fund's equity
portfolio achieved a total return of 51.0%.
In the Fund's fixed income allocation, we emphasize highest quality bonds,
as we do in the Foundation Fund, aiming to avoid credit risk and to focus
on achieving the best combination of income and capital appreciation by
correct positioning within the interest rate cycles. The entire fixed
income portfolio is of the highest grade, either insured or AAA rated.
During the fiscal year, the Fund's fixed income portfolio had a return of
10.8%.
We also manage the Fund with a strategy aimed at reducing taxable income
through appropriate transactions. For example, in 1994, when there were
substantial losses in the bond market, and substantial gains by the Fund in
the stock market, we followed a policy of realizing bond losses and
repurchasing different issues or maturities of the same quality to offset
the gains the Fund earned in the stock market.
--------------------------------------------------------------------
PORTFOLIO COMPOSITION
(as a percentage of net assets)
(Pie chart appears here with the following values.)
Long-term Municipal Bonds--52.2%
Common Stock--39.8%
Short-Term Municipal Obligations & Cash Equivalents--6.7%
Convertibles--1.3%
15
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What contributed to the strong
performance during the past fiscal year?
The equity holdings powered the performance, as evidenced by the 51.0%
return of the equity portion. A diverse list of holdings provided these
substantial returns. The one industry with the most impact was financial
services, where eight of the top fifteen performers in the portfolio were
involved in financial services. These included: First of America Bank
Corp. (+116.5%), Countrywide Credit Industries, Inc. (+115.9%), Dime
Bancorp, Inc. (+101.5%), FBL Financial Group, Inc. Class A (+94.3%), FPIC
Insurance Group, Inc. (+88.2%), Comerica, Inc. (+86.9%), Legg Mason, Inc.
(+86.9%), and NationsBank Corp. (+85.6%).
Among the diverse industry holdings, the top performers were: Continental
Homes Holding Corp. (+175.7%), Lucent Technologies Inc. (+141.3%),
MacDermid, Inc. (+131.3%), Furon Co. (+120.9%), Cisco Systems, Inc.
(+112.8%), Applied Power, Inc. Class A (+83.1%), and Gateway 2000, Inc.
(82.9%).
Industry Allocation-Equity
Banks 7.6%
Real Estate 5.8%
Finance & Insurance 5.2%
Healthcare Products & Services 2.6%
Electrical Equipment & Services 2.3%
Industry Allocation-Bonds
Prerefunded 31.9%
Housing 10.0%
Electric Power 6.3%
Hospitals 5.1%
Toll Roads 4.7%
- --------------------------------------------------------------------------------
Did mergers and acquisitions again contribute to the Fund's strong
performance?
The Fund benefited by twelve merger and acquisition transactions involving
portfolio securities. The average return to date on the eight transactions
completed was 68.9%, while the four pending at the end of the fiscal year
showed an average gain in value of 101.9% to the end of the fiscal year.
The largest single percentage increase was in the Fund's holding of
Barnett Banks, Inc., which had been bought in November, 1994 at $18.94 per
share, and received an acquisition bid from NationsBank Corp. valued at
$68.95, for a gain of 264.0%. The second largest gain was from a pending
transaction in First of America Bank Corp., which had a projected gain of
227.7% (based on the March 31 closing price of National City Corp.) from
its July, 1995 purchase. Other financials in this group included Standard
Federal Bancorporation, Inc., North American Mortgage Co., FFVA Financial
Corp., and PHH Corp. In the real estate related area, the largest gain was
in the projected gain of Continental Homes Holding Corp. (based on the
March 31 closing price of D.R. Horton, Inc.). Other real estate related
acquisitions were Interstate Hotels Co. and LaQuinta Inns Inc.
- --------------------------------------------------------------------------------
What were the top and bottom
performers in the Fund for the fiscal year?
The top eight performers in the portfolio all had gains of over 100%,
ranging from the 175.7% during the fiscal year in Continental Homes
Holding Corp., 141.3% for Lucent Technologies Inc., 131.3% for MacDermid,
Inc., 120.9% for Furon Co., 116.5% for First of America Bank Corp., 115.9%
for Countrywide Credit Industries, Inc., 112.8% for Cisco Systems, Inc.,
and 101.5% for Dime Bancorp, Inc. (reflecting its acquisition of North
American Mortgage Co.). Two of the holdings in the Fund had declines of
10% or more. They were UCAR International, Inc., -16.8%, and Hammons (John
Q) Hotels, L.P. Class A, -16.0%.
16
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What significant recent purchases has
the Fund made?
Among the large new purchases toward the end of the fiscal year were
shares of Union Pacific Corp., purchased after the shares had declined
30%, largely because of what we believe are temporary traffic difficulties
with the system's newly acquired Southern Pacific Rail Corp. Our view is
that this is a temporary problem which will be satisfactorily overcome by
this very well-experienced railroad management with the strengths
developed in its role as a dominant transportation growth company. Another
area where we established positions for the Fund in sectors of comparative
undervaluation was the investment brokerage business. Positions were
established or increased in Legg Mason, Inc., Lehman Brothers Holdings,
Inc., and Merrill Lynch & Co., Inc. Many of the new positions acquired
during the fiscal year generated significant gains, such as Pfizer, Inc.,
+80.7%, and Countrywide Credit Industries, Inc., +58.4%.
Top 10 Equity Holdings
(as a percentage of net assets)
Boeing Co. 0.8%
Merrill Lynch & Co., Inc. 0.8%
American International Group, Inc. 0.8%
BankBoston Corp. 0.7%
WBK Trust 0.7%
Del Webb Corp. 0.7%
CitiCorp 0.7%
First Empire State Corp. 0.7%
Union Pacific Corp. 0.7%
American Home Products Corp. 0.6%
Top 5 Bond Holdings
(as a percentage of net assets)
Arapahoe County Colorado Pub. Hwy. Auth. 1.4%
University of Colorado Hospital Authority 1.3%
Philadelphia PA Hospital & Higher Ed. Facs. Auth.1.1%
Northern Penn. Water Authority 1.0%
Chicago IL Skyway Toll Bridge Refunded 0.9%
- --------------------------------------------------------------------------------
What is your outlook?
At the beginning of the new fiscal year, the Fund is positioned for an
outlook of sustained growth in the United States, with still minimal
inflation. We anticipate that world commodity and manufactured goods
conditions will continue to be highly competitive, and that this will tend
to restrict price increases. This should be an environment which will
continue to support a strong bond market, particularly as the real
interest rate return remains at historically high levels, and the
perception is that the U.S. Federal Reserve will remain watchful over the
need to act in a restrictive fashion if the economy accelerates too
rapidly. This should be an environment where equity markets find
particular support from increased savings. Great investment opportunities
will emerge from those corporations which generate exceptional profits.
The goal of our investment management is to concentrate on the search for
an investment in exceptional performance among equities.
17
<PAGE>
EVERGREEN
American Retirement Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1998 1997**
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 13.74 $ 13.86
============ ===========
Income (loss) from investment operations
Net investment income 0.49 0.11
Net realized and unrealized gain (loss) on investments 3.29 ( 0.12)
------------ -----------
Total from investment operations 3.78 ( 0.01)
------------ -----------
Less distributions
From net investment income ( 0.48) ( 0.11)
From net realized gain on investments ( 0.34) 0
------------ -----------
Total distributions ( 0.82) ( 0.11)
------------ -----------
Net asset value end of year $ 16.70 $ 13.74
============ ===========
Total return + 28.02 % ( 0.10 %)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.40 % 1.37 %++
Total expenses, excluding indirectly paid expenses 1.40 % N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 1.68 %++
Net investment income 3.21 % 3.43 %++
Portfolio turnover rate 34% 9%
Average commission rate paid per share $ 0.0596 $ 0.0606
Net assets end of year (thousands) $ 29,005 $ 14,590
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995*
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 12.82 $ 10.65
============ ===========
Income (loss) from investment operations
Net investment income 0.45 0.41
Net realized and unrealized gain (loss) on investments 1.12 2.22
------------ -----------
Total from investment operations 1.57 2.63
------------ -----------
Less distributions
From net investment income ( 0.42) ( 0.46)
From net realized gain on investments ( 0.11) 0
------------ -----------
Total distributions ( 0.53) ( 0.46)
------------ -----------
Net asset value end of year $ 13.86 $ 12.82
============ ===========
Total return + 12.50 % 24.90%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.30 % 1.37%++
Total expenses, excluding indirectly paid expenses N/A N/A
Total expenses, excluding fee waivers & expense reimbursements 1.33 % 10.96%++
Net investment income 3.53 % 3.73%++
Portfolio turnover rate 16% 49%
Average commission rate paid per share $ 0.0619 N/A
Net assets end of year (thousands) $ 11,116 $ 1,335
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1998 1997**
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 13.67 $ 13.80
============ ===========
Income (loss) from investment operations
Net investment income 0.38 0.09
Net realized and unrealized gain (loss) on investments 3.26 ( 0.13)
------------ -----------
Total from investment operations 3.64 ( 0.04)
------------ -----------
Less distributions
From net investment income ( 0.36) ( 0.09)
From net realized gain on investments ( 0.34) 0
------------ -----------
Total distributions ( 0.70) ( 0.09)
------------ -----------
Net asset value end of year $ 16.61 $ 13.67
============ ===========
Total return + 27.06 % ( 0.30 %)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.15 % 2.11 %++
Total expenses, excluding indirectly paid expenses 2.15 % N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 2.43 %++
Net investment income 2.46 % 2.68 %++
Portfolio turnover rate 34% 9%
Average commission rate paid per share $ 0.0596 $ 0.0606
Net assets end of year (thousands) $ 158,252 $ 76,791
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995*
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 12.80 $ 10.65
============ ===========
Income (loss) from investment operations
Net investment income 0.36 0.35
Net realized and unrealized gain (loss) on investments 1.09 2.20
------------ -----------
Total from investment operations 1.45 2.55
------------ -----------
Less distributions
From net investment income ( 0.34) ( 0.40)
From net realized gain on investments ( 0.11) 0
------------ -----------
Total distributions ( 0.45) ( 0.40)
------------ -----------
Net asset value end of year $ 13.80 $ 12.80
============ ===========
Total return + 11.50 % 24.10%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.06 % 2.12%++
Total expenses, excluding indirectly paid expenses N/A N/A
Total expenses, excluding fee waivers & expense reimbursements 2.09 % 4.20%++
Net investment income 2.79 % 2.97%++
Portfolio turnover rate 16% 49%
Average commission rate paid per share $ 0.0619 N/A
Net assets end of year (thousands) $ 57,622 $ 4,839
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
American Retirement Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
<S> <C> <C>
1998 1997**
CLASS C SHARES
Net asset value beginning of year $ 13.70 $ 13.83
============ ===========
Income (loss) from investment operations
Net investment income 0.38 0.09
Net realized and unrealized gain (loss) on investments 3.27 ( 0.13)
------------ -----------
Total from investment operations 3.65 ( 0.04)
------------ -----------
Less distributions
From net investment income ( 0.36) ( 0.09)
From net realized gain on investments ( 0.34) 0
------------ -----------
Total distributions ( 0.70) ( 0.09)
------------ -----------
Net asset value end of year $ 16.65 $ 13.70
============ ===========
Total return + 27.08 % ( 0.30 %)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.15 % 2.12 %++
Total expenses, excluding indirectly paid expenses 2.15 % N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 2.43 %++
Net investment income 2.46 % 2.65 %++
Portfolio turnover rate 34% 9%
Average commission rate paid per share $ 0.0596 $ 0.0606
Net assets end of year (thousands) $ 2,777 $ 1,769
<CAPTION>
Year Ended December 31,
--------------------------------
<S> <C> <C>
1996 1995*
CLASS C SHARES
Net asset value beginning of year $ 12.81 $ 10.65
============ ===========
Income (loss) from investment operations
Net investment income 0.36 0.36
Net realized and unrealized gain (loss) on investments 1.11 2.19
------------ -----------
Total from investment operations 1.47 2.55
------------ -----------
Less distributions
From net investment income ( 0.34) ( 0.39)
From net realized gain on investments ( 0.11) 0
------------ -----------
Total distributions ( 0.45) ( 0.39)
------------ -----------
Net asset value end of year $ 13.83 $ 12.81
============ ===========
Total return + 11.60 % 24.00%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.05 % 2.10%++
Total expenses, excluding indirectly paid expenses N/A N/A
Total expenses, excluding fee waivers & expense reimbursements 2.08 % 103.52%++
Net investment income 2.80 % 2.96%++
Portfolio turnover rate 16% 49%
Average commission rate paid per share $ 0.0619 N/A
Net assets end of year (thousands) $ 1,487 $ 110
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
American Retirement Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
1998 1997**
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 13.74 $ 13.86
============ ==========
Income (loss) from investment operations
Net investment income 0.55 0.14
Net realized and unrealized gain (loss) on
investments 3.27 ( 0.14)
------------ ----------
Total from investment operations 3.82 0
------------ ----------
Less distributions
From net investment income ( 0.52) ( 0.12)
From net realized gain on investments ( 0.34) 0
In excess of net realized gain on investments 0 0
------------ ----------
Total distributions ( 0.86) ( 0.12)
------------ ----------
Net asset value end of year $ 16.70 $ 13.74
============ ==========
Total return 28.34 % 0.00 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.14 % 1.11 %+
Total expenses, excluding indirectly paid
expenses 1.14 % N/A
Total expenses, excluding fee waivers &
expense reimbursements N/A 1.38 %+
Net investment income 3.45 % 3.56 %+
Portfolio turnover rate 34% 9%
Average commission rate paid per share $ 0.0596 $ 0.0606
Net assets end of year (thousands) $ 43,786 $ 37,237
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 12.83 $ 10.67 $ 11.60 $ 10.95
============ ========= ========== =========
Income (loss) from investment operations
Net investment income 0.48 0.47 0.60 0.56
Net realized and unrealized gain (loss) on
investments 1.10 2.16 ( 0.93) 0.96
------------ --------- ---------- ---------
Total from investment operations 1.58 2.63 ( 0.33) 1.52
------------ --------- ---------- ---------
Less distributions
From net investment income ( 0.44) ( 0.47) ( 0.60) ( 0.60)
From net realized gain on investments ( 0.11) 0 0 ( 0.24)
In excess of net realized gain on investments 0 0 0 ( 0.03)
------------ ---------- ---------- ----------
Total distributions ( 0.55) ( 0.47) ( 0.60) ( 0.87)
------------ ---------- ---------- ----------
Net asset value end of year $ 13.86 $ 12.83 $ 10.67 $ 11.60
============ ========== ========== ==========
Total return 12.60 % 25.10% ( 2.90%) 14.10%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.05 % 1.26% 1.28% 1.36%
Total expenses, excluding indirectly paid
expenses N/A N/A N/A N/A
Total expenses, excluding fee waivers &
expense reimbursements 1.09 % N/A N/A N/A
Net investment income 3.65 % 3.96% 5.40% 5.13%
Portfolio turnover rate 16% 49% 136% 92%
Average commission rate paid per share $ 0.0619 N/A N/A N/A
Net assets end of year (thousands) $ 41,243 $ 39,327 $ 37,176 $ 37,336
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1992 1991 1990 1989 1988*
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 10.52 $ 9.59 $ 10.41 $ 10.09 $ 10.00
========= ======== ========= ========= =========
Income (loss) from investment operations
Net investment income 0.66 0.60 0.60 0.57 0.39
Net realized and unrealized gain (loss) on investments 0.55 1.15 ( 0.66) 0.76 0.18
--------- -------- --------- --------- ---------
Total from investment operations 1.21 1.75 ( 0.06) 1.33 0.57
--------- -------- --------- --------- ---------
Less distributions
From net investment income ( 0.61) ( 0.60) ( 0.60) ( 0.59) ( 0.36)
From net realized gain on investments ( 0.17) ( 0.22) ( 0.16) ( 0.42) ( 0.12)
---------- --------- --------- ---------- ---------
Total distributions ( 0.78) ( 0.82) ( 0.76) ( 1.01) ( 0.48)
---------- --------- --------- ---------- ---------
Net asset value end of year $ 10.95 $ 10.52 $ 9.59 $ 10.41 $ 10.09
========== ========= ========= ========== =========
Total return 11.80% 18.80% ( 0.50%) 13.40% 5.80%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51% 1.50% 1.50% 1.88% 2.00%+
Total expenses, excluding fee waivers & expense
reimbursements 1.59% 1.82% 1.95% 2.03% N/A
Net investment income 6.23% 5.91% 6.04% 5.49% 5.01%+
Portfolio turnover rate 151% 97% 33% 152% 52%
Net assets end of year (thousands) $ 23,781 $ 15,632 $ 12,351 $ 11,610 $ 9,449
</TABLE>
+ Annualized.
* For the period from March 14, 1988 (commencement of class operations) to
December 31, 1988.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998 *#
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 12.36
=========
Income from investment operations
Net investment income 0.08
Net realized and unrealized gain on investments, futures contracts and foreign currency 0.81
---------
related transactions
Total from investment operations 0.89
---------
Less distributions
From net investment income ( 0.12)
From net realized gain on investments, futures contracts and foreign currency related ( 0.26)
----------
transactions
Total distributions ( 0.38)
----------
Net asset value end of period $ 12.87
==========
Total return + 7.38 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.99 %++
Total expenses, excluding indirectly paid expenses 0.99 %++
Net investment income 3.25 %++
Portfolio turnover rate 76%
Average commission rate paid per share $ 0.0594
Net assets end of period (millions) $ 1,277
</TABLE>
* For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
+ 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 Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Balanced Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998*#
<S> <C>
CLASS B SHARES
Net asset value beginning of year $ 12.95
==========
Income (loss) from investment operations
Net investment income 0.26
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 1.53
----------
Total from investment operations 1.79
----------
Less distributions
From net investment income ( 0.27)
In excess of net investment income 0
From net realized gain on investments, futures contracts
and foreign currency related transactions ( 1.59)
In excess of net realized gain on investments, futures
contracts and foreign currency related transactions 0
Tax basis return of capital 0
----------
Total distributions ( 1.86)
----------
Net asset value end of year $ 12.88
==========
Total return + 14.89 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.35 %++
Total expenses, excluding indirectly paid expenses 1.35 %++
Net investment income 2.66 %++
Portfolio turnover rate 76%
Average commission rate paid per share $ 0.0594
Net assets end of year (millions) $ 580
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 11.33 $ 10.09 $ 9.26 $ 10.10 $ 9.77
=========== =========== ======= ========= =======
Income (loss) from investment operations
Net investment income 0.30 0.29 0.31 0.28 0.31
Net realized and unrealized gain (loss) on investments,
futures contracts and foreign currency related
transactions 2.07 1.42 0.96 ( 0.37) 0.66
----------- ----------- ------- --------- -------
Total from investment operations 2.37 1.71 1.27 ( 0.09) 0.97
----------- ----------- ------- --------- -------
Less distributions
From net investment income ( 0.30) ( 0.24) ( 0.31) ( 0.28) ( 0.31)
In excess of net investment income 0 ( 0.03) ( 0.02) ( 0.07) ( 0.09)
From net realized gain on investments, futures contracts
and foreign currency related transactions 0 ( 0.20) ( 0.02) ( 0.25) ( 0.24)
In excess of net realized gain on investments, futures
contracts and foreign currency related transactions ( 0.45) 0 ( 0.09) ( 0.13) 0
Tax basis return of capital 0 0 0 ( 0.02) 0
----------- ----------- -------- --------- --------
Total distributions ( 0.75) ( 0.47) ( 0.44) ( 0.75) ( 0.64)
----------- ----------- -------- --------- --------
Net asset value end of year $ 12.95 $ 11.33 $ 10.09 $ 9.26 $ 10.10
=========== =========== ======== ========= ========
Total return + 21.95 % 17.35 % 14.20% ( 1.16%) 10.39%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.70 % 1.72 % 1.77% 1.71% 1.93%
Total expenses, excluding indirectly paid expenses 1.69 % 1.71 % N/A N/A N/A
Net investment income 2.50 % 2.71 % 3.33% 2.81% 3.07%
Portfolio turnover rate 89% 96% 88% 88% 74%
Average commission rate paid per share $ 0.0400 $ 0.0031 N/A N/A N/A
Net assets end of year (millions) $ 1,625 $ 1,481 $ 1,345 $ 1,390 $ 1,464
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1992 1991
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.16 $ 9.10
======= =======
Income (loss) from investment operations
Net investment income 0.32 0.45
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions 0.75 0.18
------- -------
Total from investment operations 1.07 0.63
------- -------
Less distributions
From net investment income ( 0.32) ( 0.50)
In excess of net investment income ( 0.14) ( 0.04)
From net realized gain on investments, futures contracts and foreign currency
related transactions 0 ( 0.03)
-------- --------
Total distributions ( 0.46) ( 0.57)
-------- --------
Net asset value end of year $ 9.77 $ 9.16
======== ========
Total return + 11.86% 7.49%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.97% 1.88%
Net investment income 3.25% 4.56%
Portfolio turnover rate 52% 60%
Net assets end of year (millions) $ 1,184 $ 902
<CAPTION>
Year Ended June 30,
-----------------------------------
1990 1989 1988
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 9.12 $ 8.37 $ 9.74
======= ======= ========
Income (loss) from investment operations
Net investment income 0.50 0.46 0.47
Net realized and unrealized gain (loss) on investments, futures contracts and
foreign currency related transactions 0.20 0.83 ( 0.82)
------- ------- --------
Total from investment operations 0.70 1.29 ( 0.35)
------- ------- --------
Less distributions
From net investment income ( 0.50) ( 0.54) ( 0.60)
In excess of net investment income ( 0.04) 0 0
From net realized gain on investments, futures contracts and foreign currency
related transactions ( 0.18) 0 ( 0.42)
-------- -------- --------
Total distributions ( 0.72) ( 0.54) ( 1.02)
-------- -------- --------
Net asset value end of year $ 9.10 $ 9.12 $ 8.37
======== ======== ========
Total return + 7.99% 16.07% ( 3.37%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.99% 1.96% 1.91%
Net investment income 4.94% 5.48% 5.34%
Portfolio turnover rate 35% 49% 64%
Net assets end of year (millions) $ 827 $ 712 $ 685
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998*#
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 12.43
==========
Income from investment operations
Net investment income 0.05
Net realized and unrealized gain on investments, futures contracts and foreign currency 0.75
----------
related transactions
Total from investment operations 0.80
----------
Less distributions
From net investment income ( 0.09)
From net realized gain on investments, futures contracts and foreign currency related ( 0.26)
----------
transactions
Total distributions ( 0.35)
----------
Net asset value end of period $ 12.88
==========
Total return + 6.58 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.76 %++
Total expenses, excluding indirectly paid expenses 1.76 %++
Net investment income 2.41 %++
Portfolio turnover rate 76%
Average commission rate paid per share $ 0.0594
Net assets end of period (thousands) $ 829
</TABLE>
<TABLE>
<CAPTION>
Period Ended
March 31, 1998**#
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 12.01
=========
Income from investment operations
Net investment income 0.08
Net realized and unrealized gain on investments, futures contracts and foreign currency 0.86
---------
related transactions
Total from investment operations 0.94
---------
Less distributions
From net investment income ( 0.09)
----------
Total distributions ( 0.09)
----------
Net asset value end of period $ 12.86
==========
Total return 7.79 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75 %++
Total expenses, excluding indirectly paid expenses 0.75 %++
Net investment income 3.47 %++
Portfolio turnover rate 76%
Average commission rate paid per share $ 0.0594
Net assets end of period (thousands) $ 39,231
</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
March 31, 1998.
** For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Foundation Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
1998# 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 16.00 $ 16.13 $ 15.12 $ 12.24
============ =========== ============ ==========
Income (loss) from investment operations
Net investment income 0.44 0.12 0.50 0.44
Net realized and unrealized gain (loss) on investments 4.87 ( 0.13) 1.16 3.14
------------ ----------- ------------ ----------
Total from investment operations 5.31 ( 0.01) 1.66 3.58
------------ ----------- ------------ ----------
Less distributions
From net investment income ( 0.44) ( 0.12) ( 0.50) ( 0.47)
In excess of net investment income 0(a) 0 0 0
From net realized gain on investments ( 0.43) 0 ( 0.15) ( 0.23)
------------ ----------- ------------ ----------
Total distributions ( 0.87) ( 0.12) ( 0.65) ( 0.70)
------------ ----------- ------------ ----------
Net asset value end of year $ 20.44 $ 16.00 $ 16.13 $ 15.12
============ =========== ============ ==========
Total return + 33.88 % ( 0.20 %) 11.30 % 29.70%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.28 % 1.25 %++ 1.24 % 1.33%++
Total expenses, excluding indirectly paid expenses 1.28 % N/A N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A N/A 1.34%++
Net investment income 2.39 % 2.83 %++ 3.39 % 3.73%++
Portfolio turnover rate 9% 2% 10% 28%
Average commission rate paid per share $ 0.0657 $ 0.0670 $ 0.0649 N/A
Net assets end of year (millions) $ 350 $ 220 $ 206 $ 107
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
1998# 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 15.94 $ 16.07 $ 15.07 $ 12.24
============ =========== ============ ==========
Income (loss) from investment operations
Net investment income 0.30 0.09 0.40 0.36
Net realized and unrealized gain (loss) on investments 4.84 ( 0.13) 1.15 3.09
------------ ----------- ------------ ----------
Total from investment operations 5.14 ( 0.04) 1.55 3.45
------------ ----------- ------------ ----------
Less distributions
From net investment income ( 0.30) ( 0.09) ( 0.40) ( 0.39)
In excess of net investment income ( 0.01) 0 0 0
From net realized gain on investments ( 0.43) 0 ( 0.15) ( 0.23)
------------ ----------- ------------ ----------
Total distributions ( 0.74) ( 0.09) ( 0.55) ( 0.62)
------------ ----------- ------------ ----------
Net asset value end of year $ 20.34 $ 15.94 $ 16.07 $ 15.07
============ =========== ============ ==========
Total return + 32.81 % ( 0.30 %) 10.50 % 28.70%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.04 % 2.00 %++ 1.99 % 2.07%++
Total expenses, excluding indirectly paid expenses 2.04 % N/A N/A N/A
Net investment income 1.63 % 2.07 %++ 2.64 % 2.99%++
Portfolio turnover rate 9% 2% 10% 28%
Average commission rate paid per share $ 0.0657 $ 0.0670 $ 0.0649 N/A
Net assets end of year (millions) $ 1,124 $ 606 $ 570 $ 296
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
# Net investment income is based on average shares outstanding during the
period.
(a) Less than one cent per share.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
Foundation Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
1998# 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 15.94 $ 16.06 $ 15.07 $ 12.24
============ =========== ============ ==========
Income (loss) from investment operations
Net investment income 0.30 0.09 0.40 0.34
Net realized and unrealized gain (loss) on investments 4.84 ( 0.13) 1.14 3.09
------------ ----------- ------------ ----------
Total from investment operations 5.14 ( 0.04) 1.54 3.43
------------ ----------- ------------ ----------
Less distributions
From net investment income ( 0.30) ( 0.08) ( 0.40) ( 0.37)
In excess of net investment income ( 0.01) 0 0 0
From net realized gain on investments ( 0.43) 0 ( 0.15) ( 0.23)
------------ ----------- ------------ ----------
Total distributions ( 0.74) ( 0.08) ( 0.55) ( 0.60)
------------ ----------- ------------ ----------
Net asset value end of year $ 20.34 $ 15.94 $ 16.06 $ 15.07
============ =========== ============ ==========
Total return + 32.81 % ( 0.30 %) 10.40 % 28.50%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.04 % 2.00 %++ 1.99 % 2.23%++
Total expenses, excluding indirectly paid expenses 2.04 % N/A N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A N/A 2.37%++
Net investment income 1.63 % 2.07 %++ 2.64 % 2.83%++
Portfolio turnover rate 9% 2% 10% 28%
Average commission rate paid per share $ 0.0657 $ 0.0670 $ 0.0649 N/A
Net assets end of year (millions) $ 50 $ 28 $ 27 $ 11
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
Foundation Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31,
1998# 1997**
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 16.02 $ 16.14
============ ==========
Income (loss) from investment operations
Net investment income 0.49 0.13
Net realized and unrealized gain (loss) on investments 4.86 ( 0.13)
------------ ----------
Total from investment operations 5.35 0.00
------------ ----------
Less distributions
From net investment income ( 0.49) ( 0.12)
From net realized gain on investments ( 0.43) 0
------------ ----------
Total distributions ( 0.92) ( 0.12)
------------ ----------
Net asset value end of year $ 20.45 $ 16.02
============ ==========
Total return 34.12 % 0.00 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.03 % 1.00 %+
Total expenses, excluding indirectly paid expenses 1.03 % N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A
Net investment income 2.65 % 3.07 %+
Portfolio turnover rate 9% 2%
Average commission rate paid per share $ 0.0657 $ 0.0670
Net assets end of year (millions) $ 1,117 $ 802
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 15.13 $ 12.27 $ 13.12
============ ========= ==========
Income (loss) from investment operations
Net investment income 0.54 0.51 0.42
Net realized and unrealized gain (loss) on investments 1.16 3.07 ( 0.57)
------------ --------- ----------
Total from investment operations 1.70 3.58 ( 0.15)
------------ --------- ----------
Less distributions
From net investment income ( 0.54) ( 0.49) ( 0.42)
From net realized gain on investments ( 0.15) ( 0.23) ( 0.28)
------------ ---------- ----------
Total distributions ( 0.69) ( 0.72) ( 0.70)
------------ ---------- ----------
Net asset value end of year $ 16.14 $ 15.13 $ 12.27
============ ========== ==========
Total return 11.50 % 29.70% ( 1.10%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.99 % 1.07% 1.14%
Total expenses, excluding indirectly paid expenses N/A N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A N/A
Net investment income 3.64 % 3.89% 3.51%
Portfolio turnover rate 10% 28% 33%
Average commission rate paid per share $ 0.0649 N/A N/A
Net assets end of year (millions) $ 809 $ 623 $ 332
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990*
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 11.98 $ 10.75 $ 8.95 $ 10.00
========= ========= ======== ===========
Income (loss) from investment operations
Net investment income 0.31 0.27 0.33 1.23 (a)
Net realized and unrealized gain (loss) on investments 1.55 1.83 2.77 ( 0.59)
--------- --------- -------- -----------
Total from investment operations 1.86 2.10 3.10 0.64
--------- --------- -------- -----------
Less distributions
From net investment income ( 0.31) ( 0.24) ( 0.33) ( 1.17)
From net realized gain on investments ( 0.41) ( 0.63) ( 0.97) ( 0.52)
---------- ---------- --------- -----------
Total distributions ( 0.72) ( 0.87) ( 1.30) ( 1.69)
---------- ---------- --------- -----------
Net asset value end of year $ 13.12 $ 11.98 $ 10.75 $ 8.95
========== ========== ========= ===========
Total return 15.70% 20.00% 36.40% 6.60%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.20% 1.40% 1.20% 0.00%+
Total expenses, excluding fee waivers & expense
reimbursements N/A 1.43% 2.58% 3.64%+
Net investment income 2.81% 2.93% 2.86% 15.07%(a)+
Portfolio turnover rate 60% 127% 178% 131%
Net assets end of year (millions) $ 240 $ 64 $ 11 $ 2
</TABLE>
+ Annualized.
* For the period from January 2, 1990 (commencement of class operations) to
December 31, 1990.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
(a) Includes receipt of a special dividend representing $0.62 per share net
investment income and 7.59% of average net assets.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------------- --------------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of year $ 13.57 $ 13.50 $ 12.20 $ 10.44
============ =========== ============ ==========
Income from investment operations
Net investment income 0.31 0.07 0.27 0.29
Net realized and unrealized gain on investments 2.96 0.06 # 1.59 2.24
------------ ------------- ------------ ----------
Total from investment operations 3.27 0.13 1.86 2.53
------------ ------------- ------------ ----------
Less distributions
From net investment income ( 0.30) ( 0.06) ( 0.28) ( 0.31)
From net realized gain on investments ( 0.18) 0 ( 0.28) ( 0.46)
------------ ------------- ------------ ----------
Total distributions ( 0.48) ( 0.06) ( 0.56) ( 0.77)
------------ ------------- ------------ ----------
Net asset value end of year $ 16.36 $ 13.57 $ 13.50 $ 12.20
============ ============= ============ ==========
Total return + 24.40 % 1.00 % 15.40 % 24.80%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.42 % 1.38 %++ 1.52 % 1.75%++
Total expenses, excluding indirectly paid expenses 1.42 % N/A N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A 1.76 % 5.02%++
Net investment income 2.21 % 2.30 %++ 2.39 % 2.79%++
Portfolio turnover rate 50% 29% 88% 110%
Average commission rate paid per share $ 0.0659 $ 0.0656 $ 0.0648 N/A
Net assets end of year (thousands) $ 69,879 $ 15,039 $ 11,166 $ 2,702
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------------- --------------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of year $ 13.56 $ 13.49 $ 12.19 $ 10.31
============ =========== ============ ==========
Income from investment operations
Net investment income 0.21 0.05 0.19 0.22
Net realized and unrealized gain on investments 2.94 0.06 # 1.59 2.37
------------ ------------- ------------ ----------
Total from investment operations 3.15 0.11 1.78 2.59
------------ ------------- ------------ ----------
Less distributions
From net investment income ( 0.20) ( 0.04) ( 0.20) ( 0.25)
From net realized gain on investments ( 0.18) 0 ( 0.28) ( 0.46)
------------ ------------- ------------ ----------
Total distributions ( 0.38) ( 0.04) ( 0.48) ( 0.71)
------------ ------------- ------------ ----------
Net asset value end of year $ 16.33 $ 13.56 $ 13.49 $ 12.19
============ ============= ============ ==========
Total return + 23.44 % 0.08 % 14.70 % 25.60%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.18 % 2.14 %++ 2.27 % 2.50%++
Total expenses, excluding indirectly paid expenses 2.18 % N/A N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A 2.51 % 3.65%++
Net investment income 1.46 % 1.55 %++ 1.64 % 2.03%++
Portfolio turnover rate 50% 29% 2% 110%
Average commission rate paid per share $ 0.0659 $ 0.0656 $ 0.0648 N/A
Net assets end of year (thousands) $ 185,042 $ 38,838 $ 28,007 $ 6,559
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 17, 1995 and January 6, 1995 (commencement of
class A and class B operations, respectively) to December 31, 1995.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
# The net investment income is not in accord with the net realized and
unrealized gain (loss) for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
See Combined Notes to Financial Statements.
27
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------------- --------------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of year $ 13.53 $ 13.47 $ 12.19 $ 10.69
============ =========== ============ ==========
Income from investment operations
Net investment income 0.21 0.06 0.18 0.22
Net realized and unrealized gain on investments 2.94 0.05 # 1.58 1.99
------------ ------------- ------------ ----------
Total from investment operations 3.15 0.11 1.76 2.21
------------ ------------- ------------ ----------
Less distributions
From net investment income ( 0.20) ( 0.05) ( 0.20) ( 0.25)
From net realized gain on investments ( 0.18) 0 ( 0.28) ( 0.46)
------------ ------------- ------------ ----------
Total distributions ( 0.38) ( 0.05) ( 0.48) ( 0.71)
------------ ------------- ------------ ----------
Net asset value end of year $ 16.30 $ 13.53 $ 13.47 $ 12.19
============ ============= ============ ==========
Total return + 23.49 % 0.08 % 14.50 % 21.20%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.18 % 2.13 %++ 2.25 % 2.50%++
Total expenses, excluding indirectly paid
expenses 2.18 % N/A N/A N/A
Total expenses, excluding fee waivers &
expense reimbursements N/A N/A 2.48 % 18.91%++
Net investment income 1.46 % 1.55 %++ 1.64 % 2.07%++
Portfolio turnover rate 50% 29% 88% 110%
Average commission rate paid per share $ 0.0659 $ 0.0656 $ 0.0648 N/A
Net assets end of year (thousands) $ 27,699 $ 5,086 $ 4,108 $ 496
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1998 1997**
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 13.61 $ 13.54
============ ===========
Income from investment operations
Net investment income 0.37 0.09
Net realized and unrealized gain on investments 2.95 0.05 #
------------ -------------
Total from investment operations 3.32 0.14
------------ -------------
Less distributions
From net investment income ( 0.36) ( 0.07)
From net realized gain on investments ( 0.18) 0
------------ -------------
Total distributions ( 0.54) ( 0.07)
------------ -------------
Net asset value end of year $ 16.39 $ 13.61
============ =============
Total return 24.73 % 1.00 %
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.15 % 1.13 %++
Total expenses, excluding indirectly paid
expenses 1.15 % N/A
Total expenses, excluding fee waivers &
expense reimbursements N/A N/A
Net investment income 2.48 % 2.54 %++
Portfolio turnover rate 50% 29%
Average commission rate paid per share $ 0.0659 $ 0.0656
Net assets end of year (thousands) $ 19,881 $ 15,311
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993*
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of year $ 12.22 $ 10.27 $ 10.31 $ 10.00
============ ========= ========= ===========
Income from investment operations
Net investment income 0.34 0.35 0.27 0.05
Net realized and unrealized gain on investments 1.56 2.39 0.08 0.31
------------ --------- --------- -----------
Total from investment operations 1.90 2.74 0.35 0.36
------------ --------- --------- -----------
Less distributions
From net investment income ( 0.30) ( 0.33) ( 0.27) ( 0.05)
From net realized gain on investments ( 0.28) ( 0.46) ( 0.12) 0
------------ ---------- ---------- -----------
Total distributions ( 0.58) ( 0.79) ( 0.39) ( 0.05)
------------ ---------- ---------- -----------
Net asset value end of year $ 13.54 $ 12.22 $ 10.27 $ 10.31
============ ========== ========== ===========
Total return 15.80 % 27.30% 3.40% 3.50%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.30 % 1.50% 1.49% 0.00%++
Total expenses, excluding indirectly paid
expenses N/A N/A N/A N/A
Total expenses, excluding fee waivers &
expense reimbursements 1.56 % 2.23% 2.41% 3.10%++
Net investment income 2.63 % 3.06% 2.87% 3.65%++
Portfolio turnover rate 88% 110% 245% 60%
Average commission rate paid per share $ 0.0649 N/A N/A N/A
Net assets end of year (thousands) $ 15,002 $ 13,485 $ 10,575 $ 5,424
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from March 3, 1995 (commencement of class C operations) to
December 31, 1995 and November 2, 1993 (commencement of class Y operations)
to December 31, 1993.
** The Fund changed its fiscal year end from December 31 to March 31,
effective March 31, 1997.
# The net investment income is not in accord with the net realized and
unrealized gain (loss) for the period due to the timing of the sales of Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
See Combined Notes to Financial Statements.
28
<PAGE>
EVERGREEN
American Retirement Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 44.0%
Automotive Equipment &
Manufacturing - 0.7%
30,000 Dana Corp. ................... $1,745,625
----------
Banks - 5.5%
40,000 Australia & New Zealand Banking
Group Ltd. ................... 1,357,500
32,312 Banc One Corp. ............... 2,043,734
20,000 BancorpSouth, Inc. ........... 878,750
20,000 Bank of New York Co., Inc. ... 1,256,250
16,000 Cape Cod Bank & Trust Co. .... 704,000
13,000 Comerica, Inc. ............... 1,375,562
25,050 Crestar Financial Corp. ...... 1,481,081
8,000 First Union Corp. ** ......... 454,000
15,000 Fleet Financial Group, Inc. .. 1,275,938
53,000 Hibernia Corp. Cl. A ......... 1,089,813
24,000 Susquehanna Bancshares, Inc. . 891,000
----------
12,807,628
----------
Building, Construction &
Furnishings - 0.9%
30,000 Fletcher Challenge Building ADR 596,250
13,584 Medusa Corp. ................. 830,322
10,577 Southdown, Inc. .............. 737,085
----------
2,163,657
----------
Business Equipment &
Services - 1.0%
15,000 Dun & Bradstreet Corp. ....... 512,813
36,000 Pitney Bowes, Inc. ........... 1,806,750
----------
2,319,563
----------
Chemical & Agricultural
Products - 1.4%
8,000 Eastman Chemical Co. ......... 539,500
11,000 Grace (W.R.) & Co. ........... 920,562
17,000 Imperial Chemical Industries
Plc, ADR ..................... 1,221,875
15,600 Stepan Co. ................... 473,850
----------
3,155,787
----------
Consumer Products &
Services - 1.2%
11,000 International Flavors &
Fragrances, Inc. ............. 518,375
30,000 Jostens, Inc. ................ 720,000
110,000 Stride Rite Corp. ............ 1,491,875
----------
2,730,250
----------
Diversified Companies - 1.4%
10,000 Harris Corp. ................. 521,250
19,000 Tenneco, Inc. ................ 811,062
80,000 Tomkins Plc, ADR ............. 1,930,000
----------
3,262,312
----------
Electrical Equipment &
Services - 2.4%
15,000 AMP, Inc. .................... 657,187
12,000 Emerson Electric Co. ......... 782,250
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - continued
36,656 Hubbell, Inc. Cl. B .......... $1,846,546
36,000 Thomas & Betts Corp. ......... 2,304,000
----------
5,589,983
----------
Finance & Insurance - 3.0%
36,363 Equitable Companies, Inc. .... 2,052,237
10,000 Hartford Financial Services
Group, Inc. .................. 1,085,000
20,000 LaSalle Re Holdings Ltd. ..... 838,750
15,000 Ohio Casualty Corp. .......... 720,000
6,000 Transamerica Corp. ........... 699,000
46,184 Trenwick Group, Inc. ......... 1,731,900
----------
7,126,887
----------
Food & Beverage Products - 1.9%
70,900 Flowers Industries, Inc. ..... 1,661,719
18,000 H.J. Heinz Co. ............... 1,050,750
50,000 Lance, Inc. .................. 1,137,500
28,000 Tasty Baking Corp. ........... 623,000
----------
4,472,969
----------
Healthcare Products &
Services - 2.5%
20,000 Baxter International, Inc. ... 1,102,500
14,000 Bristol-Myers Squibb Co. ..... 1,460,375
30,100 Shared Medical System Corp. .. 2,359,087
30,000 West Co., Inc. ............... 903,750
----------
5,825,712
----------
Industrial Specialty Products &
Services - 2.2%
10,000 Bemis Co., Inc. .............. 451,250
45,000 Carpenter Technology Corp. ... 2,430,000
48,776 Flowserve Corp. .............. 1,591,317
42,000 Lindberg Corp. ............... 740,250
----------
5,212,817
----------
Machinery - Diversified - 0.8%
55,100 Hardinge Brothers, Inc. ...... 1,880,288
----------
Oil / Energy - 3.7%
8,000 Amoco Corp. .................. 691,000
8,000 Atlantic Richfield Co. ....... 629,000
60,000 Berry Petroleum Co. Cl. A .... 907,500
15,000 Consolidated Natural Gas Co. . 865,312
15,400 Exxon Corp. .................. 1,041,425
3,000 Kerr-McGee Corp. ............. 208,688
10,000 Mobil Corp. .................. 766,250
17,200 Penn Virginia Corp. .......... 500,950
21,550 * Seitel, Inc. ................. 325,944
12,000 Texaco, Inc. ................. 723,000
60,000 Williams Companies, Inc. ..... 1,920,000
----------
8,579,069
----------
Oil Field Services - 0.6%
40,000 Lufkin Industries, Inc. ...... 1,300,000
----------
</TABLE>
29
<PAGE>
EVERGREEN
American Retirement Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Publishing, Broadcasting &
Entertainment - 2.0%
27,270 CBS Corp. ........................ $ 925,475
31,250 * Chancellor Media Corp. ........... 1,433,594
8,000 McGraw-Hill Companies, Inc. ...... 608,500
50,000 Reader's Digest Association, Inc. 1,365,625
5,800 Time Warner, Inc. ................ 417,600
-----------
4,750,794
-----------
Real Estate - 0.3%
10,000 Post Property, Inc. REIT ......... 399,375
15,000 Prentiss Properties Trust REIT ... 391,875
-----------
791,250
-----------
Retailing & Wholesale - 2.1%
23,000 J. C. Penney Co., Inc. ........... 1,740,812
8,000 Mercantile Stores Co., Inc. ...... 537,500
70,260 * Proffitts, Inc. .................. 2,546,925
-----------
4,825,237
-----------
Textile & Apparel - 0.1%
10,000 Oxford Industries, Inc. .......... 313,750
-----------
Thrift Institutions - 1.8%
45,000 First Palm Beach Bancorp, Inc. ... 1,811,250
18,100 Horizon Financial Corp. .......... 339,375
50,400 Maryland Federal Bancorp, Inc. ... 1,971,900
-----------
4,122,525
-----------
Transportation - 0.6%
27,000 Union Pacific Corp. .............. 1,517,063
-----------
Utilities - Electric - 4.9%
18,200 Commonwealth Energy System ....... 725,725
20,000 Eastern Utilities Associates ..... 545,000
30,000 Enova Corp. ...................... 838,125
80,000 Houston Industries, Inc. ......... 2,300,000
23,000 IES Industries, Inc. ............. 855,313
50,000 Long Island Lighting Co. ......... 1,575,000
37,000 PP&L Resources, Inc. ............. 874,125
22,000 Southern Co. ..................... 609,125
55,000 TNP Enterprises, Inc. ............ 1,818,437
40,000 Wisconsin Energy Corp. ........... 1,227,500
-----------
11,368,350
-----------
Utilities - Gas - 1.7%
40,500 Chesapeake Utilities Corp. ....... 744,188
9,250 Northwest Natural Gas Co. ........ 260,156
22,000 South Jersey Industries, Inc. .... 653,125
40,000 Southwest Gas Corp. .............. 835,000
60,400 Yankee Energy System, Inc. ....... 1,483,575
-----------
3,976,044
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Utilities - Telephone - 1.3%
5,500 * AirTouch Communications, Inc. .... $ 269,156
35,000 Frontier Corp. ................... 1,139,688
30,000 * U.S. West Communications Group, Inc. 1,642,500
-----------
3,051,344
-----------
Total Common Stocks
(cost $67,813,752)................ 102,888,904
-----------
CONVERTIBLE PREFERRED - 16.7%
Banks - 1.5%
50,000 National Australia Bank, Ltd.
7.875%, Series Unit .............. 1,450,000
58,000 WBK Trust
10.0%, STRYPES (exchangeable for
Westpac Banking Corp. Common
Stock) ........................... 1,975,625
-----------
3,425,625
-----------
Business Equipment &
Services - 0.2%
6,000 Microsoft Corp.
$2.196, Series A, PERCS .......... 555,000
-----------
Communication Systems &
Services - 0.5%
30,000 AirTouch Communications, Inc.
6.00%, Series B .................. 1,237,500
-----------
Diversified Companies - 1.6%
26,800 Corning, Inc.
6.00%, MIPS ...................... 1,835,800
80,000 Ingersoll Rand Co.
6.75%, PRIDES .................... 2,015,000
-----------
3,850,800
-----------
Electrical Equipment &
Services - 1.1%
50,000 Pioneer Standard Financial Trust
6.75%, 144A ...................... 2,537,500
-----------
Finance & Insurance - 2.5%
20,000 American General Corp.
$3.00, Series A, MIPS ............ 1,620,000
13,000 American Heritage Life
Investment Corp.
8.50%, PRIDES .................... 796,250
20,000 Frontier Financing Trust
6.25%, TOPRS, 144A ............... 1,312,600
11,000 Frontier Financing Trust
6.25%, TOPRS ..................... 721,930
4,000 Life Re Corp.
6.00% ............................ 288,000
15,000 Merrill Lynch & Co., Inc.
7.25%, STRYPES
(exchangeable for SunAmerica,
Inc. Common Stock) ............... 1,087,500
-----------
5,826,280
-----------
</TABLE>
30
<PAGE>
EVERGREEN
American Retirement Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
CONVERTIBLE PREFERRED - continued
Food & Beverage Products - 1.3%
25,000 Ralston Purina Co.
7.00%, SAILS (exchangeable for
Interstate Bakeries Common Stock) $1,578,125
30,000 Wendys Financing I
5.00%, Series A, TECONS ........ 1,576,875
----------
3,155,000
----------
Metal Products & Services - 1.4%
20,000 Timet Capital Trust I
6.625%, BUCS, 144A ............. 955,000
20,000 Timet Capital Trust I
6.625% ......................... 955,000
80,000 Worthington Industries, Inc.
7.25%, DECS (exchangeable for
Rouge Steel Co. Common Stock) .. 1,290,400
----------
3,200,400
----------
Oil / Energy - 0.4%
20,000 Callon Petroleum Co.
8.50%, Series A ................ 767,500
5,000 Nuevo Energy Co.
5.75%, Series A, TECONS ........ 245,625
----------
1,013,125
----------
Oil Field Services - 1.0%
40,000 EVI, Inc.
5.00%, 144A .................... 1,815,200
10,000 Hvide Capital Trust
6.50%, 144A .................... 472,500
----------
2,287,700
----------
Paper & Packaging - 0.6%
30,000 Crown Cork & Seal Co., Inc.
4.50%, MIPS .................... 1,500,000
----------
Publishing, Broadcasting &
Entertainment - 2.1%
15,000 AMC Entertainment, Inc.
$1.75 .......................... 615,000
10,000 American Radio Systems Corp.
7.00%, 144A .................... 781,300
10,300 Granite Broadcasting Corp.
$1.938 ......................... 585,813
22,000 Houston Industries, Inc.
7.00%, ACES (exchangeable for
Time Warner, Inc. Common Stock) 1,425,875
20,000 Merrill Lynch & Co., Inc.
6.00%, STRYPES due 6/1/99
(exchangeable for Cox
Communications, Inc. Common
Stock) ......................... 705,000
10,000 TCI Communications, Inc.
$2.125, Series A ............... 720,000
----------
4,832,988
----------
Transportation - 1.0%
20,000 CNF Trust I
5.00%, Series A, TECONS ........ 1,160,000
20,000 Union Pacific Capital Trust
6.25%, TIDES, 144A ............. 1,065,000
----------
2,225,000
----------
Utilities - Electric - 0.9%
45,000 BNDES Participacoes SA
DECS ........................... 2,002,500
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
CONVERTIBLE PREFERRED - continued
Utilities - Gas - 0.6%
40,000 MCN Corp.
8.75%, PRIDES .................. $1,305,000
----------
Total Convertible Preferred
(cost $35,096,931).............. 38,954,418
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CONVERTIBLE DEBENTURES - 10.5%
Banks - 0.5%
$ 800,000 First State Bancorp
7.50%, 4/30/17 ..... 1,222,000
------------
Building, Construction
& Furnishings - 0.7%
1,500,000 Eagle Hardware &
Garden, Inc.
6.25%, 3/15/01 ..... 1,734,375
------------
Business Equipment
& Services - 1.2%
1,000,000 HMT Technology Corp.
5.75%, 1/15/04, 144A . 870,000
250,000 Personnel Group of
America, Inc.
5.75%, 7/1/04, 144A 358,125
250,000 Platinum Technology,
Inc.
6.75%, 11/15/01 .... 506,875
1,000,000 Quantum Corp.
7.00%, 8/1/04 ...... 985,000
------------
2,720,000
------------
Consumer Products &
Services - 0.7%
2,000,000 Action Performance
Companies, Inc.
4.75%, 4/1/05, 144A 1,720,000
------------
Industrial Specialty
Products &
Services - 0.4%
600,000 Robbins & Myers, Inc.
6.50%, 9/1/03 ...... 890,280
------------
Leisure &
Tourism - 1.7%
2,500,000 Family Golf Centers,
Inc.
5.75%, 10/15/04, 144A 3,147,000
1,000,000 Marriot International,
Inc.
Zero Coupon, 3/25/11 . 720,000
------------
3,867,000
------------
Oil Field
Services - 3.6%
1,000,000 Diamond Offshore
Drilling, Inc.
3.75%, 2/15/07 ..... 1,267,500
Key Energy Group, Inc.
1,000,000 5.00%, 9/15/04, 144A 800,000
500,000 7.00%, 7/1/03, 144A . 840,000
2,000,000 Nabors Industries,
Inc.
5.00%, 5/15/06 ..... 2,855,000
Offshore Logistics,
Inc.
1,000,000 6.00%, 12/15/06, 144A 1,102,500
500,000 6.00%, 12/15/03 ... 551,250
1,000,000 Parker Drilling Co.
5.50%, 8/1/04 ...... 1,005,000
------------
8,421,250
------------
Publishing,
Broadcasting &
Entertainment - 0.3%
1,000,000 Jacor Communications,
Inc.
Zero Coupon, 6/12/11 . 800,000
------------
</TABLE>
31
<PAGE>
EVERGREEN
American Retirement Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
CONVERTIBLE DEBENTURES - continued
Retailing & Wholesale - 1.4%
Central Garden & Pet Co.
$ 500,000 6.00%, 11/15/03, 144A .................. $ 757,500
1,600,000 6.00%, 11/15/03 ........................ 2,424,000
------------
3,181,500
------------
Total Convertible Debentures
(cost $21,539,090)....................... 24,556,405
------------
CORPORATE BONDS - 1.7%
Banks - 0.4%
1,000,000 NationsBank Corp.
6.50%, 8/15/03 .......................... 1,015,586
------------
Finance & Insurance - 0.9%
1,000,000 American General Finance Corp.
7.125%, 12/1/99 ......................... 1,017,788
1,000,000 Ford Motor Credit Co.
5.625%, 12/15/98 ........................ 998,267
------------
2,016,055
------------
Telecommunication Services
& Equipment - 0.4%
1,000,000 GTE Southwest, Inc., Series A
5.82%, 12/1/99 .......................... 998,240
------------
Total Corporate Bonds
(cost $4,004,940)........................ 4,029,881
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 25.1%
Government Agency Notes &
Bonds - 24.4%
1,000,000 Federal Farm Credit Bank
6.70%, 8/6/04 ........................... 1,004,659
Federal Home Loan Bank
2,000,000 5.65%, 12/29/00 ........................ 1,993,488
1,000,000 6.195%, 2/5/03 ......................... 991,288
2,000,000 6.532%, 12/28/07 ....................... 1,994,663
2,000,000 6.565%, 8/6/02 ......................... 2,011,384
2,000,000 6.585%, 10/15/02 ....................... 2,005,172
2,000,000 6.70%, 4/9/03 .......................... 2,001,916
3,000,000 6.715%, 4/9/03 ......................... 3,003,405
2,000,000 7.00%, 8/13/04 ......................... 2,004,442
2,000,000 7.00%, 7/14/05 ......................... 2,039,438
2,000,000 7.04%, 10/14/05 ........................ 2,002,108
2,000,000 7.26%, 4/3/02 .......................... 2,002,440
Federal Home Loan Mortgage Corp.
2,000,000 6.54%, 12/10/07 ........................ 2,020,458
2,000,000 6.542%, 3/19/01 ........................ 1,996,985
1,000,000 6.91%, 6/20/05 ......................... 1,016,684
2,000,000 7.585%, 9/19/06 ........................ 2,084,004
2,000,000 7.865%, 8/8/11 ......................... 2,111,684
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - continued
Government Agency Notes &
Bonds - continued
Federal National Mortgage
Association
$5,000,000 5.65%, 2/22/28 ......................... $ 4,548,182
2,000,000 6.24%, 1/14/08 ......................... 1,988,064
1,000,000 6.25%, 8/12/03 ......................... 990,746
3,000,000 6.32%, 3/3/08 .......................... 2,987,389
1,000,000 6.41%, 3/8/06 .......................... 1,030,472
1,000,000 6.45%, 1/28/05 ......................... 994,423
2,000,000 6.46%, 1/1/08 .......................... 2,006,648
2,000,000 6.52%, 3/5/08 .......................... 1,989,903
2,000,000 6.54%, 4/1/05 .......................... 1,995,442
2,000,000 6.68%, 12/28/01 ........................ 2,001,068
3,000,000 7.28%, 5/23/07 ......................... 3,113,403
1,000,000 Student Loan Marketing
Association
5.90%, 2/20/01 .......................... 994,282
------------
56,924,240
------------
Treasury Notes & Bonds - 0.7%
1,500,000 U.S. Treasury Bonds
7.125%, 2/15/23 ........................ 1,711,876
------------
Total U.S. Government & Agency
Obligations
(cost $58,127,135)....................... 58,636,116
------------
SHORT-TERM INVESTMENTS - 2.5%
Commercial Paper - 2.2%
385,000 Dominion Semiconductor
5.55%, 4/17/98 .......................... 384,050
530,000 Eiger Capital Corp.
5.53%, 4/6/98 ........................... 529,593
170,000 Gold Crown Managers Acceptance Corp.
5.55%, 4/8/98 ........................... 169,816
815,000 Lucent Technologies, Inc.
5.50%, 4/20/98 .......................... 812,634
250,000 Park Avenue Recreation Corp.
5.57%, 4/27/98 .......................... 248,994
765,000 Three Rivers Funding Corp.
5.57%, 4/24/98 .......................... 762,278
540,000 Tiger Managers Acceptance Corp.
5.58%, 4/21/98 .......................... 538,326
1,630,000 Twin Towers, Inc.
5.56%, 4/27/98 .......................... 1,623,455
------------
5,069,146
------------
Government Agency Notes &
Bonds - 0.3%
700,000 Federal Agricultural Mortgage Corp.
7.03%, 5/26/98 .......................... 701,213
150,000 Federal Home Loan Mortgage Corp.
5.45%, 4/9/98 ........................... 149,818
------------
851,031
------------
Total Short-Term Investments
(cost $5,918,965)........................ 5,920,177
------------
Total Investments -
(cost $192,500,813).......... 100.5% 234,985,901
Other Assets and
Liabilities - net ........... ( 0.5) (1,166,559)
----- ------------
Net Assets .................. 100.0% $233,819,342
===== ============
</TABLE>
32
<PAGE>
EVERGREEN
American Retirement Fund
Schedule of Investments (continued)
March 31, 1998
* Non-income producing securities.
** At March 31, 1998, the Fund owned 8,000 shares of common stock of First
Union Corp. at a cost of $106,108. During the year ended March 31, 1998,
the Fund earned $10,400 in dividend income from this investment. These
shares were purchased by the Fund prior to the acquisition of the
investment advisor and Lieber & Company by First Union.
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.
Summary of Portfolio Abbreviations:
ACES Automatically Convertible Equity Securities.
ADR American Depository Receipts.
BUCS Beneficial Unsecured Convertible Securities.
DECS Dividend Enhanced Convertible Stock.
MIPS Monthly Income Preferred Shares.
PERCS Preferred Equity Redemption Cumulative Stock.
PRIDES Preferred Redeemable Increased Dividend Equity Securities.
REIT Real Estate Investment Trust.
SA Sociedad Anonyme (Spanish Corporation)
SAILS Stock Appreciation Income Linked Securities.
STRYPES Structured Yield Product Exchangeable for Stock.
TECONS Term Convertible Shares.
TIDES Term Income Deferrable Equitable Securities.
TOPRS Trust Origanated Preferred Securities.
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 56.3%
Advertising & Related
Services - 0.3%
93,600 Gannett Co., Inc. ... $ 6,727,500
-----------
Aerospace &
Defense - 0.4%
50,000 Rockwell International 2,868,750
Corp.
62,200 United Technologies
Corp. ............... 5,741,838
-----------
8,610,588
-----------
Automotive Equipment &
Manufacturing - 1.5%
283,700 Ford Motor Co. ...... 18,387,306
150,000 General Motors Corp. 10,115,625
-----------
28,502,931
-----------
Banks - 4.7%
250,020 BankAmerica Corp. ... 20,657,903
279,700 BankBoston Corp. .... 30,836,925
100,000 Chase Manhattan Corp. . 13,487,500
275,700 Fleet Financial Group,
Inc. ................. 23,451,731
-----------
88,434,059
-----------
Business Equipment &
Services - 0.8%
150,000 Xerox Corp. ......... 15,965,625
-----------
Capital Goods - 0.4%
60,000 Deere & Co. ......... 3,716,250
75,750 Ingersoll Rand Co. .. 3,631,266
-----------
7,347,516
-----------
Chemical & Agricultural
Products - 3.7%
133,200 Dow Chemical Co. .... 12,953,700
250,000 Du Pont (E. I.) De 17,000,000
Nemours & Co.
400,000 Monsanto Co. ........ 20,800,000
300,000 Morton International, 9,843,750
Inc.
136,000 PPG Industries, Inc. 9,239,500
-----------
69,836,950
-----------
Communication Systems &
Services - 0.1%
27,900 * Cisco Systems, Inc. . 1,908,534
-----------
Consumer Products &
Services - 2.9%
200,000 * Cendant Corp. ....... 7,925,000
23,300 Colgate-Palmolive Co. . 2,018,363
150,000 Gillette Co. ........ 17,803,125
220,000 Procter & Gamble Co. 18,562,500
139,000 Whirlpool Corp. ..... 9,530,187
-----------
55,839,175
-----------
Diversified
Companies - 1.1%
213,600 AlliedSignal, Inc. .. 8,971,200
80,000 Minnesota Mining & 7,295,000
Manufacturing Co.
81,400 Tyco International Ltd. 4,446,475
-----------
20,712,675
-----------
Electrical Equipment &
Services - 4.5%
108,000 Emerson Electric Co. 7,040,250
861,800 General Electric Co. 74,276,387
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - continued
49,600 Honeywell, Inc. ..... $ 4,101,300
-----------
85,417,937
-----------
Finance &
Insurance - 4.5%
83,492 Allstate Corp. ...... 7,676,046
60,000 CIGNA Corp. ......... 12,300,000
414,400 Federal Home Loan 19,658,100
Mortgage Corp.
200,000 Federal National 12,650,000
Mortgage Association
15,000 General Reinsurance 3,309,375
Corp.
53,600 PMI Group, Inc. ..... 4,328,200
68,200 SAFECO Corp. ........ 3,727,556
40,000 St. Paul Companies, 3,565,000
Inc.
150,000 Travelers Group, Inc. . 9,000,000
200,000 Travelers Property
Casualty Corp.
Cl. A ............... 8,800,000
-----------
85,014,277
-----------
Food & Beverage Products - 2.6%
46,800 Bestfoods ........... 5,469,750
29,100 Coca Cola Co. ....... 2,253,431
79,200 H.J. Heinz Co. ...... 4,623,300
88,000 Kellogg Co. ......... 3,795,000
569,800 Philip Morris 23,753,538
Companies, Inc.
141,800 Sara Lee Corp. ...... 8,738,425
-----------
48,633,444
-----------
Healthcare Products &
Services - 11.1%
300,000 American Home Products 28,612,500
Corp.
194,900 Bristol-Myers Squibb 20,330,506
Co.
58,200 HBO & Co. ........... 3,512,006
101,200 * HEALTHSOUTH Corp. ... 2,839,925
647,200 Johnson & Johnson ... 47,447,850
56,200 * Lincare Holdings, Inc. 3,958,588
213,000 Merck & Co., Inc. ... 27,343,875
318,300 Pfizer, Inc. ........ 31,730,531
204,800 Schering-Plough Corp. . 16,729,600
181,900 SmithKline Beecham Plc,
ADR ................. 11,380,119
37,200 * Universal Health
Services, Inc.
Cl. B ............... 2,148,300
84,000 Warner-Lambert Co. .. 14,306,250
-----------
210,340,050
-----------
Information Services &
Technology - 1.4%
200,000 * EMC Corp. ........... 7,562,500
100,000 Hewlett-Packard Co. . 6,337,500
100,000 International Business 10,387,500
Machines Corp.
23,200 * Microsoft Corp. ..... 2,075,675
-----------
26,363,175
-----------
Oil / Energy - 6.2%
96,600 Amoco Corp. ......... 8,343,825
289,000 Atlantic Richfield Co. 22,722,625
263,600 Chevron Corp. ....... 21,170,375
127,000 Exxon Corp. ......... 8,588,375
332,900 Mobil Corp. ......... 25,508,462
280,400 Royal Dutch Petroleum 15,930,225
Co.
58,200 Texaco, Inc. ........ 3,506,550
</TABLE>
34
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Oil / Energy - continued
294,400 Unocal Corp. ........ $ 11,389,600
-------------
117,160,037
-------------
Oil Field
Services - 0.5%
90,400 Halliburton Co. ..... 4,536,950
62,200 Schlumberger Ltd. ... 4,711,650
-------------
9,248,600
-------------
Paper &
Packaging - 1.5%
30,800 Georgia-Pacific Corp. . 1,994,300
57,000 International Paper Co. 2,668,313
126,600 Kimberly-Clark Corp. 6,345,825
300,000 Weyerhaeuser Co. .... 16,950,000
-------------
27,958,438
-------------
Real Estate - 2.5%
119,500 Arden Realty Group, 3,405,750
Inc. REIT
200,000 Boston Properties, Inc. 7,037,500
REIT
703,150 Equity Office 21,533,969
Properties Trust REIT
70,000 First Industrial Realty 2,520,000
Trust, Inc. REIT
200,003 Patriot American 5,400,081
Hospitality, Inc. REIT
100,000 Spieker Properties, 4,125,000
Inc. REIT
100,000 TriNet Corporate Realty 3,831,250
-------------
Trust, Inc. REIT
47,853,550
-------------
Retailing &
Wholesale - 0.7%
79,100 J. C. Penney Co., Inc. 5,986,881
60,000 May Department Stores 3,810,000
Co.
70,000 Sears, Roebuck & Co. 4,020,625
-------------
13,817,506
-------------
Transportation - 0.4%
120,000 Norfolk Southern Corp. 4,485,000
46,800 Union Pacific Corp. . 2,629,575
-------------
7,114,575
-------------
Utilities - Electric -
1.0%
39,500 American Electric Power 1,984,875
Co., Inc.
87,300 Cinergy Corp. ....... 3,230,100
74,000 Consolidated Edison 3,459,500
Inc.
42,000 Duke Power Co. ...... 2,501,625
71,400 Florida Progress Corp. 2,976,487
86,800 Houston Industries, 2,495,500
Inc.
65,200 PacifiCorp .......... 1,605,550
44,105 Texas Utilities Co. . 1,733,878
-------------
19,987,515
-------------
Utilities - Telephone -
3.5%
248,000 Ameritech Corp. ..... 12,260,500
300,000 AT&T Corp. .......... 19,687,500
157,651 Bell Atlantic Corp. . 16,159,227
23,950 Century Telephone 1,463,944
Enterprises, Inc.
162,000 GTE Corp. ........... 9,699,750
41,800 SBC Communications, 1,823,525
Inc.
75,480 Sprint Corp. ........ 5,109,053
-------------
66,203,499
-------------
Total Common Stocks
(cost $480,276,161).. 1,068,998,156
-------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
CONVERTIBLE PREFERRED - 2.7%
Consumer Products &
Services - 0.7%
100,000 Cendant Corp.
6.86% ............... $ 4,425,000
150,000 Newell Financial Trust I
5.25%, 144A ......... 8,475,000
-------------
12,900,000
-------------
Finance &
Insurance - 1.4%
64,200 Allstate Corp.
6.76%, DECS
(Exchangeable for PMI
Group, Inc. common 4,225,163
stock)
63,500 Conseco, Inc.
7.00%, PRIDES ....... 12,295,187
200,000 SunAmerica, Inc.
$3.188, PERCS ....... 9,687,500
-------------
26,207,850
-------------
Retailing &
Wholesale - 0.6%
200,000 Kmart Financing I
7.75% ............... 12,550,000
-------------
Total Convertible
Preferred
(cost $36,210,992)... 51,657,850
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CONVERTIBLE DEBENTURES - 1.2%
Healthcare Products &
Services - 0.5%
$10,000,000 HEALTHSOUTH Corp.
3.25%, 4/1/03, 144A 9,962,500
---------
Industrial Specialty
Products &
Services - 0.2%
3,000,000 Solectron Corp.
6.00%, 3/1/06 ...... 4,147,500
---------
Retailing &
Wholesale - 0.5%
5,250,000 Staples, Inc.
4.50%, 10/1/00, 144A . 8,413,125
---------
Total Convertible
Debentures
(cost $18,250,000).. 22,523,125
----------
CORPORATE BONDS - 18.2%
Aerospace &
Defense - 0.9%
5,000,000 Boeing Co.
6.625%, 2/15/38, 144A 4,941,900
Northrop Grumman Corp.
5,500,000 7.00%, 3/1/06 ..... 5,645,695
5,000,000 9.375%, 10/15/24 .. 5,913,950
----------
16,501,545
----------
Automotive Equipment &
Manufacturing - 0.4%
7,500,000 Hertz Corp.
7.00%, 5/1/02 ...... 7,634,850
----------
Consumer Products &
Services - 0.1%
1,001,000 Stanley Works
7.375%, 12/15/02 ... 1,047,256
----------
</TABLE>
35
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Diversified
Companies - 0.7%
General Electric
Capital Corp.
$1,280,000 8.75%, 3/14/03 .... $ 1,438,170
5,470,000 8.75%, 5/21/07 .... 6,410,840
5,000,000 Grand Metropolitan
Investment Corp.
7.45%, 4/15/35 ..... 5,610,500
-----------
13,459,510
-----------
Finance &
Insurance - 7.3%
8,000,000 ABN Amro Bank NV
Chicago Branch
7.30%, 12/1/26 ..... 7,987,600
8,000,000 AMBAC, Inc.
9.375%, 8/1/11 ..... 9,930,160
3,465,000 Amsouth Bancorp
6.75%, 11/1/25 ..... 3,564,688
6,550,000 Associates Corp. North
America
8.625%, 11/15/04 ... 7,368,422
6,750,000 Bear Stearns Cos. Inc.
6.20%, 3/30/03 ..... 6,710,175
5,800,000 Beneficial Corp.
6.25%, 2/18/13 ..... 5,713,174
698,000 Boatmen's Bancshares,
Inc.
6.75%, 3/15/03 ..... 711,011
4,500,000 CIT Group Holdings,
Inc.
9.25%, 3/15/01 ..... 4,876,470
6,400,000 Commercial Credit
Group, Inc.
10.00%, 5/15/09 .... 8,111,552
1,280,000 Dean Witter, Discover
& Co.
6.75%, 10/15/13 .... 1,284,493
General Motors
Acceptance Corp.
5,500,000 5.875%, 1/22/03 ... 5,435,760
6,600,000 8.50%, 1/1/03 ..... 7,194,198
2,250,000 International Lease
Finance Corp.
5.75%, 1/15/03 ..... 2,204,933
5,500,000 John Hancock Mutual
Life Insurance Co.
7.375%, 2/15/24, 144A 5,674,405
6,500,000 Lehman Brothers
Holdings, Inc.
6.50%, 10/1/02 ..... 6,531,265
7,000,000 Liberty Mutual
Insurance Co.
7.697%, 10/15/97 ... 7,260,190
5,000,000 Mellon Capital II
7.995%, 1/15/27 .... 5,300,700
2,250,000 Merrill Lynch & Co.,
Inc.
6.00%, 2/12/03 ..... 2,233,125
4,000,000 National Westminster
Bancorp
9.375%, 11/15/03 ... 4,563,000
6,000,000 Nationwide CSN Trust
9.875%, 2/15/25, 144A 6,917,880
Paine Webber Group,
Inc.
4,705,000 8.25%, 5/1/02 ..... 5,003,673
5,050,000 9.25%, 12/15/01 ... 5,511,621
6,200,000 Prudential Insurance
Co.
7.125%, 7/1/07 ..... 6,457,424
1,164,000 Salomon, Inc.
5.50%, 1/15/99 ..... 1,159,914
3,750,000 Southtrust Bank
6.565%, 12/15/27 ... 3,810,075
6,700,000 Sun Life Canada
Capital Trust
8.526%, 5/29/49 .... 7,333,820
-----------
138,849,728
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Food & Beverage
Products - 0.4%
$ 989,000 PepsiCo, Inc.
7.625%, 11/1/98 .... $ 998,544
Philip Morris
Companies, Inc.
5,000,000 7.20%, 2/1/07 ..... 5,157,900
1,164,000 8.65%, 5/15/98 .... 1,167,562
-----------
7,324,006
-----------
Healthcare Products &
Services - 0.6%
8,000,000 Medpartners, Inc.
6.875%, 9/1/00 ..... 7,929,440
3,000,000 Merck & Co., Inc.
6.40%, 3/1/28 ...... 2,983,140
-----------
10,912,580
-----------
Industrial Specialty
Products &
Services - 0.6%
1,629,000 Jet Equipment Trust
9.41%, 6/15/10, 144A . 1,952,128
1,100,000 Textron, Inc.
10.01%, 2/1/00 ..... 1,175,614
Waste Management, Inc.
7,000,000 7.65%, 3/15/11 .... 7,207,812
326,000 8.75%, 5/1/18 ..... 360,325
-----------
10,695,879
-----------
Information Services &
Technology - 0.3%
6,500,000 Comdisco Inc.
6.125%, 1/15/03 .... 6,404,905
-----------
Machinery - Diversifie
- 0.1%
2,000,000 Caterpillar, Inc.
9.375%, 7/15/01 .... 2,184,940
-----------
Oil / Energy - 1.2%
5,000,000 Global Marine, Inc.
7.125%, 9/1/07 ..... 5,128,906
4,250,000 Occidental Petroleum
Corp.
9.25%, 8/1/19 ...... 5,170,465
5,000,000 Petroleum Geo Services
6.625%, 3/30/08 .... 4,991,550
7,500,000 Transocean Offshore,
Inc.
8.00%, 4/15/27 ..... 8,516,325
-----------
23,807,246
-----------
Oil Field
Services - 0.5%
Atlantic Richfield Co.
931,000 9.00%, 4/1/21 ..... 1,182,882
3,500,000 9.875%, 3/1/16 .... 4,684,225
4,250,000 Smith International,
Inc.
7.00%, 9/15/07 ..... 4,348,133
-----------
10,215,240
-----------
Paper &
Packaging - 0.4%
8,000,000 James River Corp.
6.75%, 10/1/99 ..... 8,077,600
-----------
Publishing, Broadcasting &
Entertainment - 0.6%
10,450,000 Time Warner Inc.
8.05%, 1/15/16 ..... 11,282,551
-----------
</TABLE>
36
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CORPORATE BONDS - continued
Real Estate - 0.6%
$ 7,000,000 Equity Office Properties Trust
6.375%, 2/15/03 ..................... $ 6,929,860
4,000,000 Glenborough Realty Trust, Inc.
7.625%, 3/15/05, 144A ............... 3,982,500
-------------
10,912,360
-------------
Retailing & Wholesale - 0.7%
8,000,000 Fred Meyer Inc.
7.15%, 3/1/03 ....................... 7,993,280
4,300,000 Sears Roebuck & Co.
10.00%, 2/3/12 ...................... 5,670,969
-------------
13,664,249
-------------
Telecommunication Services &
Equipment - 0.6%
6,750,000 Bellsouth Capital Funding Corp.
7.12%, 7/15/97, Deb. ................ 7,137,787
4,000,000 Frontier Corp.
6.25%, 12/15/99, 144A ............... 4,005,200
-------------
11,142,987
-------------
Transportation - 0.8%
5,884,228 Atlantic Coast Airlines Corp.
7.20%, 1/1/14 ....................... 5,973,374
3,000,000 Golden St. Pete Transportation Corp.
8.04%, 2/1/19 ....................... 3,172,500
6,250,000 Norfolk Southern Corp.
7.05%, 5/1/37 ....................... 6,582,500
-------------
15,728,374
-------------
Utilities - Electric - 0.9%
5,000,000 Central Illinois Public Service Co.
7.61%, 6/1/17 ....................... 5,361,350
5,000,000 Oklahoma Gas & Electric Co.
6.65%, 7/15/27 ...................... 5,185,700
4,000,000 Rural Electric Cooperative
8.67%, 9/15/18 ...................... 4,539,160
284,000 System Energy Resources, Inc.
11.375%, 9/1/16 ..................... 302,514
838,000 Union Electric Co.
8.00%, 12/15/22 ..................... 895,328
-------------
16,284,052
-------------
Utilities - Gas - 0.3%
5,000,000 K N Energy Inc.
6.45%, 3/1/03 ....................... 5,004,000
-------------
Utilities - Telephone - 0.2%
3,500,000 GTE Florida Inc.
6.86%, 2/1/28 ....................... 3,516,520
-------------
Total Corporate Bonds
(cost $339,315,281).................. 344,650,378
-------------
ASSET-BACKED SECURITIES - 5.2%
5,500,000 Americredit Automobile Receivable,
Series 1997-C, Class A3,
6.30%, 7/5/03 ....................... 5,554,395
12,500,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.69%, 8/15/04 ...................... 12,573,875
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
ASSET-BACKED SECURITIES - continued
$ 2,750,000 Contimortgage Home Equity Loan,
Series 1997-4, Class A7
6.63%, 9/15/16 ...................... $ 2,774,062
4,000,000 Contimortgage Home Equity Loan Trust,
Series 1998-1, Class A6,
6.58%, 12/15/18 ..................... 4,006,250
6,150,000 Corestates Home Equity Loan,
Series 1996-1, Class A4,
7.00%, 6/15/12 ...................... 6,215,344
Green Tree Financial Corp.
6,000,000 Series 1993-4, Class A3,
6.25%, 1/15/19 ...................... 6,011,220
6,000,000 Series 1997-3, Class A5,
7.14%, 7/15/28 ...................... 6,148,080
Merrill Lynch Mortgage Investors, Inc.
1,655,602 Series 1992-B, Class B,
8.50%, 4/15/12 ...................... 1,653,532
3,597,136 Series 1992-D, Class B,
8.50%, 6/15/17 ...................... 3,809,439
5,000,000 Series 1991-D, Class B,
9.85%, 7/15/11 ...................... 5,112,500
8,000,000 Olympic Automobile Receivables Trust,
Series 1997-A, Class A5
6.80%, 2/15/05 ...................... 8,139,040
10,000,000 Premier Auto Trust, Series 1997-2,
Class B,
6.53%, 12/6/03 ...................... 10,087,500
7,500,000 Southern Pacific Secured Assets Corp.,
Series 1996-3, Class A4
7.60%, 10/25/27 ..................... 7,661,719
930,000 University Support Services, Inc.,
Series 1992-D,
8.98%, 11/1/07 ...................... 927,094
10,900,000 WFS Financial Owner Trust, Series
1997-C, Class CTFS
6.30%, 3/20/05 ...................... 10,842,094
6,650,000 World Omni Automobile Lease, Series
1997-A, Class A4,
6.90%, 6/25/03 ...................... 6,762,185
-------------
Total Asset-Backed Securities
(cost $96,861,861)................... 98,278,329
-------------
FOREIGN BONDS (U.S. DOLLARS) - 1.3%
5,000,000 Bayer Corp.
7.125%, 10/1/15, 144A ............... 5,225,200
4,000,000 IBJ Preferred Capital Co. LLC
8.79%, 12/29/49, 144A ............... 3,870,000
640,000 International Bank For Reconstruction &
Development Co.
7.95%, 5/15/16 ...................... 755,283
7,000,000 Republic of Columbia
8.625%, 4/1/08 ...................... 7,032,130
8,000,000 YPF Sociedad Anonima
7.25%, 3/15/03 ...................... 7,969,680
-------------
Total Foreign Bonds (U.S. Dollars)
(cost $24,946,002)................... 24,852,293
-------------
FOREIGN BONDS (NON-U.S. DOLLARS) - 3.8%
Nykredit
DKK
280,000 7.00%, 10/1/29 ..................... 40,108
DKK
194,622,000 6.00%, 10/1/26 ..................... 27,312,221
DKK Realkredit Danmark
206,500,000 6.00%, 10/1/26 ...................... 28,979,115
</TABLE>
37
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
FOREIGN BONDS (NON-U.S. DOLLARS) - continued
Republic of Greece
GRD
7,200,000 6.75%, 11/13/06 ..................... $ 4,231,516
GRD
2,150,000,000 8.60%, 3/26/08 ...................... 6,999,609
SEK Skandinaviska Enskilda
60,000,000 0.00%, 5/26/33 ..................... 5,226,000
------------
Total Foreign Bonds (Non-U.S. Dollars)
(cost $72,865,840).................... 72,788,569
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 2.0%
Treasury Notes & Bonds - 0.9%
U.S. Treasury Bonds
$ 2,750,000 6.375%, 8/15/27 ..................... 2,904,688
9,935,000 7.875%, 2/15/21 ..................... 12,193,623
1,450,000 U.S. Treasury Notes
5.50%, 2/28/03 ....................... 1,441,387
------------
16,539,698
------------
U.S. Government Agency
Obligations - 1.1%
11,000,000 Federal Home Loan Bank
5.625%, 3/19/01 ...................... 10,953,580
10,000,000 Federal National Mortgage Association
5.25%, 1/15/03 ....................... 9,768,700
------------
..................................... 20,722,280
------------
Total U.S. Government & Agency
Obligations
(cost $37,335,232).................... 37,261,978
------------
MORTGAGE-BACKED SECURITIES - 7.8%
Mortgage Pass-Through
Certificates - 2.7%
Federal Home Loan Mortgage Corp.
1,547,373 7.08%, 6/1/16 ....................... 1,585,574
1,846,801 7.56%, 3/1/22 ....................... 1,896,433
5,432,301 7.86%, 4/1/22 ....................... 5,723,418
Federal National Mortgage Association
18,134,863 5.50%, 7/1/09 ....................... 17,684,211
5,193,664 7.00%, 5/1/24 ....................... 5,248,821
3,639,786 7.45%, 2/1/27 ....................... 3,716,549
2,284,692 7.57%, 12/1/23 ...................... 2,354,604
1,014,694 7.59%, 5/1/22 ....................... 1,062,263
3,396,186 7.63%, 9/1/21 ....................... 3,555,909
5,116,224 7.74%, 1/1/31 ....................... 5,348,858
Government National Mortgage
Association
565,397 8.50%, 5/15/21 ...................... 600,027
345,631 8.50%, 7/15/21 ...................... 367,772
712,402 8.50%, 6/15/22 ...................... 754,028
371,573 9.00%, 9/15/21 ...................... 401,759
593,937 9.00%, 10/15/21 ..................... 642,189
329,669 9.50%, 2/15/21 ...................... 357,582
------------
51,299,997
------------
Collateralized Mortgage
Obligations - 5.1%
3,300,000 Asset Securitization Corp.,
Series 1996-D3, Class A3
7.14%, 10/13/26 ...................... 3,510,891
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
MORTGAGE-BACKED SECURITIES - continued
Collateralized Mortgage
Obligations - continued
$ 2,000,000 Chase Commercial Mortgage Securities
Corp., Series 1997-2, Class B,
6.60%, 11/19/07 ...................... $ 1,963,750
2,200,000 Chase Commercial Mortgage Securities
Corp., Series 1997-1, Class B,
7.37%, 4/19/07 ....................... 2,235,337
4,763,274 Chase Mortgage Finance Corp.,
Series 1994-D, Class M,
6.75%, 2/25/25 ....................... 4,648,956
2,400,000 Commercial Mortgage Acceptance
Corp., Series 1997-ML1, Class B,
6.42%, 12/15/07 ...................... 2,412,000
7,694,341 Criimi Mae Financial Corp.
Series 1, Class A,
7.00%, 1/1/33 ........................ 7,667,892
1,250,000 FFCA Secured Lending Corp.,
Series 1997-1, Class B1,
7.74%, 6/18/13 ....................... 1,322,852
5,507,639 Financial Asset Securitization,
Series 1997-NAM 1, Class FXA2,
7.75%, 5/25/27 ....................... 5,627,258
Federal National Mortgage Association
1,250,000 Remic Trust 1993-248, Class SA,
4.19%, 8/25/23 ....................... 1,049,787
5,000,000 Series 1997-M6, Class C,
6.85%, 5/17/20 ....................... 5,221,094
7,898,205 Independent National Mortgage Corp.,
144A, Series 1997-A, Class A,
7.84%, 12/26/26 ...................... 7,954,440
1,080,985 KS Mortgage Capital, L. P., 144A,
Series 1995-1, Class A1,
7.14%, 4/20/02 ....................... 1,084,025
Merrill Lynch Mortgage Investors, Inc.
2,299,000 Series 1996-C2, Class B,
6.96%, 11/21/28 ...................... 2,357,193
5,000,000 Series 1997-C1, Class A3,
7.12%, 6/18/29 ....................... 5,221,875
5,870,000 Merrill Lynch Trust, Series 35, Class G,
8.45%, 11/1/18 ....................... 6,222,200
1,891,030 Mid State Trust, Series 6, Class A3,
7.45%, 11/1/35 ....................... 1,909,827
6,000,000 Morgan Stanley Capital I Inc.,
Commercial Mortgage Certificate
1998 Wf1 Class C
6.77%, 1/15/08 ....................... 6,063,750
4,000,000 Nomura Asset Securities Corp.,
Commercial Mortgage Certificate
Series 1998 D6, Class A 3
6.98%, 3/17/28 ....................... 4,061,400
12,508,375 Nomura Depositor Trust Str I,
Commercial Mortgage Certificate
Series 1998-ST1A, Class A1, 144A
5.91%, 2/15/24 ....................... 12,508,570
306,517 Paine Webber Mortgage Acceptance
Corp. IV, Series 1993-5, Class A3,
6.875%, 6/25/08 ...................... 305,818
PNC Mortgage Securities Corp.
2,485,717 Series 1997-4, Class 2PP3,
7.25%, 7/25/27 ....................... 2,472,542
6,840,505 Series 1997-4, Class 2PP1,
7.50%, 7/25/27 ....................... 6,823,668
</TABLE>
38
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES - continued
Collateralized Mortgage
Obligations - continued
$ 4,817,956 Shearson Lehman CMO Inc.,
Series V, Class 5
7.50%%, 5/1/19 ...................... $ 4,977,285
--------------
97,622,410
--------------
Total Mortgage-Backed Securities
(cost $146,908,231).................. 148,922,407
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 1.5%
$ 27,655,000 Keystone Joint Repurchase Agreement,
investments in repurchase
agreements, in a joint trading
account, purchased 3/31/98,
5.67%, maturing 4/1/98, maturity
value $27,659,356,
(cost $27,655,000) (a) .............. $ 27,655,000
--------------
Total Investments -
(cost $1,280,624,600)..... 100.0% 1,897,588,085
Other Assets and
Liabilities - net ........ 0.0 (434,344)
------ --------------
Net Assets ................ 100.0% $1,897,153,741
====== ==============
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at March 31, 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.
Summary of Portfolio Abbreviations:
ADR American Depository Receipt
DECS Dividend Enhanced Convertible Stock
PERCS Preferred Equity Redemption Cumulative Stock
PRIDES Preferred Redeemable Income Debt Exchangeable for Stock
REIT Real Estate Investment Trust
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange U.S. $ Value at In Exchange Net Unrealized
Date Contracts to Deliver March 31, 1998 for U.S. $ Appreciation
- ------- -------------------------------------- ----------------- ------------- --------
6/26/98 8,115,000 German Deutsche Marks $4,409,236 $4,460,580 $ 51,344
4/16/98 198,540,000 Danish Kroner 28,181,905 28,781,421 599,516
6/12/98 199,000,000 Danish Kroner 28,324,458 28,645,458 321,000
--------
Unrealized appreciation on forward foreign currency
exchange contracts $971,860
========
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 60.8%
Aerospace &
Defense - 0.8%
392,600 Boeing Co. .......... $20,464,275
5,420 Raytheon Co. Cl. A .. 308,263
11,000 United Technologies
Corp. ............... 1,015,437
-----------
21,787,975
-----------
Automotive Equipment &
Manufacturing - 1.6%
438,400 Chrysler Corp. ...... 18,221,000
85,000 General Motors Corp. 5,732,187
30,000 Genuine Parts Co. ... 1,143,750
208,800 Goodyear Tire & Rubber
Co................... 15,816,600
-----------
40,913,537
-----------
Banks - 7.7%
55,400 AmSouth Bancorp ..... 3,272,062
50,000 Bancfirst Corp. ..... 1,987,500
391,800 BankBoston Corp. .... 43,195,950
5,000 Bankers Trust Corp. . 601,563
140,062 BSB Bancorp, Inc. ... 4,341,922
82,000 Cape Cod Bank & Trust
Co. ................. 3,608,000
27,000 CB Bancshares, Inc. . 982,125
92,700 CitiCorp ............ 13,163,400
106,000 Crestar Financial Corp. 6,267,250
321,950 Dime Bancorp, Inc. .. 9,678,622
85,138 First Chicago NBD Corp. 7,502,786
3,800 First Empire State
Corp. ................ 1,899,525
290,900 First of America Bank
Corp. ................ 25,162,850
16,875 First Security Corp. 401,836
117,000 First Union Corp. ** 6,639,750
45,000 Fleet Financial Group,
Inc. ................. 3,827,812
43,400 Hancock Holding Co. . 2,669,100
70,801 Hibernia Corp. Cl. A 1,455,846
278,400 KeyCorp ............. 10,527,000
50,000 Mississippi Valley
Bancshares, Inc. .... 2,087,500
131,825 NationsBank Corp. ... 9,614,986
66,150 Peoples Heritage
Financial Group ..... 3,191,738
102,000 Seacoast Banking Corp.
of Florida Cl. A ..... 3,774,000
88,200 SunTrust Banks, Inc. 6,648,075
65,000 U.S. Trust Corp. .... 4,273,750
58,275 Wachovia Corp. ...... 4,942,448
80,000 Webster Financial Corp. 5,560,000
238,300 Wilmington Trust Corp. 15,817,162
-----------
203,094,558
-----------
Building, Construction
& Furnishings - 1.7%
211,400 Armstrong World
Industries, Inc. .... 18,299,312
17,857 Engle Homes, Inc. ... 299,105
82,500 Home Depot, Inc. .... 5,563,594
356,122 Lennar Corp. ........ 12,263,951
103,000 Lowe's Companies, Inc. 7,229,312
15,100 M/I Schottenstein
Homes, Inc. .......... 330,313
-----------
43,985,587
-----------
Business Equipment &
Services - 0.3%
35,500 * Crescent Operating,
Inc. ................. 758,813
50,000 Lucent Technologies,
Inc. ................. 6,393,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Business Equipment &
Services - continued
10,000 * Policy Management
Systems Corp. ....... $ 803,125
10,000 Xerox Corp. ......... 1,064,375
-----------
9,020,063
-----------
Capital Goods - 1.0%
115,000 Caterpillar, Inc. ... 6,332,187
301,700 Deere & Co. ......... 18,686,544
-----------
25,018,731
-----------
Chemical & Agricultural
Products - 3.5%
40,000 Air Products & 3,315,000
Chemicals, Inc.
571,200 Du Pont (E. I.) De
Nemours & Co. ....... 38,841,600
70,000 Grace (W.R.) & Co. .. 5,858,125
60,000 H.B. Fuller Co. ..... 3,592,500
217,800 Monsanto Co. ........ 11,325,600
170,000 Morton International,
Inc. ................ 5,578,125
75,000 Nalco Chemical Co. .. 3,042,187
58,000 Pioneer Hi-Bred
International, Inc. . 5,658,625
110,800 PPG Industries, Inc. 7,527,475
45,000 Praxair, Inc. ....... 2,314,688
115,000 Schulman (A.), Inc. . 2,903,750
100,560 Solutia, Inc. ....... 2,991,660
-----------
92,949,335
-----------
Communication Systems &
Services - 0.3%
105,000 * Cisco Systems, Inc. . 7,179,375
-----------
Consumer Products &
Services - 1.7%
35,000 Avon Products, Inc. . 2,730,000
95,000 Black & Decker Corp. 5,040,937
233,150 * Cendant Corp. ....... 9,238,569
32,052 * Consolidated Products,
Inc. ................ 617,001
50,000 H & R Block, Inc. ... 2,378,125
146,300 International Flavors &
Fragrances, Inc. .... 6,894,387
105,100 * Nautica Enterprises,
Inc. ................ 3,231,825
40,000 Nike, Inc. Cl. B .... 1,770,000
20,000 Premark International,
Inc. ................ 662,500
94,200 Procter & Gamble Co. 7,948,125
118,500 Tupperware Corp. .... 3,155,063
-----------
43,666,532
-----------
Diversified
Companies - 0.0% (a)
8,000 Cooper Industries, Inc. 475,500
2,800 Tyco International Ltd. 152,950
-----------
628,450
-----------
Electrical Equipment &
Services - 2.8%
163,400 AMP, Inc. ........... 7,158,963
130,000 Applied Power, Inc.
Cl. A ............... 5,005,000
512,200 General Electric Co. 44,145,237
107,000 Honeywell, Inc. ..... 8,847,562
</TABLE>
40
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - continued
1,500 Motorola, Inc. ..... $ 90,938
117,000 Perkin Elmer Corp. . 8,460,562
-----------
73,708,262
-----------
Finance &
Insurance - 9.1%
10,668 Aetna, Inc. ........ 890,111
60,000 AFLAC, Inc. ........ 3,795,000
120,000 Allstate Corp. ..... 11,032,500
110,600 Ambac Financial Group,
Inc. ............... 6,463,187
169,475 American International
Group, Inc. ........ 21,343,258
173,500 Beneficial Corp. ... 21,568,219
51,800 Chubb Corp. ........ 4,059,825
148,350 Countrywide Credit
Industries, Inc. ... 7,890,366
95,000 * Degeorge Financial
Corp. .............. 130,625
20,000 FBL Financial Group,
Inc.
Cl. A .............. 1,012,500
40,000 Federal Home Loan
Mortgage Corp. ..... 1,897,500
699,000 Federal National
Mortgage Association.. 44,211,750
115,000 Frontier Insurance
Group, Inc. ......... 3,176,875
24,000 Interstate/Johnson
Lane, Inc. .......... 732,000
70,000 John Alden Financial
Corp. ............... 1,509,375
142,200 John Nuveen Co., Cl. A 5,208,075
118,600 Lehman Brothers
Holdings, Inc. ...... 8,880,175
279,400 Marsh & McLennan Co.,
Inc. ................ 24,395,112
327,400 Merrill Lynch & Co.,
Inc. ................ 27,174,200
345,200 MGIC Investment Corp. 22,675,325
40,000 Mid Ocean Ltd. ..... 3,100,000
155,000 NAC RE Corp. ....... 8,127,812
110,000 Nationwide Financial
Services, Inc.
Cl. A .............. 4,771,250
15,000 Ohio Casualty Corp. 720,000
142,250 Raymond James
Financial, Inc. .... 6,196,766
9,470 * Security Capital
Group, Inc. Cl. B
Warrants $28.00
Expiring 9/18/98 ... 31,369
3,500 SLM Holding Corp. .. 152,688
-----------
241,145,863
-----------
Food & Beverage
Products - 0.6%
120,000 Bestfoods .......... 14,025,000
30,000 * Corn Products
International, Inc.. 1,076,250
3,000 Tricon Global
Restaurants, Inc. ... 90,188
-----------
15,191,438
-----------
Forest Products - 0.3%
88,000 Union Camp Corp. ... 5,258,000
90,000 Willamette Industries,
Inc. ............... 3,380,625
-----------
8,638,625
-----------
Healthcare Products &
Services - 6.0%
205,700 Abbott Laboratories 15,491,781
1,750 * Alza Corp. Warrants
$65.00 Expiring
12/31/99 ........... 1,695
202,900 American Home Products
Corp. .............. 19,351,587
65,000 Baxter International,
Inc. ............... 3,583,125
101,200 Bristol-Myers Squibb
Co. ................ 10,556,425
180,900 Columbia / HCA
Healthcare Corp. ... 5,834,025
23,000 * Covance, Inc. ...... 564,938
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - continued
76,000 * First Health Group
Corp. .............. $ 4,123,000
68,550 Guidant Corp. ...... 5,029,856
114,500 Johnson & Johnson .. 8,394,281
312,524 Lilly (Eli) & Co. .. 18,634,244
65,000 * Lincare Holdings, Inc. 4,590,625
41,666 * Maxxim Medical, Inc. . 1,195,293
160,000 McKesson Corp. ..... 9,240,000
151,750 * MedPartners, Inc. .. 1,555,438
146,600 Medtronic, Inc. .... 7,604,875
167,758 Merck & Co., Inc. .. 21,535,933
96,000 Pfizer, Inc. ....... 9,570,000
11,500 * Quest Diagnostics,
Inc. ............... 193,344
132,000 Schering-Plough Corp. 10,782,750
9,200 Shared Medical System
Corp. ............... 721,050
1,800 Warner-Lambert Co. . 306,563
-----------
158,860,828
-----------
Industrial Specialty
Products &
Services - 1.7%
155,970 Autoliv, Inc. ...... 4,844,818
40,000 Bemis Co., Inc. .... 1,805,000
147,000 Corning, Inc. ...... 6,504,750
64,600 * Halter Marine Group,
Inc. ............... 1,025,525
30,000 Parker Hannifin Corp. 1,537,500
30,000 Pittston Brink's Group 1,143,750
190,000 Snap-on, Inc. ...... 8,668,750
6,000 * Strattec Security
Corp. .............. 163,969
35,000 Sundstrand Corp. ... 2,117,500
378,000 Timken Co. ......... 12,781,125
50,000 Trinity Industries,
Inc. ............... 2,743,750
55,000 * UCAR International,
Inc. ............... 1,725,625
38,000 * Unova, Inc. ........ 760,000
-----------
45,822,062
-----------
Information Services &
Technology - 6.3%
137,566 * Analog Devices, Inc. . 4,574,069
110,000 Compaq Computer Corp. 2,846,250
37,500 Computer Associates
International, Inc. .. 2,165,625
10,000 Computer Sciences
Corp. ................ 550,000
531,800 Hewlett-Packard Co. .. 33,702,825
821,600 Intel Corp. ........ 64,136,150
164,000 International Business 17,035,500
Machines Corp.
346,000 * Microsoft Corp. .... 30,967,000
224,000 * Sun Microsystems, Inc. . 9,345,000
2,000 Texas Instruments, Inc. . 108,250
-----------
165,430,669
-----------
Leisure &
Tourism - 0.1%
30,993 Disney Walt Co. .... 3,308,503
-----------
Oil / Energy - 1.4%
60,000 Amoco Corp. ........ 5,182,500
1,200 Atlantic Richfield Co. 94,350
113,500 Consolidated Natural
Gas Co. ............ 6,547,531
289,000 Equitable Resources,
Inc. ............... 9,609,250
102,400 Exxon Corp. ........ 6,924,800
</TABLE>
41
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Oil / Energy - continued
900 Kerr-McGee Corp. ...................... $ 62,606
91,800 Mobil Corp. ........................... 7,034,175
900 Pennzoil Co. .......................... 58,163
86,206 * Seitel, Inc. .......................... 1,303,866
1,200 Sonat, Inc. ........................... 52,200
33,877 Union Pacific Resource Group, Inc. .... 808,813
-----------
37,678,254
-----------
Oil Field Services - 0.5%
1,600 Halliburton Co. ....................... 80,300
47,200 * R & B Falcon Corp. .................... 1,398,300
121,400 Schlumberger Ltd. ..................... 9,196,050
30,900 * Western Atlas, Inc. ................... 2,390,888
-----------
13,065,538
-----------
Paper & Packaging - 0.2%
85,000 Kimberly-Clark Corp. .................. 4,260,625
-----------
Publishing, Broadcasting &
Entertainment - 0.4%
30,000 Belo (A.H.) Corp.
Ser. A ................................ 1,650,000
81,620 CBS Corp. ............................. 2,769,979
20,000 * Cox Communications, Inc.
Cl. A ................................. 840,000
6,666 Gaylord Entertainment Co. ............. 238,310
65,000 Time Warner, Inc. ..................... 4,680,000
3,000 Washington Post Co., Cl. B ............ 1,595,437
-----------
11,773,726
-----------
Real Estate - 6.1%
38,000 * Alexander's, Inc. REIT ................ 3,560,125
24,100 Arden Realty Group, Inc. REIT ......... 686,850
50,000 Bay Apartment Communities, Inc. REIT 1,856,250
58,100 Berkshire Realty Co., Inc. REIT ....... 697,200
100,000 Boston Properties, Inc. REIT .......... 3,518,750
50,009 Bradley Real Estate, Inc. REIT ........ 1,043,938
140,000 Brandywine Realty Trust REIT .......... 3,333,750
280,400 Capstead Mortgage Corp. REIT .......... 5,537,900
171,900 CarrAmerica Realty Corp. REIT ......... 5,157,000
100,000 Chelsea GCA Realty, Inc. REIT ......... 3,700,000
159,300 Continental Homes Holding Corp. ....... 7,407,450
355,000 Crescent Real Estate Equities, Inc. REIT 12,780,000
305,300 Crown American Realty Trust REIT ...... 2,862,187
200,000 * Entertainment Properties Trust REIT ... 3,925,000
42,500 Equity Residential Properties Trust REIT 2,135,625
105,200 Essex Property Trust, Inc. REIT ....... 3,609,675
199,700 * FAC Realty, Inc. REIT ................. 1,959,556
90,000 FelCor Suite Hotels, Inc. REIT ........ 3,335,625
100,200 Gables Residential Trust REIT ......... 2,724,188
174,000 Glimcher Realty Trust REIT ............ 3,806,250
28,000 Highwoods Properties, Inc. REIT ....... 988,750
67,419 * Homestead Village Properties, Inc. .... 1,019,712
384,316 Horizon Group, Inc. REIT .............. 4,731,891
50,300 INMC Mortgage Holdings, Inc.
REIT .................................. 1,257,500
120,000 Innkeepers USA Trust REIT ............. 1,965,000
30,000 * Interstate Hotels Co. ................. 1,076,250
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Real Estate - continued
101,500 Kilroy Realty Corp. REIT .............. $ 2,899,094
132,000 Kranzco Realty Trust REIT ............. 2,376,000
45,000 Liberty Property Trust REIT ........... 1,209,375
165,000 Mack-Cali Realty Corp. REIT ........... 6,445,312
125,000 Marriott International, Inc. .......... 4,648,437
125,000 Marriott International, Inc.
Cl. A ................................. 4,476,563
25,000 Meditrust Co. REIT .................... 771,875
38,100 Oasis Residential, Inc. REIT .......... 845,344
94,997 Patriot American Hospitality, Inc. REIT . 2,564,919
268,713 Post Property, Inc. REIT .............. 10,731,725
166,500 Prentiss Properties Trust REIT ........ 4,349,812
90,000 Public Storage, Inc. REIT ............. 2,778,750
76,817 Security Capital Industrial Trust REIT . 1,968,436
111,992 Security Capital Pacific Trust REIT ... 2,694,808
31,250 Sodexho Marriott Services, Inc. ....... 830,078
100,000 Sovran Self Storage, Inc. REIT ........ 2,968,750
70,000 Spieker Properties, Inc. REIT ......... 2,887,500
262,750 Starwood Hotels & Resorts Trust REIT .. 14,040,703
14,000 Storage USA, Inc. REIT ................ 537,250
140,000 Sunstone Hotel Investors, Inc. REIT ... 2,240,000
43,500 Tanger Factory Outlet Centers, Inc.
REIT .................................. 1,266,938
2,200 TriNet Corporate Realty Trust, Inc. REIT 84,288
135,000 Trizec Hahn Corp. ...................... 3,180,937
5,705 Vornado Realty Trust REIT ............. 248,524
30,000 Western Investment Real Estate Trust
REIT .................................. 448,125
-----------
162,169,965
-----------
Retailing & Wholesale - 1.1%
70,000 * Autozone, Inc. ........................ 2,371,250
236,511 Avnet, Inc. ........................... 13,614,164
199,000 Mercantile Stores Co., Inc. ........... 13,370,313
-----------
29,355,727
-----------
Telecommunication Services &
Equipment - 0.1%
45,500 Compania de Telecom de Chile
SA, ADR ............................... 1,254,094
-----------
Textile & Apparel - 0.0% (a)
34,900 Superior Surgical Manufacturing Co.,
Inc. .................................. 610,750
-----------
Thrift Institutions - 0.5%
131,300 Golden West Financial Corp. ........... 12,580,181
-----------
Transportation - 1.1%
25,000 Burlington Northern Santa Fe .......... 2,600,000
27,200 * FDX Corp. ............................. 1,934,600
76,800 GATX Corp. ............................ 5,990,400
20,000 KLM Royal Dutch Air Lines ............. 812,500
17,000 Roadway Express, Inc. ................. 417,563
300,000 Union Pacific Corp. ................... 16,856,250
-----------
28,611,313
-----------
Utilities-Electric - 0.7%
36,200 Central Hudson Gas & Electric Corp. ... 1,579,225
149,700 Long Island Lighting Co. .............. 4,715,550
</TABLE>
42
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Utilities-Electric - continued
138,400 New York State Electric & Gas Corp. $ 5,518,700
33,300 Orange & Rockland Utilities, Inc. .. 1,494,338
40,000 PP&L Resources, Inc. ............... 945,000
100,000 Public Service Enterprise Group, Inc. 3,787,500
32,000 TNP Enterprises, Inc. .............. 1,058,000
-------------
19,098,313
-------------
Utilities-Telephone - 3.2%
98,333 * 360 Communications Co. ............. 3,072,906
30,000 * AirTouch Communications, Inc. ...... 1,468,125
2,000 Ameritech Corp. .................... 98,875
10,000 AT&T Corp. ......................... 656,250
174,040 Bell Atlantic Corp. ................ 17,839,100
1,600 BellSouth Corp. .................... 108,100
494,000 Frontier Corp. ..................... 16,085,875
376,400 GTE Corp. .......................... 22,536,950
2,400 SBC Communications, Inc. ........... 104,700
351,000 Sprint Corp. ....................... 23,758,313
-------------
85,729,194
-------------
Total Common Stocks
(cost $959,724,030)................. 1,606,538,073
-------------
CONVERTIBLE PREFERRED - 0.6%
Finance & Insurance - 0.0% (a)
3,557 Aetna, Inc.
6.25%, Series C .................... 284,782
1,000 Conseco, Inc.
7.00%, PRIDES ...................... 193,625
2,500 SunAmerica, Inc.
$3.188, PERCS ...................... 121,094
-------------
599,501
-------------
Industrial Specialty Products &
Services - 0.1%
50,000 Qualcomm Financial Trust I
5.75%, 144A ........................ 2,365,500
-------------
Metal Products & Services - 0.3%
100,000 Timet Capital Trust I
6.625%, BUCS, 144A ................. 4,775,000
115,000 Worthington Industries, Inc.
7.25%, DECS (exchangeable for
Rouge Steel Co. Common Stock) ...... 1,854,950
-------------
6,629,950
-------------
Oil Field Services - 0.1%
70,000 EVI, Inc.
5.00%, 144A ........................ 3,176,600
-------------
Real Estate - 0.1%
95,000 First Union Real Estate Equity
8.40%, Series A .................... 3,705,000
-------------
Retailing & Wholesale - 0.0% (a)
1,300 Kmart Financing I
7.75% .............................. 81,575
-------------
Total Convertible Preferred
(cost $15,457,797).................. 16,558,126
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
CONVERTIBLE DEBENTURES - 0.2%
Building, Construction &
Furnishings - 0.0% (a)
$ 500,000 Home Depot, Inc.
3.25%, 10/1/01 ...... $ 755,000
-----------
Business Equipment &
Services - 0.0% (a)
800,000 Personnel Group of
America, Inc.
5.75%, 7/1/04, 144A . 1,146,000
-----------
Environmental
Services - 0.0% (a)
100,000 USA Waste Services,
Inc.
4.00%, 2/1/02 ....... 117,500
-----------
Industrial Specialty
Products &
Services - 0.2%
2,100,000 Robbins & Myers, Inc.
6.50%, 9/1/03 ....... 3,115,980
750,000 Simula, Inc.
8.00%, 5/1/04 ....... 828,750
-----------
3,944,730
-----------
Total Convertible
Debentures
(cost $4,280,000).... 5,963,230
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 26.5%
Government Agency Notes
& Bonds - 0.8%
1,000,000 Federal National
Mortgage Association
8.10%, 8/12/19 ...... 1,221,819
Tennessee Valley
Authority
8,000,000 7.25%, 7/15/43 ..... 8,391,560
10,000,000 7.85%, 6/15/44, Series
A ................... 10,852,540
-----------
20,465,919
-----------
Treasury Notes &
Bonds - 25.7%
U.S. Treasury Bonds
60,000,000 6.00%, 2/15/26 ..... 59,906,280
170,000,000 6.25%, 8/15/23 ..... 175,206,420
36,340,000 6.75%, 8/15/26 ..... 39,974,037
125,000,000 7.125%, 2/15/23 .... 142,656,375
49,000,000 7.25%, 5/15/16 ..... 55,768,174
7,000,000 7.625%, 11/15/22 ... 8,426,257
10,000,000 8.00%, 11/15/21 .... 12,465,630
50,000,000 8.125%, 8/15/19 .... 62,531,300
25,000,000 8.125%, 5/15/21 .... 31,492,200
30,000,000 8.375%, 8/15/08 .... 33,684,390
10,000,000 8.50%, 2/15/20 ..... 12,987,510
7,000,000 10.00%, 5/15/10 .... 8,682,191
1,000,000 10.625%, 8/15/15 ... 1,499,063
U.S. Treasury Notes
30,000,000 5.75%, 8/15/03 ..... 30,103,140
350,000 5.875%, 2/15/00 .... 351,750
455,000 6.125%, 8/31/98 .... 456,280
400,000 6.25%, 3/31/99 ..... 402,751
900,000 6.50%, 5/31/01 ..... 921,657
630,000 6.50%, 8/15/05 ..... 658,350
-----------
678,173,755
-----------
Total U.S. Government &
Agency
Obligations
(cost $657,254,023).. 698,639,674
-----------
</TABLE>
43
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
SHORT-TERM INVESTMENTS - 11.3%
Commercial Paper - 11.3%
$ 3,090,000 Alfa Corp.
5.52%, 5/4/98 ................... $ 3,074,365
945,000 American Home Products, Inc.
5.50%, 4/28/98 .................. 941,102
6,800,000 Amoco Managers
5.57%, 4/21/98 .................. 6,778,958
3,120,000 Aristar, Inc.
5.53%, 4/14/98 .................. 3,113,769
17,400,000 Asset Portfolio Funding
5.50%, 4/7/98 ................... 17,384,050
8,160,000 Bemis Co., Inc.
5.51%, 4/24/98 .................. 8,131,274
3,215,000 BMW U.S. Capital Corp.
5.51%, 5/13/98 .................. 3,194,333
3,700,000 Daimler-Benz North America Corp.
5.50%, 5/4/98 ................... 3,681,346
640,000 Delaware Funding Corp.
5.53%, 5/20/98 .................. 635,183
Duke Capital Corp.
5,765,000 5.51%, 4/20/98 ................. 5,748,235
3,250,000 5.52%, 4/13/98 ................. 3,244,020
1,750,000 5.55%, 4/29/98 ................. 1,742,446
Eiger Capital Corp.
8,150,000 5.52%, 4/27/98 ................. 8,117,508
8,760,000 5.52%, 5/22/98 ................. 8,691,497
2,830,000 Fina Oil & Chemical Co.
5.54%, 5/12/98 .................. 2,812,144
Finova Capital Corp.
29,330,000 5.49%, 4/9/98 .................. 29,294,218
1,600,000 5.55%, 4/20/98 ................. 1,595,313
6,300,000 Great Lakes Chemical Corp.
5.52%, 4/15/98 ................. 6,286,476
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
SHORT-TERM INVESTMENTS - continued
Commercial Paper - continued
GTE Corp.
$25,000,000 5.57%, 4/3/98 .................. $ 24,992,264
11,600,000 5.67%, 5/7/98 .................. 11,534,228
28,750,000 Market Street Funding Corp.
5.55%, 5/13/98 .................. 28,563,844
15,330,000 Massachusetts College of Pharmacy &
Allied Health Services
5.50%, 4/2/98 ................... 15,327,658
Montana Blanc Capital Corp.
6,225,000 5.53%, 5/28/98 ................. 6,170,495
20,000,000 5.55%, 5/22/98 ................. 19,842,750
16,000,000 Park Avenue Recreation Corp.
5.55%, 5/22/98 .................. 15,874,200
25,000,000 Republic Industries Funding Corp.
5.52%, 4/24/98 .................. 24,911,833
Spec Purpose Accts Recreation Co.
16,350,000 5.51%, 4/20/98 ................. 16,302,453
1,675,000 5.55%, 5/6/98 .................. 1,665,962
9,780,000 Swiss Re Financial Products Corp.
5.50%, 4/27/98 .................. 9,741,152
Trident Capital Finance, Inc.
8,680,000 5.50%, 4/7/98 .................. 8,672,043
320,000 5.55%, 5/19/98 ................. 317,632
------------
298,382,751
------------
Total Short-Term Investments
(cost $298,382,751).............. 298,382,751
------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments -
(cost $1,935,098,601)..... 99.4% 2,626,081,854
Other Assets and
Liabilities - net ......... 0.6 15,145,758
----- -------------
Net Assets ................ 100.0% $2,641,227,612
===== ==============
</TABLE>
* Non-income producing securities.
** At March 31, 1998 the Fund owned 117,000 shares of common stock of First
Union Corp. at a cost of $2,358,411. During the period ended March 31, 1998
the Fund earned $152,000 in dividend income from this investment. These
shares were purchased by the Fund prior to the acquisition of the
investment adviser and Lieber & Company by First Union.
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.
(a) Less than one-tenth of a percent.
ADR American Depository Receipts
BUCS Beneficial Unsecured Convertible Securities
DECS Dividend Enhanced Convertible Stock
PERCS Preferred Equity Redemption Cumulative Stock
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
SA Sociedad Anonyme (Spanish Corporation)
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCK - 39.8%
Aerospace &
Defense - 0.8%
45,000 Boeing Co. ........... $2,345,625
----------
Automotive Equipment &
Manufacturing - 0.1%
10,000 Sonic Automotive, Inc.
Banks - 6.9% ........ 172,500
----------
19,600 BancorpSouth, Inc. ... 861,175
19,500 BankBoston Corp. ..... 2,149,875
27,563 Beverly Bancorporation,
Inc. ................. 737,297
25,000 Cape Cod Bank & Trust
Co. .................. 1,100,000
15,000 CitiCorp ............. 2,130,000
5,000 Comerica, Inc. ....... 529,062
14,000 Crestar Financial Corp. 827,750
24,660 Dime Bancorp, Inc. ... 741,341
4,000 First Empire State Corp. 1,999,500
16,500 First of America Bank
Corp. ................ 1,427,250
3,000 First Union Corp. ** . 170,250
5,000 Fleet Financial Group,
Inc. ................. 425,312
11,550 Interchange Financial
Services Corp. ....... 355,163
8,000 KeyCorp .............. 302,500
11,875 NationsBank Corp. .... 866,133
15,750 One Valley Bancorp of
West Virginia, Inc. .. 595,547
10,000 Republic New York Corp. 1,333,750
15,000 Seacoast Banking Corp.
of Florida Cl. A ..... 555,000
37,255 SouthTrust Corp. ..... 1,560,053
10,000 Suntrust Banks, Inc. . 753,750
20,000 Wilmington Trust Corp. . 1,327,500
----------
20,748,208
----------
Building, Construction &
Furnishings - 1.3%
25,000 Clayton Homes, Inc. .. 506,250
10,700 La-Z-Boy Chair Co. ... 534,331
16,000 Lowe's Companies, Inc. . 1,123,000
10,000 Royal Group Technologies
Ltd. .................. 327,500
39,100 Shelby Williams
Industries, Inc. ...... 584,056
33,300 * Toll Brothers, Inc. .. 936,563
----------
4,011,700
----------
Business Equipment &
Services - 0.4%
17,500 * Crescent Operating, Inc. 374,063
10,000 First Data Corp. ..... 325,000
5,000 Lucent Technologies,
Inc. ................. 639,375
----------
1,338,438
----------
Capital Goods - 1.0%
20,600 Caterpillar, Inc. .... 1,134,288
30,000 Deere & Co. .......... 1,858,125
----------
2,992,413
----------
Chemicals & Agricultural
Products - 2.0%
20,000 Du Pont (E. I.) De
Nemours & Co. ........ 1,360,000
10,000 H.B. Fuller Co. ...... 598,750
19,000 MacDermid, Inc. ...... 546,250
35,000 Monsanto Co. ......... 1,820,000
11,000 Morton International,
Inc. ................. 360,937
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCK - continued
Chemicals & Agricultural
Products - continued
20,000 Schulman (A.), Inc. .. $ 505,000
20,000 Sigma-Aldrich Corp. .. 745,000
----------
5,935,937
----------
Communication Systems &
Services - 0.1%
4,500 * Cisco Systems, Inc. .. 307,688
----------
Consumer Products &
Services - 1.4%
10,000 Adidas AG ADS, 144A .. 887,500
37,788 * Cendant Corp. ........ 1,497,350
12,000 Gucci Group .......... 570,000
32,100 Russ Berrie & Co., Inc. 973,031
10,500 Toro Co. ............. 402,281
----------
4,330,162
----------
Electrical Equipment &
Services - 2.3%
24,900 AMP, Inc. ............ 1,090,931
6,600 Applied Power, Inc., Cl.
A ..................... 254,100
10,000 General Electric Co. . 861,875
40,000 Harman International
Industries, Inc. ..... 1,760,000
17,000 Honeywell, Inc. ...... 1,405,688
19,700 Perkin Elmer Corp. ... 1,424,556
----------
6,797,150
----------
Finance &
Insurance - 5.2%
18,000 American International
Group, Inc. .......... 2,266,875
12,000 Chubb Corp. .......... 940,500
20,000 Countrywide Credit
Industries, Inc. ...... 1,063,750
3,000 Enhance Financial
Services Group, Inc. .. 208,312
10,000 FBL Financial Group,
Inc., Cl. A ........... 506,250
12,000 Federal National
Mortgage Association .. 759,000
20,000 * FPIC Insurance Group,
Inc. ................... 645,000
30,000 Frontier Insurance
Group, Inc. ............ 828,750
47,100 Interstate/Johnson Lane,
Inc. ................... 1,436,550
13,333 Legg Mason, Inc. ..... 790,814
20,000 Lehman Brothers
Holdings, Inc. ......... 1,497,500
20,000 Mercury General Corp. 1,251,250
28,000 Merrill Lynch & Co.,
Inc. ................... 2,324,000
28,000 Nationwide Financial
Services, Inc.
Cl. A .................. 1,214,500
183 * Security Capital Group,
Inc. Cl. B,
Warrants $28.00 Expiring
9/18/98 ................. 606
----------
15,733,657
----------
Food & Beverage
Products - 0.2%
15,000 International Home Foods,
Inc. .................. 498,750
----------
Healthcare Products &
Services - 2.6%
7,000 Abbott Laboratories .. 527,188
20,000 American Home Products
Corp................... 1,907,500
23,800 Beckman Instruments, Inc. 1,364,037
19,000 * First Health Group Corp. . 1,030,750
5,000 * Lincare Holdings, Inc. . 353,125
12,000 Medtronic, Inc. ...... 622,500
5,000 Merck & Co., Inc. .... 641,875
10,000 Pfizer, Inc. ......... 996,875
</TABLE>
45
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCK - continued
Healthcare Products &
Services - continued
5,000 Shared Medical System Corp. .......... $ 391,875
-----------
7,835,725
-----------
Industrial Specialty Products &
Services - 1.3%
29,151 Autoliv, Inc. ........................ 905,503
7,500 * Chemfab Corp. ........................ 183,750
24,000 Furon Co. ............................ 565,500
25,000 * Meade Instruments Corp. .............. 242,187
7,800 Park Electrochemical Corp. ........... 201,338
13,900 Snap-on, Inc. ........................ 634,187
20,000 Timken Co. ........................... 676,250
20,000 * UCAR International, Inc. ............. 627,500
-----------
4,036,215
-----------
Information Services &
Technology - 1.7%
8,000 * Etec Systems, Inc. ................... 472,000
10,000 * Gateway 2000, Inc. ................... 469,375
24,000 Hewlett-Packard Co. .................. 1,521,000
24,000 Intel Corp. .......................... 1,873,500
4,000 International Business Machines Corp. 415,500
10,000 * Sun Microsystems, Inc. ............... 417,187
-----------
5,168,562
-----------
Oil/Energy - 0.7%
10,000 Amoco Corp. .......................... 863,750
10,000 Equitable Resources, Inc. ............ 332,500
30,000 Williams Companies, Inc. ............. 960,000
-----------
2,156,250
-----------
Oil Field Services - 0.1%
5,000 Schlumberger Ltd. .................... 378,750
-----------
Publishing, Broadcasting &
Entertainment - 0.2%
10,000 Belo (A.H.) Corp., Ser. A ............ 550,000
-----------
Real Estate - 5.8%
10,300 * Alexander's, Inc. REIT ............... 964,981
60,000 AMB Property Corp. REIT .............. 1,447,500
50,000 Boston Properties, Inc. REIT ......... 1,759,375
20,000 Brandywine Realty Trust REIT ......... 476,250
25,000 Capital Trust, Cl. A ................. 243,750
12,000 Capstead Mortgage Corp. REIT ......... 237,000
31,400 Continental Homes Holding Corp. ...... 1,460,100
70,000 Del Webb Corp. ....................... 2,135,000
25,000 Equity Office Properties Trust REIT .. 765,625
13,500 Gables Residential Trust REIT ........ 367,031
45,831 * Homestead Village Properties, Inc. ... 693,194
35,400 Horizon Group, Inc. REIT ............. 435,862
40,000 INMC Mortgage Holdings, Inc. ......... 1,000,000
15,000 * Interstate Hotels Co. ................ 538,125
40,000 * John Q. Hammons Hotels, Inc., Cl. A .. 315,000
30,000 Kilroy Realty Corp. REIT ............. 856,875
29,000 Patriot American Hospitality, Inc. REIT 783,000
20,000 Prentiss Properties Trust REIT ....... 522,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCK - continued
Real Estate - continued
3,485 Security Capital Pacific Trust REIT .. $ 83,858
10,000 SL Green Realty Corp. REIT ........... 255,625
20,000 Starwood Hotels & Resorts
Trust REIT ........................... 1,068,750
55,000 Sunstone Hotel Investors, Inc. REIT .. 880,000
15,000 Trizec Hahn Corp. .................... 353,438
-----------
17,642,839
-----------
Retailing & Wholesale - 1.9%
18,000 Avnet, Inc. .......................... 1,036,125
22,200 Mercantile Stores Co., Inc. .......... 1,491,562
10,000 * Payless Shoesource, Inc. ............. 752,500
80,000 SED International Holdings, Inc. ..... 910,000
35,100 St. John Knits, Inc. ................. 1,658,475
-----------
5,848,662
-----------
Thrift Institutions - 1.0%
18,000 Bank United Corp. .................... 900,000
15,000 BankUnited Financial Corp. ........... 210,000
10,000 Golden West Financial Corp. .......... 958,125
30,000 Mech Financial, Inc. ................. 915,000
-----------
2,983,125
-----------
Transportation - 1.7%
47,000 * Airnet Systems, Inc. ................. 1,363,000
10,000 GATX Corp. ........................... 780,000
20,700 Midwest Express Holdings, Inc. ....... 1,014,300
35,000 Union Pacific Corp. .................. 1,966,563
-----------
5,123,863
-----------
Utilities - Electric - 0.1%
9,900 TNP Enterprises, Inc. ................ 327,319
-----------
Utilities - Telephone - 1.0%
25,000 Frontier Corp. ....................... 814,063
18,000 GTE Corp. ............................ 1,077,750
18,000 Sprint Corp. ......................... 1,218,375
-----------
3,110,188
-----------
Total Common Stock
(cost $89,101,662).................... 120,373,726
-----------
CONVERTIBLE PREFERRED STOCKS - 1.1%
Banks - 0.7%
63,000 WBK Trust, 10.00%, STRYPES
(exchangeable for Westpac
Banking Corp. Common Stock) .......... 2,145,937
-----------
Transportation - 0.4%
20,000 CNF Trust I TECONS (exchangeable for
CNF Transportation, Inc.
common stock), 5.00%, Ser. A ......... 1,160,000
-----------
Total Convertible Preferred Stocks
(cost $2,975,050)..................... 3,305,937
-----------
</TABLE>
46
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
CONVERTIBLE DEBENTURES - 0.2%
Business Equipment &
Services - 0.1%
$ 150,000 Personnel Group of America, Inc.,
5.75%, 7/1/04, 144A ................. $ 214,875
----------
Oil Field Services - 0.1%
250,000 Parker Drilling Co.,
5.50%, 8/1/04 ....................... 251,250
----------
Total Convertible Debentures
(cost $400,000)...................... 466,125
----------
MUNICIPAL OBLIGATIONS - 59.2%
Long Term - 52.2%
Alaska - 0.7%
1,000,000 Alaska Hsg. Fin. Corp. Mtge.
RB, 1996 Ser. A
6.05%, 12/1/17 (MBIA) ............... 1,055,860
1,000,000 Alaska Hsg. Fin. Corp. RB
Mtge. Ser. A-1
5.30%, 12/1/12 (MBIA) ............... 1,019,110
----------
2,074,970
----------
Arizona - 0.2%
500,000 City of Tucson GO RB,
Ser. 1995
5.70%, 7/1/08 (FGIC) ................ 540,030
----------
California - 4.2%
500,000 California Edl. Facs. Auth.
RB (Carnegie Institution of
Washington), Ser. A
5.60%, 10/1/23 ...................... 516,365
700,000 California Hsg. Fin. Agcy. RB
Ser. I
5.75%, 2/1/29 (MBIA) ................ 722,904
500,000 California Hsg. Fin. Agcy. RB
Home Mtge. Ser. L
5.35%, 8/1/17 ....................... 508,300
1,500,000 California St. Ser. BG
5.05%, 12/1/11 ...................... 1,509,105
1,000,000 Los Angeles Cnty. Metro.
Trans. Auth. Sales Tax RB
Ser. A
5.13%, 7/1/10 (MBIA) ................ 1,037,480
1,200,000 Los Angeles Cnty. Pub. Works
Fin. Auth. RB Regional Park &
Open Space Dist. A
5.00%, 10/1/16 ...................... 1,176,588
500,000 Modesto Irrigation Dist.
Fing. Auth. RB Refunding
(Domestic Wtr. Proj.) Ser. D
5.00%, 9/1/12 (AMBAC) ............... 505,055
1,200,000 Northern CA Transmission RB
Ser. A
5.30%, 5/1/10 (MBIA) ................ 1,276,008
1,000,000 Oakland GO Ser. C, Measure K
5.90%, 12/15/22 (MBIA) .............. 1,072,110
700,000 Palm Desert Fing. Auth. Tax
Alloc. RB (Housing Set Aside)
5.00%, 10/1/13 (MBIA) ............... 703,885
1,000,000 San Francisco Bay Area Rapid
Transport Dist. Sales Tax RB
5.25%, 7/1/18 ....................... 1,008,920
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
California - continued
$1,000,000 San Francisco City & Cnty.
Int'l Aprt. RB Ser. Issue
10-A, (AMT)
5.70%, 5/1/26 (MBIA) ................ $1,042,790
500,000 Simi Valley Unified Sch.
Dist. Refunding Capital
Improvement Proj. Cert. Part.
5.25%, 8/1/22 ....................... 514,590
1,000,000 Southern CA Pub. Pwr. Auth.
RB (Mead Adelanto Proj.)
Ser. A
5.00%, 7/1/17 (AMBAC) ............... 981,740
----------
12,575,840
----------
500,000 Arapahoe Cnty. Pub. Hwy.
Auth. Capital Imp. Trust Fund
Hwy. RB (E-470 Proj.)
6.15%, 8/31/26 (MBIA) ............... 551,670
3,000,000 Arapahoe Cnty. Senior E-470
Pub. Auth. Capital Imp. Trust
Fund Hwy. Prerefunded RB
7.00%, 8/31/26 ...................... 3,566,760
1,000,000 Denver City & Cnty. Arpt. RB
Ser. D
5.50%, 11/15/25 (MBIA) .............. 1,027,470
500,000 Denver City & Cnty. Sch.
Dist. # 1 GO RB, Ser. 1994A
6.50%, 6/1/10 (MBIA) ................ 583,650
1,070,000 Douglas Cnty. Sch. Dist. # 1
Imp. Prerefunded RB Ser. A
6.50%, 12/15/16 ..................... 1,217,179
1,500,000 E-470 Pub. Hwy. Auth. RB
Ser. A
5.00%, 9/1/26 (MBIA) ................ 1,444,890
3,060,000 Univ. Hosp. Auth. RB Ser. A
6.40%, 11/15/22 (AMBAC) ............. 3,395,957
500,000 Univ. Hosp. Auth. RB Ser. A
5.25%, 11/15/22 (AMBAC) ............. 499,285
----------
12,286,861
----------
Delaware - 0.4%
1,000,000 Delaware Econ. Dev. Auth. RB
(The Osteopathic Hosp. Assoc.
of Delaware/Riverside
Hosp.), Ser. A
6.50%, 1/1/08 ....................... 1,121,430
----------
District Of Columbia - 0.5%
1,500,000 Metro Wash DC Airport Authority
RB Ser. B
5.50%, 10/1/23 (AMT) ................ 1,530,765
----------
Florida - 1.2%
300,000 Dade Cnty. Aviation RRB,
Ser. 1995A
6.10%, 10/1/11 (AMBAC) .............. 329,805
2,000,000 Florida Muni. Pwr. Agcy. RB
Prerefunded (Stanton II Proj.)
6.50%, 10/1/20 (AMBAC) .............. 2,227,000
1,000,000 Sarasota Cnty. Pub. Hosp.
Board RB (Sarasota Mem. Hosp.
Proj.) Ser. B
5.38%, 10/1/20 ...................... 1,011,550
----------
3,568,355
----------
</TABLE>
47
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Georgia - 2.9%
$ 1,000,000 Atlanta Wtr. & Swr. RB
5.25%, 1/1/27 (FGIC) ......................... $ 999,910
1,000,000 Cherokee Cnty. Wtr. & Swr.
Auth. RB
5.20%, 8/1/25 (MBIA) ......................... 1,021,730
2,000,000 Cobb-Marietta Colliseum &
Exhibit Hall Auth. RB
6.75%, 10/1/26 (MBIA) ........................ 2,206,580
1,000,000 Dalton Util. RRB
6.00%, 1/1/08 (MBIA) ......................... 1,115,580
2,000,000 De Kalb Cnty. Prerefunded GO
6.65%, 1/1/20 ................................ 2,206,860
1,000,000 Georgia Muni. Elec. Auth.
Pwr. Rev. Spec. Oblig. Bonds
Ser. Y
6.50%, 1/1/17 (MBIA) ......................... 1,176,330
----------
8,726,990
----------
Hawaii - 0.4%
1,000,000 Hawaii St. GO Ser. CN
6.00%, 3/1/09 (FGIC) ......................... 1,114,500
----------
Illinois - 1.8%
1,000,000 Chicago Board of Ed. GO
(School Reform Proj.)
6.75%, 12/1/09 (AMBAC) ....................... 1,181,420
2,500,000 Chicago Skyway Toll Bridge
Prerefunded RB
6.75%, 1/1/14 ................................ 2,852,150
1,000,000 Chicago Wastewater
Transmission RB
5.00%, 1/1/15 (FGIC) ......................... 988,750
450,000 Illinois Sales Tax RB Ser. V
6.38%, 6/15/17 ............................... 500,557
----------
5,522,877
----------
Indiana - 0.7%
2,000,000 Indiana Hsg. Fin. Single
Family Mtge. RB Ser. A-2
5.15%, 7/1/17 (FNMA/GNMA) .................... 1,997,420
----------
Maine - 0.5%
1,000,000 Maine Hlth. & High Edl. Facs.
Auth. RB Ser. B
5.75%, 7/1/26 (AMBAC) ........................ 1,052,930
500,000 Maine Hsg. Auth. Mtge.
Purchase RB Ser. F-1
5.50%, 11/15/29 .............................. 504,670
----------
1,557,600
----------
Maryland - 0.3%
1,000,000 Prince Georges Cnty. GO
(Cons. Pub. Imps.)
5.50%, 3/15/16 ............................... 1,040,400
----------
Massachusetts - 3.0%
250,000 Massachusetts Hsg. Fin. Agcy.
Hsg. Proj. RRB, 1993 Ser. A
5.95%, 10/1/08 (AMBAC) ....................... 265,550
250,000 Massachusetts Bay Trans.
Auth. General Trans. Sys.
Bonds, Ser. 1994A
7.00%, 3/1/08 ................................ 298,658
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Massachusetts - continued
$ 1,000,000 Massachusetts Bay Trans.
Auth. RB (Refunding Gen.
Trans. Sys. A)
7.00%, 3/1/14 ................................ $1,230,180
1,000,000 Massachusetts Hsg. Fin. Agcy.
RB (AMT) Single Family Ser. 59
5.40%, 6/1/20 (MBIA) ......................... 999,920
2,500,000 Massachusetts Port. Auth. RB
Ser. A
5.00%, 7/1/27 ................................ 2,403,275
820,000 Massachusetts Port. Auth. RB
Refunding Ser. A
5.50%, 7/1/13 ................................ 860,811
1,000,000 Massachusetts Tpke. Auth. RB
Senior Ser. A
5.13%, 1/1/23 (MBIA) ......................... 981,350
1,000,000 Massachusetts Tpke. Auth. RB
(Western Tpke.) Ser. A
5.55%, 1/1/17 (MBIA) ......................... 1,011,320
1,000,000 Massachusetts Wtr. Resources
Auth. RB (Houston Inds. Inc.
Proj. A)
4.75%, 8/1/37 ................................ 917,100
----------
8,968,164
----------
Michigan - 1.9%
1,000,000 Detroit Prerefunded GO Ser. A
6.80%, 4/1/15 ................................ 1,154,280
1,030,000 Detroit Wtr. Supply Sys. RB
Sr. Lien Ser. A
5.75%, 7/1/11 (MBIA) ......................... 1,130,343
300,000 Michigan Muni. Bond Auth. RB
(Local Govt. Loan Proj.),
Ser 1994G
6.55%, 11/1/08 (AMBAC) ....................... 340,827
1,000,000 Michigan Bldg. Auth. RB Fac.
Proj. Ser. II
5.05%, 10/15/14 .............................. 992,010
2,000,000 Monroe Cnty. Econ. Dev. Corp.
Ltd. Prerefunded RB (Comm.
Hlth. Serv. Proj.)
7.00%, 9/1/21 (MBIA) ......................... 2,215,180
----------
5,832,640
----------
Minnesota - 0.7%
2,000,000 Minnesota St. Prerefunded GO
6.63%, 8/1/08 ................................ 2,157,000
----------
Missouri - 3.3%
480,000 Missouri Hsg. Dev. Commission
Single Family Mtge. RB
(Homeownership Loan Proj.),
1996 Ser. D
6.00%, 9/1/17
(Collaterialized by GNMA or
FNMA Certificates AMT) ....................... 500,424
930,000 Missouri Hsg. Dev. Commission
Single Family Mtge. RB
(Homeownership Loan Proj.),
1996 Ser. B
6.25%, 9/1/15
(Collaterialized by GNMA or
FNMA Certificates) ........................... 981,680
1,000,000 Missouri Hsg. Dev. Commission
Mtge.
5.55%, 3/1/29 ................................ 1,022,980
</TABLE>
48
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Missouri - continued
$ 2,000,000 Sikeston Elec. Prerefunded RB
6.25%, 6/1/22 (MBIA) .......................... $2,194,380
2,250,000 Sikeston Elec. RB
6.25%, 6/1/12 (MBIA) .......................... 2,468,677
775,000 Sikeston Elec. RB
6.00%, 6/1/13 (MBIA) .......................... 871,643
500,000 St. Louis Board of Ed. GO
Refunding Ser. A
5.50%, 4/1/10 ................................. 537,795
500,000 St. Louis Muni. Fin. Corp.
Leasehold Rev. Imp. Bonds
(City Justice Ctr.),
Ser. 1996A
5.95%, 2/15/16 (AMBAC) ........................ 539,370
1,000,000 St. Louis Regl. Convention &
Sports Complex Auth. RB Facs. C
5.30%, 8/15/17 (AMBAC) ........................ 1,010,530
----------
10,127,479
----------
Nevada - 0.7%
1,000,000 Clark Cnty., Las Vegas
McCarran Int'l Arpt.
Passanger Facs. RB Ser. A,
1992 Series A
6.00%, 7/1/22 (AMBAC) ......................... 1,071,500
1,000,000 Washoe Cnty. GO
5.00%, 6/1/17 (MBIA) .......................... 978,220
----------
2,049,720
----------
New Jersey - 0.5%
1,400,000 New Jersey Tpke. Auth. RB
Ser. C
6.50%, 1/1/16 (MBIA) .......................... 1,647,786
----------
New York - 6.6%
2,500,000 Metro Trans. Auth. NY
Commuter Facs. RB Ser. C-2
5.38%, 7/1/27 (FGIC) .......................... 2,540,950
1,000,000 Metro Trans. Auth. NY
Commuter Facs. RB Ser. D
5.13%, 7/1/22 (MBIA) .......................... 982,880
375,000 New York City GO Ser. L
5.38%, 8/1/11 (MBIA) .......................... 389,662
2,485,000 New York City Prerefunded GO
Ser. A
8.00%, 8/15/21 ................................ 2,822,190
2,000,000 New York City Transitional
Fin. Auth. RB Future Tax
Secured Ser. A
5.00%, 8/15/15 ................................ 1,963,460
250,000 New York St. Mtge. Agcy.
Homeowner Mtge. RB, Ser. 44
(AMT)
6.60%, 4/1/03 ................................. 264,090
990,000 New York St. Mtge. Agcy.
Homeowner Mtge. RB, Ser. 56
(AMT)
5.88%, 10/1/19 ................................ 1,025,363
245,000 New York St. Med. Care Facs.
Fin. Agcy. RB (Mental Hlth.
Svcs. Facs.), 1992 Ser. B
6.25%, 8/15/10 (AMBAC) ........................ 264,281
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New York - continued
$ 2,000,000 New York St. Med. Care Facs.
Fin. Agcy. RB Refunding Hosp.
Insured Mtge. A
5.38%, 2/15/25 (MBIA) ......................... $2,017,100
500,000 New York St. Med. Care Facs.
Fin. Agcy. RB (Mental Hlth.
Svcs. Facs.), 1995 Ser. A
6.00%, 2/15/25 (MBIA) ......................... 532,125
500,000 New York St. Mtge. Agcy. RB
(Homeowner Mtge.) Ser. 63,
(AMT)
5.60%, 4/1/10 ................................. 518,970
1,000,000 New York St. Thruway Auth.
Ser. C
6.00%, 1/1/25 (FGIC) .......................... 1,070,810
1,000,000 New York St. Thruway Auth. RB
Ser. B
5.00%, 1/1/20 (MBIA) .......................... 971,510
250,000 Port Auth. of New York & New
Jersey Consolidated Bonds,
97th Ser. 2nd Installment
(AMT)
7.00%, 7/15/05 (FGIC) ......................... 288,993
2,000,000 Port Auth. of New York & New
Jersey Special Obligation RB
(JFK Intl. Aprt. Terminal 6
Proj.)
6.25%, 12/1/10 ((MBIA) (AMT)) ................. 2,270,660
2,000,000 United Nations Dev. Corp.
Prerefunded RB Ser. A
6.00%, 7/1/26 ................................. 2,203,040
----------
20,126,084
----------
North Carolina - 0.2%
500,000 North Carolina Hsg. Fin.
Agcy. Single Family Ser. 00,
(Orig. Avg. Life Est.)
5.80%, 9/1/12 (FHA) ............................ 526,430
----------
North Dakota - 0.3%
1,000,000 Mercer Cnty. Poll. Ctrl. RRB
(Basin Elec. Pwr.
Cooperative-Antelope Valley
Unit 1 & Common Facs.),
Second 1995 Ser.
6.05%, 1/1/19 (AMBAC) ......................... 1,079,750
----------
Ohio - 1.9%
500,000 Akron Econ. Dev. RB
6.00%, 12/1/12 (MBIA) ......................... 562,055
700,000 Board of Ed. Beavercreek
Local Sch. Dist. (Cnty. of
Greene) Sch. Imp. Bonds
(Unltd. Tax GO), Ser. 1996
6.60%, 12/1/15 (FGIC) ......................... 838,236
1,000,000 Cleveland Arpt. Sys. RB Ser. A
5.13%, 1/1/17 (FSA AMT) ....................... 978,120
2,000,000 Cleveland Prerefunded GO
Ser. B
6.75%, 10/1/08 (AMBAC) ........................ 2,206,580
1,000,000 Jefferson Cnty. GO Refunding
Improvement
5.70%, 12/1/13 ................................ 1,097,550
----------
5,682,541
----------
</TABLE>
49
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Oregon - 0.3%
$ 1,025,000 Eugene Cnty. Elec. Util. RB
4.75%, 8/1/12 ..................................... $1,003,034
----------
Pennsylvania - 5.2%
2,500,000 North Penn Wtr. Auth. RB
6.88%, 11/1/19 (FGIC) ............................. 2,887,575
2,000,000 North Wales Wtr. Auth. RB
7.00%, 11/1/20 (FGIC) ............................. 2,307,900
500,000 Pennsylvania Convention Ctr.
Auth. RB Ser. A, 1989 Ser. A
6.70%, 9/1/16 (FGIC) .............................. 592,890
500,000 Pennsylvania Higher Ed. Facs.
Auth. RB Drexel Univ.
4.80%, 5/1/28 (MBIA) .............................. 466,135
500,000 Pennsylvania Hsg. Fin. Agcy.
Single Family Mtge. Ser. 61B RB
5.20%, 10/1/14 .................................... 502,150
1,965,000 Pennsylvania
Intergovernmental Coop. Auth.
Spec. Tax Rev. Phil. Funding
Prog., Prerefunded
6.80%, 6/15/12 .................................... 2,164,369
1,450,000 Pennsylvania
Intergovernmental Coop. Auth.
Spec. Tax Rev. Phil. Funding
Prog., Prerefunded
7.00%, 6/15/14 .................................... 1,684,407
3,000,000 Philadelphia Hosp. & Higher
Ed. Facs. Auth. Prerefunded
RB Childrens Hosp. Proj. Ser. A
6.50%, 2/15/21 ................................... 3,297,390
750,000 Philadelphia Wtr. & Wastewater RB
6.25%, 8/1/11 (MBIA) .............................. 858,525
1,000,000 York Cnty. Solid Waste &
Refuse Auth. Solid Waste Sys. RB
5.50%, 12/1/11 (FGIC) ............................. 1,075,740
----------
15,837,081
----------
South Dakota - 0.4%
1,235,000 South Dakota Hsg. Dev. Auth.
RB Homeownership B
5.25%, 5/1/17 ..................................... 1,238,236
----------
Tennessee - 0.1%
300,000 Bristol Hlth. & Edl. Facs.
Board RRB (Bristol Mem.
Hosp.), Ser. 1993
6.75%, 9/1/07 (FGIC) .............................. 350,079
----------
Texas - 4.7%
1,000,000 Cypress Fair Independent Sch. Dist.
5.13%, 2/15/12 .................................... 1,012,780
1,000,000 Harris Cnty. Hlth. Facs.
Hosp. RB (Memorial Hermann
Hosp. Sys. Proj.)
5.50%, 6/1/10 ..................................... 1,062,920
1,000,000 Houston Wtr. Conveyance Sys.
Contract COP, Ser. 1993J
6.13%, 12/15/09 (AMBAC) ........................... 1,133,850
500,000 Houston Wtr. Conveyance Sys.
Contract COP, Ser. 1993H
7.50%, 12/15/10 (AMBAC) ........................... 632,745
1,500,000 Irving Independent Sch. Dist. GO
5.13%, 2/15/18 .................................... 1,488,090
460,000 Lubbock Elec. Light & Pwr. Sys. RB
4.25%, 4/15/16 (AMBAC) ............................ 412,229
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Texas - continued
$ 460,000 Lubbock Elec. Light & Pwr. Sys. RB
4.25%, 4/15/17 (AMBAC) ........................... $ 409,110
1,000,000 San Antonio Elec. & Gas RB
5.25%, 2/1/10 ..................................... 1,039,320
2,000,000 San Antonio Prerefunded GO
6.75%, 8/1/08 ..................................... 2,164,060
1,500,000 Tarrant Cnty. Hlth. Facs.
Dev. Corp. Hlth. Res. Sys. Ser. A
5.25%, 2/15/17 (MBIA) ............................. 1,499,910
1,000,000 Texas Muni. Pwr. Agcy. RB
5.25%, 9/1/09 (MBIA) .............................. 1,054,460
2,000,000 Univ. of Texas Permanent
Univ. Fund RB Prerefunded
6.50%, 7/1/11 ..................................... 2,180,200
----------
14,089,674
----------
Utah - 0.4%
500,000 Salt Lake City Hosp. RB (IHC
Hosp., Inc.)
6.30%, 2/15/15 .................................... 576,570
500,000 Utah Hsg. Fin. Agcy. RB
(Single Family Mtge.) Ser. B
6.00%, 7/1/16 (FHA) ............................... 528,775
----------
1,105,345
----------
Vermont - 0.5%
1,315,000 Burlington Elec. RB Ser. A
6.25%, 7/1/12 (MBIA) ............................. 1,511,514
----------
Virginia - 0.7%
1,000,000 Virginia Hsg. Dev. Auth.
Commonwealth Mtg. RB Ser. H,
Sub-Ser. H-1-RMK
5.00%, 7/1/14 ..................................... 998,820
1,000,000 Virginia Pub. Bldg. Auth.
Facs. RB Ser. A
5.38%, 8/1/10 ..................................... 1,052,290
----------
2,051,110
----------
Washington - 0.3%
500,000 Snohomish Cnty. Sch. Dist. GO
5.70%, 12/1/15 (FGIC) ............................. 529,680
500,000 Vancouver Wtr. & Swr. RB
5.25%, 6/1/17 (MBIA) .............................. 502,130
----------
1,031,810
----------
West Virginia - 0.7%
1,000,000 West Virginia St. Ser. A
5.75%, 11/1/21 (FGIC) ............................. 1,055,120
1,000,000 West Virginia St. Hsg. Dev.
Fund RB Ser. A
6.05%, 5/1/27 ..................................... 1,057,610
----------
2,112,730
----------
Wisconsin - 0.6%
1,000,000 Wisconsin Clean Wtr. RB Ser. 1
6.88%, 6/1/11 ..................................... 1,206,710
500,000 Wisconsin Hsg. & Econ. Dev.
Auth. Home Ownership RB
Ser. E (AMT)
6.00%, 9/1/28 ..................................... 520,290
----------
1,727,000
----------
</TABLE>
50
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
Puerto Rico - 1.3%
$ 1,000,000 Puerto Rico Commonwealth GO
6.50%, 7/1/10 (MBIA) ........................... $ 1,173,250
225,000 Puerto Rico Commonwealth
Infrastructure Fin. Auth. RB Ser. A
5.00%, 7/1/28 (AMBAC) .......................... 218,160
1,000,000 Puerto Rico Elec. Pwr. Auth. RB
Ser. DD
5.00%, 7/1/28 .................................. 953,500
500,000 Puerto Rico Elec. Pwr. Auth. RB Ser. BB
6.25%, 7/1/10 (MBIA) ........................... 575,040
500,000 Puerto Rico Hsg. Bank & Fin.
Agcy. RB (Single Family
Affordable Hsg. Mtge. Subsidy
Prog.) Portfolio I (AMT)
5.85%, 4/1/09 .................................. 524,590
500,000 Puerto Rico Pub. Bldgs. Auth.
RB Govt. Fac. Ser. B
5.10%, 7/1/10 (MBIA) ........................... 518,170
------------
3,962,710
------------
Total Long Term
(cost $155,015,764) ............................ 157,875,955
------------
Short Term - 7.0%
Indiana - 0.3%
1,000,000 Purdue Univ. RB Ser. H
3.60% - VRDN ................................... 1,000,000
------------
Iowa - 2.2%
6,700,000 Iowa Finance Auth. RB
3.75% - VRDN ................................... 6,700,000
------------
Massachusetts - 1.7%
5,000,000 Massachusetts St. Hlth. &
Edl. Facs., Capital Assets
Program, Series D
3.80% - VRDN ................................... 5,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
MUNICIPAL OBLIGATIONS - continued
New York - 1.6%
$ 3,800,000 New York City Muni. Wtr. Fin.
Auth.; Wtr. and Swr. Sys. RB,
1993 Ser. C
3.85% - VRDN (FGIC) ............................ $ 3,800,000
1,000,000 New York City Muni. Wtr. Fin.
Auth. Wtr. & Swr. Ser. C
Mandatory Tendr Upon Exp/Term
Of Liquidity
3.85% - VRDN (FGIC) ............................ 1,000,000
------------
4,800,000
------------
Texas - 0.3%
1,000,000 Coastal Bend Hlth. Facs. Dev.
3.70% - VRDN ................................... 1,000,000
------------
Wisconsin - 0.4%
1,110,000 Louisiana Crosse Indl. Dev. RB
3.85% - VRDN ...................................................
1,110,000
------------
Wyoming - 0.5%
1,600,000 Lincoln Cnty. Poll. Ctrl. RRB
3.85% - VRDN ................................... 1,600,000
------------
Total Short Term
(cost $21,210,000) ............................. 21,210,000
------------
Total Municipal Obligations
(cost $176,225,764) ............................ 179,085,955
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Amount
<S> <C> <C> <C>
MUTUAL FUND SHARES - 0.0% (a)
152,000 Federated Tax Free
Obligations Fund (at net asset value)
(cost $152,000) ................... 152,000
-------
Total Investments -
(cost $268,854,476) ..... 100.3% 303,383,743
Other Assets and
Liabilities - net ....... ( 0.3%) (882,503)
----- -----------
Net Assets .............. 100.0% $302,501,240
===== ============
</TABLE>
* Non income producing securities.
** At March 31, 1998 the Fund owned 3,000 shares of common stock of First
Union Corp. at a cost of $57,890. During the period ended March 31, 1998
the Fund earned $3,900 in dividend income from this investment. These
shares were purchased by the Fund prior to the acquisition of the
investment adviser and Lieber & Company by First Union.
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.
(a) Less than one-tenth of a percent.
Summary of abbreviations:
ADS American Depository Shares
AMT Subject to Alternative Minimum Tax
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Corp.
GO General Obligations
GNMA Government National Mortgage Corp.
RB Revenue Bonds
REIT Real Estate Investment Trust
RRB Refunding Revenue Bonds
STRYPES Structured Yield Product Exchangeable for Stock
TECONS Term Convertible Shares
VRDN Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other
parties not affiliated with the issuer. These notes normally incorporate
an irrevocable letter of credit or line of credit from a major bank.
Interest rates presented for these securities are those in effect as of
March 31, 1998.
Municipal bond insurance companies:
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guarantee Insurance Corp.
MBIA Municipal Bond Insurance Association
See Combined Notes to Financial Statements.
51
<PAGE>
EVERGREEN
Balanced Funds
Statements of Assets and Liabilities
March 31, 1998
<TABLE>
<CAPTION>
American
Retirement
Fund
-----------------
<S> <C>
Assets
Investments at value (identified cost - $192,500,813, $1,280,624,600,
$1,935,098,601 and $268,854,476, respectively).......................... $ 234,985,901
Cash .................................................................... 194,322
Receivable for investments sold ......................................... 62,143
Receivable for Fund shares sold ......................................... 1,353,344
Dividends and interest receivable ....................................... 1,458,986
Unamortized organization expenses ....................................... 0
Unrealized appreciation on forward foreign
currency exchange contracts ............................................ 0
Prepaid expenses and other assets ....................................... 76,514
- -------------------------------------------------------------------------- -------------
Total assets ........................................................... 238,131,210
- -------------------------------------------------------------------------- -------------
Liabilities
Payable for investments purchased ....................................... 3,550,955
Payable for Fund shares repurchased ..................................... 400,533
Advisory fee payable .................................................... 144,415
Distribution Plan expenses payable ...................................... 121,943
Due to related parties .................................................. 0
Accrued expenses and other liabilities .................................. 94,022
- -------------------------------------------------------------------------- -------------
Total liabilities ...................................................... 4,311,868
- -------------------------------------------------------------------------- -------------
Net assets ............................................................... $ 233,819,342
========================================================================== =============
Net assets represented by
Paid-in capital ......................................................... $ 189,282,268
Undistributed (distributions in excess of) net investment income ........ 235,752
Accumulated net realized gain on investments,
futures contracts and foreign currency related transactions ............ 1,816,234
Net unrealized appreciation on investments and
foreign currency related transactions .................................. 42,485,088
- -------------------------------------------------------------------------- -------------
Total net assets ....................................................... $ 233,819,342
========================================================================== =============
Net assets consists of
Class A ................................................................. $ 29,004,525
Class B ................................................................. 158,251,514
Class C ................................................................. 2,777,392
Class Y ................................................................. 43,785,911
- -------------------------------------------------------------------------- -------------
$ 233,819,342
=============
Shares outstanding
Class A ................................................................. 1,736,778
Class B ................................................................. 9,526,808
Class C ................................................................. 166,810
Class Y ................................................................ 2,621,505
- -------------------------------------------------------------------------- -------------
Net asset value per share
Class A ................................................................. $ 16.70
========================================================================== =============
Class A - Offering price (based on sales charge of 4.75%) ............... $ 17.53
========================================================================== =============
Class B ................................................................. $ 16.61
========================================================================== =============
Class C ................................................................. $ 16.65
========================================================================== =============
Class Y ................................................................. $ 16.70
========================================================================== =============
<CAPTION>
Tax-Strategic
Balanced Foundation Foundation
Fund Fund Fund
------------------- ----------------- -----------------
<S> <C> <C> <C>
Assets
Investments at value (identified cost - $192,500,813, $1,280,624,600,
$1,935,098,601 and $268,854,476, respectively).......................... $ 1,897,588,085 $2,626,081,854 $ 303,383,743
Cash .................................................................... 984 755,162 731
Receivable for investments sold ......................................... 15,147,304 0 0
Receivable for Fund shares sold ......................................... 1,152,930 12,537,545 4,234,931
Dividends and interest receivable ....................................... 11,257,799 9,893,420 2,463,873
Unamortized organization expenses ....................................... 0 0 4,862
Unrealized appreciation on forward foreign
currency exchange contracts ............................................ 971,860 0 0
Prepaid expenses and other assets ....................................... 391,480 204,409 47,793
- --------------------------------------------------------------------------- --------------- -------------- -------------
Total assets ........................................................... 1,926,510,442 2,649,472,390 310,135,933
- --------------------------------------------------------------------------- --------------- -------------- -------------
Liabilities
Payable for investments purchased ....................................... 24,812,113 3,028,219 6,862,231
Payable for Fund shares repurchased ..................................... 3,159,453 2,491,690 280,329
Advisory fee payable .................................................... 688,926 1,648,099 227,316
Distribution Plan expenses payable ...................................... 555,541 879,282 181,285
Due to related parties .................................................. 27,600 0 0
Accrued expenses and other liabilities .................................. 113,068 197,488 83,532
- --------------------------------------------------------------------------- --------------- -------------- -------------
Total liabilities ...................................................... 29,356,701 8,244,778 7,634,693
- --------------------------------------------------------------------------- --------------- -------------- -------------
Net assets ............................................................... $ 1,897,153,741 $2,641,227,612 $ 302,501,240
=========================================================================== =============== ============== =============
Net assets represented by
Paid-in capital ......................................................... $ 1,232,456,544 $1,944,730,227 $ 267,647,747
Undistributed (distributions in excess of) net investment income ........ 2,779,889 (35,481) 17,451
Accumulated net realized gain on investments,
futures contracts and foreign currency related transactions ............ 43,981,058 5,549,613 306,775
Net unrealized appreciation on investments and
foreign currency related transactions .................................. 617,936,250 690,983,253 34,529,267
- --------------------------------------------------------------------------- --------------- -------------- -------------
Total net assets ....................................................... $ 1,897,153,741 $2,641,227,612 $ 302,501,240
=========================================================================== =============== ============== =============
Net assets consists of
Class A ................................................................. $ 1,277,419,448 $ 350,078,735 $ 69,878,735
Class B ................................................................. 579,673,910 1,123,867,181 185,042,260
Class C ................................................................. 829,197 50,216,288 27,699,006
Class Y ................................................................. 39,231,186 1,117,065,408 19,881,239
- --------------------------------------------------------------------------- --------------- -------------- -------------
$ 1,897,153,741 $2,641,227,612 $ 302,501,240
=============== ============== =============
Shares outstanding
Class A ................................................................. 99,290,770 17,129,241 4,272,621
Class B ................................................................. 45,003,516 55,243,018 11,331,967
Class C ................................................................. 64,372 2,468,520 1,699,021
Class Y ................................................................. 3,050,729 54,619,171 1,213,326
- --------------------------------------------------------------------------- --------------- -------------- -------------
Net asset value per share
Class A ................................................................. $ 12.87 $ 20.44 $ 16.36
=========================================================================== =============== ============== =============
Class A - Offering price (based on sales charge of 4.75%) .............. $ 13.51 $ 21.46 $ 17.18
=========================================================================== =============== ============== =============
Class B ................................................................. $ 12.88 $ 20.34 $ 16.33
=========================================================================== =============== ============== =============
Class C ................................................................. $ 12.88 $ 20.34 $ 16.30
=========================================================================== =============== ============== =============
Class Y ................................................................. $ 12.86 $ 20.45 $ 16.39
=========================================================================== =============== ============== =============
</TABLE>
See Combined Notes to Financial Statements.
52
<PAGE>
EVERGREEN
Balanced Funds
Statements of Operations
Year Ended March 31, 1998
<TABLE>
<CAPTION>
American
Retirement Balanced
Fund Fund*
-------------- ---------------
<S> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of $14,071, $33,136, $9,289, and
$924, respectively).............................................................. $ 3,825,947 $ 16,541,641
Interest ......................................................................... 4,464,283 35,108,602
- ----------------------------------------------------------------------------------- ----------- ------------
Total income ...................................................................... 8,290,230 51,650,243
Expenses
Advisory fee ..................................................................... 1,350,506 5,534,574
Distribution Plan expenses ....................................................... 1,236,802 7,232,979
Transfer agent fees .............................................................. 385,565 2,214,659
Trustees fees .................................................................... 9,529 117,124
Administrative services fees ..................................................... 0 294,242
Other ............................................................................ 327,060 913,574
- ----------------------------------------------------------------------------------- ----------- ------------
Total expenses ................................................................. 3,309,462 16,307,152
Less: Indirectly paid expenses ................................................... (5,046) (2,660)
- ----------------------------------------------------------------------------------- ----------- ------------
Net expenses .................................................................... 3,304,416 16,304,492
- ----------------------------------------------------------------------------------- ----------- ------------
Net investment income ............................................................ 4,985,814 35,345,751
- ----------------------------------------------------------------------------------- ----------- ------------
Net realized and unrealized gain (loss) on investments, futures contracts
and foreign currency related transactions
Net realized gain (loss) on:
Investments ..................................................................... 5,840,219 128,518,720
Futures contracts ............................................................... 0 (266,127)
Foreign currency related transactions ........................................... 0 (1,250,925)
- ----------------------------------------------------------------------------------- ----------- ------------
Net realized gain on investments, futures contracts and foreign currency
related transactions ............................................................ 5,840,219 127,001,668
- ----------------------------------------------------------------------------------- ----------- ------------
Net change in unrealized appreciation of investments and foreign currency
related transactions ........................................................... 31,534,034 84,015,495
- ----------------------------------------------------------------------------------- ----------- ------------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions ................................................... 37,374,253 211,017,163
- ----------------------------------------------------------------------------------- ----------- ------------
Net increase in net assets resulting from operations ............................. $42,360,067 $246,362,914
=================================================================================== =========== ============
<CAPTION>
Tax-Strategic
Foundation Foundation
Fund Fund
--------------- ---------------
<S> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of $14,071, $33,136, $9,289, and
$924, respectively).............................................................. $ 24,841,677 $ 1,251,681
Interest ......................................................................... 52,356,287 4,781,233
- ------------------------------------------------------------------------------------ ------------ -----------
Total income ...................................................................... 77,197,964 6,032,914
Expenses
Advisory fee ..................................................................... 16,156,433 1,451,786
Distribution Plan expenses ....................................................... 9,377,671 1,200,054
Transfer agent fees ............................................................. 3,887,808 204,142
Trustees fees .................................................................... 59,346 6,683
Administrative services fees ..................................................... 0 0
Other ............................................................................ 1,617,873 285,694
- ------------------------------------------------------------------------------------ ------------ -----------
Total expenses .................................................................. 31,099,131 3,148,359
Less: Indirectly paid expenses ................................................... (7,771) (3,963)
- ------------------------------------------------------------------------------------ ------------ -----------
Net expenses .................................................................... 31,091,360 3,144,396
- ------------------------------------------------------------------------------------ ------------ -----------
Net investment income ............................................................ 46,106,604 2,888,518
- ------------------------------------------------------------------------------------ ------------ -----------
Net realized and unrealized gain (loss) on investments, futures contracts
and foreign currency related transactions
Net realized gain (loss) on:
Investments ..................................................................... 37,733,396 1,331,487
Futures contracts ............................................................... 0 0
Foreign currency related transactions ........................................... 0 0
- ------------------------------------------------------------------------------------ ------------ -----------
Net realized gain on investments, futures contracts and foreign currency
related transactions ............................................................ 37,733,396 1,331,487
- ------------------------------------------------------------------------------------ ------------ -----------
Net change in unrealized appreciation of investments and foreign currency
related transactions ............................................................ 507,820,113 28,378,750
- ------------------------------------------------------------------------------------ ------------ -----------
Net realized and unrealized gain on investments, futures contracts and foreign
currency related transactions ................................................... 545,553,509 29,710,237
- ------------------------------------------------------------------------------------ ------------ -----------
Net increase in net assets resulting from operations ............................. $591,660,113 $32,598,755
==================================================================================== ============ ===========
</TABLE>
* For the nine-month period ended March 31, 1998. Balanced Fund changed its
fiscal year end from June 30 to March 31, effective March 31, 1998.
Year Ended June 30, 1997
<TABLE>
<CAPTION>
Balanced
Fund
----------------
<S> <C>
Investment income
Interest ................................................................................ $ 40,204,287
Dividends (net of foreign withholding taxes of $91,085).................................. 24,547,062
- ------------------------------------------------------------------------------------------ ------------
Total income ............................................................................. 64,751,349
Expenses
Advisory fee ............................................................................ 6,854,615
Distribution Plan expenses .............................................................. 15,437,631
Transfer agent fees ..................................................................... 2,979,483
Administative service fees .............................................................. 101,818
Custodian fees .......................................................................... 596,802
Trustees fees ........................................................................... 55,886
Other ................................................................................... 193,248
- ------------------------------------------------------------------------------------------ ------------
Total expenses ......................................................................... 26,219,483
Less: Indirectly paid expenses .......................................................... (146,111)
- ------------------------------------------------------------------------------------------ ------------
Net expenses ........................................................................... 26,073,372
- ------------------------------------------------------------------------------------------ ------------
Net investment income ................................................................... 38,677,977
- ------------------------------------------------------------------------------------------ ------------
Net realized and unrealized gain on investments and foreign currency related transactions
Net realized gain on:
Investments ............................................................................ 116,423,636
Foreign currency related transactions .................................................. 4,563,646
- ------------------------------------------------------------------------------------------ ------------
Net realized gain on investments and foreign currency related transactions .............. 120,987,282
- ------------------------------------------------------------------------------------------ ------------
Net change in unrealized appreciation of investments and foreign currency related 146,568,036
- ------------------------------------------------------------------------------------------ ------------
transactions
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency related 267,555,318
- ------------------------------------------------------------------------------------------ ------------
transactions
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................... $306,233,295
========================================================================================== ============
</TABLE>
See Combined Notes to Financial Statements.
53
<PAGE>
EVERGREEN
Balanced Funds
Statements of Changes in Net Assets
Year Ended March 31, 1998
<TABLE>
<CAPTION>
American
Retirement
Fund
----------------
<S> <C>
Operations
Net investment income ...................................................... $ 4,985,814
Net realized gain on investments, futures contracts and foreign currency
related transactions ..................................................... 5,840,219
Net change in unrealized appreciation of investments and foreign
currency related transactions ............................................. 31,534,034
- ----------------------------------------------------------------------------- -------------
Net increase in net assets resulting from operations ....................... 42,360,067
- ----------------------------------------------------------------------------- -------------
Distributions to shareholders
From net investment income
Class A ................................................................... (695,207)
Class B ................................................................... (2,792,552)
Class C ................................................................... (49,486)
Class Y ................................................................... (1,312,760)
In excess of net investment income
Class A .................................................................. 0
Class B ................................................................... 0
Class C ................................................................... 0
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class A ................................................................... (514,560)
Class B ................................................................... (2,734,907)
Class C ................................................................... (50,154)
Class Y ................................................................... (874,184)
- ----------------------------------------------------------------------------- -------------
Total distributions to shareholders ....................................... (9,023,810)
- ----------------------------------------------------------------------------- -------------
Capital share transactions
Proceeds from shares sold .................................................. 86,591,263
Payment for shares redeemed ................................................ (24,953,880)
Net asset value of shares issued in reinvestment of distributions .......... 8,459,313
Shares issued in acquisition of Evergreen Balanced Fund II ................ 0
Shares issued in acquisition of Keystone Balanced Fund II .................. 0
- ----------------------------------------------------------------------------- -------------
Net increase in net assets resulting from capital share transactions ...... 70,096,696
- ----------------------------------------------------------------------------- -------------
Total increase in net assets ............................................. 103,432,953
Net assets
Beginning of year .......................................................... 130,386,389
- ----------------------------------------------------------------------------- -------------
End of year ................................................................ $ 233,819,342
============================================================================= =============
Undistributed (distributions in excess of) net investment income ............ $ 235,752
============================================================================= =============
<CAPTION>
Balanced Foundation
Fund* Fund
------------------ ------------------
<S> <C> <C>
Operations
Net investment income ...................................................... $ 35,345,751 $ 46,106,604
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 127,001,668 37,733,396
Net change in unrealized appreciation of investments and foreign
currency related transactions ............................................. 84,015,495 507,820,113
- ------------------------------------------------------------------------------ -------------- --------------
Net increase in net assets resulting from operations ....................... 246,362,914 591,660,113
- ------------------------------------------------------------------------------ -------------- --------------
Distributions to shareholders
From net investment income
Class A .................................................................. (12,029,418) (6,648,634)
Class B ................................................................... (25,630,818) (13,556,896)
Class C ................................................................... (2,502) (596,052)
Class Y ................................................................... (263,102) (25,594,285)
In excess of net investment income
Class A ................................................................... 0 (129,791)
Class B ................................................................... 0 (748,102)
Class C ................................................................... 0 (36,273)
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class A ................................................................... (25,111,250) (6,367,014)
Class B ................................................................... (168,719,950) (19,081,303)
Class C ................................................................... (135) (836,192)
Class Y ................................................................... 0 (22,106,374)
- ------------------------------------------------------------------------------ -------------- --------------
Total distributions to shareholders ....................................... (231,757,175) (95,700,916)
- ------------------------------------------------------------------------------ -------------- --------------
Capital share transactions
Proceeds from shares sold ................................................. 121,903,416 691,840,878
Payment for shares redeemed ................................................ (278,715,460) (299,555,598)
Net asset value of shares issued in reinvestment of distributions .......... 199,041,548 89,801,360
Shares issued in acquisition of Evergreen Balanced Fund II ................. 214,923,155 0
Shares issued in acquisition of Keystone Balanced Fund II .................. 0 8,490,928
- ------------------------------------------------------------------------------ -------------- --------------
Net increase in net assets resulting from capital share transactions ...... 257,152,659 490,577,568
- ------------------------------------------------------------------------------ -------------- --------------
Total increase in net assets ............................................. 271,758,398 986,536,765
Net assets
Beginning of year .......................................................... 1,625,395,343 1,654,690,847
- ------------------------------------------------------------------------------ -------------- --------------
End of year ................................................................ $1,897,153,741 $2,641,227,612
============================================================================== ============== ==============
Undistributed (distributions in excess of) net investment income ............ $ 2,779,889 $ (35,481)
============================================================================== ============== ==============
<CAPTION>
Tax-Strategic
Foundation
Fund
---------------
<S> <C>
Operations
Net investment income ...................................................... $ 2,888,518
Net realized gain on investments, futures contracts and foreign currency
related transactions ..................................................... 1,331,487
Net change in unrealized appreciation of investments and foreign
currency related transactions ............................................. 28,378,750
- ------------------------------------------------------------------------------ -------------
Net increase in net assets resulting from operations ....................... 32,598,755
- ------------------------------------------------------------------------------ -------------
Distributions to shareholders
From net investment income
Class A ................................................................... (845,312)
Class B ................................................................... (1,429,127)
Class C ................................................................... (189,734)
Class Y ................................................................... (422,361)
In excess of net investment income
Class A ................................................................... 0
Class B ................................................................... 0
Class C ................................................................... 0
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class A .................................................................. (424,397)
Class B ................................................................... (1,129,269)
Class C ................................................................... (141,334)
Class Y ................................................................... (207,645)
- ------------------------------------------------------------------------------ -------------
Total distributions to shareholders ....................................... (4,789,179)
- ------------------------------------------------------------------------------ -------------
Capital share transactions
Proceeds from shares sold .................................................. 212,133,212
Payment for shares redeemed ................................................ (15,800,328)
Net asset value of shares issued in reinvestment of distributions .......... 4,084,131
Shares issued in acquisition of Evergreen Balanced Fund II .................
Shares issued in acquisition of Keystone Balanced Fund II .................. 0
- ------------------------------------------------------------------------------ -------------
Net increase in net assets resulting from capital share transactions ...... 200,417,015
- ------------------------------------------------------------------------------ -------------
Total increase in net assets ............................................. 228,226,591
Net assets
Beginning of year .......................................................... 74,274,649
- ------------------------------------------------------------------------------ -------------
End of year ................................................................ $ 302,501,240
============================================================================== =============
Undistributed (distributions in excess of) net investment income ............ $ 17,451
============================================================================== =============
</TABLE>
* For the nine-month period ended March 31, 1998. Balanced Fund changed its
fiscal year end from June 30 to March 31, effective March 31, 1998.
See Combined Notes to Financial Statements.
54
<PAGE>
EVERGREEN
Balanced Funds
Statements of Changes in Net Assets
Prior Periods - 1997
<TABLE>
<CAPTION>
American
Retirement
Fund*
---------------
<S> <C>
Operations
Net investment income ...................................................... $ 916,564
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 274,144
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ..................................... (1,782,365)
- ----------------------------------------------------------------------------- ------------
Net increase (decrease) in net assets resulting from operations ........... (591,657)
- ----------------------------------------------------------------------------- ------------
Distributions to shareholders
From net investment income
Class A .................................................................. (114,069)
Class B ................................................................... (485,797)
Class C ................................................................... (11,029)
Class Y ................................................................... (323,235)
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class B ................................................................... 0
- ----------------------------------------------------------------------------- ------------
Total distributions to shareholders ....................................... (934,130)
- ----------------------------------------------------------------------------- ------------
Capital share transactions
Proceeds from shares sold .................................................. 27,711,777
Payments for shares redeemed ............................................... (8,115,115)
Net asset value of shares issued in reinvestment of distributions .......... 847,895
- ----------------------------------------------------------------------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................. 20,444,557
- ----------------------------------------------------------------------------- ------------
Total increase in net assets ............................................. 18,918,770
Net assets
Beginning of year .......................................................... 111,467,619
- ----------------------------------------------------------------------------- ------------
End of year ................................................................ $130,386,389
============================================================================= ============
Undistributed net investment income ......................................... $ 11,347
============================================================================= ============
<CAPTION>
Balanced Foundation
Fund** Fund*
------------------ ------------------
<S> <C> <C>
Operations
Net investment income ...................................................... $ 38,677,977 $ 10,995,411
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 120,987,282 7,808,618
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ..................................... 146,568,036 (22,555,700)
- ------------------------------------------------------------------------------ -------------- --------------
Net increase (decrease) in net assets resulting from operations ........... 306,233,295 (3,751,671)
- ------------------------------------------------------------------------------ -------------- --------------
Distributions to shareholders
From net investment income
Class A ................................................................... 0 (1,460,563)
Class B ................................................................... (38,660,044) (3,012,553)
Class C ................................................................... 0 (138,668)
Class Y ................................................................... 0 (5,968,305)
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class B ................................................................... (57,571,132) 0
- ------------------------------------------------------------------------------ -------------- --------------
Total distributions to shareholders ....................................... (96,231,176) (10,580,089)
- ------------------------------------------------------------------------------ -------------- --------------
Capital share transactions
Proceeds from shares sold .................................................. 200,987,044 124,109,877
Payments for shares redeemed ............................................... (351,020,484) (76,822,274)
Net asset value of shares issued in reinvestment of distributions .......... 84,249,628 9,578,914
- ------------------------------------------------------------------------------ -------------- --------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................. (65,783,812) 56,866,517
- ------------------------------------------------------------------------------ -------------- --------------
Total increase in net assets ............................................. 144,218,307 42,534,757
Net assets
Beginning of year .......................................................... 1,481,177,036 1,612,156,090
- ------------------------------------------------------------------------------ -------------- --------------
End of year ................................................................ $1,625,395,343 $1,654,690,847
============================================================================== ============== ==============
Undistributed net investment income ........................................ $ 3,239,562 $ 441,087
============================================================================== ============== ==============
<CAPTION>
Tax-Strategic
Foundation
Fund*
---------------
<S> <C>
Operations
Net investment income ...................................................... $ 316,568
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 865,777
Net change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions ..................................... (916,721)
- ------------------------------------------------------------------------------ ------------
Net increase (decrease) in net assets resulting from operations ........... 265,624
- ------------------------------------------------------------------------------ ------------
Distributions to shareholders
From net investment income
Class A ................................................................... (69,706)
Class B ................................................................... (123,210)
Class C .................................................................. (16,785)
Class Y ................................................................... (78,613)
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class B ................................................................... 0
- ------------------------------------------------------------------------------ ------------
Total distributions to shareholders ....................................... (288,314)
- ------------------------------------------------------------------------------ ------------
Capital share transactions
Proceeds from shares sold .................................................. 17,462,938
Payments for shares redeemed ............................................... (1,659,842)
Net asset value of shares issued in reinvestment of distributions .......... 211,565
- ------------------------------------------------------------------------------ ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................. 16,014,661
- ------------------------------------------------------------------------------ ------------
Total increase in net assets ............................................. 15,991,971
Net assets
Beginning of year .......................................................... 58,282,678
- ------------------------------------------------------------------------------ ------------
End of year ................................................................ $ 74,274,649
============================================================================== ============
Undistributed net investment income ......................................... $ 30,456
============================================================================== ============
</TABLE>
* For the period ended March 31, 1997. The Fund changed its fiscal year end
from December 31 to March 31, effective March 31, 1997.
** For the year ended June 30, 1997.
See Combined Notes to Financial Statements.
55
<PAGE>
EVERGREEN
Balanced Funds
Statements of Changes in Net Assets
Prior Periods - 1996
<TABLE>
<CAPTION>
American
Retirement
Fund*
----------------
<S> <C>
Operations
Net investment income ...................................................... $ 2,435,368
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 537,906
Net change in unrealized appreciation on investments and foreign
currency related transactions ............................................. 6,223,491
- ----------------------------------------------------------------------------- ------------
Net increase in net assets resulting from operations ...................... 9,196,765
- ----------------------------------------------------------------------------- ------------
Distributions to shareholders
From net investment income
Class A ................................................................... (214,502)
Class B ................................................................... (839,295)
Class C ................................................................... (22,543)
Class Y ................................................................... (1,330,115)
In excess of net investment income
Class A ................................................................... 0
Class B ................................................................... 0
Class C ................................................................... 0
Class Y ................................................................... 0
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class A ................................................................... (61,826)
Class B .................................................................. (302,689)
Class C ................................................................... (7,483)
Class Y ................................................................... (321,583)
In excess of net realized gain on investments, futures contracts and
foreign currency related transactions
Class A ................................................................... (3,185)
Class B ................................................................... (15,592)
Class C ................................................................... (385)
Class Y ................................................................... (16,566)
- ----------------------------------------------------------------------------- ------------
Total distributions to shareholders ....................................... (3,135,764)
- ----------------------------------------------------------------------------- ------------
Capital share transactions
Proceeds from shares sold .................................................. 66,932,304
Payment for shares redeemed ................................................ (9,928,020)
Net asset value of shares issued in reinvestment of distributions .......... 2,790,578
- ----------------------------------------------------------------------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................. 59,794,862
- ----------------------------------------------------------------------------- ------------
Total increase in net assets ............................................. 65,855,863
Net assets
Beginning of year .......................................................... 45,611,756
- ----------------------------------------------------------------------------- ------------
End of year ................................................................ $111,467,619
============================================================================= ============
Undistributed accumulated (distributions in excess of) net investment
income ..................................................................... $ 28,913
============================================================================= ============
<CAPTION>
Tax-Strategic
Balanced Foundation Foundation
Fund** Fund* Fund*
------------------ ----------------- ---------------
<S> <C> <C> <C>
Operations
Net investment income ...................................................... $ 38,649,314 $ 45,192,977 $ 858,454
Net realized gain on investments, futures contracts and foreign currency
related transactions ...................................................... 54,917,152 21,629,530 1,133,442
Net change in unrealized appreciation on investments and foreign
currency related transactions ............................................. 132,899,484 96,176,448 4,531,613
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Net increase in net assets resulting from operations ...................... 226,465,950 162,998,955 6,523,509
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Distributions to shareholders
From net investment income
Class A ................................................................... 0 (5,718,718) (163,381)
Class B ................................................................... (38,649,314) (12,786,120) (306,929)
Class C ................................................................... 0 (568,120) (42,461)
Class Y ................................................................... 0 (26,366,104) (342,618)
In excess of net investment income
Class A ................................................................... 0 0 (121)
Class B ................................................................... (4,413,251) 0 (226)
Class C ................................................................... 0 0 (31)
Class Y ................................................................... 0 0 (253)
From net realized gain on investments, futures contracts and foreign
currency related transactions
Class A .................................................................. 0 (1,819,496) (209,265)
Class B ................................................................... (18,717,526) (5,077,907) (555,359)
Class C ................................................................... 0 (231,947) (82,045)
Class Y .................................................................. 0 (7,335,097) (303,414)
In excess of net realized gain on investments, futures contracts and
foreign currency related transactions
Class A ................................................................... 0 0 0
Class B ................................................................... 0 0 0
Class C ................................................................... 0 0 0
Class Y ................................................................... 0 0 0
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Total distributions to shareholders ....................................... (61,780,091) (59,903,509) (2,006,103)
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Capital share transactions
Proceeds from shares sold .................................................. 227,626,268 717,070,601 32,091,878
Payment for shares redeemed ................................................ (308,498,436) (301,222,020) (3,143,238)
Net asset value of shares issued in reinvestment of distributions .......... 52,483,524 55,523,207 1,574,099
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions ............................................................. (28,388,644) 471,371,788 30,522,739
- ------------------------------------------------------------------------------ -------------- -------------- ------------
Total increase in net assets ............................................. 136,297,215 574,467,234 35,040,145
Net assets
Beginning of year .......................................................... 1,344,879,821 1,037,688,856 23,242,533
- ------------------------------------------------------------------------------ -------------- -------------- ------------
End of year ................................................................ $1,481,177,036 $1,612,156,090 $ 58,282,678
============================================================================== ============== ============== ============
Undistributed accumulated (distributions in excess of) net investment
income ..................................................................... $ 115,118 $ 138,085 $ (631)
============================================================================== ============== ============== ============
</TABLE>
* For the year ended December 31, 1996.
** For the year ended June 30, 1996.
See Combined Notes to Financial Statements.
56
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Balanced Funds consist of Evergreen American Retirement Fund
("American Retirement"), Evergreen Balanced Fund ("Balanced"), Evergreen
Foundation Fund ("Foundation"), and Evergreen Tax Strategic Foundation Fund
("Tax Strategic"), each of which is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as diversified, open-end management
investment companies. Each Fund is a series of the Evergreen Equity Trust, a
Delaware business Trust organized on September 18, 1997. Formerly, each Fund
was organized as either a Massachusetts business Trust or a series of a
Massachusetts business trust. American Retirement, Balanced, Foundation, Tax
Strategic, are collectively referred to herein as the "Funds".
The Funds offer Class A, Class B, Class C and Class Y shares. 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 a higher ongoing
distribution fee 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. Class B shares purchased after January 1, 1997
will automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 retain their existing conversion rights.
Class Y shares are sold at net asset value and are not subject to contingent
deferred sales charges or distribution fees. Class Y shares are sold only to
investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other
funds managed by First Union and its affiliates.
2. REORGANIZATION OF EVERGREEN BALANCED FUND
The Fund was formed for the purpose of combining the net assets of the
Evergreen Balanced Fund II (the "Evergreen Fund"), formerly the Evergreen
Balanced Fund, and the net assets of the Keystone Balanced Fund (the "Keystone
Fund"), formerly Keystone Balanced Fund K-1 through the Fund's acquisition of
the net assets of the Evergreen Fund and Keystone Fund.
On January 21, 1998, prior to the Fund's acquisition of the Evergreen Fund's
net assets, the Evergreen Fund transferred substantially all of its net assets
related to its Class Y shares to Evergreen Select Balanced Fund, an
institutional balanced fund, through a redemption-in-kind in the amount of
approximately $729 million.
On January 23, 1998, the Fund acquired all of the remaining assets and certain
identified liabilities of the Evergreen Fund in exchange for Class A, Class B,
Class C and Class Y shares of the Fund. Also, the Fund acquired all of the
assets and certain identified liabilities of the Keystone Fund in exchange for
Class A, Class B and Class C shares of the Fund. These acquisitions were
accomplished through tax-free exchanges of the respective shares of the Funds.
The value of net assets acquired, number of shares issued and unrealized
appreciation acquired were as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized
Acquired Fund Assets Acquired Shares Issued Appreciation
- ---------------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
Evergreen Fund ......... $ 214,923,155 17,901,009 $ 17,787,797
Keystone Fund .......... 1,616,348,537 134,623,096 494,838,638
</TABLE>
The net assets of the Fund immediately after the acquisition were
$1,831,271,692.
Prior to the acquisition, the Keystone Fund added three classes of shares
designated as Class A and Class C and designated its existing class of shares
as Class B. Shareholders of the Keystone Fund who, on January 16, 1998, held
Class B shares purchased 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.
At the conclusion of the Fund's acquisition of the net assets of the Evergreen
Fund and Keystone Fund, the surviving records of the Fund for accounting and
performance purposes is the Keystone Fund and for taxation purposes is the
Evergreen Fund.
3. ACQUISITION OF KEYSTONE BALANCED FUND II
Effective at the close of business on July 17, 1997, Foundation acquired the
net assets of Keystone Balanced Fund II, 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 111,203, 316,984, and 36,146
Class A, Class B and Class C shares, respectively, of Foundation. The acquired
57
<PAGE>
Combined Notes to Financial Statements (continued)
net assets consisted primarily of portfolio securities with unrealized
appreciation of $1,216,239. The aggregate net assets of Foundation immediately
after the acquisition were $1,993,257,978.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their 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. Actual results could differ from these estimates.
A. Valuation of Securities
The Funds value 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. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean
between the over-the-counter bid and asked prices. Corporate bonds, other
fixed-income securities, and mortgage and other asset-backed securities are
valued at prices provided by an independent pricing service. In determining
value for normal institutional-size transactions, the pricing service uses
methods based on market transactions for comparable securities and analysis of
various relationships between similar securities which are generally recognized
by institutional traders. 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
established 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
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
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,
including accrued interest. Each Fund will only enter into repurchase
agreements with banks and other financial institutions which are deemed by the
investment advisor to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, Balanced, along with certain other funds managed by Keystone
Investment Management Company ("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.
C. Reverse Repurchase Agreements
To obtain short-term financing, the Funds may enter into reverse repurchase
agreements with qualified third-party broker-dealers. Interest on the value of
reverse repurchase agreements is based upon competitive market rates at the
time of issuance. At the time a Fund enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with the
custodian containing qualifying assets having a value not less than the
repurchase price, including accrued interest. If the counterparty to the
transaction is rendered insolvent, the ultimate realization of the securities
to be repurchased by the Fund may be delayed or limited.
D. Foreign Currency
The books and records of the Funds 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.
E. Forward Foreign Currency Exchange Contracts
The Funds 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
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized
58
<PAGE>
Combined Notes to Financial Statements (continued)
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.
F. 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 or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities may be subject to foreign taxes and
are accrued as applicable.
G. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (I) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
H. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
I. Distributions
Distributions from net investment income for the Funds are declared and paid
quarterly. Distributions from net realized capital gains, if any, are paid 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. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing
treatments for realized gains from foreign currency related transactions and
certain distributions received from real estate investment trusts.
J. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
K. Organization Expenses
Organization expenses are amortized to operations over a five-year period on a
straight-line basis. In the event any of the initial shares of the Funds are
redeemed by any holder during the five-year amortization period, redemption
proceeds will be reduced by any unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of the redemption.
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C and Class Y. Transactions in shares of
the Funds were as follows:
59
<PAGE>
Combined Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
AMERICAN RETIREMENT
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
------------------------------
Shares Amount
------------- ----------------
<S> <C> <C>
Class A
Shares sold ...................................... 776,394 $ 11,977,023
Shares redeemed .................................. (175,621) (2,728,081)
Shares issued in reinvestment of distributions.... 73,985 1,168,200
- -------------------------------------------------- ----------- ---------------
Net increase ..................................... 674,758 10,417,142
- -------------------------------------------------- ----------- ---------------
Class B
Shares sold ...................................... 4,220,724 64,924,905
Shares redeemed .................................. (651,898) (10,105,217)
Shares issued in reinvestment of distributions.... 340,081 5,338,212
- -------------------------------------------------- ----------- ---------------
Net increase ..................................... 3,908,907 60,157,900
- -------------------------------------------------- ----------- ---------------
Class C
Shares sold ...................................... 80,905 1,241,277
Shares redeemed .................................. (49,433) (711,589)
Shares issued in reinvestment of distributions.... 6,217 97,713
- -------------------------------------------------- ----------- ---------------
Net increase ..................................... 37,689 627,401
- -------------------------------------------------- ----------- ---------------
Class Y
Shares sold ...................................... 542,883 8,448,058
Shares redeemed .................................. (749,260) (11,408,993)
Shares issued in reinvestment of distributions.... 117,732 1,855,188
- -------------------------------------------------- ----------- ---------------
Net decrease ..................................... (88,645) (1,105,747)
================================================== =========== ===============
Net increase ..................................... 4,532,709 $ 70,096,696
================================================== =========== ===============
<CAPTION>
Three Months Ended Year Ended
March 31, 1997* December 31, 1996
----------------------------- ----------------------------
Shares Amount Shares Amount
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Class A
Shares sold ...................................... 326,820 $ 4,608,875 762,980 $ 10,140,786
Shares redeemed .................................. (74,356) (1,044,019) (84,770) (1,127,903)
Shares issued in reinvestment of distributions.... 7,652 106,973 19,559 264,707
- -------------------------------------------------------------- ------------- ----------- -------------
Net increase ..................................... 260,116 3,671,829 697,769 9,277,590
- -------------------------------------------------------------- ------------- ----------- -------------
Class B
Shares sold ...................................... 1,531,877 21,511,234 3,892,133 51,648,645
Shares redeemed .................................. (124,007) (1,740,809) (175,385) (2,331,018)
Shares issued in reinvestment of distributions.... 33,372 464,195 81,733 1,103,810
- -------------------------------------------------------------- ------------- ----------- -------------
Net increase ..................................... 1,441,242 20,234,620 3,798,481 50,421,437
- -------------------------------------------------------------- ------------- ----------- -------------
Class C
Shares sold ...................................... 25,543 360,283 100,739 1,334,965
Shares redeemed .................................. (4,726) (66,693) (3,928) (53,590)
Shares issued in reinvestment of distributions.... 755 10,535 2,161 29,233
- -------------------------------------------------------------- ------------- ----------- -------------
Net increase ..................................... 21,572 304,125 98,972 1,310,608
- -------------------------------------------------------------- ------------- ----------- -------------
Class Y
Shares sold ...................................... 87,120 1,231,385 287,843 3,807,908
Shares redeemed .................................. (370,659) (5,263,594) (481,537) (6,415,509)
Shares issued in reinvestment of distributions.... 19,041 266,192 103,943 1,392,828
- -------------------------------------------------------------- ------------- ----------- -------------
Net decrease ..................................... (264,498) (3,766,017) (89,751) (1,214,773)
============================================================== ============= =========== =============
Net increase ..................................... 1,458,432 $ 20,444,557 4,505,471 $ 59,794,862
============================================================== ============= =========== =============
</TABLE>
* The Fund changed its fiscal year end from December 31 to March 31, effective
March 31, 1997.
- --------------------------------------------------------------------------------
BALANCED
<TABLE>
<CAPTION>
Year Ended
March 31, 1998*
-----------------------------------
Shares Amount
--------------- -------------------
<S> <C> <C>
Class A
Shares sold ....................................... 860,543 $ 9,401,463
Shares redeemed ................................... (4,919,924) (61,467,813)
Shares issued in reinvestment of distributions..... 2,175,164 26,275,982
Automatic conversion of Class B shares to
Class A shares ................................... 97,487,277 1,205,409,703
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 3,687,710 45,716,406
- --------------------------------------------------- ------------- ------------------
Net increase ...................................... 99,290,770 1,225,335,741
- --------------------------------------------------- ------------- ------------------
Class B
Shares sold ....................................... 9,070,640 111,415,080
Shares redeemed ................................... (15,656,468) (202,986,801)
Shares issued in reinvestment of distributions..... 13,954,804 172,765,442
Automatic conversion of Class B shares to
Class A shares ................................... (97,487,277) (1,205,409,703)
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 9,587,697 118,815,736
- --------------------------------------------------- ------------- ------------------
Net decrease ...................................... (80,530,604) (1,005,400,246)
- --------------------------------------------------- ------------- ------------------
Class C
Shares sold ....................................... 22,780 270,797
Shares redeemed ................................... (1,672) (21,003)
Shares issued in reinvestment of distributions..... 10 124
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 43,254 532,825
- --------------------------------------------------- ------------- ------------------
Net increase ...................................... 64,372 782,743
- --------------------------------------------------- ------------- ------------------
Class Y
Shares sold ....................................... 196,984 816,075
Shares redeemed ................................... (1,167,179) (14,239,843)
Shares issued in reinvestment of distributions..... 0 0
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 4,020,924 49,858,189
- --------------------------------------------------- ------------- ------------------
Net increase ...................................... 3,050,729 36,434,421
=================================================== ============= ==================
Net increase (decrease) ........................... 21,875,267 $ 257,152,659
=================================================== ============= ==================
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ....................................... 0 0 0 0
Shares redeemed ................................... 0 0 0 0
Shares issued in reinvestment of distributions..... 0 0 0 0
Automatic conversion of Class B shares to
Class A shares ................................... 0 0 0 0
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Net increase ...................................... 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Class B
Shares sold ....................................... 16,959,452 $ 200,987,044 20,948,679 $ 227,626,268
Shares redeemed ................................... (29,517,723) (351,020,484) (28,542,355) (308,498,436)
Shares issued in reinvestment of distributions..... 7,405,182 84,249,628 4,948,269 52,483,524
Automatic conversion of Class B shares to
Class A shares ................................... 0 0 0 0
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Net decrease ...................................... (5,153,089) (65,783,812) (2,645,407) (28,388,644)
- ------------------------------------------------------------------ --------------- -------------- ---------------
Class C
Shares sold ....................................... 0 0 0 0
Shares redeemed ................................... 0 0 0 0
Shares issued in reinvestment of distributions..... 0 0 0 0
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Net increase ...................................... 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Class Y
Shares sold ....................................... 0 0 0 0
Shares redeemed ................................... 0 0 0 0
Shares issued in reinvestment of distributions..... 0 0 0 0
Shares issued in acquisition of Evergreen
Balance Fund II .................................. 0 0 0 0
- ------------------------------------------------------------------ --------------- -------------- ---------------
Net increase ...................................... 0 0 0 0
================================================================== =============== ============== ===============
Net increase (decrease) ........................... (5,153,089) $ (65,783,812) (2,645,407) $ (28,388,644)
================================================================== =============== ============== ===============
</TABLE>
* The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 1998.
60
<PAGE>
Combined Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
FOUNDATION
<TABLE>
<CAPTION>
Year Ended Three Months Ended
March 31, 1998 March 31, 1997*
--------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ...................................... 5,521,670 $ 103,759,687 1,573,527 $ 26,044,624
Shares redeemed .................................. (2,914,232) (53,799,294) (734,487) (12,146,536)
Shares issued in reinvestment of distributions ... 689,871 12,869,510 85,926 1,413,485
Shares issued in acquisition of Keystone
Balance Fund II ................................. 111,203 2,040,162 0 0
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Net increase ..................................... 3,408,512 64,870,065 924,966 15,311,573
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Class B
Shares sold ...................................... 19,625,977 367,905,222 3,519,353 58,129,934
Shares redeemed .................................. (4,438,949) (81,802,033) (1,205,547) (19,871,723)
Shares issued in reinvestment of distributions ... 1,744,118 32,347,483 175,001 2,868,253
Shares issued in acquisition of Keystone
Balance Fund II ................................. 316,984 5,790,704 0 0
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Net increase ..................................... 17,248,130 324,241,376 2,488,807 41,126,464
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Class C
Shares sold ...................................... 1,016,989 19,227,162 176,251 2,897,772
Shares redeemed .................................. (405,258) (7,403,302) (91,055) (1,506,028)
Shares issued in reinvestment of distributions ... 74,186 1,375,625 6,429 105,303
Shares issued in acquisition of Keystone
Balance Fund II ................................. 36,146 660,062 0 0
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Net increase ..................................... 722,063 13,859,547 91,625 1,497,047
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Class Y
Shares sold ...................................... 10,695,459 200,948,807 2,229,198 37,037,547
Shares redeemed .................................. (8,434,531) (156,550,969) (2,606,400) (43,297,987)
Shares issued in reinvestment of distributions ... 2,313,662 43,208,742 315,233 5,191,873
- -------------------------------------------------- ------------- ---------------- ------------- ---------------
Net increase (decrease) .......................... 4,574,590 87,606,580 (61,969) (1,068,567)
================================================== ============= ================ ============= ===============
Net increase ..................................... 25,953,295 $ 490,577,568 3,443,429 $ 56,866,517
================================================== ============= ================ ============= ===============
<CAPTION>
Year Ended
December 31, 1996
---------------------------------
Shares Amount
--------------- -----------------
<S> <C> <C>
Class A
Shares sold ...................................... 8,413,021 $ 126,479,881
Shares redeemed .................................. (3,177,106) (47,846,922)
Shares issued in reinvestment of distributions ... 474,763 7,335,750
Shares issued in acquisition of Keystone
Balance Fund II ................................. 0 0
- ---------------------------------------------------------------- ----------------
Net increase ..................................... 5,710,678 85,968,709
- ---------------------------------------------------------------- ----------------
Class B
Shares sold ...................................... 18,909,215 282,822,448
Shares redeemed .................................. (4,174,149) (62,881,641)
Shares issued in reinvestment of distributions ... 1,109,399 17,095,215
Shares issued in acquisition of Keystone
Balance Fund II ................................. 0 0
- ---------------------------------------------------------------- ----------------
Net increase ..................................... 15,844,465 237,036,022
- ---------------------------------------------------------------- ----------------
Class C
Shares sold ...................................... 1,165,822 17,413,787
Shares redeemed .................................. (308,109) (4,629,756)
Shares issued in reinvestment of distributions ... 43,393 668,629
Shares issued in acquisition of Keystone
Balance Fund II ................................. 0 0
- ---------------------------------------------------------------- ----------------
Net increase ..................................... 901,106 13,452,660
- ---------------------------------------------------------------- ----------------
Class Y
Shares sold ...................................... 19,300,331 290,354,485
Shares redeemed .................................. (12,328,011) (185,863,701)
Shares issued in reinvestment of distributions ... 1,977,198 30,423,613
- ---------------------------------------------------------------- ----------------
Net increase (decrease) .......................... 8,949,518 134,914,397
================================================================ ================
Net increase ..................................... 31,405,767 $ 471,371,788
================================================================ ================
</TABLE>
* The Fund changed its fiscal year end from December 31 to March 31, effective
March 31, 1997.
- --------------------------------------------------------------------------------
TAX STRATEGIC
<TABLE>
<CAPTION>
Year Ended Three Months Ended
March 31, 1998 March 31, 1997*
----------------------------- ---------------------------
Shares Amount Shares Amount
------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Class A
Shares sold ..................................... 3,458,299 $ 53,040,118 315,408 $ 4,371,432
Shares redeemed ................................. (371,701) (5,726,480) (38,895) (539,727)
Shares issued in reinvestment of distributions .. 77,658 1,200,787 4,842 66,689
- ------------------------------------------------- ----------- ------------- ---------- ------------
Net increase .................................... 3,164,256 48,514,425 281,355 3,898,394
- ------------------------------------------------- ----------- ------------- ---------- ------------
Class B
Shares sold ..................................... 8,736,220 134,105,426 816,857 11,299,403
Shares redeemed ................................. (423,863) (6,502,615) (36,136) (499,992)
Shares issued in reinvestment of distributions .. 154,897 2,385,102 8,114 111,726
- ------------------------------------------------- ----------- ------------- ---------- ------------
Net increase .................................... 8,467,254 129,987,913 788,835 10,911,137
- ------------------------------------------------- ----------- ------------- ---------- ------------
Class C
Shares sold ..................................... 1,515,720 23,364,146 102,016 1,405,348
Shares redeemed ................................. (212,250) (3,128,629) (31,923) (445,521)
Shares issued in reinvestment of distributions .. 19,807 305,243 745 10,250
- ------------------------------------------------- ----------- ------------- ---------- ------------
Net increase .................................... 1,323,277 20,540,760 70,838 970,077
- ------------------------------------------------- ----------- ------------- ---------- ------------
Class Y
Shares sold ..................................... 105,640 1,623,522 27,768 386,755
Shares redeemed ................................. (29,733) (442,604) (12,744) (174,602)
Shares issued in reinvestment of distributions .. 12,558 192,999 1,657 22,900
- ------------------------------------------------- ----------- ------------- ---------- ------------
Net increase .................................... 88,465 1,373,917 16,681 235,053
================================================= =========== ============= ========== ============
Net increase .................................... 13,043,252 $200,417,015 1,157,709 $16,014,661
================================================= =========== ============= ========== ============
<CAPTION>
Year Ended
December 31, 1996
-----------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Class A
Shares sold ..................................... 652,149 $ 8,273,511
Shares redeemed ................................. (73,546) (929,252)
Shares issued in reinvestment of distributions .. 26,949 357,306
- ------------------------------------------------------------- -------------
Net increase .................................... 605,552 7,701,565
- ------------------------------------------------------------- -------------
Class B
Shares sold ..................................... 1,563,566 19,725,070
Shares redeemed ................................. (85,378) (1,087,302)
Shares issued in reinvestment of distributions .. 59,693 793,572
- ------------------------------------------------------------- -------------
Net increase .................................... 1,537,881 19,431,340
- ------------------------------------------------------------- -------------
Class C
Shares sold ..................................... 263,684 3,324,801
Shares redeemed ................................. (5,604) (70,810)
Shares issued in reinvestment of distributions .. 6,172 81,908
- ------------------------------------------------------------- -------------
Net increase .................................... 264,252 3,335,899
- ------------------------------------------------------------- -------------
Class Y
Shares sold ..................................... 63,086 768,496
Shares redeemed ................................. (84,857) (1,055,874)
Shares issued in reinvestment of distributions .. 26,475 341,313
- ------------------------------------------------------------- -------------
Net increase .................................... 4,704 53,935
============================================================= =============
Net increase .................................... 2,412,389 $ 30,522,739
============================================================= =============
</TABLE>
* The Fund changed its fiscal year end from December 31 to March 31, effective
March 31, 1997.
61
<PAGE>
Combined Notes to Financial Statements (continued)
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term securities, were as follows for the year ended March 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
---------------- ----------------
<S> <C> <C>
American Retirement ......... $ 133,086,704 $ 57,622,719
Balanced .................... 1,272,598,779 1,299,416,840
Foundation .................. 469,563,034 178,592,797
Tax Strategic ............... 264,371,465 80,994,736
</TABLE>
On March 31, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Net Unrealized
Tax Cost Appreciation Depreciation Appreciation
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
American Retirement ......... $ 192,562,140 $ 44,842,928 $ (2,419,167) $ 42,423,761
Balanced .................... 1,280,698,926 619,482,205 (2,593,046) 616,889,159
Foundation .................. 1,934,879,330 701,584,810 (10,382,286) 691,202,524
Tax Strategic ............... 268,883,076 35,400,698 (900,031) 34,500,667
</TABLE>
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. (formerly, Evergreen Keystone Distributor, Inc.)
("EDI"), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS") serves as
principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund 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,
except Class Y, 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
12b-1 fees greater than the allowable annual amounts the Fund is permitted to
pay. The Fund may compensate the principal underwriter for such excess amounts
in later years with annual interest at the prime rate plus 1.00%.
During the year ended March 31, 1998, amounts paid to EDI and/or its
predecessor pursuant to each Fund's Class A, Class B and Class C Distribution
Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
---------- ------------- ----------
<S> <C> <C> <C>
American Retirement ......... $ 54,682 $1,161,176 $ 20,944
Balanced .................... 611,968 7,041,305 1,210
Foundation .................. 695,844 8,316,140 365,687
Tax Strategic ............... 94,260 978,824 126,970
</TABLE>
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.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
62
<PAGE>
Combined Notes to Financial Statements (continued)
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Pursuant to an agreement with American Retirement's, Foundation's and Tax
Strategic's investment advisor, Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly owned subsidiary of First Union, Evergreen Asset is entitled
to an annual fee based on each of American Retirement's, Foundation's and Tax
Strategic's average daily net assets, respectively, in accordance with the
following schedules:
<TABLE>
<CAPTION>
Foundation and American
Tax Strategic Retirement
- ---------------------------------- ----------------------------
<S> <C>
First $750 million 0.875% First $750 million 0.75%
Next $250 million 0.750% Over $250 million 0.70%
Over $1 billion 0.700%
</TABLE>
Keystone, a subsidiary of First Union, is the investment advisor for Balanced.
In return for providing investment management and administrative services to
Balanced, the Fund pays Keystone a management fee that is calculated daily and
paid monthly. The management fee is computed at an annual rate of 1.50% of
Balanced's gross investment income plus an amount determined by applying
percentage rates starting at 0.60% and declining to 0.30% per annum as net
assets increase, to the average daily net asset value of the Fund.
Evergreen Investment Services ("EIS")(formerly Evergreen Keystone Investment
Services, Inc.), a subsidiary of First Union, is the administrator and BISYS
Fund Services is sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS Fund Services provides the officers of the Funds. The
administrator and sub-administrator for each Fund are entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the
investment advisors. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The
sub-administration fee is calculated by applying percentage rates, which start
at 0.01% and decline to .004% per annum as net assets increase, to the average
daily net asset value of the Fund. For American Retirement, Foundation, and Tax
Strategic the administration and sub-administration fee is paid by their
respective investment advisor and is not a Fund expense. For the year ended
March 31, 1998, Balanced paid $294,242 to EIS for providing administrative
services.
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company, Inc.), a wholly-owned subsidiary of Keystone, serves as the transfer
and dividend disbursing agent for the Funds.
Effective May 5, 1997, Evergreen Service Company ("ESC"), a wholly-owned
subsidiary of Keystone, began providing transfer and dividend disbursing agent
services for American Retirement, Foundation and Tax Strategic that were
formerly provided by State Street Bank & Trust Company ("State Street"). For
the year ended March 31, 1998, ESC received $376,878, $3,652,742 and $204,142
in transfer agent fees from American Retirement, Foundation and Tax Strategic,
respectively. For certain accounts in American Retirement and Foundation, First
Union had been sub-contracted by ESC and previously State Street to maintain
shareholder sub-account records, take fund purchase and redemption orders and
answer inquiries. For each account, First Union earned a fee which totaled
$8,687 and $235,066 for American Retirement and Foundation, respectively for
the year ended March 31, 1998.
Lieber & Company, an affiliate of First Union, is the investment sub-advisor to
American Retirement, Foundation, and Tax Strategic and also provides brokerage
services with respect to substantially all security transactions of these Funds
effected on the New York or American Stock Exchanges. For the year ended March
31, 1998 American Retirement, Foundation and Tax Strategic incurred the
following brokerage commissions with Lieber & Company:
<TABLE>
<S> <C>
American Retirement ......... $ 80,739
Foundation .................. 483,014
Tax Strategic ............... 113,411
</TABLE>
Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to
the Funds, for its cost of providing investment advisory services.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
63
<PAGE>
Combined Notes to Financial Statements (continued)
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of American Retirement, Balanced, Foundation, and Tax
Strategic may defer any or all compensation related to performance of duties as
a Trustee. Each Trustee's deferred balances are allocated to deferral accounts
which are included in the accrued expenses for the Funds. The investment
performance of the deferral accounts are 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 Trustee's fees and expenses. Trustees will
be paid either in one lump sum or in quarterly installments for up to ten years
at their election, not earlier than either the year in which the Trustee ceases
to be a member of the Board of Trustees or January 1, 2000. As of March 31,
1998, the value of the Trustees' deferral account for American Retirement,
Balanced, Foundation, and Tax Strategic was $17,428, $83,697, $35,481, and
$7,764.
11. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5
million committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all
participating Funds. State Street served as agent for the Banks, and as agent
was entitled to a fee of $15,000 which was allocated to all of the
participating Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of 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 year ended March 31, 1998, the Funds had no significant borrowings
under these agreements.
64
<PAGE>
Independent Auditors' Report
Trustees and Shareholders
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of Evergreen American Retirement Fund,
Evergreen Balanced Fund, Evergreen Foundation Fund and Evergreen Tax Strategic
Foundation Fund of Evergreen Equity Trust listed below as of March 31, 1998,
and the related statements of operations, statements of changes in net assets,
and financial highlights for each of the years or periods presented below:
Evergreen American Retirement Fund - statement of operations for the year
ended March 31, 1998, statements of changes in net assets for the year
ended March 31, 1998, the three months ended March 31, 1997 and the year
ended December 31, 1996 and financial highlights for the years or periods
presented on pages 18 through 20, except for the periods prior to December
31, 1996. The financial highlights for the periods prior to December 31,
1996 were audited by other auditors whose report dated February 15, 1996
expressed an unqualified opinion thereon.
Evergreen Balanced Fund - statement of operations for the nine months ended
March 31, 1998 and the year ended June 30, 1997, statements of changes in
net assets for the nine months ended March 31, 1998 and each of the years
in the two year period ended June 30, 1997, and financial highlights for
the years or periods presented on pages 21 through 23.
Evergreen Foundation Fund - statement of operations for the year ended
March 31, 1998, statements of changes in net assets for the year ended
March 31, 1998, the three months ended March 31, 1997 and the year ended
December 31, 1996 and financial highlights for the years or periods
presented on pages 24 through 26, except for the periods prior to December
31, 1996. The financial highlights for the periods prior to December 31,
1996 were audited by other auditors whose report dated February 15, 1996
expressed an unqualified opinion thereon.
Evergreen Tax Strategic Foundation Fund - statement of operations for the
year ended March 31, 1998, statements of changes in net assets for the year
ended March 31, 1998, the three months ended March 31, 1997 and the year
ended December 31, 1996 and financial highlights for the periods presented
on pages 27 and 28, expect for the periods prior to December 31, 1996. The
financial highlights for the periods prior to December 31, 1996 were
audited by other auditors whose report dated February 15, 1996 expressed an
unqualified opinion thereon.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures include confirmation of
securities owned as of March 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen American Retirement Fund, Evergreen Balanced Fund, Evergreen
Foundation Fund, and Evergreen Tax Strategic Foundation Fund, funds of
Evergreen Equity Trust, as of March 31, 1998, the results of their operations,
changes in their net assets and financial highlights for each of the years or
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 1, 1998
65
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
Special Meeting of Shareholders
On December 15, 1997, a special meeting of shareholders for American
Retirement, Foundation, and Tax Strategic was held
to consider a number of proposals and had the following shares represented at
the meeting. On October 16, 1997, the record date for the meeting the Funds had
the following shares outstanding:
<TABLE>
<CAPTION>
American
Retirement
--------------
<S> <C>
Record date shares outstanding ......................................................... 11,676,896
Shares represented at meeting .......................................................... 7,118,479
Percentage of record date shares represented at meeting ................................ 61.0%
The votes recorded at the meeting, by proposal, were as follows:
Proposal 1 - The proposed reorganization of each Fund as a series of the
Evergreen Equity Trust, a Delaware business trust:
Shares voted "For" ............................................................... 6,315,328
Shares voted "Against" ........................................................... 115,548
Shares voted "Abstain" ........................................................... 687,603
Proposal 2 - Reclassification as non-fundamental of the investment objective
currently classified as fundamental:
Shares voted "For" ............................................................... 6,232,727
Shares voted "Against" ........................................................... 153,490
Shares voted "Abstain" ........................................................... 732,262
Proposal 3 - Changes to Fundamental investment restrictions:
Proposal 3A - To amend the Fundamental restriction concerning diversification of
investments:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3B - To amend the Fundamental restriction concerning concentration of a
Fund's assets in a particular industry:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3C - To amend the Fundamental restriction concerning the issuance of
senior securities:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3D - To amend the Fundamental restriction concerning borrowing:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3E - To amend the Fundamental restriction concerning underwriting:
Shares voted "For" .............................................................. 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3F - To amend the Fundamental restriction concerning investments in Real
Estate:
Shares voted "For" .............................................................. 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3G - To amend the Fundamental restriction concerning commodities:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
Proposal 3H - To amend the Fundamental restriction concerning lending:
Shares voted "For" ............................................................... 6,269,671
Shares voted "Against" ........................................................... 127,189
Shares voted "Abstain" ........................................................... 721,619
<CAPTION>
Tax
Foundation Strategic
--------------- --------------
<S> <C> <C>
Record date shares outstanding ......................................................... 113,591,523 11,267,455
Shares represented at meeting .......................................................... 66,320,831 6,593,651
Percentage of record date shares represented at meeting ................................ 58.4% 58.5%
The votes recorded at the meeting, by proposal, were as follows:
Proposal 1 - The proposed reorganization of each Fund as a series of the
Evergreen Equity Trust, a Delaware business trust:
Shares voted "For" ............................................................... 57,692,561 6,030,170
Shares voted "Against" ........................................................... 829,118 73,295
Shares voted "Abstain" ........................................................... 7,799,152 490,186
Proposal 2 - Reclassification as non-fundamental of the investment objective
currently classified as fundamental:
Shares voted "For" ............................................................... 56,953,514 5,921,252
Shares voted "Against" .......................................................... 1,385,813 131,540
Shares voted "Abstain" ........................................................... 7,981,504 540,859
Proposal 3 - Changes to Fundamental investment restrictions:
Proposal 3A - To amend the Fundamental restriction concerning diversification of
investments:
Shares voted "For" ............................................................... 56,950,679 5,951,636
Shares voted "Against" ........................................................... 1,225,590 107,527
Shares voted "Abstain" ........................................................... 8,144,562 534,488
Proposal 3B - To amend the Fundamental restriction concerning concentration of a
Fund's assets in a particular industry:
Shares voted "For" ............................................................... 56,946,730 5,951,636
Shares voted "Against" ........................................................... 1,229,539 107,527
Shares voted "Abstain" ........................................................... 8,144,562 534,488
Proposal 3C - To amend the Fundamental restriction concerning the issuance of
senior securities:
Shares voted "For" .............................................................. 56,951,752 5,951,636
Shares voted "Against" ........................................................... 1,224,213 107,527
Shares voted "Abstain" ........................................................... 8,144,866 534,488
Proposal 3D - To amend the Fundamental restriction concerning borrowing:
Shares voted "For" ............................................................... 56,941,950 5,951,636
Shares voted "Against" ........................................................... 1,234,015 107,527
Shares voted "Abstain" ........................................................... 8,144,866 534,488
Proposal 3E - To amend the Fundamental restriction concerning underwriting:
Shares voted "For" ............................................................... 56,948,380 5,951,636
Shares voted "Against" ........................................................... 1,227,889 107,527
Shares voted "Abstain" ........................................................... 8,144,562 534,488
Proposal 3F - To amend the Fundamental restriction concerning investments in Real
Estate:
Shares voted "For" .............................................................. 56,951,247 5,951,636
Shares voted "Against" ........................................................... 1,225,022 107,527
Shares voted "Abstain" ........................................................... 8,144,562 534,488
Proposal 3G - To amend the Fundamental restriction concerning commodities:
Shares voted "For" ............................................................... 56,937,046 5,951,636
Shares voted "Against" ........................................................... 1,239,223 107,527
Shares voted "Abstain" ........................................................... 8,144,562 534,488
Proposal 3H - To amend the Fundamental restriction concerning lending:
Shares voted "For" ............................................................... 56,937,578 5,951,636
Shares voted "Against" ........................................................... 1,238,387 107,527
Shares voted "Abstain" ........................................................... 8,144,866 534,488
</TABLE>
66
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<CAPTION>
American Tax
Retirement Foundation Strategic
------------ ------------ ------------
<S> <C> <C> <C>
Proposal 3I - To amend the Fundamental restriction concerning the investment in
Federally Tax Exempt Securities:
Shares voted "For" ............................................................... - - 5,951,636
Shares voted "Against" ........................................................... - - 107,527
Shares voted "Abstain" ........................................................... - - 534,488
Proposal 3J9 - Reclassification as nonfundamental of current fundamental
restriction:
Unseasoned Issuers
Shares voted "For" ............................................................... 6,269,649 56,945,613 -
Shares voted "Against" ........................................................... 127,310 1,232,240 -
Shares voted "Abstain" .......................................................... 721,520 8,142,978 -
Proposal 3J10 - Reclassification as nonfundamental of current fundamental
restriction:
Control or Management
Shares voted "For" ............................................................... 6,269,649 56,937,753 5,951,636
Shares voted "Against" ........................................................... 127,310 1,240,100 107,527
Shares voted "Abstain" ........................................................... 721,520 8,142,978 534,488
Proposal 3J11 - Reclassification as nonfundamental of current fundamental
restriction:
Short Sales
Shares voted "For" ............................................................... 6,269,649 56,942,642 5,951,636
Shares voted "Against" ........................................................... 127,310 1,235,211 107,527
Shares voted "Abstain" ........................................................... 721,520 8,142,978 534,488
Proposal 3J12 - Reclassification as nonfundamental of current fundamental
restriction:
Margin Purchases
Shares voted "For" ............................................................... 6,269,649 56,939,968 -
Shares voted "Against" ........................................................... 127,310 1,237,885 -
Shares voted "Abstain" ........................................................... 721,520 8,142,978 -
Proposal 3J13 - Reclassification as nonfundamental of current fundamental
restriction:
Other Investment Companies
Shares voted "For" ............................................................... 6,269,649 56,946,734 -
Shares voted "Against" ........................................................... 127,310 1,234,367 -
Shares voted "Abstain" ........................................................... 721,520 8,139,730 -
Proposal 3J14 - Reclassification as nonfundamental of current fundamental
restriction:
Officers' and Director's Ownership of Shares
Shares voted "For" .............................................................. 6,269,649 56,943,489 -
Shares voted "Against" ........................................................... 127,310 1,237,612 -
Shares voted "Abstain" ........................................................... 721,520 8,139,730 -
Proposal 3J15 - Reclassification as nonfundamental of current fundamental
restriction:
Warrants
Shares voted "For" ............................................................... 6,269,649 56,946,734 -
Shares voted "Against" ........................................................... 127,310 1,234,367 -
Shares voted "Abstain" ........................................................... 721,520 8,139,730 -
Proposal 3J16 - Reclassification as nonfundamental of current fundamental
restriction:
Interests in Oil, Gas, or Other Mineral Explorations or Development Programs
Shares voted "For" ............................................................... 6,269,649 56,945,688 -
Shares voted "Against" ........................................................... 127,310 1,234,091 -
Shares voted "Abstain" .......................................................... 721,520 8,141,052 -
Proposal 3J17 - Reclassification as nonfundamental of current fundamental
restriction:
Joint Trading
Shares voted "For" ............................................................... 6,269,649 56,948,457 -
Shares voted "Against" .......................................................... 127,310 1,231,529 -
Shares voted "Abstain" ........................................................... 721,520 8,140,845 -
Proposal 3J18 - Reclassification as nonfundamental of current fundamental
restriction:
Options
Shares voted "For" ............................................................... 6,269,649 56,946,423 -
Shares voted "Against" ........................................................... 127,310 1,233,563 -
Shares voted "Abstain" ........................................................... 721,520 8,140,845 -
Proposal 3J19 - Reclassification as nonfundamental of current fundamental
restriction:
Investment in Equity Securities
Shares voted "For" ............................................................... 6,269,649 - -
Shares voted "Against" ........................................................... 127,310 - -
Shares voted "Abstain" ........................................................... 721,520 - -
</TABLE>
67
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
On January 6, 1998, a special meeting of shareholders for Evergreen Balanced
Fund and Keystone Balanced Fund (K-1) was held to consider a proposal for
reorganization of the Funds and had the following shares represented at the
meeting. On November 10, 1997, the record date for the meeting, the Funds had
the following shares outstanding:
<TABLE>
<S> <C> <C>
Evergreen Keystone
Balanced Balanced (K-1)
--------- ------------------
Record date shares outstanding ......................................................... 70,550,743 120,903,563
Shares represented at meeting ......................................................... 62,701,031 67,051,635
Percentage of record date shares represented at meeting ................................ 88.9% 55.5%
Proposal - The proposed reorganization of each Fund as a series of the Evergreen
Equity Trust, a Delaware business trust:
Shares voted "For" ............................................................... 46,920,528 61,550,057
Shares voted "Against" ........................................................... 178,867 1,584,174
Shares voted "Abstain" ........................................................... 15,601,636 3,917,404
</TABLE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Funds have designated
the following amounts as long-term 28% capital gain distributions and long-term
20% capital gain distributions for the fiscal year ended March 31, 1998:
<TABLE>
<S> <C> <C> <C> <C>
Aggregate Per Share
------------------------ ------------------------
28% 20% 28% 20%
---------- ---------- --------- --------
American Retirement ......... $ 929,318 $ 2,838,500 $ 0.074 $ 0.236
Balanced .................... 66,297,210 93,567,090 0.981 1.328
Foundation .................. 16,351,073 19,569,413 0.148 0.169
Tax Strategic ............... 35,225 260,310 0.004 0.021
</TABLE>
77.40% of the dividends distributed by Tax Strategic for the fiscal year ended
March 31, 1998 are exempt from federal income tax, other than
alternative minimum tax.
For corporate shareholders, the following percentages of ordinary income
dividends paid during the fiscal year ended March 31, 1998 qualified for the
dividends received deduction:
<TABLE>
<S> <C>
American Retirement ......... 62.320%
Balanced .................... 23.720%
Foundation .................. 30.130%
Tax Strategic ............... 63.407%
</TABLE>
68
<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
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
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<PAGE>
Evergreen
Balanced
Funds
September 30, 1998
Semiannual Report
[ARTWORK APPEARS HERE]
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders...................................................... 1
Evergreen American Retirement Fund
Fund at a Glance......................................................... 2
Portfolio Manager Interview.............................................. 3
Evergreen Balanced Fund
Fund at a Glance......................................................... 6
Portfolio Manager Interview.............................................. 7
Evergreen Foundation Fund
Fund at a Glance.........................................................11
Portfolio Manager Interview..............................................12
Evergreen Tax Strategic Foundation Fund
Fund at a Glance.........................................................16
Portfolio Manager Interview..............................................17
Financial Highlights
Evergreen American Retirement Fund.......................................21
Evergreen Balanced Fund..................................................23
Evergreen Foundation Fund................................................25
Evergreen Tax Strategic Foundation Fund..................................27
Schedule of Investments
Evergreen American Retirement Fund.......................................29
Evergreen Balanced Fund..................................................33
Evergreen Foundation Fund................................................40
Evergreen Tax Strategic Foundation Fund..................................46
Statements of Assets and Liabilities........................................53
Statements of Operations....................................................54
Statements of Changes in Net Assets.........................................55
Combined Notes to Financial
Statements..................................................................58
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad 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: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
---------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
November 1998
--------
[PHOTO OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
We are pleased to provide you the Evergreen Balanced Funds semiannual report
covering the six-month period ended September 30, 1998.
Market Volatility
The financial markets have certainly experienced volatility in the past few
months. After a five-year period of unprecedented growth, the stock market
peaked on July 17, 1998, when prices were at historic highs relative to
benchmarks such as corporate profits and dividends. Since that point, fears of
foreign currency devaluations, political turbulence and instability abroad have
produced an uncertain market. Through September, the market all but lost its
year-to-date gains, and then in October was on the rise, nearing the levels of
July's peak. We encourage you to take this opportunity to review your investment
time horizon and ensure you are on track with your goals. We also encourage you
to consider an invaluable strategy of investing during uncertain times: Dollar
Cost Averaging./1/ By investing a little at a time in regular intervals, you can
remain focused on your investment goals and not worry about predicting market
trends. Contact your investment representative or call us at 800.343.2898 to
start your Systematic Investment Plan today.
Year 2000/2/
The year 2000 is nearly upon us, and unlike some we are looking forward to it.
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. We believe that for Evergreen shareholders, the
transition into the next millennium should be seamless, with virtually no impact
on the products and services you receive from us.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
/1/ This type of plan does not assure a profit or protect against loss in a
declining market.
/2/ The information above constitutes Year 2000 readiness
disclosure.
/3/ If you purchased your shares through a financial representative,
we may not be able to consolidate your mailings
by last name and address, because that institution controls the mailings.
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
We continue to have confidence in the Fund's long-term strategy, but our
emphasis on mid-cap value stocks and short-term government bonds contributed to
disappointing performance during the six-month period.
Portfolio
Management
------------------------------------------
[PHOTO OF IRENE D. O'NEILL APPEARS HERE]
Irene D. O'Neill, CFA
Tenure: March 1988
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
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.
[GRAPHIC APPEARS HERE]
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses 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 Wilshire 5000 Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices and do not include any
transaction costs associated with buying and selling securities or any
management fees. 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 3/14/88
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -14.62% -15.12% -11.57% n/a
................................................................................
6 months w/o sales charge -10.36% -10.71% -10.68% -10.25%
................................................................................
1 year with sales charge -7.97% -8.72% -4.98% n/a
................................................................................
1 year w/o sales charge -3.38% -4.13% -4.06% -3.14%
................................................................................
5 years -- -- -- 9.46%
................................................................................
10 years -- -- -- 10.63%
................................................................................
Since Inception 12.15% 12.17% 12.78% 10.43%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC yield 2.90% 2.30% 2.29% 3.30%
................................................................................
6-month income dividends
per share $0.25 $0.19 $0.19 $0.27
...............................................................................
* Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBGCBI Wilshire 5000 Class A Shares
1/3/95 10,000 10,000 10,000 9,525
9/30/95 10,234 11,393 13,014 11,362
9/30/96 10,541 11,906 15,476 12,740
9/30/97 10,768 13,048 21,362 15,903
9/30/98 10,929 14,727 22,064 15,365
Comparison of a $10,000 investment in Evergreen American Retirement Fund Class
A, versus a similar investment in the Wilshire 5000 Index, the Lehman Brothers
Government/Corporate Bond Index, and the Consumer Price Index (CPI).
The Wilshire 5000 Index is an unmanaged index of the largest 5,000 publicly
traded U.S. stocks and is considered a broad stock market average, so it gives
more weight to smaller companies than does the S&P 500.
The Lehman Brothers Government/Corporate Bond Index is a broad measure of the
performance of government and corporate fixed-rate debt issues.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
- --------------------------------------------------------------------------------
It was a difficult six-month period for investment strategies that emphasize the
types of stocks and bonds that have been the cornerstone of the American
Retirement Fund's successful long-term strategy. As a consequence, the Fund
lagged industry benchmarks. For the six months that ended on September 30, 1998,
the Fund's Class A, B, C and Y shares had total returns, of -10.36%, -10.71%,
- -10.68% and -10.25%, respectively. All returns are unadjusted for any applicable
sales charges. During the same six-month period, the average balanced fund had a
return of -5.37%, as measured by Lipper Analytical Services, Inc., an
independent monitor of mutual fund performance.
Portfolio
Characteristics
---------------
Total Net Assets $219,683,952
................................................................................
Number of Holdings 162
................................................................................
Beta 0.65
................................................................................
P/E Ratio 13.4x
................................................................................
How did the investment environment affect the Fund?
The investment environment did not favor the investments that the Evergreen
American Retirement Fund traditionally has emphasized. The Fund's equity
strategy focuses on value-oriented, mid-cap stocks because we believe they offer
superior, long-term, capital appreciation potential. In addition, the Fund's
fixed-income strategy focuses on short-term U.S. government securities because
of their historical price stability and reliability of income. Unfortunately,
during the six-month period, mid-cap value stocks and shorter-term fixed income
securities were not in favor; investors favored large-company growth stocks and
longer-maturity government bonds.
At the end of the period, for example, the median market capitalization of
stocks in the Fund's portfolio was $2.1 billion and the average maturity of
bonds was 4.6 years. In contrast, the typical balanced mutual fund owned stocks
with a median market capitalization of $16.9 billion and bonds with an average
maturity of 9.7 years. During a period of high volatility and uncertainty in the
equity market and falling interest rates in the bond market, investors preferred
large company growth stocks and longer-maturity government bonds.
We continue to have confidence in the Fund's long-term strategy, but our
emphasis on mid-cap value stocks and short-term government bonds contributed to
disappointing performance during the six-month period. We believe investors have
overlooked extremely attractive values in the mid-cap area, and these stocks
still offer superior, long-term growth opportunities. We also believe the
shorter-term government securities continue to offer stability and reliable
income that are important ingredients of our long-term approach.
Did you make any asset allocation or tactical changes during the six months?
We decreased the equity and convertible securities allocations slightly and
increased the fixed income portion of the portfolio to position the Fund more
defensively in a time of uncertainty and volatility in the equity markets.
- --------------------------------------------------------------------------------
ASSET ALLOCATION
- --------------------------------------------------------------------------------
March 31, 1998 September 30, 1998
Stocks 44.0% 42.5%
................................................................................
Convertible Securities 27.2% 22.9%
................................................................................
Fixed Income 26.8% 32.4%
................................................................................
Cash & Equivalents 2.0% 2.2%
................................................................................
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What were your principal equity strategies, and how did they change during the
period?
Within the equity portion of the portfolio, we increased the allocation to
utility stocks because of their defensive characteristics. We reduced our
positions in stocks and convertible securities that appeared fully valued or in
which we had concerns about the fundamental outlooks of the underlying
companies.
We continued to seek out undervalued securities of restructuring companies that
have the potential to enhance earnings. Among the companies we favored were:
Armstrong World, the flooring and building material company; Arvin Industries
and Simpson Industries, both involved in the automotive parts industry; Tenneco,
a diversified company involved in both packaging and the automotive parts
industries; and Thomas & Betts, an electrical components supplier.
We also looked for opportunities among stable earnings companies in the
consumer, non-cyclical area because these companies typically perform well in
economic downturns. Two good examples were Ruddick, which operates supermarkets
in the Southeast, and Lancaster Colony, which produces consumer products,
including food, glassware and candles.
Top 5 Industries --
Equity
------
(based on 9/30/98 net assets)
Utilities -- Electric 8.1%
................................................................................
Banks 6.9%
................................................................................
Finance & Insurance 5.5%
................................................................................
Oil / Energy 3.7%
................................................................................
Retailing & Wholesale 3.5%
................................................................................
Did any themes or areas help the performance of the Fund?
Yes. As in the past, the Fund's emphasis on value stocks led us to invest in
companies that became takeover targets. During the six months, one Fund holding
was acquired, and another three were subjects of pending acquisitions.
Mercantile Stores has been acquired by Dillard's, a larger department store
chain, providing a healthy gain for the Fund. In addition, Amoco is the subject
of a pending takeover by British Petroleum; Crestar, a bank, is expected to be
acquired by Sun Trust; and TCI Communications, a cable company, is the subject
of an acquisition offer by AT&T.
The best-performing industry group was publishing, broadcast and entertainment.
Our primary holdings were cable and entertainment companies, which continued to
enjoy strong earnings growth and which had very little exposure to foreign
problems. We expect the expansion of cable services and products to offer the
industry new opportunities for revenue growth. In addition to TCI, other
investments that performed well were Cox Communications, where we own the
convertible security, and Time Warner, where we own both the common stock and
the convertible.
Another group that did well was the electric utility industry. Electric
utilities are good defensive stocks because their earnings tend to hold up well
in downturns, they have relatively high dividend yields, and they benefit from
declining interest rates. Deregulation in this industry is producing benefits
for many companies, both in revenue growth and merger and acquisition
opportunities.
The Fund's investment in the convertible security of Air Touch, a major provider
of wireless communications service, also was very successful.
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What has been your strategy with the fixed-income allocation in the portfolio?
We have continued to focus on short-term, U.S. government agency securities,
with only a very minimal commitment to corporate bonds. Government agency
securities provide the highest credit quality, with a better yield than
Treasuries. We have been able to obtain an average yield advantage of more than
one percentage point by investing in agencies rather than Treasuries with
comparable maturities.
While shorter-term bonds tend to underperform longer-term bonds in a declining
interest rate environment, such as we have been experiencing, they offer price
stability and provide a good balance to the equities in the portfolio.
Fixed Income
Allocation
----------
(based on 9/30/98 net assets)
Government Agency-- Notes & Bonds 30.2%
................................................................................
Treasury Notes & Bonds 0.8%
................................................................................
Banks 0.5%
...............................................................................
Finance & Insurance 0.5%
................................................................................
Telecommunication Services & Equipment 0.4%
................................................................................
What is your outlook?
We expect the U.S. economy to slow over the next few months as a result of
global economic problems. The Federal Reserve Board, however, is expected to
continue to lower short-term interest rates to stimulate the economy and offset
the softness created by international events.
In this environment, we will be looking for good value. Currently, we see
opportunities in many stocks with above-average dividend yields and strong
prospects for earnings growth once the economy starts to improve. We believe
this value sector has been overlooked by the market and offers investors good
potential for capital appreciation.
Top 10
Equity Holdings
---------------
(based on 9/30/98 net assets)
Marketspan Corp. 1.2%
................................................................................
Houston Industries, Inc. 1.1%
................................................................................
Sempra Energy 1.1%
................................................................................
Puget Sound Energy, Inc. 1.1%
................................................................................
Merrill Lynch & Co., Inc.
6.00% STRYPES, Due 6/1/99 (exch. for
Cox Communications, Inc. common stock) 1.1%
................................................................................
Family Golf Centers, Inc. 1.1%
................................................................................
Texas Utilities Co. 1.0%
................................................................................
Norwest Corp. 1.0%
................................................................................
U.S. West, Inc. 1.0%
................................................................................
Public Service Enterprise Group, Inc. 1.0%
................................................................................
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
We made a change in early June to take advantage of the defensive protection
that high quality bonds can provide in a period of extreme volatility in the
stock market.
Portfolio
Management
------------------------------------------
[PHOTO OF CHRIS CONKEY APPEARS HERE]
Chris Conkey
Tenure: August 1998
[PHOTO OF JUDITH WARNERS APPEARS HERE]
Judith Warners
Tenure: August 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
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.
[GRAPHIC APPEARS HERE]
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses 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 and the LBGCBI are unmanaged indices and do
not include transaction costs associated with buying and selling securities or
any management fees. 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 1/22/98 1/26/98
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -7.52% -7.96% -4.14% n/a
................................................................................
6 months w/o sales charge -2.91% -3.18% -3.18% -2.71%
................................................................................
1 year with sales charge -- 1.17% -- n/a
................................................................................
1 year w/o sales charge -- 5.71% -- --
................................................................................
5 years -- 11.58% -- --
................................................................................
10 years -- 11.44% -- --
................................................................................
Since Inception** -0.99% 8.42% 3.21% 7.25%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC yield 2.99% 2.39% 2.39% 3.38%
................................................................................
6-month income dividends per share $0.22 $0.18 $0.18 $0.24
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A, C, and Y shares as these classes
opened in January 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBGCBI S & P 500 Class B
9/30/88 10,000 10,000 10,000 9,525
9/30/89 10,434 11,132 13,301 12,148
9/30/90 11,077 11,884 12,071 11,513
9/30/91 11,452 13,768 15,834 14,068
9/30/92 11,795 15,590 17,853 15,146
9/30/93 12,112 17,374 19,869 16,879
9/30/94 12,471 16,655 20,602 16,508
9/30/95 12,788 19,045 26,730 19,484
9/30/96 13,172 19,903 32,165 22,576
9/30/97 13,456 21,811 45,175 27,933
9/30/98 13,656 24,618 49,261 29,528
Comparison of a $10,000 investment in Evergreen Balanced Fund Class B, versus a
similar investment in the Standard & Poor's 500 Index (S&P 500), the Lehman
Brothers Government/Corporate Bond Index (LBGCBI), and the Consumer Price Index
(CPI).
The Standard & Poor's 500 Index is an unmanaged index of 500 publicly traded
U.S. stocks and is often used to indicate the performance of the overall stock
market.
The Lehman Brothers Government/Corporate Bond Index is a broad measure of the
performance of government and corporate fixed-rate debt issues.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the six months?
In a fast-changing and highly volatile environment, the Fund had negative
performance during the period, despite outperforming the industry average for
balanced funds. For the six months that ended on September 30, 1998, the
Balanced Fund's Class A, B, C and Y shares had total returns of-2.91%, -3.18%,
- -3.18% and -2.71%, respectively. These returns are unadjusted for any applicable
sales charges. During the same six-month period, the average balanced mutual
fund had a return of -5.37%, as measured by Lipper Analytical Services, Inc., an
independent monitor of mutual fund performance.
Portfolio
Characteristics
---------------
Total Net Assets $1,700,160,383
................................................................................
Number of Holdings 234
................................................................................
Beta 0.92
................................................................................
P/E Ratio 29.4x
................................................................................
What was the investment environment like during the period?
The six months actually encompassed two very different periods. As we started
the new fiscal year in early April, the market environment featured relatively
stable interest rates and rising equity prices. During this period, the
principal investment fear was that the economic growth might overheat, setting
off inflationary pressures and leading to higher interest rates. This period
continued through mid-July when the environment abruptly changed because the
Russian financial collapse made people realize that international economic
problems were much more serious and had a greater potential impact on the U.S.
economy than investors had assumed. In the U.S., we went from fear of too much
economic growth to fear of too little growth because of the ripple effects of
problems throughout the emerging markets. Both the stock and the bond markets
were affected, and the most immediate problems were created by concerns about
liquidity as well as concerns about the solvency of institutions.
The stock market, as reflected by the Standard & Poor's 500 Index, fell by
approximately 20% between mid-July and the end of September. The price losses
spanned different industries, but particularly affected financial services
companies, which began to anticipate lower earnings in July and August. In
addition, investors began to be concerned that credit quality would start to
deteriorate.
In the bond market, the global flight to quality rewarded investors in U.S.
Treasuries, which outperformed bonds carrying credit risk. As investors sought
out high quality bonds, the yields of the 30-year Treasury declined by almost a
full percentage point, to 5.10%, with yields on intermediate Treasuries
declining even more -- by 1.4%. As a consequence, the price of Treasuries
appreciated. At the end of the period, the Federal Reserve Board began to ease
monetary policy, reducing short-term interest rates by one-quarter of one
percent.
Did asset allocation between stocks and bonds change during the six months?
Yes. At the end of the fiscal period, the Fund was as conservatively positioned
as it is likely to be, with 52% of net assets in stocks and 48% in bonds. In
contrast, at the start of the period on April 1, the Fund was approximately 60%
in equities and 40% in bonds.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
We made a change in early June to take advantage of the defensive protection
that high quality bonds can provide in a period of extreme volatility in the
stock market. This reallocation helped the Fund's performance.
Over the long run, we expect stocks to outperform bonds and the Fund's
allocation will reflect that. During the current, very unusual period, however,
we believe it makes sense to have a relatively heavy weighting in bonds because
of the strong performance in the fixed income market and the greater protection
high grade bonds offer during market volatility.
Top 5 Industries --
Equity
------
(based on 9/30/98 net assets)
Healthcare Products & Services 11.2%
...............................................................................
Oil / Energy 7.2%
...............................................................................
Finance & Insurance 3.8%
...............................................................................
Utilities -- Telephone 3.5%
...............................................................................
Utilities -- Electric 3.3%
...............................................................................
What strategies did you pursue in managing the equity portion of the portfolio?
We kept the equity allocation diversified across many sectors, but we did make
some changes. At the start of the period, the Fund's largest weightings were in
the financial services and healthcare sectors. We reduced both weightings, and
cut the financial services area more significantly because we were concerned
about this sector's vulnerability to foreign problems. We also were worried
about a possible deterioration in the quality of bank loans. In healthcare, we
moved to a weighting more in line with overall market indices, but increased
diversification across the entire industry, with investments in pharmaceuticals,
hospital management companies and medical equipment companies.
One notable change was to increase the investments in industry-leading growth
companies, including companies that historically have not paid dividends,
especially in technology, which had been under-represented in the Fund. We
bought stocks in established companies that were market leaders, such as
Microsoft, EMC, Sun Microsystems and Medtronics, and we maintained a healthy
investment in IBM. We also slightly increased the investments in more defensive
industries such as food, regional telephone companies and utilities.
What companies have helped performance?
General Electric, a major investment by the Fund, continued to support
performance, although we did trim back the position somewhat to take profits.
Several pharmaceutical companies also have helped, including Schering-Plough and
Warner-Lambert, as well as the technology holdings such as IBM, EMC and Sun
Microsystems.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
Common Stock -- 49.3%
Corporate Notes/Bonds -- 20.3%
Mortgage Backed Securities -- 9.7%
Asset Backed Securities -- 6.1%
Foreign Bonds* -- 5.4%
Cash and Equivalents -- 4.4%
Convertibles -- 2.7%
Treasury Notes/Bonds -- 1.6%
Government Agency/Notes Bonds -- 0.5%
* All foreign securities are high quality, with currency hedged to protect
against fluctuations.
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What strategies did you pursue in managing the fixed-income portion of the
portfolio?
We have significantly increased the fixed-income allocation, but our policy in
managing the fixed income component has been very consistent. We have over-
weighted quality corporate bonds and mortgage-backed securities because of their
yield advantage over government bonds, while maintaining a very high credit
quality. Average credit quality was AA on September 30. We have focused on
structure in the fixed income portfolio, meaning we have invested in bonds that
offer protection against early redemption by their issuers. This is very
important in a declining interest rate environment, because it allows the Fund
to retain the higher yields of existing bonds. We also have concentrated on
bonds from defensive industries, including insurance, defense and utilities.
About 10% of the fixed income portfolio has been in U.S. Treasuries.
The fixed income portfolio also has a slightly longer average maturity than the
average bond fund. On September 30, average-weighted maturity was 11 years, and
duration was 5.1 years. This has helped performance as interest rates declined
and the prices of higher-rated bonds tended to rise.
Top 5 Industries --
Bonds
-----
(based on 9/30/98 net assets)
Finance & Insurance 6.5%
................................................................................
Collateralized Mortgage Obligations 6.2%
...............................................................................
Asset-Backed Securities 6.1%
................................................................................
Foreign Bonds (Non-U.S. Dollars) 4.2%
................................................................................
Mortgage Pass-Through Certificates 3.5%
................................................................................
Top 5
Bond Holdings
-------------
(based on 9/30/98 net assets)
Federal National Mortgage Association
(various rates and maturities) 2.3%
................................................................................
Realkredit Danmark, 6.00% 10/1/2026 1.9%
................................................................................
U.S. Treasury Bonds (various rates and maturities) 1.6%
................................................................................
Nykredit 1.3%
................................................................................
United Kingdom Treasury, 7.25% 12/7/2007 1.0%
................................................................................
What is the outlook?
We expect the economy, as reflected by Real Gross Domestic Product, to continue
to grow in 1998; however, there is the potential of a recession in 1999. If a
recession were to occur, we would not expect it to last very long or to be very
deep. The Federal Reserve Board has lowered short-term interest rates to
stimulate the economy, and we expect further reductions in the coming months.
International economic conditions, particularly in Japan, Brazil and Europe,
will continue to have an influence on the U.S. economy. In the short term, we
expect corporate profits to flatten somewhat. An important variable will be the
ability of the financial industry to continue to provide loans to industry and
avoid a liquidity crunch.
We do not expect the present asset allocation of 52% stocks and 48% bonds to
shift more towards bonds, and we will look for the appropriate time to shift
back toward a greater emphasis on equities. In the equity portfolio, we will
continue to look for value among established, large-cap, dividend-paying
companies. We expect to continue to emphasize food companies, retailers,
utilities and other industries that offer defensive protection in times of
uncertainty. We also expect to maintain a representation among industry-leading
growth companies, including technology companies, because of their superior
long-term prospects.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
In the fixed-income portfolio, we plan to focus on high quality bonds as the
economy slows, and take advantage of the yield advantage of highly rated
corporate bonds and mortgage-backed securities over Treasuries. We will continue
to try to protect the Fund's income by looking for bonds with call protection,
which allow the Fund to receive the higher yields of yesterday during today's
lower-interest-rate environment.
Top 10
Equity Holdings
---------------
(based on 9/30/98 net assets)
Johnson & Johnson 1.7%
................................................................................
Merck & Co., Inc. 1.6%
...............................................................................
General Electric Co. 1.5%
................................................................................
Texaco, Inc. 1.4%
................................................................................
Monsanto Co. 1.3%
................................................................................
Schering-Plough Corp. 1.2%
................................................................................
Mobil Corp. 1.2%
................................................................................
Bristol-Myers Squibb Co. 1.2%
................................................................................
Warner-Lambert Co. 1.1%
................................................................................
Ameritech Corp. 1.1%
................................................................................
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
The investment policy strategy adopted early in the fiscal year assumed that the
markets would show considerable volatility and contained numerous examples of
overpriced issues.
Portfolio
Management
--------------------------------------------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: January 1990
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
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.
[GRAPHIC APPEARS HERE]
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses 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 and the Lipper Balanced Funds Average
are unmanaged indices and do not include transaction costs associated with
buying and selling securities or any management fees. 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 1/2/90
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -9.73% -10.26% -6.51% n/a
................................................................................
6 months w/o sales charge -5.23% -5.57% -5.57% -5.12%
................................................................................
1 year with sales charge -0.12% -0.94% 3.06% n/a
................................................................................
1 year w/o sales charge 4.87% 4.06% 4.06% 5.09%
................................................................................
5 years -- -- -- 12.77%
................................................................................
Since Inception 15.97% 16.06% 16.55% 16.03%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.03% 1.39% 1.39% 2.38%
................................................................................
6-month income dividends
per share $0.21 $0.13 $0.13 $0.23
...............................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBFA S&P 500 Class A
1/3/95 10,000 10,000 10,000 9,525
9/30/95 10,234 12,042 12,977 11,743
9/30/96 10,541 13,539 15,615 12,763
9/30/97 10,768 16,814 21,931 16,610
9/30/98 10,929 17,343 23,915 17,416
Comparison of a $10,000 investment in Evergreen Foundation Fund Class A, versus
a similar investment in the S&P 500 Index, the Lipper Balanced Funds Average
(LBFA), and the Consumer Price Index (CPI).
The S&P 500 Index is an unmanaged index of 500 publicly traded U.S. stocks and
is often used as an indicator of performance of the overall stock market.
The Lipper Balanced Funds Average measures the average performance of balanced
funds excluding sales charges.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the performance of the Evergreen Foundation Fund in the first half of
the fiscal year?
For the six months ended September 30, 1998, the Evergreen Foundation Fund's
Class A, B, C, and Y shares returned -5.23%, -5.57%, -5.57% and -5.12%,
respectively, compared with the -6.97% of the Standard and Poor's 500 Index and
the -5.37% return of the Lipper Balanced Funds Average. Since inception on
January 2, 1990, the Fund's Class Y shares have provided a return of 267.26%,
with an average annual return of 16.03%.
Portfolio
Characteristics
---------------
Total Net Assets $2,776,465,795
................................................................................
Number of Holdings 358
................................................................................
Beta 0.63
................................................................................
P/E Ratio 18.1x
................................................................................
What has been the trend of performance this year?
After providing a positive performance return in the first quarter of the fiscal
year ended June 30, 1998, and beginning the September quarter with further
gains, the Fund was affected by the severe stock market decline at the end of
August and into September. There were two impacts: declining equity prices and
rising Treasury bond prices. For the quarter, the Fund's equities showed a 12.9%
decline, while its Treasury bond position produced a gain of 7.7%. For the six
months ended September 30, the equities had a total decline of 12.9%, and the
Treasury bond position showed a gain of 12.4%. The Fund's performance was also
affected by the maintenance of an approximately 12% cash equivalent position
during this time.
What were the major impacts on performance during the six months?
The major impact was, of course, the declining stock market at the end of the
September quarter, and most markedly, the decline in stock prices of financial
institutions' common stocks during the period subsequent to the Russian ruble
collapse. Unprecedented waves of selling hit the nation's major financial
institutions, several of which are included in the Fund's holdings. Declines of
30% to 60% occurred in a number of these issues, but the Fund's diversification
permitted significant offsets which moderated the downward impact.
These same conditions focused worldwide investor attention on U.S. Treasury
obligations as the most defensive and secure investment opportunities. With the
Fund's considerable focus on long-term U.S. Treasuries, it enjoyed particular
strength during this period. In fact, the Fund's Treasury position had been
enlarged during the six months.
Positive equity performance still continued for a significant number of the
Fund's holdings. The top ten performers increased between 24.6% and 58.8% during
the six-month period. The leader was McKesson Corp., with a gain of 58.8%;
followed by Cisco Systems, Inc., up 37.5%; Lilly (Eli) & Co., up 31.2%; Cox
Communications, Inc., up 30.1%; and Tricon Global Restaurants, Inc., up 29.6%.
Pharmaceutical and technology issues provided major sources of gains, led by
Lilly (Eli) & Co., up 31.2%; and Schering-Plough Corp., up 26.3% in the
pharmaceutical group. Technology issues powering the Fund's performance were
Cisco Systems, Inc., up 37.5%; Compaq Computer Corp., up 24.6%; International
Business Machines Corp., up 23.3%; Microsoft Corp., up 22.5%; and Sun
Microsystems, Inc., up 19.5%. Some utility companies were among the top
performers, Energy East Corp., up 27.8% and Orange & Rockland Utilities, Inc.,
up 22.1%.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
Common Stock -- 58.6%
U.S. Treasury Notes/Bonds -- 28.2%
Cash and Equivalents -- 11.4%
Government Agency Notes/Bonds -- 0.8%
Convertibles -- 1.0%
What was the Fund's asset allocation strategy with regard to stocks, bonds, and
cash equivalents?
During the six months, the Fund maintained a generally stable asset allocation
position. Significant changes included increases in the long-term Treasury bond
position in June and July, and then, later in August and through September, the
switch of some cash equivalent reserves into equities which were purchased at
depressed prices. The investment policy strategy adopted early in the fiscal
year assumed that the markets would show considerable volatility and contained
numerous examples of overpriced issues. Our goal was to anticipate probable
declines and to be in a position to utilize the Fund's cash equivalents to take
advantage of these declines. Thus, we set about aggressively to use these
reserves, increasing the equity asset allocation in September. Purchases
included several issues new to the portfolio, and numerous increases to existing
positions, particularly when the latter were under severe pressure. New holdings
included American Express Co., American Stores Co., Mellon Bank Corp.,
Progressive Corp.(Ohio), Norwest Corp., Dollar General Corp. (Strypes), and
Philips International Realty Corp. Among the issues added to the portfolio, a
number have withstood the market volatility, and even provided substantial gains
through September 30. Amoco Corp. shares have advanced as a result of an
acquisition bid by British Petroleum Co. Plc.
American Stores Co. has moved up with the advance of Albertson's, Inc., which is
planning to acquire the company. Perkin-Elmer Corp. has had a major advance as
it is restructuring its operations, and Progressive Corp. has demonstrated an
earning power which renewed market optimism concerning its valuation. These are
but a few of the positive developments which have impacted the portfolio's new
and enlarged commitments. Even in those which had particularly sizable declines
toward the end of the quarter, we are now encountering positive investor
revaluation. Of the Fund's significant positions which were increased during the
six months, those with the greatest declines were Lehman Brothers Holdings, Inc.
and Merrill Lynch & Co., Inc.
How do the Fund's long-term strategies fare in the recent market volatility?
The Fund's long-term strategy of concentrating fixed income investments in U.S.
Treasury obligations was, as noted above, highly rewarding in the atmosphere of
financial crisis when investors chose to literally retreat into Treasuries.
The Fund's equity strategy of concentrating on the effort to select undervalued
growth opportunities was effective in the often uncertain and highly volatile
markets. There was considerable validation of this strategy in the continuing
highly favorable trend of mergers and acquisitions. During the six months, 21 of
the Fund's holdings were the subject of merger or acquisition offers,
demonstrating, in our view, both their undervaluation and the dynamism of other
companies in their industries, or interested in their industries. Financial
institutions continued to be active in this trend. The Fund's holdings in First
of America Bank Corp., purchased in July, 1995, was acquired in April at a
valuation which provided a 217.7% gain for the Fund. Other banks with such bids
included: Crestar
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Financial Corp., 94.5% from May 1993 (still pending in its merger with SunTrust
Banks, Inc.); Firstar Corp., 26.1% just six months after its purchase by the
Fund (still pending with Star Banc Corp.); Beneficial Corp., 151.1%, one and
three-quarter years after its purchase; and First Chicago NBD Corp., 97.1%,
three and three-quarter years holding, the purchase by Banc One Corp. still
pending. The utility industry was involved in these holdings with Long Island
Lighting Co. being acquired by KeySpan Energy Corp., with a 48.8% gain to the
Fund in just over one year and a half; 360 (Degrees) Communications Co. acquired
by ALLTEL Corp. with a 116.7% gain in two years and five months; Orange and
Rockland Utilities, Inc., with a 51.8% gain (still pending in just over one
year) with an offer by Consolidated Edison, Inc.; and GTE Corp. with a 35.0%
gain, pending the acquisition by Bell Atlantic Corp. The diversity of this group
of acquisitions or mergers reflects the Fund's highly diversified positioning,
with Oasis Residential, Inc., a real estate investment trust; Continental Homes
Holding Corp., a home-builder; Western Atlas, Inc., an oil field services
company; Mercantile Stores Co., Inc., a retailer; Amp, Inc., an electronic
components company; and even Chrysler Corp., with a proposed acquisition by
Daimler-Benz AG.
We anticipate that as the security markets regain stability, this long-term
trend which has provided over 59 (48 completed and 11 pending) mergers and
acquisitions for the Fund portfolio, with an average gain of 67.2% on the
completed acquisitions, will continue to be a source of significant capital
appreciation.
Top 5 Industries --
Equity
------
(based on 9/30/98 net assets)
Finance and Insurance 9.1%
......................................................................
Information Services & Technology 7.0%
.....................................................................
Healthcare Products and Services 6.8%
......................................................................
Banks 6.8%
......................................................................
Real Estate 4.8%
......................................................................
Did the Fund sell any securities when stock prices were near their highs for the
fiscal year?
The Fund made a number of significant sales of shares to take advantage of price
spurts during the market's trend to new highs in the spring and early summer.
The largest single profit (882.2% in five and three-quarter years) was taken in
a portion of the Fund's holdings in Intel Corp., when we judged that the shares
had amply discounted present opportunities. While still highly confident of the
long-term trend of the company, we reduced the position in order to limit the
Fund's volatility. Similar sales were made of other technology leaders,
including portions of the positions in Cisco Systems, Inc., Lucent Technologies
Inc., Hewlett-Packard Co., Honeywell, Inc., and Perkin-Elmer Corp. In the health
care industry, another area where the Fund has had great success with long-term
commitments, reductions were made in positions in Pfizer, Inc., Medtronic, Inc.,
and Monsanto Co. Among financials, positions were reduced in Dime Bancorp, Inc.,
SunTrust Banks, Inc., and Morgan (J.P.) & Co., Inc., while positions in Wachovia
Corp. and Cardinal Health, Inc. were eliminated. Sizable gains were taken in
other issues which subsequently fell quite sharply, including Household
International, Inc., Disney (Walt) Co., Avon Products, Inc., and International
Flavors & Fragrances, Inc. The fundamental motivation for the sales was asset
protection. The number of losses was minimal for the Fund; illustratively, a
28.4% loss in the shares of Nike, Inc. on a long-term basis, and one short-term
loss of 17.7% in the shares of Penney (J.C.) Co., Inc.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 10
Equity Holdings
---------------
(based on 9/30/98 net assets)
Intel Corp. 2.5%
................................................................................
Federal National Mortgage Association 1.7%
................................................................................
General Electric Co. 1.6%
................................................................................
Microsoft Corp. 1.5%
................................................................................
Du Pont (E.I.) De Nemours & Co. 1.2%
................................................................................
Hewlett-Packard Co. 1.0%
................................................................................
BankBoston Corp. 0.9%
................................................................................
Sprint Corp. 0.9%
................................................................................
Lilly (Eli) & Co. 0.9%
...............................................................................
International Business Machines Corp. 0.8%
................................................................................
What is the outlook for the Fund at this time?
Management is optimistic that the much feared crisis of financial liquidity in
the United States, and the apprehension of recession prospects in the months
ahead has been greatly overdone. The demonstrated willingness of the Federal
Reserve to provide interest rate cuts to ensure support for the American
financial system, and to demonstrate that inflation is not feared at this time,
has already had highly positive effects for the equity markets since the October
15th rate decrease. Further, the settlement of budget disputes in the Congress,
the program to further fund the IMF, and the United States readiness to lead a
program of support for Brazil, should remove much of the fear concerning broader
financial chaos. The long effort to restimulate Japan continues, but with a more
optimistic outlook than in the last two years because that country is finally
facing the need to provide new funding for its banking system in recognition of
the huge loan losses it carries. The Asian financial difficulties remain of
deep concern, but there is already evidence of turnaround, though slow, and
perhaps halting, in several countries, including Thailand, Korea, and the
Philippines.
The profitability of American business remains intact, even taking into account
many lower than expected earning statements for the third quarter. It is already
evident that corporations are tightening their operating and financial belts for
a more competitive, more pressured environment. But, corporations are also
demonstrating their confidence in the value of their businesses and the strength
of their treasuries by an almost unprecedented wave of corporate share buybacks.
Since the Russian financial crisis came to a head, and the American markets
began to decline, the daily list of corporate buybacks has reached extraordinary
proportions. This will lend both support and confidence to the equity markets.
Our expectations are that this nation will continue to be in a period of lower,
and perhaps even declining interest rates, while a close to full employment
society will be able to sustain demand, notwithstanding a more cautious consumer
attitude. This caution could well increase saving rates and, thus, generate more
investable assets. Our policy will remain sensitive to appropriate asset
allocation, aggressive in seizing the opportunity of depressed values, and
cautious in the face of evidences of overvaluation.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
The original and long-term strategy of the Fund is to take advantage of
undervalued growth opportunities, both to minimize risk through undervaluation
and to benefit by growth.
Portfolio
Management
--------------------------------------------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: November 1993
[PHOTO OF JAMES T. COLBY III APPEARS HERE]
--------------------------------------------------
James T. Colby III
Tenure: November 1993
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
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.
[GRAPHIC APPEARS HERE]
The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses 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 and the LBMBI are unmanaged indices
and do not include transaction costs associated with buying and selling
securities or any management fees. 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/17/95 1/6/95 3/3/95 11/2/93
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -11.00% -11.58% -7.90% n/a
................................................................................
6 months w/o sales charge -6.63% -6.96% -6.97% -6.49%
................................................................................
1 year with sales charge -4.48% -5.41% -1.51% n/a
................................................................................
1 year w/o sales charge 0.28% -0.53% -0.53% 0.53%
................................................................................
3 years 10.62% 10.84% 11.61% 12.78%
................................................................................
Since Inception 13.69% 14.11% 14.15% 13.46%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.13% 1.49% 1.49% 2.49%
...............................................................................
6-month income dividends
per share $0.17 $0.12 $0.12 $0.19
................................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
CPI LBMBI S & P 500 Class A
1/31/95 10,000 10,000 10,000 9,525
9/30/95 10,193 10,966 12,649 11,333
9/30/96 10,499 11,629 15,220 12,876
9/30/97 10,725 12,677 21,377 16,061
9/30/98 10,885 13,612 23,310 16,106
Comparison of a $10,000 investment in Evergreen Tax Strategic Foundation Fund
Class A, versus a similar investment in the S&P 500 Index, the Lehman Brothers
Municipal Bond Index (LBMBI), and the Consumer Price Index (CPI).
The S&P 500 Index is an unmanaged index of 500 publicly traded U.S. stocks and
is often used as an indicator of performance of the overall stock market.
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal
bond market. To be included in this index, bonds must have a minimum credit
rating of at least BAA, and outstanding par value of at least $3 million and be
issued as part of a transaction of at least $50 million. The bonds must have
been issued after December 31, 1990, and have a remaining maturity of at least
one year. Taxable municipal bonds, bonds with floating rates, derivatives, and
certificates of participation are excluded.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the performance for the Evergreen Tax Strategic Foundation Fund in the
first half of the fiscal year?
Evergreen Tax Strategic Foundation Fund Classes A, B, C, and Y had performance
of -6.63%, -6.96%, -6.97% and -6.49%, respectively, for the six months ended
September 30, 1998. This performance compares with -5.37% of the fully taxable
funds in the Lipper Balanced Fund Average. The Fund's performance was negatively
impacted during the six months by two principal factors. First, the tax-exempt
bond market failed to fully reflect the interest rate performance of taxable
obligations during this period. The spread between tax-exempt bonds and U.S.
Treasuries increased to the point where index yields were nearly 100% of
Treasuries. This means that in the rush to secure the protection of Treasuries,
in a period of financial uncertainty, investors were literally overlooking the
advantages of tax-exempt income. The Fund's tax-exempt bond portfolio increased
in value only 5.5% over the last six months. The equity performance was also
negatively affected by this investor rush to security. Stocks with dividend
yields were more favored during the period of market volatility in the latter
part of August and September, than those with little or no yield. Since the tax
efficient goal of the Tax Strategic Foundation Fund focuses on issues with
little or no yield, it suffered an adverse impact from this shift. The equity
portfolio during the six months declined 18.8%.
Portfolio
Characteristics
---------------
Total Net Assets $370,600,973
..............................................................................
Number of Holdings 283
...............................................................................
Beta 0.48
...............................................................................
P/E Ratio 13.9x
...............................................................................
Were the negative trends of the last quarter indicative of new, adverse
conditions?
Your management believes that these adverse trends were temporary in nature,
aggravated by apprehensions that the U.S. financial markets were likely to
suffer from a lack of liquidity, and that American industry would be faced with
a recession. Developments since the end of the quarter have tended to counter
these impressions, as is evident from the sizable rally in stock prices in this
period. The actions of the Federal Reserve Bank to reduce interest rates twice
and its indicated policy of supporting liquidity in the financial system, have
countered the worst fears. Furthermore, its willingness to provide liquidity,
and its evident belief that inflation is not a near-term problem, suggest that
credit availability will continue to sustain economic expansion, although at
lower rates. Supportingly, the passage of the budget by Congress, the plan to
obtain U.S. support for IMF, the Administration plan to support Brazil, and the
Japanese government plan to refinance the banking system where necessary, all
suggest that the panicky conditions in the securities markets will abate.
Has the Fund sought to take advantage of these recent market conditions?
Throughout the six months, our investment policy has been very actively focused
on increasing the common stock participation, particularly of issues believed
temporarily at deflated prices, and on lengthening maturities of the tax-exempt
portfolio.
Outstanding purchase opportunities were seen in a large number of issues,
particularly at the end of August and early in September. Examples of the Fund
taking advantage of these opportunities are numerous, given the 143 issues
purchased for the Fund, both
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
stock and bond, during this period. As examples of undervaluation, we would note
that during, and subsequent to, the major sell-off on August 31, the Fund bought
shares of Intel Corp., which provided a gain of 16.6% to September 30;
Progressive Corp. (Ohio), which provided a gain of 13.8% to September 30; Coca-
Cola FEMSA S.A. de CV, which provided a gain of 7.3% to September 30; and
Citicorp, now Citigroup Inc., which provided a gain of 2.0% to September 30. In
the tax-exempt bond position, the strategy during this entire period was to
lengthen maturities to take maximum advantage of the overall decline in interest
rates. The selection was again limited to the highest quality, either insured or
triple-A rated bonds.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(based on 9/30/98 net assets)
[PIE CHART APPEARS HERE]
Municipal Bonds -- 52.6%
Common Stock -- 45.5%
Cash and Equivalents -- 1.1%
Convertibles -- 0.8%
Is the Fund still focused on undervalued equities?
The original and long-term strategy of the Fund is to take advantage of
undervalued growth opportunities, both to minimize risk through undervaluation
and to benefit by growth. One of the clearest proofs that we have indeed
selected undervalued issues is through the merger and acquisition offers which
many of these companies receive. During the six months, twelve of the Fund's
holdings were the subject of mergers or acquisitions. The average return to
September 30 on the completed acquisitions was 95.8%. The largest indicated gain
was in the shares of First of America Bank Corp., which were purchased in July,
1995, and the merger was completed in April, 1998, with a 224.9% gain. Other
financial institutions with sizable gains through mergers and acquisitions were
Beverly Bancorporation, Inc., up 92.4%, and Crestar Financial Corp., up 29.4%
(based on the September 30 closing price of SunTrust Banks, Inc.). A diverse
group of companies was included in this listing, including two hotel groups;
Interstate Hotels Co., which recorded a 61.5% appreciation, and La Quinta Inns
Inc., with an 18.1% gain. Others with bids for the companies now pending
include: Amp, Inc., Amoco Corp., GTE Corp., Monsanto Co., and Citicorp. This
merger and acquisition activity confirms the continuing validity of our
undervaluation strategy. Looking ahead, we anticipate that as a result of the
recent sharp price declines of the shares of many attractive companies, the
merger and acquisition activity will re-accelerate, and provide appreciation
opportunities for the Fund's holdings.
Top 5 Industries --
Equity
------
(based on 9/30/98 net assets)
Finance & Insurance 8.2%
...............................................................................
Banks 8.1%
................................................................................
Real Estate 4.2%
................................................................................
Electrical Equipment & Services 3.7%
................................................................................
Healthcare Products & Services 3.3%
................................................................................
Top 5 Industries --
Bonds
-----
(based on 9/30/98 net assets)
Housing 8.9%
................................................................................
Hospitals 6.6%
...............................................................................
Electric Power 5.3%
................................................................................
Higher Education 5.2%
................................................................................
Government -- Local 5.2%
................................................................................
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What were the strongest and weakest sectors for the Fund's investments during
the six months?
The strongest were technology and health care. The best performer in technology
was International Business Machines Corp., up 25.5%; followed by Sun
Microsystems, Inc., up 19.5%; and Gateway 2000, Inc., up 11.0%. In health care,
the leaders were Abbott Laboratories, up 11.6%; American Home Products Corp., up
9.9%; Monsanto Co., up 8.2%; and Pfizer, Inc., up 6.2%. The weakest sector was
financial, with Frontier Insurance Group, Inc., declining 47.1%; Mercury General
Corp., down 44.7%; and Republic New York Corp., with a 42.9% loss.
Did the Fund sell any stocks when the market was high in the spring and early
summer?
A number of sales were made for the Fund taking advantage of the market run-up.
The largest percentage recorded was in the shares of Lucent Technologies Inc.,
sold with a gain of 498.2% in a 26-month holding period; followed by 181.8% in
the shares of MacDermid, Inc., held 15 months; followed by a 152.3% gain in the
shares of Cisco Systems, Inc. Others with gains between 75% and 90% included
Payless ShoeSource, Inc., Interstate Hotels Co., and Dime Bancorp, Inc.
Mercantile Stores Co., Inc. was eliminated with the acquisition of the company,
providing a gain of 44.3%, with a 42-month holding period from original
purchase. The only loss recorded on an equity transaction was in the shares of
Amp, Inc. The original high cost shares were sold after an acquisition bid was
made for the company at a loss of 8.4%, while the position had been doubled up
in anticipation of taking the loss, and the newly purchased stock has since
appreciated.
Top 10
Equity Holdings
---------------
(based on 9/30/98 net assets)
Perkin Elmer Corp. 1.0%
..............................................................................
Du Pont (E. I.) De Nemours & Co. 0.9%
...............................................................................
Intel Corp. 0.8%
...............................................................................
MGIC Investment Corp. 0.8%
...............................................................................
Beckman Coulter Inc. 0.8%
...............................................................................
W.W. Grainger, Inc. 0.8%
...............................................................................
Union Pacific Corp. 0.8%
...............................................................................
CitiCorp 0.7%
...............................................................................
Legg Mason, Inc. 0.7%
...............................................................................
Paine Webber Group, Inc. 0.7%
...............................................................................
How is the Fund maintaining its tax-efficiency?
The tax-exempt bond portfolio is, by definition, tax-efficient. The equity
portfolio is tax-efficient in two ways. First, our purchases consist of issues
which either have no or little taxable income paid out, or tax-deferred
payments. Preference in selection of stocks for investment is given to companies
which use their retained earnings to buy back shares, and thereby increase the
participation in the company's profits for the remaining shares. Second, tax
strategies are employed in order to minimize the consequences of taxable gains.
The example noted in the foregoing of a doubling up in order to both retain the
position in a company considered of intrinsic merit, and yet realize a gain when
the market had declined, is typical. Losses may also be realized, with
replacement positions substantially duplicated in the tax-exempt bond market.
When losses appear, they may be taken, and replaced with comparable issues. In
the recent strong bond market, no such moves were appropriate or necessary.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5
Bond Holdings
-------------
(based on 9/30/98 net assets)
Metropolitan Washington DC Arpts. Auth. 1.6%
................................................................................
Chicago Illinois Skyway Toll Bridge 1.5%
................................................................................
New York St. Urban Dev. Corp. Rev. 1.5%
................................................................................
Intermountain Power Agency Utah Power 1.4%
................................................................................
Illinois Educ. Facs. Auth. Rev. 1.3%
................................................................................
What is the outlook for the Fund, and for its tax-efficient investment strategy?
Management is optimistic that the much feared crisis of financial liquidity in
the United States and the apprehension of recession prospects in the months
ahead has been greatly overdone. The demonstrated willingness of the Federal
Reserve to provide interest rate cuts to ensure support for the American
financial system, and to demonstrate that inflation is not feared at this time,
has already had highly positive effects for the equity markets since the October
15th rate decrease. Further, the settlement of budget disputes in the Congress,
the program to further fund the IMF, and the United States readiness to lead a
program of support for Brazil, should remove much of the fear concerning broader
financial chaos. The long effort to restimulate Japan continues, but with a more
optimistic outlook than in the last two years because that country is finally
facing the need to provide new funding for its banking system in recognition of
the huge loan losses it carries. The Asian financial difficulties remain of deep
concern, but there is already evidence of turnaround, though slow, and perhaps
halting, in several countries, including Thailand, Korea, and the Philippines.
The profitability of American business remains intact, even taking into account
many lower than expected earning statements for the third quarter. It is already
evident that corporations are tightening their operating and financial belts for
a more competitive, more pressured environment. But, corporations are also
demonstrating their confidence in the value of their businesses and the strength
of their treasuries by an almost unprecedented wave of corporate share buybacks.
Since the Russian financial crisis came to a head, and the American markets
began to decline, the daily list of corporate buybacks has reached extraordinary
proportions. This will lend both support and confidence to the equity markets.
Our expectations are that this nation will continue to be in a period of lower,
and perhaps even declining interest rates, while a close to full employment
society will be able to sustain demand, notwithstanding a more cautious consumer
attitude. This caution could well increase saving rates and, thus, generate more
investable funds. Our policy will remain sensitive to appropriate asset
allocation, aggressive in seizing the opportunity of depressed values, and
cautious in the face of evidences of overvaluation.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year
Ended December 31,
September 30, 1998 -----------------------
- -----------------------
(unaudited) 1998 1997**
1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 16.70 $ 13.74 $ 13.86 $
12.82 $ 10.65
------- ---------- ----------
- ------------ -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.49 0.11
0.45 0.41
Net realized and unrealized gains or losses on securities (1.97) 3.29 (0.12)
1.12 2.22
------- ---------- ----------
- ------------ -----------
Total from investment operations (1.72) 3.78 (0.01)
1.57 2.63
------- ---------- ----------
- ------------ -----------
LESS DISTRIBUTIONS
From net investment income (0.25) (0.48) (0.11)
(0.42) (0.46)
From net realized gains 0 (0.34) 0
(0.11) 0
------- ---------- ----------
- ------------ -----------
Total distributions (0.25) (0.82) (0.11)
(0.53) (0.46)
------- ---------- ----------
- ------------ -----------
NET ASSET VALUE END OF PERIOD $ 14.73 $ 16.70 $ 13.74 $
13.86 $ 12.82
------- ---------- ----------
- ------------ -----------
TOTAL RETURN+ (10.36%) 28.02% (0.10%)
12.50% 24.90%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $27,808 $ 29,005 $ 14,590 $
11,116 $ 1,335
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.29%++ 1.40% 1.37%++
1.30% 1.37%++
Total expenses, excluding fee waivers and expense
reimbursements N/A N/A 1.68%++
1.33% 10.96%++
Net investment income 3.18%++ 3.21% 3.43%++
3.53% 3.73%++
PORTFOLIO TURNOVER RATE 20% 34% 9%
16% 49%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year
Ended December 31,
September 30, 1998 -----------------------
- --------------------------
(unaudited) 1998 1997**
1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 16.61 $ 13.67 $ 13.80 $
12.80 $ 10.65
------- ---------- ----------
- ------------ -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.19 0.38 0.09
0.36 0.35
Net realized and unrealized gains or losses on securities (1.96) 3.26 (0.13)
1.09 2.20
-------- ---------- ---------
- ------------ -----------
Total from investment operations (1.77) 3.64 (0.04)
1.45 2.55
-------- ---------- ---------
- ------------ -----------
LESS DISTRIBUTIONS
From net investment income (0.19) (0.36) (0.09)
(0.34) (0.40)
From net realized gains 0 (0.34) 0
(0.11) 0
-------- ---------- ---------
- ------------ -----------
Total distributions (0.19) (0.70) (0.09)
(0.45) (0.40)
-------- ---------- ---------
- ------------ -----------
NET ASSET VALUE END OF PERIOD $ 14.65 $ 16.61 $ 13.67 $
13.80 $ 12.80
-------- ---------- ---------
- ------------ -----------
TOTAL RETURN+ (10.71%) 27.06% (0.30%)
11.50% 24.10%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $153,721 $ 158,252 $ 76,791 $
57,622 $ 4,839
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.04%++ 2.15% 2.11%++
2.06% 2.12%++
Total expenses, excluding fee waivers and expense
reimbursements N/A N/A 2.43%++
2.09% 4.20%++
Net investment income 2.43%++ 2.46% 2.68%++
2.79% 2.97%++
PORTFOLIO TURNOVER RATE 20% 34% 9%
16% 49%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
See Combined Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- --------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $16.65 $ 13.70 $ 13.83 $ 12.81 $ 10.65
------ ---------- ---------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.19 0.38 0.09 0.36 0.36
Net realized and
unrealized gains or
losses on securities (1.96) 3.27 (0.13) 1.11 2.19
------ ---------- ---------- ----------- -----------
Total from investment
operations (1.77) 3.65 (0.04) 1.47 2.55
------ ---------- ---------- ----------- -----------
LESS DISTRIBUTIONS
From net investment
income (0.19) (0.36) (0.09) (0.34) (0.39)
From net realized gains 0 (0.34) 0 (0.11) 0
------ ---------- ---------- ----------- -----------
Total distributions (0.19) (0.70) (0.09) (0.45) (0.39)
------ ---------- ---------- ----------- -----------
NET ASSET VALUE END OF
PERIOD $14.69 $ 16.65 $ 13.70 $ 13.83 $ 12.81
------ ---------- ---------- ----------- -----------
TOTAL RETURN+ (10.68%) 27.08% (0.30%) 11.60% 24.00%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $2,398 $ 2,777 $ 1,769 $ 1,487 $ 110
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.04%++ 2.15% 2.12%++ 2.05% 2.10%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A 2.43%++ 2.08% 103.52%++
Net investment income 2.40%++ 2.46% 2.65%++ 2.80% 2.96%++
PORTFOLIO TURNOVER RATE 20% 34% 9% 16% 49%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------------------
(unaudited) 1998 1997** 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 16.70 $ 13.74 $ 13.86 $ 12.83 $ 10.67 $ 11.60 $ 10.95
------- ---------- ---------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.27 0.55 0.14 0.48 0.47 0.60 0.56
Net realized and
unrealized gains or
losses on securities (1.97) 3.27 (0.14) 1.10 2.16 (0.93) 0.96
------- ---------- ---------- ------- ------- ------- -------
Total from investment
operations (1.70) 3.82 0.00 1.58 2.63 (0.33) 1.52
------- ---------- ---------- ------- ------- ------- -------
LESS DISTRIBUTIONS
From net investment
income (0.27) (0.52) (0.12) (0.44) (0.47) (0.60) (0.60)
From net realized gains 0 (0.34) 0 (0.11) 0 0 (0.27)
------- ---------- ---------- ------- ------- ------- -------
Total distributions (0.27) (0.86) (0.12) (0.55) (0.47) (0.60) (0.87)
------- ---------- ---------- ------- ------- ------- -------
NET ASSET VALUE END OF
PERIOD $ 14.73 $ 16.70 $ 13.74 $ 13.86 $ 12.83 $ 10.67 $ 11.60
------- ---------- ---------- ------- ------- ------- -------
TOTAL RETURN (10.25%) 28.34% 0.00% 12.60% 25.10% (2.90%) 14.10%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $35,756 $ 43,786 $ 37,237 $41,243 $39,327 $37,176 $37,336
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.04%++ 1.14% 1.11%++ 1.05% 1.26% 1.28% 1.36%
Total expenses,
excluding fee waivers
and expense reimbursements N/A N/A 1.38%++ 1.09% N/A N/A N/A
Net investment income 3.40%++ 3.45% 3.56%++ 3.65% 3.96% 5.40% 5.13%
PORTFOLIO TURNOVER RATE 20% 34% 9% 16% 49% 136% 92%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
See Combined Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1998 Period Ended
(unaudited) March 31, 1998*
- -------------------------------------------------------------------------------
CLASS A SHARES
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $12.87 $12.36
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.20 0.08#
Net realized and unrealized gains or losses
on securities, futures contracts and
foreign currency related transactions (0.57) 0.81
------ ------
Total from investment operations (0.37) 0.89
------ ------
LESS DISTRIBUTIONS
From net investment income (0.22) (0.12)
From net realized gains 0 (0.26)
------ ------
Total distributions (0.22) (0.38)
------ ------
NET ASSET VALUE END OF PERIOD $12.28 $12.87
------ ------
TOTAL RETURN+ (2.91%) 7.38%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $1,136 $1,277
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.97%++ 0.99%++
Total expenses, excluding indirectly paid
expenses 0.97%++ 0.99%++
Net investment income 3.12%++ 3.25%++
PORTFOLIO TURNOVER RATE 39% 76%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
September 30, 1998 Period Ended ------------------------------
(unaudited) March 31, 1998** 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
CLASS B SHARES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $12.88 $12.95 $11.33 $10.09 $ 9.26 $10.10
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.16 0.26# 0.30 0.29 0.31 0.28
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions (0.56) 1.53 2.07 1.42 0.96 (0.37)
------ ------ ------ ------ ------ ------
Total from investment
operations (0.40) 1.79 2.37 1.71 1.27 (0.09)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment
income (0.18) (0.27) (0.30) (0.27) (0.33) (0.35)
From tax basis return of
capital 0 0 0 0 0 (0.02)
------ ------ ------ ------ ------ ------
From net realized gains 0 (1.59) (0.45) (0.20) (0.11) (0.38)
Total distributions (0.18) (1.86) (0.75) (0.47) (0.44) (0.75)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
PERIOD $12.30 $12.88 $12.95 $11.33 $10.09 $ 9.26
------ ------ ------ ------ ------ ------
TOTAL RETURN+ (3.18%) 14.89% 21.95% 17.35% 14.20% (1.16%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(MILLIONS) $ 529 $ 580 $1,625 $1,481 $1,345 $1,390
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.72%++ 1.35%++ 1.70% 1.72% 1.77% 1.71%
Total expenses,
excluding indirectly
paid expenses 1.72%++ 1.35%++ 1.69% 1.71% N/A N/A
Net investment income 2.37%++ 2.66%++ 2.50% 2.71% 3.33% 2.81%
PORTFOLIO TURNOVER RATE 39% 76% 89% 96% 88% 88%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
** For the nine-month period ended March 31, 1998. The Fund changed its fiscal
year end from June 30 to March 31, effective March 31, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1998 Period Ended
(unaudited) March 31, 1998*
- -----------------------------------------------------------------------------
CLASS C SHARES
- -----------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $12.88 $12.43
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.14 0.05#
Net realized and unrealized gains or
losses on securities, futures contracts
and foreign currency related transactions (0.54) 0.75
------ ------
Total from investment operations (0.40) 0.80
------ ------
LESS DISTRIBUTIONS
From net investment income (0.18) (0.09)
From net realized gains 0 (0.26)
------ ------
Total distributions (0.18) (0.35)
------ ------
NET ASSET VALUE END OF PERIOD $12.30 $12.88
------ ------
TOTAL RETURN+ (3.18%) 6.58%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 1 $ 1
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.72%++ 1.76%++
Total expenses, excluding indirectly paid
expenses 1.72%++ 1.76%++
Net investment income 2.42%++ 2.41%++
PORTFOLIO TURNOVER RATE 39% 76%
<CAPTION>
Six Months Ended
September 30, 1998 Period Ended
(unaudited) March 31, 1998**
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $12.86 $12.01
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22 0.08#
Net realized and unrealized gains or
losses on securities, futures contracts
and foreign currency related transactions (0.56) 0.86
------ ------
Total from investment operations (0.34) 0.94
------ ------
LESS DISTRIBUTIONS
From net investment income (0.24) (0.09)
------ ------
Total distributions (0.24) (0.09)
------ ------
NET ASSET VALUE END OF PERIOD $12.28 $12.86
------ ------
TOTAL RETURN (2.71%) 7.79%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 34 $ 39
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.72%++ 0.75%++
Total expenses, excluding indirectly paid
expenses 0.72%++ 0.75%++
Net investment income 3.37%++ 3.47%++
PORTFOLIO TURNOVER RATE 39% 76%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 22, 1998 (commencement of class operations) to
March 31, 1998.
** For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- --------------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $20.44 $ 16.00 $ 16.13 $ 15.12 $ 12.24
------ ---------- ---------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.23 0.44# 0.12 0.50 0.44
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (1.29) 4.87 (0.13) 1.16 3.14
------ ---------- ---------- ----------- -----------
Total from investment
operations (1.06) 5.31 (0.01) 1.66 3.58
------ ---------- ---------- ----------- -----------
LESS DISTRIBUTIONS
From net investment
income (0.21) (0.44) (0.12) (0.50) (0.47)
From net realized gains 0 (0.43) 0 (0.15) (0.23)
------ ---------- ---------- ----------- -----------
Total distributions (0.21) (0.87) (0.12) (0.65) (0.70)
------ ---------- ---------- ----------- -----------
NET ASSET VALUE END OF
PERIOD $19.17 $ 20.44 $ 16.00 $ 16.13 $ 15.12
------ ---------- ---------- ----------- -----------
TOTAL RETURN+ (5.23%) 33.88% (0.20%) 11.30% 29.70%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(MILLIONS) $ 340 $ 350 $ 220 $ 206 $ 107
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.28%++ 1.28% 1.25%++ 1.24% 1.33%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A 1.34%++
Net investment income 2.25%++ 2.39% 2.83%++ 3.39% 3.73%++
PORTFOLIO TURNOVER RATE 4% 9% 2% 10% 28%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $20.34 $ 15.94 $ 16.07 $ 15.07 $ 12.24
------ ---------- ---------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.15 0.30# 0.09 0.40 0.36
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (1.28) 4.84 (0.13) 1.15 3.09
------ ---------- ---------- ----------- -----------
Total from investment
operations (1.13) 5.14 (0.04) 1.55 3.45
------ ---------- ---------- ----------- -----------
LESS DISTRIBUTIONS
From net investment
income (0.13) (0.31) (0.09) (0.40) (0.39)
From net realized gains 0 (0.43) 0 (0.15) (0.23)
------ ---------- ---------- ----------- -----------
Total distributions (0.13) (0.74) (0.09) (0.55) (0.62)
------ ---------- ---------- ----------- -----------
NET ASSET VALUE END OF
PERIOD $19.08 $ 20.34 $ 15.94 $ 16.07 $ 15.07
------ ---------- ---------- ----------- -----------
TOTAL RETURN+ (5.57%) 32.81% (0.30%) 10.50% 28.70%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(MILLIONS) $1,213 $ 1,124 $ 606 $ 570 $ 296
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.03%++ 2.04% 2.00%++ 1.99% 2.07%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A N/A
Net investment income 1.50%++ 1.63% 2.07%++ 2.64% 2.99%++
PORTFOLIO TURNOVER RATE 4% 9% 2% 10% 28%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- ---------------------------------------------------------------------------------------------------
CLASS C SHARES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $20.34 $ 15.94 $ 16.06 $ 15.07 $ 12.24
------ ---------- ---------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.15 0.30# 0.09 0.40 0.34
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (1.28) 4.84 (0.13) 1.14 3.09
------ ---------- ---------- ----------- -----------
Total from investment
operations (1.13) 5.14 (0.04) 1.54 3.43
------ ---------- ---------- ----------- -----------
LESS DISTRIBUTIONS
From net investment
income (0.13) (0.31) (0.08) (0.40) (0.37)
From net realized gains 0 (0.43) 0 (0.15) (0.23)
------ ---------- ---------- ----------- -----------
Total distributions (0.13) (0.74) (0.08) (0.55) (0.60)
------ ---------- ---------- ----------- -----------
NET ASSET VALUE END OF
PERIOD $19.08 $ 20.34 $ 15.94 $ 16.06 $ 15.07
------ ---------- ---------- ----------- -----------
TOTAL RETURN+ (5.57%) 32.81% (0.30%) 10.40% 28.50%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(MILLIONS) $ 58 $ 50 $ 28 $ 27 $ 11
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.03%++ 2.04% 2.00%++ 1.99% 2.23%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A 2.37%++
Net investment income 1.51%++ 1.63% 2.07%++ 2.64% 2.83%++
PORTFOLIO TURNOVER RATE 4% 9% 2% 10% 28%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -------------------------------
(unaudited) 1998 1997** 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $20.45 $ 16.02 $ 16.14 $15.13 $12.27 $13.12 $11.98
------ ---------- ---------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.24 0.49# 0.13 0.54 0.51 0.42 0.31
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (1.28) 4.86 (0.13) 1.16 3.07 (0.57) 1.55
------ ---------- ---------- ------ ------ ------ ------
Total from investment
operations (1.04) 5.35 0.00 1.70 3.58 (0.15) 1.86
------ ---------- ---------- ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment
income (0.23) (0.49) (0.12) (0.54) (0.49) (0.42) (0.31)
From net realized gains 0 (0.43) 0 (0.15) (0.23) (0.28) (0.41)
------ ---------- ---------- ------ ------ ------ ------
Total distributions (0.23) (0.92) (0.12) (0.69) (0.72) (0.70) (0.72)
------ ---------- ---------- ------ ------ ------ ------
NET ASSET VALUE END OF
PERIOD $19.18 $ 20.45 $ 16.02 $16.14 $15.13 $12.27 $13.12
------ ---------- ---------- ------ ------ ------ ------
TOTAL RETURN (5.12%) 34.12% 0.00% 11.50% 29.70% (1.10%) 15.70%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(MILLIONS) $1,166 $ 1,117 $ 802 $ 809 $ 623 $ 332 $ 240
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.03%++ 1.03% 1.00%++ 0.99% 1.07% 1.14% 1.20%
Net investment income 2.51%++ 2.65% 3.07%++ 3.64% 3.89% 3.51% 2.81%
PORTFOLIO TURNOVER RATE 4% 9% 2% 10% 28% 33% 60%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 16.36 $ 13.57 $ 13.50 $ 12.20 $ 10.44
------- ---------- ---------- ------------ -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.17 0.31 0.07 0.27 0.29
Net realized and
unrealized gains or
losses on securities (1.26) 2.96 0.06# 1.59 2.24
------- ---------- ---------- ------------ -----------
Total from investment
operations (1.09) 3.27 0.13 1.86 2.53
------- ---------- ---------- ------------ -----------
LESS DISTRIBUTIONS
From net investment
income (0.17) (0.30) (0.06) (0.28) (0.31)
From net realized gains 0 (0.18) 0 (0.28) (0.46)
------- ---------- ---------- ------------ -----------
Total distributions (0.17) (0.48) (0.06) (0.56) (0.77)
------- ---------- ---------- ------------ -----------
NET ASSET VALUE END OF
PERIOD $ 15.10 $ 16.36 $ 13.57 $ 13.50 $ 12.20
------- ---------- ---------- ------------ -----------
TOTAL RETURN+ (6.57%) 24.40% 1.00% 15.40% 24.80%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $82,897 $ 69,879 $ 15,039 $ 11,166 $ 2,702
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.33%++ 1.42% 1.38%++ 1.52% 1.75%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 1.76% 5.02%++
Net investment income 2.30%++ 2.21% 2.30%++ 2.39% 2.79%++
PORTFOLIO TURNOVER RATE 37% 50% 29% 88% 110%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- --------------------------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 16.33 $ 13.56 $ 13.49 $ 12.19 $ 10.31
-------- ---------- --------- ------------ -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.12 0.21 0.05 0.19 0.22
Net realized and
unrealized gains or
losses on securities (1.25) 2.94 0.06# 1.59 2.37
-------- ---------- --------- ------------ -----------
Total from investment
operations (1.13) 3.15 0.11 1.78 2.59
-------- ---------- --------- ------------ -----------
LESS DISTRIBUTIONS
From net investment
income (0.12) (0.20) (0.04) (0.20) (0.25)
From net realized gains 0 (0.18) 0 (0.28) (0.46)
-------- ---------- --------- ------------ -----------
Total distributions (0.12) (0.38) (0.04) (0.48) (0.71)
-------- ---------- --------- ------------ -----------
NET ASSET VALUE END OF
PERIOD $ 15.08 $ 16.33 $ 13.56 $ 13.49 $ 12.19
-------- ---------- --------- ------------ -----------
TOTAL RETURN+ (6.96%) 23.44% 0.08% 14.70% 25.60%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $226,682 $ 185,042 $ 38,838 $ 28,007 $ 6,559
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.08%++ 2.18% 2.14%++ 2.27% 2.50%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 2.51% 3.65%++
Net investment income 1.55%++ 1.46% 1.55%++ 1.64% 2.03%++
PORTFOLIO TURNOVER RATE 37% 50% 29% 2% 110%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 17, 1995 and January 6, 1995 (commencement of
class A and class B operations, respectively) to December 31, 1995.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund shares
and the amount of per share realized and unrealized gains or losses at such
time.
See Combined Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- -----------------------
(unaudited) 1998 1997** 1996 1995*
- --------------------------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 16.30 $ 13.53 $ 13.47 $ 12.19 $ 10.69
------- ---------- --------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.12 0.21 0.06 0.18 0.22
Net realized and
unrealized gains or
losses on securities (1.25) 2.94 0.05# 1.58 1.99
------- ---------- --------- ----------- -----------
Total from investment
operations (1.13) 3.15 0.11 1.76 2.21
------- ---------- --------- ----------- -----------
LESS DISTRIBUTIONS
From net investment
income (0.12) (0.20) (0.05) (0.20) (0.25)
From net realized gains 0 (0.18) 0 (0.28) (0.46)
------- ---------- --------- ----------- -----------
Total distributions (0.12) (0.38) (0.05) (0.48) (0.71)
------- ---------- --------- ----------- -----------
NET ASSET VALUE END OF
PERIOD $ 15.05 $ 16.30 $ 13.53 $ 13.47 $ 12.19
------- ---------- --------- ----------- -----------
TOTAL RETURN+ (6.97%) 23.49% 0.08% 14.50% 21.20%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $39,082 $ 27,699 $ 5,086 $ 4,108 $ 496
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.08%++ 2.18% 2.13%++ 2.25% 2.50%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 2.48% 18.91%++
Net investment income 1.56%++ 1.46% 1.55%++ 1.64% 2.07%++
PORTFOLIO TURNOVER RATE 37% 50% 29% 88% 110%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1998 ----------------------- ---------------------------------
(unaudited) 1998 1997** 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27 $ 10.31 $10.00
------- ---------- ---------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.19 0.37 0.09 0.34 0.35 0.27 0.05
Net realized and
unrealized gains or
losses on securities (1.25) 2.95 0.05 # 1.56 2.39 0.08 0.31
------- ---------- ---------- ------- ------- ------- ------
Total from investment
operations (1.06) 3.32 0.14 1.90 2.74 0.35 0.36
------- ---------- ---------- ------- ------- ------- ------
LESS DISTRIBUTIONS
From net investment
income (0.19) (0.36) (0.07) (0.30) (0.33) (0.27) (0.05)
From net realized gains 0 (0.18) 0 (0.28) (0.46) (0.12) 0
------- ---------- ---------- ------- ------- ------- ------
Total distributions (0.19) (0.54) (0.07) (0.58) (0.79) (0.39) (0.05)
------- ---------- ---------- ------- ------- ------- ------
NET ASSET VALUE END OF
PERIOD $ 15.14 $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27 $10.31
------- ---------- ---------- ------- ------- ------- ------
TOTAL RETURN (6.49%) 24.73% 1.00% 15.80% 27.30% 3.40% 3.50%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $21,939 $ 19,881 $ 15,311 $15,002 $13,485 $10,575 $5,424
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.08%++ 1.15% 1.13%++ 1.30% 1.50% 1.49% 0.00%++
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 1.56% 2.23% 2.41% 3.10%++
Net investment income 2.54%++ 2.48% 2.54%++ 2.63% 3.06% 2.87% 3.65%
PORTFOLIO TURNOVER RATE 37% 50% 29% 88% 110% 245% 60%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from March 3, 1995 (commencement of class C operations) to
December 31, 1995 and November 2, 1993 (commencement of class Y operations)
to December 31, 1993.
** For the three-month period ended March 31, 1997. The Fund changed its fiscal
year end from December 31 to March 31, effective March 31, 1997.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund shares
and the amount of per share realized and unrealized gains or losses at such
time.
See Combined Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 42.5%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.7%
29,000 Arvin Industries, Inc. .............................. $ 1,080,250
30,000 Dana Corp. .......................................... 1,119,375
150,100 Simpson Industries, Inc. ............................ 1,510,381
------------
3,710,006
------------
BANKS - 5.6%
32,312 Banc One Corp. ...................................... 1,377,299
40,000 BancorpSouth, Inc. .................................. 720,000
40,000 Bank of New York Co., Inc. .......................... 1,095,000
32,000 Cape Cod Bank & Trust Co. ........................... 552,000
19,500 Comerica, Inc. ...................................... 1,068,844
25,050 Crestar Financial Corp. ............................. 1,421,587
47,761 First State Bancorp.................................. 904,474
8,000 First Union Corp.**.................................. 409,500
15,000 Fleet Financial Group, Inc. ......................... 1,101,562
53,000 Hibernia Corp. Cl. A................................. 765,188
60,000 Norwest Corp. ....................................... 2,148,750
36,000 Susquehanna Bancshares, Inc. ........................ 679,500
------------
12,243,704
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 0.7%
10,000 Armstrong World Industries, Inc. .................... 535,000
22,530 Southdown, Inc. ..................................... 1,013,850
------------
1,548,850
------------
BUSINESS EQUIPMENT &
SERVICES - 0.2%
15,000 Dun & Bradstreet Corp................................ 405,000
------------
COMMUNICATION SYSTEMS &
SERVICES - 0.1%
5,500 * AirTouch Communications, Inc. ..................... 313,500
------------
CONSUMER PRODUCTS &
SERVICES - 1.8%
50,000 CPI Corp. ........................................... 1,184,375
11,000 International Flavors & Fragrances, Inc. ............ 363,000
50,000 Lancaster Colony Corp. .............................. 1,537,500
110,000 Stride Rite Corp. ................................... 900,625
------------
3,985,500
------------
DIVERSIFIED COMPANIES - 1.5%
10,000 Harris Corp. ........................................ 320,000
30,000 Ruddick Corp. ....................................... 510,000
30,000 Tenneco, Inc. ....................................... 986,250
80,000 Tomkins Plc, ADR..................................... 1,510,000
------------
3,326,250
------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.6%
35,000 AMP, Inc. ........................................... 1,251,250
12,000 Emerson Electric Co. ................................ 747,000
56,656 Hubbell, Inc. Cl. B.................................. 2,011,288
43,000 Thomas & Betts Corp. ................................ 1,636,687
------------
5,646,225
------------
FINANCE & INSURANCE - 3.1%
36,363 Equitable Companies, Inc. ........................... 1,504,519
20,000 Hartford Financial Services Group, Inc. ............. 948,750
20,000 LaSalle Re Holdings Ltd. ............................ 532,500
15,000 Lincoln National Corp. .............................. 1,233,750
15,000 Ohio Casualty Corp. ................................. 581,250
6,000 Transamerica Corp. .................................. 636,000
46,184 Trenwick Group, Inc. ................................ 1,345,109
------------
6,781,878
------------
FOOD & BEVERAGE PRODUCTS - 1.8%
70,900 Flowers Industries, Inc. ............................ 1,546,506
18,000 H.J. Heinz Co. ...................................... 920,250
50,000 Lance, Inc. ......................................... 987,500
28,000 Tasty Baking Corp. .................................. 413,000
------------
3,867,256
------------
HEALTHCARE PRODUCTS &
SERVICES - 2.6%
30,000 Baxter International, Inc. .......................... 1,785,000
14,000 Bristol-Myers Squibb Co. ............................ 1,454,250
30,100 Shared Medical System Corp. ......................... 1,600,944
30,000 West Co., Inc. ...................................... 862,500
------------
5,702,694
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 1.6%
10,000 Bemis Co., Inc. ..................................... 350,625
45,000 Carpenter Technology Corp. .......................... 1,645,313
48,776 Flowserve Corp. ..................................... 987,714
42,000 Lindberg Corp. ...................................... 530,250
------------
3,513,902
------------
MACHINERY - DIVERSIFIED - 0.8%
82,650 Hardinge, Inc. ...................................... 1,818,300
------------
OIL/ENERGY - 3.4%
16,000 Amoco Corp. ......................................... 862,000
8,000 Atlantic Richfield Co. .............................. 567,500
34,500 Berry Petroleum Co. Cl. A............................ 444,188
15,000 Consolidated Natural Gas Co. ........................ 817,500
15,400 Exxon Corp. ......................................... 1,080,887
3,000 Kerr-McGee Corp. .................................... 136,500
10,000 Mobil Corp. ......................................... 759,375
21,550 * Seitel, Inc. ...................................... 233,009
12,000 Texaco, Inc. ........................................ 752,250
60,000 Williams Companies, Inc. ............................ 1,725,000
------------
7,378,209
------------
OIL FIELD SERVICES - 0.5%
40,000 Lufkin Industries, Inc. ............................. 1,040,000
------------
PAPER & PACKAGING - 0.1%
5,896 * Sealed Air Corp. .................................. 187,935
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 0.2%
5,800 Time Warner, Inc. ................................... 507,863
------------
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
RETAILING & WHOLESALE - 1.4%
33,000 J. C. Penney Co., Inc. ............................. $ 1,482,937
70,260 *Saks, Inc. ........................................ 1,576,459
------------
3,059,396
------------
TEXTILE & APPAREL - 0.1%
10,000 Oxford Industries, Inc. ............................ 307,500
------------
THRIFT INSTITUTIONS - 1.6%
45,000 First Palm Beach Bancorp, Inc. ..................... 1,575,000
18,100 Horizon Financial Corp. ............................ 244,350
50,400 Maryland Federal Bancorp, Inc. ..................... 1,814,400
------------
3,633,750
------------
TRANSPORTATION - 0.5%
27,000 Union Pacific Corp. ................................ 1,150,875
------------
UTILITIES - ELECTRIC - 6.6%
80,000 Houston Industries, Inc. ........................... 2,490,000
31,220 Interstate Energy Corp. ............................ 1,000,991
37,000 PP&L Resources, Inc. ............................... 957,375
53,000 *Public Service Enterprise Group, Inc. ............. 2,083,563
85,000 Puget Sound Energy, Inc. ........................... 2,358,750
93,000 Sempra Energy....................................... 2,423,812
22,000 Southern Co. ....................................... 647,625
35,000 TNP Enterprises, Inc. .............................. 1,222,813
40,000 Wisconsin Energy Corp. ............................. 1,262,500
------------
14,447,429
------------
UTILITIES - GAS - 2.6%
94,000 *Marketspan Corp. .................................. 2,696,625
39,250 Northwest Natural Gas Co. .......................... 1,085,508
55,000 Peoples Energy Corp. ............................... 1,980,000
------------
5,762,133
------------
UTILITIES - TELEPHONE - 1.4%
35,000 Frontier Corp. ..................................... 958,125
40,000 U.S. West, Inc. .................................... 2,097,500
------------
3,055,625
------------
Total Common Stocks
(cost $79,204,170).................................. 93,393,780
------------
CONVERTIBLE PREFERRED - 16.4%
BANKS - 1.3%
50,000 National Australia Bank, Ltd.
7.875%, Series Unit................................. 1,331,250
58,000 WBK Trust
10.0%, STRYPES (exchangeable for Westpac Banking
Corp. Common Stock)................................. 1,602,250
------------
2,933,500
------------
COMMUNICATION SYSTEMS & SERVICES - 1.0%
30,000 AirTouch Communications, Inc.
6.00%, Series B..................................... 1,410,000
10,000 CBS Radio Inc.
7.00%, 12/31/49, 144A.............................. 797,500
------------
2,207,500
------------
DIVERSIFIED COMPANIES - 0.8%
80,000 Ingersoll Rand Co.
6.75%, PRIDES...................................... 1,680,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 0.7%
50,000 Pioneer Standard Financial Trust
6.75%, 144A........................................ 1,625,000
------------
FINANCE & INSURANCE - 2.4%
20,000 American General Corp. $3.00, Series A, MIPS........ 1,640,000
13,000 American Heritage Life Investment Corp.
8.50%, PRIDES...................................... 819,000
20,000 Frontier Financing Trust 6.25%, TOPRS, 144A......... 855,000
11,000 Frontier Financing Trust 6.25%, TOPRS............... 470,250
4,000 Life Re Corp.
6.00%.............................................. 297,000
125,000 Philadelphia Consolidated
Holdings, Inc. PRIDES.............................. 1,218,750
------------
5,300,000
------------
FOOD & BEVERAGE PRODUCTS - 1.4%
25,000 Ralston Purina Co.
7.00%, SAILS (exchangeable for Interstate Bakeries
common stock)...................................... 1,525,000
30,000 Wendys Financing I
5.00%, Series A, TECONS............................ 1,573,125
------------
3,098,125
------------
HEALTHCARE PRODUCTS &
SERVICES - 0.9%
50,000 Owens & Minor Trust I
TECONS, 144A....................................... 1,900,000
------------
LEISURE & TOURISM - 0.7%
50,000 *Lodgian Capital Trust I 7.00%, 144A................ 1,512,500
------------
METAL PRODUCTS & SERVICES - 0.7%
20,000 Timet Capital Trust I
6.625%, BUCS, 144A................................. 725,000
20,000 Timet Capital Trust I
6.625%, 11/01/26................................... 725,000
------------
1,450,000
------------
OIL/ENERGY - 0.3%
20,000 Callon Petroleum Co.
8.50%, Series A.................................... 590,000
------------
OIL FIELD SERVICES - 0.6%
40,000 EVI, Inc.
5.00%, 144A........................................ 1,280,000
------------
PAPER & PACKAGING - 0.4%
30,000 Crown Cork & Seal Co., Inc.
4.50%, MIPS........................................ 785,625
5,225 *Sealed Air Corp.
$2.00, Series A................................... 188,753
------------
974,378
------------
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - CONTINUED
PUBLISHING, BROADCASTING & ENTERTAINMENT - 1.6%
22,000 Houston Industries, Inc.
7.00%, ACES (exchangeable for Time Warner, Inc.
common stock)....................................... $ 1,678,875
20,000 Merrill Lynch & Co., Inc.
6.00%, STRYPES due 6/1/99 (exchangeable for Cox
Communications, Inc. common stock).................. 897,500
10,000 TCI Communications, Inc.
$2.125, Series A.................................... 842,500
------------
3,418,875
------------
RETAILING & WHOLESALE - 1.3%
7,500 CVS Automatic Common Exchange Security TRACES........ 611,250
65,000 Merrill Lynch & Co., Inc. (exchangeable for
Dollar General Corp. common stock)
8.50% STRYPES....................................... 2,340,000
------------
2,951,250
------------
TRANSPORTATION - 0.8%
20,000 CNF Trust I
5.00%, Ser. A, TECONS (exchangeable for CNF
Transportation, Inc. common stock).................. 960,000
20,000 Union Pacific Capital Trust
6.25%, TIDES, 144A.................................. 890,000
------------
1,850,000
------------
UTILITIES - ELECTRIC - 1.5%
45,000 *BNDES Participacoes S.A. DECS....................... 1,057,500
40,000 Texas Utilities Co.
9.25%, PRIDES....................................... 2,250,000
------------
3,307,500
------------
Total Convertible Preferred
(cost $39,357,753).................................. 36,078,628
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 6.5%
BUILDING, CONSTRUCTION & FURNISHINGS - 0.9%
$1,500,000 Eagle Hardware & Garden, Inc. 6.25%, 3/15/01......... $ 1,912,500
------------
BUSINESS EQUIPMENT &
SERVICES - 0.5%
250,000 * Interim Services, Inc.
4.50%, 6/1/05...................................... 217,500
1,000,000 Quantum Corp.
7.00%, 8/1/04....................................... 906,250
------------
1,123,750
------------
CONSUMER PRODUCTS &
SERVICES - 0.7%
2,000,000 Action Performance Companies, Inc. 4.75%,
4/1/05, 144A........................................ 1,572,600
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.3%
$ 600,000 Robbins & Myers, Inc.
6.50%, 9/1/03....................................... 575,250
------------
LEISURE & TOURISM - 1.1%
2,500,000 Family Golf Centers, Inc.
5.75%, 10/15/04, 144A............................... 2,331,250
------------
OIL FIELD SERVICES - 2.2%
1,000,000 Diamond Offshore Drilling, Inc. 3.75%, 2/15/07....... 935,000
500,000 Key Energy Group, Inc.
7.00%, 7/1/03, 144A................................. 552,500
2,000,000 Nabors Industries, Inc.
5.00%, 5/15/06...................................... 2,070,000
Offshore Logistics, Inc.
1,000,000 6.00%, 12/15/03, 144A................................ 891,250
500,000 6.00%, 12/15/03...................................... 445,625
------------
4,894,375
------------
RETAILING & WHOLESALE - 0.8%
Central Garden & Pet Co.
500,000 6.00%, 11/15/03, 144A................................ 437,500
1,600,000 6.00%, 11/15/03...................................... 1,400,000
------------
1,837,500
------------
Total Convertible Debentures
(cost $16,425,614).................................. 14,247,225
------------
CORPORATE BONDS - 1.4%
BANKS - 0.5%
1,000,000 NationsBank Corp.
6.50%, 8/15/03...................................... 1,041,516
------------
FINANCE & INSURANCE - 0.5%
1,000,000 American General Finance Corp. 7.125%, 12/1/99....... 1,019,728
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 0.4%
1,000,000 GTE Southwest, Inc.
5.82%, 12/1/99, Ser. A.............................. 1,007,871
------------
Total Corporate Bonds
(cost $3,010,992)................................... 3,069,115
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 31.0%
GOVERNMENT AGENCY NOTES & BONDS - 30.2%
1,000,000 Federal Farm Credit Bank
6.70%, 8/6/04....................................... 1,015,775
Federal Home Loan Bank
2,000,000 5.375%, 10/6/03...................................... 2,014,084
2,000,000 5.65%, 12/29/00...................................... 2,042,532
1,000,000 6.195%, 2/5/03....................................... 1,000,952
2,000,000 6.532%, 12/28/07..................................... 2,077,658
2,000,000 6.565%, 8/6/02....................................... 2,030,308
2,000,000 6.585%, 10/15/02..................................... 2,002,516
2,000,000 7.00% , 7/14/05...................................... 2,079,474
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - CONTINUED
GOVERNMENT AGENCY NOTES & BONDS - CONTINUED
Federal Home Loan Mortgage Corp.
$2,000,000 6.54%, 12/10/07...................................... $ 2,123,004
2,000,000 6.542%, 3/19/08...................................... 2,078,204
1,000,000 6.91%, 6/20/05....................................... 1,036,702
2,000,000 7.585%, 9/19/06...................................... 2,151,780
2,000,000 7.865%, 8/8/11....................................... 2,172,222
Federal National Mortgage Association
5,000,000 5.65%, 2/22/28....................................... 4,974,030
3,000,000 5.90%, 6/18/01....................................... 3,025,593
1,850,000 6.00%, 1/14/05....................................... 1,921,673
2,215,000 6.10%, 1/26/05....................................... 2,284,845
3,000,000 6.16%, 1/23/08....................................... 3,145,548
2,000,000 6.24%, 1/14/08....................................... 2,100,792
3,000,000 6.32%, 3/3/08........................................ 3,169,917
1,000,000 6.41%, 3/8/06........................................ 1,089,704
5,000,000 6.42%, 2/12/08....................................... 5,195,630
1,000,000 6.45%, 1/28/05....................................... 1,005,510
2,000,000 6.46%, 1/1/08........................................ 2,121,630
4,000,000 6.52%, 3/5/08........................................ 4,162,280
2,000,000 6.54%, 4/1/05........................................ 2,017,088
2,000,000 6.68%, 12/28/01...................................... 2,000,212
3,000,000 7.28%, 5/23/07....................................... 3,231,846
1,000,000 Student Loan Marketing Association
5.90%, 2/20/01...................................... 1,004,282
------------
66,275,791
------------
TREASURY NOTES & BONDS - 0.8%
1,500,000 U.S. Treasury Bonds
7.125%, 2/15/23..................................... 1,895,157
------------
Total U.S. Government & Agency Obligations
(cost $65,242,641).................................. 68,170,948
------------
SHORT-TERM INVESTMENTS - 2.7%
COMMERCIAL PAPER - 0.9%
$ 220,000 BMW U.S. Capital Corp.
5.52%, 10/9/98...................................... 219,730
1,250,000 Peg Managers Acceptance Corp.
5.55%, 10/27/98..................................... 1,244,990
400,000 Twin Towers, Inc.
5.55%, 10/6/98...................................... 399,692
------------
1,864,412
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.8%
3,000,000 Federal Home Loan Bank Discount Notes
5.12%, 10/30/98..................................... 2,987,627
1,000,000 Federal National Mortgage Association Discount
Notes 5.20%, 10/7/98................................ 999,133
------------
3,986,760
------------
Total Short-Term Investments
(cost $5,851,172)................................... 5,851,172
------------
TOTAL INVESTMENTS -
(COST $209,092,342).......................... 100.5% 220,810,868
OTHER ASSETS AND
LIABILITIES - NET............................ (0.5) (1,126,916)
----- ------------
NET ASSETS.................................... 100.0% $219,683,952
===== ============
* Non-income producing securities.
** At September 30, 1998, the Fund owned 8,000 shares of common stock of
First Union Corp. at a cost of $106,108. During the six months ended
September 30, 1998, the Fund earned $6,320 in dividend income from
this investment. These shares were purchased by the Fund prior to the
acquisition of the investment advisor.
144A Securities that may be resold to "qualified institutional buyers"
under Rule 144Aof the Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the
Fund's Board of Trustees.
SUMMARY OF ABBREVIATIONS
ACESAutomatically Convertible Equity Securities
ADRAmerican Depository Receipt
BUCSBeneficial Unsecured Convertible Securities
DECSDividend Enhanced Convertible Stock
MIPSMonthly Income Preferred Shares
PRIDESPreferred Redeemable Increased Dividend Equity Securities
SAILSStock Appreciation Income Linked Securities
STRYPESStructured Yield Product Exchangeable for Stock
TECONSTerm Convertible Shares
TIDESTerm Income Deferrable Equity Securities
TOPRSTrust Originated Preferred Securities
TRACESTrust Automatic Common Exchangeable Securities
See Combined Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 49.3%
ADVERTISING & RELATED
SERVICES - 0.3%
93,600 Gannett Co., Inc. ................................ $ 5,013,450
--------------
AEROSPACE & DEFENSE - 0.9%
80,000 Lockheed Martin Corp. ............................ 8,065,000
102,200 United Technologies Corp. ........................ 7,811,913
--------------
15,876,913
--------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.8%
100,000 Chrysler Corp. ................................... 4,787,500
153,700 Ford Motor Co. ................................... 7,214,294
25,000 General Motors Corp. ............................. 1,367,187
--------------
13,368,981
--------------
BANKS - 1.5%
200,020 BankAmerica Corp. ................................ 12,026,202
131,864 Chase Manhattan Corp. ............................ 5,703,118
100,000 Fleet Financial Group, Inc. ...................... 7,343,750
--------------
25,073,070
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.7%
60,000 Automatic Data Processing, Inc. .................. 4,485,000
75,000 Xerox Corp. ...................................... 6,356,250
--------------
10,841,250
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 3.2%
150,000 Du Pont (E. I.) De Nemours & Co. ................. 8,418,750
400,000 Monsanto Co. ..................................... 22,550,000
300,000 Morton International, Inc. ....................... 6,562,500
136,000 PPG Industries, Inc. ............................. 7,420,500
351,300 Rohm & Haas Co. .................................. 9,770,531
--------------
54,722,281
--------------
COMMUNICATION SYSTEMS & SERVICES - 1.2%
150,000 *Cisco Systems, Inc. ............................. 9,276,563
240,000 *MCI WorldCom, Inc. .............................. 11,737,500
--------------
21,014,063
--------------
CONSUMER PRODUCTS &
SERVICES - 0.3%
70,000 Procter & Gamble Co. ............................. 4,965,625
--------------
DIVERSIFIED COMPANIES - 0.9%
213,600 AlliedSignal, Inc. ............................... 7,556,100
35,000 *Owens Illinois, Inc. ............................ 875,000
121,400 Tyco International Ltd. .......................... 6,707,350
--------------
15,138,450
--------------
ELECTRICAL EQUIPMENT & SERVICES - 2.3%
158,000 Emerson Electric Co. ............................. 9,835,500
325,000 General Electric Co. ............................. 25,857,812
59,600 *Solectron Corp. ................................. 2,860,800
--------------
38,554,112
--------------
FINANCE & INSURANCE - 3.4%
166,984 Allstate Corp. ................................... 6,961,146
125,000 American International Group, Inc. ............... 9,625,000
99,353 Associates First Capital Corp. Cl. A.............. 6,482,783
150,000 Federal Home Loan Mortgage Corp. ................. 7,415,625
120,000 Federal National Mortgage Association............. 7,710,000
100,000 Lincoln National Corp. ........................... 8,225,000
120,000 Nationwide Financial Services, Inc. Cl. A......... 5,452,500
150,000 Travelers Group, Inc. ............................ 5,625,000
--------------
57,497,054
--------------
FOOD & BEVERAGE
PRODUCTS - 2.8%
93,600 Bestfoods......................................... 4,533,750
116,600 Coca Cola Co. .................................... 6,719,075
200,000 Flowers Industries, Inc. ......................... 4,362,500
79,200 H.J. Heinz Co. ................................... 4,049,100
261,500 Philip Morris Companies, Inc. .................... 12,045,344
175,000 *Safeway, Inc. ................................... 8,115,625
141,800 Sara Lee Corp. ................................... 7,657,200
--------------
47,482,594
--------------
HEALTHCARE PRODUCTS &
SERVICES - 10.8%
325,000 American Home Products Corp. ..................... 17,021,875
194,900 Bristol-Myers Squibb Co. ......................... 20,245,237
350,000 *Health Management Associates, Inc. Cl. A......... 6,387,500
370,000 Johnson & Johnson................................. 28,952,500
209,100 Medtronic, Inc. .................................. 12,101,663
213,000 Merck & Co., Inc. ................................ 27,596,812
150,000 Pfizer, Inc. ..................................... 15,890,625
150,000 Pharmacia & Upjohn, Inc. ......................... 7,528,125
204,800 Schering-Plough Corp. ............................ 21,209,600
180,000 * Tenet Healthcare Corp. ......................... 5,175,000
37,200 * Universal Health Services, Inc. Cl. B........... 1,553,100
252,000 Warner-Lambert Co. ............................... 19,026,000
--------------
182,688,037
--------------
INFORMATION SERVICES & TECHNOLOGY - 3.3%
120,000 * American Power Conversion Corp. ................ 4,518,750
90,000 * BMC Software, Inc. ............................. 5,402,813
240,000 * EMC Corp. ...................................... 13,725,000
100,000 International Business Machines Corp. ............ 12,800,000
77,200 * Microsoft Corp. ................................ 8,499,237
233,800 * Sun Microsystems, Inc. ......................... 11,653,469
--------------
56,599,269
--------------
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
OIL/ENERGY - 7.2%
188,200 Amoco Corp. ...................................... $ 10,139,275
191,500 Anadarko Petroleum Corp. ......................... 7,528,344
251,500 Atlantic Richfield Co. ........................... 17,840,781
130,600 Chevron Corp. .................................... 10,978,562
197,900 Exxon Corp. ...................................... 13,890,106
276,900 Mobil Corp. ...................................... 21,027,094
110,400 Royal Dutch Petroleum Co. ........................ 5,257,800
393,200 Texaco, Inc. ..................................... 24,648,725
294,400 Unocal Corp. ..................................... 10,672,000
--------------
121,982,687
--------------
OIL FIELD SERVICES - 0.2%
90,400 Halliburton Co. .................................. 2,582,050
24,800 Schlumberger Ltd. ................................ 1,247,750
--------------
3,829,800
--------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 0.5%
370,000 CBS Corp. ........................................ 8,972,500
--------------
REAL ESTATE - 1.4%
175,000 Boston Properties, Inc. REIT...................... 4,987,500
475,000 Equity Office Properties
Trust REIT....................................... 11,637,500
70,000 First Industrial Realty Trust,
Inc. REIT........................................ 1,785,000
100,000 Spieker Properties, Inc. REIT..................... 3,675,000
50,000 TriNet Corporate Realty Trust,
Inc. REIT........................................ 1,631,250
--------------
23,716,250
--------------
RETAILING & WHOLESALE - 0.8%
325,000 CVS Corp. ........................................ 14,239,063
--------------
UTILITIES - ELECTRIC - 3.3%
87,300 Cinergy Corp. .................................... 3,339,225
199,000 Consolidated Edison, Inc. ........................ 10,372,875
295,000 Dominion Resources, Inc. ......................... 13,164,375
250,000 Duke Power Co. ................................... 16,546,875
100,000 Florida Progress Corp. ........................... 4,331,250
150,000 Houston Industries, Inc. ......................... 4,668,750
90,000 Texas Utilities Co. .............................. 4,190,625
--------------
56,613,975
--------------
UTILITIES - TELEPHONE - 3.5%
383,000 Ameritech Corp. .................................. 18,144,625
164,000 AT&T Corp. ....................................... 9,583,750
116,202 Bell Atlantic Corp. .............................. 5,628,534
112,000 GTE Corp. ........................................ 6,160,000
75,480 Sprint Corp. .................................... 5,434,560
285,000 U.S. West, Inc. ................................. 14,944,688
--------------
59,896,157
--------------
Total Common Stocks
(cost $536,741,997).............................. 838,085,581
--------------
CONVERTIBLE PREFERRED - 1.6%
CONSUMER PRODUCTS &
SERVICES - 0.5%
150,000 Newell Financial Trust I
5.25%, 144A...................................... $ 8,400,000
--------------
DIVERSIFIED COMPANIES - 0.1%
40,000 Owens Illinois, Inc.
4.75%............................................ 1,430,000
--------------
FINANCE & INSURANCE - 0.4%
63,500 Conseco, Inc.
7.00%, PRIDES.................................... 6,858,000
--------------
RETAILING & WHOLESALE - 0.6%
200,000 Kmart Financing I
7.75%............................................ 10,000,000
--------------
Total Convertible Preferred
(cost $24,276,192)............................... 26,688,000
--------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 1.1%
HEALTHCARE PRODUCTS &
SERVICES - 0.4%
$10,000,000 HEALTHSOUTH Corp.
3.25%, 4/1/03, 144A.............................. 7,625,000
--------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 0.1%
1,100,000 Textron, Inc.
10.01%, 2/1/00................................... 1,161,732
--------------
RETAILING & WHOLESALE - 0.6%
5,250,000 Staples, Inc.
4.50%, 10/1/00, 144A............................. 9,843,750
--------------
Total Convertible Debentures
(cost $16,434,975)............................... 18,630,482
--------------
ASSET-BACKED SECURITIES - 6.1%
5,500,000 Americredit Automobile
Receivable, Series 1997-C,
Class A3,
6.30%, 7/5/03.................................... 5,650,178
1,176,139 Americredit Automobile Recreation
Trust, 1997 B Class A2
6.36%, 9/12/00................................... 1,183,143
12,500,000 Carco Auto Loan Master Trust,
Series 1997-1, Class A,
6.69%, 8/15/04................................... 12,775,375
2,500,000 CNL Funding 98 1 Lp, Series 1998 Franchise
Loan Trust Certificate
6.60%, 4/18/11................................... 2,648,438
2,750,000 Contimortgage Home Equity Loan, Series 1997-
4, Class A7 6.63%, 9/15/16....................... 2,852,245
4,000,000 Contimortgage Home Equity Loan
Trust, Series 1998-1, Class A6,
6.58%, 12/15/18.................................. 4,104,840
6,150,000 Corestates Home Equity Loan, Series 1996-1,
Class A4, 7.00%, 6/15/12......................... 6,554,670
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - CONTINUED
$ 1,500,000 First USA Credit Card Master Trust, Series 96
6 Class A 5.765%, 10/10/98....................... $ 1,498,125
Green Tree Financial Corp.
5,695,011 Series 1993-4, Class A3, 6.25%, 1/15/19........... 5,716,367
6,000,000 Series 1997-3, Class A5, 7.14%, 7/15/28........... 6,275,580
Merrill Lynch Mortgage Investors, Inc.
3,320,136 Series 1992-D, Class B,
8.50%, 6/15/17................................... 3,665,895
5,000,000 Series 1991-D, Class B,
9.85%, 7/15/11................................... 5,098,400
415,460 Money Store Auto Trust, 1997 2 Class A1
6.17%, 3/20/01**................................. 417,699
8,000,000 Olympic Automobile Receivables Trust, Series
1997-A, Class A5 6.80%, 2/15/05.................. 8,262,960
10,000,000 Premier Auto Trust, Series 1997 2, Class B,
6.53%, 12/6/03................................... 10,275,000
7,500,000 Southern Pacific Secured Assets Corp., Series
1996-3, Class A4 7.60%, 10/25/27................. 8,126,043
525,815 Union Acceptance Corp., Series 1995-C, Class
A,
6.40%, 10/10/02.................................. 527,618
745,000 University Support Services, Inc., Series
1992-D, 9.00%, 10/7/98........................... 742,672
8,900,000 WFS Financial Owner Trust, Series 1997-C,
Class CTFS 6.30%, 3/20/05........................ 9,027,937
7,632,267 World Omni Automobile Lease, Series 1997-A,
Class A4, 6.90%, 6/25/03......................... 7,861,235
--------------
103,264,420
--------------
Total Asset-Backed Securities
(cost $99,551,379)............................... 103,264,420
--------------
CORPORATE BONDS - 20.3%
AEROSPACE & DEFENSE - 1.0%
5,000,000 Boeing Co.
6.625%, 2/15/38.................................. 5,164,600
Northrop Grumman Corp.
5,500,000 7.00%, 3/1/06..................................... 5,818,615
5,000,000 9.375%, 10/15/24.................................. 5,829,100
--------------
16,812,315
--------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.3%
5,000,000 Ford Motor Co.
6.625%, 10/1/28.................................. 5,069,550
--------------
BANKS - 0.9%
3,465,000 Amsouth Bancorp
6.75%, 11/1/25................................... 3,679,899
5,200,000 BankBoston N A
6.375%, 4/15/08.................................. 5,241,548
$ 5,000,000 Barnett Capital I
8.06%, 12/1/26................................... 5,538,400
698,000 Boatmen's Bancshares, Inc.
6.75%, 3/15/03................................... 735,057
--------------
15,194,904
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.4%
6,000,000 Federal Express Corp.
6.845%, 1/15/19.................................. 6,545,310
--------------
CABLE/OTHER VIDEO
DISTRIBUTION - 0.3%
5,000,000 CSC Holdings Inc.
7.625%, 7/15/18.................................. 4,853,700
--------------
CONSUMER PRODUCTS &
SERVICES - 0.5%
3,000,000 American Greetings Corp.
6.10%, 8/1/28.................................... 3,134,970
4,000,000 Hasbro Inc.
6.15%, 7/15/08................................... 4,288,160
1,001,000 Stanley Works
7.375%, 12/15/02................................. 1,078,527
--------------
8,501,657
--------------
DIVERSIFIED COMPANIES - 1.4%
General Electric Capital Corp.
1,280,000 8.75%, 3/14/03.................................... 1,470,976
5,470,000 8.75%, 5/21/07.................................... 6,752,660
5,000,000 Grand Metropolitan Investment Corp.
7.45%, 4/15/35................................... 5,844,000
10,500,000 GS Escrow Corp.
6.75%, 8/1/01, 144A.............................. 10,579,800
--------------
24,647,436
--------------
FINANCE & INSURANCE - 6.5%
8,000,000 AMBAC, Inc.
9.375%, 8/1/11................................... 10,446,880
6,550,000 Associates Corp. North America
8.625%, 11/15/04................................. 7,656,164
5,000,000 Bear Stearns Co., Inc.
6.875%, 10/1/05.................................. 5,237,550
5,800,000 Beneficial Corp.
6.25%, 2/18/13................................... 6,029,564
4,500,000 CIT Group Holdings, Inc.
9.25%, 3/15/01................................... 4,933,305
6,400,000 Commercial Credit Group, Inc.
10.00%, 5/15/09.................................. 8,312,192
1,280,000 Dean Witter, Discover & Co.
6.75%, 10/15/13.................................. 1,301,914
6,600,000 General Motors Acceptance Corp.
8.50%, 1/1/03.................................... 7,354,842
1,750,000 International Lease Finance Corp.
5.75%, 1/15/03................................... 1,788,115
9,975,000 John Hancock Mutual Life Insurance Co.
7.375%, 2/15/24, 144A............................ 11,223,471
6,500,000 Lehman Brothers Holdings, Inc.
6.50%, 10/1/02 .................................. 6,207,305
35
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS - CONTINUED
FINANCE & INSURANCE - CONTINUED
$ 7,000,000 Liberty Mutual Insurance Co.
7.697%, 10/15/97................................. $ 7,464,100
6,000,000 Nationwide CSN Trust
9.875%, 2/15/25, 144A............................ 7,541,460
Paine Webber Group, Inc.
4,705,000 8.25%, 5/1/02..................................... 4,903,927
5,050,000 9.25%, 12/15/01................................... 5,423,397
6,200,000 Prudential Insurance Co.
7.125%, 7/1/07................................... 6,770,524
6,700,000 Sun Life Canada Capital Trust
8.526%, 5/29/49.................................. 7,248,529
--------------
109,843,239
--------------
HEALTHCARE PRODUCTS &
SERVICES - 0.5%
5,000,000 Johnson & Johnson
8.72%, 11/1/24................................... 6,041,900
3,000,000 Merck & Co., Inc.
6.40%, 3/1/28.................................... 3,158,430
--------------
9,200,330
--------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -
0.1%
2,000,000 USA Waste Services Inc.
6.125%, 7/15/01.................................. 2,038,800
326,000 Waste Management, Inc.
8.75%, 5/1/18.................................... 359,435
--------------
2,398,235
--------------
INFORMATION SERVICES & TECHNOLOGY - 0.4%
6,500,000 Comdisco Inc.
6.125%, 1/15/03.................................. 6,635,460
--------------
MACHINERY - DIVERSIFIED - 0.1%
2,000,000 Caterpillar, Inc.
9.375%, 7/15/01.................................. 2,216,400
--------------
OIL/ENERGY - 0.8%
4,250,000 Occidental Petroleum Corp.
9.25%, 8/1/19.................................... 5,013,555
7,500,000 Transocean Offshore, Inc.
8.00%, 4/15/27................................... 8,302,950
--------------
13,316,505
--------------
OIL FIELD SERVICES - 0.7%
931,000 Atlantic Richfield Co.
9.00%, 4/1/21.................................... 1,227,514
5,000,000 Petroleum Geo-Services
7.50%, 3/31/07................................... 5,333,600
5,000,000 R B Falcon Corp.
6.75%, 4/15/05................................... 5,159,700
--------------
11,720,814
--------------
PAPER & PACKAGING - 0.5%
8,000,000 James River Corp.
6.75%, 10/1/99................................... 8,085,280
--------------
PUBLISHING, BROADCASTING & ENTERTAINMENT -
0.4%
7,250,000 Time Warner Inc.
6.95%, 1/15/28................................... 7,535,143
--------------
REAL ESTATE - 0.7%
7,000,000 EOP Operating Limited Partnership
6.375%, 2/15/03.................................. 6,995,660
4,000,000 Glenborough Realty Trust, Inc.
7.625%, 3/15/05, 144A............................ 4,101,000
--------------
11,096,660
--------------
RETAILING & WHOLESALE - 0.8%
8,000,000 Fred Meyer Inc.
7.15%, 3/1/03.................................... 8,287,120
4,300,000 Sears Roebuck & Co.
10.00%, 2/3/12................................... 6,069,235
--------------
14,356,355
--------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 1.3%
6,750,000 Bellsouth Capital Funding Corp.
7.12%, 7/15/97................................... 7,677,045
6,550,000 TCI Communications Inc.
8.75%, 8/1/15.................................... 8,182,784
5,640,000 Worldcom, Inc.
6.40%, 8/15/05................................... 5,951,836
--------------
21,811,665
--------------
TRANSPORTATION - 0.9%
5,000,000 American Airline
8.39%, 1/2/17.................................... 5,749,000
3,000,000 Golden St. Pete Trans Corp.
8.04%, 2/1/19.................................... 3,016,875
6,250,000 Norfolk Southern Corp.
7.05%, 5/1/37.................................... 6,890,125
--------------
15,656,000
--------------
UTILITIES - ELECTRIC - 0.7%
5,000,000 Oklahoma Gas & Electric Co.
6.65%, 7/15/27................................... 5,498,700
4,000,000 Rural Electric Cooperative
8.67%, 9/15/18................................... 4,763,280
838,000 Union Electric Co.
8.00%, 12/15/22.................................. 982,136
--------------
11,244,116
--------------
UTILITIES - GAS - 0.8%
3,780,000 ANR Pipeline Co.
9.625%, 11/1/21.................................. 4,863,575
8,000,000 K N Energy Inc.
6.65%, 3/1/05.................................... 8,215,520
--------------
13,079,095
--------------
UTILITIES - TELEPHONE - 0.3%
3,500,000 GTE Florida Inc.
6.86%, 2/1/28.................................... 3,766,245
2,000,000 MCI Communications Corp.
1.00%, 4/15/12................................... 2,050,140
--------------
5,816,385
--------------
Total Corporate Bonds
(cost $332,028,394).............................. 345,636,554
--------------
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 9.7%
MORTGAGE PASS-THROUGH CERTIFICATES - 3.5%
$11,000,000 Federal Home Loan Banks
5.50%, 8/13/01................................... $ 11,244,640
Federal Home Loan Mortgage Corp.
837,587 7.411%, 3/1/21.................................... 863,242
4,622,740 7.569%, 4/1/22.................................... 4,804,783
889,489 7.609%, 3/1/19.................................... 932,852
Federal National Mortgage Association.............
16,865,208 5.50%, 7/1/09..................................... 16,992,371
4,212,809 7.00%, 5/1/24..................................... 4,332,580
1,686,775 7.30%, 5/1/22..................................... 1,733,684
2,153,541 7.332%, 2/1/27.................................... 2,187,868
9,563,205 7.414%, 9/1/21.................................... 9,871,045
1,634,198 7.472%, 12/1/23................................... 1,657,976
2,628,049 7.518%, 1/1/31.................................... 2,701,135
Government National Mortgage Association..........
438,600 8.50%, 5/15/21.................................... 465,740
247,663 8.50%, 7/15/21.................................... 262,520
556,386 8.50%, 6/15/22.................................... 588,723
310,477 9.00%, 9/15/21.................................... 333,760
458,501 9.00%, 10/15/21................................... 492,884
248,613 9.50%, 2/15/21.................................... 268,500
--------------
59,734,303
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 6.2%
10,000,000 Bear Stearns Commercial Mortgage Securities
Inc., Series 1998-C1, Class C
6.75%, 6/16/30................................... 11,078,125
Chase Commercial Mortgage Securities Corp.
2,000,000 Series 1997-2, Class B, 6.60%, 11/19/07........... 1,911,875
2,200,000 Series 1997-1, Class B, 7.37%, 4/19/07............ 2,172,162
4,720,879 Chase Mortgage Finance Corp., Series 1994-D,
Class M, 6.75%, 2/25/25.......................... 4,969,905
2,400,000 Commercial Mortgage Acceptance Corp.,
Series 1997-ML1, Class B, 6.647%, 12/15/07....... 2,485,020
7,229,087 Criimi Mae Financial Corp., Series 1, Class
A, 7.00%, 1/1/33................................. 7,222,310
4,000,000 Criimi Mae Commercial Mortgage Trust, Series
1998 C1, Class A, 144A
7.00%, 3/2/11.................................... 4,122,500
Federal National Mortgage Association
1,250,000 Series 1993-248, Class SA, 4.284%, 8/25/23........ 1,194,338
5,000,000 Series 1997-M6, Class C, 6.85%, 5/17/20........... 5,459,775
1,250,000 FFCA Secured Lending Corp., Series 1997-1,
Class B1, 7.74%, 6/18/13......................... 1,376,172
5,484,643 Financial Asset Securitization, Series 1997-
NAM 1, Class FXA2,
7.75%, 4/25/27................................... 5,696,783
3,745,000 G E Capital Mortgage Services Inc., Series
1994-27, Class A6,
6.50%, 7/25/24................................... 3,777,769
7,812,734 Independent National Mortgage Corp., 144A,
Series 1997-A, Class A,
7.81%, 12/26/26.................................. 8,030,025
415,608 KS Mortgage Capital, L. P.,144A, Series 1995-
1, Class A1, 7.23%, 4/20/02...................... 417,426
5,000,000 Merrill Lynch Mortgage Investors, Inc.,
Series 1997-C1, Class A3 7.12%, 6/18/29.......... 5,370,025
5,870,000 Merrill Lynch Trust, Series 35, Class G,
8.45%, 11/1/18................................... 6,222,200
1,786,895 Mid State Trust, Series 6, Class A3,
7.54%, 7/1/35.................................... 1,933,778
6,000,000 Morgan Stanley Capital I Inc., Series 1998
Wf1, Class C 6.77%, 1/15/08...................... 6,178,125
11,707,375 Nomura Depositor Trust Str I,
Series 1998-ST1,
Class A1, 144A
5.92%, 1/15/03................................... 11,762,253
PNC Mortgage Securities Corp.
2,472,422 Series 1997-4, Class 2PP3,
7.25%, 7/25/27.................................... 2,563,093
5,844,331 Series 1997-4, Class 2PP1,
7.50%, 7/25/27.................................... 5,944,678
1,011,178 Prudential Home Mortgage Securities Co.,
Series 1990-12, Class A1
7.98%, 11/25/20.................................. 1,017,816
4,177,710 Shearson Lehman CMO Inc., Series V, Class 5
7.50%, 5/1/19.................................... 4,453,982
--------------
105,360,135
--------------
Total Mortgage-Backed Securities
(cost $159,523,627).............................. 165,094,438
--------------
MUNICIPAL BONDS - 0.1%
2,500,000 Cook County Illinois
5.00%,11/15/22................................... 2,496,750
--------------
Total Municipal Bonds
(cost $2,455,126)................................ 2,496,750
--------------
FOREIGN BONDS (U.S. DOLLARS) - 1.2%
640,000 International Bank For Reconstruction &
Development Co.
7.95%, 5/15/16................................... 801,670
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLARS) - CONTINUED
$ 4,000,000 National Westminster Bancorp
9.375%, 11/15/03................................ $ 4,681,920
60,000,000 Skandinaviska Enskilda
0%, 5/26/33..................................... 6,834,000
8,000,000 YPF Sociedad Anonima
7.25%, 3/15/03.................................. 7,280,000
--------------
19,597,590
--------------
Total Foreign Bonds (U.S. Dollars)
(cost $18,502,231).............................. 19,597,590
--------------
FOREIGN BONDS (NON U.S. DOLLARS) - 4.2%
142,178,000 Nykredit,
6.00%, 10/1/26.................................. 22,063,840
205,474,000 Realkredit Danmark
6.00%, 10/1/26.................................. 31,918,763
2,500,000 Republic of Colombia
8.625%, 4/1/08.................................. 1,756,250
8,200,000 United Kingdom Treasury
7.25%, 12/7/07.................................. 16,428,377
--------------
72,167,230
--------------
Total Foreign Bonds
(Non U.S. Dollars)
(cost $66,436,176).............................. 72,167,230
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 2.0%
FINANCE & INSURANCE - 0.4%
6,200,000 Federal Home Loan Banks 5.125%,
9/15/03......................................... 6,309,492
--------------
TREASURY NOTES & BONDS - 1.6%
9,935,000 U.S. Treasury Bonds
7.875%, 2/15/21................................. 13,405,991
U.S. Treasury Notes
3,000,000 5.375%, 2/15/01.................................. 3,067,980
5,000,000 5.50%, 5/31/03................................... 5,245,300
5,590,000 6.125%, 8/15/07.................................. 6,257,278
--------------
27,976,549
--------------
Total U.S. Government & Agency
Obligations
(cost $32,029,766).............................. 34,286,041
--------------
SHORT-TERM INVESTMENTS - 3.3%
COMMERCIAL PAPER - 0.2%
$ 2,735,000 Kansallis Osake Pankki
9.75%, 12/15/98................................. $ 2,758,193
--------------
REPURCHASE AGREEMENTS - 3.1%
50,000,000 Goldman Sachs Repurchase Agreement purchased
9/30/98, 5.60%, maturing 10/1/98, maturity
value $50,007,778
(cost $50,000,000) (a).......................... 50,000,000
3,167,000 Keystone Joint Repurchase Agreement.
Investments in repurchase agreements, in a
joint trading account, purchased 9/30/98,
5.60%, maturing 10/1/98, maturity value
$3,167,493
(cost $3,167,000) (b)........................... 3,167,000
--------------
53,167,000
--------------
Total Short-Term Investments
(cost $55,934,547).............................. 55,925,193
--------------
TOTAL INVESTMENTS -
(COST $1,343,914,410).................... 98.9% 1,681,872,279
OTHER ASSETS AND LIABILITIES - NET........ 1.1 18,288,104
----- --------------
NET ASSETS................................ 100.0% $1,700,160,383
===== ==============
* Non-income producing securities.
** At September 30, 1998, the Fund owned a principal amount of $415,460 of
Money Store Auto Trust at a cost of $415,136. During the six months ended
September 30, 1998, the Fund earned $1,018 in interest income from this
investment. This security was purchased by the Fund prior to the
acquisition of the Money Store by First Union.
(a) The repurchase agreements are fully collateralized by: $26,223,835 Federal
Home Loan Mortgage Corp., 6.131%, maturing 9/1/24; value including accrued
interest - $25,699,000 and $24,797,258 Federal Home Loan Mortgage Corp.,
6.131% maturing 9/1/24; value including accrued interest - $24,301,000.
(b) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 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 Fund's Board of
Trustees.
SUMMARY OF ABBREVIATIONS
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward Foreign Currency Exchange Contracts to Buy:
<TABLE>
<CAPTION>
UNREALIZED
EXCHANGE U.S. VALUE AT IN EXCHANGE APPRECIATION
DATE CONTRACTS TO RECEIVE SEPTEMBER 30, 1998 FOR U.S. $ (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10/16/98 66,483,000Danish Krone $10,471,493 $10,377,429 $ 94,064
===========
<CAPTION>
Forward Foreign Currency Exchange Contracts to Sell:
UNREALIZED
EXCHANGE U.S. VALUE AT IN EXCHANGE APPRECIATION
DATE CONTRACTS TO DELIVER SEPTEMBER 30, 1998 FOR U.S. $ (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10/30/98 9,066,258British Pound Sterling 15,388,500 14,889,425 $ (499,075)
10/16/98 204,020,000Danish Krone 32,134,442 29,827,485 (2,306,957)
12/14/98 195,339,000Danish Krone 30,792,428 30,348,637 (443,791)
-----------
$(3,249,823)
===========
<CAPTION>
FUTURES CONTRACTS - LONG POSITIONS(1)
NUMBER OF INITIAL CONTRACT VALUE AT UNREALIZED
EXPIRATION CONTRACTS AMOUNT SEPTEMBER 30, 1998 (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 1998 330S&P 500 $86,394,375 $84,645,000 $(1,749,375)
===========
</TABLE>
(1) At September 30, 1998, cash of $4,455,000 was segregated at the Fund's
custodian for initial margin deposits.
See Combined Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 58.6%
ADVERTISING & RELATED
SERVICES - 0.0%
13,000 Gannett Co., Inc. ................................. $ 696,313
--------------
AEROSPACE & DEFENSE - 0.6%
402,600 Boeing Co. ........................................ 13,814,212
5,420 Raytheon Co. Cl. A................................. 280,824
31,000 United Technologies Corp. ......................... 2,369,563
--------------
16,464,599
--------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 1.5%
458,400 Chrysler Corp. .................................... 21,945,900
160,000 General Motors Corp................................ 8,750,000
30,000 Genuine Parts Co................................... 901,875
208,800 Goodyear Tire & Rubber Co. ........................ 10,727,100
--------------
42,324,875
--------------
BANKS - 6.8%
83,100 AmSouth Bancorp.................................... 2,835,788
50,000 Bancfirst Corp. ................................... 1,825,000
45,700 BankAmerica Corp. ................................. 2,747,713
783,600 BankBoston Corp. .................................. 25,858,800
63,000 Bankers Trust Corp. ............................... 3,717,000
140,062 BSB Bancorp, Inc................................... 3,895,474
164,000 Cape Cod Bank & Trust Co. ......................... 2,829,000
27,000 CB Bancshares, Inc. ............................... 864,000
120,700 CitiCorp........................................... 11,217,556
149,000 Crestar Financial Corp. ........................... 8,455,750
301,950 Dime Bancorp, Inc. ................................ 7,643,109
85,138 First Chicago NBD Corp. ........................... 5,831,953
16,875 First Security Corp. .............................. 282,656
117,000 First Union Corp. **............................... 5,988,938
120,000 Firstar Corp. ..................................... 6,075,000
58,000 Fleet Financial Group, Inc. ....................... 4,259,375
43,400 Hancock Holding Co. ............................... 2,072,350
70,801 Hibernia Corp. Cl. A............................... 1,022,189
281,400 KeyCorp............................................ 8,125,425
3,800 M & T Bank Corp.................................... 1,751,800
50,000 Mellon Bank Corp. ................................. 2,753,125
30,000 Mercantile Bancorp, Inc. .......................... 1,451,250
50,000 Mississippi Valley Bancshares, Inc. ............... 1,806,250
349,080 National City Corp. ............................... 23,017,462
131,825 NationsBank Corp. ................................. 7,052,638
175,000 Norwest Corp. ..................................... 6,267,188
260,500 Pacific Century Financial Corp. ................... 4,347,094
132,300 Peoples Heritage Financial Group................... 2,373,131
102,000 Seacoast Banking Corp. of Florida Cl. A............ 3,034,500
50,000 SouthTrust Corp. .................................. 1,746,875
106,200 SunTrust Banks, Inc. .............................. 6,584,400
65,000 U.S. Trust Corp.................................... 4,314,375
160,000 Webster Financial Corp............................. 3,900,000
238,300 Wilmington Trust Corp. ............................ 12,391,600
--------------
188,338,764
--------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 1.8%
364,100 Armstrong World Industries, Inc. .................. 19,479,350
394,225 D.R. Horton, Inc. ................................. 6,307,600
17,857 Engle Homes, Inc................................... 253,904
205,000 Home Depot, Inc. .................................. 8,097,500
366,122 Lennar Corp........................................ 8,169,097
206,000 Lowe's Companies, Inc. ............................ 6,553,375
50,100 M/I Schottenstein Homes, Inc. ..................... 926,850
--------------
49,787,676
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.2%
14,000 Automatic Data Processing, Inc. ................... 1,046,500
45,500 *Crescent Operating, Inc. ......................... 318,500
42,000 *Metamor Worldwide, Inc. .......................... 1,155,000
40,636 Paychex, Inc. ..................................... 2,095,294
20,000 *Policy Management
Systems Corp. .................................... 810,000
10,000 Xerox Corp......................................... 847,500
--------------
6,272,794
--------------
CAPITAL GOODS - 0.6%
165,000 Caterpillar, Inc. ................................. 7,352,812
321,700 Deere & Co. ....................................... 9,731,425
--------------
17,084,237
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 2.7%
80,000 Air Products & Chemicals, Inc...................... 2,380,000
595,400 Du Pont (E. I.) De Nemours & Co. .................. 33,416,825
70,000 *Grace (W.R.) & Co. ............................... 870,625
60,000 H.B. Fuller Co. ................................... 2,272,500
245,800 Monsanto Co. ...................................... 13,856,975
170,000 Morton International, Inc. ........................ 3,718,750
75,000 Nalco Chemical Co. ................................ 2,212,500
174,000 Pioneer Hi-Bred International, Inc. ............... 4,567,500
120,800 PPG Industries, Inc. .............................. 6,591,150
45,000 Praxair, Inc....................................... 1,470,937
115,000 Schulman (A.), Inc. ............................... 1,624,375
100,560 Solutia, Inc. ..................................... 2,268,885
--------------
75,251,022
--------------
COMMUNICATION SYSTEMS &
SERVICES - 0.8%
30,000 *AirTouch Communications, Inc. .................... 1,710,000
49,800 *Ascend Communications, Inc. ...................... 2,265,900
179,100 *Cisco Systems, Inc. .............................. 11,070,619
90,000 Lucent Technologies, Inc. ......................... 6,215,625
39,900 *MCI WorldCom, Inc. ............................... 1,950,112
6,666 Nielsen Media Research, Inc. ...................... 68,327
--------------
23,280,583
--------------
CONSUMER PRODUCTS &
SERVICES - 1.1%
95,000 Black & Decker Corp................................ 3,954,375
233,150 Cendant Corp. ..................................... 2,710,369
32,052 *Consolidated Products, Inc. ...................... 562,913
20,000 H & R Block, Inc. ................................. 827,500
10,000 Harman International
Industries, Inc. ................................. 366,875
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
129,300 International Flavors &
Fragrances, Inc. ................................ $ 4,266,900
130,100 *Nautica Enterprises, Inc. ....................... 2,431,244
20,000 Premark International, Inc........................ 561,250
110,451 Procter & Gamble Co. ............................. 7,835,118
191,100 Stanley Works..................................... 5,685,225
118,500 Tupperware Corp. ................................. 1,392,375
---------------
30,594,144
---------------
DIVERSIFIED COMPANIES - 0.0%(A)
8,000 Cooper Industries, Inc............................ 326,000
2,800 Tyco International Ltd. .......................... 154,700
---------------
480,700
---------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.8%
248,400 AMP, Inc. ........................................ 8,880,300
152,566 *Analog Devices, Inc.............................. 2,450,591
130,000 Applied Power, Inc. Cl. A......................... 3,550,625
17,300 Emerson Electric Co. ............................. 1,076,925
562,400 General Electric Co. ............................. 44,745,950
97,000 Honeywell, Inc. .................................. 6,214,063
162,000 Perkin Elmer Corp. ............................... 11,127,375
2,000 Texas Instruments, Inc. .......................... 105,500
---------------
78,151,329
---------------
FINANCE & INSURANCE - 9.1%
10,668 Aetna, Inc. ...................................... 741,426
120,000 AFLAC, Inc. ...................................... 3,427,500
274,000 Allstate Corp. ................................... 11,422,375
110,600 AMBAC Financial Group, Inc. ...................... 5,308,800
169,000 American Express Co. ............................. 13,118,625
292,212 American International Group, Inc. ............... 22,500,324
51,800 Chubb Corp........................................ 3,263,400
158,350 Countrywide Credit Industries,
Inc. ............................................ 6,591,319
95,000 *Degeorge Financial Corp.......................... 125,430
40,860 Exel Limited Hamilton............................. 2,574,180
40,000 FBL Financial Group, Inc. Cl. A................... 922,500
84,000 Federal Home Loan Mortgage Corp. ................. 4,152,750
718,000 Federal National Mortgage
Association...................................... 46,131,500
126,500 Frontier Insurance Group, Inc. ................... 1,676,125
512,055 Household International, Inc. .................... 19,202,062
32,700 Interstate/Johnson Lane, Inc. .................... 948,300
45,900 J.P. Morgan & Co., Inc. .......................... 3,884,288
142,200 John Nuveen Co. Cl. A............................. 5,065,875
177,600 Lehman Brothers Holdings, Inc..................... 5,017,200
68,000 Lincoln National Corp. ........................... 5,593,000
419,100 Marsh & McLennan Co., Inc. ....................... 20,850,225
75,000 MBIA, Inc. ....................................... 4,026,563
387,400 Merrill Lynch & Co., Inc. ........................ 18,353,075
345,200 MGIC Investment Corp. ............................ 12,729,250
155,000 NAC RE Corp. ..................................... 7,633,750
110,000 Nationwide Financial Services,
Inc. Cl. A........................................ 4,998,125
15,000 Ohio Casualty Corp. ............................... 581,250
201,100 Paine Webber Group, Inc. .......................... 6,033,000
28,000 Progressive Corp. Ohio............................. 3,157,000
305,975 Raymond James Financial, Inc. ..................... 6,425,475
13,500 Reinsurance Group Of America....................... 698,625
3,500 SLM Holding Corp. ................................. 113,531
85,000 UNUM Corp. ........................................ 4,223,437
--------------
251,490,285
--------------
FOOD & BEVERAGE
PRODUCTS - 0.7%
145,000 American Stores Co................................. 4,667,188
240,000 Bestfoods.......................................... 11,625,000
30,000 *Corn Products International, Inc. ................ 757,500
23,027 Hershey Foods Corp. ............................... 1,575,910
3,000 *Tricon Global Restaurants, Inc. .................. 117,000
--------------
18,742,598
--------------
FOREST PRODUCTS - 0.2%
88,000 Union Camp Corp. .................................. 3,465,000
90,000 Willamette Industries, Inc. ....................... 2,581,875
--------------
6,046,875
--------------
HEALTHCARE PRODUCTS &
SERVICES - 6.8%
431,400 Abbott Laboratories................................ 18,738,937
1,750 *Alza Corp. Warrants $65.00
Expiring 12/31/99................................. 656
423,800 American Home Products Corp. ...................... 22,196,525
70,000 Baxter International, Inc. ........................ 4,165,000
45,600 Beckman Coulter Inc................................ 2,354,100
101,200 Bristol-Myers Squibb Co. .......................... 10,512,150
180,900 Columbia / HCA Healthcare Corp..................... 3,629,306
23,000 *Covance, Inc...................................... 596,563
152,000 First Health Group Corp. .......................... 3,686,000
29,400 Glaxo Wellcome Plc, ADR............................ 1,679,475
68,550 Guidant Corp. ..................................... 5,089,838
64,000 HBO & Co. ......................................... 1,848,000
88,500 *Health Management Associates,
Inc. Cl. A ....................................... 1,615,125
20,000 IMS Health, Inc.................................... 1,238,750
114,500 Johnson & Johnson.................................. 8,959,625
312,524 Lilly (Eli) & Co. ................................. 24,474,536
130,000 *Lincare Holdings, Inc. ........................... 5,037,500
81,666 *Maxxim Medical, Inc. ............................. 2,097,795
160,000 McKesson Corp. .................................... 14,660,000
151,750 *MedPartners, Inc. ................................ 493,188
96,600 Medtronic, Inc. ................................... 5,590,725
167,758 Merck & Co., Inc. ................................. 21,735,146
89,500 Pfizer, Inc........................................ 9,481,406
11,500 *Quest Diagnostics, Inc. .......................... 189,750
157,000 Schering-Plough Corp. ............................. 16,259,312
9,200 Shared Medical System Corp. ....................... 489,325
32,400 Warner-Lambert Co. ................................ 2,446,200
--------------
189,264,933
--------------
41
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
INDUSTRIAL SPECIALTY
PRODUCTS & SERVICES -
1.1%
155,970 Autoliv, Inc....................................... $ 4,289,175
40,000 Bemis Co., Inc. ................................... 1,402,500
147,000 Corning, Inc. ..................................... 4,327,312
64,600 *Halter Marine Group, Inc. ........................ 734,825
91,000 Parker Hannifin Corp. ............................. 2,701,563
30,000 Pittston Brink's Group............................. 1,050,000
190,000 Snap-on, Inc. ..................................... 5,854,375
6,000 *Strattec Security Corp. .......................... 159,000
35,000 Sundstrand Corp. .................................. 1,623,125
378,000 Timken Co. ........................................ 5,717,250
50,000 Trinity Industries, Inc. .......................... 1,621,875
55,000 *UCAR International, Inc. ......................... 990,000
38,000 *Unova, Inc. ...................................... 624,625
--------------
31,095,625
--------------
INFORMATION SERVICES &
TECHNOLOGY - 7.0%
35,000 America Online, Inc. .............................. 3,893,750
38,000 *BMC Software, Inc. ............................... 2,282,375
154,133 Compaq Computer Corp. ............................. 4,874,456
37,500 Computer Associates
International, Inc................................ 1,387,500
49,000 Computer Sciences Corp. ........................... 2,670,500
40,000 *Dell Computer Corp................................ 2,630,000
40,000 *EMC Corp. ........................................ 2,287,500
524,800 Hewlett-Packard Co................................. 27,781,600
809,600 Intel Corp. ....................................... 69,423,200
180,000 International Business
Machines Corp. ................................... 23,040,000
370,000 *Microsoft Corp. .................................. 40,723,125
30,190 *Peoplesoft, Inc. ................................. 984,949
224,000 *Sun Microsystems, Inc. ........................... 11,158,000
--------------
193,136,955
--------------
LEISURE & TOURISM - 0.1%
127,479 Disney Walt Co. ................................... 3,226,812
--------------
MACHINERY -
DIVERSIFIED - 0.1%
79,900 W.W. Grainger, Inc. ............................... 3,365,787
--------------
OIL / ENERGY - 1.4%
189,000 Amoco Corp. ....................................... 10,182,375
113,500 Consolidated Natural Gas Co. ...................... 6,185,750
289,000 Equitable Resources, Inc. ......................... 7,351,437
102,400 Exxon Corp. ....................................... 7,187,200
91,800 Mobil Corp......................................... 6,971,063
900 Pennzoil Co. ...................................... 31,556
86,206 *Seitel, Inc....................................... 932,102
1,200 Sonat, Inc......................................... 35,850
33,877 Union Pacific Resource
Group, Inc. ...................................... 417,111
--------------
39,294,444
--------------
OIL FIELD SERVICES - 0.5%
83,430 Baker Hughes, Inc. ................................ 1,746,816
23,600 Halliburton Co. ................................... 674,075
47,200 *R & B Falcon Corp................................. 566,400
217,800 Schlumberger Ltd................................... 10,958,062
--------------
13,945,353
--------------
PAPER & PACKAGING - 0.2%
85,000 Kimberly-Clark Corp. .............................. 3,442,500
37,520 *Sealed Air Corp................................... 1,195,950
--------------
4,638,450
--------------
PUBLISHING, BROADCASTING
& ENTERTAINMENT - 0.6%
80,000 Belo (A.H.) Corp. Ser. A .......................... 1,600,000
128,620 CBS Corp........................................... 3,119,035
20,000 *Cox Communications,
Inc. Cl. A........................................ 1,092,500
99,400 Time Warner, Inc. ................................. 8,703,712
3,000 Washington Post Co., Cl. B......................... 1,533,000
--------------
16,048,247
--------------
REAL ESTATE - 4.7%
38,000 *Alexander's, Inc. REIT............................ 2,916,500
111,992 Archstone Communities Trust........................ 2,281,837
24,100 Arden Realty Group, Inc. REIT...................... 537,731
50,000 Avalon Bay Community, Inc. REIT.................... 1,703,125
73,100 Berkshire Realty Co., Inc. REIT.................... 762,981
150,000 Boston Properties, Inc. REIT....................... 4,275,000
50,009 Bradley Real Estate, Inc. REIT..................... 1,050,189
140,000 Brandywine Realty Trust REIT....................... 2,677,500
28,917 Camden Property Trust REIT......................... 807,869
800,000 Canadian Hotel Properties REIT..................... 4,772,362
280,400 Capstead Mortgage Corp. REIT....................... 1,016,450
171,900 CarrAmerica Realty Corp. REIT...................... 3,921,469
110,000 Chelsea GCA Realty, Inc. REIT...................... 3,767,500
376,700 Crescent Real Estate Equities, Inc. REIT........... 9,511,675
305,300 Crown American Realty Trust REIT................... 2,614,131
200,000 Entertainment Properties Trust REIT................ 3,700,000
42,500 Equity Residential
Properties Trust REIT............................. 1,792,969
105,200 Essex Property Trust, Inc. REIT.................... 3,261,200
115,000 FelCor Lodging Trust Inc. REIT..................... 2,795,937
10,700 Gables Residential Trust REIT...................... 286,894
174,000 Glimcher Realty Trust REIT......................... 2,979,750
28,000 Highwoods Properties, Inc. REIT.................... 777,000
72,419 *Homestead Village Properties, Inc. ............... 620,088
16,068 Horizon Group Properties, Inc. REIT................ 38,162
50,300 Indymac Mortgage Holdings, Inc. REIT............... 1,018,575
140,000 Innkeepers USA Trust REIT.......................... 1,662,500
111,500 Kilroy Realty Corp. REIT........................... 2,564,500
199,700 *Konover Property Trust, Inc. REIT................. 1,397,900
132,000 Kranzco Realty Trust REIT.......................... 2,153,250
45,000 Liberty Property Trust REIT........................ 1,071,563
175,000 Mack-Cali Realty Corp. REIT........................ 5,250,000
250,000 Marriott International, Inc. Cl. A................. 5,968,750
115,000 Meditrust Co. REIT................................. 1,962,187
42
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
REAL ESTATE - CONTINUED
117,783 Patriot American Hospitality, Inc. REIT............ $ 1,501,733
200,000 Philips International Reality Corp. REIT........... 3,062,500
268,713 Post Property, Inc. REIT........................... 10,362,245
166,500 Prentiss Properties Trust REIT..................... 3,975,187
229,436 Prime Retail, Inc. ................................ 2,251,341
76,817 Prologis Trust..................................... 1,737,985
90,000 Public Storage, Inc. REIT.......................... 2,413,125
31,250 *Sodexho Marriott Services, Inc. .................. 937,500
100,000 Sovran Self Storage, Inc. REIT..................... 2,625,000
70,000 Spieker Properties, Inc. REIT...................... 2,572,500
262,750 Starwood Hotels & Resorts Trust REIT............... 8,013,875
14,000 Storage USA, Inc. REIT............................. 484,750
140,000 Sunstone Hotel Investors, Inc. REIT................ 1,268,750
43,500 Tanger Factory Outlet Centers, Inc. REIT........... 986,906
2,200 TriNet Corporate Realty Trust, Inc. REIT........... 71,775
135,000 Trizec Hahn Corp................................... 2,531,250
75,705 Vornado Realty Trust REIT.......................... 2,507,728
30,000 Western Investment Real Estate Trust REIT.......... 384,375
--------------
129,606,069
--------------
RETAILING & WHOLESALE - 0.7%
120,000 *Autozone, Inc. ................................... 2,955,000
236,511 Avnet, Inc. ....................................... 8,706,561
35,000 *Costco Companies, Inc. ........................... 1,658,125
46,400 Dayton Hudson Corp. ............................... 1,658,800
54,834 Dollar General Corp. .............................. 1,459,949
77,186 Family Dollar Stores, Inc. ........................ 1,215,679
21,000 Gap, Inc. ......................................... 1,107,750
30,000 *Whole Foods Market, Inc. ......................... 1,263,750
--------------
20,025,614
--------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 0.2%
55,000 *ICG Communications, Inc. ......................... 928,125
36,000 *Intermedia Communications, Inc. .................. 884,250
60,000 *Qwest Communications International, Inc. ......... 1,878,750
106,000 *Telephone Save Holdings, Inc. .................... 1,185,875
33,165 *Univision Communications, Inc. Cl. A.............. 986,659
--------------
5,863,659
--------------
TEXTILE & APPAREL - 0.0% (A)
34,900 Superior Uniform Group, Inc. ...................... 431,888
--------------
THRIFT INSTITUTIONS - 0.5%
176,300 Golden West Financial Corp. ....................... 14,423,544
--------------
TRANSPORTATION - 1.1%
75,000 Burlington Northern Santa Fe Corp. ................ 2,400,000
27,200 *FDX Corp. ........................................ 1,227,400
163,600 GATX Corp. ........................................ 5,409,025
17,000 Roadway Express, Inc. ............................. 187,000
58,410 Southwest Airlines Co. ............................ 1,168,200
469,000 Union Pacific Corp. ............................... 19,991,125
--------------
30,382,750
--------------
UTILITIES - ELECTRIC - 1.2%
403,700 Central Hudson Gas &
Electric Corp. ................................... 16,904,937
138,400 Energy East Corp. ................................. 7,058,400
33,300 Orange & Rockland
Utilities, Inc. .................................. 1,827,338
40,000 *PP&L Resources, Inc. ............................. 1,035,000
100,000 *Public Service Enterprise
Group, Inc. ...................................... 3,931,250
32,000 TNP Enterprises, Inc. ............................. 1,118,000
--------------
31,874,925
--------------
UTILITIES - GAS - 0.3%
276,636 *Marketspan Corp. ................................. 7,935,995
--------------
UTILITIES - TELEPHONE - 3.2%
72,766 ALLTEL Corp........................................ 3,447,289
2,000 Ameritech Corp. ................................... 94,750
10,000 AT&T Corp.......................................... 584,375
348,080 Bell Atlantic Corp. ............................... 16,860,125
1,600 BellSouth Corp. ................................... 120,400
110,000 Cincinnati Bell, Inc. ............................. 2,860,000
65,500 Compania de Telecom de
Chile SA, ADR..................................... 1,252,688
592,300 Frontier Corp. .................................... 16,214,212
376,400 GTE Corp. ......................................... 20,702,000
34,000 *McLeod USA, Inc., Cl. A........................... 743,750
2,400 SBC Communications, Inc. .......................... 106,650
351,000 Sprint Corp........................................ 25,272,000
--------------
88,258,239
--------------
Total Common Stocks
(cost $1,219,215,696)............................. 1,627,826,083
--------------
CONVERTIBLE PREFERRED - 0.8%
CONSUMER PRODUCTS &
SERVICES - 0.1%
70,000 Cendant Corp. 7.50%................................ 1,750,000
--------------
FINANCE & INSURANCE - 0.0%
3,557 Aetna, Inc.
6.25%, Ser. C..................................... 249,213
1,000 Conseco, Inc.
7.00%, PRIDES..................................... 108,000
2,500 SunAmerica, Inc.
$3.188, PERCS..................................... 128,281
--------------
485,494
--------------
INDUSTRIAL SPECIALTY
PRODUCTS & SERVICES -
0.1%
50,000 Qualcomm Financial Trust I
5.75%, 144A....................................... 2,050,000
--------------
METAL PRODUCTS &
SERVICES - 0.1%
100,000 Timet Capital Trust I
6.625%, BUCS, 144A................................ 3,625,000
--------------
43
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - CONTINUED
OIL FIELD SERVICES -
0.1%
70,000 EVI, Inc. 5.00%, 144A.............................. $ 2,240,000
--------------
PAPER & PACKAGING - 0.1%
33,250 *Sealed Air Corp.
$2.00, Ser A...................................... 1,201,156
--------------
REAL ESTATE - 0.1%
95,000 First Union Real Estate Equity
8.40%, Ser. A..................................... 2,113,750
76,863 Prime Retail, Inc.
Ser. B. 8.50%..................................... 1,306,671
--------------
3,420,421
--------------
RETAILING & WHOLESALE - 0.2%
1,300 Kmart Financing I 7.75%............................ 65,000
160,000 Merrill Lynch & Co., Inc. 8.50%
(exchangeable for Dollar
General Corp. common stock)....................... 5,760,000
--------------
5,825,000
--------------
Total Convertible Preferred
(cost $26,544,604)................................ 20,597,071
--------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.2%
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.1%
$ 500,000 Home Depot, Inc.
3.25%, 10/1/01.................................... 872,500
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.0% (A)
800,000 Personnel Group Of
America, Inc.
5.75%, 7/1/04..................................... 728,000
--------------
ENVIRONMENTAL SERVICES - 0.0%
100,000 Waste Management, Inc.
4.00%, 2/1/02..................................... 121,625
--------------
INDUSTRIAL SPECIALTY
PRODUCTS & SERVICES - 0.1%
2,100,000 Robbins & Myers, Inc.
6.50%, 9/1/03..................................... 2,013,375
750,000 Simula, Inc.
8.00%, 5/1/04..................................... 767,812
--------------
2,781,187
--------------
Total Convertible Debentures
(cost $4,280,000)................................. 4,503,312
--------------
CORPORATE BONDS - 0.0% (A)
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.0% (A)
210,000 Arco Chemical Co.
10.25%, 11/1/10................................... 240,500
--------------
FINANCE & INSURANCE - 0.0% (A)
500,000 Chrysler Financial Corp.
6.95%, 3/25/02.................................... 528,127
--------------
Total Corporate Bonds
(cost $764,924)................................... 768,627
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 29.0%
GOVERNMENT AGENCY NOTES & BONDS - 0.8%
$ 500,000 Federal Home Loan Mortgage Corp.
6.44%, 1/28/00................................... $ 510,745
Federal National Mortgage Association
500,000 5.94%, 12/12/05................................... 529,557
1,250,000 6.21%, 8/6/38..................................... 1,356,736
Tennessee Valley Authority
8,000,000 7.25%, 7/15/43.................................... 8,803,720
10,000,000 7.85%, 6/15/44, Ser. A............................ 10,878,850
--------------
22,079,608
--------------
TREASURY NOTES & BONDS - 28.2%
U.S. Treasury Bonds
78,000,000 6.00%, 2/15/26.................................... 87,311,328
170,000,000 6.25%, 8/15/23.................................... 194,703,210
36,340,000 6.75%, 8/15/26.................................... 44,630,099
125,000,000 7.125%, 2/15/23................................... 157,929,750
49,500,000 7.25%, 5/15/16.................................... 61,565,674
7,000,000 7.625%, 11/15/22.................................. 9,318,757
10,000,000 8.00%, 11/15/21................................... 13,750,010
50,000,000 8.125%, 8/15/19................................... 68,640,650
25,000,000 8.125%, 5/15/21................................... 34,679,700
30,000,000 8.375%, 8/15/08................................... 35,081,280
10,000,000 8.50%, 2/15/20.................................... 14,253,130
665,000 8.75%, 5/15/17.................................... 950,327
7,000,000 10.00%, 5/15/10................................... 9,150,316
1,000,000 10.625%, 8/15/15.................................. 1,634,063
U.S. Treasury Notes
30,000,000 5.75%, 8/15/03.................................... 31,846,890
2,000,000 5.875%, 11/15/99.................................. 2,028,126
350,000 5.875%, 2/15/00................................... 356,235
2,000,000 6.00%, 6/30/99.................................... 2,020,626
1,500,000 6.00%, 8/15/99.................................... 1,517,814
500,000 6.00%, 10/15/99................................... 507,188
1,000,000 6.125%, 9/30/00................................... 1,033,438
400,000 6.25%, 3/31/99.................................... 403,375
500,000 6.375%, 1/15/00................................... 511,251
900,000 6.50%, 5/31/01.................................... 947,251
1,130,000 6.50%, 8/15/05.................................... 1,273,722
1,000,000 6.625%, 3/31/02................................... 1,072,188
500,000 6.875%, 5/15/06................................... 578,125
3,235,000 7.50%, 11/15/01................................... 3,526,153
600,000 7.50%, 2/15/05.................................... 703,501
700,000 7.75%, 11/30/99................................... 724,938
1,105,000 8.875%, 11/15/98.................................. 1,110,871
110,000 8.875%, 2/15/99................................... 111,719
--------------
783,871,705
--------------
Total U.S. Government & Agency Obligations
(cost $693,509,858).............................. 805,951,313
--------------
44
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 11.0%
COMMERCIAL PAPER - 10.3%
$15,302,000 *Aon Corporation
5.40%, 11/6/98.................................... $ 15,219,369
3,895,000 Avnet, Inc.
5.53%, 10/1/98.................................... 3,895,000
17,000,000 Avon Capital Corp.
5.48%, 11/9/98.................................... 16,899,077
27,700,000 Barton Capital Corp.
5.25%, 11/20/98................................... 27,498,021
560,000 BHF Finance (De), Inc.
5.52%, 10/1/98.................................... 560,000
18,900,000 BTR Dunlop Finance, Inc.
5.48%, 10/29/98................................... 18,819,444
12,500,000 Citizens Utilities Co.
5.22%, 11/24/98................................... 12,402,125
4,800,000 Dollar Thrifty Funding Corp.
5.56%, 10/28/98................................... 4,779,984
4,970,000 Duff & Phelps Utilities Income, Inc. 5.51%,
10/13/98.......................................... 4,960,872
Duke Capital Corp..................................
7,450,000 5.53%, 10/6/98..................................... 7,444,278
6,960,000 5.53%, 10/8/98..................................... 6,952,516
15,525,000 Frigate Funding Corp.
5.55%, 10/23/98................................... 15,472,344
21,200,000 Monte Rosa Capital Corp.
5.52%, 10/16/98................................... 21,151,240
10,000,000 Oil Insurance Ltd.
5.53%, 10/27/98................................... 9,960,061
16,900,000 Old Line Funding Corp.
5.52%, 11/4/98.................................... 16,811,895
14,420,000 Park Avenue Recreation Corp. 5.52%, 10/28/98...... 14,360,301
25,000,000 Silver Tower US Funding, Llc
5.50%, 10/30/98.................................. 24,889,236
465,000 Sothebys Incorporated
5.53%, 11/6/98................................... 462,428
21,100,000 Southern Co.
5.50%, 10/15/98.................................. 21,054,869
2,800,000 Star Marketers Acceptance Corporation
5.55%, 10/27/98.................................. 2,788,777
20,400,000 Tiger Managers Acceptance Corp. 5.56%, 10/6/98.... 20,384,247
19,100,000 Toys "R" Us, Inc.
5.20%, 11/24/98.................................. 18,951,020
--------------
285,717,104
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.7%
20,600,000 Federal Farm Credit Bank
Discount Notes
5.40%, 10/7/98................................... 20,581,460
--------------
Total Short-Term Investments
(cost $306,298,564).............................. 306,298,564
--------------
TOTAL INVESTMENTS -
(COST $2,250,613,646)..................... 99.6% 2,765,944,970
OTHER ASSETS AND
LIABILITIES - NET......................... 0.4 10,520,825
----- --------------
NET ASSETS................................. 100.0% $2,776,465,795
===== ==============
* Non-income producing securities.
** At September 30, 1998, the Fund owned 117,000 shares of common stock
of First Union Corp. at a cost of $2,358,411. During the six months
ended September 30, 1998, the Fund earned $43,290 in dividend income
from this investment. These shares were purchased by the Fund prior to
the acquisition of the investment advisor.
(a) Less than one-tenth percent.
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 by the Fund's Board of
Trustees.
SUMMARY OF ABBREVIATIONS
ADRAmerican Depository Receipt
BUCSBeneficial Unsecured Convertible Securities
PERCSPreferred Equity Redemption Cumulative Stock
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
See Combined Notes to Financial Statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK - 45.5%
AEROSPACE & DEFENSE - 0.4%
45,000 Boeing Co. .......................................... $ 1,544,063
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.3%
65,000 * Sonic Automative, Inc. ............................ 1,287,813
------------
BANKS - 7.6%
39,200 BancorpSouth, Inc.................................... 705,600
39,000 BankBoston Corp...................................... 1,287,000
50,000 Cape Cod Bank & Trust Co. ........................... 862,500
40,000 Chase Manhattan Corp................................. 1,730,000
28,100 CitiCorp............................................. 2,611,544
30,000 * Civic Bancorp...................................... 390,000
7,500 Comerica, Inc. ...................................... 411,094
14,000 Crestar Financial Corp............................... 794,500
4,660 Dime Bancorp, Inc.................................... 117,956
3,000 First Union Corp.**.................................. 153,563
14,000 Fleet Financial Group, Inc........................... 1,028,125
60,000 Huntington Bancshares, Inc........................... 1,507,500
17,325 Interchange Financial Services Corp. ................ 271,786
41,000 KeyCorp.............................................. 1,183,875
4,000 M & T Bank Corp...................................... 1,844,000
19,800 National City Corp. ................................. 1,305,562
11,875 NationsBank Corp. ................................... 635,313
15,750 One Valley Bancorp of West Virginia, Inc. ........... 508,922
45,000 Republic New York Corp. ............................. 1,777,500
15,000 Seacoast Banking Corp. of Florida Cl. A.............. 446,250
62,255 SouthTrust Corp...................................... 2,175,034
32,000 Suntrust Banks, Inc.................................. 1,984,000
85,000 Westamerica Bancorp.................................. 2,459,687
40,000 Wilmington Trust Corp. .............................. 2,080,000
------------
28,271,311
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 2.9%
36,000 Carlisle Companies, Inc. ............................ 1,401,750
55,000 Clayton Homes, Inc................................... 962,500
75,650 D.R. Horton, Inc..................................... 1,210,400
47,100 La-Z-Boy Chair Co. .................................. 924,338
32,000 Lowe's Companies, Inc. .............................. 1,018,000
55,000 Royal Group Technologies Ltd. ....................... 921,250
50,000 Ryland Group, Inc. .................................. 1,218,750
39,100 Shelby Williams Industries, Inc...................... 449,650
40,000 Standard Pacific Corp. .............................. 565,000
83,500 * Toll Brothers, Inc. ............................... 1,915,281
------------
10,586,919
------------
BUSINESS EQUIPMENT & SERVICES - 0.1%
17,500 * Crescent Operating, Inc. .......................... 122,500
10,000 First Data Corp...................................... 235,000
------------
357,500
------------
CAPITAL GOODS - 0.9%
44,600 Caterpillar, Inc..................................... 1,987,487
40,000 Deere & Co........................................... 1,210,000
------------
3,197,487
------------
CHEMICALS & AGRICULTURAL PRODUCTS - 2.1%
60,000 Du Pont (E. I.) De Nemours & Co. .................... 3,367,500
10,000 H.B. Fuller Co....................................... 378,750
35,000 Monsanto Co. ........................................ 1,973,125
11,000 Morton International, Inc. .......................... 240,625
20,000 Schulman (A.), Inc. ................................. 282,500
56,100 Sigma-Aldrich Corp. ................................. 1,619,887
------------
7,862,387
------------
CONSUMER PRODUCTS & SERVICES - 1.4%
10,000 Adidas AG ADS, 144A.................................. 568,100
77,788 Cendant Corp. ....................................... 904,285
12,000 Gucci Group.......................................... 433,500
40,000 Harman International Industries, Inc. ............... 1,467,500
32,100 Russ Berrie & Co., Inc. ............................. 611,906
51,600 St. John Knits, Inc. ................................ 832,050
10,500 Toro Co. ............................................ 217,219
------------
5,034,560
------------
ELECTRICAL EQUIPMENT & SERVICES - 3.7%
48,800 AMP, Inc. ........................................... 1,744,600
6,600 Applied Power, Inc., Cl. A........................... 180,263
14,000 General Electric Co. ................................ 1,113,875
17,000 Honeywell, Inc. ..................................... 1,089,063
54,700 Perkin Elmer Corp. .................................. 3,757,206
89,000 * SCI Systems, Inc. ................................. 2,397,437
18,500 Thomas & Betts Corp.................................. 704,156
66,000 W.W. Grainger, Inc. ................................. 2,780,250
------------
13,766,850
------------
FINANCE & INSURANCE - 8.2%
27,000 American International Group, Inc. .................. 2,079,000
16,000 Chubb Corp........................................... 1,008,000
20,000 Countrywide Credit Industries, Inc................... 832,500
6,000 Enhance Financial Services Group, Inc................ 177,375
20,000 FBL Financial Group, Inc., Cl. A .................... 461,250
21,000 Federal National Mortgage Association................ 1,349,250
20,000 * FPIC Insurance Group, Inc.......................... 555,000
33,000 Frontier Insurance Group, Inc. ...................... 437,250
62,000 Horace Mann Educators Corp........................... 1,860,000
47,100 Interstate/Johnson Lane, Inc......................... 1,365,900
95,866 Legg Mason, Inc. .................................... 2,522,474
68,000 Lehman Brothers Holdings, Inc........................ 1,921,000
8,500 Lincoln National Corp. .............................. 699,125
8,000 MBIA, Inc. .......................................... 429,500
45,000 Mercury General Corp. ............................... 1,687,500
41,500 Merrill Lynch & Co., Inc. ........................... 1,966,063
77,700 MGIC Investment Corp. ............................... 2,865,187
46
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
FINANCE & INSURANCE - CONTINUED
101,700 Morgan Keegan, Inc................................... $ 1,798,819
40,500 NAC RE Corporation................................... 1,994,625
28,000 Nationwide Financial Services, Inc. Cl. A............ 1,272,250
83,800 Paine Webber Group, Inc.............................. 2,514,000
4,500 Progressive Corp. Ohio............................... 507,375
------------
30,303,443
------------
FOOD & BEVERAGE PRODUCTS - 0.2%
40,000 Coca-Cola Co., ADR................................... 487,500
15,000 International Home Foods, Inc........................ 202,500
------------
690,000
------------
HEALTHCARE PRODUCTS & SERVICES - 3.3%
39,000 Abbott Laboratories.................................. 1,694,062
39,000 Alza Corp............................................ 1,691,625
40,000 American Home Products Corp.......................... 2,095,000
55,400 Beckman Coulter Inc.................................. 2,860,025
38,000 First Health Group Corp. ............................ 921,500
10,000 * Lincare Holdings, Inc.............................. 387,500
12,000 Medtronic, Inc....................................... 694,500
5,000 Merck & Co., Inc. ................................... 647,812
10,000 Pfizer, Inc.......................................... 1,059,375
5,000 Shared Medical System Corp. ......................... 265,938
------------
12,317,337
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 0.9%
39,151 Autoliv, Inc......................................... 1,076,652
7,500 * Chemfab Corp....................................... 146,953
24,000 Furon Co............................................. 417,000
25,000 * Meade Instruments Corp............................. 242,188
31,700 Park Electrochemical Corp............................ 431,912
13,900 Snap-on, Inc. ....................................... 428,294
20,000 Timken Co............................................ 302,500
20,000 * UCAR International, Inc............................ 360,000
------------
3,405,499
------------
INFORMATION SERVICES &
TECHNOLOGY - 2.4%
25,000 Computer Sciences Corp............................... 1,362,500
34,000 * Etec Systems, Inc. ................................ 886,125
10,000 * Gateway 2000, Inc.................................. 521,250
24,000 Hewlett-Packard Co................................... 1,270,500
34,000 Intel Corp........................................... 2,915,500
12,000 International Business Machines Corp. ............... 1,536,000
10,000 * Sun Microsystems, Inc.............................. 498,125
------------
8,990,000
------------
METAL PRODUCTS & SERVICES - 0.2%
20,000 Precision Castparts Corp............................. 825,000
------------
OIL/ENERGY - 1.0%
10,000 Amoco Corp. ......................................... 538,750
10,000 Equitable Resources, Inc. ........................... 254,375
25,000 Transocean Offshore, Inc............................. 867,187
70,000 Williams Companies, Inc.............................. 2,012,500
------------
3,672,812
------------
OIL FIELD SERVICES - 0.3%
25,000 Schlumberger Ltd..................................... 1,257,813
------------
PAPER & PACKAGING - 0.2%
20,000 * Sealed Air Corp.................................... 637,500
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 0.2%
30,000 Belo (A.H.) Corp., Ser. A............................ 600,000
------------
REAL ESTATE - 4.2%
17,300 * Alexander's, Inc. REIT............................. 1,327,775
60,000 AMB Property Corp. REIT.............................. 1,548,750
3,485 Archstone Cmntys Trust............................... 71,007
39,000 Boston Properties, Inc. REIT......................... 1,111,500
20,000 Brandywine Realty Trust REIT......................... 382,500
25,000 Capital Trust, Cl. A................................. 162,500
12,000 Capstead Mortgage Corp. REIT......................... 43,500
70,000 Del Webb Corp........................................ 1,474,375
52,000 Equity Office Properties Trust REIT.................. 1,274,000
45,831 * Homestead Village Properties, Inc.................. 392,428
1,480 Horizon Group Properties, Inc. REIT.................. 3,515
40,000 Indymac Mortgage Holdings, Inc. REIT................. 810,000
25,000 Inversiones y Representaciones
SA, GDR............................................. 537,500
40,000 * John Q. Hammons Hotels, Inc., Cl. A................ 180,000
66,500 Kilroy Realty Corp. REIT............................. 1,529,500
40,000 Newhall Land & Farming Co. .......................... 935,000
40,393 Patriot American Hospitality, Inc. REIT.............. 515,011
20,000 Prentiss Properties Trust REIT....................... 477,500
21,133 Prime Retail, Inc.................................... 207,368
10,000 SL Green Realty Corp. REIT........................... 210,000
45,000 Starwood Hotels & Resorts Trust REIT................. 1,372,500
95,000 Sunstone Hotel Investors, Inc. REIT.................. 860,937
15,000 Trizec Hahn Corp. ................................... 281,250
------------
15,708,416
------------
RETAILING & WHOLESALE - 1.1%
18,000 Avnet, Inc........................................... 662,625
44,700 Ethan Allen Interiors, Inc........................... 1,620,375
60,000 * Saks, Inc.......................................... 1,346,250
80,000 SED International Holdings, Inc...................... 405,000
------------
4,034,250
------------
THRIFT INSTITUTIONS - 0.8%
18,000 Bank United Corp..................................... 644,625
15,000 BankUnited Financial Corp............................ 165,000
10,000 Golden West Financial Corp........................... 818,125
47
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
THRIFT INSTITUTIONS - CONTINUED
30,000 Mech Financial, Inc................................. $ 750,000
29,298 St. Paul Bancorp, Inc............................... 639,063
------------
3,016,813
------------
TRANSPORTATION - 1.8%
47,000 * Airnet Systems, Inc............................... 778,438
35,000 GATX Corp........................................... 1,157,187
54,550 Midwest Express Holdings, Inc....................... 1,827,425
65,000 Union Pacific Corp.................................. 2,770,625
------------
6,533,675
------------
UTILITIES--ELECTRIC - 0.1%
9,900 TNP Enterprises, Inc. .............................. 345,881
------------
UTILITIES--TELEPHONE - 1.2%
50,000 Cincinnati Bell, Inc. .............................. 1,300,000
66,000 Frontier Corp....................................... 1,806,750
18,000 Sprint Corp......................................... 1,296,000
------------
4,402,750
------------
Total Common Stock (cost $175,958,202).............. 168,650,079
------------
CONVERTIBLE PREFERRED STOCKS - 0.7%
BANKS - 0.5%
63,000 WBK Trust, 10.00%, STRYPES (exchangeable for Westpac
Banking Corp. common stock)........................ 1,740,375
------------
REAL ESTATE - 0.0% (A)
7,080 Prime Retail, Inc. 8.50% Ser. B..................... 120,360
------------
TRANSPORTATION - 0.2%
20,000 CNF Trust I, 5.00%, Ser. A, TECONS (exchangeable for
CNF Transportation, Inc. common stock)............. 960,000
------------
Total Convertible Preferred Stocks
(cost $3,156,477).................................. 2,820,735
------------
CONVERTIBLE DEBENTURES - 0.1%
BUSINESS EQUIPMENT & SERVICES - 0.0%
150,000 Personnel Group Of America, Inc., 5.75%, 7/01/04.... 136,500
------------
OIL FIELD SERVICES - 0.1%
250,000 Parker Drilling Co.,
5.50%, 8/1/04...................................... 187,500
------------
Total Convertible Debentures
(cost $400,000).................................... 324,000
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
LONG TERM MUNICIPAL OBLIGATIONS - 52.6%
ALABAMA - 2.0%
$3,000,000 Alabama Water Pollution Control Auth.
5.50%, 8/15/16..................................... $ 3,184,650
4,000,000 Jefferson County Alabama Sewer Revenue Wts Series D
5.75%, 2/1/22 (FGIC)............................... 4,375,200
------------
7,559,850
------------
ALASKA - 1.1%
935,000 Alaska Hsg. Fin. Corp.
Mtge. RB, 1996 Ser. A
6.05%, 12/1/17 (MBIA).............................. 1,002,797
1,500,000 Alaska Hsg. Fin. Corp.
Mtge. RB Ser. A-1
5.30%, 12/1/12 (MBIA).............................. 1,558,890
1,500,000 Alaska Industrial Development + Export Auth.
5.00%, 1/1/27...................................... 1,484,205
------------
4,045,892
------------
ARIZONA - 0.2%
500,000 City of Tucson
GO, Ser. 1995
5.70%, 7/1/08 (FGIC)............................... 550,230
------------
CALIFORNIA - 4.1%
2,500,000 California Health Facilities Fin.
5.13%, 8/15/22..................................... 2,521,650
1,000,000 California Hsg. Fin. Agcy. RB
5.30%, 8/1/28...................................... 1,014,870
700,000 California Hsg. Fin. Agcy. RB Ser. I 5.75%, 2/1/29
(MBIA)............................................. 736,869
500,000 California Hsg. Fin. Agcy.
RB Home Mtge. Ser. L
5.35%, 8/1/17...................................... 518,475
1,000,000 California St. Public Wks Board
5.25%, 12/1/13..................................... 1,069,500
1,200,000 Los Angeles Cnty. Pub. Works Fin. Auth. RB Regional
Park & Open Space Dist. A
5.00%, 10/1/16..................................... 1,237,944
1,000,000 San Francisco Bay Area Rapid Transport Dist.
Sales Tax RB
5.25%, 7/1/18...................................... 1,053,740
3,150,000 San Francisco California Int'l Arpt. Revenue
5.25%, 5/1/13...................................... 3,355,285
2,000,000 San Francisco City & Cnty. Int'l Arpt.
RB Ser. Issue 10-A, (AMT)
5.70%, 5/1/26 (MBIA)............................... 2,141,680
500,000 Simi Valley Unified Sch. Dist.
Refunding Capital Improvement Proj. Cert. Part.
5.25%, 8/1/22...................................... 536,895
1,000,000 Southern CA Pub. Pwr. Auth.
RB (Mead Adelanto Proj.) Ser. A
5.00%, 7/1/17 (AMBAC).............................. 1,019,880
------------
15,206,788
------------
48
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
LONG TERM MUNICIPAL OBLIGATIONS - CONTINUED
COLORADO - 0.7%
$1,000,000 Denver City & Cnty.
Arpt. RB Ser. D
5.50%, 11/15/25 (MBIA)............................. $ 1,061,700
1,500,000 Jefferson County Sch. Dist.
R001 (FGIC)
5.00%, 12/15/17.................................... 1,532,865
------------
2,594,565
------------
DELAWARE - 0.3%
1,000,000 Delaware Econ. Dev. Auth.
RB (The Osteopathic Hosp. Assoc. of
Delaware/Riverside Hosp.), Ser. A
6.50%, 1/1/08...................................... 1,137,720
------------
DISTRICT OF COLUMBIA - 2.1%
1,900,000 District of Columbia Revenue Carnegie Endowment
5.75%, 11/15/26 ................................... 2,014,247
5,500,000 Metropolitan DC Arpts. Auth.
RB Ser. B
5.50%, 10/1/23 (AMT)............................... 5,735,290
------------
7,749,537
------------
FLORIDA - 2.4%
300,000 Dade Cnty. Aviation
RRB, Ser. 1995A
6.10%, 10/1/11 (AMBAC)............................. 339,423
1,250,000 Florida Housing Fin. Corp. Revenue
5.35%, 1/1/21...................................... 1,272,288
2,000,000 Florida St. Board Of Education
Capital Outlay
5.50%, 6/1/15...................................... 2,132,380
2,500,000 Gainesville Florida Utilities Systems Revenue
5.50%, 10/1/13..................................... 2,648,750
2,500,000 Sunrise Florida Utilities Systems Revenue
5.00%, 10/1/28..................................... 2,570,325
------------
8,963,166
------------
ILLINOIS - 3.8%
1,000,000 Chicago Board of Ed.
GO (School Reform Proj.)
6.75%, 12/1/09 (AMBAC)............................. 1,220,410
5,315,000 Chicago Illinois Skyway Toll Bridge 5.50%, 1/1/23... 5,639,587
1,600,000 Cook County Illinois GO
5.63%, 11/15/22.................................... 1,717,936
5,000,000 Illinois Educational Facilities Auth. Revenue
5.00%, 7/1/24...................................... 4,935,450
450,000 Illinois Sales Tax RB Ser. V
6.38%, 6/15/17..................................... 511,776
------------
14,025,159
------------
INDIANA - 1.4%
2,000,000 Indiana Hsg. Fin.
Single Family Mtge. RB Ser. A-2 5.15%, 7/1/17
(FNMA/GNMA)........................................ 2,039,240
3,000,000 Marion County, Ind. In Cnvtn & Rectl
Fac. Auth. RB
5.00%, 6/1/27...................................... 2,990,730
------------
5,029,970
------------
MAINE - 0.4%
1,000,000 Maine Hlth. & High Edl. Facs. Auth. RB Ser. B
5.75%, 7/1/26 (AMBAC).............................. 1,082,110
500,000 Maine Hsg. Auth. Mtge.
Purchase RB Ser. F-1
5.50%, 11/15/29.................................... 512,945
------------
1,595,055
------------
MASSACHUSETTS - 4.8%
4,750,000 Massachusetts St. Industrial Fin. Agency
5.25%, 7/1/27...................................... 4,895,302
250,000 Massachusetts Hsg. Fin. Agcy.
Hsg. Proj. RRB, 1993 Ser. A 5.95%, 10/1/08
(AMBAC)............................................ 267,343
250,000 Massachusetts Bay Trans. Auth.
General Trans. Sys. Bonds,
Ser. 1994A
7.00%, 3/1/08...................................... 305,292
1,000,000 Massachusetts Bay Trans. Auth.
RB (Refunding Gen. Trans. Sys. A)
7.00%, 3/1/14...................................... 1,265,480
1,000,000 Massachusetts Hsg. Fin. Agcy. RB (AMT) Single Family
Ser. 59 5.40%, 6/1/20 (MBIA)....................... 1,034,070
2,500,000 Massachusetts Port. Auth.
RB Ser. A
5.00%, 7/1/27...................................... 2,492,250
2,500,000 Massachusetts St. Health Educational Facilities
5.00%, 6/1/26...................................... 2,505,375
2,500,000 Massachusetts St. Industrial Finance Agency
5.00%, 9/1/23...................................... 2,499,900
1,000,000 Massachusetts Tpke. Auth.
RB Senior Ser. A
5.13%, 1/1/23 (MBIA)............................... 1,009,850
1,300,000 Massachusetts Tpke. Auth.
RB (Western Tpke.) Ser. A 5.55%, 1/1/17 (MBIA)..... 1,332,500
------------
17,607,362
------------
MICHIGAN - 1.5%
1,030,000 Detroit Wtr. Supply Sys.
RB Sr. Lien Ser. A
5.75%, 7/1/11 (MBIA)............................... 1,160,233
300,000 Michigan Muni. Bond Auth.
RB (Local Govt. Loan Proj.), Ser 1994G
6.55%, 11/1/08 (AMBAC)............................. 344,259
2,500,000 Michigan St. Hosp. Fin. Auth.
RB (FGIC)
5.63%, 11/1/18..................................... 2,627,125
1,225,000 Paw Paw Michigan Public School District (FGIC)
5.00%, 5/1/21...................................... 1,267,091
------------
5,398,708
------------
49
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
LONG TERM MUNICIPAL OBLIGATIONS - CONTINUED
MINNESOTA - 0.6%
$2,000,000 Southern Minnesota Municipal Power Agency Supply
(MBIA) 5.75%, 1/1/18............................... $ 2,136,940
------------
MISSOURI - 3.4%
435,000 Missouri Hsg. Dev. Commission Single Family Mtge. RB
(Homeownership Loan Proj.), 1996 Ser. D 6.00%,
9/1/17 (Collaterialized by GNMA or FNMA
Certificates AMT).................................. 461,278
900,000 Missouri Hsg. Dev. Commission Single Family Mtge. RB
(Homeownership Loan Proj.), 1996 Ser. B 6.25%,
9/1/15 (Collaterialized by GNMA or FNMA
Certificates)...................................... 965,259
985,000 Missouri Hsg. Dev. Commission Mtge.
5.55%, 3/1/29...................................... 1,025,356
500,000 Missouri St. Hsg. Dev. Commission Mtge.
5.50%, 3/1/25...................................... 509,105
2,500,000 Missouri St. Health & Educational Facility Revenue
5.00%, 5/15/28..................................... 2,469,400
775,000 Sikeston Elec. RB
6.00%, 6/1/13 (MBIA)............................... 901,519
500,000 St. Louis Board of Ed.
GO Refunding
Ser. A (FGIC)
5.50%, 4/1/10...................................... 554,960
500,000 St. Louis Muni. Fin. Corp.
Leasehold Rev. Imp. Bonds (City Justice Ctr.), Ser.
1996A
5.95%, 2/15/16 (AMBAC)............................. 553,245
1,000,000 St. Louis Regl. Convention & Sports Complex Auth.
RB Facs. C
5.30%, 8/15/17 (AMBAC)............................. 1,046,770
4,000,000 University Missouri
University Revenue
5.50%, 11/1/21..................................... 4,234,760
------------
12,721,652
------------
NEBRASKA - 0.3%
1,000,000 Nebraska Investment Finance Auth. Single Family
5.60%, 9/1/20...................................... 1,018,120
------------
NEVADA - 0.3%
1,000,000 Washoe Cnty. GO
5.00%, 6/1/17 (MBIA)............................... 1,015,350
------------
NEW JERSEY - 1.2%
2,500,000 New Jersey Economic Development Pollution (MBIA)
6.40%, 5/1/32...................................... 2,783,025
1,400,000 New Jersey Tpke. Auth.
RB Ser. C
6.50%, 1/1/16 (MBIA)............................... 1,712,382
------------
4,495,407
------------
NEW YORK - 5.4%
2,250,000 Long Island Power Auth.
New York Electric RB
5.50%, 12/1/29..................................... 2,331,135
2,500,000 Metro Trans. Auth. NY Commuter Facs. RB Ser. C-2
5.38%, 7/1/27 (FGIC)............................... 2,618,050
250,000 New York St. Mtge. Agcy. Homeowner Mtge. RB,
Ser. 44 (AMT)
6.60%, 4/1/03...................................... 265,515
975,000 New York St. Mtge. Agcy. Homeowner Mtge. RB,
Ser. 56 (AMT)
5.88%, 10/1/19..................................... 1,024,374
2,500,000 New York St. Dorm. Auth.
RB (AMBAC)
5.20%, 2/15/14..................................... 2,599,625
245,000 New York St. Med. Care Facs. Fin. Agcy. RB (Mental
Hlth. Svcs. Facs.), 1992 Ser. B
6.25%, 8/15/10 (AMBAC)............................. 265,543
2,000,000 New York St. Med. Care Facs. Fin. Agcy. RB Refunding
Hosp. Insured Mtge. A
5.38%, 2/15/25 (MBIA).............................. 2,050,620
500,000 New York St. Mtge. Agcy. RB (Homeowner Mtge.)
Ser. 63, (AMT)
5.60%, 4/1/10...................................... 527,460
1,000,000 New York St. Thruway Auth.
RB Ser. B
5.00%, 1/1/20 (MBIA)............................... 1,001,130
1,700,000 New York St. Local Government Assist
5.38%, 4/1/14...................................... 1,781,702
5,000,000 New York St. Urban Development Corporation
5.50%, 7/1/16...................................... 5,374,500
250,000 Port Auth. of New York & New Jersey Consolidated
Bonds, 97th Ser. 2nd Installment (AMT)
7.00%, 7/15/05 (FGIC).............................. 293,130
------------
20,132,784
------------
NORTH CAROLINA - 0.1%
500,000 North Carolina Hsg. Fin. Agcy. Single Family Ser.
00, (Orig. Avg. Life Est.)
5.80%, 9/1/12 (FHA)................................ 535,510
------------
NORTH DAKOTA - 0.6%
1,000,000 Mercer Cnty. Poll. Ctrl. RRB (Basin Elec. Pwr.
Cooperative-Antelope Valley Unit 1 & Common Facs.),
Second 1995 Ser.
6.05%, 1/1/19 (AMBAC).............................. 1,102,180
1,000,000 North Dakota St. Hsg. Fin. Agcy. 5.55%, 7/1/29...... 1,020,690
------------
2,122,870
------------
50
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
LONG TERM MUNICIPAL OBLIGATIONS - CONTINUED
OHIO - 1.0%
$ 500,000 Akron Econ. Dev. RB
6.00%, 12/1/12 (MBIA).............................. $ 580,775
700,000 Board of Ed. Beavercreek Local Sch. Dist. (Cnty. of
Greene) Sch. Imp. Bonds (Unltd. Tax GO), Ser. 1996
6.60%, 12/1/15 (FGIC).............................. 864,892
1,000,000 Cleveland Arpt. Sys. RB Ser. A 5.13%, 1/1/17 (FSA
AMT)............................................... 1,011,440
1,000,000 Jefferson Cnty. GO Refunding Improvement (FSA)
5.70%, 12/1/13..................................... 1,147,750
------------
3,604,857
------------
OREGON - 1.0%
3,500,000 Marion County, Ore. School District Number 103
5.00%, 11/1/14..................................... 3,678,150
------------
PENNSYLVANIA - 1.3%
500,000 Pennsylvania Convention Ctr. Auth.
RB Ser. A, 1989 Ser. A
6.70%, 9/1/16 (FGIC)............................... 612,170
1,000,000 Pennsylvania Hsg. Fin. Agcy.
5.40%, 10/1/18..................................... 1,023,240
2,000,000 Pennsylvania St. Higher Educational Facility (MBIA)
5.75%, 5/1/22...................................... 2,205,440
1,000,000 York Cnty. Solid Waste & Refuse
Auth. Solid Waste Sys. RB
5.50%, 12/1/11 (FGIC).............................. 1,109,000
------------
4,949,850
------------
SOUTH DAKOTA - 0.6%
1,000,000 South Dakota Conservancy District (AMBAC)
5.00%, 8/1/19...................................... 1,003,790
1,235,000 South Dakota Hsg. Dev. Auth.
RB Homeownership B
5.25%, 5/1/17...................................... 1,264,035
------------
2,267,825
------------
TENNESSEE - 0.1%
300,000 Bristol Hlth. & Edl. Facs. Board
RRB (Bristol Mem. Hosp.),
Ser. 1993
6.75%, 9/1/07 (FGIC)............................... 355,428
------------
TEXAS - 2.7%
1,000,000 Cypress Fair Independent Sch. Dist.
5.13%, 2/15/12..................................... 1,046,700
2,625,000 Dallas, Tx RB
5.25%, 8/15/16..................................... 2,769,375
1,000,000 Harris Cnty. Hlth. Facs. Hosp. RB (Memorial Hermann
Hosp. Sys. Proj.) (FSA)
5.50%, 6/1/10...................................... 1,092,800
1,000,000 Houston Wtr. Conveyance Sys.
Contract COP, Ser. 1993J
6.13%, 12/15/09 (AMBAC)............................ 1,153,180
500,000 Houston Wtr. Conveyance Sys.
Contract COP, Ser.
1993H 7.50%, 12/15/10 (AMBAC)...................... 643,500
1,500,000 Irving Independent Sch. Dist. GO
5.13%, 2/15/18..................................... 1,532,385
460,000 Lubbock Elec. Light & Pwr. Sys. RB
4.25%, 4/15/16 (AMBAC)............................. 432,299
460,000 Lubbock Elec. Light & Pwr. Sys. RB
4.25%, 4/15/17 (AMBAC)............................. 431,310
1,000,000 San Antonio Elec. & Gas RB
5.25%, 2/1/10...................................... 1,073,650
------------
10,175,199
------------
UTAH - 3.6%
5,000,000 Intermountain Power Agency Utah Revenue
5.00%, 7/1/20...................................... 4,999,600
500,000 Salt Lake City Hosp. RB
(IHC Hosp., Inc.)
6.30%, 2/15/15..................................... 591,265
500,000 Utah Hsg. Fin. Agcy. RB (Single
Family Mtge.) Ser. B
6.00%, 7/1/16 (FHA)................................ 537,605
3,000,000 Utah St. Board Regents Revenue
5.00%, 4/1/20...................................... 3,000,000
2,825,000 Utah St. Hsg. Fin. Agcy.
5.35%, 7/1/18...................................... 2,865,313
1,500,000 Utah Str. Hsg. Fin. Agcy.
5.38%, 7/1/18...................................... 1,524,720
------------
13,518,503
------------
VERMONT - 0.4%
1,315,000 Burlington Elec. RB Ser. A
6.25%, 7/1/12 (MBIA)............................... 1,560,905
------------
VIRGINIA - 0.8%
2,805,000 Medical College Virginia Hosp. Authority
5.13%, 7/1/18...................................... 2,843,120
------------
WASHINGTON - 1.9%
3,000,000 Port Seattle Washington Passenger Facility
5.00%, 12/1/23..................................... 2,999,790
3,500,000 Seattle Washington Water Systems Revenue
5.50%, 6/1/18...................................... 3,638,180
500,000 Snohomish Cnty. Sch. Dist. GO
5.70%, 12/1/15 (FGIC).............................. 545,815
------------
7,183,785
------------
WEST VIRGINIA - 0.6%
1,000,000 West Virginia St. Ser. A
5.75%, 11/1/21 (FGIC).............................. 1,097,290
1,000,000 West Virginia St. Hsg. Dev. Fund RB Ser. A
6.05%, 5/1/27...................................... 1,074,950
------------
2,172,240
------------
51
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Tax Strategic Foundation Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
LONG TERM MUNICIPAL OBLIGATIONS - CONTINUED
WISCONSIN - 1.0%
$1,000,000 Wisconsin Clean Wtr.
RB Ser. 1
6.88%, 6/1/11...................................... $ 1,242,760
2,000,000 Wisconsin Hsg. & Econ. Dev. Auth.
5.60%, 3/1/28...................................... 2,055,980
500,000 Wisconsin Hsg. & Econ. Dev. Auth.
Home Ownership RB Ser. E (AMT)
6.00%, 9/1/28...................................... 529,625
------------
3,828,365
------------
WYOMING - 0.6%
2,000,000 Wyoming Cmny Development Auth. Hsg. Revenue
5.45%, 12/1/29..................................... 2,041,420
------------
PUERTO RICO - 0.3%
500,000 Puerto Rico Elec. Pwr. Auth. RB Ser. BB
6.25%, 7/1/10 (MBIA)............................... 595,300
500,000 Puerto Rico Hsg. Bank & Fin. Agcy.
RB (Single Family Affordable Hsg.
Mtge. Subsidy Prog.) Portfolio I
(AMT)
5.85%, 4/1/09...................................... 531,710
------------
1,127,010
------------
Total Long Term Municipal Obligations
(cost $187,823,289)................................ 194,949,292
------------
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.7%
MUTUAL FUND SHARES - 0.7%
2,459,326 Federated Tax Free Obligations Fund (at net asset
value) (cost $2,459,326)........................... $ 2,459,326
------------
TOTAL INVESTMENTS -(COST $369,797,295)............. 99.6% 369,203,432
OTHER ASSETS AND
LIABILITIES - NET................................. 0.4% 1,397,541
------ ------------
NET ASSETS ........................................ 100.0% $370,600,973
====== ============
* Non-income producing securities.
** At September 30, 1998, the Fund owned 3,000 shares of common stock of First
Union Corp. at a cost of $57,890. During the six months ended September 30,
1998, the Fund earned $1,710 in dividend income from this investment. These
shares were purchased by the Fund prior to the acquisition of the
investment advisor.
(a) Less than one-tenth percent.
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 Fund's Board of
Trustees.
SUMMARY OF ABBREVIATIONS
ADRAmerican Depository Receipt
AMBACInsured by American Municipal Bond Assurance Corporation
AMTSubject to Alternative Minimum Tax
FGICInsured by Federal Guaranty Insurance Corporation
FHAInsured by Federal Housing Authority
FNMAInsured by Federal National Mortgage Association
FSAInsured by Financial Security Assurance Company
GDRGlobal Depositary Receipt
GNMAInsured by Government National Mortgage Association
GOGeneral Obligations
MBIAInsured by Municipal Bond Investors Assurance Corporation
PRIDESPreferred Redeemable Increased Dividend Equity Securities
RBRevenue Bonds
RRBRefunding Revenue Bonds
REITReal Estate Investment Trust
STRYPESStructured Yield Product Exchangeable for Stock
TECONSTerm Convertible Shares
See Combined Notes to Financial Statements.
52
<PAGE>
- --------------------------------------------------------------------------------
Evergreen
Balanced Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
TAX-
AMERICAN STRATEGIC
RETIREMENT BALANCED FOUNDATION FOUNDATION
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at value (identified cost -
$209,092,342, $1,343,914,410,
$2,250,613,646 and $369,797,295,
respectively)................................ $220,810,868 $1,681,872,279 $2,765,944,970 $369,203,432
Cash.......................................... 1,257,665 4,455,909 144,592 0
Receivable for investments sold............... 2,495,589 14,371,768 4,546,422 1,011,506
Receivable for Fund shares sold............... 291,810 895,526 5,042,724 1,038,616
Dividends and interest receivable............. 1,381,528 11,823,037 11,119,267 3,172,669
Unrealized appreciation on open forward
foreign currency exchange contracts.......... 0 94,064 0 0
Unamortized organization expense.............. 0 0 0 858
Prepaid expenses and other assets............. 42,791 241,605 14,767 37,060
- -----------------------------------------------------------------------------------------------------------
Total assets................................ 226,280,251 1,713,754,188 2,786,812,742 374,464,141
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased............. 6,220,953 5,045,026 4,585,584 2,873,619
Payable for Fund shares repurchased........... 154,305 1,696,316 3,525,154 533,386
Payable for daily variation margin on
open futures contracts....................... 0 2,598,750 0 0
Unrealized depreciation on open forward
foreign currency exchange contracts.......... 0 3,249,823 0 0
Advisory fee payable.......................... 134,800 607,173 1,692,881 264,390
Distribution fee payable...................... 30,157 206,708 305,845 127,506
Due to other related parties.................. 0 23,927 0 0
Accrued expenses and other liabilities........ 56,084 166,082 237,483 64,267
- -----------------------------------------------------------------------------------------------------------
Total liabilities........................... 6,596,299 13,593,805 10,346,947 3,863,168
- -----------------------------------------------------------------------------------------------------------
NET ASSETS.................................... $219,683,952 $1,700,160,383 $2,776,465,795 $370,600,973
- -----------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital............................... $204,768,293 $1,117,040,430 $2,233,348,078 $365,519,376
Undistributed net investment income........... 279,754 (54,459) 2,274,845 30,451
Accumulated undistributed net realized gains
on securities and foreign currency related
transactions................................. 2,917,379 250,063,410 25,511,922 5,645,009
Net unrealized gains or losses on securities,
futures contracts and foreign currency
related transactions......................... 11,718,526 333,111,002 515,330,950 (593,863)
- -----------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................ $219,683,952 $1,700,160,383 $2,776,465,795 $370,600,973
- -----------------------------------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A....................................... $ 27,808,409 $1,135,759,521 $ 339,713,080 $ 82,897,461
Class B....................................... 153,720,831 529,153,770 1,212,620,999 226,681,831
Class C....................................... 2,398,489 1,457,495 57,806,154 39,082,400
Class Y....................................... 35,756,223 33,789,597 1,166,325,562 21,939,281
- -----------------------------------------------------------------------------------------------------------
$219,683,952 $1,700,160,383 $2,776,465,795 $370,600,973
- -----------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A....................................... 1,888,175 92,451,286 17,716,767 5,488,092
Class B....................................... 10,492,533 43,025,280 63,555,265 15,033,660
Class C....................................... 163,329 118,484 3,029,675 2,596,304
Class Y....................................... 2,427,447 2,751,790 60,806,042 1,449,531
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A....................................... $ 14.73 $ 12.28 $ 19.17 $ 15.11
- -----------------------------------------------------------------------------------------------------------
Class A - Offering price (based on sales
charge of 4.75%)............................. $ 15.46 $ 12.89 $ 20.13 $ 15.86
- -----------------------------------------------------------------------------------------------------------
Class B....................................... $ 14.65 $ 12.30 $ 19.08 $ 15.08
- -----------------------------------------------------------------------------------------------------------
Class C....................................... $ 14.69 $ 12.30 $ 19.08 $ 15.05
- -----------------------------------------------------------------------------------------------------------
Class Y....................................... $ 14.73 $ 12.28 $ 19.18 $ 15.14
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
53
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Six Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
TAX-
AMERICAN STRATEGIC
RETIREMENT BALANCED FOUNDATION FOUNDATION
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding
taxes of $8,671, $52,606, $28,629 and
$1,974, respectively)......................... $ 2,554,191 $ 10,778,759 $ 16,917,525 $ 1,293,580
Interest....................................... 2,727,098 26,393,816 31,859,856 5,175,301
- -----------------------------------------------------------------------------------------------------------
Total income................................. 5,281,289 37,172,575 48,777,381 6,468,881
EXPENSES
Advisory fee................................... 886,687 3,911,010 10,394,094 1,559,854
Distribution Plan expenses..................... 864,821 4,343,232 6,771,467 1,370,629
Transfer agent fees............................ 252,288 1,656,865 2,843,040 209,365
Administrative service fees.................... 0 132,149 0 0
Trustees fees and expenses..................... 2,660 2,569 14,135 1,243
Registration fees.............................. 38,581 144,724 301,469 51,664
Custodian fees................................. 30,656 310,557 390,666 48,093
Professional fees.............................. 10,569 25,187 13,479 14,554
Printing and postage........................... 4,265 352,894 170,845 30,870
Organizational fees............................ 0 0 0 4,004
Other.......................................... 6,932 22,038 59,678 4,845
- ------------------------------------------------------------------------------------------------------------
Total expenses................................ 2,097,459 10,901,225 20,958,873 3,295,121
Less: Indirectly paid expenses................. (1,490) (12,032) (11,182) (2,918)
- ------------------------------------------------------------------------------------------------------------
Net expenses.................................. 2,095,969 10,889,193 20,947,691 3,292,203
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.......................... 3,185,320 26,283,382 27,829,690 3,176,678
- ------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS OR
LOSSES ON SECURITIES, FUTURES CONTRACTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gains or losses on:
Securities.................................... 1,101,145 208,422,618 19,961,494 5,338,234
Foreign currency related
transactions................................. 0 (2,340,266) 815 0
- ------------------------------------------------------------------------------------------------------------
Net realized gains on securities and foreign
currency related transactions................. 1,101,145 206,082,352 19,962,309 5,338,234
- ------------------------------------------------------------------------------------------------------------
Net change in unrealized losses on
securities, futures contracts and foreign
currency related transactions................. (30,766,562) (284,825,248) (205,392,069) (35,123,130)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on
securities, futures contracts and foreign
currency related transactions................. (29,665,417) (78,742,896) (185,429,760) (29,784,896)
- ------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $(26,480,097) $ (52,459,514) $(157,600,070) $(26,608,218)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
54
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
TAX-
AMERICAN STRATEGIC
RETIREMENT BALANCED
FOUNDATION FOUNDATION
FUND FUND
FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
OPERATIONS
Net investment income............................................ $ 3,185,320 $ 26,283,382 $
27,829,690 $ 3,176,678
Net realized gains on securities and foreign
currency related transactions................................... 1,101,145 206,082,352
19,962,309 5,338,234
Net change in unrealized losses on securities, futures
contracts and foreign currency related transactions............. (30,766,562) (284,825,248)
(205,392,069) (35,123,130)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations............ (26,480,097) (52,459,514)
(157,600,070) (26,608,218)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Class A......................................................... (472,229) (20,831,871)
(3,611,237) (922,578)
Class B......................................................... (1,966,062) (7,608,216)
(8,128,272) (1,687,749)
Class C......................................................... (31,437) (17,648)
(381,376) (289,447)
Class Y......................................................... (671,590) (659,995)
(13,398,479) (263,904)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............................. (3,141,318) (29,117,730)
(25,519,364) (3,163,678)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........................................ 32,959,699 49,618,794
391,968,937 119,046,644
Payment for shares redeemed...................................... (20,431,496) (188,956,040)
(236,734,715) (23,947,903)
Net asset value of shares issued in reinvestment of
distributions................................................... 2,957,822 23,921,132
23,290,844 2,772,888
Shares issued in acquisition of CoreFunds, Inc.
Balanced Fund................................................... 0 0
139,832,551 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions............................................. 15,486,025 (115,416,114)
318,357,617 97,871,629
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets........................ (14,135,390) (196,993,358)
135,238,183 68,099,733
NET ASSETS
Beginning of period.............................................. 233,819,342 1,897,153,741
2,641,227,612 302,501,240
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.................................................... $219,683,952 $1,700,160,383
$2,776,465,795 $370,600,973
- ------------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income.............................. $ 279,754 $ (54,459) $
2,274,845 $ 30,451
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
55
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended March 31, 1998
<TABLE>
<CAPTION>
TAX-
AMERICAN STRATEGIC
RETIREMENT BALANCED
FOUNDATION FOUNDATION
FUND FUND*
FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
OPERATIONS
Net investment income............................................ $ 4,985,814 $ 35,345,751 $ 46,106,604
$ 2,888,518
Net realized gains on securities, futures contracts and
foreign currency related transactions........................... 5,840,219 127,001,668
37,733,396 1,331,487
Net change in unrealized gains on securities and foreign
currency related transactions................................... 31,534,034 84,015,495
507,820,113 28,378,750
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations............ 42,360,067 246,362,914
591,660,113 32,598,755
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Class A......................................................... (695,207) (12,029,418)
(6,778,425) (845,312)
Class B......................................................... (2,792,552) (25,630,818)
(14,304,998) (1,429,127)
Class C......................................................... (49,486) (2,502)
(632,325) (189,734)
Class Y......................................................... (1,312,760) (263,102)
(25,594,285) (422,361)
From net realized gains
Class A......................................................... (514,560) (25,111,250)
(6,367,014) (424,397)
Class B......................................................... (2,734,907) (168,719,950)
(19,081,303) (1,129,269)
Class C......................................................... (50,154) (135)
(836,192) (141,334)
Class Y......................................................... (874,184) 0
(22,106,374) (207,645)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............................. (9,023,810) (231,757,175)
(95,700,916) (4,789,179)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold........................................ 86,591,263 121,903,416
691,840,878 212,133,212
Payment for shares redeemed...................................... (24,953,880) (278,715,460)
(299,555,598) (15,800,328)
Net asset value of shares issued in reinvestment of
distributions................................................... 8,459,313 199,041,548
89,801,360 4,084,131
Shares issued in acquisition of Evergreen Balanced Fund II....... 0 214,923,155
0 0
Shares issued in acquisition of Keystone Balanced Fund II........ 0 0
8,490,928 0
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions..................................... 70,096,696 257,152,659
490,577,568 200,417,015
- -------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets................................... 103,432,953 271,758,398
986,536,765 228,226,591
NET ASSETS
Beginning of year................................................ 130,386,389 1,625,395,343
1,654,690,847 74,274,649
- -------------------------------------------------------------------------------------------------------------------------------
END OF YEAR...................................................... $233,819,342 $1,897,153,741 $2,641,227,612
$302,501,240
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income.............................. $ 235,752 $ 2,779,889 $ (35,481)
$ 17,451
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the nine-month period ended March 31, 1998. Balanced Fund changed its
fiscal year end from June 30 to March 31, effective March 31, 1998.
See Combined Notes to Financial Statements.
56
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Balanced Funds
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
Year Ended June 30, 1997
<TABLE>
<CAPTION>
BALANCED
FUND
- -------------------------------------------------------------------------------
<S> <C>
OPERATIONS
Net investment income......................................... $ 38,677,977
Net realized gains on securities, futures contracts and
foreign currency related transactions........................ 120,987,282
Net change in unrealized gains on securities and foreign
currency related transactions................................ 146,568,036
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations......... 306,233,295
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
Class B...................................................... (38,660,044)
From net realized gains
Class B...................................................... (57,571,132)
- -------------------------------------------------------------------------------
Total distributions to shareholders.......................... (96,231,176)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..................................... 200,987,044
Payment for shares redeemed................................... (351,020,484)
Net asset value of shares issued in reinvestment of
distributions................................................ 84,249,628
- -------------------------------------------------------------------------------
Net decrease in net assets resulting from capital share
transactions................................................ (65,783,812)
- -------------------------------------------------------------------------------
Total increase in net assets................................ 144,218,307
NET ASSETS
Beginning of year............................................. 1,481,177,036
- -------------------------------------------------------------------------------
END OF YEAR................................................... $1,625,395,343
- -------------------------------------------------------------------------------
Undistributed net investment income........................... $ 3,239,562
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
57
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Evergreen Balanced Funds consist of Evergreen American Retirement Fund
("American Retirement Fund"), Evergreen Balanced Fund ("Balanced Fund"),
Evergreen Foundation Fund ("Foundation Fund"), and Evergreen Tax Strategic
Foundation Fund ("Tax Strategic Fund"), which are collectively referred to
herein as the "Funds". Each of the Funds is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. Each Fund is a diversified series of the
Evergreen Equity Trust, a Delaware Business Trust organized on September 18,
1997.
The Funds offer Class A, Class B, Class C and Class Y shares. 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 a higher ongoing distribution
fee 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 B shares purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 retain their existing conversion rights.
Class C shares are sold subject to a contingent deferred sales charge payable on
shares redeemed within one year after the month of purchase. Class Y shares are
sold at net asset value and are not subject to contingent deferred sales charges
or distribution fees. Class Y shares are sold only to investment advisory
clients of First Union and its affiliates, certain institutional investors or
Class Y shareholders of record of certain other funds managed by First Union
Corporation ("First Union") and its affiliates as of December 30, 1994.
2. REORGANIZATION OF EVERGREEN BALANCED FUND
The Fund was formed for the purpose of combining the net assets of the Evergreen
Balanced II Fund (the "Evergreen Fund"), formerly the Evergreen Balanced Fund,
and the net assets of the Keystone Balanced Fund (the "Keystone Fund"), formerly
Keystone Balanced Fund K-1, through the Fund's acquisition of the net assets of
the Evergreen Fund and Keystone Fund.
On January 21, 1998, Prior to the Fund's acquisition of the Evergreen Fund's
net assets, the Evergreen Fund transferred substantially all of its net assets
related to its Class Y shares to an Evergreen Select Balanced Fund, an institu-
tional balanced fund, through a redemption-in-kind in the amount of
$737,248,788.
On January 23, 1998, the Fund acquired all of the remaining assets and certain
identified liabilities of the Evergreen Fund in exchange for Class A, Class B
Class C and Class Y shares of the Fund. Also, the Fund acquired all of the
assets and certain liabilities of the Keystone Fund in exchange for Class A,
Class B and Class C shares of the Fund. These acquisitions were accomplished
through tax-free exchanges of the respective shares of the Funds. The value of
net assets acquired, number of shares issued and unrealized appreciation
acquired were as follows:
<TABLE>
<CAPTION>
Value of Net Number of Unrealized
Acquired Fund Assets Acquired Shares Issued Appreciation
---------------------------------------------------------------
<S> <C> <C> <C>
Evergreen Fund...... $ 214,923,156 17,901,009 $ 17,787,797
Keystone Fund....... $1,616,348,537 134,623,096 $494,838,638
</TABLE>
The net assets of the Fund immediately after the acquisition were
$1,831,271,693.
Prior to the acquisition, the Keystone Fund added three classes of shares
designated as Class A and Class C and designated its existing class of shares as
Class B. Shareholders of the Keystone Fund who, on January 16, 1998, held Class
B shares purchased 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.
At the conclusion of the Fund's acquisition of the net assets of the Evergreen
Fund and Keystone Fund, the surviving records of the Fund for accounting and
performance purposes is the Keystone Fund and for taxation purposes is the
Evergreen Fund.
58
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
3. ACQUISITIONS
Effective at the close of business on July 24, 1998, Foundation Fund acquired
the net assets of CoreFunds, Inc. Balanced 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 321,554, 49,982,
and 581,209 Class A, Class B and Class Y shares, respectively, of Foundation
Fund. The acquired net assets consisted primarily of portfolio securities with
unrealized appreciation of $29,739,766. The aggregate net assets of CoreFunds
Inc. Balanced Fund and Foundation Fund immediately prior to the acquisition were
$140,187,273 and $2,783,885,610, respectively. The aggregate net assets of
Foundation Fund immediately after the acquisition were $2,924,072,883.
Effective at the close of business on July 17, 1997, Foundation Fund acquired
the net assets of Keystone Balanced Fund II, 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 111,203, 316,984, and 36,146
Class A, Class B and Class C shares, respectively, of Foundation Fund. The
acquired net assets consisted primarily of portfolio securities with unrealized
appreciation of $1,216,239. The aggregate net assets of Keystone Balanced Fund
II and Foundation Fund immediately prior to the acquisition were $8,490,928 and
$1,984,767,050, respectively. The aggregate net assets of Foundation Fund
immediately after the acquisition were $1,993,257,978.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their 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. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
The Funds value 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. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean
between the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. 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 established 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
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
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, including
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
Balanced Fund, along with certain other funds managed by Evergreen Investment
Management Company ("EIMCO"), a subsidiary of First Union, formerly Keystone
Investment Management Company may transfer uninvested cash balances
59
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
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.
C. REVERSE REPURCHASE AGREEMENTS
To obtain short-term financing, the Funds may enter into reverse repurchase
agreements with qualified third-party broker-dealers. Interest on the value of
reverse repurchase agreements is based upon competitive market rates at the
time of issuance. At the time a Fund enters into a reverse repurchase agreement,
it will establish and maintain a segregated account with the custodian
containing qualifying assets having a value not less than the repurchase price,
including accrued interest. If the counterparty to the transaction is rendered
insolvent, the ultimate realization of the securities to be repurchased by the
Fund may be delayed or limited.
D. FOREIGN CURRENCY
The books and records of the Funds 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 or loss resulting from changes in foreign currency
exchange rates is a component of net unrealized gains or losses on securities
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, foreign currency related transactions and the difference between the
amounts of interest and dividends recorded on the books of the Funds and the
amounts actually received. Such gains and losses are included in realized gains
or losses 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 gains or losses on securities transactions.
E. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds 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 marked-to-market daily.
Realized gains and losses arising from such transactions are included in net
realized gains or losses 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
statements of assets and liabilities.
F. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
G. 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 or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend.
60
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Foreign income may be subject to foreign withholding taxes which are accrued as
applicable. Capital gains realized on some foreign securities may be subject to
foreign taxes and are accrued as applicable.
H. FEDERAL TAXES
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). As such, the Funds
will not incur any federal income tax liability since they are expected to
distribute all of their net investment company taxable income and net realized
capital gains, if any, to their shareholders. The Funds also intend to avoid any
excise tax liability by making the required distributions under the Code.
Accordingly, no provision for federal income taxes is required. To the extent
that realized capital gains can be offset by capital loss carryforwards, it is
each Fund's policy not to distribute such gains.
I. DISTRIBUTIONS
Distributions from net investment income for the Funds are declared and paid
quarterly. Distributions from net realized capital gains, if any, are paid 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.
Certain distributions paid during previous years have been reclassified to
conform with current year presentation.
J. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
K. ORGANIZATION EXPENSES
Organization expenses are amortized to operations over a five-year period on a
straight-line basis. In the event any of the initial shares of the Funds are
redeemed by any holder during the five-year amortization period, redemption
proceeds will be reduced by any unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of the redemption.
61
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and Class Y. Transactions in
shares of the Funds were as follows:
American Retirement Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold................. 302,817 $ 4,972,502 776,394 $ 11,977,023
Shares redeemed............. (180,661) (2,835,734) (175,621) (2,728,081)
Shares issued in
reinvestment of
distributions.............. 29,241 453,508 73,985 1,168,200
- ------------------------------------------------------------------------------
Net increase................ 151,397 2,590,276 674,758 10,417,142
- ------------------------------------------------------------------------------
CLASS B
Shares sold................. 1,568,602 25,374,800 4,220,724 64,924,905
Shares redeemed............. (725,496) (11,337,581) (651,898) (10,105,217)
Shares issued in
reinvestment of
distributions.............. 122,619 1,890,753 340,081 5,338,212
- ------------------------------------------------------------------------------
Net increase................ 965,725 15,927,972 3,908,907 60,157,900
- ------------------------------------------------------------------------------
CLASS C
Shares sold................. 50,884 839,326 80,905 1,241,277
Shares redeemed............. (56,317) (902,957) (49,433) (711,589)
Shares issued in
reinvestment of
distributions.............. 1,952 30,200 6,217 97,713
- ------------------------------------------------------------------------------
Net increase (decrease)..... (3,481) (33,431) 37,689 627,401
- ------------------------------------------------------------------------------
CLASS Y
Shares sold................. 110,417 1,773,071 542,883 8,448,058
Shares redeemed............. (342,042) (5,355,224) (749,260) (11,408,993)
Shares issued in
reinvestment of
distributions.............. 37,567 583,361 117,732 1,855,188
- ------------------------------------------------------------------------------
Net decrease................ (194,058) (2,998,792) (88,645) (1,105,747)
- ------------------------------------------------------------------------------
Net increase................ $ 15,486,025 $ 70,096,696
- ------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended Year Ended
September 30, 1998 March 31, 1998* June 30, 1997
------------------------- ---------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 1,216,462 $ 15,512,803 740,667 $ 9,401,463 0 $ 0
Shares redeemed......... (9,377,671) (119,515,496) (4,919,924) (61,467,813) 0 0
Shares issued in
reinvestment of
distributions.......... 1,321,725 16,749,452 2,175,164 26,275,982 0 0
Automatic conversion of
Class B shares to Class
A shares............... 0 0 97,487,277 1,205,409,703 0 0
Shares issued in
acquisition of
Evergreen Balance Fund
II..................... 0 0 3,807,586 45,716,406 0 0
- --------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (6,839,484) (87,253,241) 99,290,770 1,225,335,741 0 0
- --------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 2,431,087 30,995,280 8,761,830 111,415,080 16,959,452 200,987,044
Shares redeemed......... (4,954,969) (62,953,257) (15,656,468) (202,986,801) (29,517,723) (351,020,484)
Shares issued in
reinvestment of
distributions.......... 545,647 6,926,238 13,954,804 172,765,442 7,405,182 84,249,628
Automatic conversion of
Class B shares to Class
A shares............... 0 0 (97,487,277) (1,205,409,703) 0 0
Shares issued in
acquisition of
Evergreen Balance Fund
II..................... 0 0 9,896,507 118,815,736 0 0
- --------------------------------------------------------------------------------------------------------------
Net decrease............ (1,978,235) (25,031,739) (80,530,604) (1,005,400,246) (5,153,089) (65,783,812)
- --------------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 74,909 957,596 21,656 270,797 0 0
Shares redeemed......... (22,150) (282,432) (1,672) (21,003) 0 0
Shares issued in
reinvestment of
distributions.......... 1,353 17,136 10 124 0 0
Shares issued in
acquisition of
Evergreen Balance Fund
II..................... 0 0 44,378 532,825 0 0
- --------------------------------------------------------------------------------------------------------------
Net increase............ 54,112 692,300 64,372 782,743 0 0
- --------------------------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 168,457 2,153,115 65,370 816,075 0 0
Shares redeemed......... (485,419) (6,204,855) (1,167,179) (14,239,843) 0 0
Shares issued in
reinvestment of
distributions.......... 18,023 228,306 0 0 0 0
Shares issued in
acquisition of
Evergreen Balance Fund
II..................... 0 0 4,152,538 49,858,189 0 0
- --------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (298,939) (3,823,434) 3,050,729 36,434,421 0 0
- --------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. $(115,416,114) $ 257,152,659 $ (65,783,812)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 1998.
63
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
Foundation Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
------------------------ -------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............. 3,111,353 $ 63,063,041 5,521,670 $ 103,759,687
Shares redeemed.......... (3,019,104) (61,130,009) (2,914,232) (53,799,294)
Shares issued in
reinvestment of
distributions........... 173,723 3,475,639 689,871 12,869,510
Shares issued in
acquisition of
CoreFunds, Inc. Balance
Fund.................... 321,554 6,566,182 0 0
Shares issued in
acquisition of Keystone
Balance Fund II......... 0 0 111,203 2,040,162
- ------------------------------------------------------------------------------
Net increase............. 587,526 11,974,853 3,408,512 64,870,065
- ------------------------------------------------------------------------------
CLASS B
Shares sold.............. 11,476,108 231,635,742 19,625,977 367,905,222
Shares redeemed.......... (3,606,952) (71,733,837) (4,438,949) (81,802,033)
Shares issued in
reinvestment of
distributions........... 393,109 7,835,234 1,744,118 32,347,483
Shares issued in
acquisition of
CoreFunds, Inc. Balance
Fund.................... 49,982 1,015,265 0 0
Shares issued in
acquisition of Keystone
Balance Fund II......... 0 0 316,984 5,790,704
- ------------------------------------------------------------------------------
Net increase............. 8,312,247 168,752,404 17,248,130 324,241,376
- ------------------------------------------------------------------------------
CLASS C
Shares sold.............. 820,689 16,571,727 1,016,989 19,227,162
Shares redeemed.......... (277,338) (5,542,917) (405,258) (7,403,302)
Shares issued in
reinvestment of
distributions........... 17,804 354,722 74,186 1,375,625
Shares issued in
acquisition of Keystone
Balance Fund II......... 0 0 36,146 660,062
- ------------------------------------------------------------------------------
Net increase............. 561,155 11,383,532 722,063 13,859,547
- ------------------------------------------------------------------------------
CLASS Y
Shares sold.............. 4,017,765 80,698,427 10,695,459 200,948,807
Shares redeemed.......... (4,882,305) (98,327,952) (8,434,531) (156,550,969)
Shares issued in
reinvestment of
distributions........... 581,209 11,625,249 2,313,662 43,208,742
Shares issued in
acquisition of
CoreFunds, Inc. Balance
Fund.................... 6,470,202 132,251,104 0 0
- ------------------------------------------------------------------------------
Net increase............. 6,186,871 126,246,828 4,574,590 87,606,580
- ------------------------------------------------------------------------------
Net increase............. $318,357,617 $ 490,577,568
- ------------------------------------------------------------------------------
Tax Strategic Fund
<CAPTION>
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
------------------------ -------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.............. 1,634,800 $ 26,463,887 3,458,299 $ 53,040,118
Shares redeemed.......... (473,234) (7,492,512) (371,701) (5,726,480)
Shares issued in
reinvestment of
distributions........... 53,905 848,665 77,658 1,200,787
- ------------------------------------------------------------------------------
Net increase............. 1,215,471 19,820,040 3,164,256 48,514,425
- ------------------------------------------------------------------------------
CLASS B
Shares sold.............. 4,358,389 70,121,082 8,736,220 134,105,426
Shares redeemed.......... (756,365) (11,906,358) (423,863) (6,502,615)
Shares issued in
reinvestment of
distributions........... 99,669 1,567,282 154,897 2,385,102
- ------------------------------------------------------------------------------
Net increase............. 3,701,693 59,782,006 8,467,254 129,987,913
- ------------------------------------------------------------------------------
CLASS C
Shares sold.............. 1,087,822 17,475,503 1,515,720 23,364,146
Shares redeemed.......... (207,097) (3,261,476) (212,250) (3,128,629)
Shares issued in
reinvestment of
distributions........... 16,558 259,796 19,807 305,243
- ------------------------------------------------------------------------------
Net increase............. 897,283 14,473,823 1,323,277 20,540,760
- ------------------------------------------------------------------------------
CLASS Y
Shares sold.............. 310,174 4,986,172 105,640 1,623,522
Shares redeemed.......... (80,145) (1,287,557) (29,733) (442,604)
Shares issued in
reinvestment of
distributions........... 6,176 97,145 12,558 192,999
- ------------------------------------------------------------------------------
Net increase............. 236,205 3,795,760 88,465 1,373,917
- ------------------------------------------------------------------------------
Net increase............. $ 97,871,629 $ 200,417,015
- ------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the six months ended September 30,
1998:
U.S. Government Non-U.S. Government
----------------------- -------------------------
Cost of Proceeds Cost of Proceeds
Purchases from Sales Purchases from Sales
-------------------------------------------------
American Retirement Fund..... $19,044,794 $14,500,000 $ 41,435,950 $ 31,150,749
Balanced Fund................ 6,206,758 27,183,040 691,305,939 829,791,698
Foundation Fund.............. 20,974,750 6,110,183 255,655,290 83,658,020
Tax Strategic Fund........... 581,112 0 240,318,999 126,206,814
On July 24, 1998, Foundation acquired $27,013,910 and $73,647,101 of U.S.
Government and non-U.S. Government securities, respectively, at cost, from the
Fund's acquisition of CoreFund Inc. Balanced Fund.
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund 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,
except Class Y, 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 12b-1 fees greater than the
allowable annual amounts the Funds are permitted to pay. The Funds 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 September 30, 1998, amounts paid to EDI and/or its
predecessor pursuant to each Fund's Class A, Class B and Class C Distribution
Plans were as follows:
Class A Class B Class C
------------------------------
American Retirement Fund........ $ 37,503 $ 813,234 $ 14,084
Balanced Fund................... 1,523,648 2,813,780 5,804
Foundation Fund................. 436,052 6,055,501 279,914
Tax Strategic Fund.............. 102,115 1,087,141 181,373
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.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Pursuant to an agreement with American Retirement Fund's, Foundation Fund's and
Tax Strategic Fund's investment adviser, Evergreen Asset Management Corp.
("EAMC"), a wholly owned subsidiary of First Union, is entitled to an annual
fee based on each of American Retirement Fund's, Foundation Fund's and Tax
Strategic Fund's average daily net assets, respectively, in accordance with the
following schedules:
Foundation Fund and American
Tax Strategic Fund Retirement Fund
------------------------ -----------------------
First $750 million0.875% First $750 million0.75%
Next $250 million 0.750% Over $250 million 0.70%
Over $1 billion 0.700%
65
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Lieber & Company, an affiliate of First Union, is the investment sub-advisor to
American Retirement Fund, Foundation Fund and Tax Strategic Fund. Lieber &
Company provides these services at no additional cost to the Funds.
EIMCO is the investment adviser for Balanced Fund. In return for providing
investment management and administrative services to Balanced Fund, the Fund
pays EIMCO a management fee that is calculated daily and paid monthly. The
management fee is computed at an annual rate of 1.50% of Balanced Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.60% and declining to 0.30% per annum as net assets increase, to
the average daily net asset value of the Fund.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, and BISYS
Fund Services ("BISYS") provide Administrative and Sub-Administrative services
to the Funds at no cost to the Funds. Balanced Fund reimbursed EIMCO for certain
administrative and accounting expenses amounting to $132,149 for the period
ended September 30, 1998.
Lieber & Company also provides brokerage services to American Retirement Fund,
Foundation Fund, and Tax Strategic Fund with respect to substantially all
security transactions effected on the New York or American Stock Exchanges. For
the six months ended September 30, 1998, American Retirement Fund, Foundation
Fund and Tax Strategic Fund incurred the following brokerage commissions with
Lieber & Company:
<TABLE>
<S> <C>
American Retirement Fund................................ $ 73,666
Foundation Fund......................................... 361,187
Tax Strategic Fund...................................... 156,918
</TABLE>
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of First
Union, serves as the transfer and dividend disbursing agent for the Funds. The
Funds have entered into an expense offset arrangement with ESC, relating to
certain cash balances held at First Union for the benefit of the Evergreen
Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of American Retirement Fund, Balanced Fund, Foundation
Fund and Tax Strategic Fund may defer any or all compensation related to
performance of duties as a Trustee. Each Trustee's deferred balances are
allocated to deferral accounts which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Funds' Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000. As of September 30, 1998, the value of the Trustees deferral
account for American Retirement Fund, Balanced Fund, Foundation Fund, and Tax
Strategic Fund was $17,716, $87,452, $41,575 and $8,066.
11. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank and Trust ("State Street") and a group of 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
66
<PAGE>
[GRAPHIC APPEARS HERE]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
committed facility, which will be allocated to all Funds. 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 months ended September 30, 1998, the Funds had no significant
borrowings under these agreements.
OTHER INFORMATION
YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisers and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the year
2000 from the year 1900. The Funds' investment advisers are taking steps to
address this potential year 2000 problem with respect to the computer systems
that they use and to obtain satisfactory assurances that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds from this problem.
67
<PAGE>
Evergreen Funds
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Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
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Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
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
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
32755 540980 RV2 11/98
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APPEARS HERE] U.S. POSTAGE
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<PAGE>
Evergreen
Growth and
Income Funds
July 31, 1998
Annual Report
- -------------------------------------------------------------------------------
[PICTURE APPEARS HERE]
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders.................................................. 1
Evergreen Blue Chip Fund
Fund at a Glance....................................................... 2
Portfolio Manager Interview............................................ 3
Evergreen Growth and Income Fund
Fund at a Glance....................................................... 6
Portfolio Manager Interview............................................ 7
Evergreen Income and Growth Fund
Fund at a Glance....................................................... 10
Portfolio Manager Interview............................................ 11
Evergreen Small Cap Equity Income Fund
Fund at a Glance....................................................... 14
Portfolio Manager Interview............................................ 15
Evergreen Utility Fund
Fund at a Glance....................................................... 19
Portfolio Manager Interview............................................ 20
Evergreen Value Fund
Fund at a Glance....................................................... 22
Portfolio Manager Interview............................................ 23
Evergreen Fund for Total Return
Fund at a Glance....................................................... 26
Portfolio Manager Interview............................................ 27
Financial Highlights
Evergreen Blue Chip Fund............................................... 30
Evergreen Growth and Income Fund....................................... 32
Evergreen Income and Growth Fund....................................... 34
Evergreen Small Cap Equity Income Fund................................. 36
Evergreen Utility Fund................................................. 38
Evergreen Value Fund................................................... 40
Evergreen Fund for Total Return........................................ 42
Schedule of Investments
Evergreen Blue Chip Fund............................................... 44
Evergreen Growth and Income Fund....................................... 46
Evergreen Income and Growth Fund....................................... 51
Evergreen Small Cap Equity Income Fund................................. 54
Evergreen Utility Fund................................................. 58
Evergreen Value Fund................................................... 60
Evergreen Fund for Total Return........................................ 62
Statements of Assets and Liabilities.................................... 64
Statements of Operations................................................ 65
Statements of Changes in Net Assets..................................... 67
Combined Notes to Financial
Statements............................................................. 70
Independent Auditors Reports............................................ 81
Additional Information.................................................. 83
</TABLE>
- -------------------------------------------------------------------------------
Evergreen Funds
- -------------------------------------------------------------------------------
Evergreen Funds is one of the nations fastest growing investment companies
with approximately $50 billion in assets under management.
With over 70 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 annual 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: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
September 1998
[PICTURE OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
The following report covers the Evergreen Growth and Income Funds for the fiscal
year ended July 31, 1998.
Market Review
At the writing of this report -- after the fiscal period ended July 31, 1998 --
the markets have experienced increased volatility, mainly due to financial and
currency crises in the Asian and Russian economies. We encourage investors to
remain focused on their long-term goals, and to keep short-term volatility in
perspective.
Although no one can accurately predict either the timing or the degree, one
thing is certain: the stock market will continue to experience ups and downs.
At this time, we still believe the domestic economy is strong with low
inflation, low unemployment and moderate, yet sustainable growth. We are
confident that the opportunity remains to participate in the continued, dynamic
growth of both U.S. and international companies.
Cost Savings
In an effort to achieve efficiencies and cost savings, we have changed the way
we mail your funds' information. Wherever possible, we are trying to combine
your funds' required mailings so you only receive one per household, based on
the registration last name and exact address./1/ This reduces the mailing costs,
not to mention the amount of paper needed to print, which in turn benefits your
funds by reducing overall expenses. If you prefer to receive separate copies of
reports and prospectuses for each registered shareholder in your household,
please notify us by calling the number on your statement and we will adjust our
records accordingly.
Evergreen Service
Evergreen remains committed to providing investment choices which match a range
of investment objectives, as well as clear and accurate information on all the
Evergreen Funds. We recommend you consult with your financial advisor to
evaluate your asset allocation and ensure you are on target with your investment
time horizon. If you have any questions or need additional information, please
contact one of our service representatives at 800.343.2898. We will be happy to
assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We continued to emphasize the larger-capitalization, blue chip, high-quality
U.S. corporations that are the hallmark of the Fund's investment style.
Portfolio
Management
------------------------
[PICTURE OF JUDITH A. WARNERS APPEARS HERE]
Judith A. Warners
Tenure: January, 1995
CURRENT INVESTMENT STYLE/1/
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
-------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 1/20/98 9/11/35 1/22/98
................................................................................
Average Annual Returns
................................................................................
One year with sales charge -- 10.14% --
................................................................................
One year w/o sales charge -- 14.99% --
................................................................................
3 years -- 23.45% --
................................................................................
5 years -- 17.29% --
................................................................................
10 years -- 14.35% --
................................................................................
Since Inception 6.00% 9.04% 8.80%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
12-month income dividends per share $0.06 $0.08 $0.02
...............................................................................
12-month capital gain distributions per share -- $4.96 --
................................................................................
* Adjusted for maximum sales charge
Note: Class A and C shares were introduced in January 1998, and did not have
average annual returns to quote at this time. Cumulative returns since
inception are provided.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class B S & P 500 Index CPI
Jul-88 10,000 10,000 10,000
Jul-89 12,742 13,193 10,498
Jul-90 13,533 14,051 11,004
Jul-91 14,980 15,844 11,494
Jul-92 15,889 17,870 11,857
Jul-93 17,063 19,430 12,186
Jul-94 17,244 20,433 12,523
Jul-95 19,998 25,768 12,869
Jul-96 22,824 30,037 13,245
Jul-97 33,238 45,698 13,544
Jul-98 38,218 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Blue Chip
Fund Class B, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Management Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
- --------------------------------------------------------------------------------
The Fund performed well relative to similar funds, while trailing the overall
Standard & Poor's 500 Index, which was dominated by a few large companies. For
the 12 months ended on July 31, 1998, the Evergreen Blue Chip Fund's Class B
shares had a total return of 14.99%, unadjusted for applicable sales charges.
During the same 12-month period, the benchmark S&P 500 Index had a return of
19.29%, while Growth and Income Funds on average returned 11.37%, as measured by
Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $403,408,065
...............................................................................
Number of Holdings 86
...............................................................................
P/E Ratio* 22.1x
...............................................................................
Beta* 0.96
..............................................................................
*as of 6/30/98
- --------------------------------------------------------------------------------
What was the investment
environment like during the year?
- --------------------------------------------------------------------------------
The overall market, as reflected in the popular indexes such as the S&P 500,
moved upward. Interim volatility and periods of relatively flat performance --
when the market moved more sideways than up or down -- punctuated this general
trend, however. As the year progressed, market index performance became more
and more dominated by the very strong returns of a relatively few stocks. We
characterize this period as a standoff between two conflicting influences. On
the one hand, there was fear that economic growth in the United States might
become so strong that the Federal Reserve Board would act to thwart inflation by
raising short-term interest rates. On the other hand, there was the anticipated
fear of the impact that the Asian economic crisis might have on the earnings of
U.S. corporations. In addition, there also was concern about the credibility of
the U.S. political leadership. It seems the concern about Asia was put aside as
the strength of the domestic economy, combined with strong demand from Europe,
helped sustain strong earnings by U.S. multi-national corporations.
The narrowing of market leadership -- to a band of a relatively few companies --
became a progressively more dominant trend as the year progressed. We also have
witnessed a rotating correction for several months, as the market values of
different stocks have dipped. While the overall indexes may have shown positive
results, the stock valuations of a large proportion of publicly traded companies
actually fell. For example, a Merrill Lynch study indicates that as of mid-
August, the stock prices of approximately 70% of New York Stock Exchange
companies actually fell by 20% or more from their highs, and 47% fell by 30% or
more after their highs.
In this environment, the best investment returns tended to come from a
relatively few companies. While they represented a variety of different
industries, they tended to be high-quality, high-visibility companies that often
were leaders of their markets or niches. In the Evergreen Blue Chip Fund's
portfolio, for example, the leading contributors to performance during the 12-
month period included General Electric, Pfizer, Microsoft, Ford Motor Company
and Home Depot. Other performance leaders included companies that were re-
structuring or acquiring new businesses. The list included Viacom, in the
entertainment industry, and Tyco International, a diversified company.
- --------------------------------------------------------------------------------
Within this environment, what were your principal investment themes or
strategies?
- --------------------------------------------------------------------------------
We continued to emphasize the larger-capitalization, blue chip, high-quality
U.S. corporations that are the hallmark of the Fund's investment style. We also
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
included a sprinkling of higher quality mid-cap growth companies. An excellent
example would be Royal Caribbean Cruises Ltd., which was one of the top
contributors to performance during the 12 months.
At the end of the fiscal year, about 70% of net assets were invested in the
large-cap, U.S. companies, with about 15% invested in mid-cap stocks. Within
this general framework, we sometimes trimmed back the holdings of companies
after their prices had risen dramatically, even buying them back
opportunistically if they became more attractive again after a price correction.
As a by-product of our concern about volatility and high valuations of many
stocks, the cash and cash-equivalent weighting of the Fund rose from 4% to 13.3%
of net assets during the year. Most of that increase came in the final two
months of the fiscal year as we became increasingly concerned about the impact
both of the Asian currency crisis and of questions about political leadership in
Washington. This relatively high cash level is not necessarily permanent,
however. We may re-invest proceeds opportunistically as we see attractive
valuations and if the stock market shows signs of stabilizing.
Top 5 Industries
----------------
(as a percentage of net assets)
Finance & Insurance and Banks 18.5%
..............................................................................
Healthcare Products & Services 13.1%
..............................................................................
Information Services & Technology 10.2%
..............................................................................
Oil / Energy 8.1%
..............................................................................
Retailing & Wholesale 6.0%
..............................................................................
- --------------------------------------------------------------------------------
What sectors, or industries, did you emphasize?
- --------------------------------------------------------------------------------
The greatest emphasis was in financial services, technology, health care --
including pharmaceuticals -- and consumer staples, such as beverages and
household products.
Financial services accounted for about 19% of net assets on July 31, despite
being trimmed back somewhat during the final months of the fiscal year. Among
the holdings that we have reduced are some large, regional banks as the
consolidation trend in the industry appeared to move from the regional banks
toward mergers-of-equals among very large institutions. For example, the
largest financial services positions at the end of the fiscal year, were
American International Group, a global leader in finance, and Travelers Group,
Inc., which has announced a pending merger with Citicorp. One of the major
contributors to performance during the year, particularly in the last six
months, was Morgan Stanley-Dean Witter, another company that is benefiting from
merging and gaining additional cross-selling opportunities. We also have been
interested in investing in financial companies that are leaders in their niches,
including the Federal National Mortgage Association (Fannie Mae) and Associates
First Capital, a leading consumer lender that is a spin-off of Ford Motor Co.
Technology accounted for about 10% of net assets on July 31. We have not
invested broadly in technology, but have owned the stocks of major industry
leaders, including IBM, Intel and Microsoft. In addition, we have owned leaders
in specific market segments, including Sun Microsystems, Gateway Computers, and
EMC, a leader in disc storage. We also have tried to take advantage of emerging
opportunities caused by changes in telecommunications systems and technologies
and the building of integrated communications networks throughout the world.
Among our significant holdings are WorldCom and Cisco Systems, both of which
have been strong contributors to performance.
Healthcare, including pharmaceuticals, accounted for about 13% of net assets at
the end of the fiscal year, even though it was slightly down from a year earlier
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
because we have taken profits from some successful holdings. Longer term, we
see strong opportunities in the pharmaceutical industry because of the steady
flow of interesting new products and the strong demand caused by the aging of
the population. This industry also continues to consolidate, as illustrated by
the pending merger of American Home Products Corp., a major holding of the Fund,
and Monsanto.
Consumer staples, including beverages and consumer products, accounted for about
12% of assets as of July 31. While this is not an over-weighting, it continues
to be well-represented as domestically oriented consumer companies continue to
produce attractive earnings.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
General Electric Co. 3.3%
..............................................................................
Microsoft Corp. 2.8%
..............................................................................
American Home Products Corp. 2.2%
..............................................................................
Texaco, Inc. 2.1%
..............................................................................
British Petroleum Plc, ADR 1.8%
..............................................................................
Coca Cola Co. 1.8%
..............................................................................
Merck & Co., Inc. 1.8%
..............................................................................
Wal-Mart Stores, Inc. 1.7%
..............................................................................
Bristol-Myers Squibb Co. 1.6%
..............................................................................
Travelers Group, Inc. 1.6%
..............................................................................
- --------------------------------------------------------------------------------
What areas have been disappointing?
- --------------------------------------------------------------------------------
Real estate investment trusts, or REITs, have been a disappointment and we have
reduced our holdings substantially, from about 5% of net assets to about 1%.
The market performance of this industry has slumped as investors favored stable
growth companies over yield-oriented companies. There also has been concern
about possible over-building in commercial real estate.
Other disappointments include Analog Devices, a semiconductor company that has
been hurt by the Asian crisis, and Cendant, a consumer services company that has
encountered questions about the reliability of its reported earnings. We have
eliminated our positions in both companies entirely. Philip Morris also has
been disappointing, primarily because of the tobacco controversy.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect continued volatility in the market. In this environment, we plan to
maintain our concentration on fundamental analysis and individual company stock
picking. We expect to emphasize global leaders that understand how to manage in
periods of volatility, both in their businesses and in the stock market. We
also will look for leaders in specific market niches and undervalued businesses.
Given the unsettled market, our emphasis on fundamental research and individual
stock selection should help us find attractively priced opportunities created by
the market volatility and the possibility of over-corrections. In addition,
while we have generally avoided investments in basic materials, we have added
opportunistically to our holdings in the oil industry, which we believe should
ultimately rebound from its recent difficulties.
We have the flexibility to become more defensive if we believe conditions are
worsening, and we also have the ability to increase our weightings in medium-
sized companies should market leadership start changing. The Fund's primary
emphasis, however, should remain with the leading large-capitalization
companies. We believe their quality and liquidity should continue to support
performance in an uncertain period.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
With the sharp decline in the stock market at quarter end, cash reserves began
to be employed in purchasing quality companies with above-average growth
prospects.
Portfolio
Management
--------------------------
[PICTURE OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: July 1997
[PICTURE OF GARY R. BUESSER APPEARS HERE]
Gary R. Buesser, CFA
Tenure: July 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/86
................................................................................
Average Annual Returns
...............................................................................
1 year with sales charge 5.97% 5.44% 9.47% n/a
................................................................................
1 year w/o sales charge 11.26% 10.44% 10.47% 11.56%
................................................................................
3 years 19.52% 19.93% 20.64% 21.81%
................................................................................
5 years -- -- -- 19.25%
................................................................................
10 years -- -- -- 16.75%
................................................................................
Since Inception 23.25% 23.57% 24.08% 15.24%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $0.13 -- -- $0.20
...............................................................................
12-month capital gain
distributions per share $1.01 $1.01 $1.01 $1.01
................................................................................
* Adjusted for maximum applicable sales charge
- -------------------------------------------------------------------------------
LONG TERM GROWTH
- -------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 400 Lipper Growth &
Date Class A S&P 500 Index Mid-Cap Index Income Fund Average CPI
<S> <C> <C> <C> <C> <C>
1/3/95 9,525 10,000 10,000 10,000 10,000
Jul-95 11,787 12,420 12,359 12,076 10,187
Jul-96 13,529 14,478 13,321 13,781 10,485
Jul-97 18,992 22,026 19,359 19,843 10,721
Jul-98 21,130 26,273 23,015 22,139 10,902
</TABLE>
Comparison of change in value of a $10,000 investment in Evergreen Growth and
Income Fund Class A, the Standard & Poor's 500 Index (S&P 500), the Standard and
Poor's 400 Mid-Cap Index (S&P 400), the Lipper Growth & Income Funds Average
(LGIFA), 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, the S&P 400 Index, and the Lipper Growth
& Income Funds Average are unmanaged market indexes and do not include
transaction costs associated with buying and selling securities nor any
management fees. 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.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What was the investment performance in the fiscal year?
- --------------------------------------------------------------------------------
The Evergreen Growth and Income Fund Class A, B, C, and Y shares returned
11.26%, 10.44%, 10.47%, and 11.56% respectively, for the fiscal year ended July
31. These returns are unadjusted for applicable sales charges. The performance
reflected a reversal in the fourth quarter of the fiscal year after significant
gains in the first three quarters. The Fund's Class Y shares exceeded the
11.21% performance of the S&P 400 Mid-Cap Index, and even in the weak fourth
quarter of the fiscal year, outperformed the S&P 400 Mid-Cap Index by 0.95%.1
The Fund held an above-average cash position (approximately 20% of assets)
during much of the fiscal year, because we judged that market segments were
overvalued, and together with international economic volatility, might provide
attractive purchase opportunities. With the sharp decline in the stock market at
quarter end, cash reserves began to be employed in purchasing quality companies
with above-average growth prospects.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $2,147,320,878
................................................................................
Number of Holdings 282
................................................................................
P/E Ratio* 21.9x
................................................................................
Beta* 0.91
................................................................................
*as of 6/30/98
- --------------------------------------------------------------------------------
What drove the Fund's performance?
- --------------------------------------------------------------------------------
Considering the cautious cash position, the invested portfolio demonstrated
strong performance. The leadership in performance came from a diverse group of
companies, with the strongest in the broadcasting and communication fields,
where we had established positions earlier with the expectation of significant
benefits from both deregulation and growth. Six of the top ten performers in
the Fund were in this category, four of which had gains of over 100% in the
fiscal year; Mediaone Group, Inc., Chancellor Media Corp., Young Broadcasting
Inc., Class A, and Century Telephone Enterprises, Inc. Pharmaceutical
commitments also provided a group of performance leaders: Pfizer, Inc., +83.2%;
Schering-Plough Corp., +76.5%; and Warner-Lambert Co., +73.7%.
Many issues added to the portfolio during the fiscal year provided outstanding
gains. These gains were led by +105.2% in the shares of Lowe's Companies, Inc.;
+98.8% in the shares of Warner-Lambert Co.; +96.6% in the shares of Kansas City
Southern Industries, Inc.; and +67.9% in the shares of Home Depot, Inc. These
top four led a group of 25 purchases which provided gains of 30% or more.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
McKesson Corp. 1.5%
................................................................................
Webster Financial Corp. 1.5%
................................................................................
Kansas City Southern Industries, Inc. 1.4%
................................................................................
Lincare Holdings, Inc. 1.2%
................................................................................
Jacor Communications, Inc. 1.2%
................................................................................
Time Warner, Inc. 1.1%
................................................................................
Schering-Plough Corp. 1.0%
................................................................................
Pittston Brink's Group 1.0%
................................................................................
Policy Management Systems Corp. 1.0%
................................................................................
Burlington Northern Santa Fe 1.0%
................................................................................
Several major gains were the result of merger and acquisition offers for our
holdings. Evergreen Media Corp. was acquired by Chancellor Media Corp., and
provided a +109.4% return to the Fund in the fiscal year, and Carson Pirie Scott
& Co. was acquired by
/1/ The Fund will be using the S&P 400 Mid-Cap Index as a benchmark going
forward. Previously, the Fund was compared to the S&P 500 which is a large cap
index. The Fund invests in stocks of predominantly small to mid-sized companies
and, therefore, the S&P 400 Mid-Cap Index is more appropriate.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Proffitt's, Inc., with a +72.3% increase. A total of 22 companies in the
portfolio either completed mergers or acquisitions, or had them pending at the
end of the fiscal year. The financial group represented the largest number of
these transactions; the pending SunTrust Banks, Inc. bid for Crestar Financial
Corp. provided a +230.3% gain from the acquisition price in 1996; Central
Fidelity Banks, Inc. acquisition, a +183.4% gain; Life Bancorp, Inc., a +44.5%
gain; Life Re Corp., a +57.3% gain; and Firstar Corp., a +33.2% gain (the latter
two are pending transactions). We view merger and acquisition offers for Fund
holdings as a validation of our original analysis of them as undervalued issues.
The results of the fiscal year sustained this thesis, with the range of
acquisitions across ten industries suggesting that a continued broad analytical
search for undervaluation is an appropriate long-term strategy for the Fund.
- --------------------------------------------------------------------------------
Where were the disappointments in the fiscal year?
- --------------------------------------------------------------------------------
The major disappointments were among smaller companies, especially those
negatively impacted by the technology market slowdown, or temporary adversities
caused by the Asian financial crisis. Illustratively, we had sold almost half
of the Fund's position in specialty electronic components manufacturer, Unitrode
Corp., early in the fiscal year, with a profit of over 128.8%. We held the
balance with a view toward a longer term optimism, holding a much reduced
position. Nonetheless, with a slow-down in the electronics components industry
by fiscal year-end, the stock had declined 56.1%. In the case of other issues,
such as KLA-Tencor Corp., we had similarly realized major gains (+115.0%), and
then replaced the position at much lower prices. By year-end, however, even the
low price purchases had declined in value by 20.1%. Among larger companies, our
largest decline was in the shares of Union Pacific Corp., 40.4%. We
considerably enlarged the position in this leading railroad system when the
stock fell in value due to the problems of congestion involving the complexities
of integrating the newly acquired Southern Pacific Rail Corp. We believe Union
Pacific's railroad system will recover its previous high earnings power when it
overcomes its short-term problems.
Top 5 Industries
----------------
(as a percentage of net assets)
Healthcare Products & Services 11.4%
...............................................................................
Banks 9.1%
................................................................................
Industrial Specialty Products & Services 6.8%
................................................................................
Finance & Insurance 6.3%
................................................................................
Publishing, Broadcasting & Entertainment 4.6%
................................................................................
The top performing groups for the fiscal year were Communications Systems and
Services, +91.1%; Food & Beverage Products, +47.8%; Electric Utilities, +34.6%;
Retail & Wholesale, +33.8%; Telecommunications Services and Equipment, +33.0%;
and Health Care Products and Services, +31.6%. The weakest performers were: Oil
Field Services, down 42.5%, and Information Services and Technology, down 24.6%.
The decline in energy prices toward the end of the fiscal year was a source of
adverse stock performance. The Fund's oil field service company holdings are
concentrated in areas we believe will not be as negatively impacted as the
industry, on average. Our concentration is on deep water drilling companies,
where the very large scale of equipment mitigates against an excess supply
forcing down capacity utilization and day rates.
- --------------------------------------------------------------------------------
How is the Fund positioned for the new fiscal year?
- --------------------------------------------------------------------------------
Anticipating the volatility and the probability of price declines, the Fund has
held a substantial portion of its assets in short-term cash equivalents. This
has given management the opportunity to utilize this sizable balance for the
careful purchase of undervalued securities in periods of market weakness. As
the stock market deteriorated toward the end of the fiscal year
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
and into August, we have been actively increasing stock investments. The
deterioration was particularly marked among smaller companies, as evidenced by
the 14% decline in the S&P Mid-Cap Index and the 20% decline in the Russell 2000
Index from their April 22 highs through August 24. The performance of these
indices underlines the extent to which the stock market penalized smaller to
mid-capitalization companies, while rewarding larger companies and,
particularly, the higher price/earnings ratio group.
Our "value timing" investment strategy is focused on long-term capital gains in
companies which are undervalued in relation to their earnings growth, cash flow,
and asset realization possibilities. We are taking advantage of weakness in the
pricing of financial institutions to add to the Fund's holdings in banks,
especially mid-sized regional banks, which will play an important role in future
industry consolidations. We continue to add to holdings in the securities
brokerage and investment banking field where positions were established in the
1998 fiscal year. This has proven a highly rewarding group, beginning with our
purchase of Edwards (A.G.), Inc. early in the year, and followed by Lehman
Brothers Holdings, Inc. and Paine Webber Group, Inc. We anticipate both growth
for this industry and a continuing trend of acquisitions with the building of
multi-faceted financial service businesses.
The portfolio is further participating in the utility industry, based on
restructuring opportunities. In its fiscal year, the Fund had a +54.5% increase
from its purchase of Energy East Corp. (formerly New York State Electric and Gas
Corp.), which is in the process of restructuring. Toward the end of the year, a
position was established in Marketspan Corp., the merger of Brooklyn Union Gas
Co. and Long Island Lighting Co. Our emphasis on the growth possibilities of
the technologies of biological science and the pharmaceutical industry
continues, with a recent increase in our investment in Perkin-Elmer Corp. (whose
genetics instrument technology is a leading one), and Beckman Coulter, Inc.
(whose leadership in analytical instruments is expected to be accelerated by a
recent merger).
Several real estate investment trust positions were recently increased, because
the market setback which this industry has had since its strong performance in
the fourth quarter of 1997 has created meaningful new values. For the first
time in many months, numbers of well-established real estate investment trusts
are selling below the indicated value of their underlying property holdings.
In summary, undervalued growth opportunities continue to be the central goal of
this Fund, utilizing the "value timing" strategies which are at the core of its
twelve year performance record.
Will the Fund continue to hold a large cash reserve?
Our objective is to have a more normal cash reserve position, and an almost
fully invested strategy. Market and individual company setbacks are providing
the "value timing" opportunities to effectively utilize the cash reserves. For
example, an inventory problem at Penney (J.C.) Co., Inc. developed during a
particularly strong retail period, led to an over 20% decline in its stock
price. We then began to accumulate this stock for the Fund, and at this
writing, have established a meaningful position. Similarly, a setback
experienced in the demand for chemical products led us to increase the position
in Du Pont (E.I.) De Nemours & Co., Inc. Anticipating recovery because of new
products, we saw a "value timing" opportunity in the shares of Acuson Corp., a
leading ultrasound company, which should allow it to increase market share in
its growth medical technology industry. In these, and in many other cases, our
intensive research effort is expected to provide opportunities to capitalize on
the cautious positioning which we established for the Fund in the 1998 fiscal
year. It should form the base for significant long-term capital appreciation.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: August 1978
[PICTURE OF IRENE D. O'NEILL APPEARS HERE]
Irene D. O'Neill
Tenure: December 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 8/31/78
<S> <C> <C> <C> <C>
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 2.80% 2.29% 6.16% n/a
................................................................................
1 year w/o sales charge 7.93% 7.13% 7.13% 8.16%
................................................................................
3 years 12.55% 12.77% 13.56% 14.68%
................................................................................
5 years -- -- -- 10.90%
................................................................................
10 years -- -- -- 10.78%
................................................................................
Since Inception 14.85% 14.99% 15.56% 14.25%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.16% 1.50% 1.60% 2.53%
...............................................................................
12-month income dividends
per share $ 1.02 $ 0.85 $ 0.85 $ 1.08
................................................................................
12-month capital gain
distributions per share $ 1.59 $ 1.59 $ 1.59 $ 1.59
................................................................................
</TABLE>
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Wilshire 5000 LIFA CPI
1/3/95 9,525 10,000 10,000 10,000
Jul-95 10,962 12,415 11,504 10,187
Jul-96 11,847 14,239 12,602 10,485
Jul-97 15,210 20,960 15,440 10,721
Jul-98 16,409 25,821 16,727 10,902
Comparison of change in value of a $10,000 investment in Evergreen Income and
Growth Fund Class A, the Wilshire 5000 Index, the Lipper Income Funds Average
(LIFA), 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 Wilshire 5000 Index and the Lipper Income Funds Average
are unmanaged market indexes and do not include transaction costs associated
with buying and selling securities nor any management fees. 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.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the year?
In the fiscal year ended July 31, 1998, the Fund sustained its above-average
dividend distributions. For Class Y shares, the oldest class, these dividends
were $0.27 per share each quarter, providing a yield in the top quartile of the
Lipper Income Funds category. The Class Y shares have been able to sustain at
least this level of dividend for the past 13 years. Yet, the Class Y shares have
had an average annual total return of 14.25% since inception of the Fund on
August 31, 1978. During the 12-month period that ended on July 31, 1998, the
Fund's Class Y shares had a return of 8.16%. Class A, B and C shares had total
returns of 7.93%, 7.13% and 7.13% respectively, unadjusted for applicable sales
charges. During the same period the average return on the Lipper Income Funds
category was 8.37% and the Wilshire 5000 Index had a return of 17.05%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $950,653,827
................................................................................
Number of Holdings 150
................................................................................
P/E Ratio* 18.8x
................................................................................
Beta* 0.87
................................................................................
*as of 6/30/98
How would you describe the long-term strategy of the Fund?
The Fund is designed to be an income-producing alternative to bond investing
while providing growth for greater protection against inflation. The investment
strategy uses high yield undervalued convertible bonds, convertible preferred
stocks, and common stocks to enhance both the Fund's income and defensive
quality while aiming for significant capital appreciation.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE] Common Stock -- 65.7%
Convertible Preferred Stock -- 30.1%
Convertible Debentures -- 3.3%
Cash/Cash Equivalents -- 0.9%
What were some of the major contributors to performance?
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Within the general health group, a leading performer was Bristol-Myers Squibb
Co., which has produced a steady flow of new products that helped propel the
company stock to a 44.7% return during the year. Another leading performer in
the health group was ADAC Laboratories. This company has introduced an
important imaging device that helps determine the spread of cancer. With strong
revenue growth, this company's stock had a return of 39.8% during the fiscal
year. A third health-related company that was a significant performer was
Shared Medical Systems Corp., which provides computerization services that help
hospitals and other health providers increase their operating efficiency. The
stock in this company was up 41.4% during the fiscal year.
One of the principal investment themes at Evergreen is to invest in companies
that we believe are temporarily
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
out of favor in the stock market, but have attractive underlying value. We call
this the "value timing" strategy. A good example of this strategy in action was
the Fund's investment in American Home Products, a major pharmaceutical company.
The Fund purchased the stock on September 18, 1997, after the company's stock
price had suffered a steep decline in the face of the controversy over the
effects of the weight-control drug Fen-Phen. Our analysis indicated that the
market had over-reacted to the potential liability and that the company's stock
price was significantly undervalued. The stock produced a return of 46.4% for
the Fund from the investment to the end of the fiscal year.
Consolidation has helped the investments in the bank and thrift industries,
despite a slowdown in merger announcements by smaller banking institutions
during the second half of the fiscal year as attention turned to merger
announcements of very large banks. Among the investments that generated large
returns for the Fund were several banks and thrifts that were acquired by larger
banks. They included Firstbank of Illinois Co., which produced a return of 365%
since the initial investment in March, 1991; Hudson Chartered Bancorp Inc.,
produced a 367% return since the Fund's investment in December, 1992; and Eagle
Financial Corp., which produced a 280% return since the investment in November,
1992.
Among banks that have not been taken over, the best performers were M&T Bank
Corp. (formerly First Empire) of Buffalo, New York, which rose 59.3% during the
year, and First American Corp. of Tenn., which took over another Fund holding;
Deposit Guaranty Corp. The investment in First American returned 67.3% during
the year.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
Telecom Corp. New Zealand Ltd. 4.1%
................................................................................
AirTouch Communications, Inc., 6.00%, Conv. Pfd. 3.6%
................................................................................
Qualcomm Financial Trust I, 5.75%, Conv. Pfd. 3.3%
...............................................................................
Marketspan Corp. 3.0%
................................................................................
Wendy's Financing I, 5.00%, TECONS 2.8%
................................................................................
Houston Industries, Inc., 7.00%, ACES 2.8%
................................................................................
Armstrong World Industries, Inc. 2.1%
................................................................................
Meditrust Co. REIT 2.0%
................................................................................
Bankers Trust Corp. 2.0%
................................................................................
Peoples Energy Corp. 1.9%
................................................................................
Telecommunications-related investments helped the Fund significantly. In fact,
the leading contributor to performance during the fiscal year was Frontier
Corp., which was up 67.3%. This company, the former Rochester Telephone
Company, has expanded its long distance footprint through a savvy investment in
the Quest Communications network, a nationwide state of the art fiber optic
network which provides integrated voice, data and video communications.
Frontier is also a potential acquisition candidate. Another telecommunications
investment that helped the Fund's performance was the Air Touch Communications
Convertible Preferred shares which were up 52% in the year. This company
provides telecommunications services around the world. Worldcom, Inc. which has
announced its intention to buy MCI, also provided a return of 54.8% for the Fund
during the year as investors began to understand the potential for global growth
in the telecommunications industry. These three telecommunications companies
have potential to make inroads in telecom markets less encumbered by regulation
such as that which impacts the Regional Bell Operating Companies.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Consumer-related stocks were a fourth group that helped performance. One of the
leading contributors was La-Z-Boy Chair Co., which had a 51.5% return since the
Fund's investment on August 4, 1997.
The primary weak areas were in the investments in foreign stocks, energy stocks
and real estate investment trusts (REITs). Foreign investments, particularly
Australian investments, suffered in sympathy with the economic crisis in Asia.
During the year, we significantly reduced the foreign weighting in the Fund to
decrease the vulnerability to problems in Asia.
Energy-related stocks were hurt by the mild winter reducing the need for heat
and the worldwide slump in oil prices, while real estate stocks in general
lagged the overall market.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Banks 16.1%
...............................................................................
Utilities - Electric 9.2%
................................................................................
Real Estate 7.4%
................................................................................
Telecommunication Services & Equipment 7.4%
................................................................................
Utilities - Gas 7.1%
................................................................................
What Is your Outlook?
We expect the U.S. economy to grow with inflation remaining low. The equity
market should be positive, particularly with the continued flow of funds into
stocks and the persistence of merger-and-acquisition activity. We do have
concerns, however, about the slowdown in Asia and the effect it is having on
manufacturing employment in the United States. Because of this, we believe the
market may experience continued volatility, which should produce opportunities
for our value timing strategy. During the past year, the performance of the
major market indices has been helped chiefly by a very narrow base of stocks of
a relatively few large companies. We believe this has left very attractive
investment opportunities in the securities of other companies. We believe our
research discipline should enable us to identify opportunities to buy high-
quality issues with attractive yield at attractive valuations. This positive
outlook, combined with the possibility of further gains from merger-and-
acquisition activity, gives us confidence for improving performance during the
coming year.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We continued to manage the Fund with a consistent emphasis on undervalued income
securities of small companies.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: October 1993
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE1
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 1/3/95 1/3/95 1/24/95 10/1/93
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge (1.66%) (2.51%) 1.49% n/a
................................................................................
1 year w/o sales charge 3.24% 2.49% 2.49% 3.57%
................................................................................
3 years 17.70% 18.03% 18.67% 19.99%
...............................................................................
Since Inception 19.30% 19.51% 20.01% 15.62%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.28 $ 0.19 $ 0.19 $ 0.33
................................................................................
12-month capital gain
distributions per share $ 0.19 $ 0.19 $ 0.19 $ 0.19
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Russell 2000 Wilshire Small Cap Value CPI
1/3/95 9,525 10,000 10,000 10,000
Jul-95 10,984 12,100 11,736 10,187
Jul-96 12,750 12,936 12,957 10,485
Jul-97 18,214 17,256 18,016 10,721
Jul-98 18,804 19,777 18,965 10,902
Comparison of change in value of a $10,000 investment in Evergreen Small Cap
Equity Income Fund Class A, the Russell 2000 Index, Wilshire Small Cap Value
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 Russell 2000 Index and the Wilshire Small Cap Value
Index are unmanaged market indexes and do not include transaction costs
associated with buying and selling securities nor any management fees. 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.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
During the past year, the Fund faced a difficult market climate not only for
small cap stocks, but also for value-oriented stocks. This has been a market
where large cap stocks with high price/earnings ratios excelled as small caps
lagged and lost ground, especially in the latter part of the Fund's fiscal year.
An Evergreen study of the performance of various sectors of the market during
the first seven months of 1998 showed that large companies in the top 25% in
terms of price/earnings ratio had a total return of almost 50%. During the same
seven-month period, small cap companies in the lowest 25% in terms of
price/earnings ratios had a return of (5%). Nevertheless, for the second
consecutive year, the Fund was listed by Barron's, a leading financial magazine,
among the top 100 Funds in the United States based on risk-adjusted performance
for the preceding three years.
For the 12 months that ended on July 31, 1998, the Fund's Class Y shares had a
total return of 3.57%. The Class A shares had a return of 3.24%, while Class B
and C shares each had returns of 2.49%, beating the benchmark Russell 2000
Index, a commonly used barometer of the small company stock market, which had a
return of 2.31%. These returns are unadjusted for applicable sales charges.
The Wilshire Small Cap Value Index had a total return of 5.27%. Since the Fund's
inception on October 1, 1993, the Small Cap Equity Income Fund's Class Y shares
have had a cumulative total return of 101.74%, compared to a 77.64% return of
the Russell 2000 and an 82.72% return of the Wilshire Small Cap Value Index.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
----------------------------
Total Net Assets $307,086,083
................................................................................
Number of Holdings 150
................................................................................
P/E Ratio* 15.1x
................................................................................
Beta* 0.54
...............................................................................
*as of 6/30/98
What strategies did you emphasize during the year?
We continued to manage the Fund with a consistent emphasis on undervalued income
securities of small companies. We believe over the long run, this will give the
Fund the opportunity to generate strong performance with more price protection
in periods of volatility than the typical small company stock fund.
We sought out securities of small companies with market capitalizations of less
than $1 billion that had one or more of the following characteristics:
. Low cash-flow multiples or attractive prices relative to the cash flow they
are able to generate, with an operating catalyst to propel earnings growth.
. Hidden assets that management intends to deploy to achieve growth.
. Stock prices that are temporarily depressed because of some event in the
market and that have the opportunity to recover based upon our analysis of
future cash flows. These are candidates for Evergreen's "value timing"
strategy which seeks out temporarily out-of-favor stocks.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
. Restructuring enterprises which are re-allocating capital resources to
improve profitability.
. Potential merger-and-acquisition candidates that can take advantage of
consolidation trends in their industries or the general economy.
The Fund invests exclusively in securities that offer yield. In industries such
as technology where stocks traditionally have not paid dividends, we have looked
for opportunities among convertible securities as a way to invest in growth with
yield. We also have found that investments in convertible preferred stock and
convertible debentures also offer more price protection and lower volatility
than investments in the underlying stock.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE] Common Stock -- 69.3%
Convertible Preferred Stock -- 12.0%
Convertible Debentures -- 13.8%
Cash/Cash Equivalents -- 4.9%
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
Curtiss Wright Corp. 3.0%
...............................................................................
Boston Acoustics, Inc. 2.9%
................................................................................
Matthews International Corp. Cl. A 2.7%
................................................................................
CPI Corp. 2.5%
................................................................................
Owens & Minor Trust I, 5.375%, TECONS 2.2%
................................................................................
Hardinge Brothers, Inc. 2.1%
................................................................................
Lodgian Capital Trust I, 7.00%, CRESTS 1.8%
................................................................................
York Group, Inc. 1.8%
................................................................................
Hvide Capital Trust, 6.50%, Conv. Pfd. 1.8%
................................................................................
Knape & Vogt Manufacturing Co. 1.6%
...............................................................................
What are some examples of the implementation of each of these strategies?
Let's look first at companies with low cash-flow multiples and catalysts for
earnings growth. A clear example is Knape & Vogt Manufacturing, which has made
drawer-operating systems for wood office furniture. This company, whose stock
is attractively priced and yet offers a 3 1/2% yield, is entering the metal desk
slide market, with a potential increase in sales of $30 million, or 17%. The
company can enter this market without any additional capital investments, which
means its return on capital has the potential to increase substantially. The
company also has shown an ability to operate more efficiently and reduce
inventories, using the proceeds from cost-savings to reduce debt.
An example of a company with a hidden asset is Curtiss-Wright Corp., which
manufactures components such as landing gear transmissions and flaps for Boeing
737's. This company had cash reserves equal to $7 per share of its stock, with
another $12 per share in over-funded pension contributions. Earlier this year,
it started using its cash reserves to make acquisitions that allowed it to
increase sales by 30%. Over the year, this company's stock has had a return of
43.5%.
The York Group, Inc., is an excellent example of how Evergreen's "value timing"
strategy can find attractive opportunities. The stock price of this casket
manufacturer fell from $23 to $16 on news that it had lost a major contract with
a customer that had been responsible for 20% of sales. Our analysis of the
company's remaining business, however, indicated that it was worth substantially
more than the current stock price. This company remains profitable, with a high
return on capital and an extremely strong position selling to independent
funeral home operators.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
CPI Corp. illustrates the Fund's investment theme of investing in companies that
are re-structuring, or changing their capital allocation. This company sold its
underperforming photo finishing business to Kodak, and used the proceeds to buy
back one-third of the outstanding stock. Its principal remaining business is
operating portrait studios in Sears stores. This is a profitable, improving
business that generates strong cash flow.
How has the mergers-and-acquisition trend affected the Fund during the year?
Industry consolidation has had a huge impact on the Fund. During the year, 18
companies in the portfolio have either merged or been acquired or had
announcements of pending mergers. We have had 13 completed for an average gain
to the Fund of 89.6%.
Among acquisitions that have been completed, we have gains of: 352% in Kinetic
Concepts, Inc., purchased in July 1994; 257.8% from Hudson Chartered Bancorp,
Inc., purchased in January 1996; 117.7% from Computer Language Research
purchased in October 1993; 91.3% from California State Bank purchased in August
1997; 69.9% from People's Savings Financial Corp., purchased in December 1993;
and 55.7% from BGS Systems, Inc., purchased in July 1996. Currently, we have
five pending mergers or takeovers, the most recent of which is First Palm Beach.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Consumer Products & Services 10.5%
................................................................................
Banks 7.0%
................................................................................
Oil Field Services 6.0%
................................................................................
Utilities -- Gas 5.9%
...............................................................................
Electrical Equipment & Services 5.8%
................................................................................
What industry sectors have helped the Fund's performance during the year?
Two areas stand out: banks and consumer products and services. Banks were the
best performing sector, despite a period in which the market's attention was
captured by news of mergers among very large financial companies. We believe,
however, that the consolidation trend will resume among the smaller companies,
to the benefit of the fund.
What sectors have not helped the Fund's performance?
Performance was not helped by the real estate investment trusts, or REITs, which
slumped during the year, or by investments in energy companies, which were hurt
by a mild winter and the effects of slumping oil prices. While energy-related
stocks were, in general, relatively poor performers during the period, the Fund
attempted to take advantage of temporary weakness in the energy sector to build
up its position. We believe that the price of oil ultimately should stabilize
and that values can be found among companies whose stocks had suffered unfairly
in the general industry slump.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
We have a positive outlook for the Evergreen Small Cap Equity Income Fund
because of several trends we see, including:
. A continuation of the general consolidation trend in American industry;
. Signs of a growing recognition of the attractive values to be found among
small company stocks;
. Positive earnings reports from many small companies.
The general merger-and-acquisition trend is not losing steam. Deals totaling
$900 billion were announced during the first half of the year, and the U.S.
Department of Justice's Anti-Trust Division has estimated the total should reach
$1.75 trillion by the end of the year. The strong stock market that has been
favoring large company stocks has given the big companies high stock valuations
they can use as currency to buy smaller companies that have been reporting
stronger growth. Often, larger companies can buy fast-growing small companies
at prices that result in improved earnings-per-share performance for the larger
companies.
Moreover, investment and pension fund consulting companies increasingly are
recommending that their clients enlarge small company stock allocations in their
overall portfolios because of the attractive valuations. Any growth in
institutional investors' purchases of small company stocks should have a
significant effect on cash flow, and therefore stock prices, in the small stock
sector.
Finally, a large portion of the Fund's holdings have issued positive earnings
reports through the fiscal period, validating the value of the independent
research by the Evergreen investment team and supporting our view that small
company value investments that also offer yield have strong potential for the
remainder of 1998.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We remain committed to our long-term strategy of pursuing quality utility
companies with strong industry positioning that offer investors a high income,
defensively oriented investment option.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF PAUL DILELLA APPEARS HERE]
Paul DiLella
Tenure: May 1996
[PICTURE OF DORIS KELLEY-WATKINS APPEARS HERE]
Doris Kelley-Watkins
Tenure: February 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 1/4/94 1/4/94 9/2/94 2/28/94
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 11.73% 11.31% 15.31% n/a
................................................................................
1 year w/o sales charge 17.30% 16.31% 16.31% 17.60%
................................................................................
3 years 14.25% 14.44% 15.16% 16.34%
................................................................................
Since Inception 10.72% 10.79% 14.25% 13.70%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.44 $ 0.36 $ 0.36 $ 0.48
................................................................................
12-month capital gain
distributions per share $ 1.12 $ 1.12 $ 1.12 $ 1.12
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P Utilities Index S & P 500 Index CPI
1/4/94 9,525 10,000 10,000 10,000
Jul-94 9,154 9,181 9,979 10,178
Jul-95 10,179 9,946 12,584 10,460
Jul-96 11,197 10,724 14,669 10,765
Jul-97 13,586 17,509 22,317 11,008
Jul-98 15,936 20,251 26,621 11,193
Comparison of change in value of a $10,000 investment in Evergreen Utility Fund
Class A, the Standard and Poor's Utility Index (S&P Utilities), the Standard and
Poor's 500 Index (S&P 500), 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 Utility Index and the S&P 500 Index are unmanaged
market indices and do not include transaction costs associated with buying and
selling securities nor any management fees. 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.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform over the past twelve months?
The Fund's Class A, B, C, and Y shares had a total return of 17.30%, 16.31%,
16.31% and 17.60%, respectively, for the year ended July 31, 1998. These
returns are unadjusted for applicable sales charges. The Fund's returns trailed
the 20.99% return of its benchmark, the S&P Utilities Index.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $141,256,313
................................................................................
Number of Holdings 38
................................................................................
P/E Ratio* 18.6x
................................................................................
Beta* 0.73
................................................................................
*as of 6/30/98
How did the market environment impact performance during the fiscal year?
Over the past 12 months, we experienced an exceptionally narrow market advance
in which a select handful of the largest stocks surged while the majority of
companies lagged. For example, during the first six months of 1998 the ten
largest stocks in the S&P 500 rose 31.7%, while the equally weighted average of
all 500 stocks rose just 8.6%; amazingly, nearly a third actually declined.
In addition, investors have flocked to stocks which they perceive to have higher
prospects for growth, such as technology, while shunning higher dividend paying
companies such as utilities. Undoubtedly, the narrow market advance combined
with this rotation towards growth-oriented stocks had an adverse impact on the
Fund's performance. The simple fact that roughly 75% of the portfolio is
invested in utility stocks -- an income-oriented sector which lagged the broad
market substantially -- accounts for the Fund's rather dramatic underperformance
versus the S&P 500 Index.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Utilities -- Electric 56.7%
................................................................................
Utilities -- Telephone 14.4%
................................................................................
Utilities -- Gas 5.1%
................................................................................
Information Services & Technology 4.0%
................................................................................
Communication Systems & Services 3.3%
................................................................................
What adjustments did you make to the portfolio?
It has been extremely frustrating to watch the market climb higher while utility
stocks -- and utility funds -- continue to struggle. Despite any short-term
volatility, however, we remain committed to our long-term strategy of pursuing
quality utility companies with strong industry positioning that offer investors
a high income, defensively oriented investment option.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
During the final months of the fiscal period, we made some adjustments regarding
individual securities which we feel will benefit performance going forward. We
sold EVI Inc., a manufacturer of oilfield tools and equipment, due to a
deterioration in their earnings prospects, but not before capturing a solid
gain. With the proceeds from this sale, we purchased R&B Falcon Corp., a
worldwide provider of contract drilling services. We feel R&B Falcon represents
an attractively valued opportunity and was added following a substantial decline
in its share price as a result of plunging oil prices.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
Houston Industries, Inc. 6.1%
................................................................................
Sprint Corp. 6.0%
................................................................................
Companhia Paranaense de
Energia-Copel, Plc, ADR, Conv. Pfd. 3.8%
................................................................................
Marketspan Corp. 3.5%
................................................................................
AirTouch Communications, Inc., 6.00%, Conv. Pfd. 3.3%
................................................................................
BNDES Participacoes S.A., Conv. Pfd. 3.1%
...............................................................................
Central Hudson Gas & Electric Corp. 3.1%
................................................................................
Pinnacle West Capital Corp. 3.0%
................................................................................
U.S. West, Inc. 3.0%
...............................................................................
Felcor Lodging Trust, Inc. REIT 2.8%
................................................................................
What areas positively impacted performance?
The Fund's 14% position in Utilities -- Telephone, as of July 31, 1998, enjoyed
a relatively strong fiscal year despite a difficult period for the utility
sector in general. For example, three of the portfolio's holdings -- Ameritech,
U.S. West and Bellsouth -- posted total returns of 52%, 52% and 49%,
respectively. Other noteworthy non-telephone companies include Enron, up 43%,
and Houston Industries (exchangeable for Time Warner common stock), up 48%.
What is your outlook for the utility industry?
The utility industry has experienced some volatility over the past couple of
years as the effects of deregulation have intensified competition and changed
the operating environment within the utility sector. Subsequently, utility
companies are increasingly embracing mergers as an effective vehicle to gain
market share and diversify their source of earnings growth. We anticipate
consolidation among utility companies to continue going forward and are actively
searching for companies that will benefit from this trend.
We are also confident that as the market rotation toward growth-oriented issues
reverses itself, income-oriented stocks -- and the utility sector in particular
- -- will enjoy improved performance. We feel the Evergreen Utility Fund offers
investors an attractive investment option, especially considering the stock
market's current valuation. We continue to adhere to our long-term strategy of
providing shareholders a diversified, high income portfolio with defensive
characteristics.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We try to identify good companies with attractive stock prices where we can find
improvements in operating performance.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF MATTHEW D. FINN APPEARS HERE]
Matthew D. Finn, CFA
Tenure: March 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 4/12/85 2/2/93 9/2/94 1/31/91
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge 4.35% 4.18% 7.83% n/a
................................................................................
1 year w/o sales charge 9.55% 8.69% 8.74% 9.79%
................................................................................
3 years 17.89% 18.21% 18.95% 20.08%
................................................................................
5 years 16.19% 16.30% -- 17.62%
................................................................................
10 years 14.71% -- -- --
................................................................................
Since Inception 14.05% 15.41% 18.64% 16.85%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $0.29 $0.12 $0.12 $0.35
...............................................................................
12-month capital gain
distributions per share $4.38 $4.38 $4.38 $4.38
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P 500 Index CPI
Jul-88 9,525 10,000 10,000
Jul-89 12,580 13,193 10,498
Jul-90 13,322 14,051 11,004
Jul-91 14,841 15,844 11,494
Jul-92 16,426 17,870 11,857
Jul-93 17,741 19,430 12,186
Jul-94 19,070 20,433 12,523
Jul-95 22,926 25,768 12,869
Jul-96 25,310 30,037 13,245
Jul-97 35,996 45,698 13,544
Jul-98 39,434 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Value Fund
Class A, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the fiscal year?
The Fund performed positively during a period in which the stock market did not
favor the value style of investing. For the 12 months ended July 31, 1998, the
Evergreen Value Fund's Class A shares had a total return of 9.55%, while the
Class B shares had a total return of 8.69% and the Class C shares had a return
of 8.74%. These returns are unadjusted for applicable sales charges. The Class
Y shares had a return of 9.79% for the fiscal year. During the same 12-month
period, the S&P 500 Index had a return of 19.29% and the S&P's Barra Value Index
had a return of 13.33%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $990,822,366
................................................................................
Number of Holdings 93
................................................................................
P/E Ratio* 23.8x
................................................................................
Beta* 0.97
................................................................................
*as of 6/30/98
How would you describe the investment environment during the 12 months?
The environment has been dominated by concerns about economic activity in Asia
and the impact it will have on Asia's trading partners. Investors have been
taking the Asian crisis into consideration since the third and fourth quarters
of 1997, although we did have a great move in the U.S. stock market early in
1998. Two types of companies dominated the rally in the U.S. The first were
larger capitalization, stable growth companies which are less susceptible to a
fall-off in economic activity. The second were domestically oriented companies,
such as retailers. This rally appears to have peaked in July, before a
correction set in. Again, investors were concerned about the pace of economic
activity associated with the effects of Asia.
Worldwide, the impact of Asia also has been felt in emerging markets, including
Latin America and Russia. The U.S. consumer and the European industrial sectors
have been the most influential sources of the earnings of multi-national
corporations during the past year.
You became portfolio manager of the Fund, effective on March 16, 1998. How
would you describe your investment style?
The objective and the investment style of the Fund have not changed. We try to
identify good companies with attractive stock prices where we can find
improvements in operating performance. This is very consistent with the manner
in which previous managers have operated. We look for growth of capital first,
with income as a secondary objective.
The Fund invests primarily in value-oriented, large capitalization companies
with improving fundamentals. It is a value strategy that emphasizes quality
companies.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Banks 19.3%
................................................................................
Healthcare Products & Services 13.0%
................................................................................
Finance & Insurance 10.3%
................................................................................
Oil / Energy 8.6%
................................................................................
Information Services & Technology 7.1%
...............................................................................
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Within this context, what areas have you emphasized in managing the Fund?
The largest areas of emphasis have been in healthcare, financial services and
some technology. In terms of relative weightings versus the large-
capitalization, value indexes, the heaviest overweighting has been in
healthcare, predominately pharmaceutical companies. We have found in this
industry the best combination of revenue growth, reasonable valuations and
stability of earnings. In addition to increasing our overall weighting, we have
added new positions in companies such as Merck and Pharmacia & Upjohn. We also
sold the stocks of several companies when we became uncomfortable with their
valuation levels, including Tenet Healthcare Corp. and HEALTHSOUTH Corp.
Financial services companies accounted for nearly 30% of net assets at the end
of the period. This has been a significant area of emphasis, even though we are
somewhat underweighted versus the value indexes. We have found valuations that
are still relatively attractive and we have been able to invest in companies
that we believe can achieve their earnings estimates. In addition, we don't
think any downturn will be large enough to affect overall credit quality.
Moreover, we believe the Federal Reserve Board's disposition will be to lower
short-term rates, which should benefit financial services companies. Beyond
increasing the emphasis on the financial services industry overall, we have
added a number of specific companies to the portfolio, including Federal
National Mortgage Association and ReliaStar Financial, an insurance company.
We have emphasized technology because we have found attractive stock valuations
and we believe the long-term outlook for this industry remains favorable,
despite current concerns about economic activity. In technology, we have added
American Power Conversion and Gateway, while selling the Fund's holdings in 3Com
Corp., a networking company.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
General Electric Co. 3.5%
................................................................................
Fleet Financial Group, Inc. 2.9%
................................................................................
Bristol-Myers Squibb Co. 2.4%
................................................................................
Wachovia Corp. 2.3%
................................................................................
BankBoston Corp. 2.1%
................................................................................
First Chicago NBD Corp. 2.1%
................................................................................
NationsBank Corp. 2.0%
...............................................................................
Cisco Systems, Inc. 1.9%
................................................................................
Equity Residential Properties Trust REIT 1.9%
................................................................................
International Business Machines Corp. 1.9%
................................................................................
What areas have you de-emphasized?
We have reduced the emphasis on stocks of companies in economically sensitive
industries, which tend to be hurt in any economic slowdown. These include
companies in the chemicals, building materials, railroad, energy and metal
products and services. Among the stocks that we sold entirely were those of
Alcoa and Alumax in metal products and services; and Ashland, Tosco and Ultramar
Diamond Shamrock Corp., in energy. We don't expect that we will be emphasizing
the general area of basic materials until supply and demand again are in
balance.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
In our view, the equity market is well on its way to discounting or taking into
consideration in its valuations of stocks, the effects of a slowdown in world
economic activity. This is not to say there may not be more bad news, perhaps
related to a possible slowdown in consumer demand in the United States or in
industrial expansion in Europe. Ultimately, however, we believe we will see an
easing of monetary policy in the major markets, such as the United States and
the United Kingdom. We also believe Japan's government will act to stimulate
the economy. At some point, investors will look beyond temporary dips in
earnings and the equity markets will rally.
With this outlook, we will continue to try to find good quality companies whose
stock prices may have been unduly penalized by short-term events. This should
give us some great opportunities to buy. We don't expect a deep slump. And
even in a slump, we believe we may be able to find companies that can prosper
despite being in out-of-favor industries, such as specialty chemicals.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We rely on fundamental analysis to determine a company's potential to grow
earnings and the risk to the stock if it fails to meet our targets.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF HARLAN R. SONDERLING APPEARS HERE]
Harlan R. Sonderling, CPA, CFA
Tenure: June 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYP BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
-------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 4/14/87 2/1/93 2/1/93 1/31/97
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 8.44% 8.01% 11.99% n/a
................................................................................
1 year w/o sales charge 13.85% 13.01% 12.99% 14.29%
................................................................................
3 years 22.14% 22.46% 23.13% --
................................................................................
5 years 16.45% 16.45% 16.65% --
................................................................................
10 years 14.65% -- -- --
...............................................................................
Since Inception 12.81% 15.84% 15.95% 20.80%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.19 $ 0.06 $ 0.06 $ 0.24
................................................................................
12-month capital gain
distributions per share $ 1.52 $ 1.52 $ 1.52 $ 1.52
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P 500 Index CPI
Jul-88 9,525 10,000 10,000
Jul-89 11,966 13,193 10,498
Jul-90 12,744 14,051 11,004
Jul-91 14,484 15,844 11,494
Jul-92 15,413 17,870 11,857
Jul-93 17,448 19,430 12,186
Jul-94 18,005 20,433 12,523
Jul-95 20,507 25,768 12,869
Jul-96 23,983 30,037 13,245
Jul-97 34,454 45,698 13,544
Jul-98 39,228 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Fund for
Total Return Class A, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund for Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Fund for Total Return performed well relative to its peer group of
value-oriented, conservative equity mutual funds. For the 12 months ended
July 31, 1998, the Fund's Class A Shares had a total return of 13.85%, while the
Class B Shares had a return of 13.01%, and the Class C Shares had a return of
12.99%. These returns are unadjusted for applicable sales charges. The Class Y
Shares had a return of 14.29% during the period. For the same 12-month period,
the Standard & Poor's 500 Index had a return of 19.29%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $179,377,032
................................................................................
Number of Holdings 67
...............................................................................
P/E Ratio* 20.7x
................................................................................
Beta* 0.98
................................................................................
*as of 6/30/98
How would you describe the investment environment during the 12-month period?
It was very favorable for stocks in general, although the market tended to
reward investments in larger capitalization, high growth companies, with high
price/earnings ratios, over more value- and yield-oriented styles, such as that
emphasized by the Fund. The 12-month period was marked by declining interest
rates, robust economic growth, strong employment, and low and diminishing
inflation. The Asian economic crisis started during the latter part of 1997,
and its effects on the U.S. economy and with the U.S. stock market were only
beginning to be felt in July of 1998.
What investment strategies were employed during the year, and have there been
any changes since you took over as portfolio manager on June 5, 1998?
The basic objective and strategies of the Fund remain the same. We seek total
return from a combination of capital growth and income. The strategy, which has
been in place since the Fund began 11 years ago, is to invest in U.S. stocks,
foreign stocks, bonds and money market instruments with the goal of earning more
consistent total returns, with less price fluctuation, than a portfolio of U.S.
stocks or bonds alone. In investing in stocks, the Fund emphasizes established
companies, principally larger capitalization stocks, with some mid-cap holdings.
We rely on fundamental analysis to determine a company's potential to grow
earnings and the risk to the stock if it fails to meet our targets.
Since taking over as portfolio manager, I have slightly increased the cash level
in the portfolio. When I became portfolio manager in June, about 6% of net
assets were invested in cash and cash-equivalent securities. At the close of
the fiscal year on July 31, 11.4% of net assets were in cash and cash-
equivalents, with about 82% in common stocks of U.S. corporations. I did this
mainly because of concerns about the high valuation levels of many stocks. We
sold fully valued stock holdings, but were unwilling to re-invest all the
proceeds at the high current prices of many stocks. We kept the proceeds in
cash rather than in longer-maturity fixed income securities because cash-
equivalent securities offered almost as much yield, but with much less price
risk.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
We also have increased the dividend yield of the portfolio. We have done this
partly by investing in higher-yielding, relatively undervalued stocks. Over the
long term, our goal is to have a portfolio with a current income, or dividend
yield, that is 20-to-25% higher than that of the S&P 500. At the close of the
fiscal year, the portfolio had a dividend yield 50% higher than that of the S&P.
In addition, we have added several convertible securities to the portfolio to
add income without sacrificing growth opportunities. The Fund did not own any
foreign securities at the close of the fiscal period. We did not believe
valuations of either foreign stocks or currencies justified investment.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Healthcare Products & Services 13.1%
................................................................................
Banks 12.0%
................................................................................
Finance & Insurance 8.5%
................................................................................
Retailing & Wholesale 6.0%
................................................................................
Real Estate 5.9%
...............................................................................
What sectors or industries have you emphasized?
The Fund's largest area of emphasis is banking and finance, at about 20% of net
assets, compared with about 18% of the S&P 500. In general, financial stocks
have been bolstered by industry consolidation, low interest rates and a strong
economy. In addition, growing fee income has helped many companies. Our two
largest financial holdings are Fleet Financial Group and BankBoston Corp., two
Northeast-based companies with strong competitive positions.
While banking and finance stocks have been strong performers, we are watching
them very carefully for signs of economic slowdown that could cause a
deterioration of credit quality.
The second largest weighting is in healthcare, at about 13.1% of net assets,
compared with about 11.9% in the S&P. We believe pharmaceuticals are among the
most attractive consumer growth industries. These companies have high sales
growth driven by the aging population and the interest of the managed care
industry in emphasizing drug therapy in healthcare. Three of the Fund's top
four holdings are in the pharmaceutical industry. The largest position is
American Home Products Corp., which has especially attractive prospects as the
result of its pending merger with Monsanto. The other two major holdings are
Bristol-Myers Squibb and Merck & Co.
Another top sector is Real Estate including the Fund's investments in Real
Estate Investment Trusts, or REITs, at about 6% of net assets. The past six
months have been a difficult period for REITs because the market has favored
large-capitalization, growth companies. We believe REITs remain attractive,
however, because of their growing dividends and their defensive qualities in an
economic slowdown.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
American Home Products Corp. 3.4%
................................................................................
Bristol-Myers Squibb Co. 3.2%
................................................................................
General Electric Co. 3.0%
................................................................................
Merck & Co., Inc. 2.7%
................................................................................
Fleet Financial Group, Inc. 2.4%
................................................................................
International Business Machines Corp. 2.2%
................................................................................
BankBoston Corp. 2.2%
................................................................................
Philip Morris Companies, Inc. 1.8%
................................................................................
TCF Financial Corp. 1.8%
................................................................................
Wal-Mart Stores, Inc. 1.8%
................................................................................
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What areas have you de-emphasized?
The two most significant underweightings are in technology and consumer staples,
such as food, personal care and beverage companies.
We have de-emphasized technology companies primarily because of concern that
this industry may be particularly vulnerable to earnings disappointments in the
months ahead. In addition, they tend not to pay high dividends. We do,
however, maintain a core of high quality technology companies, led by the
investment in IBM, at about 2.2% of net assets. We have underweighted consumer
staples because we believe valuations are too high, especially when compared
against pharmaceuticals.
What is your outlook?
Business activity appears to be slowing down, although recession is unlikely.
Sales growth, for example, is at its lowest rate since 1993. The principal
cause of the slowdown is the Asian crisis, which is likely to affect U.S.
businesses by limiting their ability to raise prices and increase their profits.
It is less likely to affect overall economic activity, but concerns will linger.
Very low unemployment and the upward trend in wages also may lead to a squeeze
in corporate profits, despite ongoing productivity enhancements and the
efficiencies of mergers and acquisitions. Slowing earnings growth is a concern
to us because of the high valuations of stocks.
Within this environment, the Fund's focus remains on the stocks of high-quality,
income-producing domestic companies. We will seek to avoid investments in
companies that could have disappointing earnings. As long as the returns of
cash and cash-equivalents remain attractive, we will tend to emphasize cash
rather than longer-maturity fixed income instruments.
We believe this conservative strategy has the potential to continue to deliver
attractive returns, with less price risk than more aggressive investment
strategies. We continue to see investment opportunities in a growing economy
with moderate interest rates and low inflation.
29
<PAGE>
EVERGREEN
Blue Chip Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
July 31, 1998*
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD $ 27.39
--------
........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.08
.........................................................................
Net realized and unrealized gains or losses on securities and
foreign currency related transactions 3.01
--------
.........................................................................
Total from investment operations 3.09
--------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.06)
.........................................................................
From net realized gain on securities and foreign currency
related transactions 0
--------
.........................................................................
Total distributions (0.06)
--------
.........................................................................
NET ASSET VALUE END OF PERIOD $ 30.42
--------
.........................................................................
TOTAL RETURN+ 11.29%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $284,735
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.20%++
.........................................................................
Total expenses, excluding indirectly paid expenses 1.20%++
.........................................................................
Net investment income 0.49%++
.........................................................................
PORTFOLIO TURNOVER RATE 112%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
Period Ended -------------------------------------------------
July 31, 1998** 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF PERIOD $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42 $ 23.17
-------- -------- -------- -------- -------- --------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income (0.12) 0.15 0.12 0.25 0.16 0.11
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 5.72 7.97 3.69 2.66 (0.35) 3.11
-------- -------- -------- -------- -------- --------
Total from investment
operations 5.60 8.12 3.81 2.91 (0.19) 3.22
-------- -------- -------- -------- -------- --------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.96) (3.18) (0.98) (2.78) (1.74) (0.69)
-------- -------- -------- -------- -------- --------
From net investment
income (0.08) (0.20) (0.76) (0.36) (0.28) (0.28)
.........................................................................
Total distributions (5.04) (3.38) (1.74) (3.14) (2.02) (0.97)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE END OF
PERIOD $ 30.35 $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42
-------- -------- -------- -------- -------- --------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 20.89% 34.76% 17.31% 13.87% (0.72%) 14.31%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $117,893 $312,935 $224,819 $199,456 $208,532 $234,688
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.68%++ 1.57% 1.85% 1.75% 2.07% 2.28%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.68%++ 1.56% 1.84% N/A N/A N/A
.........................................................................
Net investment income (0.02%)++ 0.55% 0.52% 1.09% 0.67% 0.47%
.........................................................................
PORTFOLIO TURNOVER RATE 112% 109% 139% 115% 73% 96%
.........................................................................
</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
July 31, 1998.
** For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August 31 to July 31, effective July 31, 1998.
See Combined Notes to Financial Statements.
30
<PAGE>
EVERGREEN
Blue Chip Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period Ended
July 31, 1998*
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD $27.70
------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0(a)
.........................................................................
Net realized and unrealized gains or losses on securities and
foreign currency related transactions 2.72
------
.........................................................................
Total from investment operations 2.72
------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.02)
.........................................................................
From net realized gain on securities and foreign currency
related transactions 0
------
.........................................................................
Total distributions (0.02)
------
.........................................................................
NET ASSET VALUE END OF PERIOD $30.40
------
.........................................................................
TOTAL RETURN+ 9.80%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $ 780
........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.02%++
.........................................................................
Total expenses, excluding indirectly paid expenses 2.02%++
.........................................................................
Net investment income (0.27%)++
.........................................................................
PORTFOLIO TURNOVER RATE 112%
.........................................................................
</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
July 31, 1998.
(a) Less than one cent per share.
See Combined Notes to Financial Statements.
31
<PAGE>
EVERGREEN
Growth and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- ---------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF YEAR $27.26 $22.53 $18.63 $14.48
------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.16 0.08 0.12 0.13
.........................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 2.86 4.72 4.26 4.64
------ ------ ------ ------
.........................................................................
Total from investment operations 3.02 4.80 4.38 4.77
------ ------ ------ ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.13) (0.07) (0.13) (0.14)
.........................................................................
From net realized gain on securities
and foreign currency related
transactions (1.01) 0 (0.35) (0.48)
------ ------ ------ ------
.........................................................................
Total distributions (1.14) (0.07) (0.48) (0.62)
------ ------ ------ ------
.........................................................................
NET ASSET VALUE END OF YEAR $29.14 $27.26 $22.53 $18.63
------ ------ ------ ------
.........................................................................
TOTAL RETURN+ 11.26% 21.33% 23.50% 33.00%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR (MILLIONS) $ 296 $ 166 $ 85 $ 19
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.46% 1.47%++ 1.41% 1.55%++
........................................................................
Total expenses, excluding indirectly
paid expenses 1.46% 1.47%++ N/A N/A
.........................................................................
Total expenses, excluding fee waiv-
ers and expense reimbursements N/A N/A N/A 1.64%++
.........................................................................
Net investment income 0.61% 0.57%++ 0.70% 0.99%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
.........................................................................
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- ---------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF YEAR $27.10 $22.43 $18.59 $14.48
------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
........................................................................
Net investment income (0.02) (0.02) 0(a) 0.05
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 2.81 4.69 4.20 4.61
------ ------ ------ ------
.........................................................................
Total from investment operations 2.79 4.67 4.20 4.66
------ ------ ------ ------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
From net realized gain on securities
and foreign currency related
transactions (1.01) 0 (0.35) (0.48)
------ ------ ------ ------
.........................................................................
From net investment income 0 0 (0.01) (0.07)
.........................................................................
Total distributions (1.01) 0 (0.36) (0.55)
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $28.88 $27.10 $22.43 $18.59
------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 10.44% 20.82% 22.60% 32.20%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR (MILLIONS) $1,000 $ 542 $ 245 $ 46
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.21% 2.25%++ 2.17% 2.24%++
.........................................................................
Total expenses, excluding indirectly
paid expenses 2.21% 2.25%++ N/A N/A
.........................................................................
Total expenses, excluding fee
waivers and expense reimbursements N/A N/A N/A 2.26%++
.........................................................................
Net investment income (0.14%) (0.19%)++ (0.06%) 0.30%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
(a) Less than one cent per share.
32
<PAGE>
EVERGREEN
Growth and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- ---------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 27.10 $ 22.43 $ 18.58 $ 14.48
--------- --------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income (0.02) (0.02) 0(a) 0.06
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.82 4.69 4.21 4.60
--------- --------- ----------- -----------
........................................................................
Total from investment
operations 2.80 4.67 4.21 4.66
--------- --------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income 0 0 (0.01) (0.08)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.01) 0 (0.35) (0.48)
--------- --------- ----------- -----------
.........................................................................
Total distributions (1.01) 0 (0.36) (0.56)
--------- --------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 28.89 $ 27.10 $ 22.43 $ 18.58
--------- --------- ----------- -----------
.........................................................................
TOTAL RETURN+ 10.47% 20.82% 22.60% 32.20%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 50 $ 24 $ 10 $ 20
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.21% 2.25%++ 2.17% 2.15%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 2.21% 2.25%++ N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 4.94%++
.........................................................................
Net investment income (0.13%) (0.19%)++ (0.06%) 0.35%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 27.29 $ 22.55 $18.64 $14.52 $15.41 $14.18
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.24 0.11 0.18 0.18 0.14 0.14
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.87 4.73 4.25 4.59 0.12 1.91
--------- --------- ------ ------ ------ ------
Total from investment
operations 3.11 4.84 4.43 4.77 0.26 2.05
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.01) 0 (0.35) (0.48) (1.01) (0.68)
--------- --------- ------ ------ ------ ------
From net investment
income (0.20) (0.10) (0.17) (0.17) (0.14) (0.14)
.........................................................................
Total distributions (1.21) (0.10) (0.52) (0.65) (1.15) (0.82)
--------- --------- ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 29.19 $ 27.29 $22.55 $18.64 $14.52 $15.41
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 11.56% 21.52% 23.80% 32.90% 1.70% 14.40%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 801 $ 616 $ 442 $ 141 $ 73 $ 77
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.20% 1.21%++ 1.16% 1.27% 1.33% 1.26%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.20% 1.21%++ 1.16% N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A N/A N/A
.........................................................................
Net investment income 0.86% 0.82%++ 0.93% 1.11% 0.96% 0.99%
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17% 29% 28%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to De-
cember 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
(a) Less than one cent per share.
</TABLE>
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Income and Growth Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- ------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 23.94 $ 21.79 $ 20.15 $ 17.28 $17.09
--------- --------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT OP-
ERATIONS
.........................................................................
Net investment income 1.05 0.52# 1.02 1.01 0.02
........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.81 2.15 1.67 2.94 0.17
--------- --------- ------- ------- ------
.........................................................................
Total from investment op-
erations 1.86 2.67 2.69 3.95 0.19
--------- --------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (1.02) (0.52) (1.05) (1.08) 0
.........................................................................
From net realized gain on
securities and foreign
currency related
transactions (1.59) 0 0 0 0
--------- --------- ------- ------- ------
.........................................................................
Total distributions (2.61) (0.52) (1.05) (1.08) 0
--------- --------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.19 $ 23.94 $ 21.79 $ 20.15 $17.28
--------- --------- ------- ------- ------
.........................................................................
TOTAL RETURN+ 7.93% 12.45% 13.80% 23.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 15,005 $ 11,955 $ 9,678 $ 4,412 $ 119
.........................................................................
RATIOS TO AVERAGE NET AS-
SETS:
Total expenses 1.50% 1.45%++ 1.44% 1.36% 1.45%++
.........................................................................
Total expenses, excluding
indirectly paid expenses 1.50% 1.45%++ N/A N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A N/A N/A 2.50% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 4.20% 4.69%++ 4.93% 5.39% 4.09%++
........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- ------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 23.81 $ 21.69 $ 20.08 $ 17.28 $17.09
--------- --------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT OP-
ERATIONS
.........................................................................
Net investment income 0.86 0.43# 0.89 0.91 0.02
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.81 2.15 1.64 2.87 0.17
--------- --------- ------- ------- ------
.........................................................................
Total from investment op-
erations 1.67 2.58 2.53 3.78 0.19
--------- --------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.85) (0.46) (0.92) (0.98) 0
........................................................................
From net realized gain on
securities and foreign
currency related
transactions (1.59) 0 0 0 0
--------- --------- ------- ------- ------
.........................................................................
Total distributions (2.44) (0.46) (0.92) (0.98) 0
--------- --------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.04 $ 23.81 $ 21.69 $ 20.08 $17.28
--------- --------- ------- ------- ------
.........................................................................
TOTAL RETURN+ 7.13% 12.06% 13.00% 22.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 54,544 $ 43,977 $35,323 $14,750 $ 599
.........................................................................
RATIOS TO AVERAGE NET AS-
SETS:
Total expenses 2.25% 2.20%++ 2.19% 2.11% 2.23%++
........................................................................
Total expenses, excluding
indirectly paid expenses 2.25% 2.20%++ N/A N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A N/A N/A 2.25% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 3.46% 3.94%++ 4.17% 4.69% 3.23%++
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
** For the six-month period ended July 31, 1997. The Fund changed its fiscal
year end from January 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Income and Growth Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- --------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 23.81 $ 21.69 $ 20.08 $ 17.27 $ 17.09
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.87 0.44# 0.87 0.90 0.01
........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.80 2.14 1.66 2.89 0.17
--------- --------- ------- ------- -------
.........................................................................
Total from investment
operations 1.67 2.58 2.53 3.79 0.18
--------- --------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.85) (0.46) (0.92) (0.98) 0
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.59) 0 0 0 0
--------- --------- ------- ------- -------
.........................................................................
Total distributions (2.44) (0.46) (0.92) (0.98) 0
--------- --------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.04 $ 23.81 $ 21.69 $ 20.08 $ 17.27
--------- --------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 7.13% 12.06% 12.90% 22.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 1,259 $ 950 $ 982 $ 523 $ 24
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.25% 2.20%++ 2.19% 2.11% 2.22%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 2.25% 2.20%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 13.03% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 3.48% 4.06%++ 4.15% 4.67% 2.68%++
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- --------------------------- Year Ended
1998 1997** 1997 1996 1995*** March 31,1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 23.98 $ 21.81 $ 20.16 $ 17.28 $ 18.29 $20.90
--------- --------- ------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 1.02 0.55 1.08 1.10 0.87 1.08
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.89 2.16 1.66 2.87 (0.55) (1.41)
--------- --------- ------- ------- ------- ------
.........................................................................
Total from investment
operations 1.91 2.71 2.74 3.97 0.32 (0.33)
--------- --------- ------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
........................................................................
From net investment
income (1.08) (0.54) (1.09) (1.09) (1.08) (1.08)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.59) 0 0 0 (0.25) (1.20)
--------- --------- ------- ------- ------- ------
.........................................................................
Total distributions (2.67) (0.54) (1.09) (1.09) (1.33) (2.28)
--------- --------- ------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.22 $ 23.98 $ 21.81 $ 20.16 $ 17.28 $18.29
--------- --------- ------- ------- ------- ------
.........................................................................
TOTAL RETURN 8.16% 12.65% 14.10% 23.50% 1.90% (2.10)%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 880 $ 900 $ 858 $ 914 $ 942 $1,065
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 1.25% 1.20%++ 1.18% 1.19% 1.24%++ 1.18%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.25% 1.20%++ N/A N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A N/A N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A N/A
.........................................................................
Net investment income 4.46% 4.97%++ 5.14% 5.70% 5.70%++ 5.29%
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151% 106%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
** For the six-month period ended July 31, 1997. The Fund changed its fiscal
year end from January 31 to July 31, effective July 31, 1997.
*** For the ten-month period ended January 31, 1995. The Fund changed its fis-
cal year end from March 31 to January 31, effective January 31, 1995.
</TABLE>
See Combined Notes to Financial Statements.
35
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- -------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 15.69 $ 13.10 $ 11.57 $ 9.64
---------- -------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.29 0.14# 0.34 0.34
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.24 2.59 2.13 2.45
---------- -------- ----------- -----------
.........................................................................
Total from investment
operations 0.53 2.73 2.47 2.79
---------- -------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.28) (0.13) (0.34) (0.37)
........................................................................
From net realized gain on
securities and foreign
currency related
transactions (0.19) (0.01) (0.60) (0.49)
---------- -------- ----------- -----------
.........................................................................
Total distributions (0.47) (0.14) (0.94) (0.86)
---------- -------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.75 $ 15.69 $ 13.10 $ 11.57
---------- -------- ----------- -----------
.........................................................................
TOTAL RETURN+ 3.24% 20.99% 22.00% 29.50%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 54,142 $ 4,239 $ 336 $ 216
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.68% 1.71%++ 1.75% 1.75%++
........................................................................
Total expenses, excluding
indirectly paid expenses 1.68% 1.70%++ N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A 1.84%++ 5.03% 24.45%++
.........................................................................
Net investment income 1.95% 1.88%++ 3.08% 3.39%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- -------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 15.64 $ 13.09 $ 11.57 $ 9.64
---------- -------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.19 0.08# 0.27 0.28
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.22 2.57 2.11 2.43
---------- -------- ----------- -----------
........................................................................
Total from investment
operations 0.41 2.65 2.38 2.71
---------- -------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.19) (0.09) (0.26) (0.29)
.........................................................................
From net realized gain on
securities and foreign
currency related
transactions (0.19) (0.01) (0.60) (0.49)
---------- -------- ----------- -----------
.........................................................................
Total distributions (0.38) (0.10) (0.86) (0.78)
---------- -------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.67 $ 15.64 $ 13.09 $ 11.57
---------- -------- ----------- -----------
.........................................................................
TOTAL RETURN+ 2.49% 20.37% 21.10% 28.70%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 130,191 $ 9,462 $ 692 $ 266
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.43% 2.46%++ 2.50% 2.50%++
.........................................................................
Total expenses, excluding
indirectly paid expenses 2.42% 2.45%++ N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A 2.59% 5.72% 20.90%++
.........................................................................
Net investment income 1.20% 1.12%++ 2.39% 2.67%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to De-
cember 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- --------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF YEAR $ 15.63 $13.09 $11.56 $ 9.74
------- ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.19 0.10# 0.28 0.28
.........................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 0.22 2.54 2.10 2.33
------- ------ ------ ------
.........................................................................
Total from investment operations 0.41 2.64 2.38 2.61
------- ------ ------ ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.19) (0.09) (0.25) (0.30)
.........................................................................
From net realized gain on securities and
foreign currency related transactions (0.19) (0.01) (0.60) (0.49)
------- ------ ------ ------
.........................................................................
Total distributions (0.38) (0.10) (0.85) (0.79)
------- ------ ------ ------
.........................................................................
NET ASSET VALUE END OF YEAR $ 15.66 $15.63 $13.09 $11.56
------- ------ ------ ------
.........................................................................
TOTAL RETURN+ 2.49% 20.30% 21.10% 27.30%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR (THOUSANDS) $26,197 $2,770 $ 56 $ 24
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.43% 2.45%++ 2.50% 2.50%++
.........................................................................
Total expenses, excluding indirectly
paid expenses 2.42% 2.44%++ N/A N/A
.........................................................................
Total expenses, excluding fee waivers
and expense reimbursements N/A 2.58%++ 5.77% 187.29%++
........................................................................
Net investment income 1.20% 1.20%++ 2.33% 2.63%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ----------------------------------
1998 1997** 1996 1995 1994 1993***
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 15.71 $ 13.12 $11.58 $ 9.70 $10.15 $10.00
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.19# 0.38 0.38 0.34 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.24 2.56 2.13 2.38 (0.41) 0.15
--------- --------- ------ ------ ------ ------
.........................................................................
Total from investment
operations 0.58 2.75 2.51 2.76 (0.07) 0.25
--------- --------- ------ ------ ------ ------
........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.33) (0.15) (0.37) (0.38) (0.33) (0.10)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (0.19) (0.01) (0.60) (0.50) (0.05) 0
--------- --------- ------ ------ ------ ------
.........................................................................
Total distributions (0.52) (0.16) (0.97) (0.88) (0.38) (0.10)
--------- --------- ------ ------ ------ ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.77 $ 15.71 $13.12 $11.58 $ 9.70 $10.15
--------- --------- ------ ------ ------ ------
.........................................................................
TOTAL RETURN 3.57% 21.09% 22.40% 29.10% (0.70%) 2.50%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 96,556 $ 42,374 $8,592 $4,806 $3,613 $2,236
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.39% 1.39%++ 1.50% 1.50%++ 1.48% 0.00%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.39% 1.38%++ N/A N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A 1.59% 4.75% 4.34%++ 4.68% 4.39%
+ Initial sales charge or contingent deferred sales charge is not reflected.
.........................................................................
++ Annualized.
Net investment income 2.23% 2.39%++ 3.36% 3.56%++ 3.72% 4.07%
# Net investment income is based on average shares outstanding during the peri-
od.
........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48% 9% 15%
* For the period from January 24, 1995 (commencement of class operations) to
December 31, 1995.
.........................................................................
</TABLE>
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from October 1, 1993 (commencement of class operations) to
December 31, 1993.
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Utility Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.45 $ 10.57 $ 10.80 $ 9.00 $ 10.00
--------- --------- ------- -------- -------
........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.43 0.25 0.41 0.44 0.45
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.05 2.25 (1.01)
--------- --------- ------- -------- -------
Total from investment
operations 1.87 1.12 0.46 2.69 (0.56)
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- -------- -------
From net investment
income (0.44) (0.24) (0.41) (0.44) (0.44)
.........................................................................
Total distributions (1.56) (0.24) (0.69) (0.89) (0.44)
--------- --------- ------- -------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.45 $ 10.57 $ 10.80 $ 9.00
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 17.30% 10.72% 4.40% 30.70% (5.60%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 95,300 $ 91,638 $96,243 $107,872 $ 4,190
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.99% 1.00%++ 0.87% 0.79% 0.53%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.99% 0.99%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.14% 1.19%++ 1.15% 1.18% 1.43%++
.........................................................................
Net investment income 3.58% 3.85%++ 3.87% 4.51% 5.07%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.81 $ 9.00 $ 10.00
--------- --------- ------- -------- -------
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.05 2.26 (1.01)
--------- --------- ------- -------- -------
Total from investment
operations 1.78 1.07 0.38 2.63 (0.62)
--------- --------- ------- -------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.20 0.33 0.37 0.39
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- -------- -------
........................................................................
Total distributions (1.48) (0.19) (0.61) (0.82) (0.38)
--------- --------- ------- -------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.46 $ 10.58 $ 10.81 $ 9.00
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.36) (0.19) (0.33) (0.37) (0.38)
.........................................................................
.........................................................................
.........................................................................
........................................................................
TOTAL RETURN+ 16.31% 10.21% 3.60% 29.90% (6.20%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 43,776 $ 36,738 $38,511 $ 35,662 $28,792
........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.74% 1.75%++ 1.62% 1.53% 1.27%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.74% 1.74%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.88% 1.94%++ 1.89% 1.93% 2.11%++
.........................................................................
Net investment income 2.82% 3.10%++ 3.12% 3.78% 4.19%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 4, 1994 (commencement of class operations) to De-
cember 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Utility Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ---------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.82 $ 9.01 $ 9.33
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.20 0.33 0.37 0.12
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.04 2.26 (0.33)
--------- --------- ------- ------- -------
Total from investment
operations 1.78 1.07 0.37 2.63 (0.21)
--------- --------- ------- ------- -------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- ------- -------
From net investment
income (0.36) (0.19) (0.33) (0.37) (0.11)
.........................................................................
Total distributions (1.48) (0.19) (0.61) (0.82) (0.11)
--------- --------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.46 $ 10.58 $ 10.82 $ 9.01
--------- --------- ------- ------- -------
........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 16.31% 10.21% 3.50% 29.80% (2.20%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 486 $ 379 $ 396 $ 246 $ 128
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 1.74% 1.75%++ 1.63% 1.54% 1.94%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.74% 1.74%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.88% 1.94%++ 1.90% 1.93% 2.78%++
.........................................................................
Net investment income 2.82% 3.10%++ 3.13% 3.76% 3.96%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.82 $ 9.00 $ 9.51
--------- --------- ------- ------- -------
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ---------------------------
1998 1997** 1996 1995 1994***
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.45 0.88 0.03 2.27 (0.50)
--------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Total from investment
operations 1.91 1.13 0.47 2.74 (0.13)
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- ------- -------
Net investment income 0.46 0.25 0.44 0.47 0.37
.........................................................................
Total distributions (1.60) (0.25) (0.71) (0.92) (0.38)
--------- --------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 11.77 $ 11.46 $ 10.58 $ 10.82 $ 9.00
--------- --------- ------- ------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.48) (0.25) (0.43) (0.47) (0.38)
.........................................................................
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 17.60% 10.85% 4.50% 31.30% (1.60%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 1,695 $ 1,627 $ 2,000 $ 7,791 $ 5,201
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 0.74% 0.74%++ 0.61% 0.54% 0.40%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.74% 0.73%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 0.89% 0.94%++ 0.89% 0.93% 1.24%++
.........................................................................
Net investment income 3.82% 4.06%++ 4.01% 4.76% 4.93%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from February 28, 1994 (commencement of class operations) to
December 31, 1994.
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Value Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- -------------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.64 $ 20.57 $ 20.45 $ 16.62 $ 17.63 $ 17.11
--------- --------- -------- -------- -------- -------
.............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................
Net investment income 0.26 0.21 0.38 0.55 0.52 0.47
.............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.00 4.05 3.49 4.69 (0.20) 1.10
--------- --------- -------- -------- -------- -------
.............................................................................................
Total from investment
operations 2.26 4.26 3.87 5.24 0.32 1.57
--------- --------- -------- -------- -------- -------
.............................................................................................
LESS DISTRIBUTIONS
.............................................................................................
From net investment
income (0.29) (0.19) (0.41) (0.51) (0.51) (0.47)
.............................................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- -------- -------- -------- -------
.............................................................................................
Total distributions (4.67) (0.19) (3.75) (1.41) (1.33) (1.05)
--------- --------- -------- -------- -------- -------
.............................................................................................
NET ASSET VALUE END OF
YEAR $ 22.23 $ 24.64 $ 20.57 $ 20.45 $ 16.62 $ 17.63
--------- --------- -------- -------- -------- -------
............................................................................................
TOTAL RETURN+ 9.55% 20.78% 18.90% 31.80% 1.90% 9.30%
.............................................................................................
RATIOS/SUPPLEMENTAL DATA
.............................................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 476 $ 392 $ 328 $ 292 $ 189 $ 190
.............................................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.01% 0.92%++ 0.91% 0.90% 0.93% 0.99%
.............................................................................................
Total expenses,
excluding indirectly
paid expenses 1.01% 0.92%++ N/A N/A N/A N/A
.............................................................................................
Net investment income 1.04% 1.66%++ 1.77% 2.78% 2.96% 2.63%
.............................................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
.............................................................................................
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- -------------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.63 $ 20.58 $ 20.45 $ 16.62 $ 17.63 $ 17.24
--------- --------- -------- -------- -------- -------
.............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................
Net investment income 0.08 0.12 0.22 0.39 0.42 0.35
.............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.99 4.03 3.50 4.70 (0.20) 1.01
--------- --------- -------- -------- -------- -------
.............................................................................................
Total from investment
operations 2.07 4.15 3.72 5.09 0.22 1.36
--------- --------- -------- -------- -------- -------
.............................................................................................
LESS DISTRIBUTIONS
.............................................................................................
From net investment
income (0.12) (0.10) (0.25) (0.36) (0.41) (0.39)
.............................................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- -------- -------- -------- -------
.............................................................................................
Total distributions (4.50) (0.10) (3.59) (1.26) (1.23) (0.97)
--------- --------- -------- -------- -------- -------
............................................................................................
NET ASSET VALUE END OF
YEAR $ 22.20 $ 24.63 $ 20.58 $ 20.45 $ 16.62 $ 17.63
--------- --------- -------- -------- -------- -------
.............................................................................................
TOTAL RETURN+ 8.73% 20.23% 18.10% 30.90% 1.30% 8.00%
............................................................................................
RATIOS/SUPPLEMENTAL DATA
.............................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 326,459 $ 276,256 $197,411 $141,072 $104,297 $59,953
.............................................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.76% 1.67%++ 1.66% 1.65% 1.53% 1.48%++
Total expenses,
excluding indirectly
paid expenses 1.76% 1.67%++ N/A N/A N/A N/A
.............................................................................................
Net investment income 0.30% 0.92%++ 1.01% 2.04% 2.36% 2.09%++
.............................................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
............................................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 2, 1993 (commencement of class operations) to
December 31, 1993.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Value Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.61 $ 20.56 $ 20.44 $ 16.61 $ 18.28
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.10 0.12 0.22 0.39 0.19
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.97 4.03 3.50 4.70 (0.81)
--------- --------- ------- ------- -------
........................................................................
Total from investment
operations 2.07 4.15 3.72 5.09 (0.62)
--------- --------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.12) (0.10) (0.26) (0.36) (0.23)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82)
--------- --------- ------- ------- -------
.........................................................................
Total distributions (4.50) (0.10) (3.60) (1.26) (1.05)
--------- --------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 22.18 $ 24.61 $ 20.56 $ 20.44 $ 16.61
--------- --------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 8.74% 20.25% 18.10% 30.90% (3.40%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 5,125 $ 2,507 $ 1,458 $ 811 $ 485
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.76% 1.66%++ 1.67% 1.65% 1.68%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.76% 1.66%++ N/A N/A N/A
.........................................................................
Net investment income 0.29% 0.94%++ 1.00% 2.03% 2.16%++
.........................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70%
........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.64 $ 20.57 $20.45 $16.61 $17.63 $17.11
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.35 0.25 0.44 0.57 0.56 0.52
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.97 4.03 3.49 4.72 (0.20) 1.12
--------- --------- ------ ------ ------ ------
Total from investment
operations 2.32 4.28 3.93 5.29 0.36 1.64
--------- --------- ------ ------ ------ ------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- ------ ------ ------ ------
From net investment
income (0.35) (0.21) (0.47) (0.55) (0.56) (0.54)
.........................................................................
Total distributions (4.73) (0.21) (3.81) (1.45) (1.38) (1.12)
--------- --------- ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 22.23 $ 24.64 $20.57 $20.45 $16.61 $17.63
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 9.79% 20.93% 19.20% 32.20% 2.10% 9.70%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 183 $ 1,149 $ 996 $ 761 $ 507 $ 463
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.70% 0.67%++ 0.66% 0.65% 0.68% 0.65%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.70% 0.67%++ N/A N/A N/A N/A
.........................................................................
Net investment income 1.47% 1.91%++ 2.02% 3.02% 3.21% 2.98%
.........................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
EVERGREEN
Fund for Total Return
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended November 30,
---------------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.69 $ 17.33 $ 13.83 $ 11.75 $ 12.31 $ 12.06
---------- --------- ------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.21 0.18 0.26 0.25 0.24 0.21
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.46 3.34 3.83 2.80 (0.56) 1.31
---------- --------- ------- ------- ------- -------
.........................................................................
Total from investment
operations 2.67 3.52 4.09 3.05 (0.32) 1.52
---------- --------- ------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.19) (0.16) (0.26) (0.32) (0.24) (0.24)
........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
---------- --------- ------- ------- ------- -------
.........................................................................
Total distributions (1.71) (0.16) (0.59) (0.97) (0.24) (1.27)
---------- --------- ------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.65 $ 20.69 $ 17.33 $ 13.83 $ 11.75 $ 12.31
---------- --------- ------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 13.85% 20.40% 29.83% 26.57% (2.65%) 12.67%
........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 52,667 $ 47,812 $40,487 $27,037 $23,162 $26,367
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
........................................................................
Total expenses 1.21% 1.24%++ 1.41% 1.69% 1.59% 1.85%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.21% 1.22%++ 1.39% N/A N/A N/A
.........................................................................
Net investment income 1.01% 1.46%++ 1.66% 1.94% 1.93% 1.63%
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended November 30,
---------------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.63 $ 17.31 $ 13.84 $ 11.77 $ 12.32 $ 12.65
---------- --------- ------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.06 0.09 0.15 0.15 0.15 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.45 3.31 3.80 2.82 (0.56) 0.74
---------- --------- ------- ------- ------- -------
.........................................................................
Total from investment
operations 2.51 3.40 3.95 2.97 (0.41) 0.84
---------- --------- ------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.06) (0.08) (0.15) (0.25) (0.14) (0.14)
........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
---------- --------- ------- ------- ------- -------
.........................................................................
Total distributions (1.58) (0.08) (0.48) (0.90) (0.14) (1.17)
---------- --------- ------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.56 $ 20.63 $ 17.31 $ 13.84 $ 11.77 $ 12.32
---------- --------- ------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 13.01% 19.68% 28.73% 25.59% (3.36%) 6.68%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 105,748 $ 94,309 $43,526 $20,605 $ 7,314 $ 4,283
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
........................................................................
Total expenses 1.97% 2.02%++ 2.18% 2.47% 2.31% 2.64%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.97% 2.00%++ 2.16% 2.46% N/A N/A
.........................................................................
Net investment income 0.25% 0.58%++ 0.88% 1.06% 1.27% 0.84%++
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 1, 1993 (commencement of class operations) to
December 31, 1993.
** For the eight-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
Fund for Total Return
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended November 30,
--------------------- --------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.65 $ 17.32 $ 13.85 $11.78 $12.33 $12.65
--------- --------- ------- ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.05 0.09 0.14 0.16 0.15 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.46 3.32 3.81 2.81 (0.56) 0.75
--------- --------- ------- ------ ------ ------
.........................................................................
Total from investment
operations 2.51 3.41 3.95 2.97 (0.41) 0.85
--------- --------- ------- ------ ------ ------
........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.06) (0.08) (0.15) (0.25) (0.14) (0.14)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
--------- --------- ------- ------ ------ ------
.........................................................................
Total distributions (1.58) (0.08) (0.48) (0.90) (0.14) (1.17)
--------- --------- ------- ------ ------ ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.58 $ 20.65 $ 17.32 $13.85 $11.78 $12.33
--------- --------- ------- ------ ------ ------
.........................................................................
TOTAL RETURN+ 12.99% 19.73% 28.71% 25.57% (3.36%) 6.76%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 20,851 $ 21,125 $14,562 $9,503 $5,968 $5,030
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.97% 2.01%++ 2.17% 2.47% 2.34% 2.64%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.97% 1.99%++ 2.15% 2.44% N/A N/A
.........................................................................
Net investment income 0.25% 0.66%++ 0.89% 1.16% 1.21% 0.83%++
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------
1998 1997***
<S> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF YEAR $ 20.62 $ 17.74
--------- ---------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
........................................................................
Net investment income 0.24 0.18
.........................................................................
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions 2.51 2.86
--------- ---------
.........................................................................
Total from investment operations 2.75 3.04
--------- ---------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.24) (0.16)
.........................................................................
From net realized gain on securities and foreign
currency related transactions (1.52) 0
--------- ---------
.........................................................................
Total distributions (1.76) (0.16)
--------- ---------
.........................................................................
NET ASSET VALUE END OF YEAR $ 21.61 $ 20.62
--------- ---------
.........................................................................
TOTAL RETURN 14.29% 17.22 %
........................................................................
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $ 111 $ 93
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.93 % 1.34 %++
.........................................................................
Total expenses, excluding indirectly paid expenses 0.93 % 1.34 %++
.........................................................................
Net investment income 1.31 % 0.79 %++
.........................................................................
PORTFOLIO TURNOVER RATE 66 % 41 %
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 1, 1993 (commencement of class operations) to
November 30, 1993.
** For the eight-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from January 13, 1997 (commencement of class operations) to
July 31, 1997.
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Blue Chip Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 85.5%
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 2.5%
72,300 Chrysler Corp. ..................................... $ 4,279,256
55,000 Ford Motor Co. ..................................... 3,131,563
50,000 *Lear Corp. ........................................ 2,653,125
------------
10,063,944
------------
BANKS - 5.8%
50,000 BankAmerica Corp. .................................. 4,487,500
63,000 BankBoston Corp. ................................... 3,047,625
45,000 Fleet Financial Group, Inc. ........................ 3,867,187
65,000 Mellon Bank Corp. .................................. 4,379,375
180,000 North Fork Bancorp, Inc. ........................... 4,387,500
30,000 PNC Bank Corp. ..................................... 1,618,125
60,000 TCF Financial Corp. ................................ 1,732,500
------------
23,519,812
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 1.0%
97,000 Home Depot, Inc. ................................... 4,061,875
------------
BUSINESS EQUIPMENT &
SERVICES - 1.1%
40,000 Xerox Corp. ........................................ 4,222,500
------------
CAPITAL GOODS - 0.1%
12,000 Deere & Co. ........................................ 482,250
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.6%
45,000 Monsanto Co. ....................................... 2,548,125
------------
COMMUNICATION SYSTEMS & SERVICES - 2.2%
40,000 *Cisco Systems, Inc. ............................... 3,831,250
96,500 *WorldCom, Inc. .................................... 5,093,391
------------
8,924,641
------------
CONSUMER PRODUCTS &
SERVICES - 3.7%
28,500 Colgate-Palmolive Co. .............................. 2,634,469
58,000 Gillette Co. ....................................... 3,037,750
75,000 Procter & Gamble Co. ............................... 5,953,125
150,800 Stewart Enterprises, Inc. Cl. A..................... 3,425,987
------------
15,051,331
------------
DIVERSIFIED COMPANIES - 1.2%
80,000 Tyco International Ltd. ............................ 4,955,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.5%
149,500 General Electric Co. ............................... 13,352,219
9,000 Honeywell, Inc. .................................... 754,312
------------
14,106,531
------------
ENVIRONMENTAL SERVICES - 1.0%
162,500 *Republic Services, Inc. ........................... 4,062,500
------------
FINANCE & INSURANCE - 11.7%
35,000 American International Group, Inc................... 5,278,437
64,414 Associates First Capital Corp.
Cl. A.............................................. 5,004,163
45,000 CIGNA Corp. ........................................ 2,972,813
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FINANCE & INSURANCE - CONTINUED
92,500 Federal National Mortgage Association............... $ 5,735,000
143,800 Greenpoint Financial Corp. ......................... 5,707,062
65,000 Hartford Life, Inc. Cl. A........................... 3,761,875
40,000 Lincoln National Corp. ............................. 3,830,000
29,000 Morgan Stanley, Dean Witter, Discover & Co. ........ 2,524,813
31,500 PMI Group, Inc. .................................... 2,134,125
80,000 SLM Holding Corp. .................................. 3,700,000
96,000 Travelers Group, Inc. .............................. 6,432,000
------------
47,080,288
------------
FOOD & BEVERAGE PRODUCTS - 1.8%
90,500 Coca Cola Co. ...................................... 7,302,219
------------
HEALTHCARE PRODUCTS &
SERVICES - 13.1%
170,000 American Home Products Corp. ....................... 8,755,000
57,000 Bristol-Myers Squibb Co. ........................... 6,494,437
100,400 HBO & Co. .......................................... 2,958,663
150,000 *Health Management Associates, Inc. Cl. A........... 3,525,000
60,000 *HEALTHSOUTH Corp. ................................. 1,507,500
55,000 Johnson & Johnson................................... 4,248,750
82,900 Medtronic, Inc. .................................... 5,134,619
58,500 Merck & Co., Inc. .................................. 7,213,781
46,000 Pfizer, Inc. ....................................... 5,060,000
132,000 Pharmacia & Upjohn, Inc. ........................... 6,253,500
25,000 *Steris Corp. ...................................... 1,528,125
------------
52,679,375
------------
INFORMATION SERVICES & TECHNOLOGY - 10.2%
86,000 *BMC Software, Inc. ................................ 4,238,187
100,500 *EMC Corp. ......................................... 4,924,500
50,000 *Gateway 2000, Inc. ................................ 2,700,000
51,300 Intel Corp. ........................................ 4,330,041
41,000 International Business Machines Corp. .............. 5,432,500
102,600 *Microsoft Corp. ................................... 11,282,794
85,000 *Peoplesoft, Inc. .................................. 3,192,812
105,000 *Sun Microsystems, Inc. ............................ 4,957,969
------------
41,058,803
------------
LEISURE & TOURISM - 2.3%
96,000 Disney Walt Co. .................................... 3,306,000
40,000 Royal Caribbean Cruises Ltd. ....................... 2,972,500
82,500 Seagram Co. Ltd. ................................... 3,031,875
------------
9,310,375
------------
OIL/ENERGY - 8.1%
100,000 Anadarko Petroleum Corp. ........................... 3,431,250
92,000 British Petroleum Plc, ADR.......................... 7,383,000
86,000 Exxon Corp. ........................................ 6,030,750
40,000 Mobil Corp. ........................................ 2,790,000
92,000 Royal Dutch Petroleum Co. .......................... 4,692,000
137,100 Texaco, Inc. ....................................... 8,337,394
------------
32,664,394
------------
</TABLE>
44
<PAGE>
EVERGREEN
Blue Chip Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
PUBLISHING, BROADCASTING & ENTERTAINMENT - 4.7%
117,500 CBS Corp. .......................................... $ 3,987,656
25,000 *Clear Channel Communications, Inc. ................ 1,404,688
23,100 *Tele Communications, Inc. ......................... 963,703
35,000 Time Warner, Inc. .................................. 3,152,187
75,500 *Viacom, Inc. Cl. B................................. 5,171,750
120,000 *World Color Press, Inc. ........................... 4,087,500
------------
18,767,484
------------
REAL ESTATE - 1.2%
112,504 Equity Office Properties Trust REIT................. 2,798,537
80,000 First Industrial Realty Trust, Inc. REIT............ 2,210,000
------------
5,008,537
------------
RETAILING & WHOLESALE - 6.0%
119,500 *Borders Group Inc. ................................ 3,749,312
52,000 *Costco Companies, Inc. ............................ 2,952,625
101,600 CVS Corp. .......................................... 4,165,600
64,600 Dayton Hudson Corp. ................................ 3,088,688
63,125 Dollar General Corp. ............................... 2,588,125
52,500 Pier 1 Imports, Inc. ............................... 817,031
108,000 Wal-Mart Stores, Inc. .............................. 6,817,500
------------
24,178,881
------------
UTILITIES - TELEPHONE - 3.7%
60,000 Ameritech Corp. .................................... 2,951,250
66,100 AT&T Corp. ......................................... 4,007,313
70,000 GTE Corp. .......................................... 3,806,250
75,000 U.S. West, Inc. .................................... 4,003,125
------------
14,767,938
------------
Total Common Stocks
(cost $260,296,892)................................ 344,816,803
------------
</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 inter-
est at July 31, 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.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 1.0%
FINANCE & INSURANCE - 1.0%
70,000 Newell Financial Trust I
5.25%, 144A....................................... $ 4,165,000
------------
Total Convertible Preferred
(cost $3,556,250)................................. 4,165,000
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.0%
IRON & STEEL - 0.0%
$ 110,000 Compania Vale do Rio Doce Navegacao SA
1.00%, 12/31/99................................... $ 9
------------
Total Convertible Debentures
(cost $0)......................................... 9
------------
REPURCHASE AGREEMENT - 8.5%
34,092,000 Keystone Joint Repurchase Agreement, Investments in
repurchase agreements, in a joint trading account
purchased
7/31/98, 5.65% maturing 8/3/98, maturity value
$34,108,052
(cost $34,092,000) (a)............................ 34,092,000
------------
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $297,945,142)......................... 95.0% 383,073,812
OTHER ASSETS AND
LIABILITIES - NET........................... 5.0 20,334,253
----- ------------
NET ASSETS................................... 100.0% $403,408,065
===== ============
</TABLE>
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 81.6%
AEROSPACE & DEFENSE - 0.5%
282,000 Boeing Co. ....................................... $ 10,945,125
--------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.5%
50,000 Ford Motor Co. ................................... 2,846,875
430,000 Meritor Automotive, Inc. ......................... 8,707,500
--------------
11,554,375
--------------
BANKS - 9.1%
131,850 AmSouth Bancorp................................... 5,232,797
15,600 Astoria Financial Corp. .......................... 781,950
130,284 Banc One Corp. ................................... 6,734,054
80,000 Bank of New York Co., Inc. ....................... 5,120,000
16,820 BB & T Corp. ..................................... 1,181,605
286,500 BSB Bancorp, Inc. ................................ 9,311,250
135,000 Carolina First Corp. ............................. 3,307,500
14,300 Centura Banks, Inc. .............................. 989,381
38,838 Charter One Financial, Inc. ...................... 1,264,662
67,500 Citicorp.......................................... 11,475,000
12,878 Commerce Bankcorp, Inc. .......................... 585,926
45,750 Crestar Financial Corp. .......................... 3,119,578
55,600 Cullen/Frost Bankers, Inc. ....................... 2,953,750
71,824 First American Corp. ............................. 3,375,728
236,250 First Security Corp. ............................. 5,190,117
114,550 First Virginia Banks, Inc. ....................... 6,293,091
140,100 Firstar Corp. .................................... 6,996,244
23,600 FirstMerit Corp. ................................. 691,775
50,000 Fleet Financial Group, Inc. ...................... 4,296,875
210,000 Hibernia Corp. Cl. A.............................. 3,963,750
15,100 JSB Financial, Inc. .............................. 818,231
221,200 KeyCorp........................................... 7,520,800
22,650 Keystone Financial, Inc. ......................... 757,359
208,400 Marshall & Ilsley Corp. .......................... 11,709,475
53,125 NationsBank Corp. ................................ 4,236,719
167,400 Norwest Corp. .................................... 6,015,938
712,100 Pacific Century Financial Corp. .................. 13,974,962
130,000 Peoples Heritage Financial Group.................. 2,941,250
195,000 SouthTrust Corp. ................................. 7,885,313
27,900 St. Paul Bancorp, Inc. ........................... 627,750
117,300 State Street Corp. ............................... 8,130,356
98,475 Summit Bancorp.................................... 4,406,756
180,000 Susquehanna Bancshares, Inc. ..................... 4,050,000
12,785 Union Planters Corp. ............................. 696,783
53,787 Wachovia Corp. ................................... 4,605,512
1,030,000 Webster Financial Corp. .......................... 31,221,875
52,000 Wilmington Trust Corp. ........................... 3,084,250
--------------
195,548,362
--------------
BUILDING, CONSTRUCTION & FURNISHINGS - 3.3%
13,300 Armstrong World Industries, Inc. ................. 819,613
320,000 *Furniture Brands International, Inc. ............ 9,040,000
80,000 Home Depot, Inc. ................................. 3,350,000
349,100 *Jacobs Engineering Group, Inc. .................. 10,254,812
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
BUILDING, CONSTRUCTION & FURNISHINGS - CONTINUED
218,600 Lennar Corp. ..................................... $ 6,038,825
113,000 Lone Star Industries, Inc. ....................... 8,220,750
280,000 Lowe's Companies, Inc. ........................... 10,780,000
70,400 Southdown, Inc. .................................. 4,404,400
130,000 *Toll Brothers, Inc. ............................. 3,404,375
358,200 *US Home Corp. ................................... 13,410,112
--------------
69,722,887
--------------
BUSINESS EQUIPMENT &
SERVICES - 4.3%
422,500 Air Express International Corp. .................. 9,321,406
794,300 Circle International Group, Inc. ................. 18,169,612
180,000 *Compuware Corp. ................................. 9,686,250
133,000 Equifax, Inc. .................................... 5,436,375
123,436 First Data Corp. ................................. 3,571,929
640,200 Pittston Burlington Group......................... 7,642,388
334,700 *Platinum Technology Corp. ....................... 10,574,428
470,000 *Policy Management Systems Corp. ................. 20,621,250
427,000 Reynolds & Reynolds Co., Cl. A.................... 7,178,938
--------------
92,202,576
--------------
CAPITAL GOODS - 0.3%
127,200 Caterpillar, Inc. ................................ 6,169,200
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 3.2%
130,000 Air Products & Chemicals, Inc. ................... 4,550,000
180,000 Du Pont (E.I.) De Nemours & Co. .................. 11,160,000
265,000 Engelhard Corp. .................................. 5,531,875
165,000 *Grace (W.R.) & Co. .............................. 2,753,438
135,300 H.B. Fuller Co. .................................. 7,610,625
255,000 Morton International, Inc. ....................... 6,167,812
180,000 Nalco Chemical Co. ............................... 6,165,000
237,000 Pioneer Hi-Bred International, Inc. .............. 7,495,125
260,000 Praxair, Inc. .................................... 12,805,000
175,000 Solutia, Inc. .................................... 5,195,312
--------------
69,434,187
--------------
COMMUNICATION SYSTEMS & SERVICES - 0.8%
248,820 American Tower Systems Corp. ..................... 5,971,680
72,000 *Cisco Systems, Inc. ............................. 6,894,000
60,000 *WorldCom, Inc. .................................. 3,172,500
--------------
16,038,180
--------------
CONSUMER PRODUCTS &
SERVICES - 3.0%
235,200 Black & Decker Corp. ............................. 13,377,000
90,000 Colgate-Palmolive Co. ............................ 8,319,375
25,000 CPI Corp. ........................................ 625,000
9,800 *GC Companies, Inc. .............................. 458,150
179,000 Gucci Group....................................... 8,703,875
40,700 Harley-Davidson, Inc. ............................ 1,612,738
185,000 Hillenbrand Industries, Inc. ..................... 10,348,437
</TABLE>
46
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
162,500 Lancaster Colony Corp. ........................... $ 6,276,562
440,000 Premark International, Inc. ...................... 13,640,000
9,100 Toro Co. ......................................... 246,838
--------------
63,607,975
--------------
DIVERSIFIED COMPANIES - 0.6%
217,500 Harnischfeger Industries, Inc. ................... 5,410,313
200,000 ITT Industries, Inc. ............................. 6,975,000
--------------
12,385,313
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.6%
220,000 Baldor Electric Co. .............................. 4,565,000
185,000 Belden, Inc. ..................................... 4,879,375
65,000 Diebold Inc. ..................................... 1,641,250
70,200 General Electric Co. ............................. 6,269,738
175,100 Harman International Industries, Inc. ............ 6,905,506
180,000 Honeywell, Inc. .................................. 15,086,250
106,000 *Jabil Circuit, Inc. ............................. 3,690,125
136,100 Perkin Elmer Corp. ............................... 7,978,862
335,000 Sensormatic Electronics Corp. .................... 3,664,063
152,900 *Unitrode Corp. .................................. 2,025,925
2,331 Zilog, Inc. ...................................... 2,331
--------------
56,708,425
--------------
FINANCE & INSURANCE - 6.3%
120,000 AFLAC, Inc. ...................................... 4,125,000
17,800 American Bankers Insurance Group, Inc. ........... 1,073,563
97,000 Chubb Corp. ...................................... 7,117,375
279,750 Edwards (A.G.), Inc. ............................. 10,927,734
300,000 Federal Home Loan Mortgage Corp. ................. 14,175,000
315,000 Federal National Mortgage Association............. 19,530,000
42,750 First American Financial Corp. ................... 1,132,875
388,740 Frontier Insurance Group, Inc. ................... 6,900,135
200,000 Hartford Financial Services Group, Inc. .......... 10,412,500
115,000 LaSalle Re Holdings Ltd. ......................... 4,025,000
63,866 Legg Mason, Inc. ................................. 3,899,818
200,500 Lehman Brothers Holdings, Inc. ................... 14,436,000
29,100 Life RE Corp. .................................... 2,653,556
67,500 Meadowbrook Insurance Group, Inc. ................ 1,944,844
31,300 Mercury General Corp. ............................ 1,437,844
59,000 Mid Ocean Ltd. ................................... 4,661,000
272,100 Paine Webber Group, Inc. ......................... 12,822,712
212,000 Price (T.) Rowe & Associates, Inc................. 7,526,000
3,300 Reinsurance Group Of America...................... 183,563
125,000 UNUM Corp. ....................................... 6,585,937
--------------
135,570,456
--------------
FOOD & BEVERAGE PRODUCTS - 1.1%
90,000 Bestfoods......................................... 5,006,250
11,250 *Corn Products International, Inc. ............... 334,688
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FOOD & BEVERAGE PRODUCTS - CONTINUED
350,000 Darden Restaurants, Inc. ......................... $ 6,059,375
50,000 *Dominick's Supermarkets, Inc. ................... 2,253,125
40,000 Sara Lee Corp. ................................... 2,005,000
420,400 *Vlasic Foods International, Inc. ................ 7,383,275
--------------
23,041,713
--------------
FOREST PRODUCTS - 0.1%
120,000 Deltic Timber Corp. .............................. 2,790,000
--------------
HEALTHCARE PRODUCTS &
SERVICES - 11.4%
230,000 Abbott Laboratories............................... 9,559,375
408,200 *Acuson Corp. .................................... 6,735,300
200,000 American Home Products Corp. ..................... 10,300,000
60,000 Baxter International, Inc. ....................... 3,585,000
126,800 Beckman Coulter Inc. ............................. 7,623,850
110,000 *Elan Corp Plc, ADR............................... 7,920,000
362,000 *First Health Group Corp. ........................ 8,914,250
365,000 *Foundation Health Systems, Inc. ................. 7,528,125
401,625 *Health Management Associates, Inc. Cl. A......... 9,438,187
206,000 *HEALTHSOUTH Corp. ............................... 5,175,750
70,100 Johnson & Johnson................................. 5,415,225
70,500 Lilly (Eli) & Co. ................................ 4,741,125
650,000 *Lincare Holdings, Inc. .......................... 25,837,500
60,000 Manor Care, Inc. ................................. 2,238,750
400,000 McKesson Corp. ................................... 32,250,000
20,000 Merck & Co., Inc. ................................ 2,466,250
100,000 Owens & Minor, Inc. .............................. 1,237,500
84,200 Pfizer, Inc. ..................................... 9,262,000
521,500 *Quorum Health Group, Inc. ....................... 13,167,875
226,000 Schering-Plough Corp. ............................ 21,865,500
225,000 Shared Medical System Corp. ...................... 15,271,875
256,000 *Sybron International Corp. ...................... 5,312,000
120,000 *Tenet Healthcare Corp. .......................... 3,592,500
162,000 Warner-Lambert Co. ............................... 12,241,125
65,020 *Wellpoint Health Networks, Inc.
Cl. A............................................ 3,986,539
350,000 West Co., Inc. ................................... 9,734,375
--------------
245,399,976
--------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 6.8%
223,700 AptarGroup, Inc. ................................. 13,771,531
164,625 Autoliv, Inc. .................................... 5,607,539
370,000 Bemis Co., Inc. .................................. 14,291,250
150,000 Borg-Warner Automotive, Inc. ..................... 7,059,375
42,000 Carpenter Technology Corp. ....................... 1,819,125
101,800 Danaher Corp. .................................... 4,154,713
197,000 Dover Corp. ...................................... 5,725,312
226,218 Flowserve Corp. .................................. 4,934,380
71,900 *Halter Marine Group, Inc. ....................... 1,141,413
12,800 J & L Specialty Steel, Inc. ...................... 72,000
270,300 JLG Industries, Inc. ............................. 4,189,650
33,500 Magna International, Inc. Cl. A................... 2,286,375
23,650 Newmont Mining Corp. ............................. 446,394
</TABLE>
47
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -
CONTINUED
145,000 Parker Hannifin Corp. ........................... $ 4,975,313
594,000 Pittston Brink's Group .......................... 21,198,375
260,000 Snap-on, Inc. ................................... 9,230,000
284,000 *Strattec Security Corp. ........................ 7,952,000
280,000 Sundstrand Corp. ................................ 14,647,500
15,000 Tecumseh Products Co. Cl. A...................... 787,500
216,300 *UCAR International, Inc. ....................... 5,704,912
680,300 *Unova, Inc. .................................... 14,116,225
25,000 Vulcan Materials Co. ............................ 2,875,000
--------------
146,985,882
--------------
INFORMATION SERVICES & TECHNOLOGY - 2.0%
80,000 *Adaptec, Inc. .................................. 930,000
100,000 *Applied Materials, Inc. ........................ 3,350,000
13,300 *Choicepoint, Inc. .............................. 655,025
400,000 Computer Associates International, Inc. ......... 13,275,000
110,000 *Dupont Photomasks, Inc. ........................ 3,547,500
100,000 Hewlett-Packard Co. ............................. 5,550,000
72,000 Intel Corp. ..................................... 6,079,500
329,800 *KLA-Tencor Corp. ............................... 9,852,775
87,500 *Perceptron, Inc. ............................... 568,750
--------------
43,808,550
--------------
MANUFACTURING -
DISTRIBUTING - 0.1%
136,100 Hussmann International, Inc. .................... 2,415,775
--------------
METAL PRODUCTS &
SERVICES - 0.3%
365,000 *Steel Dynamics, Inc. ........................... 5,292,500
--------------
OIL/ENERGY - 4.1%
50,000 Anadarko Petroleum Corp. ........................ 1,715,625
320,000 Berry Petroleum Co. Cl. A........................ 3,680,000
507,400 Cabot Oil & Gas Corp. ........................... 8,689,225
90,000 Coastal Corp. ................................... 2,947,500
165,000 *Denbury Resources, Inc. ........................ 1,691,250
160,000 *Houston Exploration, Co. ....................... 3,360,000
110,300 Kerr-McGee Corp. ................................ 5,659,769
209,500 Murphy Oil Corp. ................................ 9,283,469
183,900 National Fuel Gas Co. ........................... 7,597,369
221,200 *Nuevo Energy Co. ............................... 5,419,400
495,000 *Oryx Energy Co. ................................ 9,126,562
400,000 *Santa Fe Energy Resources, Inc. ................ 3,525,000
321,600 Southwestern Energy Co. ......................... 2,894,400
100,000 Tosco Corp. ..................................... 2,800,000
325,000 Transocean Offshore, Inc. ....................... 12,817,187
113,520 Union Pacific Resource Group, Inc. .............. 1,589,280
174,000 Williams Companies, Inc. ........................ 5,578,875
--------------
88,374,911
--------------
OIL FIELD SERVICES - 1.9%
298,000 *Atwood Oceanics, Inc. .......................... 9,126,250
52,300 Camco International, Inc. ....................... 3,713,300
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - CONTINUED
113,140 Halliburton Co. ................................. $ 4,108,396
96,500 Helmerich & Payne, Inc. ......................... 1,978,250
15,500 Lufkin Industries, Inc. ......................... 458,219
914,500 *R & B Falcon Corp. ............................. 15,032,094
380,500 *Varco International, Inc. ...................... 6,040,437
--------------
40,456,946
--------------
PAPER & PACKAGING - 0.3%
88,440 Sealed Air Corp. ................................ 3,537,600
75,000 Westvaco Corp. .................................. 1,879,688
--------------
5,417,288
--------------
PHARMACEUTICALS - 0.1%
100,000 *Dura Pharmaceuticals, Inc. ..................... 2,575,000
--------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 4.6%
84,000 *Chancellor Media Corp. ......................... 4,053,000
49,805 Comcast Corp. ................................... 2,261,458
270,000 *Emmis Broadcasting Corp. Cl. A.................. 11,542,500
273,800 Gaylord Entertainment Co. ....................... 8,385,125
425,000 *Jacor Communications, Inc. ..................... 24,915,625
40,000 Knight-Ridder, Inc. ............................. 2,110,000
15,000 McGraw-Hill Companies, Inc. ..................... 1,229,063
43,000 Scripps (E.W.) Co. Cl. A......................... 2,262,875
185,000 TCA Cable TV, Inc. .............................. 10,649,062
250,000 Time Warner, Inc. ............................... 22,515,625
1 *Viacom, Inc. Cl. A.............................. 68
2,800 Washington Post Co., Cl. B....................... 1,524,600
95,000 *Young Broadcasting, Inc. Cl. A.................. 6,222,500
--------------
97,671,501
--------------
REAL ESTATE - 2.6%
40,000 AMB Property Corp. REIT.......................... 955,000
20,000 Apartment Investment & Management Co. Cl. A
REIT............................................ 760,000
60,000 Arden Realty Group, Inc. REIT.................... 1,417,500
71,200 Berkshire Realty Co., Inc. REIT.................. 778,750
158,000 Brandywine Realty Trust REIT..................... 3,150,125
145,000 CarrAmerica Realty Corp. REIT.................... 3,905,938
20,000 CBL & Associates Properties, Inc. REIT........... 486,250
78,000 Crescent Real Estate Equities, Inc. REIT......... 2,291,250
75,000 Entertainment Properties Trust REIT.............. 1,378,125
66,100 Gables Residential Trust REIT.................... 1,772,306
100,000 Kilroy Realty Corp. REIT......................... 2,268,750
64,000 Kimco Realty Corp. REIT.......................... 2,368,000
85,000 Liberty Property Trust REIT...................... 2,130,313
165,000 Mack-Cali Realty Corp. REIT...................... 5,125,312
170,000 Meditrust Co. REIT............................... 3,825,000
165,400 Patriot American Hospitality, Inc. REIT.......... 3,142,600
20,000 RFS Hotel Investors, Inc. REIT................... 341,250
160,000 *Servico, Inc. .................................. 2,160,000
199,851 Starwood Hotels & Resorts Trust REIT............. 8,206,382
</TABLE>
48
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
REAL ESTATE - CONTINUED
132,600 Sunstone Hotel Investors, Inc. REIT............... $ 1,475,175
255,300 Weeks Corp. REIT.................................. 7,371,787
--------------
55,309,813
--------------
RETAILING & WHOLESALE - 2.9%
116,600 *Autozone, Inc. .................................. 3,993,550
169,000 Avnet, Inc. ...................................... 9,273,875
290,600 *Cole National Corp. Cl. A........................ 9,589,800
150,000 J. C. Penney Co., Inc. ........................... 8,803,125
52,600 Longs Drug Stores Corp. .......................... 1,453,075
113,100 Mercantile Stores Co., Inc. ...................... 8,970,244
318,825 *Proffitts, Inc. ................................. 10,042,987
105,000 Rite Aid Corp. ................................... 4,147,500
118,000 *Saks Holdings, Inc. ............................. 3,031,125
20,400 Shopko Stores, Inc. .............................. 596,700
8,200 *Timberland Co. Cl. A............................. 528,900
20,000 *Tommy Hilfiger Corp. ............................ 1,121,250
--------------
61,552,131
--------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 0.5%
168,000 *Aspect Telecommunications Corp. ................. 5,360,250
50,000 Mediaone Group, Inc. ............................. 2,415,625
70,000 *Univision Communications, Inc. Cl. A............. 2,555,000
--------------
10,330,875
--------------
TRANSPORTATION - 4.4%
276,600 *Atlas Air, Inc. ................................. 10,199,625
780,000 Bombardier, Inc., Cl. B........................... 10,737,970
190,000 Burlington Northern Santa Fe...................... 19,558,125
612,600 Kansas City Southern Industries, Inc. ............ 30,093,975
140,000 +Petroleum Helicopters, Inc. ..................... 2,563,750
138,500 Southwest Airlines Co. ........................... 4,561,844
413,000 Union Pacific Corp. .............................. 17,346,000
--------------
95,061,289
--------------
UTILITIES - ELECTRIC - 1.1%
64,000 Commonwealth Energy System........................ 2,272,000
140,900 Energy East Corp. ................................ 5,636,000
70,000 Houston Industries, Inc. ......................... 1,955,625
40,000 Texas Utilities Co. .............................. 1,602,500
400,000 TNP Enterprises, Inc. ............................ 12,900,000
--------------
24,366,125
--------------
UTILITIES - GAS - 0.9%
245,800 Marketspan Corp. ................................. 6,774,863
288,100 Northwest Natural Gas Co. ........................ 7,562,625
184,400 Piedmont Natural Gas Co., Inc. ................... 5,370,650
--------------
19,708,138
--------------
UTILITIES - TELEPHONE - 1.9%
160,000 *AirTouch Communications, Inc. ................... 9,410,000
62,000 AT&T Corp. ....................................... 3,758,750
150,000 Century Telephone Enterprises, Inc. .............. 7,462,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - CONTINUED
143,000 Cincinnati Bell, Inc. ............................ $ 4,593,875
200,000 GTE Corp. ........................................ 10,875,000
75,000 MCI Communications Corp. ......................... 4,856,250
1,365 U.S. West, Inc. .................................. 72,857
--------------
41,029,232
--------------
Total Common Stocks
(cost $1,322,443,411)............................ 1,751,474,706
--------------
PREFERRED STOCKS - 0.0%
HEALTHCARE PRODUCTS &
SERVICES - 0.0%
130,000 *Fresenius National Med Care, Inc. Ser. D......... 8,840
--------------
Total Preferred Stocks
(cost $22,740)................................... 8,840
--------------
CONVERTIBLE PREFERRED - 0.1%
PAPER & PACKAGING - 0.1%
78,375 *Sealed Air Corp. ................................ 3,497,485
--------------
Total Convertible Preferred
(cost $2,426,965)................................ 3,497,485
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 19.7%
COMMERCIAL PAPER - 17.2%
$13,300,000 Akzo Nobel, Inc.
5.62%, 8/6/98.................................... 13,289,618
37,500,000 Banc One Funding Corp.
5.51%, 9/18/98................................... 37,224,500
25,800,000 BHF Finance (De), Inc.
5.52%, 9/18/98................................... 25,610,112
2,800,000 Cambridge Massachusetts
Water Pollution
5.58%, 9/1/98.................................... 2,786,546
19,500,000 Citibank Capital Markets Assets
Yr 1+2
5.57%, 8/28/98................................... 19,418,539
5,850,000 Dollar Thrifty Funding Corp.
5.55%, 8/7/98.................................... 5,845,228
25,000,000 Du Pont (E.I.) De Nemours & Co. 5.54%, 8/24/98.... 24,911,514
36,650,000 Finova Capital Corp.
5.54%, 9/3/98.................................... 36,463,879
37,400,000 General Motors Acceptance Corp. 5.50%, 8/20/98.... 37,291,436
17,400,000 Goldman Sachs Group
5.53%, 8/17/98................................... 17,357,235
Great Lakes Chemical Corp.:
1,000,000 5.51%, 9/1/98..................................... 995,255
14,000,000 5.53%, 8/10/98.................................... 13,980,645
18,000,000 Island Finance Puerto Rico, Inc. 5.55%, 8/11/98... 17,972,250
30,000,000 Knight-Ridder Inc.
5.65%, 8/14/98................................... 29,938,792
Marsh & McLennan Co., Inc.:
2,200,000 5.51%, 9/4/98..................................... 2,188,551
27,000,000 5.54%, 8/27/98.................................... 26,891,970
</TABLE>
49
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - CONTINUED
COMMERCIAL PAPER - CONTINUED
$ 7,750,000 Massachusetts College of
Pharmacy and Allied Health Services
5.55%, 8/20/98................................... $ 7,727,299
5,800,000 Monsanto Company Series B 5.50%, 9/10/98.......... 5,764,555
12,700,000 Morgan (J.P.) & Co., Inc.
5.52%, 8/17/98................................... 12,668,843
1,000,000 Pfizer, Inc.
5.53%, 8/3/98.................................... 999,693
7,900,000 Power Authority Str New York 5.53%, 9/14/98....... 7,846,605
850,000 Queens Health System
5.55%, 8/6/98.................................... 849,345
22,200,000 Twin Towers, Inc.
5.58%, 8/18/98................................... 22,141,503
--------------
370,163,913
--------------
</TABLE>
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The fund owns over 5% of the
outstanding voting shares of Strattec Security Corp. and Petroleum
Helicopters, Inc. with a cost basis of $4,202,147 and $2,392,500 re-
spectively at July 31, 1998. The Fund earned $7,000 of income from Pe-
troleum Helicopters, Inc. during the period ending July 31, 1998.
(a) Less than one-tenth of a percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
REIT Real Estate Investment Trust.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - CONTINUED
GOVERNMENT AGENCY NOTES & BONDS - 2.5%
$32,000,000 Federal Home Loan Mortgage Discount Notes
5.46%, 8/28/98.................................. $ 31,868,960
21,000,000 Federal National Mortgage Association Discount
Notes 5.44%, 8/14/98............................ 20,958,747
--------------
52,827,707
--------------
Total Short-Term Investments
(cost $422,991,620)............................. 422,991,620
--------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $1,747,884,736).................... 101.4% 2,177,972,651
OTHER ASSETS AND
LIABILITIES - NET........................ (1.4) (30,651,773)
----- --------------
NET ASSETS................................ 100.0% $2,147,320,878
===== ==============
</TABLE>
See Combined Notes to Financial Statements.
50
<PAGE>
EVERGREEN
Income and Growth
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 65.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.3%
175,900 Dana Corp. .......................................... $ 8,751,025
50,000 General Motors Corp. ................................ 3,615,625
------------
12,366,650
------------
BANKS - 15.5%
26,775 AmSouth Bancorp...................................... 1,062,633
100,000 Associated Banc Corp. ............................... 3,800,000
284,000 BancorpSouth, Inc. .................................. 5,573,500
170,100 Bankers Trust Corp. ................................. 19,061,831
192,500 +CB Bancshares, Inc. ................................ 6,833,750
24,850 CCB Financial Corp. ................................. 2,863,962
200,000 Commonwealth Bank of Australia....................... 2,497,442
77,606 F&M National Corp. .................................. 2,202,070
35,100 First American Corp. ................................ 1,649,700
300,300 First Hawaiian, Inc. ................................ 9,947,437
40,000 First Tennessee National Corp. ...................... 1,255,000
120,750 First Virginia Banks, Inc. .......................... 6,633,703
8,200 FirstMerit Corp. .................................... 240,363
100,000 Fleet Financial Group, Inc. ......................... 8,593,750
319,410 Interchange Financial Services Corp. ................ 6,348,274
100,000 KeyCorp ............................................. 3,400,000
18,271 M & T Bank Corp. .................................... 9,720,172
100,000 Marshall & Ilsley Corp. ............................. 5,618,750
77,346 Mercantile Bancorp, Inc. ............................ 4,205,689
153,000 Norwest Corp. ....................................... 5,498,437
15,625 One Valley Bancorp of West Virginia, Inc. ........... 528,320
50,326 Premier National Bancorp Inc. ....................... 1,056,846
79,254 Second Bancorp, Inc. ................................ 2,219,112
10,000 Summit Bancorp ...................................... 447,500
111,375 Susquehanna Bancshares, Inc. ........................ 2,505,938
228,772 Union Planters Corp. ................................ 12,468,074
7,000 United Bankshares, Inc. ............................. 194,250
107,320 USBancorp, Inc. ..................................... 8,236,810
1,930,402 Westpac Banking Corp., Ltd. ......................... 12,211,023
------------
146,874,336
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 2.4%
330,000 Armstrong World Industries,Inc. ..................... 20,336,250
37,100 La-Z-Boy Chair Co. .................................. 2,114,700
------------
22,450,950
------------
CAPITAL GOODS - 1.1%
221,500 Caterpillar, Inc. ................................... 10,742,750
------------
COMMUNICATION SYSTEMS &
SERVICES - 0.3%
51,641 *WorldCom, Inc. ..................................... 2,730,518
------------
CONSUMER PRODUCTS &
SERVICES - 0.6%
215,000 Tupperware Corp. .................................... 5,428,750
------------
DIVERSIFIED COMPANIES - 0.5%
225,000 Tomkins Plc, ADR..................................... 4,809,375
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
ELECTRICAL EQUIPMENT &
SERVICES - 1.4%
5,000 Hubbell, Inc. Cl. A.................................. $ 203,750
220,000 Hubbell, Inc. Cl. B.................................. 9,240,000
98,800 Thomas & Betts Corp. ................................ 4,050,800
------------
13,494,550
------------
FINANCE & INSURANCE - 3.7%
170,300 IPC Holdings Ltd. ................................... 4,512,950
100,000 LaSalle Re Holdings Ltd. ............................ 3,500,000
100,000 Mid Ocean Ltd. ...................................... 7,900,000
195,800 Ohio Casualty Corp. ................................. 8,345,975
110,000 Paine Webber Group, Inc. ............................ 5,183,750
143,200 Provident Co., Inc. ................................. 5,280,500
------------
34,723,175
------------
FOOD & BEVERAGE PRODUCTS - 0.2%
1,000 Sara Lee Corp. ...................................... 50,125
62,400 Sbarro, Inc. ........................................ 1,532,700
------------
1,582,825
------------
HEALTHCARE PRODUCTS &
SERVICES - 3.1%
53,000 *ADAC Laboratories................................... 1,444,250
70,000 American Home Products Corp. ........................ 3,605,000
175,000 Baxter International, Inc. .......................... 10,456,250
59,400 Bristol-Myers Squibb Co. ............................ 6,767,887
47,600 Merck & Co., Inc. ................................... 5,869,675
22,500 Shared Medical System Corp. ......................... 1,527,188
------------
29,670,250
------------
METAL PRODUCTS & SERVICES - 0.3%
200,601 Freeport McMoRan Copper & Gold, Inc. Cl. A........... 2,846,027
------------
OIL/ENERGY - 1.7%
100,000 Atlantic Richfield Co. .............................. 6,775,000
26,100 Consolidated Natural Gas Co. ........................ 1,349,044
293,100 Equitable Resources, Inc. ........................... 7,217,588
10,000 National Fuel Gas Co. ............................... 413,125
5,929 *Santa Fe Energy Resources, Inc. .................... 52,249
------------
15,807,006
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.1%
50,000 Reader's Digest Association, Inc. (The).............. 1,412,500
------------
REAL ESTATE - 7.4%
55,000 Burnham Pacific Properties, Inc. REIT................ 759,687
1,000,000 Canadian Hotel Properties REIT....................... 7,280,429
324,900 Equity Residential Properties Trust REIT............. 13,645,800
412,700 Gables Residential Trust REIT........................ 11,065,519
462,000 Kranzco Realty Trust REIT............................ 8,316,000
850,000 Meditrust Co. REIT................................... 19,125,000
260,050 Post Property, Inc. REIT............................. 10,320,734
------------
70,513,169
------------
</TABLE>
51
<PAGE>
EVERGREEN
Income and Growth
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
RETAILING & WHOLESALE - 0.8%
100,000 Mercantile Stores Co., Inc. ......................... $ 7,931,250
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.1%
2,003,000 Telecom Corp. New Zealand Ltd. ...................... 39,308,875
------------
THRIFT INSTITUTIONS - 0.4%
56,000 First Essex Bancorp, Inc. ........................... 1,211,000
122,000 +Jacksonville Bancorp, Inc. ......................... 2,211,250
10,430 Peoples Heritage Financial Group..................... 235,979
------------
3,658,229
------------
TRANSPORTATION - 1.1%
260,000 Union Pacific Corp. ................................. 10,920,000
------------
UTILITIES - ELECTRIC - 7.9%
10,650 Black Hills Corp. ................................... 255,600
100,000 Central & South West Corp. .......................... 2,543,750
6,500 Central Hudson Gas & Electric Corp. ................. 280,313
239,000 FPL Group, Inc. ..................................... 14,534,187
100,000 Houston Industries, Inc. ............................ 2,793,750
123,826 Interstate Energy Corp. ............................. 3,629,650
695,524 LG & E Energy Corp. ................................. 16,953,397
180,000 MDU Resources Group, Inc. ........................... 4,083,750
250,000 Midamerican Energy Holdings Co....................... 5,093,750
301,500 PP&L Resources, Inc. ................................ 6,991,031
275,000 Public Service Enterprise Group, Inc. ............... 8,989,063
101,300 Texas Utilities Co. ................................. 4,058,331
150,200 TNP Enterprises, Inc. ............................... 4,843,950
------------
75,050,522
------------
UTILITIES - GAS - 5.7%
73,300 Chesapeake Utilities Corp. .......................... 1,273,588
1,035,848 Marketspan Corp. .................................... 28,550,560
76,700 New Jersey Resources Corp. .......................... 2,626,975
510,700 Peoples Energy Corp. ................................ 17,874,500
29,300 Piedmont Natural Gas Co., Inc. ...................... 853,363
10,000 South Jersey Industries, Inc. ....................... 258,125
93,685 UGI Corp. ........................................... 2,201,597
8,300 Yankee Energy System, Inc. .......................... 199,719
------------
53,838,427
------------
UTILITIES - TELEPHONE - 2.6%
105,100 Frontier Corp. ...................................... 3,527,419
250,000 GTE Corp. ........................................... 13,593,750
100,000 *Nortel Inversora SA MEDS............................ 6,250,000
20,000 U.S. West, Inc. ..................................... 1,067,500
------------
24,438,669
------------
OTHER SECURITIES - 3.5%.............................. 33,915,403
------------
Total Common Stocks
(cost $568,548,771)................................. 624,514,206
------------
CONVERTIBLE PREFERRED - 30.1%
BANKS - 0.6%
210,000 National Australia Bank, Ltd.
7.875%, Series UNIT................................. 6,168,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.5%
485,000 Merrill Lynch & Co., Inc.
6.25%, Series IGL, STRYPES (exchangeable for IMC
Global, Inc. common stock)......................... $ 14,065,000
------------
COMMUNICATION SYSTEMS & SERVICES - 3.6%
700,000 AirTouch Communications, Inc.
6.00%, Series B.................................... 33,950,000
------------
CONSUMER PRODUCTS &
SERVICES - 1.0%
302,000 Cendant Corp.
7.50%, PRIDES...................................... 9,928,250
------------
DIVERSIFIED COMPANIES - 0.2%
35,000 Corning, Inc.
6.00%, MIPS........................................ 1,850,625
------------
ELECTRICAL EQUIPMENT &
SERVICES - 0.7%
165,000 Pioneer Standard Financial Trust
6.75%, 144A........................................ 7,033,950
------------
FINANCE & INSURANCE - 3.1%
100,000 American General Corp.
6.00%, Series A, MIPS.............................. 8,650,000
270,000 Frontier Financing Trust
6.25%, TOPRS....................................... 14,512,500
100,000 St. Paul Capital
6.00%, MIPS........................................ 6,400,000
------------
29,562,500
------------
FOOD & BEVERAGE PRODUCTS - 4.1%
300,000 Dole Food Co.
7.00%, TRACES...................................... 12,750,000
495,300 Wendys Financing I
5.00%, Series A, TECONS............................ 26,374,725
------------
39,124,725
------------
LEISURE & TOURISM - 0.8%
170,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A................................ 7,299,800
------------
METAL PRODUCTS & SERVICES - 1.3%
212,800 Freeport McMoRan Copper & Gold, Inc. 7.00%, EDS..... 3,976,700
100,000 Timet Capital Trust I
6.625%, BUCS, 144A................................. 3,987,500
405,000 Worthington Industries, Inc.
7.25%, DECS
(exchangeable for Rouge Steel Co. common stock).... 4,252,500
------------
12,216,700
------------
OIL/ENERGY - 0.5%
95,000 Callon Petroleum Co.
8.50%, Series A.................................... 2,992,500
48,000 Nuevo Energy Co.
5.75%, Series A, TECONS............................ 2,040,000
------------
5,032,500
------------
</TABLE>
52
<PAGE>
EVERGREEN
Income and Growth Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
OIL FIELD SERVICES - 0.8%
100,000 EVI, Inc.
5.00%, 144A........................................ $ 3,725,000
100,000 Hvide Capital Trust
6.50%, 144A........................................ 3,963,000
------------
7,688,000
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 2.8%
335,000 Houston Industries, Inc.
7.00%, ACES
(exchangeable for Time Warner, Inc. common stock).. 26,213,750
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 3.3%
600,000 Qualcomm Financial Trust I
5.75%.............................................. 31,164,000
------------
TRANSPORTATION - 1.5%
30,000 CNF Trust I
5.00%, Ser. A, TECONS (exchangeable for CNF
Transportation, Inc. common stock)................. 1,890,000
280,000 Union Pacific Capital Trust
6.25%, 144A........................................ 12,740,000
------------
14,630,000
------------
UTILITIES - ELECTRIC - 1.3%
168,000 BNDES Participacoes S.A.
10.50%, DECS
(exchangeable into Electrobras shares)............. 5,460,000
130,000 Texas Utilities Co.
9.25%, PRIDES...................................... 6,613,750
------------
12,073,750
------------
UTILITIES - GAS - 1.5%
594,500 MCN Corp.
8.75%, PRIDES...................................... 13,784,969
------------
UTILITIES - TELEPHONE - 1.5%
315,000 Philippine Long Distance Telephone Co., GDS
7.00%, Series III.................................. 14,529,375
------------
Total Convertible Preferred
(cost $290,318,758)................................ 286,316,644
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C> <C>
BUSINESS EQUIPMENT &
CONVERTIBLE SERVICES - 0.7%DEBENTURES - 3.3%
HMT Technology Corp.:
$3,500,000 5.75%, 1/15/04, 144A............................. $ 2,590,000
400,000 5.75%, 1/15/04................................... 296,000
4,000,000 Quantum Corp.
7.00%, 8/1/04................................... 3,720,000
250,000 Tecnomatix Technologies Ltd.
5.25%, 2/15/98, 144A............................ 185,938
------------
6,791,938
------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.2%
9,700,000 Photronics, Inc.
6.00%, 6/1/04................................... 9,372,625
1,000,000 Sci Systems, Inc.
5.00%, 5/1/06, 144A............................. 1,670,000
------------
11,042,625
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.2%
1,000,000 Solectron Corp.
6.00%, 3/1/06, 144A............................. 1,515,000
------------
OIL/ENERGY - 0.1%
1,318,000 Swift Energy Co.
6.25%, 11/15/06................................. 1,166,430
------------
OIL FIELD SERVICES - 1.1%
Key Energy Group, Inc.:
5,750,000 5.00%, 9/15/04, 144A............................. 4,111,250
1,250,000 7.00%, 7/1/03, 144A.............................. 1,431,250
Offshore Logistics, Inc.:
3,775,000 6.00%, 12/15/03, 144A............................ 3,218,187
2,000,000 6.00%, 12/15/03.................................. 1,705,000
------------
10,465,687
------------
Total Convertible Debentures
(cost $35,128,220).............................. 30,981,680
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $893,995,749).......................... 99.1% 941,812,530
OTHER ASSETS AND LIABILITIES - NET............ 0.9 8,841,297
----- ------------
NET ASSETS.................................... 100.0% $950,653,827
===== ============
</TABLE>
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The Fund owns over 5% of the out-
standing voting shares of CB Bancshares, Inc. and Jacksonville Bancorp, Inc.
The Fund has a cost basis of $6,024,625 and $1,320,000, respectively, in
these issues at July 31, 1998. The Fund earned $40,425 and $60,500 of income,
respectively, from these investments during the period ending July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified institu-
tional investors.
SUMMARY OF ABBREVIATIONS:
ACESAutomatically Convertible Equity Securities
ADRAmerican Depository Receipts
BUCSBeneficial Unsecured Convertible Securities
CRESTSConvertible Redeemable Equity Structured Trust Securities
DECSDividend Enhanced Convertible Stock
EDSExchangeable Depository Shares
GDSGlobal Depository Shares
MIPSMonthly Income Preferred Shares
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
STRYPESStructured Yield Product Exchangeable for Stock
TECONSTerm Convertible Shares
TOPRSTrust Originated Preferred Securities
TRACESTrust Automatic Common Exchangeable Securities
See Combined Notes to Financial Statements.
53
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 69.3%
AEROSPACE & DEFENSE - 3.0%
214,300 Curtiss Wright Corp. ................................ $ 9,094,356
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.2%
53,200 Simpson Industries, Inc. ............................ 635,075
------------
BANKS - 6.6%
108,750 ABC Bancorp.......................................... 1,631,250
31,500 Amcore Financial, Inc. .............................. 803,250
6,000 BancorpSouth, Inc. .................................. 117,750
20,000 Bank of Essex........................................ 433,750
18,800 Britton & Koontz Capital Corp. ...................... 411,250
28,800 BSB Bancorp, Inc. ................................... 936,000
2,625 Carrollton Bancorp................................... 97,125
25,000 CB Bancshares, Inc. ................................. 887,500
32,550 Commercial Bankshares, Inc. ......................... 748,650
8,200 Community Bancshares, Inc. .......................... 221,400
40,000 Cowlitz Bancorp...................................... 430,000
2,500 First Midwest Bancorp, Inc. ......................... 103,750
30,000 First Oak Brook Bancshares, Inc. Cl. A............... 1,282,500
95,552 First State Bancorp.................................. 2,161,864
162,000 Granite State Bankshares, Inc. ...................... 4,212,000
30,000 Independent Bankshares, Inc. ........................ 460,312
20,943 Interchange Financial Services Corp. ................ 416,242
15,000 James River Bankshares, Inc. ........................ 330,000
4,000 Northern States Financial Corp. ..................... 127,000
87,125 One Valley Bancorp of West Virginia, Inc. ........... 2,945,914
4,668 Pacific Century Financial Corp. ..................... 91,610
14,620 Premier National Bancorp Inc. ....................... 307,020
24,000 South Alabama Bancorp, Inc. ......................... 474,000
11,250 Susquehanna Bancshares, Inc. ........................ 253,125
23,200 Union Bankshares Corp. .............................. 504,600
------------
20,387,862
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 2.2%
28,000 La-Z-Boy Chair Co. .................................. 1,596,000
315,100 Shelby Williams Industries, Inc. .................... 4,726,500
12,413 *Toll Brothers, Inc. ................................ 325,065
------------
6,647,565
------------
BUSINESS EQUIPMENT &
SERVICES - 0.7%
169,400 Tab Products Co. .................................... 1,990,450
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.9%
95,000 Learonal, Inc. ...................................... 1,941,563
25,500 Stepan Co. .......................................... 733,125
------------
2,674,688
------------
CONSUMER PRODUCTS &
SERVICES - 9.3%
311,500 CPI Corp. ........................................... 7,787,500
85,500 General Housewares Corp. ............................ 881,719
230,140 +Knape & Vogt Manufacturing Co. ..................... 5,005,545
100,000 Mikasa, Inc. Cl. B................................... 1,318,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
100,000 Polaris Industries, Inc. ............................ $ 3,812,500
26,300 Russ Berrie & Co., Inc. ............................. 604,900
310,000 Stride Rite Corp. ................................... 3,758,750
328,600 York Group, Inc. .................................... 5,504,050
------------
28,673,714
------------
DIVERSIFIED COMPANIES - 2.7%
379,000 Matthews International Corp. Cl. A................... 8,338,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.9%
225,800 Boston Acoustics, Inc. .............................. 9,032,000
------------
FINANCE & INSURANCE - 2.4%
26,600 Arthur J. Gallagher & Co. ........................... 1,042,387
5,000 LaSalle Re Holdings Ltd. ............................ 175,000
100,000 Morgan Keegan, Inc. ................................. 2,368,750
122,500 Pxre Corp. .......................................... 3,307,500
16,000 Trenwick Group, Inc. ................................ 556,000
------------
7,449,637
------------
FOOD & BEVERAGE PRODUCTS - 0.7%
101,000 Bridgford Foods Corp. ............................... 1,325,625
20,000 Lance, Inc. ......................................... 378,125
78,800 Smithfield Companies, Inc. .......................... 566,375
------------
2,270,125
------------
HEALTHCARE PRODUCTS &
SERVICES - 0.7%
9,500 Kewaunee Scientific Corp. ........................... 108,656
73,500 West Co., Inc. ...................................... 2,044,219
------------
2,152,875
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 3.3%
50,000 Badger Meter, Inc. .................................. 1,671,875
100,000 Federal Signal Corp. ................................ 2,268,750
72,297 Flowserve Corp. ..................................... 1,576,978
84,100 Gorman Rupp Co. ..................................... 1,503,287
63,000 Hach Co. ............................................ 637,875
57,000 Hach Co. Cl. A....................................... 570,000
18,700 Met-Pro Corp. ....................................... 240,763
55,800 Minuteman International, Inc. ....................... 641,700
46,400 Spartech Corp. ...................................... 881,600
8,000 Woodward Governor Co. ............................... 216,000
------------
10,208,828
------------
MACHINERY - DIVERSIFIED - 2.1%
252,750 Hardinge Brothers, Inc. ............................. 6,381,938
------------
OIL/ENERGY - 5.2%
205,800 Berry Petroleum Co. Cl. A............................ 2,366,700
235,500 Cabot Oil & Gas Corp. Cl. A.......................... 4,032,937
155,600 Penn Virginia Corp. ................................. 3,559,350
123,000 Quaker State Corp. .................................. 1,891,125
370,000 Southwestern Energy Co. ............................. 3,330,000
67,600 Wiser Oil Co. ....................................... 637,975
------------
15,818,087
------------
</TABLE>
54
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - 1.4%
146,200 Lufkin Industries, Inc. ............................. $ 4,322,038
------------
PAPER & PACKAGING - 0.5%
102,450 Tuscarora, Inc. ..................................... 1,626,394
------------
REAL ESTATE - 4.3%
86,291 Bradley Real Estate, Inc. REIT....................... 1,839,077
160,000 Eastgroup Properties, Inc. REIT...................... 3,000,000
95,000 Gables Residential Trust REIT........................ 2,547,187
60,000 Innkeepers USA Trust REIT............................ 731,250
90,000 Parkway Properties, Inc. REIT........................ 2,677,500
47,540 Post Property, Inc. REIT............................. 1,886,744
50,000 Sunstone Hotel Investors, Inc. REIT.................. 556,250
------------
13,238,008
------------
RETAILING & WHOLESALE - 0.1%
6,800 Longs Drug Stores Corp. ............................. 187,850
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.2%
250,000 Communications Systems, Inc. ........................ 3,375,000
126,000 Rohn Industries, Inc. ............................... 433,125
------------
3,808,125
------------
TEXTILE & APPAREL - 1.6%
88,000 Oxford Industries, Inc. ............................. 2,645,500
143,200 Superior Uniform Group, Inc. ........................ 2,148,000
------------
4,793,500
------------
THRIFT INSTITUTIONS - 4.3%
72,000 Dime Financial Corp. ................................ 2,421,000
92,000 First Coastal Bankshares, Inc. ...................... 1,472,000
6,000 First Essex Bancorp, Inc. ........................... 129,750
16,000 First Palm Beach Bancorp, Inc. ...................... 676,000
16,800 *Golden St. Bancorp, Inc. ........................... 463,050
261,900 Horizon Financial Corp. ............................. 4,124,925
38,000 Jacksonville Bancorp, Inc. .......................... 688,750
24,000 Maryland Federal Bancorp, Inc. ...................... 996,000
100,000 St. Paul Bancorp, Inc. .............................. 2,250,000
------------
13,221,475
------------
UTILITIES - ELECTRIC - 2.3%
13,100 Central Hudson Gas & Electric Corp. ................. 564,938
124,100 Madison Gas & Electric Co. .......................... 2,761,225
135,000 MDU Resources Group, Inc. ........................... 3,062,812
26,000 Northwestern Corp. .................................. 646,750
------------
7,035,725
------------
UTILITIES - GAS - 5.9%
34,200 Chesapeake Utilities Corp. .......................... 594,225
30,000 Connecticut Energy Corp. ............................ 768,750
80,000 CTG Resources, Inc. ................................. 1,855,000
64,800 Delta Natural Gas Co., Inc. ......................... 1,125,900
40,000 Eastern Enterprises.................................. 1,597,500
27,400 NUI Corp. ........................................... 606,225
76,600 Public Service Co. of North Carolina, Inc. .......... 1,532,000
200,100 Semco Energy, Inc. .................................. 3,464,231
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - GAS - CONTINUED
56,000 Southwest Gas Corp. ................................ $ 1,302,000
165,500 UGI Corp. .......................................... 3,889,250
50,000 Yankee Energy System, Inc. ......................... 1,203,125
------------
17,938,206
------------
UTILITIES - TELEPHONE - 1.2%
78,300 Hickory Tech Corp. ................................. 3,650,738
------------
OTHER SECURITIES - 3.6%............................. 11,126,751
------------
Total Common Stocks
(cost $212,015,803)................................ 212,704,010
------------
CONVERTIBLE PREFERRED - 12.0%
ELECTRICAL EQUIPMENT &
SERVICES - 1.5%
110,000 Pioneer Standard Financial Trust
6.75%, 144A........................................ 4,689,300
------------
FINANCE & INSURANCE - 2.1%
12,000 American Heritage Life Investment Corp.
8.50%, PRIDES...................................... 828,000
80,000 Frontier Financing Trust
6.25%, TOPRS....................................... 4,300,000
125,000 Philadelphia Consolidated Holdings, Inc.
7.00%, PRIDES...................................... 1,218,750
------------
6,346,750
------------
HEALTHCARE PRODUCTS &
SERVICES - 2.2%
170,000 Owens & Minor Trust I
5.375%, TECONS, 144A............................... 6,885,000
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 1.5%
300,000 Cooper Industries, Inc.
6.00%, DECS
(exchangeable for Wyman-Gordon Co. common stock)... 4,500,000
------------
LEISURE & TOURISM - 1.8%
130,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A................................ 5,582,200
------------
METAL PRODUCTS & SERVICES - 0.8%
239,000 Worthington Industries, Inc.
7.25%, DECS
(exchangeable for Rouge Steel Co. common stock).... 2,509,500
------------
OIL/ENERGY - 0.3%
26,000 Callon Petroleum Co.
8.50%, Series A.................................... 819,000
------------
OIL FIELD SERVICES - 1.8%
Hvide Capital Trust:
40,000 6.50%, 144A......................................... 1,585,200
7,000 6.50% Series AI..................................... 277,410
90,000 6.50%............................................... 3,566,700
------------
5,429,310
------------
Total Convertible Preferred
(cost $44,461,012)................................. 36,761,060
------------
</TABLE>
55
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 13.8%
BANKS - 0.4%
$1,350,000 Surety Capital Corp.
9.00%, 3/31/08...................................... $ 1,350,000
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 1.1%
2,500,000 Eagle Hardware & Garden, Inc.
6.25%, 3/15/01...................................... 3,284,375
------------
BUSINESS EQUIPMENT &
SERVICES - 1.7%
2,600,000 HMT Technology Corp.
5.75%, 1/15/04...................................... 1,924,000
1,250,000 Interim Services, Inc.
4.50%, 6/1/05....................................... 1,245,312
200,000 Personnel Group Of America, Inc.
5.75%, 7/1/04....................................... 250,000
Tecnomatix Technologies Ltd.:
500,000 5.25%, 8/15/04, 144A................................. 371,875
2,000,000 5.25%, 8/15/04....................................... 1,487,500
------------
5,278,687
------------
CONSUMER PRODUCTS &
SERVICES - 1.2%
4,000,000 Action Performance Companies, Inc.
4.75%, 4/1/05, 144A................................. 3,670,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.4%
4,550,000 Photronics, Inc.
6.00%, 6/1/04....................................... 4,396,438
------------
HEALTHCARE PRODUCTS &
SERVICES - 1.9%
5,000,000 Alpharma, Inc.
5.75%, 4/1/05, 144A................................. 5,206,500
480,000 Meridian Diagnostics, Inc.
7.00%, 9/1/06....................................... 453,600
------------
5,660,100
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.2%
610,000 Robbins & Myers, Inc.
6.50%, 9/1/03....................................... 724,375
------------
INFORMATION SERVICES & TECHNOLOGY - 0.2%
500,000 May & Speh, Inc.
5.25%, 4/1/03....................................... 684,375
------------
LEISURE & TOURISM - 2.0%
2,400,000 Family Golf Centers, Inc.
5.75%, 10/15/04, 144A............................... 2,877,000
3,370,000 Speedway Motorsports, Inc.
5.75%, 9/30/03...................................... 3,395,275
------------
6,272,275
------------
OIL FIELD SERVICES - 2.8%
Key Energy Group, Inc.:
3,250,000 5.00%, 9/15/04, 144A................................. 2,323,750
250,000 7.00%, 7/1/03, 144A.................................. 286,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - CONTINUED
OIL FIELD SERVICES - CONTINUED
Offshore Logistics, Inc.:
$1,425,000 6.00%, 12/15/03, 144A................................ $ 1,214,812
1,750,000 6.00%, 12/15/03...................................... 1,491,875
3,000,000 Seacor Holdings, Inc.
5.375%, 11/15/06.................................... 3,120,000
------------
8,436,687
------------
RETAILING & WHOLESALE - 0.9%
Central Garden & Pet Co.:
500,000 6.00%, 11/15/03, 144A................................ 554,375
2,000,000 6.00%, 11/15/03...................................... 2,217,500
------------
2,771,875
------------
Total Convertible Debentures
(cost $45,859,373).................................. 42,529,187
------------
SHORT-TERM INVESTMENTS - 5.7%
COMMERCIAL PAPER - 3.6%
450,000 Aristar, Inc.
5.60%, 8/13/98...................................... 449,160
640,000 Avnet, Inc.
5.52%, 8/19/98...................................... 638,234
2,960,000 BTR Dunlop Finance, Inc.
5.53%, 8/10/98...................................... 2,955,908
1,990,000 Dollar Thrifty Funding Corp.
5.54%, 8/11/98...................................... 1,986,938
850,000 Glencore Asset Funding Corp.
5.55%, 8/6/98....................................... 849,345
315,000 Newell Co.
5.55%, 8/31/98...................................... 313,543
1,580,000 Park Avenue Recreation Corp.
5.55%, 8/3/98....................................... 1,579,513
1,780,000 PHH Corp.
5.70%, 8/21/98...................................... 1,774,363
450,000 Twin Towers, Inc.
5.54%, 8/7/98....................................... 449,584
------------
10,996,588
------------
GOVERNMENT AGENCY NOTES & BONDS - 2.1%
Federal Home Loan Mortgage Discount Notes:
3,460,000 5.45%, 8/27/98....................................... 3,446,381
615,000 5.48%, 8/21/98....................................... 613,128
2,350,000 5.48%, 8/31/98....................................... 2,339,268
------------
6,398,777
------------
Total Short-Term Investments
(cost $17,395,365).................................. 17,395,365
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $319,731,553)......................... 100.8% 309,389,622
OTHER ASSETS AND
LIABILITIES - NET........................... (0.8) (2,303,539)
----- ------------
NET ASSETS................................... 100.0% $307,086,083
===== ============
</TABLE>
56
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The fund owns over 5% of the
outstanding voting shares of Knape & Vogt Manufacturing Co. The Fund
has a cost basis of $4,805,148 in the issue at July 31, 1998. The Fund
earned $100,224 of income from this investment during the period ending
July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified insti-
tutional investors.
SUMMARY OF ABBREVIATIONS:
CRESTSConvertible Redeemable Equity Structured Trust Securities
DECSDividend Enhanced Convertible Stock
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
TECONSTerm Convertible Shares
TOPRSTrust Originated Preferred Securities
See Combined Notes to Financial Statements.
57
<PAGE>
EVERGREEN
Utility Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 70.3%
BANKS - 2.1%
35,000 Fleet Financial Group, Inc. ......................... $ 3,007,813
------------
INFORMATION SERVICES &
TECHNOLOGY - 1.9%
75,000 *Altera Corp. ....................................... 2,735,156
------------
OIL/ENERGY - 2.6%
70,000 Enron Corp. ......................................... 3,705,625
------------
OIL FIELD SERVICES - 1.8%
150,000 *R & B Falcon Corp. ................................. 2,465,625
------------
REAL ESTATE - 2.8%
145,000 Felcor Lodging Trust Inc. REIT....................... 4,005,625
------------
UTILITIES - ELECTRIC - 44.8%
100,000 Central Hudson Gas & Electric Corp. ................. 4,312,500
100,000 Cinergy Corp. ....................................... 3,156,250
70,000 Duke Power Co. ...................................... 3,998,750
100,000 Energy East Corp. ................................... 4,000,000
170,000 Houston Industries, Inc. ............................ 4,749,375
125,000 Interstate Energy Corp. ............................. 3,664,063
180,000 Marketspan Corp. .................................... 4,961,250
165,000 MDU Resources Group, Inc. ........................... 3,743,437
80,000 New Century Energies, Inc. .......................... 3,330,000
60,000 NIPSCO Industries, Inc. ............................. 1,597,500
100,000 Pinnacle West Capital Corp. ......................... 4,275,000
150,000 PP&L Resources, Inc. ................................ 3,478,125
100,000 Public Service Enterprise Group, Inc. ............... 3,268,750
150,000 *Sempra Energy....................................... 3,778,125
140,000 Teco Energy Inc. .................................... 3,552,500
100,000 UtiliCorp United, Inc. .............................. 3,525,000
135,000 Wisconsin Energy Corp. .............................. 3,839,062
------------
63,229,687
------------
UTILITIES - GAS - 2.9%
75,000 Northwest Natural Gas Co. ........................... 1,968,750
60,000 Peoples Energy Corp. ................................ 2,100,000
------------
4,068,750
------------
UTILITIES - TELEPHONE - 11.4%
55,000 BellSouth Corp. ..................................... 3,757,188
70,000 GTE Corp. ........................................... 3,806,250
60,000 Sprint Corp. ........................................ 4,200,000
80,000 U.S. West, Inc. ..................................... 4,270,000
------------
16,033,438
------------
Total Common Stocks
(cost $85,025,361).................................. 99,251,719
------------
CONVERTIBLE PREFERRED - 25.8%
COMMUNICATION SYSTEMS &
SERVICES - 3.3%
95,000 AirTouch Communications, Inc.
6.00%, Series B..................................... 4,607,500
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 2.8%
50,000 Houston Industries Inc.
7.00%, ACES
(exchangeable for Time Warner common stock)........ $ 3,912,500
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 2.6%
70,000 Qualcomm Financial Trust I
5.75%.............................................. 3,675,000
------------
UTILITIES - ELECTRIC - 11.9%
50,000 AES Trust I
5.375%, Series A, TECONS........................... 3,440,625
135,000 BNDES Participacoes S.A.
BNDESPAR, DECS (Eletrobras)........................ 4,387,500
500,000 Companhia Paranaense de
Energia-Copel, Plc, ADR............................ 5,437,500
70,000 Texas Utilities Co.
9.25%, PRIDES...................................... 3,561,250
------------
16,826,875
------------
UTILITIES - GAS - 2.2%
70,000 MCN Financing III
8.00%, PRIDES...................................... 3,158,750
------------
UTILITIES - TELEPHONE - 3.0%
70,000 Sprint Corp.
8.25%, DECS
(exchangeable for Southern N.E. Telephone common
stock)............................................. 4,307,187
------------
Total Convertible Preferred
(cost $33,061,261)................................. 36,487,812
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 2.1%
INFORMATION SERVICES & TECHNOLOGY - 2.1%
$4,000,000 Adaptec, Inc.
4.75%, 2/1/04...................................... 3,050,000
------------
Total Convertible Debentures
(cost $3,530,000).................................. 3,050,000
------------
TOTAL LONG-TERM INVESTMENTS
(COST $121,616,622)................................ 138,789,531
------------
REPURCHASE AGREEMENT - 0.2%
254,895 Donaldson, Lufkin & Jenrette Securities Corp.,
5.62%, purchased 7/31/98, maturing 8/3/98, maturity
value $255,014 (cost $254,895) (a)................. 254,895
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $121,871,517).......................... 98.4% 139,044,426
OTHER ASSETS AND LIABILITIES - NET............ 1.6 2,211,887
----- ------------
NET ASSETS.................................... 100.0% $141,256,313
===== ============
</TABLE>
58
<PAGE>
EVERGREEN
Utility Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
* Non-income producing securities.
(a) At July 31, 1998, the repurchase agreement was collateralized by:
$260,000 U.S. Treasury Bond, 3.625%, 4/15/28; value including inter-
est - $255,763.
SUMMARY OF ABBREVIATIONS:
ACESAutomatically Convertible Equity Securities
ADRAmerican Depository Receipt
DECSDividend Enhanced Convertible Stock
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
TECONSTerm Convertible Shares
See Combined Notes to Financial Statements.
59
<PAGE>
EVERGREEN
Value Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 90.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.6%
106,900 Ford Motor Co. .................................. $ 6,086,619
--------------
BANKS - 19.3%
77,220 Banc One Corp. .................................. 3,991,309
122,600 BankAmerica Corp. ............................... 11,003,350
430,600 BankBoston Corp. ................................ 20,830,275
84,800 Bankers Trust Corp. ............................. 9,502,900
102,200 Chase Manhattan Corp. ........................... 7,728,875
47,000 Citicorp......................................... 7,990,000
248,200 First Chicago NBD Corp. ......................... 20,802,262
457,400 First Tennessee National Corp. .................. 14,350,925
336,725 Fleet Financial Group, Inc. ..................... 28,937,305
244,056 NationsBank Corp. ............................... 19,463,466
185,700 SouthTrust Corp. ................................ 7,509,244
328,500 TCF Financial Corp. ............................. 9,485,438
107,600 Union Planters Corp. ............................ 5,864,200
271,300 Wachovia Corp. .................................. 23,230,062
--------------
190,689,611
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.1%
10,000 Lucent Technologies, Inc. ....................... 924,375
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.6%
6,100 Du Pont (E. I.) De Nemours & Co. ................ 378,200
635,000 Morton International, Inc. ...................... 15,359,063
--------------
15,737,263
--------------
COMMUNICATION SYSTEMS &
SERVICES - 1.9%
200,350 *Cisco Systems, Inc. ............................ 19,183,512
--------------
CONSUMER PRODUCTS &
SERVICES - 1.2%
104,100 Colgate-Palmolive Co. ........................... 9,622,744
18,200 Gillette Co. .................................... 953,225
16,800 Procter & Gamble Co. ............................ 1,333,500
--------------
11,909,469
--------------
DIVERSIFIED COMPANIES - 2.0%
156,100 AlliedSignal, Inc. .............................. 6,790,350
212,000 Tyco International Ltd. ......................... 13,130,750
--------------
19,921,100
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 5.2%
383,700 General Electric Co. ............................ 34,269,206
10,200 *LSI Logic....................................... 211,012
295,100 Tandy Corp. ..................................... 16,765,369
--------------
51,245,587
--------------
FINANCE & INSURANCE - 10.3%
296,000 Allstate Corp. .................................. 12,561,500
13,100 American General Corp. .......................... 894,894
70,800 American International Group, Inc. .............. 10,677,525
94,507 Associates First Capital Corp.
Cl. A........................................... 7,342,013
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FINANCE & INSURANCE - CONTINUED
8,000 Chubb Corp. ..................................... $ 587,000
348,400 CIT Group, Inc. ................................. 11,540,750
30,200 Federal Home Loan Mortgage Corp. ................ 1,426,950
158,700 Federal National Mortgage Association............ 9,839,400
196,000 Greenpoint Financial Corp. ...................... 7,778,750
2,600 Lincoln National Corp. .......................... 248,950
145,700 MBIA, Inc. ...................................... 9,816,537
21,200 Morgan Stanley, Dean Witter, Discover & Co. ..... 1,845,725
237,100 ReliaStar Financial Corp. ....................... 11,766,087
83,950 Travelers Group, Inc. ........................... 5,624,650
242,200 Travelers Property Casualty Corp. Cl. A.......... 10,475,150
--------------
102,425,881
--------------
FOOD & BEVERAGE
PRODUCTS - 6.4%
377,200 American Stores Co. ............................. 8,746,325
550,200 Archer Daniels Midland Co. ...................... 9,422,175
131,300 Coca Cola Co. ................................... 10,594,269
444,200 Fortune Brands, Inc. ............................ 16,407,637
292,300 Philip Morris Companies, Inc. ................... 12,806,394
115,700 Sara Lee Corp. .................................. 5,799,462
--------------
63,776,262
--------------
HEALTHCARE PRODUCTS &
SERVICES - 13.0%
20,000 Abbott Laboratories.............................. 831,250
237,800 American Home Products Corp. .................... 12,246,700
212,800 Bristol-Myers Squibb Co. ........................ 24,245,900
197,800 HBO & Co. ....................................... 5,828,919
380,600 *HEALTHSOUTH Corp. .............................. 9,562,575
244,900 Johnson & Johnson................................ 18,918,525
25,800 Lilly (Eli) & Co. ............................... 1,735,050
129,500 Merck & Co., Inc. ............................... 15,968,969
385,200 Pharmacia & Upjohn, Inc. ........................ 18,248,850
145,300 SmithKline Beecham Plc, ADR...................... 8,318,425
420,399 *Tenet Healthcare Corp. ......................... 12,585,695
--------------
128,490,858
--------------
INFORMATION SERVICES &
TECHNOLOGY - 7.1%
185,700 *American Power Conversion Corp. ................ 5,988,825
244,200 EMC Corp. ....................................... 11,965,800
256,100 *Gateway 2000, Inc. ............................. 13,829,400
18,000 Intel Corp. ..................................... 1,519,875
143,800 International Business Machines Corp. ........... 19,053,500
376,700 *Sun Microsystems, Inc. ......................... 17,799,075
--------------
70,156,475
--------------
LEISURE & TOURISM - 0.1%
30,600 Disney Walt Co. ................................. 1,053,788
--------------
OIL/ENERGY - 8.6%
150,800 Amoco Corp. ..................................... 6,295,900
</TABLE>
60
<PAGE>
EVERGREEN
Value Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL/ENERGY - CONTINUED
83,400 Atlantic Richfield Co. .......................... $ 5,650,350
233,300 Burlington Resources, Inc. ...................... 8,457,125
9,900 Chevron Corp. ................................... 817,988
36,700 Exxon Corp. ..................................... 2,573,588
145,900 Mobil Corp. ..................................... 10,176,525
161,500 Pennzoil Co. .................................... 7,267,500
45,700 Royal Dutch Petroleum Co. ....................... 2,330,700
343,100 Sonat, Inc. ..................................... 10,035,675
166,600 Texaco, Inc. .................................... 10,131,362
297,000 Unocal Corp. .................................... 9,726,750
353,400 Williams Companies, Inc. ........................ 11,330,887
--------------
84,794,350
--------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.1%
17,200 *Viacom, Inc. Cl. B.............................. 1,178,200
--------------
REAL ESTATE - 1.9%
455,300 Equity Residential Properties Trust REIT......... 19,122,600
--------------
RETAILING & WHOLESALE - 1.5%
299,900 Sears, Roebuck & Co. ............................ 15,219,925
--------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.4%
160,000 Nokia Corp. ADR.................................. 13,940,000
--------------
TEXTILE & APPAREL - 0.8%
160,900 V. F. Corp. ..................................... 7,572,356
--------------
TRANSPORTATION - 1.9%
143,900 Burlington Northern Santa Fe..................... 14,812,706
142,800 Norfolk Southern Corp. .......................... 4,266,150
--------------
19,078,856
--------------
</TABLE>
* Non-income producing securities.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - ELECTRIC - 2.5%
269,100 CMS Energy Corp. ................................ $ 11,352,656
58,400 GPU, Inc. ....................................... 2,087,800
412,700 Houston Industries, Inc. ........................ 11,529,806
--------------
24,970,262
--------------
UTILITIES - GAS - 1.4%
361,600 NICOR Inc. ...................................... 13,921,600
--------------
UTILITIES - TELEPHONE - 1.8%
211,900 AT&T Corp. ...................................... 12,846,437
20,796 Bell Atlantic Corp. ............................. 943,619
30,300 BellSouth Corp. ................................. 2,069,869
25,500 MCI Communications Corp. ........................ 1,651,125
--------------
17,511,050
--------------
Total Common Stocks
(cost $683,255,436)............................. 898,909,999
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 10.3%
GOVERNMENT AGENCY NOTES &
BONDS - 10.3%
$102,239,000 Federal Home Loan Mortgage Discount Notes
5.56%, 8/3/98................................... 102,207,420
--------------
Total Short-Term Investments
(cost $102,207,419)............................. 102,207,420
--------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $785,462,855)..................... 101.0% 1,001,117,419
OTHER ASSETS AND LIABILITIES - NET....... (1.0) (10,295,053)
----- --------------
NET ASSETS............................... 100.0% $ 990,822,366
===== ==============
</TABLE>
See Combined Notes to Financial Statements.
61
<PAGE>
EVERGREEN
Fund for Total Return
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 81.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 4.4%
50,000 Chrysler Corp. ..................................... $ 2,959,375
50,000 Ford Motor Co. ..................................... 2,846,875
40,000 *Lear Corp. ........................................ 2,122,500
------------
7,928,750
------------
BANKS - 12.0%
55,000 Associated Banc Corp. .............................. 2,100,312
30,000 BankAmerica Corp. .................................. 2,692,500
80,000 BankBoston Corp. ................................... 3,870,000
30,000 Chase Manhattan Corp. .............................. 2,268,750
4,000 Citicorp............................................ 680,000
50,000 Firstar Corp. ...................................... 2,496,875
50,000 Fleet Financial Group, Inc. ........................ 4,296,875
110,000 TCF Financial Corp. ................................ 3,176,250
------------
21,581,562
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 5.0%
30,000 Du Pont (E. I.) De Nemours & Co. ................... 1,860,000
50,000 Monsanto Co. ....................................... 2,831,250
65,000 Morton International, Inc. ......................... 1,572,187
27,000 Rohm & Haas Co. .................................... 2,629,125
------------
8,892,562
------------
COMMUNICATION SYSTEMS &
SERVICES - 1.3%
25,000 *Cisco Systems, Inc. ............................... 2,394,531
------------
CONSUMER PRODUCTS &
SERVICES - 0.9%
20,000 Procter & Gamble Co. ............................... 1,587,500
------------
DIVERSIFIED COMPANIES - 3.0%
50,000 *Owens Illinois, Inc. .............................. 2,206,250
50,000 Tyco International Ltd. ............................ 3,096,875
------------
5,303,125
------------
ELECTRICAL EQUIPMENT &
SERVICES - 4.6%
60,000 General Electric Co. ............................... 5,358,750
60,000 *Solectron Corp. ................................... 2,880,000
------------
8,238,750
------------
FINANCE & INSURANCE - 7.5%
25,000 Hartford Life, Inc. Cl. A........................... 1,446,875
30,000 Lincoln National Corp. ............................. 2,872,500
50,000 Nationwide Financial Services, Inc. Cl. A........... 2,721,875
32,289 PMI Group, Inc. .................................... 2,187,580
35,000 SLM Holding Corp. .................................. 1,618,750
37,500 Travelers Group, Inc. .............................. 2,512,500
------------
13,360,080
------------
FOOD & BEVERAGE PRODUCTS - 2.9%
35,000 H.J. Heinz Co. ..................................... 1,929,375
75,000 Philip Morris Companies, Inc. ...................... 3,285,938
------------
5,215,313
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 12.0%
120,000 American Home Products Corp. ....................... $ 6,180,000
50,000 Bristol-Myers Squibb Co. ........................... 5,696,875
30,000 Johnson & Johnson................................... 2,317,500
40,000 Merck & Co., Inc. .................................. 4,932,500
50,000 Pharmacia & Upjohn, Inc. ........................... 2,368,750
------------
21,495,625
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 1.9%
50,000 Trinity Industries, Inc. ........................... 1,996,875
50,000 *United States Filter Corp. ........................ 1,350,000
------------
3,346,875
------------
INFORMATION SERVICES & TECHNOLOGY - 4.5%
50,000 *EMC Corp. ......................................... 2,450,000
30,000 Hewlett-Packard Co. ................................ 1,665,000
30,000 International Business Machines Corp. .............. 3,975,000
------------
8,090,000
------------
LEISURE & TOURISM - 1.2%
56,900 Carnival, Corp. Cl. A............................... 2,101,744
------------
OIL/ENERGY - 5.3%
74,000 Anadarko Petroleum Corp. ........................... 2,539,125
20,000 Exxon Corp. ........................................ 1,402,500
24,000 Mobil Corp. ........................................ 1,674,000
24,000 Texaco, Inc. ....................................... 1,459,500
75,000 Unocal Corp. ....................................... 2,456,250
------------
9,531,375
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.9%
50,000 CBS Corp. .......................................... 1,696,875
------------
REAL ESTATE - 5.9%
40,000 Boston Properties, Inc. REIT........................ 1,292,500
50,000 Equity Office Properties Trust REIT................. 1,243,750
25,000 Equity Residential Properties Trust REIT............ 1,050,000
36,000 First Industrial Realty Trust, Inc. REIT............ 994,500
140,000 Indymac Mortgage Holdings, Inc. REIT................ 2,948,750
44,999 Patriot American Hospitality, Inc. REIT............. 854,981
49,000 Prentiss Properties Trust REIT...................... 1,166,812
30,000 Spieker Properties, Inc. REIT....................... 1,078,125
------------
10,629,418
------------
RETAILING & WHOLESALE - 3.3%
50,000 *Costco Companies, Inc. ............................ 2,839,063
50,000 Wal-Mart Stores, Inc. .............................. 3,156,250
------------
5,995,313
------------
</TABLE>
62
<PAGE>
EVERGREEN
Fund for Total Return
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - 5.1%
40,000 Ameritech Corp. .................................... $ 1,967,500
39,290 AT&T Corp. ......................................... 2,381,956
40,000 GTE Corp. .......................................... 2,175,000
50,000 U.S. West, Inc. .................................... 2,668,750
------------
9,193,206
------------
Total Common Stocks
(cost $105,987,328)................................ 146,582,604
------------
CONVERTIBLE PREFERRED - 3.5%
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.8%
150,000 Kaufman & Broad Home Corp.
8.25%, PRIDES...................................... 1,443,750
------------
FINANCE & INSURANCE - 1.0%
30,000 Newell Financial Trust I
5.25%, 144A........................................ 1,785,000
------------
RETAILING & WHOLESALE - 1.7%
50,000 Kmart Financing I
7.75%.............................................. 3,100,000
------------
Total Convertible Preferred
(cost $5,610,665).................................. 6,328,750
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 3.0%
CONSUMER PRODUCTS &
SERVICES - 0.6%
$ 1,000,000 Sunrise Assisted Living, Inc.
5.50%, 6/15/02, 144A............................... 1,044,820
------------
</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 inter-
est at July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified insti-
tutional investors.
SUMMARY OF ABBREVIATIONS:
BUCS Beneficial Unsecured Convertible Securities.
PRIDES Preferred Redeemable Increased Dividend Equity Securities.
REIT Real Estate Investment Trust.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 1.1%
$ 2,000,000 Healthsouth Corp.
3.25%, 4/1/03, 144A............................... $ 2,017,500
------------
RETAILING & WHOLESALE - 1.0%
750,000 Staples, Inc.
4.50%, 10/1/00, 144A.............................. 1,707,188
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.3%
500,000 Antec Corp.
4.50%, 5/15/03, 144A.............................. 570,000
------------
Total Convertible Debentures
(cost $4,250,000)................................. 5,339,508
------------
SHORT-TERM INVESTMENTS - 11.4%
REPURCHASE AGREEMENT - 11.4%
20,376,000 Keystone Joint Repurchase Agreement
5.65%, purchased 7/31/98,
maturing 8/3/98, maturity value $20,385,594 (cost
$20,376,000) (a).................................. 20,376,000
------------
Total Short-Term Investments
(cost $20,376,000)................................ 20,376,000
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $136,223,993)......................... 99.6% 178,626,862
OTHER ASSETS AND LIABILITIES - NET........... 0.4 750,170
----- ------------
NET ASSETS................................... 100.0% $179,377,032
===== ============
</TABLE>
See Combined Notes to Financial Statements.
63
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
<CAPTION>
GROWTH & INCOME & SMALL CAP
BLUE CHIP INCOME GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND FUND FUND FUND FUND FUND
TOTAL RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
ASSETS
Investments at value
(identified cost --
$297,945,142,
$1,747,884,736,
$893,995,749,
$319,731,553,
$121,871,517,
$785,462,855 and
$136,223,993,
respectively).......... $383,073,812 $2,177,972,651 $941,812,530 $309,389,622 $139,044,426 $1,001,117,419
$178,626,862
Cash.................... 700 58,546 164,295 16,486 0
48,239 313
Receivable for
investments sold....... 36,513,342 4,727,680 25,024,357 0 2,760,788
5,129,220 1,405,282
Receivable for Fund
shares sold............ 1,882,250 6,642,137 176,442 4,313,582 84,885
824,790 147,233
Dividends and interest
receivable............. 423,533 1,166,850 3,272,724 947,695 617,985
1,248,745 342,345
Unamortized
organization
expenses............... 0 0 0 2,482 0
0 0
Prepaid expenses and
other assets........... 72,244 66,619 44,731 40,706 24,461
37,363 70,135
- ------------------------------------------------------------------------------------------------------------------------------
Total assets.......... 421,965,881 2,190,634,483 970,495,079 314,710,573 142,532,545
1,008,405,776 180,592,170
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased.............. 16,939,811 35,092,472 5,271,218 1,267,324 1,062,250
11,805,124 0
Payable for Fund shares
repurchased............ 1,170,650 5,100,629 601,200 5,761,900 97,290
4,672,270 969,418
Demand note payable..... 0 0 12,800,000 0 0
0 0
Advisory fee payable.... 215,367 1,667,830 819,191 275,512 61,885
445,512 94,340
Distribution fee
payable................ 160,609 987,570 52,500 149,321 45,943
397,253 119,892
Due to related
parties................ 5,000 0 0 0 3,535
25,469 1,916
Foreign taxes payable... 8,844 3,410 38,063 12,104 0
0 0
Accrued expenses and
other liabilities...... 57,535 461,694 259,080 158,329 5,329
237,782 29,572
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities..... 18,557,816 43,313,605 19,841,252 7,624,490 1,276,232
17,583,410 1,215,138
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............. $403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $286,984,109 $1,659,627,550 $833,102,573 $313,505,223 $108,709,536 $ 774,854,885
$118,660,810
Undistributed net
investment income...... (14,966) 360,888 13,459,757 173,362 (7,868)
(82,792) 430,969
Accumulated
undistributed net
realized gains or
losses on securities
and foreign currency
related transactions... 31,310,252 57,244,858 56,431,275 3,749,429 15,381,736
395,709 17,882,384
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 85,128,670 430,087,582 47,660,222 (10,341,931) 17,172,909
215,654,564 42,402,869
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...... $403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A................. $284,734,787 $ 296,312,480 $ 15,005,424 $ 54,142,181 $ 95,300,077 $ 476,169,512
$ 52,667,235
Class B................. 117,893,339 999,503,080 54,544,427 130,191,440 43,775,719
326,459,414 105,747,682
Class C................. 779,939 50,160,238 1,258,970 26,196,901 485,778
5,125,086 20,851,084
Class Y................. -- 801,345,080 879,845,006 96,555,561 1,694,739
183,068,354 111,031
- ------------------------------------------------------------------------------------------------------------------------------
$403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 9,360,366 10,168,501 647,121 3,436,877 8,104,711
21,422,851 2,432,921
Class B................. 3,884,909 34,605,795 2,367,514 8,307,846 3,721,068
14,707,068 4,904,830
Class C................. 25,659 1,736,422 54,643 1,673,076 41,291
231,038 966,154
Class Y................. -- 27,448,762 37,891,181 6,124,137 144,020
8,234,209 5,137
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 30.42 $ 29.14 $ 23.19 $ 15.75 $ 11.76 $ 22.23
$ 21.65
- ------------------------------------------------------------------------------------------------------------------------------
Class A -- Offering
price (based on sales
charge of 4.75%)....... $ 31.94 $ 30.59 $ 24.35 $ 16.54 $ 12.35 $ 23.34
$ 22.73
- ------------------------------------------------------------------------------------------------------------------------------
Class B................. $ 30.35 $ 28.88 $ 23.04 $ 15.67 $ 11.76 $ 22.20
$ 21.56
- ------------------------------------------------------------------------------------------------------------------------------
Class C................. $ 30.40 $ 28.89 $ 23.04 $ 15.66 $ 11.76 $ 22.18
$ 21.58
- ------------------------------------------------------------------------------------------------------------------------------
Class Y................. -- $ 29.19 $ 23.22 $ 15.77 $ 11.77 $ 22.23
$ 21.61
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
64
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF OPERATIONS
Year Ended July 31, 1998
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND FUND FUND FUND
FUND TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
INVESTMENT INCOME
Dividends (net of
foreign withholding
taxes of $56,392,
$25,234, $689,197,
$12,104, $10,435,
$130,187 and $5,544,
respectively)......... $ 4,313,767 $ 15,668,809 $ 52,734,876 $ 4,983,605 $ 6,208,578 $
25,677,634 $ 3,235,512
Interest............... 1,099,735 21,896,927 4,016,267 2,459,788 225,962
3,900,639 615,022
- -------------------------------------------------------------------------------------------------------------------------------
Total income.......... 5,413,502 37,565,736 56,751,143 7,443,393 6,434,540
29,578,273 3,850,534
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee........... 2,052,676 16,275,918 9,685,921 2,055,006 704,533
7,023,408 1,062,354
Distribution Plan
expenses.............. 1,628,814 8,865,387 566,084 988,649 660,925
4,211,807 1,350,540
Transfer agent fees.... 670,296 3,658,406 1,768,773 515,179 268,742
1,670,576 324,338
Administrative service
fees.................. 53,198 0 0 0 42,854
438,523 33,743
Trustees' fees and
expenses.............. 13,999 45,947 29,888 11,331 3,511
39,273 7,325
Printing............... 160,647 916,116 474,221 87,074 90,104
526,008 100,958
Custodian fees......... 71,500 527,465 306,190 56,140 39,916
374,521 56,522
Registration fees...... 49,119 352,740 61,854 150,185 68,826
57,916 51,507
Amortization of
organization
expenses.............. 0 0 0 5,727 0
0 0
Other.................. 36,983 128,241 105,638 26,166 28,756
107,017 41,618
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses........ 4,737,232 30,770,220 12,998,569 3,895,457 1,908,167
14,449,049 3,028,905
Less: Indirectly paid
expenses.............. (3,604) (21,867) (28,957) (7,877) (2,764)
(10,190) (1,267)
Fee waivers and/or
reimbursement from
investment adviser.... 0 0 0 0 (204,617)
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Net expenses.......... 4,733,628 30,748,353 12,969,612 3,887,580 1,700,786
14,438,859 3,027,638
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.. 679,874 6,817,383 43,781,531 3,555,813 4,733,754
15,139,414 822,896
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS OR
LOSSES ON SECURITIES
AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gains or
losses on:
Securities............ 45,240,695 89,769,570 88,022,951 4,125,256 16,449,359
382,225,398 21,844,245
Foreign currency
related
transactions......... (58,529) 0 52,503 0 0
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gains or
losses on securities
and foreign currency
related transactions.. 45,182,166 89,769,570 88,075,454 4,125,256 16,449,359
382,225,398 21,844,245
- -------------------------------------------------------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and foreign currency
related transactions.. 18,537,520 54,312,938 (54,214,289) (17,882,408) 197,673
(290,896,507) (1,065,798)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions.. 63,719,686 144,082,508 33,861,165 (13,757,152) 16,647,032
91,328,891 20,778,447
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS............ $64,399,560 $150,899,891 $ 77,642,696 $(10,201,339) $21,380,786 $
106,468,305 $21,601,343
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August to July, effective July 31, 1998.
See Combined Notes to Financial Statements.
65
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF OPERATIONS
Year Ended August 31, 1997
<TABLE>
<CAPTION>
BLUE CHIP
FUND
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $58,633)........ $ 5,155,917
Interest....................................................... 533,010
- -------------------------------------------------------------------------------
Total income.................................................. 5,688,927
- -------------------------------------------------------------------------------
EXPENSES
Advisory fee................................................... 1,794,364
Distribution Plan expenses..................................... 1,535,556
Transfer agent fees............................................ 683,706
Administrative service fees.................................... 44,985
Trustees' fees and expenses.................................... 5,931
Professional fees.............................................. 41,471
Custodian fees................................................. 136,192
Printing....................................................... 31,980
Registration fees.............................................. 47,804
Other.......................................................... 6,423
- -------------------------------------------------------------------------------
Total expenses................................................ 4,328,412
Less: Indirectly paid expenses................................. (20,588)
- -------------------------------------------------------------------------------
Net expenses.................................................. 4,307,824
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME.......................................... 1,381,103
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gains or losses on:
Securities.................................................... 42,390,850
Foreign currency related transactions......................... (12,863)
- -------------------------------------------------------------------------------
Net realized gains or losses on securities and foreign currency
related transactions.......................................... 42,377,987
Net change in unrealized gains or losses on securities and
foreign currency related transactions......................... 35,362,301
- -------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities and
foreign currency related transactions......................... 77,740,288
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $79,121,391
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
66
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended July 31, 1998
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND FUND FUND FUND FUND
TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
OPERATIONS
Net investment
income.......... $ 679,874 $ 6,817,383 $ 43,781,531 $ 3,555,813 $ 4,733,754 $ 15,139,414
$ 822,896
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 45,182,166 89,769,570 88,075,454 4,125,256 16,449,359
382,225,398 21,844,245
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... 18,537,520 54,312,938 (54,214,289) (17,882,408) 197,673
(290,896,507) (1,065,798)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... 64,399,560 150,899,891 77,642,696 (10,201,339) 21,380,786
106,468,305 21,601,343
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... (572,879) (1,133,476) (582,857) (585,054) (3,623,474)
(4,928,756) (457,652)
Class B......... (753,205) 0 (1,826,984) (875,495) (1,224,827)
(1,461,990) (258,225)
Class C......... (10) 0 (40,251) (178,326) (12,408)
(15,608) (55,586)
Class Y......... 0 (5,146,565) (41,136,147) (1,701,966) (71,410)
(11,332,854) (895)
From net realized
gains
Class A......... 0 (7,164,362) (827,257) (213,842) (8,654,842)
(79,220,878) (3,551,251)
Class B......... (51,043,219) (23,729,561) (3,160,159) (507,582) (3,545,873)
(55,199,824) (7,082,118)
Class C......... 0 (1,087,731) (63,045) (100,773) (34,234)
(713,832) (1,542,452)
Class Y......... 0 (23,937,007) (58,431,404) (758,969) (166,884)
(82,980,185) (3,495)
- -------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (52,369,313) (62,198,702) (106,068,104) (4,922,007) (17,333,952)
(235,853,927) (12,951,674)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 114,811,777 982,241,448 36,821,129 324,098,172 27,354,893
209,984,754 40,160,932
Payment for
shares
redeemed........ (99,812,547) (402,984,465) (109,733,628) (64,094,835) (24,559,873)
(1,216,417,479) (44,846,695)
Net asset value
of shares issued
in reinvestment
of
distributions... 45,932,435 54,748,017 95,522,782 3,360,906 4,031,786
202,246,215 12,075,357
Shares issued in
acquisition of
Blanchard Growth
& Income Fund... 17,510,672 0 0 0 0
0 0
Shares issued in
acquisition of
Virtus Style
Manager Fund.... 0 75,922,310 0 0 0
0 0
Shares issued in
acquisition of
Virtus Style
Manager; Large
Cap Fund........ 0 0 0 0 0
104,172,578 0
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 78,442,337 709,927,310 22,610,283 263,364,243 6,826,806
(700,013,932) 7,389,594
- -------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 90,472,584 798,628,499 (5,815,125) 248,240,897 10,873,640
(829,399,554) 16,039,263
NET ASSETS
Beginning of
period.......... 312,935,481 1,348,692,379 956,468,952 58,845,186 130,382,673
1,820,221,920 163,337,769
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $403,408,065 $2,147,320,878 $ 950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (14,966) $ 360,888 $ 13,459,757 $ 173,362 $ (7,868) $ (82,792)
$ 430,969
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August to July, effective July 31, 1998.
See Combined Notes to Financial Statements.
67
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal year ended July 31, or August 31, 1997
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND** FUND** FUND** FUND** FUND**
TOTAL RETURN**
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
OPERATIONS
Net investment
income............ $ 1,381,103 $ 2,407,908 $ 21,889,648 $ 385,091 $ 2,786,986 $ 16,353,679
$ 766,801
Net realized gains
or losses on
securities and
foreign currency
related
transactions...... 42,377,987 23,375,321 44,086,999 1,108,151 11,377,530
58,756,392 8,633,551
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions...... 35,362,301 188,382,086 42,180,501 6,035,485 (1,002,220)
239,837,361 15,979,989
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations....... 79,121,391 214,165,315 108,157,148 7,528,727 13,162,296
314,947,432 25,380,341
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment income
Class A........... 0 (357,479) (248,453) (11,097) (2,030,267)
(2,943,697) (368,590)
Class B........... (2,021,947) 0 (790,199) (17,755) (639,939)
(1,098,593) (315,494)
Class C........... 0 0 (19,512) (6,915) (6,346)
(9,131) (78,332)
Class Y........... 0 (2,157,823) (20,540,101) (297,079) (40,667)
(10,102,012) 0
From net realized
gains
Class A........... 0 0 0 (1,322) 0
0 0
Class B........... (30,039,258) 0 0 (2,116) 0
0 0
Class C........... 0 0 0 (824) 0
0 0
Class Y........... 0 0 0 (35,401) 0
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders.... (32,061,205) (2,515,302) (21,598,265) (372,509) (2,717,219)
(14,153,433) (762,416)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold....... 103,353,377 465,092,821 17,909,857 50,579,448 2,117,468
210,144,988 63,866,407
Payment for shares
redeemed.......... (89,890,447) (111,499,306) (71,220,009) (8,771,326) (21,527,215)
(224,625,243) (24,402,541)
Net asset value of
shares issued in
reinvestment of
distributions..... 27,593,101 1,997,489 18,977,783 204,650 2,197,790
10,671,545 680,769
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions..... 41,056,031 355,591,004 (34,332,369) 42,012,772 (17,211,957)
(3,808,710) 40,144,635
- -------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets...... 88,116,217 567,241,017 52,226,514 49,168,990 (6,766,880)
296,985,289 64,762,560
NET ASSETS
Beginning of
period............ 224,819,264 781,451,362 904,242,438 9,676,196 137,149,553
1,523,236,631 98,575,209
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD...... $312,935,481 $1,348,692,379 $956,468,952 $58,845,186 $130,382,673 $1,820,221,920
$163,337,769
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income............ $ 16,188 $ (10,791) $ 1,748,160 $ 54,884 $ 170,484 $ 2,948,270
$ (165,774)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the year ended August 31, 1997.
** Each of the Funds changed their fiscal year end to July 31. The Statements
of Changes in Net Assets are for the following periods: for Growth and In-
come Fund, Small Cap Equity Income Fund, Utility Fund and Value Fund, the
seven-month period ended July 31, 1997; for Income and Growth Fund, the six-
month period ended July 31, 1997 and for Fund for Total Return, the eight-
month period ended July 31, 1997.
See Combined Notes to Financial Statements.
68
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY VALUE
FUND FOR
FUND**** FUND** FUND* FUND** FUND** FUND**
TOTAL RETURN***
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income.......... $ 1,158,899 $ 3,525,699 $ 45,851,306 $ 207,498 $ 5,338,113 $ 25,598,949
$ 853,438
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 35,400,173 11,660,346 28,617,120 329,191 3,459,558
216,135,176 1,913,430
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... (2,334,533) 102,653,116 43,508,253 833,605 (3,509,310) 11,014,356
16,084,525
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations..... 34,224,539 117,839,161 117,976,679 1,370,294 5,288,361 252,748,481
18,851,393
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (347,567) (379,400) (7,618) (3,887,411)
(5,758,586) (539,949)
Class B......... (6,695,266) (65,556) (1,152,510) (9,798) (1,173,301)
(1,939,188) (273,356)
Class C......... 0 (2,719) (39,024) (710) (11,835)
(14,165) (112,998)
Class Y......... 0 (3,098,681) (45,453,926) (186,039) (229,804)
(19,538,457) 0
From net realized
gains
Class A......... 0 (1,260,337) 0 (12,475) (2,482,046)
(46,062,049) (754,551)
Class B......... (8,574,523) (3,666,284) 0 (27,933) (986,367)
(27,670,352) (808,105)
Class C......... 0 (142,360) 0 (1,936) (10,122)
(205,316) (270,058)
Class Y......... 0 (6,654,395) 0 (279,606) (53,545)
(142,552,378) 0
- ------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (15,269,789) (15,237,899) (47,024,860) (526,115) (8,834,431) (243,740,491)
(2,759,017)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 54,640,514 470,077,641 55,014,841 4,304,325 12,422,675 396,972,164
41,871,515
Payment for
shares
redeemed........ (61,283,587) (171,525,826) (197,670,999) (1,159,053) (30,379,907) (375,117,185)
(19,063,497)
Net asset value
of shares issued
in reinvestment
of
distributions... 13,051,460 13,005,089 41,805,502 374,529 7,082,140
187,361,591 2,530,195
Shares issued in
acquisition of
FFB Lexicon
Capital
Appreciation
Fund Class Y.... 0 159,432,723 0 0 0
0 0
Shares issued in
acquisition of
FFB Lexicon
Select Value
Fund Class Y.... 0 0 0 0 0
95,883,824 0
Shares issued in
acquisition of
FFB Lexicon
Equity Fund
Class Y......... 0 0 0 0 0
14,077,973 0
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 6,408,387 470,989,627 (100,850,656) 3,519,801 (10,875,092) 319,178,367
25,338,213
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 25,363,137 573,590,889 (29,898,837) 4,363,980 (14,421,162) 328,186,357
41,430,589
NET ASSETS
Beginning of
period.......... 199,456,127 207,860,473 934,141,275 5,312,216 151,570,715 1,195,050,274
57,144,620
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $224,819,264 $781,451,362 $904,242,438 $9,676,196 $137,149,553 $1,523,236,631
$98,575,209
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ 5,624,332 $ 6,087 $ 1,321,369 $ 3,333 $ 100,717 $ 292,413
$ (233,100)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the year ended January 31, 1997.
** For the year ended December 31, 1996.
*** For the year ended November 30, 1996.
**** For the year ended August 31, 1996.
See Combined Notes to Financial Statements.
69
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Growth and Income Funds consist of Evergreen Blue Chip Fund
("Blue Chip"), Evergreen Growth and Income Fund ("Growth and Income"), Ever-
green Income and Growth Fund ("Income and Growth"), Evergreen Small Cap Equity
Income Fund ("Small Cap"), Evergreen Utility Fund ("Utility"), Evergreen Value
Fund ("Value") and Evergreen Fund for Total Return ("Total Return"), which are
collectively referred to herein as the "Funds". Each of the Funds is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as di-
versified, open-end management investment companies. Each Fund is a series of
the Evergreen Equity Trust, a Delaware business Trust organized on September
18, 1997.
The Funds offer Class A, Class B, Class C and Class Y shares. 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 a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred 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 con-
tingent deferred sales charge payable on shares redeemed within one year after
the month of purchase. Class B shares purchased after January 1, 1997 will au-
tomatically convert to Class A shares after seven years. Class B shares pur-
chased prior to January 1, 1997 retain their existing conversion rights. Class
Y shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union and its affiliates, certain institutional in-
vestors or Class Y shareholders of record of certain other funds managed by
First Union and its affiliates.
2. REORGANIZATION OF EVERGREEN VALUE FUND
On January 21, 1998, Evergreen Value Fund, Class Y, executed a redemption in-
kind transaction of $793,367,277. This transaction resulted in the liquidation
of substantially all of the net assets of Value, Class Y shares. In turn, the
assets were transferred to Evergreen Select Diversified Value Fund, Class I, an
institutional fund.
To fund this redemption, investment securities, excluding cash and cash equiva-
lents, with a market value of $774,879,156, including unrealized appreciation
of $221,367,103, were transferred. Additionally the Fund used cash and cash
equivalents of $23,488,121 to complete the transaction. The gains realized from
this sale of securities are not taxable to the Fund and are not required to be
distributed for federal income tax purposes.
3. ACQUISITION INFORMATION
Effective December 1, 1997, Signet Banking Corporation ("Signet") merged with
First Union Corporation ("First Union").
Effective at the close of business on February 27, 1998, Blue Chip acquired
substantially all of the net assets of Blanchard Growth & Income Fund, an open-
end management investment company managed by a subsidiary of Signet and regis-
tered under the 1940 Act, valued at $17,510,672. The net assets were exchanged
through a non-taxable transaction for 596,231 Class A shares of Blue Chip val-
ued at $29.37 per share. The acquired net assets consisted primarily of portfo-
lio securities with unrealized appreciation of $5,643,636. The aggregate net
assets of Blue Chip after the acquisition were $365,442,145.
Effective at the close of business on February 27, 1998, Growth and Income ac-
quired substantially all of the net assets of Virtus Style Manager Fund, an
open-end management investment company managed by a subsidiary of Signet and
registered under the 1940 Act, valued at $75,922,310. The net assets were ex-
changed through a non-taxable transaction for 2,555,807 Class Y shares of
Growth and Income valued at $29.71 per share. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $10,049,313.
The aggregate net assets of Growth and Income after the acquisition were
$1,945,327,504.
Effective at the close of business on February 27, 1998, Value acquired sub-
stantially all of the net assets of Virtus Style Manager; Large Cap Fund, an
open-end management investment company managed by a subsidi-
70
<PAGE>
Combined Notes to Financial Statements(continued)
ary of Signet and registered under the 1940 Act, valued at $104,172,578. The
net assets were exchanged through a non-taxable transaction for 3,109,878 and
924,632 Class A and Y shares, respectively, of Value. The per share value on
the acquisition date was $25.82 and $25.83 for Class A and Class Y, respective-
ly. The acquired net assets consisted primarily of portfolio securities with
unrealized appreciation of 28,824,982. The aggregate net assets of Value after
the acquisition were $1,097,437,360.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
The Funds value 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. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which valuations are not available from an inde-
pendent pricing service, including restricted securities, are valued at fair
value as determined in good faith according to procedures established 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
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
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 securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Blue Chip and Total Return, along with certain other funds managed by
Keystone Investment Management Company ("Keystone"), a subsidiary of First
Union, 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.
C. Reverse Repurchase Agreements
To obtain short-term financing, the Small Cap, Total Return, Utility and Value
may enter into reverse repurchase agreements with qualified third-party broker-
dealers. Interest on the value of reverse repurchase agreements is based upon
competitive market rates at the time of issuance. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segre-
gated account with the custodian containing qualifying assets having a value
not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
71
<PAGE>
Combined Notes to Financial Statements(continued)
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of ex-
change; 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 or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include: foreign cur-
rency gains and losses between trade date and settlement date on investment se-
curities and 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. The portion of foreign currency gains and losses re-
lated to fluctuations in exchange rates between the initial purchase trade date
and subsequent sale trade date is included in realized gains or losses on secu-
rities transactions.
E. Forward Foreign Currency Exchange Contracts
The Funds 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 liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gains or losses 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 con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. 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 or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities may be subject to foreign taxes and
are accrued as applicable.
G. Federal Taxes
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). As such, the Funds
will not incur any federal income tax liability since they are expected to dis-
tribute all of their net investment company taxable income and net realized
capital gains, if any, to their shareholders. The Funds also intend to avoid
any excise tax liability by making the required distributions under the Code.
Accordingly, no provision for federal income taxes is required. To the extent
that realized capital gains can be offset by capital loss carryforwards, it is
each Fund's policy not to distribute such gains.
H. Distributions
Distributions from net investment income for the Funds, except Utility, are de-
clared and paid quarterly. Distributions for Utility from net investment income
are declared and paid monthly. Distributions from net realized capital gains,
if any, are paid 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 accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The differences between financial statements amounts
available for distribution and distributions made in accordance with income tax
regulations are primarily due to differing treatment for certain distributions
received from real estate investment trusts and net realized foreign currency
gains (losses).
72
<PAGE>
Combined Notes to Financial Statements(continued)
I. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
J. Organization Expenses
Organization expenses incurred prior to June 30, 1998 are amortized to opera-
tions over a five-year period on a straight-line basis. In the event any of the
initial shares of the Funds are redeemed by any holder during the five-year am-
ortization period, redemption proceeds will be reduced by any unamortized or-
ganization expenses in the same proportion as the number of initial shares be-
ing redeemed bears to the number of initial shares outstanding at the time of
the redemption.
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C and Class Y. Blue Chip currently
does not have any Class Y shares. Transactions in shares of the Funds were as
follows:
Blue Chip
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
July 31, 1998 * August 31, 1997 August 31, 1996
------------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 812,276 $ 24,596,278 0 0 0 0
Automatic conversion of
Class B shares to
Class A shares......... 9,140,449 250,374,069 0 0 0 0
Shares redeemed......... (1,203,287) (36,027,532) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 14,697 447,340 0 0 0 0
Shares issued in
acquisition of
Blanchard Growth &
Income Fund............ 596,231 17,510,672 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 9,360,366 256,900,827 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 3,020,854 89,396,767 3,800,615 $103,353,377 2,238,539 $ 54,640,514
Automatic conversion of
Class B shares to
Class A shares......... (9,140,449) (250,374,069) 0 0 0 0
Shares redeemed......... (2,178,914) (63,756,605) (3,349,695) (89,890,447) (2,509,938) (61,283,587)
Shares issued on
reinvestment of
distribution........... 1,678,649 45,485,085 1,079,325 27,593,101 568,144 13,051,460
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (6,619,860) (179,248,822) 1,530,245 41,056,031 296,745 6,408,387
- -------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 26,608 818,732 0 0 0 0
Shares redeemed......... (949) (28,410) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 0 10 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 25,659 790,332 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 2,766,165 $ 78,442,337 1,530,245 $ 41,056,031 296,745 $ 6,408,387
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from August 31 to July 31, effective
July 31, 1998.
73
<PAGE>
Combined Notes to Financial Statements(continued)
Growth and Income
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 7,300,804 $ 214,673,895 2,967,692 $ 71,457,862 3,719,917 $ 76,959,622
Shares redeemed......... (3,520,816) (103,702,934) (645,446) (15,573,680) (1,044,500) (21,729,967)
Shares issued on
reinvestment of
distribution........... 287,118 8,071,240 14,532 352,344 69,271 1,546,893
- --------------------------------------------------------------------------------------------------------
Net increase............ 4,067,106 119,042,201 2,336,778 56,236,526 2,744,688 56,776,548
- --------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 16,476,196 481,475,327 9,881,863 236,281,947 8,914,571 185,314,202
Shares redeemed......... (2,725,060) (79,579,083) (779,920) (18,705,681) (646,461) (13,411,376)
Shares issued on
reinvestment of
distribution........... 837,176 23,198,143 166 3,746 160,953 3,613,927
- --------------------------------------------------------------------------------------------------------
Net increase............ 14,588,312 425,094,387 9,102,109 217,580,012 8,429,063 175,516,753
- --------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 1,131,563 32,986,181 511,624 12,290,220 348,918 7,294,757
Shares redeemed......... (317,773) (9,241,480) (55,491) (1,340,999) (29,065) (597,615)
Shares issued on
reinvestment of
distribution........... 38,010 1,053,643 0 0 5,130 115,108
- --------------------------------------------------------------------------------------------------------
Net increase............ 851,800 24,798,344 456,133 10,949,221 324,983 6,812,250
- --------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 8,658,868 253,053,137 6,060,064 145,062,792 9,899,164 200,509,060
Shares redeemed......... (7,135,642) (210,408,060) (3,163,527) (75,878,946) (6,820,349) (135,786,868)
Shares issued on
reinvestment of
distribution........... 797,581 22,424,991 67,571 1,641,399 349,251 7,729,161
Shares issued in
acquisition of
Virtus Style Manager
Fund................... 2,555,807 75,922,310 0 0 0 0
Shares issued in
acquisition of
FFB Lexicon Capital
Appreciation Fund...... 0 0 0 0 8,631,861 159,432,723
- --------------------------------------------------------------------------------------------------------
Net increase............ 4,876,614 140,992,378 2,964,108 70,825,245 12,059,927 231,884,076
- --------------------------------------------------------------------------------------------------------
Net increase............ 24,383,832 $ 709,927,310 14,859,128 $355,591,004 23,558,661 $ 470,989,627
- --------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Income and Growth
<CAPTION>
Year Ended Period Ended Year Ended
July 30, 1998 July 31, 1997* January 31, 1997
------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 204,121 $ 4,959,183 96,124 $ 2,114,635 288,739 $ 5,918,321
Shares redeemed......... (112,612) (2,739,976) (51,264) (1,121,079) (80,074) (1,646,836)
Shares issued on
reinvestment of
distribution........... 56,318 1,325,926 10,209 225,329 16,567 341,281
- --------------------------------------------------------------------------------------------------------
Net increase............ 147,827 3,545,133 55,069 1,218,885 225,232 4,612,766
- --------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 633,299 15,295,755 308,925 6,799,151 973,616 19,899,458
Shares redeemed......... (310,711) (7,455,874) (123,038) (2,685,666) (128,458) (2,649,792)
Shares issued on
reinvestment of
distribution........... 198,183 4,626,554 32,359 710,178 48,861 1,003,747
- --------------------------------------------------------------------------------------------------------
Net increase............ 520,771 12,466,435 218,246 4,823,663 894,019 18,253,413
- --------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 27,805 674,067 2,951 66,274 33,684 684,918
Shares redeemed......... (16,763) (402,792) (9,060) (189,123) (15,865) (328,507)
Shares issued on
reinvestment of
distribution........... 3,708 86,620 712 15,602 1,429 29,305
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 14,750 357,895 (5,397) (107,247) 19,248 385,716
- --------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 641,797 15,892,124 407,330 8,929,797 1,398,445 28,512,144
Shares redeemed......... (4,066,667) (99,134,986) (3,049,701) (67,224,141) (9,386,347) (193,045,864)
Shares issued on
reinvestment of
distribution........... 3,795,361 89,483,682 816,636 18,026,674 1,968,663 40,431,169
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 370,491 6,240,820 (1,825,735) (40,267,670) (6,019,239) (124,102,551)
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 1,053,839 $ 22,610,283 (1,557,817) $(34,332,369) (4,880,740) $(100,850,656)
- --------------------------------------------------------------------------------------------------------
</TABLE>
*The Fund changed its fiscal year end from January 31 to July 31, effective
July 31, 1997.
74
<PAGE>
Combined Notes to Financial Statements(continued)
Small Cap
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 4,328,382 $ 72,341,164 246,413 $ 3,587,404 23,318 $ 285,774
Shares redeemed......... (1,207,491) (20,046,565) (2,663) (37,984) (17,926) (213,193)
Shares issued on
reinvestment of
distribution........... 45,725 753,748 854 12,209 1,564 19,575
- ------------------------------------------------------------------------------------------------------
Net increase............ 3,166,616 53,048,347 244,604 3,561,629 6,956 92,156
- ------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 8,426,642 140,304,860 560,543 8,164,490 27,963 341,494
Shares redeemed......... (803,676) (13,366,175) (9,769) (142,514) (966) (11,697)
Shares issued on
reinvestment of
distribution........... 79,883 1,323,369 1,366 19,472 2,883 36,358
- ------------------------------------------------------------------------------------------------------
Net increase............ 7,702,849 128,262,054 552,140 8,041,448 29,880 366,155
- ------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 1,760,785 29,361,569 178,877 2,529,352 3,956 48,265
Shares redeemed......... (281,072) (4,699,621) (6,447) (91,950) (1,838) (22,125)
Shares issued on
reinvestment of
distribution........... 16,111 266,637 524 7,467 136 1,697
- ------------------------------------------------------------------------------------------------------
Net increase............ 1,495,824 24,928,585 172,954 2,444,869 2,254 27,837
- ------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 4,923,790 82,090,579 2,593,853 36,298,202 289,906 3,628,792
Shares redeemed......... (1,558,339) (25,982,474) (562,869) (8,498,878) (75,598) (912,038)
Shares issued on
reinvestment of
distribution........... 61,107 1,017,152 11,719 165,502 25,358 316,899
- ------------------------------------------------------------------------------------------------------
Net increase............ 3,426,558 57,125,257 2,042,703 27,964,826 239,666 3,033,653
- ------------------------------------------------------------------------------------------------------
Net increase............ 15,791,847 $263,364,243 3,012,401 $ 42,012,772 278,756 $ 3,519,801
- ------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Utility
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 1,266,778 $ 14,554,038 45,144 $ 494,721 246,512 $ 2,626,118
Shares redeemed......... (1,407,032) (16,718,124) (1,294,589) (14,079,531) (1,609,448) (16,984,094)
Shares issued on
reinvestment of
distribution........... 243,720 2,889,027 147,141 1,602,820 478,287 5,051,093
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 103,466 724,941 (1,102,304) (11,981,990) (884,649) (9,306,883)
- ------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 974,483 11,445,916 123,876 1,349,827 787,800 8,401,385
Shares redeemed......... (551,773) (6,555,500) (611,224) (6,601,705) (630,402) (6,652,890)
Shares issued on
reinvestment of
distribution........... 93,247 1,107,337 52,424 571,837 183,056 1,935,353
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 515,957 5,997,753 (434,924) (4,680,041) 340,454 3,683,848
- ------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 13,355 157,299 1,231 13,731 25,812 274,673
Shares redeemed......... (6,139) (72,067) (6,079) (66,033) (13,100) (135,909)
Shares issued on
reinvestment of
distribution........... 980 11,662 536 5,855 1,963 20,723
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 8,196 96,894 (4,312) (46,447) 14,675 159,487
- ------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 100,754 1,197,639 23,627 259,189 106,165 1,120,499
Shares redeemed......... (100,753) (1,214,182) (72,220) (779,946) (644,560) (6,607,014)
Shares issued on
reinvestment of
distribution........... 2,014 23,760 1,585 17,278 7,089 74,971
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 2,015 7,217 (47,008) (503,479) (531,306) (5,411,544)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 629,634 $ 6,826,805 (1,588,548) $(17,211,957) (1,060,826) $(10,875,092)
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
75
<PAGE>
Combined Notes to Financial Statements(continued)
Value
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
---------------------------- ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 1,587,252 $ 40,192,765 948,931 $ 21,010,689 1,109,850 $ 23,895,251
Shares redeemed......... (2,758,581) (68,967,117) (1,099,102) (24,085,514) (1,836,296) (39,736,035)
Shares issued on
reinvestment of
distribution........... 3,563,487 81,070,016 127,041 2,835,467 2,371,895 49,562,452
Shares issued in the
acquisition of Virtus
Style Manager; Large
Cap Fund............... 3,109,878 80,290,504 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 5,502,036 132,586,168 (23,130) (239,358) 1,645,449 33,721,668
- -------------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 2,346,146 58,297,020 2,284,482 50,184,755 2,197,426 47,442,303
Shares redeemed......... (1,290,986) (31,809,835) (709,716) (15,577,742) (873,740) (18,943,891)
Shares issued on
reinvestment of
distribution........... 2,433,973 55,281,719 48,527 1,086,571 1,374,236 28,693,188
- -------------------------------------------------------------------------------------------------------------
Net increase............ 3,489,133 81,768,904 1,623,293 35,693,584 2,697,922 57,191,600
- -------------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 170,261 4,223,998 46,777 1,018,408 38,761 832,827
Shares redeemed......... (72,103) (1,793,135) (16,263) (355,395) (17,818) (377,207)
Shares issued on
reinvestment of
distribution........... 31,015 701,653 410 9,201 10,328 215,421
- -------------------------------------------------------------------------------------------------------------
Net increase............ 129,173 3,132,516 30,924 672,214 31,271 671,041
- -------------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 4,385,718 107,270,971 6,289,283 137,931,136 15,195,754 324,801,783
Shares redeemed......... (46,491,232) (1,113,847,392) (8,383,008) (184,606,592) (14,584,293) (316,060,052)
Shares issued on
reinvestment of
distribution........... 2,771,230 65,192,827 302,057 6,740,306 5,208,388 108,890,530
Shares issued in
acquisition of Virtus
Style Manager; Large
Cap Fund............... 924,632 23,882,074 0 0 0 0
Shares issued in
acquisition of FFB
Lexicon Select Value
Fund................... 0 0 0 0 4,720,676 95,883,824
Shares issued in
acquisition of FFB
Equity Fund............ 0 0 0 0 692,924 14,077,973
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (38,409,652) (917,501,520) (1,791,668) (39,935,150) 11,233,449 227,594,058
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (29,289,310) $ (700,013,932) (160,581) $ (3,808,710) 15,608,091 $ 319,178,367
- -------------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Total Return
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* November 30, 1996
---------------------------- ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 405,327 $ 8,477,778 521,092 $ 9,464,499 756,854 $ 11,818,891
Shares redeemed......... (476,275) (9,979,937) (564,385) (10,121,645) (446,563) (6,837,747)
Shares issued on
reinvestment of
distribution........... 192,513 3,761,047 18,071 331,175 71,945 1,193,118
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 121,565 2,258,888 (25,222) (325,971) 382,236 6,174,262
- -------------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 1,312,799 27,194,053 2,651,702 48,001,066 1,503,008 23,867,265
Shares redeemed......... (1,328,176) (27,515,826) (609,684) (11,087,288) (534,970) (8,156,600)
Shares issued on
reinvestment of
distribution........... 348,818 6,752,535 15,072 275,911 57,897 974,432
- -------------------------------------------------------------------------------------------------------------
Net increase............ 333,441 6,430,762 2,057,090 37,189,689 1,025,935 16,685,097
- -------------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 212,115 4,372,780 350,562 6,315,824 398,635 6,185,359
Shares redeemed......... (349,166) (7,245,174) (172,539) (3,193,608) (265,577) (4,069,150)
Shares issued on
reinvestment of
distribution........... 80,168 1,557,317 4,023 73,683 21,672 362,645
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (56,883) (1,315,077) 182,046 3,195,899 154,730 2,478,854
- -------------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 5,560 116,322 4,487 85,018 0 0
Shares redeemed......... (5,138) (105,758) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 228 4,458 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 650 15,022 4,487 85,018 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 398,773 $ 7,389,595 2,218,401 $ 40,144,635 1,562,901 $ 25,338,213
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund share activity for Class Y shares reflect the period from June 10,
1997 (commencement of class operations) through July 31, 1997. The Fund
changed its fiscal year end from November 30 to July 31, effective July 31,
1997.
76
<PAGE>
Combined Notes to Financial Statements(continued)
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the period ended July 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
-----------------------------
Blue Chip*........................ $ 360,931,375 $ 391,549,349
Growth and Income................. 846,628,227 288,979,809
Income and Growth................. 1,281,952,042 1,315,701,331
Small Cap......................... 285,721,810 35,249,915
Utility........................... 86,344,853 94,184,507
Value............................. 902,213,731 1,820,554,640
Total Return...................... 107,895,706 127,869,229
</TABLE>
-------
* For the eleven-month period ended July 31,
1998. The Fund changed its fiscal year end
from August 31 to July 31, effective July 31,
1998. For the year ended August 31, 1997, cost
of purchases and proceeds from sales of in-
vestment securities for Blue Chip, excluding
short-term investments, were $295,493,216 and
$285,581,225, respectively.
On July 31, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation /
Tax Cost Appreciation Depreciation (Depreciation)
---------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip..... $ 298,069,328 $ 87,560,884 $ 2,556,400 $ 85,004,484
Growth and
Income....... 1,747,719,854 510,629,570 80,376,773 430,252,797
Income and
Growth....... 896,608,201 117,051,419 71,847,090 45,204,329
Small Cap..... 319,633,756 18,497,845 28,741,979 (10,244,134)
Utility....... 121,862,772 24,225,433 7,043,779 17,181,654
Value......... 786,172,180 244,288,036 29,342,797 214,945,239
Total Return.. 136,194,805 44,760,810 2,328,754 42,432,056
</TABLE>
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. (formerly, Evergreen Keystone Distributor, Inc.)
("EDI"), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS") serves as
principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund 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 share-
holders through expenses called "Distribution Plan expenses". Each class, ex-
cept Class Y, currently pays a service fee equal to 0.25% of the average daily
net assets 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 12b-1 fees greater than
the allowable annual amounts the Fund is permitted to pay. The Fund may reim-
burse the principal underwriter for such excess amounts in later years with an-
nual interest at the prime rate plus 1.00%.
77
<PAGE>
Combined Notes to Financial Statements(continued)
During the period ended July 31, 1998, amounts paid to EDI and/or its predeces-
sor pursuant to each Fund's Class A, Class B and Class C Distribution Plans
were as follows:
<TABLE>
<CAPTION>
Year Ended July 31, 1998
------------------------------
Class A Class B Class C
<S> <C> <C> <C>
------------------------------
Blue Chip*...................... $ 367,809 $1,259,943 $ 1,062
Growth and Income............... 597,754 7,890,229 377,404
Income and Growth............... 34,738 520,041 11,305
Small Cap....................... 80,328 755,179 153,142
Utility......................... 243,362 413,364 4,199
Value........................... 1,088,998 3,088,393 34,416
Total Return.................... 124,034 1,012,065 214,441
</TABLE>
-------
* For the eleven-month period ended July 31,
1998. The Fund changed its fiscal year end
from August 31 to July 31, effective July 31,
1998. For the year ended August 31, 1997, Blue
Chip paid $1,535,556 to EDI and/or its prede-
cessor pursuant to the Fund's Class B Distri-
bution Plan.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone is the investment adviser for Blue Chip and Total Return. In return
for providing investment management and administrative services to Blue Chip
and Total Return, the Funds pay Keystone a management fee that is calculated
daily and paid monthly. The management fee for Blue Chip is determined by ap-
plying percentage rates starting at 0.70% and declining as assets increase to
0.35% per annum, to the average daily net asset value of the Fund. The manage-
ment fee for Total Return is computed at an annual rate of 1.50% of Total Re-
turn's gross investment income plus an amount determined by applying percentage
rates starting at 0.60% and declining to 0.30% per annum as net assets in-
crease, to the average daily net asset value of the Fund.
Pursuant to an agreement with Growth and Income's, Income and Growth's and
Small Cap's investment adviser, Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee
based on each of Growth and Income's, Income and Growth's and Small Cap's aver-
age daily net assets, respectively, in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million......................................... 1.00%
Next $250 million.......................................... 0.90%
Over $1 billion............................................ 0.80%
</TABLE>
Evergreen Asset has agreed to reimburse Small Cap to the extent that the Fund's
operating expenses (including the investment advisory fee and amortization of
organizational expenses but excluding interest, taxes, brokerage commissions,
12b-1 distribution and shareholder services fees and extraordinary expenses)
exceed 1.50% of its average daily net assets. First Union and Evergreen Asset
can modify or terminate voluntary waivers at any time.
First Union is entitled to an annual fee of 0.50% Utility's and Value's average
daily net assets pursuant to each Fund's investment advisory agreement. First
Union voluntarily waived $204,617 of its fee for Utility for the year ended
July 31, 1998.
Evergreen Investment Services ("EIS") (formerly Evergreen Keystone Investment
Services, Inc.), a subsidiary of First Union, is the administrator and BISYS
Fund Services is sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS Fund Services provides the officers of the Funds. The administra-
tor and sub-administrator for each Fund are entitled to an annual fee based on
the average daily net assets of the funds administered by EIS for which First
Union or its investment advisory subsidiaries are also the investment advisers.
The administration fee is calculated by applying percentage rates, which start
at 0.05% and decline to 0.01% per annum as net assets
78
<PAGE>
Combined Notes to Financial Statements(continued)
increase, to the average daily net asset value of the Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to .004% per annum as net assets increase, to the average daily net as-
set value of the Fund. For Blue Chip, Growth and Income, Income and Growth,
Small Cap and Total Return the administration and sub-administration fee is
paid by their respective investment adviser and is not a Fund expense. For the
year ended July 31, 1998, Utility and Value paid $42,854 and $438,523, respec-
tively, to EIS for providing administrative services.
For the period ended July 31, 1998, Blue Chip and Total Return paid $53,198 and
$33,743, respectively, to Keystone, as reimbursement of certain administrative
expenses.
Evergreen Service Company ("ESC"), a subsidiary of First Union, serves as the
transfer and dividend disbursing agent for the Funds.
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
Growth and Income, Income and Growth, and Small Cap and also provides brokerage
services with respect to substantially all security transactions of each Fund
effected on the New York or American Stock Exchanges. For the year ended
July 31, 1998, Growth and Income, Income and Growth, and Small Cap incurred the
following brokerage commissions with Lieber & Company:
<TABLE>
<S> <C>
Growth and Income..................................... $1,460,807
Income and Growth..................................... 1,762,628
Small Cap............................................. 305,350
</TABLE>
Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to
the Fund, for its cost of providing investment advisory services.
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone,
serves as the transfer and dividend disbursing agent for the Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are al-
located to deferral accounts which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Funds' Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000. As of July 31, 1998, the value of the Trustees deferral ac-
count for Blue Chip, Growth and Income, Income and Growth, Small Cap, Utility,
Value and Total Return was $7,071, $32,760, $87,575, $8,678, $7,867, $82,792
and $2,334.
11. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating Funds. State Street served as agent for the Banks, and as agent was en-
titled to a fee of $15,000 which was allocated to all of the participating
Funds. This agreement was terminated on October 31, 1997.
79
<PAGE>
Combined Notes to Financial Statements(continued)
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union pro-
vided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank and Trust ("State Street") and a group of Banks became effec-
tive. 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 among the Banks, under the terms
of the financing agreement. The credit facility is to be accessed by the Funds
for temporary or emergency purposes only and is subject to each Fund's borrow-
ing restrictions. Borrowings under this facility bear interest at 0.50% per an-
num 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 allo-
cated to all funds. 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 period ended July 31, 1998, the Funds, except Income and Growth, had
no significant borrowings under these agreements. At July 31, 1998, Income and
Growth had a balance pursuant to this agreement of $12,800,000.
12. CONCENTRATION OF CREDIT RISK
Utility invests a substantial portion of its assets in issuers in the Utilities
industry, therefore, it may be more affected by economic and political develop-
ments in that industry than would be a comparable general equity fund.
80
<PAGE>
Independent Auditors' Reports
The Trustees and Shareholders of
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of six of the funds comprising Evergreen Eq-
uity Trust as listed below as of July 31, 1998, and the related statements of
operations, statements of changes in net assets and financial highlights for
each of the years or periods listed below:
Evergreen Blue Chip Fund -- statements of operations for the eleven months
ended July 31, 1998 and the year ended August 31, 1997, statements of
changes in net assets for the eleven months ended July 31, 1998 and each of
the years in the two-year period ended August 31, 1998 and financial high-
lights for the periods presented on pages 30 and 31.
Evergreen Growth and Income Fund -- statement of operations for the year
ended July 31, 1998, statements of changes in net assets for the year ended
July 31, 1998, the seven months ended July 31, 1997 and the year ended De-
cember 31, 1996 and financial highlights for the periods presented on pages
32 and 33, except for the periods ended prior to December 31, 1996. The fi-
nancial highlights for the periods ended prior to December 31, 1996 were au-
dited by other auditors, whose opinion thereon dated February 15, 1996 was
unqualified.
Evergreen Small Cap Equity Income Fund -- statement of operations for the
year ended July 31, 1998, statements of changes in net assets for the year
ended July 31, 1998, the seven months ended July 31, 1997 and the year ended
December 31, 1996 and financial highlights for the periods presented on
pages 36 and 37, except for the periods ended prior to December 31, 1996.
The financial highlights for the periods ended prior to December 31, 1996
were audited by other auditors, whose opinion thereon dated February 15,
1996 was unqualified.
Evergreen Utility Fund -- statement of operations for the year ended July
31, 1998, statements of changes in net assets for the year ended July 31,
1998, the seven months ended July 31, 1997 and the year ended December 31,
1996 and financial highlights for the periods presented on pages 38 and 39.
Evergreen Value Fund -- statement of operations for the year ended July 31,
1998, the statements of changes in net assets for the year ended July 31,
1998, the seven months ended July 31, 1997 and the year ended December 31,
1996 and financial highlights for the periods presented on pages 40 and 41.
Evergreen Fund for Total Return -- statement of operations for the year
ended July 31, 1998, statements of changes in net assets for the year ended
July 31, 1998, the eight months ended July 31, 1997 and the year ended No-
vember 30, 1996 and financial highlights for the periods presented on pages
42 and 43.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these fi-
nancial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted audited stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green Blue Chip Fund, Evergreen Growth and Income Fund, Evergreen Small Cap Eq-
uity Income Fund, Evergreen Utility Fund, Evergreen Value Fund and Evergreen
Fund for Total Return (six of the funds comprising Evergreen Equity Trust) as
of July 31, 1998, the results of their operations, changes in their net assets
and financial highlights for each of the years or periods specified in the
first paragraph above in conformity with generally accepted accounting princi-
ples.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 4, 1998
81
<PAGE>
Independent Auditors' Reports
To the Trustees and Shareholders of
Evergreen Income and Growth Fund
In our opinion, the accompanying Statement of Assets and Liabilities, including
the Schedule of Investments, and the related Statements of Operations and of
Changes in Net Assets and the Financial Highlights present fairly, in all mate-
rial respects, the financial position of Evergreen Income and Growth Fund (the
"Fund") at July 31, 1998, the results of its operations for the year then ended
and the changes in its net assets and the financial highlights for the year
ended July 31, 1998, the period ended July 31, 1997, and the year ended January
31, 1997, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Fund's management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
July 31, 1998 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above. The financial highlights presented for each of
the years or periods ended through January 31, 1996 were audited by other audi-
tors, whose report dated March 31, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
September 15, 1998
82
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Funds have
designated the following amounts as long-term 28% capital gain dis-
tributions and long-term 20% capital gain distributions for the fis-
cal year ended July 31, 1998:
<TABLE>
<CAPTION>
Aggregate Per Share
----------------------- -------------
28% 20% 28% 20%
---------------------------------
<S> <C> <C> <C> <C>
Blue Chip............... $18,080,605 $16,417,783 $1.758 $1.597
Growth and Income....... 14,384,603 26,192,557 0.259 0.471
Income and Growth....... 0 0 0.000 0.000
Small Cap............... 81,536 420,422 0.004 0.022
Utility................. 5,039,111 2,587,648 0.420 0.215
Value................... 77,345,830 115,539,118 1.734 2.591
Total Return............ 4,898,662 4,494,746 0.590 0.541
</TABLE>
For corporate shareholders, the following percentages of ordinary in-
come dividends paid during the fiscal year ended July 31, 1998 quali-
fied for the dividends received deduction.
<TABLE>
<S> <C>
Blue Chip................................................. 35.96%
Growth and Income......................................... 43.91%
Income and Growth......................................... 14.91%
Small Cap................................................. 72.93%
Utility................................................... 79.50%
Value..................................................... 83.91%
Total Return.............................................. 57.85%
</TABLE>
83
<PAGE>
Evergreen Funds
<TABLE>
<S> <C> <C>
Money Market Income Domestic Growth
Treasury Money Market Fund Capital Preservation and Income Fund Strategic Growth
Fund
Money Market Fund Short Intermediate Bond Fund Stock Selector
Fund
Municipal Money Market Fund Intermediate Term Government Securities Fund Evergreen Fund
Pennsylvania Municipal Money Market Fund Intermediate Term Bond Fund Omega Fund
U.S. Government Fund Small Company
Growth Fund
Tax Exempt Diversified Bond Fund Aggressive
Growth Fund
Short Intermediate Municipal Fund Strategic Income Fund Micro Cap Fund
High Grade Tax Free Fund High Yield Bond Fund
Tax Free Fund Global
International
California Tax Free Fund Balanced Global Leaders
Fund
Connecticut Municipal Bond Fund American Retirement Fund International
Growth Fund
Florida Municipal Bond Fund Balanced Fund Global
Opportunities Fund
Florida High Income Municipal Bond Fund Tax Strategic Foundation Fund Precious Metals
Fund
Georgia Municipal Bond Fund Foundation Fund Emerging Markets
Growth Fund
Maryland Municipal Bond Fund Latin America
Fund
Massachusetts Tax Free Fund Growth & Income
Missouri Tax Free Fund Utility Fund Express Line
New Jersey Tax Free Income Fund Income and Growth Fund 800.346.3858
New York Tax Free Fund Fund for Total Return
North Carolina Municipal Bond Fund Value Fund Investor Services
Pennsylvania Tax Free Fund Blue Chip Fund 800.343.2898
South Carolina Municipal Bond Fund Growth and Income Fund
Virginia Municipal Bond Fund Small Cap Equity Income Fund Retirement Plan
Services
800.247.4075
www.evergreenfunds.com
</TABLE>
63305 543691 RV0 9/98
---------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 19
HUDSON, MA
---------------
[LOGO OF EVERGREEN FUNDS(SM)
APPEARS HERE]
200 BERKELEY STREET
BOSTON, MA 02116
<PAGE>
Evergreen
Growth and
Income Funds
July 31, 1998
Annual Report
- -------------------------------------------------------------------------------
[PICTURE APPEARS HERE]
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders.................................................. 1
Evergreen Blue Chip Fund
Fund at a Glance....................................................... 2
Portfolio Manager Interview............................................ 3
Evergreen Growth and Income Fund
Fund at a Glance....................................................... 6
Portfolio Manager Interview............................................ 7
Evergreen Income and Growth Fund
Fund at a Glance....................................................... 10
Portfolio Manager Interview............................................ 11
Evergreen Small Cap Equity Income Fund
Fund at a Glance....................................................... 14
Portfolio Manager Interview............................................ 15
Evergreen Utility Fund
Fund at a Glance....................................................... 19
Portfolio Manager Interview............................................ 20
Evergreen Value Fund
Fund at a Glance....................................................... 22
Portfolio Manager Interview............................................ 23
Evergreen Fund for Total Return
Fund at a Glance....................................................... 26
Portfolio Manager Interview............................................ 27
Financial Highlights
Evergreen Blue Chip Fund............................................... 30
Evergreen Growth and Income Fund....................................... 32
Evergreen Income and Growth Fund....................................... 34
Evergreen Small Cap Equity Income Fund................................. 36
Evergreen Utility Fund................................................. 38
Evergreen Value Fund................................................... 40
Evergreen Fund for Total Return........................................ 42
Schedule of Investments
Evergreen Blue Chip Fund............................................... 44
Evergreen Growth and Income Fund....................................... 46
Evergreen Income and Growth Fund....................................... 51
Evergreen Small Cap Equity Income Fund................................. 54
Evergreen Utility Fund................................................. 58
Evergreen Value Fund................................................... 60
Evergreen Fund for Total Return........................................ 62
Statements of Assets and Liabilities.................................... 64
Statements of Operations................................................ 65
Statements of Changes in Net Assets..................................... 67
Combined Notes to Financial
Statements............................................................. 70
Independent Auditors Reports............................................ 81
Additional Information.................................................. 83
</TABLE>
- -------------------------------------------------------------------------------
Evergreen Funds
- -------------------------------------------------------------------------------
Evergreen Funds is one of the nations fastest growing investment companies
with approximately $50 billion in assets under management.
With over 70 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 annual 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: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
September 1998
[PICTURE OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Shareholders:
The following report covers the Evergreen Growth and Income Funds for the fiscal
year ended July 31, 1998.
Market Review
At the writing of this report -- after the fiscal period ended July 31, 1998 --
the markets have experienced increased volatility, mainly due to financial and
currency crises in the Asian and Russian economies. We encourage investors to
remain focused on their long-term goals, and to keep short-term volatility in
perspective.
Although no one can accurately predict either the timing or the degree, one
thing is certain: the stock market will continue to experience ups and downs.
At this time, we still believe the domestic economy is strong with low
inflation, low unemployment and moderate, yet sustainable growth. We are
confident that the opportunity remains to participate in the continued, dynamic
growth of both U.S. and international companies.
Cost Savings
In an effort to achieve efficiencies and cost savings, we have changed the way
we mail your funds' information. Wherever possible, we are trying to combine
your funds' required mailings so you only receive one per household, based on
the registration last name and exact address./1/ This reduces the mailing costs,
not to mention the amount of paper needed to print, which in turn benefits your
funds by reducing overall expenses. If you prefer to receive separate copies of
reports and prospectuses for each registered shareholder in your household,
please notify us by calling the number on your statement and we will adjust our
records accordingly.
Evergreen Service
Evergreen remains committed to providing investment choices which match a range
of investment objectives, as well as clear and accurate information on all the
Evergreen Funds. We recommend you consult with your financial advisor to
evaluate your asset allocation and ensure you are on target with your investment
time horizon. If you have any questions or need additional information, please
contact one of our service representatives at 800.343.2898. We will be happy to
assist you.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/1/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We continued to emphasize the larger-capitalization, blue chip, high-quality
U.S. corporations that are the hallmark of the Fund's investment style.
Portfolio
Management
------------------------
[PICTURE OF JUDITH A. WARNERS APPEARS HERE]
Judith A. Warners
Tenure: January, 1995
CURRENT INVESTMENT STYLE/1/
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
-------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 1/20/98 9/11/35 1/22/98
................................................................................
Average Annual Returns
................................................................................
One year with sales charge -- 10.14% --
................................................................................
One year w/o sales charge -- 14.99% --
................................................................................
3 years -- 23.45% --
................................................................................
5 years -- 17.29% --
................................................................................
10 years -- 14.35% --
................................................................................
Since Inception 6.00% 9.04% 8.80%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
12-month income dividends per share $0.06 $0.08 $0.02
...............................................................................
12-month capital gain distributions per share -- $4.96 --
................................................................................
* Adjusted for maximum sales charge
Note: Class A and C shares were introduced in January 1998, and did not have
average annual returns to quote at this time. Cumulative returns since
inception are provided.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class B S & P 500 Index CPI
Jul-88 10,000 10,000 10,000
Jul-89 12,742 13,193 10,498
Jul-90 13,533 14,051 11,004
Jul-91 14,980 15,844 11,494
Jul-92 15,889 17,870 11,857
Jul-93 17,063 19,430 12,186
Jul-94 17,244 20,433 12,523
Jul-95 19,998 25,768 12,869
Jul-96 22,824 30,037 13,245
Jul-97 33,238 45,698 13,544
Jul-98 38,218 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Blue Chip
Fund Class B, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Management Interview
- --------------------------------------------------------------------------------
How did the Fund perform?
- --------------------------------------------------------------------------------
The Fund performed well relative to similar funds, while trailing the overall
Standard & Poor's 500 Index, which was dominated by a few large companies. For
the 12 months ended on July 31, 1998, the Evergreen Blue Chip Fund's Class B
shares had a total return of 14.99%, unadjusted for applicable sales charges.
During the same 12-month period, the benchmark S&P 500 Index had a return of
19.29%, while Growth and Income Funds on average returned 11.37%, as measured by
Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $403,408,065
...............................................................................
Number of Holdings 86
...............................................................................
P/E Ratio* 22.1x
...............................................................................
Beta* 0.96
..............................................................................
*as of 6/30/98
- --------------------------------------------------------------------------------
What was the investment
environment like during the year?
- --------------------------------------------------------------------------------
The overall market, as reflected in the popular indexes such as the S&P 500,
moved upward. Interim volatility and periods of relatively flat performance --
when the market moved more sideways than up or down -- punctuated this general
trend, however. As the year progressed, market index performance became more
and more dominated by the very strong returns of a relatively few stocks. We
characterize this period as a standoff between two conflicting influences. On
the one hand, there was fear that economic growth in the United States might
become so strong that the Federal Reserve Board would act to thwart inflation by
raising short-term interest rates. On the other hand, there was the anticipated
fear of the impact that the Asian economic crisis might have on the earnings of
U.S. corporations. In addition, there also was concern about the credibility of
the U.S. political leadership. It seems the concern about Asia was put aside as
the strength of the domestic economy, combined with strong demand from Europe,
helped sustain strong earnings by U.S. multi-national corporations.
The narrowing of market leadership -- to a band of a relatively few companies --
became a progressively more dominant trend as the year progressed. We also have
witnessed a rotating correction for several months, as the market values of
different stocks have dipped. While the overall indexes may have shown positive
results, the stock valuations of a large proportion of publicly traded companies
actually fell. For example, a Merrill Lynch study indicates that as of mid-
August, the stock prices of approximately 70% of New York Stock Exchange
companies actually fell by 20% or more from their highs, and 47% fell by 30% or
more after their highs.
In this environment, the best investment returns tended to come from a
relatively few companies. While they represented a variety of different
industries, they tended to be high-quality, high-visibility companies that often
were leaders of their markets or niches. In the Evergreen Blue Chip Fund's
portfolio, for example, the leading contributors to performance during the 12-
month period included General Electric, Pfizer, Microsoft, Ford Motor Company
and Home Depot. Other performance leaders included companies that were re-
structuring or acquiring new businesses. The list included Viacom, in the
entertainment industry, and Tyco International, a diversified company.
- --------------------------------------------------------------------------------
Within this environment, what were your principal investment themes or
strategies?
- --------------------------------------------------------------------------------
We continued to emphasize the larger-capitalization, blue chip, high-quality
U.S. corporations that are the hallmark of the Fund's investment style. We also
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
included a sprinkling of higher quality mid-cap growth companies. An excellent
example would be Royal Caribbean Cruises Ltd., which was one of the top
contributors to performance during the 12 months.
At the end of the fiscal year, about 70% of net assets were invested in the
large-cap, U.S. companies, with about 15% invested in mid-cap stocks. Within
this general framework, we sometimes trimmed back the holdings of companies
after their prices had risen dramatically, even buying them back
opportunistically if they became more attractive again after a price correction.
As a by-product of our concern about volatility and high valuations of many
stocks, the cash and cash-equivalent weighting of the Fund rose from 4% to 13.3%
of net assets during the year. Most of that increase came in the final two
months of the fiscal year as we became increasingly concerned about the impact
both of the Asian currency crisis and of questions about political leadership in
Washington. This relatively high cash level is not necessarily permanent,
however. We may re-invest proceeds opportunistically as we see attractive
valuations and if the stock market shows signs of stabilizing.
Top 5 Industries
----------------
(as a percentage of net assets)
Finance & Insurance and Banks 18.5%
..............................................................................
Healthcare Products & Services 13.1%
..............................................................................
Information Services & Technology 10.2%
..............................................................................
Oil / Energy 8.1%
..............................................................................
Retailing & Wholesale 6.0%
..............................................................................
- --------------------------------------------------------------------------------
What sectors, or industries, did you emphasize?
- --------------------------------------------------------------------------------
The greatest emphasis was in financial services, technology, health care --
including pharmaceuticals -- and consumer staples, such as beverages and
household products.
Financial services accounted for about 19% of net assets on July 31, despite
being trimmed back somewhat during the final months of the fiscal year. Among
the holdings that we have reduced are some large, regional banks as the
consolidation trend in the industry appeared to move from the regional banks
toward mergers-of-equals among very large institutions. For example, the
largest financial services positions at the end of the fiscal year, were
American International Group, a global leader in finance, and Travelers Group,
Inc., which has announced a pending merger with Citicorp. One of the major
contributors to performance during the year, particularly in the last six
months, was Morgan Stanley-Dean Witter, another company that is benefiting from
merging and gaining additional cross-selling opportunities. We also have been
interested in investing in financial companies that are leaders in their niches,
including the Federal National Mortgage Association (Fannie Mae) and Associates
First Capital, a leading consumer lender that is a spin-off of Ford Motor Co.
Technology accounted for about 10% of net assets on July 31. We have not
invested broadly in technology, but have owned the stocks of major industry
leaders, including IBM, Intel and Microsoft. In addition, we have owned leaders
in specific market segments, including Sun Microsystems, Gateway Computers, and
EMC, a leader in disc storage. We also have tried to take advantage of emerging
opportunities caused by changes in telecommunications systems and technologies
and the building of integrated communications networks throughout the world.
Among our significant holdings are WorldCom and Cisco Systems, both of which
have been strong contributors to performance.
Healthcare, including pharmaceuticals, accounted for about 13% of net assets at
the end of the fiscal year, even though it was slightly down from a year earlier
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Blue Chip Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
because we have taken profits from some successful holdings. Longer term, we
see strong opportunities in the pharmaceutical industry because of the steady
flow of interesting new products and the strong demand caused by the aging of
the population. This industry also continues to consolidate, as illustrated by
the pending merger of American Home Products Corp., a major holding of the Fund,
and Monsanto.
Consumer staples, including beverages and consumer products, accounted for about
12% of assets as of July 31. While this is not an over-weighting, it continues
to be well-represented as domestically oriented consumer companies continue to
produce attractive earnings.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
General Electric Co. 3.3%
..............................................................................
Microsoft Corp. 2.8%
..............................................................................
American Home Products Corp. 2.2%
..............................................................................
Texaco, Inc. 2.1%
..............................................................................
British Petroleum Plc, ADR 1.8%
..............................................................................
Coca Cola Co. 1.8%
..............................................................................
Merck & Co., Inc. 1.8%
..............................................................................
Wal-Mart Stores, Inc. 1.7%
..............................................................................
Bristol-Myers Squibb Co. 1.6%
..............................................................................
Travelers Group, Inc. 1.6%
..............................................................................
- --------------------------------------------------------------------------------
What areas have been disappointing?
- --------------------------------------------------------------------------------
Real estate investment trusts, or REITs, have been a disappointment and we have
reduced our holdings substantially, from about 5% of net assets to about 1%.
The market performance of this industry has slumped as investors favored stable
growth companies over yield-oriented companies. There also has been concern
about possible over-building in commercial real estate.
Other disappointments include Analog Devices, a semiconductor company that has
been hurt by the Asian crisis, and Cendant, a consumer services company that has
encountered questions about the reliability of its reported earnings. We have
eliminated our positions in both companies entirely. Philip Morris also has
been disappointing, primarily because of the tobacco controversy.
- --------------------------------------------------------------------------------
What is your outlook?
- --------------------------------------------------------------------------------
We expect continued volatility in the market. In this environment, we plan to
maintain our concentration on fundamental analysis and individual company stock
picking. We expect to emphasize global leaders that understand how to manage in
periods of volatility, both in their businesses and in the stock market. We
also will look for leaders in specific market niches and undervalued businesses.
Given the unsettled market, our emphasis on fundamental research and individual
stock selection should help us find attractively priced opportunities created by
the market volatility and the possibility of over-corrections. In addition,
while we have generally avoided investments in basic materials, we have added
opportunistically to our holdings in the oil industry, which we believe should
ultimately rebound from its recent difficulties.
We have the flexibility to become more defensive if we believe conditions are
worsening, and we also have the ability to increase our weightings in medium-
sized companies should market leadership start changing. The Fund's primary
emphasis, however, should remain with the leading large-capitalization
companies. We believe their quality and liquidity should continue to support
performance in an uncertain period.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
With the sharp decline in the stock market at quarter end, cash reserves began
to be employed in purchasing quality companies with above-average growth
prospects.
Portfolio
Management
--------------------------
[PICTURE OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: July 1997
[PICTURE OF GARY R. BUESSER APPEARS HERE]
Gary R. Buesser, CFA
Tenure: July 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/86
................................................................................
Average Annual Returns
...............................................................................
1 year with sales charge 5.97% 5.44% 9.47% n/a
................................................................................
1 year w/o sales charge 11.26% 10.44% 10.47% 11.56%
................................................................................
3 years 19.52% 19.93% 20.64% 21.81%
................................................................................
5 years -- -- -- 19.25%
................................................................................
10 years -- -- -- 16.75%
................................................................................
Since Inception 23.25% 23.57% 24.08% 15.24%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $0.13 -- -- $0.20
...............................................................................
12-month capital gain
distributions per share $1.01 $1.01 $1.01 $1.01
................................................................................
* Adjusted for maximum applicable sales charge
- -------------------------------------------------------------------------------
LONG TERM GROWTH
- -------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 400 Lipper Growth &
Date Class A S&P 500 Index Mid-Cap Index Income Fund Average CPI
<S> <C> <C> <C> <C> <C>
1/3/95 9,525 10,000 10,000 10,000 10,000
Jul-95 11,787 12,420 12,359 12,076 10,187
Jul-96 13,529 14,478 13,321 13,781 10,485
Jul-97 18,992 22,026 19,359 19,843 10,721
Jul-98 21,130 26,273 23,015 22,139 10,902
</TABLE>
Comparison of change in value of a $10,000 investment in Evergreen Growth and
Income Fund Class A, the Standard & Poor's 500 Index (S&P 500), the Standard and
Poor's 400 Mid-Cap Index (S&P 400), the Lipper Growth & Income Funds Average
(LGIFA), 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, the S&P 400 Index, and the Lipper Growth
& Income Funds Average are unmanaged market indexes and do not include
transaction costs associated with buying and selling securities nor any
management fees. 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.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
- --------------------------------------------------------------------------------
What was the investment performance in the fiscal year?
- --------------------------------------------------------------------------------
The Evergreen Growth and Income Fund Class A, B, C, and Y shares returned
11.26%, 10.44%, 10.47%, and 11.56% respectively, for the fiscal year ended July
31. These returns are unadjusted for applicable sales charges. The performance
reflected a reversal in the fourth quarter of the fiscal year after significant
gains in the first three quarters. The Fund's Class Y shares exceeded the
11.21% performance of the S&P 400 Mid-Cap Index, and even in the weak fourth
quarter of the fiscal year, outperformed the S&P 400 Mid-Cap Index by 0.95%.1
The Fund held an above-average cash position (approximately 20% of assets)
during much of the fiscal year, because we judged that market segments were
overvalued, and together with international economic volatility, might provide
attractive purchase opportunities. With the sharp decline in the stock market at
quarter end, cash reserves began to be employed in purchasing quality companies
with above-average growth prospects.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $2,147,320,878
................................................................................
Number of Holdings 282
................................................................................
P/E Ratio* 21.9x
................................................................................
Beta* 0.91
................................................................................
*as of 6/30/98
- --------------------------------------------------------------------------------
What drove the Fund's performance?
- --------------------------------------------------------------------------------
Considering the cautious cash position, the invested portfolio demonstrated
strong performance. The leadership in performance came from a diverse group of
companies, with the strongest in the broadcasting and communication fields,
where we had established positions earlier with the expectation of significant
benefits from both deregulation and growth. Six of the top ten performers in
the Fund were in this category, four of which had gains of over 100% in the
fiscal year; Mediaone Group, Inc., Chancellor Media Corp., Young Broadcasting
Inc., Class A, and Century Telephone Enterprises, Inc. Pharmaceutical
commitments also provided a group of performance leaders: Pfizer, Inc., +83.2%;
Schering-Plough Corp., +76.5%; and Warner-Lambert Co., +73.7%.
Many issues added to the portfolio during the fiscal year provided outstanding
gains. These gains were led by +105.2% in the shares of Lowe's Companies, Inc.;
+98.8% in the shares of Warner-Lambert Co.; +96.6% in the shares of Kansas City
Southern Industries, Inc.; and +67.9% in the shares of Home Depot, Inc. These
top four led a group of 25 purchases which provided gains of 30% or more.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
McKesson Corp. 1.5%
................................................................................
Webster Financial Corp. 1.5%
................................................................................
Kansas City Southern Industries, Inc. 1.4%
................................................................................
Lincare Holdings, Inc. 1.2%
................................................................................
Jacor Communications, Inc. 1.2%
................................................................................
Time Warner, Inc. 1.1%
................................................................................
Schering-Plough Corp. 1.0%
................................................................................
Pittston Brink's Group 1.0%
................................................................................
Policy Management Systems Corp. 1.0%
................................................................................
Burlington Northern Santa Fe 1.0%
................................................................................
Several major gains were the result of merger and acquisition offers for our
holdings. Evergreen Media Corp. was acquired by Chancellor Media Corp., and
provided a +109.4% return to the Fund in the fiscal year, and Carson Pirie Scott
& Co. was acquired by
/1/ The Fund will be using the S&P 400 Mid-Cap Index as a benchmark going
forward. Previously, the Fund was compared to the S&P 500 which is a large cap
index. The Fund invests in stocks of predominantly small to mid-sized companies
and, therefore, the S&P 400 Mid-Cap Index is more appropriate.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Proffitt's, Inc., with a +72.3% increase. A total of 22 companies in the
portfolio either completed mergers or acquisitions, or had them pending at the
end of the fiscal year. The financial group represented the largest number of
these transactions; the pending SunTrust Banks, Inc. bid for Crestar Financial
Corp. provided a +230.3% gain from the acquisition price in 1996; Central
Fidelity Banks, Inc. acquisition, a +183.4% gain; Life Bancorp, Inc., a +44.5%
gain; Life Re Corp., a +57.3% gain; and Firstar Corp., a +33.2% gain (the latter
two are pending transactions). We view merger and acquisition offers for Fund
holdings as a validation of our original analysis of them as undervalued issues.
The results of the fiscal year sustained this thesis, with the range of
acquisitions across ten industries suggesting that a continued broad analytical
search for undervaluation is an appropriate long-term strategy for the Fund.
- --------------------------------------------------------------------------------
Where were the disappointments in the fiscal year?
- --------------------------------------------------------------------------------
The major disappointments were among smaller companies, especially those
negatively impacted by the technology market slowdown, or temporary adversities
caused by the Asian financial crisis. Illustratively, we had sold almost half
of the Fund's position in specialty electronic components manufacturer, Unitrode
Corp., early in the fiscal year, with a profit of over 128.8%. We held the
balance with a view toward a longer term optimism, holding a much reduced
position. Nonetheless, with a slow-down in the electronics components industry
by fiscal year-end, the stock had declined 56.1%. In the case of other issues,
such as KLA-Tencor Corp., we had similarly realized major gains (+115.0%), and
then replaced the position at much lower prices. By year-end, however, even the
low price purchases had declined in value by 20.1%. Among larger companies, our
largest decline was in the shares of Union Pacific Corp., 40.4%. We
considerably enlarged the position in this leading railroad system when the
stock fell in value due to the problems of congestion involving the complexities
of integrating the newly acquired Southern Pacific Rail Corp. We believe Union
Pacific's railroad system will recover its previous high earnings power when it
overcomes its short-term problems.
Top 5 Industries
----------------
(as a percentage of net assets)
Healthcare Products & Services 11.4%
...............................................................................
Banks 9.1%
................................................................................
Industrial Specialty Products & Services 6.8%
................................................................................
Finance & Insurance 6.3%
................................................................................
Publishing, Broadcasting & Entertainment 4.6%
................................................................................
The top performing groups for the fiscal year were Communications Systems and
Services, +91.1%; Food & Beverage Products, +47.8%; Electric Utilities, +34.6%;
Retail & Wholesale, +33.8%; Telecommunications Services and Equipment, +33.0%;
and Health Care Products and Services, +31.6%. The weakest performers were: Oil
Field Services, down 42.5%, and Information Services and Technology, down 24.6%.
The decline in energy prices toward the end of the fiscal year was a source of
adverse stock performance. The Fund's oil field service company holdings are
concentrated in areas we believe will not be as negatively impacted as the
industry, on average. Our concentration is on deep water drilling companies,
where the very large scale of equipment mitigates against an excess supply
forcing down capacity utilization and day rates.
- --------------------------------------------------------------------------------
How is the Fund positioned for the new fiscal year?
- --------------------------------------------------------------------------------
Anticipating the volatility and the probability of price declines, the Fund has
held a substantial portion of its assets in short-term cash equivalents. This
has given management the opportunity to utilize this sizable balance for the
careful purchase of undervalued securities in periods of market weakness. As
the stock market deteriorated toward the end of the fiscal year
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Growth and Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
and into August, we have been actively increasing stock investments. The
deterioration was particularly marked among smaller companies, as evidenced by
the 14% decline in the S&P Mid-Cap Index and the 20% decline in the Russell 2000
Index from their April 22 highs through August 24. The performance of these
indices underlines the extent to which the stock market penalized smaller to
mid-capitalization companies, while rewarding larger companies and,
particularly, the higher price/earnings ratio group.
Our "value timing" investment strategy is focused on long-term capital gains in
companies which are undervalued in relation to their earnings growth, cash flow,
and asset realization possibilities. We are taking advantage of weakness in the
pricing of financial institutions to add to the Fund's holdings in banks,
especially mid-sized regional banks, which will play an important role in future
industry consolidations. We continue to add to holdings in the securities
brokerage and investment banking field where positions were established in the
1998 fiscal year. This has proven a highly rewarding group, beginning with our
purchase of Edwards (A.G.), Inc. early in the year, and followed by Lehman
Brothers Holdings, Inc. and Paine Webber Group, Inc. We anticipate both growth
for this industry and a continuing trend of acquisitions with the building of
multi-faceted financial service businesses.
The portfolio is further participating in the utility industry, based on
restructuring opportunities. In its fiscal year, the Fund had a +54.5% increase
from its purchase of Energy East Corp. (formerly New York State Electric and Gas
Corp.), which is in the process of restructuring. Toward the end of the year, a
position was established in Marketspan Corp., the merger of Brooklyn Union Gas
Co. and Long Island Lighting Co. Our emphasis on the growth possibilities of
the technologies of biological science and the pharmaceutical industry
continues, with a recent increase in our investment in Perkin-Elmer Corp. (whose
genetics instrument technology is a leading one), and Beckman Coulter, Inc.
(whose leadership in analytical instruments is expected to be accelerated by a
recent merger).
Several real estate investment trust positions were recently increased, because
the market setback which this industry has had since its strong performance in
the fourth quarter of 1997 has created meaningful new values. For the first
time in many months, numbers of well-established real estate investment trusts
are selling below the indicated value of their underlying property holdings.
In summary, undervalued growth opportunities continue to be the central goal of
this Fund, utilizing the "value timing" strategies which are at the core of its
twelve year performance record.
Will the Fund continue to hold a large cash reserve?
Our objective is to have a more normal cash reserve position, and an almost
fully invested strategy. Market and individual company setbacks are providing
the "value timing" opportunities to effectively utilize the cash reserves. For
example, an inventory problem at Penney (J.C.) Co., Inc. developed during a
particularly strong retail period, led to an over 20% decline in its stock
price. We then began to accumulate this stock for the Fund, and at this
writing, have established a meaningful position. Similarly, a setback
experienced in the demand for chemical products led us to increase the position
in Du Pont (E.I.) De Nemours & Co., Inc. Anticipating recovery because of new
products, we saw a "value timing" opportunity in the shares of Acuson Corp., a
leading ultrasound company, which should allow it to increase market share in
its growth medical technology industry. In these, and in many other cases, our
intensive research effort is expected to provide opportunities to capitalize on
the cautious positioning which we established for the Fund in the 1998 fiscal
year. It should form the base for significant long-term capital appreciation.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: August 1978
[PICTURE OF IRENE D. O'NEILL APPEARS HERE]
Irene D. O'Neill
Tenure: December 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 8/31/78
<S> <C> <C> <C> <C>
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 2.80% 2.29% 6.16% n/a
................................................................................
1 year w/o sales charge 7.93% 7.13% 7.13% 8.16%
................................................................................
3 years 12.55% 12.77% 13.56% 14.68%
................................................................................
5 years -- -- -- 10.90%
................................................................................
10 years -- -- -- 10.78%
................................................................................
Since Inception 14.85% 14.99% 15.56% 14.25%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.16% 1.50% 1.60% 2.53%
...............................................................................
12-month income dividends
per share $ 1.02 $ 0.85 $ 0.85 $ 1.08
................................................................................
12-month capital gain
distributions per share $ 1.59 $ 1.59 $ 1.59 $ 1.59
................................................................................
</TABLE>
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Wilshire 5000 LIFA CPI
1/3/95 9,525 10,000 10,000 10,000
Jul-95 10,962 12,415 11,504 10,187
Jul-96 11,847 14,239 12,602 10,485
Jul-97 15,210 20,960 15,440 10,721
Jul-98 16,409 25,821 16,727 10,902
Comparison of change in value of a $10,000 investment in Evergreen Income and
Growth Fund Class A, the Wilshire 5000 Index, the Lipper Income Funds Average
(LIFA), 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 Wilshire 5000 Index and the Lipper Income Funds Average
are unmanaged market indexes and do not include transaction costs associated
with buying and selling securities nor any management fees. 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.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the year?
In the fiscal year ended July 31, 1998, the Fund sustained its above-average
dividend distributions. For Class Y shares, the oldest class, these dividends
were $0.27 per share each quarter, providing a yield in the top quartile of the
Lipper Income Funds category. The Class Y shares have been able to sustain at
least this level of dividend for the past 13 years. Yet, the Class Y shares have
had an average annual total return of 14.25% since inception of the Fund on
August 31, 1978. During the 12-month period that ended on July 31, 1998, the
Fund's Class Y shares had a return of 8.16%. Class A, B and C shares had total
returns of 7.93%, 7.13% and 7.13% respectively, unadjusted for applicable sales
charges. During the same period the average return on the Lipper Income Funds
category was 8.37% and the Wilshire 5000 Index had a return of 17.05%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $950,653,827
................................................................................
Number of Holdings 150
................................................................................
P/E Ratio* 18.8x
................................................................................
Beta* 0.87
................................................................................
*as of 6/30/98
How would you describe the long-term strategy of the Fund?
The Fund is designed to be an income-producing alternative to bond investing
while providing growth for greater protection against inflation. The investment
strategy uses high yield undervalued convertible bonds, convertible preferred
stocks, and common stocks to enhance both the Fund's income and defensive
quality while aiming for significant capital appreciation.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE] Common Stock -- 65.7%
Convertible Preferred Stock -- 30.1%
Convertible Debentures -- 3.3%
Cash/Cash Equivalents -- 0.9%
What were some of the major contributors to performance?
The Fund's performance was helped by investments in companies in a number of
different industries, including: healthcare, banks and thrifts,
telecommunications, and consumer-related stocks.
Within the general health group, a leading performer was Bristol-Myers Squibb
Co., which has produced a steady flow of new products that helped propel the
company stock to a 44.7% return during the year. Another leading performer in
the health group was ADAC Laboratories. This company has introduced an
important imaging device that helps determine the spread of cancer. With strong
revenue growth, this company's stock had a return of 39.8% during the fiscal
year. A third health-related company that was a significant performer was
Shared Medical Systems Corp., which provides computerization services that help
hospitals and other health providers increase their operating efficiency. The
stock in this company was up 41.4% during the fiscal year.
One of the principal investment themes at Evergreen is to invest in companies
that we believe are temporarily
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
out of favor in the stock market, but have attractive underlying value. We call
this the "value timing" strategy. A good example of this strategy in action was
the Fund's investment in American Home Products, a major pharmaceutical company.
The Fund purchased the stock on September 18, 1997, after the company's stock
price had suffered a steep decline in the face of the controversy over the
effects of the weight-control drug Fen-Phen. Our analysis indicated that the
market had over-reacted to the potential liability and that the company's stock
price was significantly undervalued. The stock produced a return of 46.4% for
the Fund from the investment to the end of the fiscal year.
Consolidation has helped the investments in the bank and thrift industries,
despite a slowdown in merger announcements by smaller banking institutions
during the second half of the fiscal year as attention turned to merger
announcements of very large banks. Among the investments that generated large
returns for the Fund were several banks and thrifts that were acquired by larger
banks. They included Firstbank of Illinois Co., which produced a return of 365%
since the initial investment in March, 1991; Hudson Chartered Bancorp Inc.,
produced a 367% return since the Fund's investment in December, 1992; and Eagle
Financial Corp., which produced a 280% return since the investment in November,
1992.
Among banks that have not been taken over, the best performers were M&T Bank
Corp. (formerly First Empire) of Buffalo, New York, which rose 59.3% during the
year, and First American Corp. of Tenn., which took over another Fund holding;
Deposit Guaranty Corp. The investment in First American returned 67.3% during
the year.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
Telecom Corp. New Zealand Ltd. 4.1%
................................................................................
AirTouch Communications, Inc., 6.00%, Conv. Pfd. 3.6%
................................................................................
Qualcomm Financial Trust I, 5.75%, Conv. Pfd. 3.3%
...............................................................................
Marketspan Corp. 3.0%
................................................................................
Wendy's Financing I, 5.00%, TECONS 2.8%
................................................................................
Houston Industries, Inc., 7.00%, ACES 2.8%
................................................................................
Armstrong World Industries, Inc. 2.1%
................................................................................
Meditrust Co. REIT 2.0%
................................................................................
Bankers Trust Corp. 2.0%
................................................................................
Peoples Energy Corp. 1.9%
................................................................................
Telecommunications-related investments helped the Fund significantly. In fact,
the leading contributor to performance during the fiscal year was Frontier
Corp., which was up 67.3%. This company, the former Rochester Telephone
Company, has expanded its long distance footprint through a savvy investment in
the Quest Communications network, a nationwide state of the art fiber optic
network which provides integrated voice, data and video communications.
Frontier is also a potential acquisition candidate. Another telecommunications
investment that helped the Fund's performance was the Air Touch Communications
Convertible Preferred shares which were up 52% in the year. This company
provides telecommunications services around the world. Worldcom, Inc. which has
announced its intention to buy MCI, also provided a return of 54.8% for the Fund
during the year as investors began to understand the potential for global growth
in the telecommunications industry. These three telecommunications companies
have potential to make inroads in telecom markets less encumbered by regulation
such as that which impacts the Regional Bell Operating Companies.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Income and Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Consumer-related stocks were a fourth group that helped performance. One of the
leading contributors was La-Z-Boy Chair Co., which had a 51.5% return since the
Fund's investment on August 4, 1997.
The primary weak areas were in the investments in foreign stocks, energy stocks
and real estate investment trusts (REITs). Foreign investments, particularly
Australian investments, suffered in sympathy with the economic crisis in Asia.
During the year, we significantly reduced the foreign weighting in the Fund to
decrease the vulnerability to problems in Asia.
Energy-related stocks were hurt by the mild winter reducing the need for heat
and the worldwide slump in oil prices, while real estate stocks in general
lagged the overall market.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Banks 16.1%
...............................................................................
Utilities - Electric 9.2%
................................................................................
Real Estate 7.4%
................................................................................
Telecommunication Services & Equipment 7.4%
................................................................................
Utilities - Gas 7.1%
................................................................................
What Is your Outlook?
We expect the U.S. economy to grow with inflation remaining low. The equity
market should be positive, particularly with the continued flow of funds into
stocks and the persistence of merger-and-acquisition activity. We do have
concerns, however, about the slowdown in Asia and the effect it is having on
manufacturing employment in the United States. Because of this, we believe the
market may experience continued volatility, which should produce opportunities
for our value timing strategy. During the past year, the performance of the
major market indices has been helped chiefly by a very narrow base of stocks of
a relatively few large companies. We believe this has left very attractive
investment opportunities in the securities of other companies. We believe our
research discipline should enable us to identify opportunities to buy high-
quality issues with attractive yield at attractive valuations. This positive
outlook, combined with the possibility of further gains from merger-and-
acquisition activity, gives us confidence for improving performance during the
coming year.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We continued to manage the Fund with a consistent emphasis on undervalued income
securities of small companies.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: October 1993
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE1
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 1/3/95 1/3/95 1/24/95 10/1/93
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge (1.66%) (2.51%) 1.49% n/a
................................................................................
1 year w/o sales charge 3.24% 2.49% 2.49% 3.57%
................................................................................
3 years 17.70% 18.03% 18.67% 19.99%
...............................................................................
Since Inception 19.30% 19.51% 20.01% 15.62%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.28 $ 0.19 $ 0.19 $ 0.33
................................................................................
12-month capital gain
distributions per share $ 0.19 $ 0.19 $ 0.19 $ 0.19
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Russell 2000 Wilshire Small Cap Value CPI
1/3/95 9,525 10,000 10,000 10,000
Jul-95 10,984 12,100 11,736 10,187
Jul-96 12,750 12,936 12,957 10,485
Jul-97 18,214 17,256 18,016 10,721
Jul-98 18,804 19,777 18,965 10,902
Comparison of change in value of a $10,000 investment in Evergreen Small Cap
Equity Income Fund Class A, the Russell 2000 Index, Wilshire Small Cap Value
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 Russell 2000 Index and the Wilshire Small Cap Value
Index are unmanaged market indexes and do not include transaction costs
associated with buying and selling securities nor any management fees. 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.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
During the past year, the Fund faced a difficult market climate not only for
small cap stocks, but also for value-oriented stocks. This has been a market
where large cap stocks with high price/earnings ratios excelled as small caps
lagged and lost ground, especially in the latter part of the Fund's fiscal year.
An Evergreen study of the performance of various sectors of the market during
the first seven months of 1998 showed that large companies in the top 25% in
terms of price/earnings ratio had a total return of almost 50%. During the same
seven-month period, small cap companies in the lowest 25% in terms of
price/earnings ratios had a return of (5%). Nevertheless, for the second
consecutive year, the Fund was listed by Barron's, a leading financial magazine,
among the top 100 Funds in the United States based on risk-adjusted performance
for the preceding three years.
For the 12 months that ended on July 31, 1998, the Fund's Class Y shares had a
total return of 3.57%. The Class A shares had a return of 3.24%, while Class B
and C shares each had returns of 2.49%, beating the benchmark Russell 2000
Index, a commonly used barometer of the small company stock market, which had a
return of 2.31%. These returns are unadjusted for applicable sales charges.
The Wilshire Small Cap Value Index had a total return of 5.27%. Since the Fund's
inception on October 1, 1993, the Small Cap Equity Income Fund's Class Y shares
have had a cumulative total return of 101.74%, compared to a 77.64% return of
the Russell 2000 and an 82.72% return of the Wilshire Small Cap Value Index.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
----------------------------
Total Net Assets $307,086,083
................................................................................
Number of Holdings 150
................................................................................
P/E Ratio* 15.1x
................................................................................
Beta* 0.54
...............................................................................
*as of 6/30/98
What strategies did you emphasize during the year?
We continued to manage the Fund with a consistent emphasis on undervalued income
securities of small companies. We believe over the long run, this will give the
Fund the opportunity to generate strong performance with more price protection
in periods of volatility than the typical small company stock fund.
We sought out securities of small companies with market capitalizations of less
than $1 billion that had one or more of the following characteristics:
. Low cash-flow multiples or attractive prices relative to the cash flow they
are able to generate, with an operating catalyst to propel earnings growth.
. Hidden assets that management intends to deploy to achieve growth.
. Stock prices that are temporarily depressed because of some event in the
market and that have the opportunity to recover based upon our analysis of
future cash flows. These are candidates for Evergreen's "value timing"
strategy which seeks out temporarily out-of-favor stocks.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
. Restructuring enterprises which are re-allocating capital resources to
improve profitability.
. Potential merger-and-acquisition candidates that can take advantage of
consolidation trends in their industries or the general economy.
The Fund invests exclusively in securities that offer yield. In industries such
as technology where stocks traditionally have not paid dividends, we have looked
for opportunities among convertible securities as a way to invest in growth with
yield. We also have found that investments in convertible preferred stock and
convertible debentures also offer more price protection and lower volatility
than investments in the underlying stock.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[PIE CHART APPEARS HERE] Common Stock -- 69.3%
Convertible Preferred Stock -- 12.0%
Convertible Debentures -- 13.8%
Cash/Cash Equivalents -- 4.9%
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
Curtiss Wright Corp. 3.0%
...............................................................................
Boston Acoustics, Inc. 2.9%
................................................................................
Matthews International Corp. Cl. A 2.7%
................................................................................
CPI Corp. 2.5%
................................................................................
Owens & Minor Trust I, 5.375%, TECONS 2.2%
................................................................................
Hardinge Brothers, Inc. 2.1%
................................................................................
Lodgian Capital Trust I, 7.00%, CRESTS 1.8%
................................................................................
York Group, Inc. 1.8%
................................................................................
Hvide Capital Trust, 6.50%, Conv. Pfd. 1.8%
................................................................................
Knape & Vogt Manufacturing Co. 1.6%
...............................................................................
What are some examples of the implementation of each of these strategies?
Let's look first at companies with low cash-flow multiples and catalysts for
earnings growth. A clear example is Knape & Vogt Manufacturing, which has made
drawer-operating systems for wood office furniture. This company, whose stock
is attractively priced and yet offers a 3 1/2% yield, is entering the metal desk
slide market, with a potential increase in sales of $30 million, or 17%. The
company can enter this market without any additional capital investments, which
means its return on capital has the potential to increase substantially. The
company also has shown an ability to operate more efficiently and reduce
inventories, using the proceeds from cost-savings to reduce debt.
An example of a company with a hidden asset is Curtiss-Wright Corp., which
manufactures components such as landing gear transmissions and flaps for Boeing
737's. This company had cash reserves equal to $7 per share of its stock, with
another $12 per share in over-funded pension contributions. Earlier this year,
it started using its cash reserves to make acquisitions that allowed it to
increase sales by 30%. Over the year, this company's stock has had a return of
43.5%.
The York Group, Inc., is an excellent example of how Evergreen's "value timing"
strategy can find attractive opportunities. The stock price of this casket
manufacturer fell from $23 to $16 on news that it had lost a major contract with
a customer that had been responsible for 20% of sales. Our analysis of the
company's remaining business, however, indicated that it was worth substantially
more than the current stock price. This company remains profitable, with a high
return on capital and an extremely strong position selling to independent
funeral home operators.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
CPI Corp. illustrates the Fund's investment theme of investing in companies that
are re-structuring, or changing their capital allocation. This company sold its
underperforming photo finishing business to Kodak, and used the proceeds to buy
back one-third of the outstanding stock. Its principal remaining business is
operating portrait studios in Sears stores. This is a profitable, improving
business that generates strong cash flow.
How has the mergers-and-acquisition trend affected the Fund during the year?
Industry consolidation has had a huge impact on the Fund. During the year, 18
companies in the portfolio have either merged or been acquired or had
announcements of pending mergers. We have had 13 completed for an average gain
to the Fund of 89.6%.
Among acquisitions that have been completed, we have gains of: 352% in Kinetic
Concepts, Inc., purchased in July 1994; 257.8% from Hudson Chartered Bancorp,
Inc., purchased in January 1996; 117.7% from Computer Language Research
purchased in October 1993; 91.3% from California State Bank purchased in August
1997; 69.9% from People's Savings Financial Corp., purchased in December 1993;
and 55.7% from BGS Systems, Inc., purchased in July 1996. Currently, we have
five pending mergers or takeovers, the most recent of which is First Palm Beach.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Consumer Products & Services 10.5%
................................................................................
Banks 7.0%
................................................................................
Oil Field Services 6.0%
................................................................................
Utilities -- Gas 5.9%
...............................................................................
Electrical Equipment & Services 5.8%
................................................................................
What industry sectors have helped the Fund's performance during the year?
Two areas stand out: banks and consumer products and services. Banks were the
best performing sector, despite a period in which the market's attention was
captured by news of mergers among very large financial companies. We believe,
however, that the consolidation trend will resume among the smaller companies,
to the benefit of the fund.
What sectors have not helped the Fund's performance?
Performance was not helped by the real estate investment trusts, or REITs, which
slumped during the year, or by investments in energy companies, which were hurt
by a mild winter and the effects of slumping oil prices. While energy-related
stocks were, in general, relatively poor performers during the period, the Fund
attempted to take advantage of temporary weakness in the energy sector to build
up its position. We believe that the price of oil ultimately should stabilize
and that values can be found among companies whose stocks had suffered unfairly
in the general industry slump.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Cap Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
We have a positive outlook for the Evergreen Small Cap Equity Income Fund
because of several trends we see, including:
. A continuation of the general consolidation trend in American industry;
. Signs of a growing recognition of the attractive values to be found among
small company stocks;
. Positive earnings reports from many small companies.
The general merger-and-acquisition trend is not losing steam. Deals totaling
$900 billion were announced during the first half of the year, and the U.S.
Department of Justice's Anti-Trust Division has estimated the total should reach
$1.75 trillion by the end of the year. The strong stock market that has been
favoring large company stocks has given the big companies high stock valuations
they can use as currency to buy smaller companies that have been reporting
stronger growth. Often, larger companies can buy fast-growing small companies
at prices that result in improved earnings-per-share performance for the larger
companies.
Moreover, investment and pension fund consulting companies increasingly are
recommending that their clients enlarge small company stock allocations in their
overall portfolios because of the attractive valuations. Any growth in
institutional investors' purchases of small company stocks should have a
significant effect on cash flow, and therefore stock prices, in the small stock
sector.
Finally, a large portion of the Fund's holdings have issued positive earnings
reports through the fiscal period, validating the value of the independent
research by the Evergreen investment team and supporting our view that small
company value investments that also offer yield have strong potential for the
remainder of 1998.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We remain committed to our long-term strategy of pursuing quality utility
companies with strong industry positioning that offer investors a high income,
defensively oriented investment option.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF PAUL DILELLA APPEARS HERE]
Paul DiLella
Tenure: May 1996
[PICTURE OF DORIS KELLEY-WATKINS APPEARS HERE]
Doris Kelley-Watkins
Tenure: February 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 1/4/94 1/4/94 9/2/94 2/28/94
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 11.73% 11.31% 15.31% n/a
................................................................................
1 year w/o sales charge 17.30% 16.31% 16.31% 17.60%
................................................................................
3 years 14.25% 14.44% 15.16% 16.34%
................................................................................
Since Inception 10.72% 10.79% 14.25% 13.70%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.44 $ 0.36 $ 0.36 $ 0.48
................................................................................
12-month capital gain
distributions per share $ 1.12 $ 1.12 $ 1.12 $ 1.12
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P Utilities Index S & P 500 Index CPI
1/4/94 9,525 10,000 10,000 10,000
Jul-94 9,154 9,181 9,979 10,178
Jul-95 10,179 9,946 12,584 10,460
Jul-96 11,197 10,724 14,669 10,765
Jul-97 13,586 17,509 22,317 11,008
Jul-98 15,936 20,251 26,621 11,193
Comparison of change in value of a $10,000 investment in Evergreen Utility Fund
Class A, the Standard and Poor's Utility Index (S&P Utilities), the Standard and
Poor's 500 Index (S&P 500), 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 Utility Index and the S&P 500 Index are unmanaged
market indices and do not include transaction costs associated with buying and
selling securities nor any management fees. 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.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform over the past twelve months?
The Fund's Class A, B, C, and Y shares had a total return of 17.30%, 16.31%,
16.31% and 17.60%, respectively, for the year ended July 31, 1998. These
returns are unadjusted for applicable sales charges. The Fund's returns trailed
the 20.99% return of its benchmark, the S&P Utilities Index.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $141,256,313
................................................................................
Number of Holdings 38
................................................................................
P/E Ratio* 18.6x
................................................................................
Beta* 0.73
................................................................................
*as of 6/30/98
How did the market environment impact performance during the fiscal year?
Over the past 12 months, we experienced an exceptionally narrow market advance
in which a select handful of the largest stocks surged while the majority of
companies lagged. For example, during the first six months of 1998 the ten
largest stocks in the S&P 500 rose 31.7%, while the equally weighted average of
all 500 stocks rose just 8.6%; amazingly, nearly a third actually declined.
In addition, investors have flocked to stocks which they perceive to have higher
prospects for growth, such as technology, while shunning higher dividend paying
companies such as utilities. Undoubtedly, the narrow market advance combined
with this rotation towards growth-oriented stocks had an adverse impact on the
Fund's performance. The simple fact that roughly 75% of the portfolio is
invested in utility stocks -- an income-oriented sector which lagged the broad
market substantially -- accounts for the Fund's rather dramatic underperformance
versus the S&P 500 Index.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Utilities -- Electric 56.7%
................................................................................
Utilities -- Telephone 14.4%
................................................................................
Utilities -- Gas 5.1%
................................................................................
Information Services & Technology 4.0%
................................................................................
Communication Systems & Services 3.3%
................................................................................
What adjustments did you make to the portfolio?
It has been extremely frustrating to watch the market climb higher while utility
stocks -- and utility funds -- continue to struggle. Despite any short-term
volatility, however, we remain committed to our long-term strategy of pursuing
quality utility companies with strong industry positioning that offer investors
a high income, defensively oriented investment option.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Utility Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
During the final months of the fiscal period, we made some adjustments regarding
individual securities which we feel will benefit performance going forward. We
sold EVI Inc., a manufacturer of oilfield tools and equipment, due to a
deterioration in their earnings prospects, but not before capturing a solid
gain. With the proceeds from this sale, we purchased R&B Falcon Corp., a
worldwide provider of contract drilling services. We feel R&B Falcon represents
an attractively valued opportunity and was added following a substantial decline
in its share price as a result of plunging oil prices.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
Houston Industries, Inc. 6.1%
................................................................................
Sprint Corp. 6.0%
................................................................................
Companhia Paranaense de
Energia-Copel, Plc, ADR, Conv. Pfd. 3.8%
................................................................................
Marketspan Corp. 3.5%
................................................................................
AirTouch Communications, Inc., 6.00%, Conv. Pfd. 3.3%
................................................................................
BNDES Participacoes S.A., Conv. Pfd. 3.1%
...............................................................................
Central Hudson Gas & Electric Corp. 3.1%
................................................................................
Pinnacle West Capital Corp. 3.0%
................................................................................
U.S. West, Inc. 3.0%
...............................................................................
Felcor Lodging Trust, Inc. REIT 2.8%
................................................................................
What areas positively impacted performance?
The Fund's 14% position in Utilities -- Telephone, as of July 31, 1998, enjoyed
a relatively strong fiscal year despite a difficult period for the utility
sector in general. For example, three of the portfolio's holdings -- Ameritech,
U.S. West and Bellsouth -- posted total returns of 52%, 52% and 49%,
respectively. Other noteworthy non-telephone companies include Enron, up 43%,
and Houston Industries (exchangeable for Time Warner common stock), up 48%.
What is your outlook for the utility industry?
The utility industry has experienced some volatility over the past couple of
years as the effects of deregulation have intensified competition and changed
the operating environment within the utility sector. Subsequently, utility
companies are increasingly embracing mergers as an effective vehicle to gain
market share and diversify their source of earnings growth. We anticipate
consolidation among utility companies to continue going forward and are actively
searching for companies that will benefit from this trend.
We are also confident that as the market rotation toward growth-oriented issues
reverses itself, income-oriented stocks -- and the utility sector in particular
- -- will enjoy improved performance. We feel the Evergreen Utility Fund offers
investors an attractive investment option, especially considering the stock
market's current valuation. We continue to adhere to our long-term strategy of
providing shareholders a diversified, high income portfolio with defensive
characteristics.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We try to identify good companies with attractive stock prices where we can find
improvements in operating performance.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF MATTHEW D. FINN APPEARS HERE]
Matthew D. Finn, CFA
Tenure: March 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYLE BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
Performance and Returns*
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 4/12/85 2/2/93 9/2/94 1/31/91
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge 4.35% 4.18% 7.83% n/a
................................................................................
1 year w/o sales charge 9.55% 8.69% 8.74% 9.79%
................................................................................
3 years 17.89% 18.21% 18.95% 20.08%
................................................................................
5 years 16.19% 16.30% -- 17.62%
................................................................................
10 years 14.71% -- -- --
................................................................................
Since Inception 14.05% 15.41% 18.64% 16.85%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $0.29 $0.12 $0.12 $0.35
...............................................................................
12-month capital gain
distributions per share $4.38 $4.38 $4.38 $4.38
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P 500 Index CPI
Jul-88 9,525 10,000 10,000
Jul-89 12,580 13,193 10,498
Jul-90 13,322 14,051 11,004
Jul-91 14,841 15,844 11,494
Jul-92 16,426 17,870 11,857
Jul-93 17,741 19,430 12,186
Jul-94 19,070 20,433 12,523
Jul-95 22,926 25,768 12,869
Jul-96 25,310 30,037 13,245
Jul-97 35,996 45,698 13,544
Jul-98 39,434 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Value Fund
Class A, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the fiscal year?
The Fund performed positively during a period in which the stock market did not
favor the value style of investing. For the 12 months ended July 31, 1998, the
Evergreen Value Fund's Class A shares had a total return of 9.55%, while the
Class B shares had a total return of 8.69% and the Class C shares had a return
of 8.74%. These returns are unadjusted for applicable sales charges. The Class
Y shares had a return of 9.79% for the fiscal year. During the same 12-month
period, the S&P 500 Index had a return of 19.29% and the S&P's Barra Value Index
had a return of 13.33%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $990,822,366
................................................................................
Number of Holdings 93
................................................................................
P/E Ratio* 23.8x
................................................................................
Beta* 0.97
................................................................................
*as of 6/30/98
How would you describe the investment environment during the 12 months?
The environment has been dominated by concerns about economic activity in Asia
and the impact it will have on Asia's trading partners. Investors have been
taking the Asian crisis into consideration since the third and fourth quarters
of 1997, although we did have a great move in the U.S. stock market early in
1998. Two types of companies dominated the rally in the U.S. The first were
larger capitalization, stable growth companies which are less susceptible to a
fall-off in economic activity. The second were domestically oriented companies,
such as retailers. This rally appears to have peaked in July, before a
correction set in. Again, investors were concerned about the pace of economic
activity associated with the effects of Asia.
Worldwide, the impact of Asia also has been felt in emerging markets, including
Latin America and Russia. The U.S. consumer and the European industrial sectors
have been the most influential sources of the earnings of multi-national
corporations during the past year.
You became portfolio manager of the Fund, effective on March 16, 1998. How
would you describe your investment style?
The objective and the investment style of the Fund have not changed. We try to
identify good companies with attractive stock prices where we can find
improvements in operating performance. This is very consistent with the manner
in which previous managers have operated. We look for growth of capital first,
with income as a secondary objective.
The Fund invests primarily in value-oriented, large capitalization companies
with improving fundamentals. It is a value strategy that emphasizes quality
companies.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Banks 19.3%
................................................................................
Healthcare Products & Services 13.0%
................................................................................
Finance & Insurance 10.3%
................................................................................
Oil / Energy 8.6%
................................................................................
Information Services & Technology 7.1%
...............................................................................
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Within this context, what areas have you emphasized in managing the Fund?
The largest areas of emphasis have been in healthcare, financial services and
some technology. In terms of relative weightings versus the large-
capitalization, value indexes, the heaviest overweighting has been in
healthcare, predominately pharmaceutical companies. We have found in this
industry the best combination of revenue growth, reasonable valuations and
stability of earnings. In addition to increasing our overall weighting, we have
added new positions in companies such as Merck and Pharmacia & Upjohn. We also
sold the stocks of several companies when we became uncomfortable with their
valuation levels, including Tenet Healthcare Corp. and HEALTHSOUTH Corp.
Financial services companies accounted for nearly 30% of net assets at the end
of the period. This has been a significant area of emphasis, even though we are
somewhat underweighted versus the value indexes. We have found valuations that
are still relatively attractive and we have been able to invest in companies
that we believe can achieve their earnings estimates. In addition, we don't
think any downturn will be large enough to affect overall credit quality.
Moreover, we believe the Federal Reserve Board's disposition will be to lower
short-term rates, which should benefit financial services companies. Beyond
increasing the emphasis on the financial services industry overall, we have
added a number of specific companies to the portfolio, including Federal
National Mortgage Association and ReliaStar Financial, an insurance company.
We have emphasized technology because we have found attractive stock valuations
and we believe the long-term outlook for this industry remains favorable,
despite current concerns about economic activity. In technology, we have added
American Power Conversion and Gateway, while selling the Fund's holdings in 3Com
Corp., a networking company.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
General Electric Co. 3.5%
................................................................................
Fleet Financial Group, Inc. 2.9%
................................................................................
Bristol-Myers Squibb Co. 2.4%
................................................................................
Wachovia Corp. 2.3%
................................................................................
BankBoston Corp. 2.1%
................................................................................
First Chicago NBD Corp. 2.1%
................................................................................
NationsBank Corp. 2.0%
...............................................................................
Cisco Systems, Inc. 1.9%
................................................................................
Equity Residential Properties Trust REIT 1.9%
................................................................................
International Business Machines Corp. 1.9%
................................................................................
What areas have you de-emphasized?
We have reduced the emphasis on stocks of companies in economically sensitive
industries, which tend to be hurt in any economic slowdown. These include
companies in the chemicals, building materials, railroad, energy and metal
products and services. Among the stocks that we sold entirely were those of
Alcoa and Alumax in metal products and services; and Ashland, Tosco and Ultramar
Diamond Shamrock Corp., in energy. We don't expect that we will be emphasizing
the general area of basic materials until supply and demand again are in
balance.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
In our view, the equity market is well on its way to discounting or taking into
consideration in its valuations of stocks, the effects of a slowdown in world
economic activity. This is not to say there may not be more bad news, perhaps
related to a possible slowdown in consumer demand in the United States or in
industrial expansion in Europe. Ultimately, however, we believe we will see an
easing of monetary policy in the major markets, such as the United States and
the United Kingdom. We also believe Japan's government will act to stimulate
the economy. At some point, investors will look beyond temporary dips in
earnings and the equity markets will rally.
With this outlook, we will continue to try to find good quality companies whose
stock prices may have been unduly penalized by short-term events. This should
give us some great opportunities to buy. We don't expect a deep slump. And
even in a slump, we believe we may be able to find companies that can prosper
despite being in out-of-favor industries, such as specialty chemicals.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Fund at a Glance as of July 31, 1998
We rely on fundamental analysis to determine a company's potential to grow
earnings and the risk to the stock if it fails to meet our targets.
Portfolio
Management
- --------------------------------------------------------------------------------
[PICTURE OF HARLAN R. SONDERLING APPEARS HERE]
Harlan R. Sonderling, CPA, CFA
Tenure: June 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[STYP BOX APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 6/30/98.
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.
/1/Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
-------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
Inception Date 4/14/87 2/1/93 2/1/93 1/31/97
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge 8.44% 8.01% 11.99% n/a
................................................................................
1 year w/o sales charge 13.85% 13.01% 12.99% 14.29%
................................................................................
3 years 22.14% 22.46% 23.13% --
................................................................................
5 years 16.45% 16.45% 16.65% --
................................................................................
10 years 14.65% -- -- --
...............................................................................
Since Inception 12.81% 15.84% 15.95% 20.80%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month income dividends
per share $ 0.19 $ 0.06 $ 0.06 $ 0.24
................................................................................
12-month capital gain
distributions per share $ 1.52 $ 1.52 $ 1.52 $ 1.52
................................................................................
* Adjusted for maximum applicable sales charge
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A S & P 500 Index CPI
Jul-88 9,525 10,000 10,000
Jul-89 11,966 13,193 10,498
Jul-90 12,744 14,051 11,004
Jul-91 14,484 15,844 11,494
Jul-92 15,413 17,870 11,857
Jul-93 17,448 19,430 12,186
Jul-94 18,005 20,433 12,523
Jul-95 20,507 25,768 12,869
Jul-96 23,983 30,037 13,245
Jul-97 34,454 45,698 13,544
Jul-98 39,228 54,510 13,772
Comparison of change in value of a $10,000 investment in Evergreen Fund for
Total Return Class A, the Standard and Poor's 500 Index (S&P 500), 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 market index and does not
include transaction costs associated with buying and selling securities nor any
management fees. 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.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund for Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Fund for Total Return performed well relative to its peer group of
value-oriented, conservative equity mutual funds. For the 12 months ended
July 31, 1998, the Fund's Class A Shares had a total return of 13.85%, while the
Class B Shares had a return of 13.01%, and the Class C Shares had a return of
12.99%. These returns are unadjusted for applicable sales charges. The Class Y
Shares had a return of 14.29% during the period. For the same 12-month period,
the Standard & Poor's 500 Index had a return of 19.29%.
Portfolio
Characteristics
---------------
(as of 7/31/98 unless noted)
Total Net Assets $179,377,032
................................................................................
Number of Holdings 67
...............................................................................
P/E Ratio* 20.7x
................................................................................
Beta* 0.98
................................................................................
*as of 6/30/98
How would you describe the investment environment during the 12-month period?
It was very favorable for stocks in general, although the market tended to
reward investments in larger capitalization, high growth companies, with high
price/earnings ratios, over more value- and yield-oriented styles, such as that
emphasized by the Fund. The 12-month period was marked by declining interest
rates, robust economic growth, strong employment, and low and diminishing
inflation. The Asian economic crisis started during the latter part of 1997,
and its effects on the U.S. economy and with the U.S. stock market were only
beginning to be felt in July of 1998.
What investment strategies were employed during the year, and have there been
any changes since you took over as portfolio manager on June 5, 1998?
The basic objective and strategies of the Fund remain the same. We seek total
return from a combination of capital growth and income. The strategy, which has
been in place since the Fund began 11 years ago, is to invest in U.S. stocks,
foreign stocks, bonds and money market instruments with the goal of earning more
consistent total returns, with less price fluctuation, than a portfolio of U.S.
stocks or bonds alone. In investing in stocks, the Fund emphasizes established
companies, principally larger capitalization stocks, with some mid-cap holdings.
We rely on fundamental analysis to determine a company's potential to grow
earnings and the risk to the stock if it fails to meet our targets.
Since taking over as portfolio manager, I have slightly increased the cash level
in the portfolio. When I became portfolio manager in June, about 6% of net
assets were invested in cash and cash-equivalent securities. At the close of
the fiscal year on July 31, 11.4% of net assets were in cash and cash-
equivalents, with about 82% in common stocks of U.S. corporations. I did this
mainly because of concerns about the high valuation levels of many stocks. We
sold fully valued stock holdings, but were unwilling to re-invest all the
proceeds at the high current prices of many stocks. We kept the proceeds in
cash rather than in longer-maturity fixed income securities because cash-
equivalent securities offered almost as much yield, but with much less price
risk.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
We also have increased the dividend yield of the portfolio. We have done this
partly by investing in higher-yielding, relatively undervalued stocks. Over the
long term, our goal is to have a portfolio with a current income, or dividend
yield, that is 20-to-25% higher than that of the S&P 500. At the close of the
fiscal year, the portfolio had a dividend yield 50% higher than that of the S&P.
In addition, we have added several convertible securities to the portfolio to
add income without sacrificing growth opportunities. The Fund did not own any
foreign securities at the close of the fiscal period. We did not believe
valuations of either foreign stocks or currencies justified investment.
Top 5 Industries
----------------
(as a percentage of net assets)
-------------------------------
Healthcare Products & Services 13.1%
................................................................................
Banks 12.0%
................................................................................
Finance & Insurance 8.5%
................................................................................
Retailing & Wholesale 6.0%
................................................................................
Real Estate 5.9%
...............................................................................
What sectors or industries have you emphasized?
The Fund's largest area of emphasis is banking and finance, at about 20% of net
assets, compared with about 18% of the S&P 500. In general, financial stocks
have been bolstered by industry consolidation, low interest rates and a strong
economy. In addition, growing fee income has helped many companies. Our two
largest financial holdings are Fleet Financial Group and BankBoston Corp., two
Northeast-based companies with strong competitive positions.
While banking and finance stocks have been strong performers, we are watching
them very carefully for signs of economic slowdown that could cause a
deterioration of credit quality.
The second largest weighting is in healthcare, at about 13.1% of net assets,
compared with about 11.9% in the S&P. We believe pharmaceuticals are among the
most attractive consumer growth industries. These companies have high sales
growth driven by the aging population and the interest of the managed care
industry in emphasizing drug therapy in healthcare. Three of the Fund's top
four holdings are in the pharmaceutical industry. The largest position is
American Home Products Corp., which has especially attractive prospects as the
result of its pending merger with Monsanto. The other two major holdings are
Bristol-Myers Squibb and Merck & Co.
Another top sector is Real Estate including the Fund's investments in Real
Estate Investment Trusts, or REITs, at about 6% of net assets. The past six
months have been a difficult period for REITs because the market has favored
large-capitalization, growth companies. We believe REITs remain attractive,
however, because of their growing dividends and their defensive qualities in an
economic slowdown.
Top 10
Equity Holdings
---------------
(as a percentage of net assets)
-------------------------------
American Home Products Corp. 3.4%
................................................................................
Bristol-Myers Squibb Co. 3.2%
................................................................................
General Electric Co. 3.0%
................................................................................
Merck & Co., Inc. 2.7%
................................................................................
Fleet Financial Group, Inc. 2.4%
................................................................................
International Business Machines Corp. 2.2%
................................................................................
BankBoston Corp. 2.2%
................................................................................
Philip Morris Companies, Inc. 1.8%
................................................................................
TCF Financial Corp. 1.8%
................................................................................
Wal-Mart Stores, Inc. 1.8%
................................................................................
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Fund to Total Return
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What areas have you de-emphasized?
The two most significant underweightings are in technology and consumer staples,
such as food, personal care and beverage companies.
We have de-emphasized technology companies primarily because of concern that
this industry may be particularly vulnerable to earnings disappointments in the
months ahead. In addition, they tend not to pay high dividends. We do,
however, maintain a core of high quality technology companies, led by the
investment in IBM, at about 2.2% of net assets. We have underweighted consumer
staples because we believe valuations are too high, especially when compared
against pharmaceuticals.
What is your outlook?
Business activity appears to be slowing down, although recession is unlikely.
Sales growth, for example, is at its lowest rate since 1993. The principal
cause of the slowdown is the Asian crisis, which is likely to affect U.S.
businesses by limiting their ability to raise prices and increase their profits.
It is less likely to affect overall economic activity, but concerns will linger.
Very low unemployment and the upward trend in wages also may lead to a squeeze
in corporate profits, despite ongoing productivity enhancements and the
efficiencies of mergers and acquisitions. Slowing earnings growth is a concern
to us because of the high valuations of stocks.
Within this environment, the Fund's focus remains on the stocks of high-quality,
income-producing domestic companies. We will seek to avoid investments in
companies that could have disappointing earnings. As long as the returns of
cash and cash-equivalents remain attractive, we will tend to emphasize cash
rather than longer-maturity fixed income instruments.
We believe this conservative strategy has the potential to continue to deliver
attractive returns, with less price risk than more aggressive investment
strategies. We continue to see investment opportunities in a growing economy
with moderate interest rates and low inflation.
29
<PAGE>
EVERGREEN
Blue Chip Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
July 31, 1998*
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD $ 27.39
--------
........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.08
.........................................................................
Net realized and unrealized gains or losses on securities and
foreign currency related transactions 3.01
--------
.........................................................................
Total from investment operations 3.09
--------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.06)
.........................................................................
From net realized gain on securities and foreign currency
related transactions 0
--------
.........................................................................
Total distributions (0.06)
--------
.........................................................................
NET ASSET VALUE END OF PERIOD $ 30.42
--------
.........................................................................
TOTAL RETURN+ 11.29%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $284,735
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.20%++
.........................................................................
Total expenses, excluding indirectly paid expenses 1.20%++
.........................................................................
Net investment income 0.49%++
.........................................................................
PORTFOLIO TURNOVER RATE 112%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
Period Ended -------------------------------------------------
July 31, 1998** 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF PERIOD $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42 $ 23.17
-------- -------- -------- -------- -------- --------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income (0.12) 0.15 0.12 0.25 0.16 0.11
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 5.72 7.97 3.69 2.66 (0.35) 3.11
-------- -------- -------- -------- -------- --------
Total from investment
operations 5.60 8.12 3.81 2.91 (0.19) 3.22
-------- -------- -------- -------- -------- --------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.96) (3.18) (0.98) (2.78) (1.74) (0.69)
-------- -------- -------- -------- -------- --------
From net investment
income (0.08) (0.20) (0.76) (0.36) (0.28) (0.28)
.........................................................................
Total distributions (5.04) (3.38) (1.74) (3.14) (2.02) (0.97)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE END OF
PERIOD $ 30.35 $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42
-------- -------- -------- -------- -------- --------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 20.89% 34.76% 17.31% 13.87% (0.72%) 14.31%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD
(THOUSANDS) $117,893 $312,935 $224,819 $199,456 $208,532 $234,688
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.68%++ 1.57% 1.85% 1.75% 2.07% 2.28%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.68%++ 1.56% 1.84% N/A N/A N/A
.........................................................................
Net investment income (0.02%)++ 0.55% 0.52% 1.09% 0.67% 0.47%
.........................................................................
PORTFOLIO TURNOVER RATE 112% 109% 139% 115% 73% 96%
.........................................................................
</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
July 31, 1998.
** For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August 31 to July 31, effective July 31, 1998.
See Combined Notes to Financial Statements.
30
<PAGE>
EVERGREEN
Blue Chip Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period Ended
July 31, 1998*
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD $27.70
------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0(a)
.........................................................................
Net realized and unrealized gains or losses on securities and
foreign currency related transactions 2.72
------
.........................................................................
Total from investment operations 2.72
------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.02)
.........................................................................
From net realized gain on securities and foreign currency
related transactions 0
------
.........................................................................
Total distributions (0.02)
------
.........................................................................
NET ASSET VALUE END OF PERIOD $30.40
------
.........................................................................
TOTAL RETURN+ 9.80%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF PERIOD (THOUSANDS) $ 780
........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.02%++
.........................................................................
Total expenses, excluding indirectly paid expenses 2.02%++
.........................................................................
Net investment income (0.27%)++
.........................................................................
PORTFOLIO TURNOVER RATE 112%
.........................................................................
</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
July 31, 1998.
(a) Less than one cent per share.
See Combined Notes to Financial Statements.
31
<PAGE>
EVERGREEN
Growth and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- ---------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF YEAR $27.26 $22.53 $18.63 $14.48
------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.16 0.08 0.12 0.13
.........................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 2.86 4.72 4.26 4.64
------ ------ ------ ------
.........................................................................
Total from investment operations 3.02 4.80 4.38 4.77
------ ------ ------ ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.13) (0.07) (0.13) (0.14)
.........................................................................
From net realized gain on securities
and foreign currency related
transactions (1.01) 0 (0.35) (0.48)
------ ------ ------ ------
.........................................................................
Total distributions (1.14) (0.07) (0.48) (0.62)
------ ------ ------ ------
.........................................................................
NET ASSET VALUE END OF YEAR $29.14 $27.26 $22.53 $18.63
------ ------ ------ ------
.........................................................................
TOTAL RETURN+ 11.26% 21.33% 23.50% 33.00%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR (MILLIONS) $ 296 $ 166 $ 85 $ 19
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.46% 1.47%++ 1.41% 1.55%++
........................................................................
Total expenses, excluding indirectly
paid expenses 1.46% 1.47%++ N/A N/A
.........................................................................
Total expenses, excluding fee waiv-
ers and expense reimbursements N/A N/A N/A 1.64%++
.........................................................................
Net investment income 0.61% 0.57%++ 0.70% 0.99%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
.........................................................................
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- ---------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF YEAR $27.10 $22.43 $18.59 $14.48
------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
........................................................................
Net investment income (0.02) (0.02) 0(a) 0.05
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 2.81 4.69 4.20 4.61
------ ------ ------ ------
.........................................................................
Total from investment operations 2.79 4.67 4.20 4.66
------ ------ ------ ------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
From net realized gain on securities
and foreign currency related
transactions (1.01) 0 (0.35) (0.48)
------ ------ ------ ------
.........................................................................
From net investment income 0 0 (0.01) (0.07)
.........................................................................
Total distributions (1.01) 0 (0.36) (0.55)
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $28.88 $27.10 $22.43 $18.59
------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 10.44% 20.82% 22.60% 32.20%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR (MILLIONS) $1,000 $ 542 $ 245 $ 46
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.21% 2.25%++ 2.17% 2.24%++
.........................................................................
Total expenses, excluding indirectly
paid expenses 2.21% 2.25%++ N/A N/A
.........................................................................
Total expenses, excluding fee
waivers and expense reimbursements N/A N/A N/A 2.26%++
.........................................................................
Net investment income (0.14%) (0.19%)++ (0.06%) 0.30%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
(a) Less than one cent per share.
32
<PAGE>
EVERGREEN
Growth and Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- ---------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 27.10 $ 22.43 $ 18.58 $ 14.48
--------- --------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income (0.02) (0.02) 0(a) 0.06
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.82 4.69 4.21 4.60
--------- --------- ----------- -----------
........................................................................
Total from investment
operations 2.80 4.67 4.21 4.66
--------- --------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income 0 0 (0.01) (0.08)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.01) 0 (0.35) (0.48)
--------- --------- ----------- -----------
.........................................................................
Total distributions (1.01) 0 (0.36) (0.56)
--------- --------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 28.89 $ 27.10 $ 22.43 $ 18.58
--------- --------- ----------- -----------
.........................................................................
TOTAL RETURN+ 10.47% 20.82% 22.60% 32.20%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 50 $ 24 $ 10 $ 20
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.21% 2.25%++ 2.17% 2.15%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 2.21% 2.25%++ N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 4.94%++
.........................................................................
Net investment income (0.13%) (0.19%)++ (0.06%) 0.35%++
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 27.29 $ 22.55 $18.64 $14.52 $15.41 $14.18
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.24 0.11 0.18 0.18 0.14 0.14
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.87 4.73 4.25 4.59 0.12 1.91
--------- --------- ------ ------ ------ ------
Total from investment
operations 3.11 4.84 4.43 4.77 0.26 2.05
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.01) 0 (0.35) (0.48) (1.01) (0.68)
--------- --------- ------ ------ ------ ------
From net investment
income (0.20) (0.10) (0.17) (0.17) (0.14) (0.14)
.........................................................................
Total distributions (1.21) (0.10) (0.52) (0.65) (1.15) (0.82)
--------- --------- ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 29.19 $ 27.29 $22.55 $18.64 $14.52 $15.41
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 11.56% 21.52% 23.80% 32.90% 1.70% 14.40%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 801 $ 616 $ 442 $ 141 $ 73 $ 77
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.20% 1.21%++ 1.16% 1.27% 1.33% 1.26%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.20% 1.21%++ 1.16% N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A N/A N/A
.........................................................................
Net investment income 0.86% 0.82%++ 0.93% 1.11% 0.96% 0.99%
.........................................................................
PORTFOLIO TURNOVER RATE 20% 6% 14% 17% 29% 28%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to De-
cember 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
(a) Less than one cent per share.
</TABLE>
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Income and Growth Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- ------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 23.94 $ 21.79 $ 20.15 $ 17.28 $17.09
--------- --------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT OP-
ERATIONS
.........................................................................
Net investment income 1.05 0.52# 1.02 1.01 0.02
........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.81 2.15 1.67 2.94 0.17
--------- --------- ------- ------- ------
.........................................................................
Total from investment op-
erations 1.86 2.67 2.69 3.95 0.19
--------- --------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (1.02) (0.52) (1.05) (1.08) 0
.........................................................................
From net realized gain on
securities and foreign
currency related
transactions (1.59) 0 0 0 0
--------- --------- ------- ------- ------
.........................................................................
Total distributions (2.61) (0.52) (1.05) (1.08) 0
--------- --------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.19 $ 23.94 $ 21.79 $ 20.15 $17.28
--------- --------- ------- ------- ------
.........................................................................
TOTAL RETURN+ 7.93% 12.45% 13.80% 23.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 15,005 $ 11,955 $ 9,678 $ 4,412 $ 119
.........................................................................
RATIOS TO AVERAGE NET AS-
SETS:
Total expenses 1.50% 1.45%++ 1.44% 1.36% 1.45%++
.........................................................................
Total expenses, excluding
indirectly paid expenses 1.50% 1.45%++ N/A N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A N/A N/A 2.50% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 4.20% 4.69%++ 4.93% 5.39% 4.09%++
........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- ------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 23.81 $ 21.69 $ 20.08 $ 17.28 $17.09
--------- --------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT OP-
ERATIONS
.........................................................................
Net investment income 0.86 0.43# 0.89 0.91 0.02
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.81 2.15 1.64 2.87 0.17
--------- --------- ------- ------- ------
.........................................................................
Total from investment op-
erations 1.67 2.58 2.53 3.78 0.19
--------- --------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.85) (0.46) (0.92) (0.98) 0
........................................................................
From net realized gain on
securities and foreign
currency related
transactions (1.59) 0 0 0 0
--------- --------- ------- ------- ------
.........................................................................
Total distributions (2.44) (0.46) (0.92) (0.98) 0
--------- --------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.04 $ 23.81 $ 21.69 $ 20.08 $17.28
--------- --------- ------- ------- ------
.........................................................................
TOTAL RETURN+ 7.13% 12.06% 13.00% 22.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 54,544 $ 43,977 $35,323 $14,750 $ 599
.........................................................................
RATIOS TO AVERAGE NET AS-
SETS:
Total expenses 2.25% 2.20%++ 2.19% 2.11% 2.23%++
........................................................................
Total expenses, excluding
indirectly paid expenses 2.25% 2.20%++ N/A N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A N/A N/A 2.25% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 3.46% 3.94%++ 4.17% 4.69% 3.23%++
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
** For the six-month period ended July 31, 1997. The Fund changed its fiscal
year end from January 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Income and Growth Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- --------------------------
1998 1997** 1997 1996 1995*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 23.81 $ 21.69 $ 20.08 $ 17.27 $ 17.09
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.87 0.44# 0.87 0.90 0.01
........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.80 2.14 1.66 2.89 0.17
--------- --------- ------- ------- -------
.........................................................................
Total from investment
operations 1.67 2.58 2.53 3.79 0.18
--------- --------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.85) (0.46) (0.92) (0.98) 0
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.59) 0 0 0 0
--------- --------- ------- ------- -------
.........................................................................
Total distributions (2.44) (0.46) (0.92) (0.98) 0
--------- --------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.04 $ 23.81 $ 21.69 $ 20.08 $ 17.27
--------- --------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 7.13% 12.06% 12.90% 22.40% 1.10%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 1,259 $ 950 $ 982 $ 523 $ 24
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.25% 2.20%++ 2.19% 2.11% 2.22%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 2.25% 2.20%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A 13.03% N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A
.........................................................................
Net investment income 3.48% 4.06%++ 4.15% 4.67% 2.68%++
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended January 31,
--------------------- --------------------------- Year Ended
1998 1997** 1997 1996 1995*** March 31,1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 23.98 $ 21.81 $ 20.16 $ 17.28 $ 18.29 $20.90
--------- --------- ------- ------- ------- ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 1.02 0.55 1.08 1.10 0.87 1.08
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.89 2.16 1.66 2.87 (0.55) (1.41)
--------- --------- ------- ------- ------- ------
.........................................................................
Total from investment
operations 1.91 2.71 2.74 3.97 0.32 (0.33)
--------- --------- ------- ------- ------- ------
.........................................................................
LESS DISTRIBUTIONS
........................................................................
From net investment
income (1.08) (0.54) (1.09) (1.09) (1.08) (1.08)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.59) 0 0 0 (0.25) (1.20)
--------- --------- ------- ------- ------- ------
.........................................................................
Total distributions (2.67) (0.54) (1.09) (1.09) (1.33) (2.28)
--------- --------- ------- ------- ------- ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 23.22 $ 23.98 $ 21.81 $ 20.16 $ 17.28 $18.29
--------- --------- ------- ------- ------- ------
.........................................................................
TOTAL RETURN 8.16% 12.65% 14.10% 23.50% 1.90% (2.10)%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 880 $ 900 $ 858 $ 914 $ 942 $1,065
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 1.25% 1.20%++ 1.18% 1.19% 1.24%++ 1.18%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.25% 1.20%++ N/A N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A N/A N/A N/A N/A
.........................................................................
Interest expense N/A N/A 0.03% N/A N/A N/A
.........................................................................
Net investment income 4.46% 4.97%++ 5.14% 5.70% 5.70%++ 5.29%
.........................................................................
PORTFOLIO TURNOVER RATE 133% 72% 168% 138% 151% 106%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
** For the six-month period ended July 31, 1997. The Fund changed its fiscal
year end from January 31 to July 31, effective July 31, 1997.
*** For the ten-month period ended January 31, 1995. The Fund changed its fis-
cal year end from March 31 to January 31, effective January 31, 1995.
</TABLE>
See Combined Notes to Financial Statements.
35
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- -------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 15.69 $ 13.10 $ 11.57 $ 9.64
---------- -------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.29 0.14# 0.34 0.34
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.24 2.59 2.13 2.45
---------- -------- ----------- -----------
.........................................................................
Total from investment
operations 0.53 2.73 2.47 2.79
---------- -------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.28) (0.13) (0.34) (0.37)
........................................................................
From net realized gain on
securities and foreign
currency related
transactions (0.19) (0.01) (0.60) (0.49)
---------- -------- ----------- -----------
.........................................................................
Total distributions (0.47) (0.14) (0.94) (0.86)
---------- -------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.75 $ 15.69 $ 13.10 $ 11.57
---------- -------- ----------- -----------
.........................................................................
TOTAL RETURN+ 3.24% 20.99% 22.00% 29.50%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 54,142 $ 4,239 $ 336 $ 216
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.68% 1.71%++ 1.75% 1.75%++
........................................................................
Total expenses, excluding
indirectly paid expenses 1.68% 1.70%++ N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A 1.84%++ 5.03% 24.45%++
.........................................................................
Net investment income 1.95% 1.88%++ 3.08% 3.39%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended December 31,
---------------------- -------------------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING
OF YEAR $ 15.64 $ 13.09 $ 11.57 $ 9.64
---------- -------- ----------- -----------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.19 0.08# 0.27 0.28
.........................................................................
Net realized and
unrealized gains or
losses on securities and
foreign currency related
transactions 0.22 2.57 2.11 2.43
---------- -------- ----------- -----------
........................................................................
Total from investment
operations 0.41 2.65 2.38 2.71
---------- -------- ----------- -----------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.19) (0.09) (0.26) (0.29)
.........................................................................
From net realized gain on
securities and foreign
currency related
transactions (0.19) (0.01) (0.60) (0.49)
---------- -------- ----------- -----------
.........................................................................
Total distributions (0.38) (0.10) (0.86) (0.78)
---------- -------- ----------- -----------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.67 $ 15.64 $ 13.09 $ 11.57
---------- -------- ----------- -----------
.........................................................................
TOTAL RETURN+ 2.49% 20.37% 21.10% 28.70%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 130,191 $ 9,462 $ 692 $ 266
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.43% 2.46%++ 2.50% 2.50%++
.........................................................................
Total expenses, excluding
indirectly paid expenses 2.42% 2.45%++ N/A N/A
.........................................................................
Total expenses, excluding
fee waivers and expense
reimbursements N/A 2.59% 5.72% 20.90%++
.........................................................................
Net investment income 1.20% 1.12%++ 2.39% 2.67%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
# Net investment income is based on average shares outstanding during the peri-
od.
* For the period from January 3, 1995 (commencement of class operations) to De-
cember 31, 1995.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, December 31,
--------------- --------------
1998 1997** 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF YEAR $ 15.63 $13.09 $11.56 $ 9.74
------- ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
.........................................................................
Net investment income 0.19 0.10# 0.28 0.28
.........................................................................
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions 0.22 2.54 2.10 2.33
------- ------ ------ ------
.........................................................................
Total from investment operations 0.41 2.64 2.38 2.61
------- ------ ------ ------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.19) (0.09) (0.25) (0.30)
.........................................................................
From net realized gain on securities and
foreign currency related transactions (0.19) (0.01) (0.60) (0.49)
------- ------ ------ ------
.........................................................................
Total distributions (0.38) (0.10) (0.85) (0.79)
------- ------ ------ ------
.........................................................................
NET ASSET VALUE END OF YEAR $ 15.66 $15.63 $13.09 $11.56
------- ------ ------ ------
.........................................................................
TOTAL RETURN+ 2.49% 20.30% 21.10% 27.30%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR (THOUSANDS) $26,197 $2,770 $ 56 $ 24
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.43% 2.45%++ 2.50% 2.50%++
.........................................................................
Total expenses, excluding indirectly
paid expenses 2.42% 2.44%++ N/A N/A
.........................................................................
Total expenses, excluding fee waivers
and expense reimbursements N/A 2.58%++ 5.77% 187.29%++
........................................................................
Net investment income 1.20% 1.20%++ 2.33% 2.63%++
.........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ----------------------------------
1998 1997** 1996 1995 1994 1993***
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 15.71 $ 13.12 $11.58 $ 9.70 $10.15 $10.00
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.19# 0.38 0.38 0.34 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.24 2.56 2.13 2.38 (0.41) 0.15
--------- --------- ------ ------ ------ ------
.........................................................................
Total from investment
operations 0.58 2.75 2.51 2.76 (0.07) 0.25
--------- --------- ------ ------ ------ ------
........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.33) (0.15) (0.37) (0.38) (0.33) (0.10)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (0.19) (0.01) (0.60) (0.50) (0.05) 0
--------- --------- ------ ------ ------ ------
.........................................................................
Total distributions (0.52) (0.16) (0.97) (0.88) (0.38) (0.10)
--------- --------- ------ ------ ------ ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 15.77 $ 15.71 $13.12 $11.58 $ 9.70 $10.15
--------- --------- ------ ------ ------ ------
.........................................................................
TOTAL RETURN 3.57% 21.09% 22.40% 29.10% (0.70%) 2.50%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 96,556 $ 42,374 $8,592 $4,806 $3,613 $2,236
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.39% 1.39%++ 1.50% 1.50%++ 1.48% 0.00%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.39% 1.38%++ N/A N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements N/A 1.59% 4.75% 4.34%++ 4.68% 4.39%
+ Initial sales charge or contingent deferred sales charge is not reflected.
.........................................................................
++ Annualized.
Net investment income 2.23% 2.39%++ 3.36% 3.56%++ 3.72% 4.07%
# Net investment income is based on average shares outstanding during the peri-
od.
........................................................................
PORTFOLIO TURNOVER RATE 18% 13% 50% 48% 9% 15%
* For the period from January 24, 1995 (commencement of class operations) to
December 31, 1995.
.........................................................................
</TABLE>
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from October 1, 1993 (commencement of class operations) to
December 31, 1993.
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Utility Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.45 $ 10.57 $ 10.80 $ 9.00 $ 10.00
--------- --------- ------- -------- -------
........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.43 0.25 0.41 0.44 0.45
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.05 2.25 (1.01)
--------- --------- ------- -------- -------
Total from investment
operations 1.87 1.12 0.46 2.69 (0.56)
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- -------- -------
From net investment
income (0.44) (0.24) (0.41) (0.44) (0.44)
.........................................................................
Total distributions (1.56) (0.24) (0.69) (0.89) (0.44)
--------- --------- ------- -------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.45 $ 10.57 $ 10.80 $ 9.00
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 17.30% 10.72% 4.40% 30.70% (5.60%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 95,300 $ 91,638 $96,243 $107,872 $ 4,190
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.99% 1.00%++ 0.87% 0.79% 0.53%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.99% 0.99%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.14% 1.19%++ 1.15% 1.18% 1.43%++
.........................................................................
Net investment income 3.58% 3.85%++ 3.87% 4.51% 5.07%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.81 $ 9.00 $ 10.00
--------- --------- ------- -------- -------
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.05 2.26 (1.01)
--------- --------- ------- -------- -------
Total from investment
operations 1.78 1.07 0.38 2.63 (0.62)
--------- --------- ------- -------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.20 0.33 0.37 0.39
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- -------- -------
........................................................................
Total distributions (1.48) (0.19) (0.61) (0.82) (0.38)
--------- --------- ------- -------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.46 $ 10.58 $ 10.81 $ 9.00
--------- --------- ------- -------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.36) (0.19) (0.33) (0.37) (0.38)
.........................................................................
.........................................................................
.........................................................................
........................................................................
TOTAL RETURN+ 16.31% 10.21% 3.60% 29.90% (6.20%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 43,776 $ 36,738 $38,511 $ 35,662 $28,792
........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.74% 1.75%++ 1.62% 1.53% 1.27%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.74% 1.74%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.88% 1.94%++ 1.89% 1.93% 2.11%++
.........................................................................
Net investment income 2.82% 3.10%++ 3.12% 3.78% 4.19%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 4, 1994 (commencement of class operations) to De-
cember 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Utility Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ---------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.82 $ 9.01 $ 9.33
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.34 0.20 0.33 0.37 0.12
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.44 0.87 0.04 2.26 (0.33)
--------- --------- ------- ------- -------
Total from investment
operations 1.78 1.07 0.37 2.63 (0.21)
--------- --------- ------- ------- -------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- ------- -------
From net investment
income (0.36) (0.19) (0.33) (0.37) (0.11)
.........................................................................
Total distributions (1.48) (0.19) (0.61) (0.82) (0.11)
--------- --------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 11.76 $ 11.46 $ 10.58 $ 10.82 $ 9.01
--------- --------- ------- ------- -------
........................................................................
.........................................................................
.........................................................................
TOTAL RETURN+ 16.31% 10.21% 3.50% 29.80% (2.20%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 486 $ 379 $ 396 $ 246 $ 128
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 1.74% 1.75%++ 1.63% 1.54% 1.94%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.74% 1.74%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 1.88% 1.94%++ 1.90% 1.93% 2.78%++
.........................................................................
Net investment income 2.82% 3.10%++ 3.13% 3.76% 3.96%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
NET ASSET VALUE
BEGINNING OF YEAR $ 11.46 $ 10.58 $ 10.82 $ 9.00 $ 9.51
--------- --------- ------- ------- -------
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ---------------------------
1998 1997** 1996 1995 1994***
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.45 0.88 0.03 2.27 (0.50)
--------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Total from investment
operations 1.91 1.13 0.47 2.74 (0.13)
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.12) 0 (0.28) (0.45) 0
--------- --------- ------- ------- -------
Net investment income 0.46 0.25 0.44 0.47 0.37
.........................................................................
Total distributions (1.60) (0.25) (0.71) (0.92) (0.38)
--------- --------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 11.77 $ 11.46 $ 10.58 $ 10.82 $ 9.00
--------- --------- ------- ------- -------
.........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.48) (0.25) (0.43) (0.47) (0.38)
.........................................................................
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 17.60% 10.85% 4.50% 31.30% (1.60%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 1,695 $ 1,627 $ 2,000 $ 7,791 $ 5,201
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
.........................................................................
Total expenses 0.74% 0.74%++ 0.61% 0.54% 0.40%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.74% 0.73%++ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waivers
and expense
reimbursements 0.89% 0.94%++ 0.89% 0.93% 1.24%++
.........................................................................
Net investment income 3.82% 4.06%++ 4.01% 4.76% 4.93%++
.........................................................................
PORTFOLIO TURNOVER RATE 62% 50% 59% 88% 23%
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from February 28, 1994 (commencement of class operations) to
December 31, 1994.
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Value Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- -------------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.64 $ 20.57 $ 20.45 $ 16.62 $ 17.63 $ 17.11
--------- --------- -------- -------- -------- -------
.............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................
Net investment income 0.26 0.21 0.38 0.55 0.52 0.47
.............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.00 4.05 3.49 4.69 (0.20) 1.10
--------- --------- -------- -------- -------- -------
.............................................................................................
Total from investment
operations 2.26 4.26 3.87 5.24 0.32 1.57
--------- --------- -------- -------- -------- -------
.............................................................................................
LESS DISTRIBUTIONS
.............................................................................................
From net investment
income (0.29) (0.19) (0.41) (0.51) (0.51) (0.47)
.............................................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- -------- -------- -------- -------
.............................................................................................
Total distributions (4.67) (0.19) (3.75) (1.41) (1.33) (1.05)
--------- --------- -------- -------- -------- -------
.............................................................................................
NET ASSET VALUE END OF
YEAR $ 22.23 $ 24.64 $ 20.57 $ 20.45 $ 16.62 $ 17.63
--------- --------- -------- -------- -------- -------
............................................................................................
TOTAL RETURN+ 9.55% 20.78% 18.90% 31.80% 1.90% 9.30%
.............................................................................................
RATIOS/SUPPLEMENTAL DATA
.............................................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 476 $ 392 $ 328 $ 292 $ 189 $ 190
.............................................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.01% 0.92%++ 0.91% 0.90% 0.93% 0.99%
.............................................................................................
Total expenses,
excluding indirectly
paid expenses 1.01% 0.92%++ N/A N/A N/A N/A
.............................................................................................
Net investment income 1.04% 1.66%++ 1.77% 2.78% 2.96% 2.63%
.............................................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
.............................................................................................
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- -------------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.63 $ 20.58 $ 20.45 $ 16.62 $ 17.63 $ 17.24
--------- --------- -------- -------- -------- -------
.............................................................................................
INCOME FROM INVESTMENT
OPERATIONS
.............................................................................................
Net investment income 0.08 0.12 0.22 0.39 0.42 0.35
.............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.99 4.03 3.50 4.70 (0.20) 1.01
--------- --------- -------- -------- -------- -------
.............................................................................................
Total from investment
operations 2.07 4.15 3.72 5.09 0.22 1.36
--------- --------- -------- -------- -------- -------
.............................................................................................
LESS DISTRIBUTIONS
.............................................................................................
From net investment
income (0.12) (0.10) (0.25) (0.36) (0.41) (0.39)
.............................................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- -------- -------- -------- -------
.............................................................................................
Total distributions (4.50) (0.10) (3.59) (1.26) (1.23) (0.97)
--------- --------- -------- -------- -------- -------
............................................................................................
NET ASSET VALUE END OF
YEAR $ 22.20 $ 24.63 $ 20.58 $ 20.45 $ 16.62 $ 17.63
--------- --------- -------- -------- -------- -------
.............................................................................................
TOTAL RETURN+ 8.73% 20.23% 18.10% 30.90% 1.30% 8.00%
............................................................................................
RATIOS/SUPPLEMENTAL DATA
.............................................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 326,459 $ 276,256 $197,411 $141,072 $104,297 $59,953
.............................................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.76% 1.67%++ 1.66% 1.65% 1.53% 1.48%++
Total expenses,
excluding indirectly
paid expenses 1.76% 1.67%++ N/A N/A N/A N/A
.............................................................................................
Net investment income 0.30% 0.92%++ 1.01% 2.04% 2.36% 2.09%++
.............................................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
............................................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 2, 1993 (commencement of class operations) to
December 31, 1993.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Value Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- --------------------------
1998 1997** 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.61 $ 20.56 $ 20.44 $ 16.61 $ 18.28
--------- --------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.10 0.12 0.22 0.39 0.19
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.97 4.03 3.50 4.70 (0.81)
--------- --------- ------- ------- -------
........................................................................
Total from investment
operations 2.07 4.15 3.72 5.09 (0.62)
--------- --------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.12) (0.10) (0.26) (0.36) (0.23)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82)
--------- --------- ------- ------- -------
.........................................................................
Total distributions (4.50) (0.10) (3.60) (1.26) (1.05)
--------- --------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 22.18 $ 24.61 $ 20.56 $ 20.44 $ 16.61
--------- --------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 8.74% 20.25% 18.10% 30.90% (3.40%)
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 5,125 $ 2,507 $ 1,458 $ 811 $ 485
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.76% 1.66%++ 1.67% 1.65% 1.68%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.76% 1.66%++ N/A N/A N/A
.........................................................................
Net investment income 0.29% 0.94%++ 1.00% 2.03% 2.16%++
.........................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70%
........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended December 31,
--------------------- ------------------------------
1998 1997** 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 24.64 $ 20.57 $20.45 $16.61 $17.63 $17.11
--------- --------- ------ ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.35 0.25 0.44 0.57 0.56 0.52
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.97 4.03 3.49 4.72 (0.20) 1.12
--------- --------- ------ ------ ------ ------
Total from investment
operations 2.32 4.28 3.93 5.29 0.36 1.64
--------- --------- ------ ------ ------ ------
........................................................................
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (4.38) 0 (3.34) (0.90) (0.82) (0.58)
--------- --------- ------ ------ ------ ------
From net investment
income (0.35) (0.21) (0.47) (0.55) (0.56) (0.54)
.........................................................................
Total distributions (4.73) (0.21) (3.81) (1.45) (1.38) (1.12)
--------- --------- ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 22.23 $ 24.64 $20.57 $20.45 $16.61 $17.63
--------- --------- ------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
TOTAL RETURN 9.79% 20.93% 19.20% 32.20% 2.10% 9.70%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(MILLIONS) $ 183 $ 1,149 $ 996 $ 761 $ 507 $ 463
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.70% 0.67%++ 0.66% 0.65% 0.68% 0.65%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 0.70% 0.67%++ N/A N/A N/A N/A
.........................................................................
Net investment income 1.47% 1.91%++ 2.02% 3.02% 3.21% 2.98%
.........................................................................
PORTFOLIO TURNOVER RATE 69% 6% 91% 53% 70% 46%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
** For the seven-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
EVERGREEN
Fund for Total Return
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended November 30,
---------------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.69 $ 17.33 $ 13.83 $ 11.75 $ 12.31 $ 12.06
---------- --------- ------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.21 0.18 0.26 0.25 0.24 0.21
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.46 3.34 3.83 2.80 (0.56) 1.31
---------- --------- ------- ------- ------- -------
.........................................................................
Total from investment
operations 2.67 3.52 4.09 3.05 (0.32) 1.52
---------- --------- ------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.19) (0.16) (0.26) (0.32) (0.24) (0.24)
........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
---------- --------- ------- ------- ------- -------
.........................................................................
Total distributions (1.71) (0.16) (0.59) (0.97) (0.24) (1.27)
---------- --------- ------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.65 $ 20.69 $ 17.33 $ 13.83 $ 11.75 $ 12.31
---------- --------- ------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 13.85% 20.40% 29.83% 26.57% (2.65%) 12.67%
........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 52,667 $ 47,812 $40,487 $27,037 $23,162 $26,367
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
........................................................................
Total expenses 1.21% 1.24%++ 1.41% 1.69% 1.59% 1.85%
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.21% 1.22%++ 1.39% N/A N/A N/A
.........................................................................
Net investment income 1.01% 1.46%++ 1.66% 1.94% 1.93% 1.63%
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
<CAPTION>
Year Ended July 31, Year Ended November 30,
---------------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.63 $ 17.31 $ 13.84 $ 11.77 $ 12.32 $ 12.65
---------- --------- ------- ------- ------- -------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
........................................................................
Net investment income 0.06 0.09 0.15 0.15 0.15 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.45 3.31 3.80 2.82 (0.56) 0.74
---------- --------- ------- ------- ------- -------
.........................................................................
Total from investment
operations 2.51 3.40 3.95 2.97 (0.41) 0.84
---------- --------- ------- ------- ------- -------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.06) (0.08) (0.15) (0.25) (0.14) (0.14)
........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
---------- --------- ------- ------- ------- -------
.........................................................................
Total distributions (1.58) (0.08) (0.48) (0.90) (0.14) (1.17)
---------- --------- ------- ------- ------- -------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.56 $ 20.63 $ 17.31 $ 13.84 $ 11.77 $ 12.32
---------- --------- ------- ------- ------- -------
.........................................................................
TOTAL RETURN+ 13.01% 19.68% 28.73% 25.59% (3.36%) 6.68%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 105,748 $ 94,309 $43,526 $20,605 $ 7,314 $ 4,283
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
........................................................................
Total expenses 1.97% 2.02%++ 2.18% 2.47% 2.31% 2.64%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.97% 2.00%++ 2.16% 2.46% N/A N/A
.........................................................................
Net investment income 0.25% 0.58%++ 0.88% 1.06% 1.27% 0.84%++
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 1, 1993 (commencement of class operations) to
December 31, 1993.
** For the eight-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
</TABLE>
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
Fund for Total Return
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31, Year Ended November 30,
--------------------- --------------------------------
1998 1997** 1996 1995 1994 1993*
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE
BEGINNING OF YEAR $ 20.65 $ 17.32 $ 13.85 $11.78 $12.33 $12.65
--------- --------- ------- ------ ------ ------
.........................................................................
INCOME FROM INVESTMENT
OPERATIONS
.........................................................................
Net investment income 0.05 0.09 0.14 0.16 0.15 0.10
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 2.46 3.32 3.81 2.81 (0.56) 0.75
--------- --------- ------- ------ ------ ------
.........................................................................
Total from investment
operations 2.51 3.41 3.95 2.97 (0.41) 0.85
--------- --------- ------- ------ ------ ------
........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment
income (0.06) (0.08) (0.15) (0.25) (0.14) (0.14)
.........................................................................
From net realized gain
on securities and
foreign currency
related transactions (1.52) 0 (0.33) (0.65) 0 (1.03)
--------- --------- ------- ------ ------ ------
.........................................................................
Total distributions (1.58) (0.08) (0.48) (0.90) (0.14) (1.17)
--------- --------- ------- ------ ------ ------
.........................................................................
NET ASSET VALUE END OF
YEAR $ 21.58 $ 20.65 $ 17.32 $13.85 $11.78 $12.33
--------- --------- ------- ------ ------ ------
.........................................................................
TOTAL RETURN+ 12.99% 19.73% 28.71% 25.57% (3.36%) 6.76%
.........................................................................
RATIOS/SUPPLEMENTAL DATA
.........................................................................
NET ASSETS END OF YEAR
(THOUSANDS) $ 20,851 $ 21,125 $14,562 $9,503 $5,968 $5,030
.........................................................................
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.97% 2.01%++ 2.17% 2.47% 2.34% 2.64%++
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.97% 1.99%++ 2.15% 2.44% N/A N/A
.........................................................................
Net investment income 0.25% 0.66%++ 0.89% 1.16% 1.21% 0.83%++
.........................................................................
PORTFOLIO TURNOVER RATE 66% 41% 41% 77% 57% 92%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------
1998 1997***
<S> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF YEAR $ 20.62 $ 17.74
--------- ---------
.........................................................................
INCOME FROM INVESTMENT OPERATIONS
........................................................................
Net investment income 0.24 0.18
.........................................................................
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions 2.51 2.86
--------- ---------
.........................................................................
Total from investment operations 2.75 3.04
--------- ---------
.........................................................................
LESS DISTRIBUTIONS
.........................................................................
From net investment income (0.24) (0.16)
.........................................................................
From net realized gain on securities and foreign
currency related transactions (1.52) 0
--------- ---------
.........................................................................
Total distributions (1.76) (0.16)
--------- ---------
.........................................................................
NET ASSET VALUE END OF YEAR $ 21.61 $ 20.62
--------- ---------
.........................................................................
TOTAL RETURN 14.29% 17.22 %
........................................................................
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $ 111 $ 93
.........................................................................
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.93 % 1.34 %++
.........................................................................
Total expenses, excluding indirectly paid expenses 0.93 % 1.34 %++
.........................................................................
Net investment income 1.31 % 0.79 %++
.........................................................................
PORTFOLIO TURNOVER RATE 66 % 41 %
.........................................................................
</TABLE>
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from February 1, 1993 (commencement of class operations) to
November 30, 1993.
** For the eight-month period ended July 31, 1997. The Fund changed its fiscal
year end from December 31 to July 31, effective July 31, 1997.
*** For the period from January 13, 1997 (commencement of class operations) to
July 31, 1997.
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Blue Chip Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 85.5%
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 2.5%
72,300 Chrysler Corp. ..................................... $ 4,279,256
55,000 Ford Motor Co. ..................................... 3,131,563
50,000 *Lear Corp. ........................................ 2,653,125
------------
10,063,944
------------
BANKS - 5.8%
50,000 BankAmerica Corp. .................................. 4,487,500
63,000 BankBoston Corp. ................................... 3,047,625
45,000 Fleet Financial Group, Inc. ........................ 3,867,187
65,000 Mellon Bank Corp. .................................. 4,379,375
180,000 North Fork Bancorp, Inc. ........................... 4,387,500
30,000 PNC Bank Corp. ..................................... 1,618,125
60,000 TCF Financial Corp. ................................ 1,732,500
------------
23,519,812
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 1.0%
97,000 Home Depot, Inc. ................................... 4,061,875
------------
BUSINESS EQUIPMENT &
SERVICES - 1.1%
40,000 Xerox Corp. ........................................ 4,222,500
------------
CAPITAL GOODS - 0.1%
12,000 Deere & Co. ........................................ 482,250
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.6%
45,000 Monsanto Co. ....................................... 2,548,125
------------
COMMUNICATION SYSTEMS & SERVICES - 2.2%
40,000 *Cisco Systems, Inc. ............................... 3,831,250
96,500 *WorldCom, Inc. .................................... 5,093,391
------------
8,924,641
------------
CONSUMER PRODUCTS &
SERVICES - 3.7%
28,500 Colgate-Palmolive Co. .............................. 2,634,469
58,000 Gillette Co. ....................................... 3,037,750
75,000 Procter & Gamble Co. ............................... 5,953,125
150,800 Stewart Enterprises, Inc. Cl. A..................... 3,425,987
------------
15,051,331
------------
DIVERSIFIED COMPANIES - 1.2%
80,000 Tyco International Ltd. ............................ 4,955,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.5%
149,500 General Electric Co. ............................... 13,352,219
9,000 Honeywell, Inc. .................................... 754,312
------------
14,106,531
------------
ENVIRONMENTAL SERVICES - 1.0%
162,500 *Republic Services, Inc. ........................... 4,062,500
------------
FINANCE & INSURANCE - 11.7%
35,000 American International Group, Inc................... 5,278,437
64,414 Associates First Capital Corp.
Cl. A.............................................. 5,004,163
45,000 CIGNA Corp. ........................................ 2,972,813
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FINANCE & INSURANCE - CONTINUED
92,500 Federal National Mortgage Association............... $ 5,735,000
143,800 Greenpoint Financial Corp. ......................... 5,707,062
65,000 Hartford Life, Inc. Cl. A........................... 3,761,875
40,000 Lincoln National Corp. ............................. 3,830,000
29,000 Morgan Stanley, Dean Witter, Discover & Co. ........ 2,524,813
31,500 PMI Group, Inc. .................................... 2,134,125
80,000 SLM Holding Corp. .................................. 3,700,000
96,000 Travelers Group, Inc. .............................. 6,432,000
------------
47,080,288
------------
FOOD & BEVERAGE PRODUCTS - 1.8%
90,500 Coca Cola Co. ...................................... 7,302,219
------------
HEALTHCARE PRODUCTS &
SERVICES - 13.1%
170,000 American Home Products Corp. ....................... 8,755,000
57,000 Bristol-Myers Squibb Co. ........................... 6,494,437
100,400 HBO & Co. .......................................... 2,958,663
150,000 *Health Management Associates, Inc. Cl. A........... 3,525,000
60,000 *HEALTHSOUTH Corp. ................................. 1,507,500
55,000 Johnson & Johnson................................... 4,248,750
82,900 Medtronic, Inc. .................................... 5,134,619
58,500 Merck & Co., Inc. .................................. 7,213,781
46,000 Pfizer, Inc. ....................................... 5,060,000
132,000 Pharmacia & Upjohn, Inc. ........................... 6,253,500
25,000 *Steris Corp. ...................................... 1,528,125
------------
52,679,375
------------
INFORMATION SERVICES & TECHNOLOGY - 10.2%
86,000 *BMC Software, Inc. ................................ 4,238,187
100,500 *EMC Corp. ......................................... 4,924,500
50,000 *Gateway 2000, Inc. ................................ 2,700,000
51,300 Intel Corp. ........................................ 4,330,041
41,000 International Business Machines Corp. .............. 5,432,500
102,600 *Microsoft Corp. ................................... 11,282,794
85,000 *Peoplesoft, Inc. .................................. 3,192,812
105,000 *Sun Microsystems, Inc. ............................ 4,957,969
------------
41,058,803
------------
LEISURE & TOURISM - 2.3%
96,000 Disney Walt Co. .................................... 3,306,000
40,000 Royal Caribbean Cruises Ltd. ....................... 2,972,500
82,500 Seagram Co. Ltd. ................................... 3,031,875
------------
9,310,375
------------
OIL/ENERGY - 8.1%
100,000 Anadarko Petroleum Corp. ........................... 3,431,250
92,000 British Petroleum Plc, ADR.......................... 7,383,000
86,000 Exxon Corp. ........................................ 6,030,750
40,000 Mobil Corp. ........................................ 2,790,000
92,000 Royal Dutch Petroleum Co. .......................... 4,692,000
137,100 Texaco, Inc. ....................................... 8,337,394
------------
32,664,394
------------
</TABLE>
44
<PAGE>
EVERGREEN
Blue Chip Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
PUBLISHING, BROADCASTING & ENTERTAINMENT - 4.7%
117,500 CBS Corp. .......................................... $ 3,987,656
25,000 *Clear Channel Communications, Inc. ................ 1,404,688
23,100 *Tele Communications, Inc. ......................... 963,703
35,000 Time Warner, Inc. .................................. 3,152,187
75,500 *Viacom, Inc. Cl. B................................. 5,171,750
120,000 *World Color Press, Inc. ........................... 4,087,500
------------
18,767,484
------------
REAL ESTATE - 1.2%
112,504 Equity Office Properties Trust REIT................. 2,798,537
80,000 First Industrial Realty Trust, Inc. REIT............ 2,210,000
------------
5,008,537
------------
RETAILING & WHOLESALE - 6.0%
119,500 *Borders Group Inc. ................................ 3,749,312
52,000 *Costco Companies, Inc. ............................ 2,952,625
101,600 CVS Corp. .......................................... 4,165,600
64,600 Dayton Hudson Corp. ................................ 3,088,688
63,125 Dollar General Corp. ............................... 2,588,125
52,500 Pier 1 Imports, Inc. ............................... 817,031
108,000 Wal-Mart Stores, Inc. .............................. 6,817,500
------------
24,178,881
------------
UTILITIES - TELEPHONE - 3.7%
60,000 Ameritech Corp. .................................... 2,951,250
66,100 AT&T Corp. ......................................... 4,007,313
70,000 GTE Corp. .......................................... 3,806,250
75,000 U.S. West, Inc. .................................... 4,003,125
------------
14,767,938
------------
Total Common Stocks
(cost $260,296,892)................................ 344,816,803
------------
</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 inter-
est at July 31, 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.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 1.0%
FINANCE & INSURANCE - 1.0%
70,000 Newell Financial Trust I
5.25%, 144A....................................... $ 4,165,000
------------
Total Convertible Preferred
(cost $3,556,250)................................. 4,165,000
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.0%
IRON & STEEL - 0.0%
$ 110,000 Compania Vale do Rio Doce Navegacao SA
1.00%, 12/31/99................................... $ 9
------------
Total Convertible Debentures
(cost $0)......................................... 9
------------
REPURCHASE AGREEMENT - 8.5%
34,092,000 Keystone Joint Repurchase Agreement, Investments in
repurchase agreements, in a joint trading account
purchased
7/31/98, 5.65% maturing 8/3/98, maturity value
$34,108,052
(cost $34,092,000) (a)............................ 34,092,000
------------
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $297,945,142)......................... 95.0% 383,073,812
OTHER ASSETS AND
LIABILITIES - NET........................... 5.0 20,334,253
----- ------------
NET ASSETS................................... 100.0% $403,408,065
===== ============
</TABLE>
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 81.6%
AEROSPACE & DEFENSE - 0.5%
282,000 Boeing Co. ....................................... $ 10,945,125
--------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.5%
50,000 Ford Motor Co. ................................... 2,846,875
430,000 Meritor Automotive, Inc. ......................... 8,707,500
--------------
11,554,375
--------------
BANKS - 9.1%
131,850 AmSouth Bancorp................................... 5,232,797
15,600 Astoria Financial Corp. .......................... 781,950
130,284 Banc One Corp. ................................... 6,734,054
80,000 Bank of New York Co., Inc. ....................... 5,120,000
16,820 BB & T Corp. ..................................... 1,181,605
286,500 BSB Bancorp, Inc. ................................ 9,311,250
135,000 Carolina First Corp. ............................. 3,307,500
14,300 Centura Banks, Inc. .............................. 989,381
38,838 Charter One Financial, Inc. ...................... 1,264,662
67,500 Citicorp.......................................... 11,475,000
12,878 Commerce Bankcorp, Inc. .......................... 585,926
45,750 Crestar Financial Corp. .......................... 3,119,578
55,600 Cullen/Frost Bankers, Inc. ....................... 2,953,750
71,824 First American Corp. ............................. 3,375,728
236,250 First Security Corp. ............................. 5,190,117
114,550 First Virginia Banks, Inc. ....................... 6,293,091
140,100 Firstar Corp. .................................... 6,996,244
23,600 FirstMerit Corp. ................................. 691,775
50,000 Fleet Financial Group, Inc. ...................... 4,296,875
210,000 Hibernia Corp. Cl. A.............................. 3,963,750
15,100 JSB Financial, Inc. .............................. 818,231
221,200 KeyCorp........................................... 7,520,800
22,650 Keystone Financial, Inc. ......................... 757,359
208,400 Marshall & Ilsley Corp. .......................... 11,709,475
53,125 NationsBank Corp. ................................ 4,236,719
167,400 Norwest Corp. .................................... 6,015,938
712,100 Pacific Century Financial Corp. .................. 13,974,962
130,000 Peoples Heritage Financial Group.................. 2,941,250
195,000 SouthTrust Corp. ................................. 7,885,313
27,900 St. Paul Bancorp, Inc. ........................... 627,750
117,300 State Street Corp. ............................... 8,130,356
98,475 Summit Bancorp.................................... 4,406,756
180,000 Susquehanna Bancshares, Inc. ..................... 4,050,000
12,785 Union Planters Corp. ............................. 696,783
53,787 Wachovia Corp. ................................... 4,605,512
1,030,000 Webster Financial Corp. .......................... 31,221,875
52,000 Wilmington Trust Corp. ........................... 3,084,250
--------------
195,548,362
--------------
BUILDING, CONSTRUCTION & FURNISHINGS - 3.3%
13,300 Armstrong World Industries, Inc. ................. 819,613
320,000 *Furniture Brands International, Inc. ............ 9,040,000
80,000 Home Depot, Inc. ................................. 3,350,000
349,100 *Jacobs Engineering Group, Inc. .................. 10,254,812
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
BUILDING, CONSTRUCTION & FURNISHINGS - CONTINUED
218,600 Lennar Corp. ..................................... $ 6,038,825
113,000 Lone Star Industries, Inc. ....................... 8,220,750
280,000 Lowe's Companies, Inc. ........................... 10,780,000
70,400 Southdown, Inc. .................................. 4,404,400
130,000 *Toll Brothers, Inc. ............................. 3,404,375
358,200 *US Home Corp. ................................... 13,410,112
--------------
69,722,887
--------------
BUSINESS EQUIPMENT &
SERVICES - 4.3%
422,500 Air Express International Corp. .................. 9,321,406
794,300 Circle International Group, Inc. ................. 18,169,612
180,000 *Compuware Corp. ................................. 9,686,250
133,000 Equifax, Inc. .................................... 5,436,375
123,436 First Data Corp. ................................. 3,571,929
640,200 Pittston Burlington Group......................... 7,642,388
334,700 *Platinum Technology Corp. ....................... 10,574,428
470,000 *Policy Management Systems Corp. ................. 20,621,250
427,000 Reynolds & Reynolds Co., Cl. A.................... 7,178,938
--------------
92,202,576
--------------
CAPITAL GOODS - 0.3%
127,200 Caterpillar, Inc. ................................ 6,169,200
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 3.2%
130,000 Air Products & Chemicals, Inc. ................... 4,550,000
180,000 Du Pont (E.I.) De Nemours & Co. .................. 11,160,000
265,000 Engelhard Corp. .................................. 5,531,875
165,000 *Grace (W.R.) & Co. .............................. 2,753,438
135,300 H.B. Fuller Co. .................................. 7,610,625
255,000 Morton International, Inc. ....................... 6,167,812
180,000 Nalco Chemical Co. ............................... 6,165,000
237,000 Pioneer Hi-Bred International, Inc. .............. 7,495,125
260,000 Praxair, Inc. .................................... 12,805,000
175,000 Solutia, Inc. .................................... 5,195,312
--------------
69,434,187
--------------
COMMUNICATION SYSTEMS & SERVICES - 0.8%
248,820 American Tower Systems Corp. ..................... 5,971,680
72,000 *Cisco Systems, Inc. ............................. 6,894,000
60,000 *WorldCom, Inc. .................................. 3,172,500
--------------
16,038,180
--------------
CONSUMER PRODUCTS &
SERVICES - 3.0%
235,200 Black & Decker Corp. ............................. 13,377,000
90,000 Colgate-Palmolive Co. ............................ 8,319,375
25,000 CPI Corp. ........................................ 625,000
9,800 *GC Companies, Inc. .............................. 458,150
179,000 Gucci Group....................................... 8,703,875
40,700 Harley-Davidson, Inc. ............................ 1,612,738
185,000 Hillenbrand Industries, Inc. ..................... 10,348,437
</TABLE>
46
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
162,500 Lancaster Colony Corp. ........................... $ 6,276,562
440,000 Premark International, Inc. ...................... 13,640,000
9,100 Toro Co. ......................................... 246,838
--------------
63,607,975
--------------
DIVERSIFIED COMPANIES - 0.6%
217,500 Harnischfeger Industries, Inc. ................... 5,410,313
200,000 ITT Industries, Inc. ............................. 6,975,000
--------------
12,385,313
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.6%
220,000 Baldor Electric Co. .............................. 4,565,000
185,000 Belden, Inc. ..................................... 4,879,375
65,000 Diebold Inc. ..................................... 1,641,250
70,200 General Electric Co. ............................. 6,269,738
175,100 Harman International Industries, Inc. ............ 6,905,506
180,000 Honeywell, Inc. .................................. 15,086,250
106,000 *Jabil Circuit, Inc. ............................. 3,690,125
136,100 Perkin Elmer Corp. ............................... 7,978,862
335,000 Sensormatic Electronics Corp. .................... 3,664,063
152,900 *Unitrode Corp. .................................. 2,025,925
2,331 Zilog, Inc. ...................................... 2,331
--------------
56,708,425
--------------
FINANCE & INSURANCE - 6.3%
120,000 AFLAC, Inc. ...................................... 4,125,000
17,800 American Bankers Insurance Group, Inc. ........... 1,073,563
97,000 Chubb Corp. ...................................... 7,117,375
279,750 Edwards (A.G.), Inc. ............................. 10,927,734
300,000 Federal Home Loan Mortgage Corp. ................. 14,175,000
315,000 Federal National Mortgage Association............. 19,530,000
42,750 First American Financial Corp. ................... 1,132,875
388,740 Frontier Insurance Group, Inc. ................... 6,900,135
200,000 Hartford Financial Services Group, Inc. .......... 10,412,500
115,000 LaSalle Re Holdings Ltd. ......................... 4,025,000
63,866 Legg Mason, Inc. ................................. 3,899,818
200,500 Lehman Brothers Holdings, Inc. ................... 14,436,000
29,100 Life RE Corp. .................................... 2,653,556
67,500 Meadowbrook Insurance Group, Inc. ................ 1,944,844
31,300 Mercury General Corp. ............................ 1,437,844
59,000 Mid Ocean Ltd. ................................... 4,661,000
272,100 Paine Webber Group, Inc. ......................... 12,822,712
212,000 Price (T.) Rowe & Associates, Inc................. 7,526,000
3,300 Reinsurance Group Of America...................... 183,563
125,000 UNUM Corp. ....................................... 6,585,937
--------------
135,570,456
--------------
FOOD & BEVERAGE PRODUCTS - 1.1%
90,000 Bestfoods......................................... 5,006,250
11,250 *Corn Products International, Inc. ............... 334,688
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FOOD & BEVERAGE PRODUCTS - CONTINUED
350,000 Darden Restaurants, Inc. ......................... $ 6,059,375
50,000 *Dominick's Supermarkets, Inc. ................... 2,253,125
40,000 Sara Lee Corp. ................................... 2,005,000
420,400 *Vlasic Foods International, Inc. ................ 7,383,275
--------------
23,041,713
--------------
FOREST PRODUCTS - 0.1%
120,000 Deltic Timber Corp. .............................. 2,790,000
--------------
HEALTHCARE PRODUCTS &
SERVICES - 11.4%
230,000 Abbott Laboratories............................... 9,559,375
408,200 *Acuson Corp. .................................... 6,735,300
200,000 American Home Products Corp. ..................... 10,300,000
60,000 Baxter International, Inc. ....................... 3,585,000
126,800 Beckman Coulter Inc. ............................. 7,623,850
110,000 *Elan Corp Plc, ADR............................... 7,920,000
362,000 *First Health Group Corp. ........................ 8,914,250
365,000 *Foundation Health Systems, Inc. ................. 7,528,125
401,625 *Health Management Associates, Inc. Cl. A......... 9,438,187
206,000 *HEALTHSOUTH Corp. ............................... 5,175,750
70,100 Johnson & Johnson................................. 5,415,225
70,500 Lilly (Eli) & Co. ................................ 4,741,125
650,000 *Lincare Holdings, Inc. .......................... 25,837,500
60,000 Manor Care, Inc. ................................. 2,238,750
400,000 McKesson Corp. ................................... 32,250,000
20,000 Merck & Co., Inc. ................................ 2,466,250
100,000 Owens & Minor, Inc. .............................. 1,237,500
84,200 Pfizer, Inc. ..................................... 9,262,000
521,500 *Quorum Health Group, Inc. ....................... 13,167,875
226,000 Schering-Plough Corp. ............................ 21,865,500
225,000 Shared Medical System Corp. ...................... 15,271,875
256,000 *Sybron International Corp. ...................... 5,312,000
120,000 *Tenet Healthcare Corp. .......................... 3,592,500
162,000 Warner-Lambert Co. ............................... 12,241,125
65,020 *Wellpoint Health Networks, Inc.
Cl. A............................................ 3,986,539
350,000 West Co., Inc. ................................... 9,734,375
--------------
245,399,976
--------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 6.8%
223,700 AptarGroup, Inc. ................................. 13,771,531
164,625 Autoliv, Inc. .................................... 5,607,539
370,000 Bemis Co., Inc. .................................. 14,291,250
150,000 Borg-Warner Automotive, Inc. ..................... 7,059,375
42,000 Carpenter Technology Corp. ....................... 1,819,125
101,800 Danaher Corp. .................................... 4,154,713
197,000 Dover Corp. ...................................... 5,725,312
226,218 Flowserve Corp. .................................. 4,934,380
71,900 *Halter Marine Group, Inc. ....................... 1,141,413
12,800 J & L Specialty Steel, Inc. ...................... 72,000
270,300 JLG Industries, Inc. ............................. 4,189,650
33,500 Magna International, Inc. Cl. A................... 2,286,375
23,650 Newmont Mining Corp. ............................. 446,394
</TABLE>
47
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES -
CONTINUED
145,000 Parker Hannifin Corp. ........................... $ 4,975,313
594,000 Pittston Brink's Group .......................... 21,198,375
260,000 Snap-on, Inc. ................................... 9,230,000
284,000 *Strattec Security Corp. ........................ 7,952,000
280,000 Sundstrand Corp. ................................ 14,647,500
15,000 Tecumseh Products Co. Cl. A...................... 787,500
216,300 *UCAR International, Inc. ....................... 5,704,912
680,300 *Unova, Inc. .................................... 14,116,225
25,000 Vulcan Materials Co. ............................ 2,875,000
--------------
146,985,882
--------------
INFORMATION SERVICES & TECHNOLOGY - 2.0%
80,000 *Adaptec, Inc. .................................. 930,000
100,000 *Applied Materials, Inc. ........................ 3,350,000
13,300 *Choicepoint, Inc. .............................. 655,025
400,000 Computer Associates International, Inc. ......... 13,275,000
110,000 *Dupont Photomasks, Inc. ........................ 3,547,500
100,000 Hewlett-Packard Co. ............................. 5,550,000
72,000 Intel Corp. ..................................... 6,079,500
329,800 *KLA-Tencor Corp. ............................... 9,852,775
87,500 *Perceptron, Inc. ............................... 568,750
--------------
43,808,550
--------------
MANUFACTURING -
DISTRIBUTING - 0.1%
136,100 Hussmann International, Inc. .................... 2,415,775
--------------
METAL PRODUCTS &
SERVICES - 0.3%
365,000 *Steel Dynamics, Inc. ........................... 5,292,500
--------------
OIL/ENERGY - 4.1%
50,000 Anadarko Petroleum Corp. ........................ 1,715,625
320,000 Berry Petroleum Co. Cl. A........................ 3,680,000
507,400 Cabot Oil & Gas Corp. ........................... 8,689,225
90,000 Coastal Corp. ................................... 2,947,500
165,000 *Denbury Resources, Inc. ........................ 1,691,250
160,000 *Houston Exploration, Co. ....................... 3,360,000
110,300 Kerr-McGee Corp. ................................ 5,659,769
209,500 Murphy Oil Corp. ................................ 9,283,469
183,900 National Fuel Gas Co. ........................... 7,597,369
221,200 *Nuevo Energy Co. ............................... 5,419,400
495,000 *Oryx Energy Co. ................................ 9,126,562
400,000 *Santa Fe Energy Resources, Inc. ................ 3,525,000
321,600 Southwestern Energy Co. ......................... 2,894,400
100,000 Tosco Corp. ..................................... 2,800,000
325,000 Transocean Offshore, Inc. ....................... 12,817,187
113,520 Union Pacific Resource Group, Inc. .............. 1,589,280
174,000 Williams Companies, Inc. ........................ 5,578,875
--------------
88,374,911
--------------
OIL FIELD SERVICES - 1.9%
298,000 *Atwood Oceanics, Inc. .......................... 9,126,250
52,300 Camco International, Inc. ....................... 3,713,300
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - CONTINUED
113,140 Halliburton Co. ................................. $ 4,108,396
96,500 Helmerich & Payne, Inc. ......................... 1,978,250
15,500 Lufkin Industries, Inc. ......................... 458,219
914,500 *R & B Falcon Corp. ............................. 15,032,094
380,500 *Varco International, Inc. ...................... 6,040,437
--------------
40,456,946
--------------
PAPER & PACKAGING - 0.3%
88,440 Sealed Air Corp. ................................ 3,537,600
75,000 Westvaco Corp. .................................. 1,879,688
--------------
5,417,288
--------------
PHARMACEUTICALS - 0.1%
100,000 *Dura Pharmaceuticals, Inc. ..................... 2,575,000
--------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 4.6%
84,000 *Chancellor Media Corp. ......................... 4,053,000
49,805 Comcast Corp. ................................... 2,261,458
270,000 *Emmis Broadcasting Corp. Cl. A.................. 11,542,500
273,800 Gaylord Entertainment Co. ....................... 8,385,125
425,000 *Jacor Communications, Inc. ..................... 24,915,625
40,000 Knight-Ridder, Inc. ............................. 2,110,000
15,000 McGraw-Hill Companies, Inc. ..................... 1,229,063
43,000 Scripps (E.W.) Co. Cl. A......................... 2,262,875
185,000 TCA Cable TV, Inc. .............................. 10,649,062
250,000 Time Warner, Inc. ............................... 22,515,625
1 *Viacom, Inc. Cl. A.............................. 68
2,800 Washington Post Co., Cl. B....................... 1,524,600
95,000 *Young Broadcasting, Inc. Cl. A.................. 6,222,500
--------------
97,671,501
--------------
REAL ESTATE - 2.6%
40,000 AMB Property Corp. REIT.......................... 955,000
20,000 Apartment Investment & Management Co. Cl. A
REIT............................................ 760,000
60,000 Arden Realty Group, Inc. REIT.................... 1,417,500
71,200 Berkshire Realty Co., Inc. REIT.................. 778,750
158,000 Brandywine Realty Trust REIT..................... 3,150,125
145,000 CarrAmerica Realty Corp. REIT.................... 3,905,938
20,000 CBL & Associates Properties, Inc. REIT........... 486,250
78,000 Crescent Real Estate Equities, Inc. REIT......... 2,291,250
75,000 Entertainment Properties Trust REIT.............. 1,378,125
66,100 Gables Residential Trust REIT.................... 1,772,306
100,000 Kilroy Realty Corp. REIT......................... 2,268,750
64,000 Kimco Realty Corp. REIT.......................... 2,368,000
85,000 Liberty Property Trust REIT...................... 2,130,313
165,000 Mack-Cali Realty Corp. REIT...................... 5,125,312
170,000 Meditrust Co. REIT............................... 3,825,000
165,400 Patriot American Hospitality, Inc. REIT.......... 3,142,600
20,000 RFS Hotel Investors, Inc. REIT................... 341,250
160,000 *Servico, Inc. .................................. 2,160,000
199,851 Starwood Hotels & Resorts Trust REIT............. 8,206,382
</TABLE>
48
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
REAL ESTATE - CONTINUED
132,600 Sunstone Hotel Investors, Inc. REIT............... $ 1,475,175
255,300 Weeks Corp. REIT.................................. 7,371,787
--------------
55,309,813
--------------
RETAILING & WHOLESALE - 2.9%
116,600 *Autozone, Inc. .................................. 3,993,550
169,000 Avnet, Inc. ...................................... 9,273,875
290,600 *Cole National Corp. Cl. A........................ 9,589,800
150,000 J. C. Penney Co., Inc. ........................... 8,803,125
52,600 Longs Drug Stores Corp. .......................... 1,453,075
113,100 Mercantile Stores Co., Inc. ...................... 8,970,244
318,825 *Proffitts, Inc. ................................. 10,042,987
105,000 Rite Aid Corp. ................................... 4,147,500
118,000 *Saks Holdings, Inc. ............................. 3,031,125
20,400 Shopko Stores, Inc. .............................. 596,700
8,200 *Timberland Co. Cl. A............................. 528,900
20,000 *Tommy Hilfiger Corp. ............................ 1,121,250
--------------
61,552,131
--------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 0.5%
168,000 *Aspect Telecommunications Corp. ................. 5,360,250
50,000 Mediaone Group, Inc. ............................. 2,415,625
70,000 *Univision Communications, Inc. Cl. A............. 2,555,000
--------------
10,330,875
--------------
TRANSPORTATION - 4.4%
276,600 *Atlas Air, Inc. ................................. 10,199,625
780,000 Bombardier, Inc., Cl. B........................... 10,737,970
190,000 Burlington Northern Santa Fe...................... 19,558,125
612,600 Kansas City Southern Industries, Inc. ............ 30,093,975
140,000 +Petroleum Helicopters, Inc. ..................... 2,563,750
138,500 Southwest Airlines Co. ........................... 4,561,844
413,000 Union Pacific Corp. .............................. 17,346,000
--------------
95,061,289
--------------
UTILITIES - ELECTRIC - 1.1%
64,000 Commonwealth Energy System........................ 2,272,000
140,900 Energy East Corp. ................................ 5,636,000
70,000 Houston Industries, Inc. ......................... 1,955,625
40,000 Texas Utilities Co. .............................. 1,602,500
400,000 TNP Enterprises, Inc. ............................ 12,900,000
--------------
24,366,125
--------------
UTILITIES - GAS - 0.9%
245,800 Marketspan Corp. ................................. 6,774,863
288,100 Northwest Natural Gas Co. ........................ 7,562,625
184,400 Piedmont Natural Gas Co., Inc. ................... 5,370,650
--------------
19,708,138
--------------
UTILITIES - TELEPHONE - 1.9%
160,000 *AirTouch Communications, Inc. ................... 9,410,000
62,000 AT&T Corp. ....................................... 3,758,750
150,000 Century Telephone Enterprises, Inc. .............. 7,462,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - CONTINUED
143,000 Cincinnati Bell, Inc. ............................ $ 4,593,875
200,000 GTE Corp. ........................................ 10,875,000
75,000 MCI Communications Corp. ......................... 4,856,250
1,365 U.S. West, Inc. .................................. 72,857
--------------
41,029,232
--------------
Total Common Stocks
(cost $1,322,443,411)............................ 1,751,474,706
--------------
PREFERRED STOCKS - 0.0%
HEALTHCARE PRODUCTS &
SERVICES - 0.0%
130,000 *Fresenius National Med Care, Inc. Ser. D......... 8,840
--------------
Total Preferred Stocks
(cost $22,740)................................... 8,840
--------------
CONVERTIBLE PREFERRED - 0.1%
PAPER & PACKAGING - 0.1%
78,375 *Sealed Air Corp. ................................ 3,497,485
--------------
Total Convertible Preferred
(cost $2,426,965)................................ 3,497,485
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 19.7%
COMMERCIAL PAPER - 17.2%
$13,300,000 Akzo Nobel, Inc.
5.62%, 8/6/98.................................... 13,289,618
37,500,000 Banc One Funding Corp.
5.51%, 9/18/98................................... 37,224,500
25,800,000 BHF Finance (De), Inc.
5.52%, 9/18/98................................... 25,610,112
2,800,000 Cambridge Massachusetts
Water Pollution
5.58%, 9/1/98.................................... 2,786,546
19,500,000 Citibank Capital Markets Assets
Yr 1+2
5.57%, 8/28/98................................... 19,418,539
5,850,000 Dollar Thrifty Funding Corp.
5.55%, 8/7/98.................................... 5,845,228
25,000,000 Du Pont (E.I.) De Nemours & Co. 5.54%, 8/24/98.... 24,911,514
36,650,000 Finova Capital Corp.
5.54%, 9/3/98.................................... 36,463,879
37,400,000 General Motors Acceptance Corp. 5.50%, 8/20/98.... 37,291,436
17,400,000 Goldman Sachs Group
5.53%, 8/17/98................................... 17,357,235
Great Lakes Chemical Corp.:
1,000,000 5.51%, 9/1/98..................................... 995,255
14,000,000 5.53%, 8/10/98.................................... 13,980,645
18,000,000 Island Finance Puerto Rico, Inc. 5.55%, 8/11/98... 17,972,250
30,000,000 Knight-Ridder Inc.
5.65%, 8/14/98................................... 29,938,792
Marsh & McLennan Co., Inc.:
2,200,000 5.51%, 9/4/98..................................... 2,188,551
27,000,000 5.54%, 8/27/98.................................... 26,891,970
</TABLE>
49
<PAGE>
EVERGREEN
Growth and Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - CONTINUED
COMMERCIAL PAPER - CONTINUED
$ 7,750,000 Massachusetts College of
Pharmacy and Allied Health Services
5.55%, 8/20/98................................... $ 7,727,299
5,800,000 Monsanto Company Series B 5.50%, 9/10/98.......... 5,764,555
12,700,000 Morgan (J.P.) & Co., Inc.
5.52%, 8/17/98................................... 12,668,843
1,000,000 Pfizer, Inc.
5.53%, 8/3/98.................................... 999,693
7,900,000 Power Authority Str New York 5.53%, 9/14/98....... 7,846,605
850,000 Queens Health System
5.55%, 8/6/98.................................... 849,345
22,200,000 Twin Towers, Inc.
5.58%, 8/18/98................................... 22,141,503
--------------
370,163,913
--------------
</TABLE>
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The fund owns over 5% of the
outstanding voting shares of Strattec Security Corp. and Petroleum
Helicopters, Inc. with a cost basis of $4,202,147 and $2,392,500 re-
spectively at July 31, 1998. The Fund earned $7,000 of income from Pe-
troleum Helicopters, Inc. during the period ending July 31, 1998.
(a) Less than one-tenth of a percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
REIT Real Estate Investment Trust.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - CONTINUED
GOVERNMENT AGENCY NOTES & BONDS - 2.5%
$32,000,000 Federal Home Loan Mortgage Discount Notes
5.46%, 8/28/98.................................. $ 31,868,960
21,000,000 Federal National Mortgage Association Discount
Notes 5.44%, 8/14/98............................ 20,958,747
--------------
52,827,707
--------------
Total Short-Term Investments
(cost $422,991,620)............................. 422,991,620
--------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $1,747,884,736).................... 101.4% 2,177,972,651
OTHER ASSETS AND
LIABILITIES - NET........................ (1.4) (30,651,773)
----- --------------
NET ASSETS................................ 100.0% $2,147,320,878
===== ==============
</TABLE>
See Combined Notes to Financial Statements.
50
<PAGE>
EVERGREEN
Income and Growth
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 65.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.3%
175,900 Dana Corp. .......................................... $ 8,751,025
50,000 General Motors Corp. ................................ 3,615,625
------------
12,366,650
------------
BANKS - 15.5%
26,775 AmSouth Bancorp...................................... 1,062,633
100,000 Associated Banc Corp. ............................... 3,800,000
284,000 BancorpSouth, Inc. .................................. 5,573,500
170,100 Bankers Trust Corp. ................................. 19,061,831
192,500 +CB Bancshares, Inc. ................................ 6,833,750
24,850 CCB Financial Corp. ................................. 2,863,962
200,000 Commonwealth Bank of Australia....................... 2,497,442
77,606 F&M National Corp. .................................. 2,202,070
35,100 First American Corp. ................................ 1,649,700
300,300 First Hawaiian, Inc. ................................ 9,947,437
40,000 First Tennessee National Corp. ...................... 1,255,000
120,750 First Virginia Banks, Inc. .......................... 6,633,703
8,200 FirstMerit Corp. .................................... 240,363
100,000 Fleet Financial Group, Inc. ......................... 8,593,750
319,410 Interchange Financial Services Corp. ................ 6,348,274
100,000 KeyCorp ............................................. 3,400,000
18,271 M & T Bank Corp. .................................... 9,720,172
100,000 Marshall & Ilsley Corp. ............................. 5,618,750
77,346 Mercantile Bancorp, Inc. ............................ 4,205,689
153,000 Norwest Corp. ....................................... 5,498,437
15,625 One Valley Bancorp of West Virginia, Inc. ........... 528,320
50,326 Premier National Bancorp Inc. ....................... 1,056,846
79,254 Second Bancorp, Inc. ................................ 2,219,112
10,000 Summit Bancorp ...................................... 447,500
111,375 Susquehanna Bancshares, Inc. ........................ 2,505,938
228,772 Union Planters Corp. ................................ 12,468,074
7,000 United Bankshares, Inc. ............................. 194,250
107,320 USBancorp, Inc. ..................................... 8,236,810
1,930,402 Westpac Banking Corp., Ltd. ......................... 12,211,023
------------
146,874,336
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 2.4%
330,000 Armstrong World Industries,Inc. ..................... 20,336,250
37,100 La-Z-Boy Chair Co. .................................. 2,114,700
------------
22,450,950
------------
CAPITAL GOODS - 1.1%
221,500 Caterpillar, Inc. ................................... 10,742,750
------------
COMMUNICATION SYSTEMS &
SERVICES - 0.3%
51,641 *WorldCom, Inc. ..................................... 2,730,518
------------
CONSUMER PRODUCTS &
SERVICES - 0.6%
215,000 Tupperware Corp. .................................... 5,428,750
------------
DIVERSIFIED COMPANIES - 0.5%
225,000 Tomkins Plc, ADR..................................... 4,809,375
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
ELECTRICAL EQUIPMENT &
SERVICES - 1.4%
5,000 Hubbell, Inc. Cl. A.................................. $ 203,750
220,000 Hubbell, Inc. Cl. B.................................. 9,240,000
98,800 Thomas & Betts Corp. ................................ 4,050,800
------------
13,494,550
------------
FINANCE & INSURANCE - 3.7%
170,300 IPC Holdings Ltd. ................................... 4,512,950
100,000 LaSalle Re Holdings Ltd. ............................ 3,500,000
100,000 Mid Ocean Ltd. ...................................... 7,900,000
195,800 Ohio Casualty Corp. ................................. 8,345,975
110,000 Paine Webber Group, Inc. ............................ 5,183,750
143,200 Provident Co., Inc. ................................. 5,280,500
------------
34,723,175
------------
FOOD & BEVERAGE PRODUCTS - 0.2%
1,000 Sara Lee Corp. ...................................... 50,125
62,400 Sbarro, Inc. ........................................ 1,532,700
------------
1,582,825
------------
HEALTHCARE PRODUCTS &
SERVICES - 3.1%
53,000 *ADAC Laboratories................................... 1,444,250
70,000 American Home Products Corp. ........................ 3,605,000
175,000 Baxter International, Inc. .......................... 10,456,250
59,400 Bristol-Myers Squibb Co. ............................ 6,767,887
47,600 Merck & Co., Inc. ................................... 5,869,675
22,500 Shared Medical System Corp. ......................... 1,527,188
------------
29,670,250
------------
METAL PRODUCTS & SERVICES - 0.3%
200,601 Freeport McMoRan Copper & Gold, Inc. Cl. A........... 2,846,027
------------
OIL/ENERGY - 1.7%
100,000 Atlantic Richfield Co. .............................. 6,775,000
26,100 Consolidated Natural Gas Co. ........................ 1,349,044
293,100 Equitable Resources, Inc. ........................... 7,217,588
10,000 National Fuel Gas Co. ............................... 413,125
5,929 *Santa Fe Energy Resources, Inc. .................... 52,249
------------
15,807,006
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.1%
50,000 Reader's Digest Association, Inc. (The).............. 1,412,500
------------
REAL ESTATE - 7.4%
55,000 Burnham Pacific Properties, Inc. REIT................ 759,687
1,000,000 Canadian Hotel Properties REIT....................... 7,280,429
324,900 Equity Residential Properties Trust REIT............. 13,645,800
412,700 Gables Residential Trust REIT........................ 11,065,519
462,000 Kranzco Realty Trust REIT............................ 8,316,000
850,000 Meditrust Co. REIT................................... 19,125,000
260,050 Post Property, Inc. REIT............................. 10,320,734
------------
70,513,169
------------
</TABLE>
51
<PAGE>
EVERGREEN
Income and Growth
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
RETAILING & WHOLESALE - 0.8%
100,000 Mercantile Stores Co., Inc. ......................... $ 7,931,250
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.1%
2,003,000 Telecom Corp. New Zealand Ltd. ...................... 39,308,875
------------
THRIFT INSTITUTIONS - 0.4%
56,000 First Essex Bancorp, Inc. ........................... 1,211,000
122,000 +Jacksonville Bancorp, Inc. ......................... 2,211,250
10,430 Peoples Heritage Financial Group..................... 235,979
------------
3,658,229
------------
TRANSPORTATION - 1.1%
260,000 Union Pacific Corp. ................................. 10,920,000
------------
UTILITIES - ELECTRIC - 7.9%
10,650 Black Hills Corp. ................................... 255,600
100,000 Central & South West Corp. .......................... 2,543,750
6,500 Central Hudson Gas & Electric Corp. ................. 280,313
239,000 FPL Group, Inc. ..................................... 14,534,187
100,000 Houston Industries, Inc. ............................ 2,793,750
123,826 Interstate Energy Corp. ............................. 3,629,650
695,524 LG & E Energy Corp. ................................. 16,953,397
180,000 MDU Resources Group, Inc. ........................... 4,083,750
250,000 Midamerican Energy Holdings Co....................... 5,093,750
301,500 PP&L Resources, Inc. ................................ 6,991,031
275,000 Public Service Enterprise Group, Inc. ............... 8,989,063
101,300 Texas Utilities Co. ................................. 4,058,331
150,200 TNP Enterprises, Inc. ............................... 4,843,950
------------
75,050,522
------------
UTILITIES - GAS - 5.7%
73,300 Chesapeake Utilities Corp. .......................... 1,273,588
1,035,848 Marketspan Corp. .................................... 28,550,560
76,700 New Jersey Resources Corp. .......................... 2,626,975
510,700 Peoples Energy Corp. ................................ 17,874,500
29,300 Piedmont Natural Gas Co., Inc. ...................... 853,363
10,000 South Jersey Industries, Inc. ....................... 258,125
93,685 UGI Corp. ........................................... 2,201,597
8,300 Yankee Energy System, Inc. .......................... 199,719
------------
53,838,427
------------
UTILITIES - TELEPHONE - 2.6%
105,100 Frontier Corp. ...................................... 3,527,419
250,000 GTE Corp. ........................................... 13,593,750
100,000 *Nortel Inversora SA MEDS............................ 6,250,000
20,000 U.S. West, Inc. ..................................... 1,067,500
------------
24,438,669
------------
OTHER SECURITIES - 3.5%.............................. 33,915,403
------------
Total Common Stocks
(cost $568,548,771)................................. 624,514,206
------------
CONVERTIBLE PREFERRED - 30.1%
BANKS - 0.6%
210,000 National Australia Bank, Ltd.
7.875%, Series UNIT................................. 6,168,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.5%
485,000 Merrill Lynch & Co., Inc.
6.25%, Series IGL, STRYPES (exchangeable for IMC
Global, Inc. common stock)......................... $ 14,065,000
------------
COMMUNICATION SYSTEMS & SERVICES - 3.6%
700,000 AirTouch Communications, Inc.
6.00%, Series B.................................... 33,950,000
------------
CONSUMER PRODUCTS &
SERVICES - 1.0%
302,000 Cendant Corp.
7.50%, PRIDES...................................... 9,928,250
------------
DIVERSIFIED COMPANIES - 0.2%
35,000 Corning, Inc.
6.00%, MIPS........................................ 1,850,625
------------
ELECTRICAL EQUIPMENT &
SERVICES - 0.7%
165,000 Pioneer Standard Financial Trust
6.75%, 144A........................................ 7,033,950
------------
FINANCE & INSURANCE - 3.1%
100,000 American General Corp.
6.00%, Series A, MIPS.............................. 8,650,000
270,000 Frontier Financing Trust
6.25%, TOPRS....................................... 14,512,500
100,000 St. Paul Capital
6.00%, MIPS........................................ 6,400,000
------------
29,562,500
------------
FOOD & BEVERAGE PRODUCTS - 4.1%
300,000 Dole Food Co.
7.00%, TRACES...................................... 12,750,000
495,300 Wendys Financing I
5.00%, Series A, TECONS............................ 26,374,725
------------
39,124,725
------------
LEISURE & TOURISM - 0.8%
170,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A................................ 7,299,800
------------
METAL PRODUCTS & SERVICES - 1.3%
212,800 Freeport McMoRan Copper & Gold, Inc. 7.00%, EDS..... 3,976,700
100,000 Timet Capital Trust I
6.625%, BUCS, 144A................................. 3,987,500
405,000 Worthington Industries, Inc.
7.25%, DECS
(exchangeable for Rouge Steel Co. common stock).... 4,252,500
------------
12,216,700
------------
OIL/ENERGY - 0.5%
95,000 Callon Petroleum Co.
8.50%, Series A.................................... 2,992,500
48,000 Nuevo Energy Co.
5.75%, Series A, TECONS............................ 2,040,000
------------
5,032,500
------------
</TABLE>
52
<PAGE>
EVERGREEN
Income and Growth Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
OIL FIELD SERVICES - 0.8%
100,000 EVI, Inc.
5.00%, 144A........................................ $ 3,725,000
100,000 Hvide Capital Trust
6.50%, 144A........................................ 3,963,000
------------
7,688,000
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 2.8%
335,000 Houston Industries, Inc.
7.00%, ACES
(exchangeable for Time Warner, Inc. common stock).. 26,213,750
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 3.3%
600,000 Qualcomm Financial Trust I
5.75%.............................................. 31,164,000
------------
TRANSPORTATION - 1.5%
30,000 CNF Trust I
5.00%, Ser. A, TECONS (exchangeable for CNF
Transportation, Inc. common stock)................. 1,890,000
280,000 Union Pacific Capital Trust
6.25%, 144A........................................ 12,740,000
------------
14,630,000
------------
UTILITIES - ELECTRIC - 1.3%
168,000 BNDES Participacoes S.A.
10.50%, DECS
(exchangeable into Electrobras shares)............. 5,460,000
130,000 Texas Utilities Co.
9.25%, PRIDES...................................... 6,613,750
------------
12,073,750
------------
UTILITIES - GAS - 1.5%
594,500 MCN Corp.
8.75%, PRIDES...................................... 13,784,969
------------
UTILITIES - TELEPHONE - 1.5%
315,000 Philippine Long Distance Telephone Co., GDS
7.00%, Series III.................................. 14,529,375
------------
Total Convertible Preferred
(cost $290,318,758)................................ 286,316,644
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C> <C>
BUSINESS EQUIPMENT &
CONVERTIBLE SERVICES - 0.7%DEBENTURES - 3.3%
HMT Technology Corp.:
$3,500,000 5.75%, 1/15/04, 144A............................. $ 2,590,000
400,000 5.75%, 1/15/04................................... 296,000
4,000,000 Quantum Corp.
7.00%, 8/1/04................................... 3,720,000
250,000 Tecnomatix Technologies Ltd.
5.25%, 2/15/98, 144A............................ 185,938
------------
6,791,938
------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.2%
9,700,000 Photronics, Inc.
6.00%, 6/1/04................................... 9,372,625
1,000,000 Sci Systems, Inc.
5.00%, 5/1/06, 144A............................. 1,670,000
------------
11,042,625
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.2%
1,000,000 Solectron Corp.
6.00%, 3/1/06, 144A............................. 1,515,000
------------
OIL/ENERGY - 0.1%
1,318,000 Swift Energy Co.
6.25%, 11/15/06................................. 1,166,430
------------
OIL FIELD SERVICES - 1.1%
Key Energy Group, Inc.:
5,750,000 5.00%, 9/15/04, 144A............................. 4,111,250
1,250,000 7.00%, 7/1/03, 144A.............................. 1,431,250
Offshore Logistics, Inc.:
3,775,000 6.00%, 12/15/03, 144A............................ 3,218,187
2,000,000 6.00%, 12/15/03.................................. 1,705,000
------------
10,465,687
------------
Total Convertible Debentures
(cost $35,128,220).............................. 30,981,680
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $893,995,749).......................... 99.1% 941,812,530
OTHER ASSETS AND LIABILITIES - NET............ 0.9 8,841,297
----- ------------
NET ASSETS.................................... 100.0% $950,653,827
===== ============
</TABLE>
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The Fund owns over 5% of the out-
standing voting shares of CB Bancshares, Inc. and Jacksonville Bancorp, Inc.
The Fund has a cost basis of $6,024,625 and $1,320,000, respectively, in
these issues at July 31, 1998. The Fund earned $40,425 and $60,500 of income,
respectively, from these investments during the period ending July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified institu-
tional investors.
SUMMARY OF ABBREVIATIONS:
ACESAutomatically Convertible Equity Securities
ADRAmerican Depository Receipts
BUCSBeneficial Unsecured Convertible Securities
CRESTSConvertible Redeemable Equity Structured Trust Securities
DECSDividend Enhanced Convertible Stock
EDSExchangeable Depository Shares
GDSGlobal Depository Shares
MIPSMonthly Income Preferred Shares
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
STRYPESStructured Yield Product Exchangeable for Stock
TECONSTerm Convertible Shares
TOPRSTrust Originated Preferred Securities
TRACESTrust Automatic Common Exchangeable Securities
See Combined Notes to Financial Statements.
53
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 69.3%
AEROSPACE & DEFENSE - 3.0%
214,300 Curtiss Wright Corp. ................................ $ 9,094,356
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 0.2%
53,200 Simpson Industries, Inc. ............................ 635,075
------------
BANKS - 6.6%
108,750 ABC Bancorp.......................................... 1,631,250
31,500 Amcore Financial, Inc. .............................. 803,250
6,000 BancorpSouth, Inc. .................................. 117,750
20,000 Bank of Essex........................................ 433,750
18,800 Britton & Koontz Capital Corp. ...................... 411,250
28,800 BSB Bancorp, Inc. ................................... 936,000
2,625 Carrollton Bancorp................................... 97,125
25,000 CB Bancshares, Inc. ................................. 887,500
32,550 Commercial Bankshares, Inc. ......................... 748,650
8,200 Community Bancshares, Inc. .......................... 221,400
40,000 Cowlitz Bancorp...................................... 430,000
2,500 First Midwest Bancorp, Inc. ......................... 103,750
30,000 First Oak Brook Bancshares, Inc. Cl. A............... 1,282,500
95,552 First State Bancorp.................................. 2,161,864
162,000 Granite State Bankshares, Inc. ...................... 4,212,000
30,000 Independent Bankshares, Inc. ........................ 460,312
20,943 Interchange Financial Services Corp. ................ 416,242
15,000 James River Bankshares, Inc. ........................ 330,000
4,000 Northern States Financial Corp. ..................... 127,000
87,125 One Valley Bancorp of West Virginia, Inc. ........... 2,945,914
4,668 Pacific Century Financial Corp. ..................... 91,610
14,620 Premier National Bancorp Inc. ....................... 307,020
24,000 South Alabama Bancorp, Inc. ......................... 474,000
11,250 Susquehanna Bancshares, Inc. ........................ 253,125
23,200 Union Bankshares Corp. .............................. 504,600
------------
20,387,862
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 2.2%
28,000 La-Z-Boy Chair Co. .................................. 1,596,000
315,100 Shelby Williams Industries, Inc. .................... 4,726,500
12,413 *Toll Brothers, Inc. ................................ 325,065
------------
6,647,565
------------
BUSINESS EQUIPMENT &
SERVICES - 0.7%
169,400 Tab Products Co. .................................... 1,990,450
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 0.9%
95,000 Learonal, Inc. ...................................... 1,941,563
25,500 Stepan Co. .......................................... 733,125
------------
2,674,688
------------
CONSUMER PRODUCTS &
SERVICES - 9.3%
311,500 CPI Corp. ........................................... 7,787,500
85,500 General Housewares Corp. ............................ 881,719
230,140 +Knape & Vogt Manufacturing Co. ..................... 5,005,545
100,000 Mikasa, Inc. Cl. B................................... 1,318,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
CONSUMER PRODUCTS &
SERVICES - CONTINUED
100,000 Polaris Industries, Inc. ............................ $ 3,812,500
26,300 Russ Berrie & Co., Inc. ............................. 604,900
310,000 Stride Rite Corp. ................................... 3,758,750
328,600 York Group, Inc. .................................... 5,504,050
------------
28,673,714
------------
DIVERSIFIED COMPANIES - 2.7%
379,000 Matthews International Corp. Cl. A................... 8,338,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 2.9%
225,800 Boston Acoustics, Inc. .............................. 9,032,000
------------
FINANCE & INSURANCE - 2.4%
26,600 Arthur J. Gallagher & Co. ........................... 1,042,387
5,000 LaSalle Re Holdings Ltd. ............................ 175,000
100,000 Morgan Keegan, Inc. ................................. 2,368,750
122,500 Pxre Corp. .......................................... 3,307,500
16,000 Trenwick Group, Inc. ................................ 556,000
------------
7,449,637
------------
FOOD & BEVERAGE PRODUCTS - 0.7%
101,000 Bridgford Foods Corp. ............................... 1,325,625
20,000 Lance, Inc. ......................................... 378,125
78,800 Smithfield Companies, Inc. .......................... 566,375
------------
2,270,125
------------
HEALTHCARE PRODUCTS &
SERVICES - 0.7%
9,500 Kewaunee Scientific Corp. ........................... 108,656
73,500 West Co., Inc. ...................................... 2,044,219
------------
2,152,875
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 3.3%
50,000 Badger Meter, Inc. .................................. 1,671,875
100,000 Federal Signal Corp. ................................ 2,268,750
72,297 Flowserve Corp. ..................................... 1,576,978
84,100 Gorman Rupp Co. ..................................... 1,503,287
63,000 Hach Co. ............................................ 637,875
57,000 Hach Co. Cl. A....................................... 570,000
18,700 Met-Pro Corp. ....................................... 240,763
55,800 Minuteman International, Inc. ....................... 641,700
46,400 Spartech Corp. ...................................... 881,600
8,000 Woodward Governor Co. ............................... 216,000
------------
10,208,828
------------
MACHINERY - DIVERSIFIED - 2.1%
252,750 Hardinge Brothers, Inc. ............................. 6,381,938
------------
OIL/ENERGY - 5.2%
205,800 Berry Petroleum Co. Cl. A............................ 2,366,700
235,500 Cabot Oil & Gas Corp. Cl. A.......................... 4,032,937
155,600 Penn Virginia Corp. ................................. 3,559,350
123,000 Quaker State Corp. .................................. 1,891,125
370,000 Southwestern Energy Co. ............................. 3,330,000
67,600 Wiser Oil Co. ....................................... 637,975
------------
15,818,087
------------
</TABLE>
54
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - 1.4%
146,200 Lufkin Industries, Inc. ............................. $ 4,322,038
------------
PAPER & PACKAGING - 0.5%
102,450 Tuscarora, Inc. ..................................... 1,626,394
------------
REAL ESTATE - 4.3%
86,291 Bradley Real Estate, Inc. REIT....................... 1,839,077
160,000 Eastgroup Properties, Inc. REIT...................... 3,000,000
95,000 Gables Residential Trust REIT........................ 2,547,187
60,000 Innkeepers USA Trust REIT............................ 731,250
90,000 Parkway Properties, Inc. REIT........................ 2,677,500
47,540 Post Property, Inc. REIT............................. 1,886,744
50,000 Sunstone Hotel Investors, Inc. REIT.................. 556,250
------------
13,238,008
------------
RETAILING & WHOLESALE - 0.1%
6,800 Longs Drug Stores Corp. ............................. 187,850
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.2%
250,000 Communications Systems, Inc. ........................ 3,375,000
126,000 Rohn Industries, Inc. ............................... 433,125
------------
3,808,125
------------
TEXTILE & APPAREL - 1.6%
88,000 Oxford Industries, Inc. ............................. 2,645,500
143,200 Superior Uniform Group, Inc. ........................ 2,148,000
------------
4,793,500
------------
THRIFT INSTITUTIONS - 4.3%
72,000 Dime Financial Corp. ................................ 2,421,000
92,000 First Coastal Bankshares, Inc. ...................... 1,472,000
6,000 First Essex Bancorp, Inc. ........................... 129,750
16,000 First Palm Beach Bancorp, Inc. ...................... 676,000
16,800 *Golden St. Bancorp, Inc. ........................... 463,050
261,900 Horizon Financial Corp. ............................. 4,124,925
38,000 Jacksonville Bancorp, Inc. .......................... 688,750
24,000 Maryland Federal Bancorp, Inc. ...................... 996,000
100,000 St. Paul Bancorp, Inc. .............................. 2,250,000
------------
13,221,475
------------
UTILITIES - ELECTRIC - 2.3%
13,100 Central Hudson Gas & Electric Corp. ................. 564,938
124,100 Madison Gas & Electric Co. .......................... 2,761,225
135,000 MDU Resources Group, Inc. ........................... 3,062,812
26,000 Northwestern Corp. .................................. 646,750
------------
7,035,725
------------
UTILITIES - GAS - 5.9%
34,200 Chesapeake Utilities Corp. .......................... 594,225
30,000 Connecticut Energy Corp. ............................ 768,750
80,000 CTG Resources, Inc. ................................. 1,855,000
64,800 Delta Natural Gas Co., Inc. ......................... 1,125,900
40,000 Eastern Enterprises.................................. 1,597,500
27,400 NUI Corp. ........................................... 606,225
76,600 Public Service Co. of North Carolina, Inc. .......... 1,532,000
200,100 Semco Energy, Inc. .................................. 3,464,231
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - GAS - CONTINUED
56,000 Southwest Gas Corp. ................................ $ 1,302,000
165,500 UGI Corp. .......................................... 3,889,250
50,000 Yankee Energy System, Inc. ......................... 1,203,125
------------
17,938,206
------------
UTILITIES - TELEPHONE - 1.2%
78,300 Hickory Tech Corp. ................................. 3,650,738
------------
OTHER SECURITIES - 3.6%............................. 11,126,751
------------
Total Common Stocks
(cost $212,015,803)................................ 212,704,010
------------
CONVERTIBLE PREFERRED - 12.0%
ELECTRICAL EQUIPMENT &
SERVICES - 1.5%
110,000 Pioneer Standard Financial Trust
6.75%, 144A........................................ 4,689,300
------------
FINANCE & INSURANCE - 2.1%
12,000 American Heritage Life Investment Corp.
8.50%, PRIDES...................................... 828,000
80,000 Frontier Financing Trust
6.25%, TOPRS....................................... 4,300,000
125,000 Philadelphia Consolidated Holdings, Inc.
7.00%, PRIDES...................................... 1,218,750
------------
6,346,750
------------
HEALTHCARE PRODUCTS &
SERVICES - 2.2%
170,000 Owens & Minor Trust I
5.375%, TECONS, 144A............................... 6,885,000
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 1.5%
300,000 Cooper Industries, Inc.
6.00%, DECS
(exchangeable for Wyman-Gordon Co. common stock)... 4,500,000
------------
LEISURE & TOURISM - 1.8%
130,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A................................ 5,582,200
------------
METAL PRODUCTS & SERVICES - 0.8%
239,000 Worthington Industries, Inc.
7.25%, DECS
(exchangeable for Rouge Steel Co. common stock).... 2,509,500
------------
OIL/ENERGY - 0.3%
26,000 Callon Petroleum Co.
8.50%, Series A.................................... 819,000
------------
OIL FIELD SERVICES - 1.8%
Hvide Capital Trust:
40,000 6.50%, 144A......................................... 1,585,200
7,000 6.50% Series AI..................................... 277,410
90,000 6.50%............................................... 3,566,700
------------
5,429,310
------------
Total Convertible Preferred
(cost $44,461,012)................................. 36,761,060
------------
</TABLE>
55
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 13.8%
BANKS - 0.4%
$1,350,000 Surety Capital Corp.
9.00%, 3/31/08...................................... $ 1,350,000
------------
BUILDING, CONSTRUCTION & FURNISHINGS - 1.1%
2,500,000 Eagle Hardware & Garden, Inc.
6.25%, 3/15/01...................................... 3,284,375
------------
BUSINESS EQUIPMENT &
SERVICES - 1.7%
2,600,000 HMT Technology Corp.
5.75%, 1/15/04...................................... 1,924,000
1,250,000 Interim Services, Inc.
4.50%, 6/1/05....................................... 1,245,312
200,000 Personnel Group Of America, Inc.
5.75%, 7/1/04....................................... 250,000
Tecnomatix Technologies Ltd.:
500,000 5.25%, 8/15/04, 144A................................. 371,875
2,000,000 5.25%, 8/15/04....................................... 1,487,500
------------
5,278,687
------------
CONSUMER PRODUCTS &
SERVICES - 1.2%
4,000,000 Action Performance Companies, Inc.
4.75%, 4/1/05, 144A................................. 3,670,000
------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.4%
4,550,000 Photronics, Inc.
6.00%, 6/1/04....................................... 4,396,438
------------
HEALTHCARE PRODUCTS &
SERVICES - 1.9%
5,000,000 Alpharma, Inc.
5.75%, 4/1/05, 144A................................. 5,206,500
480,000 Meridian Diagnostics, Inc.
7.00%, 9/1/06....................................... 453,600
------------
5,660,100
------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.2%
610,000 Robbins & Myers, Inc.
6.50%, 9/1/03....................................... 724,375
------------
INFORMATION SERVICES & TECHNOLOGY - 0.2%
500,000 May & Speh, Inc.
5.25%, 4/1/03....................................... 684,375
------------
LEISURE & TOURISM - 2.0%
2,400,000 Family Golf Centers, Inc.
5.75%, 10/15/04, 144A............................... 2,877,000
3,370,000 Speedway Motorsports, Inc.
5.75%, 9/30/03...................................... 3,395,275
------------
6,272,275
------------
OIL FIELD SERVICES - 2.8%
Key Energy Group, Inc.:
3,250,000 5.00%, 9/15/04, 144A................................. 2,323,750
250,000 7.00%, 7/1/03, 144A.................................. 286,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - CONTINUED
OIL FIELD SERVICES - CONTINUED
Offshore Logistics, Inc.:
$1,425,000 6.00%, 12/15/03, 144A................................ $ 1,214,812
1,750,000 6.00%, 12/15/03...................................... 1,491,875
3,000,000 Seacor Holdings, Inc.
5.375%, 11/15/06.................................... 3,120,000
------------
8,436,687
------------
RETAILING & WHOLESALE - 0.9%
Central Garden & Pet Co.:
500,000 6.00%, 11/15/03, 144A................................ 554,375
2,000,000 6.00%, 11/15/03...................................... 2,217,500
------------
2,771,875
------------
Total Convertible Debentures
(cost $45,859,373).................................. 42,529,187
------------
SHORT-TERM INVESTMENTS - 5.7%
COMMERCIAL PAPER - 3.6%
450,000 Aristar, Inc.
5.60%, 8/13/98...................................... 449,160
640,000 Avnet, Inc.
5.52%, 8/19/98...................................... 638,234
2,960,000 BTR Dunlop Finance, Inc.
5.53%, 8/10/98...................................... 2,955,908
1,990,000 Dollar Thrifty Funding Corp.
5.54%, 8/11/98...................................... 1,986,938
850,000 Glencore Asset Funding Corp.
5.55%, 8/6/98....................................... 849,345
315,000 Newell Co.
5.55%, 8/31/98...................................... 313,543
1,580,000 Park Avenue Recreation Corp.
5.55%, 8/3/98....................................... 1,579,513
1,780,000 PHH Corp.
5.70%, 8/21/98...................................... 1,774,363
450,000 Twin Towers, Inc.
5.54%, 8/7/98....................................... 449,584
------------
10,996,588
------------
GOVERNMENT AGENCY NOTES & BONDS - 2.1%
Federal Home Loan Mortgage Discount Notes:
3,460,000 5.45%, 8/27/98....................................... 3,446,381
615,000 5.48%, 8/21/98....................................... 613,128
2,350,000 5.48%, 8/31/98....................................... 2,339,268
------------
6,398,777
------------
Total Short-Term Investments
(cost $17,395,365).................................. 17,395,365
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $319,731,553)......................... 100.8% 309,389,622
OTHER ASSETS AND
LIABILITIES - NET........................... (0.8) (2,303,539)
----- ------------
NET ASSETS................................... 100.0% $307,086,083
===== ============
</TABLE>
56
<PAGE>
EVERGREEN
Small Cap Equity Income Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
* Non-income producing securities.
+ Investment in a non-controlled affiliate. The fund owns over 5% of the
outstanding voting shares of Knape & Vogt Manufacturing Co. The Fund
has a cost basis of $4,805,148 in the issue at July 31, 1998. The Fund
earned $100,224 of income from this investment during the period ending
July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified insti-
tutional investors.
SUMMARY OF ABBREVIATIONS:
CRESTSConvertible Redeemable Equity Structured Trust Securities
DECSDividend Enhanced Convertible Stock
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
TECONSTerm Convertible Shares
TOPRSTrust Originated Preferred Securities
See Combined Notes to Financial Statements.
57
<PAGE>
EVERGREEN
Utility Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 70.3%
BANKS - 2.1%
35,000 Fleet Financial Group, Inc. ......................... $ 3,007,813
------------
INFORMATION SERVICES &
TECHNOLOGY - 1.9%
75,000 *Altera Corp. ....................................... 2,735,156
------------
OIL/ENERGY - 2.6%
70,000 Enron Corp. ......................................... 3,705,625
------------
OIL FIELD SERVICES - 1.8%
150,000 *R & B Falcon Corp. ................................. 2,465,625
------------
REAL ESTATE - 2.8%
145,000 Felcor Lodging Trust Inc. REIT....................... 4,005,625
------------
UTILITIES - ELECTRIC - 44.8%
100,000 Central Hudson Gas & Electric Corp. ................. 4,312,500
100,000 Cinergy Corp. ....................................... 3,156,250
70,000 Duke Power Co. ...................................... 3,998,750
100,000 Energy East Corp. ................................... 4,000,000
170,000 Houston Industries, Inc. ............................ 4,749,375
125,000 Interstate Energy Corp. ............................. 3,664,063
180,000 Marketspan Corp. .................................... 4,961,250
165,000 MDU Resources Group, Inc. ........................... 3,743,437
80,000 New Century Energies, Inc. .......................... 3,330,000
60,000 NIPSCO Industries, Inc. ............................. 1,597,500
100,000 Pinnacle West Capital Corp. ......................... 4,275,000
150,000 PP&L Resources, Inc. ................................ 3,478,125
100,000 Public Service Enterprise Group, Inc. ............... 3,268,750
150,000 *Sempra Energy....................................... 3,778,125
140,000 Teco Energy Inc. .................................... 3,552,500
100,000 UtiliCorp United, Inc. .............................. 3,525,000
135,000 Wisconsin Energy Corp. .............................. 3,839,062
------------
63,229,687
------------
UTILITIES - GAS - 2.9%
75,000 Northwest Natural Gas Co. ........................... 1,968,750
60,000 Peoples Energy Corp. ................................ 2,100,000
------------
4,068,750
------------
UTILITIES - TELEPHONE - 11.4%
55,000 BellSouth Corp. ..................................... 3,757,188
70,000 GTE Corp. ........................................... 3,806,250
60,000 Sprint Corp. ........................................ 4,200,000
80,000 U.S. West, Inc. ..................................... 4,270,000
------------
16,033,438
------------
Total Common Stocks
(cost $85,025,361).................................. 99,251,719
------------
CONVERTIBLE PREFERRED - 25.8%
COMMUNICATION SYSTEMS &
SERVICES - 3.3%
95,000 AirTouch Communications, Inc.
6.00%, Series B..................................... 4,607,500
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - CONTINUED
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 2.8%
50,000 Houston Industries Inc.
7.00%, ACES
(exchangeable for Time Warner common stock)........ $ 3,912,500
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 2.6%
70,000 Qualcomm Financial Trust I
5.75%.............................................. 3,675,000
------------
UTILITIES - ELECTRIC - 11.9%
50,000 AES Trust I
5.375%, Series A, TECONS........................... 3,440,625
135,000 BNDES Participacoes S.A.
BNDESPAR, DECS (Eletrobras)........................ 4,387,500
500,000 Companhia Paranaense de
Energia-Copel, Plc, ADR............................ 5,437,500
70,000 Texas Utilities Co.
9.25%, PRIDES...................................... 3,561,250
------------
16,826,875
------------
UTILITIES - GAS - 2.2%
70,000 MCN Financing III
8.00%, PRIDES...................................... 3,158,750
------------
UTILITIES - TELEPHONE - 3.0%
70,000 Sprint Corp.
8.25%, DECS
(exchangeable for Southern N.E. Telephone common
stock)............................................. 4,307,187
------------
Total Convertible Preferred
(cost $33,061,261)................................. 36,487,812
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 2.1%
INFORMATION SERVICES & TECHNOLOGY - 2.1%
$4,000,000 Adaptec, Inc.
4.75%, 2/1/04...................................... 3,050,000
------------
Total Convertible Debentures
(cost $3,530,000).................................. 3,050,000
------------
TOTAL LONG-TERM INVESTMENTS
(COST $121,616,622)................................ 138,789,531
------------
REPURCHASE AGREEMENT - 0.2%
254,895 Donaldson, Lufkin & Jenrette Securities Corp.,
5.62%, purchased 7/31/98, maturing 8/3/98, maturity
value $255,014 (cost $254,895) (a)................. 254,895
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $121,871,517).......................... 98.4% 139,044,426
OTHER ASSETS AND LIABILITIES - NET............ 1.6 2,211,887
----- ------------
NET ASSETS.................................... 100.0% $141,256,313
===== ============
</TABLE>
58
<PAGE>
EVERGREEN
Utility Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
* Non-income producing securities.
(a) At July 31, 1998, the repurchase agreement was collateralized by:
$260,000 U.S. Treasury Bond, 3.625%, 4/15/28; value including inter-
est - $255,763.
SUMMARY OF ABBREVIATIONS:
ACESAutomatically Convertible Equity Securities
ADRAmerican Depository Receipt
DECSDividend Enhanced Convertible Stock
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
TECONSTerm Convertible Shares
See Combined Notes to Financial Statements.
59
<PAGE>
EVERGREEN
Value Fund
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 90.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.6%
106,900 Ford Motor Co. .................................. $ 6,086,619
--------------
BANKS - 19.3%
77,220 Banc One Corp. .................................. 3,991,309
122,600 BankAmerica Corp. ............................... 11,003,350
430,600 BankBoston Corp. ................................ 20,830,275
84,800 Bankers Trust Corp. ............................. 9,502,900
102,200 Chase Manhattan Corp. ........................... 7,728,875
47,000 Citicorp......................................... 7,990,000
248,200 First Chicago NBD Corp. ......................... 20,802,262
457,400 First Tennessee National Corp. .................. 14,350,925
336,725 Fleet Financial Group, Inc. ..................... 28,937,305
244,056 NationsBank Corp. ............................... 19,463,466
185,700 SouthTrust Corp. ................................ 7,509,244
328,500 TCF Financial Corp. ............................. 9,485,438
107,600 Union Planters Corp. ............................ 5,864,200
271,300 Wachovia Corp. .................................. 23,230,062
--------------
190,689,611
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.1%
10,000 Lucent Technologies, Inc. ....................... 924,375
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.6%
6,100 Du Pont (E. I.) De Nemours & Co. ................ 378,200
635,000 Morton International, Inc. ...................... 15,359,063
--------------
15,737,263
--------------
COMMUNICATION SYSTEMS &
SERVICES - 1.9%
200,350 *Cisco Systems, Inc. ............................ 19,183,512
--------------
CONSUMER PRODUCTS &
SERVICES - 1.2%
104,100 Colgate-Palmolive Co. ........................... 9,622,744
18,200 Gillette Co. .................................... 953,225
16,800 Procter & Gamble Co. ............................ 1,333,500
--------------
11,909,469
--------------
DIVERSIFIED COMPANIES - 2.0%
156,100 AlliedSignal, Inc. .............................. 6,790,350
212,000 Tyco International Ltd. ......................... 13,130,750
--------------
19,921,100
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 5.2%
383,700 General Electric Co. ............................ 34,269,206
10,200 *LSI Logic....................................... 211,012
295,100 Tandy Corp. ..................................... 16,765,369
--------------
51,245,587
--------------
FINANCE & INSURANCE - 10.3%
296,000 Allstate Corp. .................................. 12,561,500
13,100 American General Corp. .......................... 894,894
70,800 American International Group, Inc. .............. 10,677,525
94,507 Associates First Capital Corp.
Cl. A........................................... 7,342,013
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
FINANCE & INSURANCE - CONTINUED
8,000 Chubb Corp. ..................................... $ 587,000
348,400 CIT Group, Inc. ................................. 11,540,750
30,200 Federal Home Loan Mortgage Corp. ................ 1,426,950
158,700 Federal National Mortgage Association............ 9,839,400
196,000 Greenpoint Financial Corp. ...................... 7,778,750
2,600 Lincoln National Corp. .......................... 248,950
145,700 MBIA, Inc. ...................................... 9,816,537
21,200 Morgan Stanley, Dean Witter, Discover & Co. ..... 1,845,725
237,100 ReliaStar Financial Corp. ....................... 11,766,087
83,950 Travelers Group, Inc. ........................... 5,624,650
242,200 Travelers Property Casualty Corp. Cl. A.......... 10,475,150
--------------
102,425,881
--------------
FOOD & BEVERAGE
PRODUCTS - 6.4%
377,200 American Stores Co. ............................. 8,746,325
550,200 Archer Daniels Midland Co. ...................... 9,422,175
131,300 Coca Cola Co. ................................... 10,594,269
444,200 Fortune Brands, Inc. ............................ 16,407,637
292,300 Philip Morris Companies, Inc. ................... 12,806,394
115,700 Sara Lee Corp. .................................. 5,799,462
--------------
63,776,262
--------------
HEALTHCARE PRODUCTS &
SERVICES - 13.0%
20,000 Abbott Laboratories.............................. 831,250
237,800 American Home Products Corp. .................... 12,246,700
212,800 Bristol-Myers Squibb Co. ........................ 24,245,900
197,800 HBO & Co. ....................................... 5,828,919
380,600 *HEALTHSOUTH Corp. .............................. 9,562,575
244,900 Johnson & Johnson................................ 18,918,525
25,800 Lilly (Eli) & Co. ............................... 1,735,050
129,500 Merck & Co., Inc. ............................... 15,968,969
385,200 Pharmacia & Upjohn, Inc. ........................ 18,248,850
145,300 SmithKline Beecham Plc, ADR...................... 8,318,425
420,399 *Tenet Healthcare Corp. ......................... 12,585,695
--------------
128,490,858
--------------
INFORMATION SERVICES &
TECHNOLOGY - 7.1%
185,700 *American Power Conversion Corp. ................ 5,988,825
244,200 EMC Corp. ....................................... 11,965,800
256,100 *Gateway 2000, Inc. ............................. 13,829,400
18,000 Intel Corp. ..................................... 1,519,875
143,800 International Business Machines Corp. ........... 19,053,500
376,700 *Sun Microsystems, Inc. ......................... 17,799,075
--------------
70,156,475
--------------
LEISURE & TOURISM - 0.1%
30,600 Disney Walt Co. ................................. 1,053,788
--------------
OIL/ENERGY - 8.6%
150,800 Amoco Corp. ..................................... 6,295,900
</TABLE>
60
<PAGE>
EVERGREEN
Value Fund
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
OIL/ENERGY - CONTINUED
83,400 Atlantic Richfield Co. .......................... $ 5,650,350
233,300 Burlington Resources, Inc. ...................... 8,457,125
9,900 Chevron Corp. ................................... 817,988
36,700 Exxon Corp. ..................................... 2,573,588
145,900 Mobil Corp. ..................................... 10,176,525
161,500 Pennzoil Co. .................................... 7,267,500
45,700 Royal Dutch Petroleum Co. ....................... 2,330,700
343,100 Sonat, Inc. ..................................... 10,035,675
166,600 Texaco, Inc. .................................... 10,131,362
297,000 Unocal Corp. .................................... 9,726,750
353,400 Williams Companies, Inc. ........................ 11,330,887
--------------
84,794,350
--------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.1%
17,200 *Viacom, Inc. Cl. B.............................. 1,178,200
--------------
REAL ESTATE - 1.9%
455,300 Equity Residential Properties Trust REIT......... 19,122,600
--------------
RETAILING & WHOLESALE - 1.5%
299,900 Sears, Roebuck & Co. ............................ 15,219,925
--------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.4%
160,000 Nokia Corp. ADR.................................. 13,940,000
--------------
TEXTILE & APPAREL - 0.8%
160,900 V. F. Corp. ..................................... 7,572,356
--------------
TRANSPORTATION - 1.9%
143,900 Burlington Northern Santa Fe..................... 14,812,706
142,800 Norfolk Southern Corp. .......................... 4,266,150
--------------
19,078,856
--------------
</TABLE>
* Non-income producing securities.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - ELECTRIC - 2.5%
269,100 CMS Energy Corp. ................................ $ 11,352,656
58,400 GPU, Inc. ....................................... 2,087,800
412,700 Houston Industries, Inc. ........................ 11,529,806
--------------
24,970,262
--------------
UTILITIES - GAS - 1.4%
361,600 NICOR Inc. ...................................... 13,921,600
--------------
UTILITIES - TELEPHONE - 1.8%
211,900 AT&T Corp. ...................................... 12,846,437
20,796 Bell Atlantic Corp. ............................. 943,619
30,300 BellSouth Corp. ................................. 2,069,869
25,500 MCI Communications Corp. ........................ 1,651,125
--------------
17,511,050
--------------
Total Common Stocks
(cost $683,255,436)............................. 898,909,999
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 10.3%
GOVERNMENT AGENCY NOTES &
BONDS - 10.3%
$102,239,000 Federal Home Loan Mortgage Discount Notes
5.56%, 8/3/98................................... 102,207,420
--------------
Total Short-Term Investments
(cost $102,207,419)............................. 102,207,420
--------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $785,462,855)..................... 101.0% 1,001,117,419
OTHER ASSETS AND LIABILITIES - NET....... (1.0) (10,295,053)
----- --------------
NET ASSETS............................... 100.0% $ 990,822,366
===== ==============
</TABLE>
See Combined Notes to Financial Statements.
61
<PAGE>
EVERGREEN
Fund for Total Return
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 81.7%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 4.4%
50,000 Chrysler Corp. ..................................... $ 2,959,375
50,000 Ford Motor Co. ..................................... 2,846,875
40,000 *Lear Corp. ........................................ 2,122,500
------------
7,928,750
------------
BANKS - 12.0%
55,000 Associated Banc Corp. .............................. 2,100,312
30,000 BankAmerica Corp. .................................. 2,692,500
80,000 BankBoston Corp. ................................... 3,870,000
30,000 Chase Manhattan Corp. .............................. 2,268,750
4,000 Citicorp............................................ 680,000
50,000 Firstar Corp. ...................................... 2,496,875
50,000 Fleet Financial Group, Inc. ........................ 4,296,875
110,000 TCF Financial Corp. ................................ 3,176,250
------------
21,581,562
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 5.0%
30,000 Du Pont (E. I.) De Nemours & Co. ................... 1,860,000
50,000 Monsanto Co. ....................................... 2,831,250
65,000 Morton International, Inc. ......................... 1,572,187
27,000 Rohm & Haas Co. .................................... 2,629,125
------------
8,892,562
------------
COMMUNICATION SYSTEMS &
SERVICES - 1.3%
25,000 *Cisco Systems, Inc. ............................... 2,394,531
------------
CONSUMER PRODUCTS &
SERVICES - 0.9%
20,000 Procter & Gamble Co. ............................... 1,587,500
------------
DIVERSIFIED COMPANIES - 3.0%
50,000 *Owens Illinois, Inc. .............................. 2,206,250
50,000 Tyco International Ltd. ............................ 3,096,875
------------
5,303,125
------------
ELECTRICAL EQUIPMENT &
SERVICES - 4.6%
60,000 General Electric Co. ............................... 5,358,750
60,000 *Solectron Corp. ................................... 2,880,000
------------
8,238,750
------------
FINANCE & INSURANCE - 7.5%
25,000 Hartford Life, Inc. Cl. A........................... 1,446,875
30,000 Lincoln National Corp. ............................. 2,872,500
50,000 Nationwide Financial Services, Inc. Cl. A........... 2,721,875
32,289 PMI Group, Inc. .................................... 2,187,580
35,000 SLM Holding Corp. .................................. 1,618,750
37,500 Travelers Group, Inc. .............................. 2,512,500
------------
13,360,080
------------
FOOD & BEVERAGE PRODUCTS - 2.9%
35,000 H.J. Heinz Co. ..................................... 1,929,375
75,000 Philip Morris Companies, Inc. ...................... 3,285,938
------------
5,215,313
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 12.0%
120,000 American Home Products Corp. ....................... $ 6,180,000
50,000 Bristol-Myers Squibb Co. ........................... 5,696,875
30,000 Johnson & Johnson................................... 2,317,500
40,000 Merck & Co., Inc. .................................. 4,932,500
50,000 Pharmacia & Upjohn, Inc. ........................... 2,368,750
------------
21,495,625
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 1.9%
50,000 Trinity Industries, Inc. ........................... 1,996,875
50,000 *United States Filter Corp. ........................ 1,350,000
------------
3,346,875
------------
INFORMATION SERVICES & TECHNOLOGY - 4.5%
50,000 *EMC Corp. ......................................... 2,450,000
30,000 Hewlett-Packard Co. ................................ 1,665,000
30,000 International Business Machines Corp. .............. 3,975,000
------------
8,090,000
------------
LEISURE & TOURISM - 1.2%
56,900 Carnival, Corp. Cl. A............................... 2,101,744
------------
OIL/ENERGY - 5.3%
74,000 Anadarko Petroleum Corp. ........................... 2,539,125
20,000 Exxon Corp. ........................................ 1,402,500
24,000 Mobil Corp. ........................................ 1,674,000
24,000 Texaco, Inc. ....................................... 1,459,500
75,000 Unocal Corp. ....................................... 2,456,250
------------
9,531,375
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 0.9%
50,000 CBS Corp. .......................................... 1,696,875
------------
REAL ESTATE - 5.9%
40,000 Boston Properties, Inc. REIT........................ 1,292,500
50,000 Equity Office Properties Trust REIT................. 1,243,750
25,000 Equity Residential Properties Trust REIT............ 1,050,000
36,000 First Industrial Realty Trust, Inc. REIT............ 994,500
140,000 Indymac Mortgage Holdings, Inc. REIT................ 2,948,750
44,999 Patriot American Hospitality, Inc. REIT............. 854,981
49,000 Prentiss Properties Trust REIT...................... 1,166,812
30,000 Spieker Properties, Inc. REIT....................... 1,078,125
------------
10,629,418
------------
RETAILING & WHOLESALE - 3.3%
50,000 *Costco Companies, Inc. ............................ 2,839,063
50,000 Wal-Mart Stores, Inc. .............................. 3,156,250
------------
5,995,313
------------
</TABLE>
62
<PAGE>
EVERGREEN
Fund for Total Return
SCHEDULE OF INVESTMENTS(continued)
July 31, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - 5.1%
40,000 Ameritech Corp. .................................... $ 1,967,500
39,290 AT&T Corp. ......................................... 2,381,956
40,000 GTE Corp. .......................................... 2,175,000
50,000 U.S. West, Inc. .................................... 2,668,750
------------
9,193,206
------------
Total Common Stocks
(cost $105,987,328)................................ 146,582,604
------------
CONVERTIBLE PREFERRED - 3.5%
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.8%
150,000 Kaufman & Broad Home Corp.
8.25%, PRIDES...................................... 1,443,750
------------
FINANCE & INSURANCE - 1.0%
30,000 Newell Financial Trust I
5.25%, 144A........................................ 1,785,000
------------
RETAILING & WHOLESALE - 1.7%
50,000 Kmart Financing I
7.75%.............................................. 3,100,000
------------
Total Convertible Preferred
(cost $5,610,665).................................. 6,328,750
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 3.0%
CONSUMER PRODUCTS &
SERVICES - 0.6%
$ 1,000,000 Sunrise Assisted Living, Inc.
5.50%, 6/15/02, 144A............................... 1,044,820
------------
</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 inter-
est at July 31, 1998.
144A Rule 144A securities are restricted as to resale to qualified insti-
tutional investors.
SUMMARY OF ABBREVIATIONS:
BUCS Beneficial Unsecured Convertible Securities.
PRIDES Preferred Redeemable Increased Dividend Equity Securities.
REIT Real Estate Investment Trust.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 1.1%
$ 2,000,000 Healthsouth Corp.
3.25%, 4/1/03, 144A............................... $ 2,017,500
------------
RETAILING & WHOLESALE - 1.0%
750,000 Staples, Inc.
4.50%, 10/1/00, 144A.............................. 1,707,188
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.3%
500,000 Antec Corp.
4.50%, 5/15/03, 144A.............................. 570,000
------------
Total Convertible Debentures
(cost $4,250,000)................................. 5,339,508
------------
SHORT-TERM INVESTMENTS - 11.4%
REPURCHASE AGREEMENT - 11.4%
20,376,000 Keystone Joint Repurchase Agreement
5.65%, purchased 7/31/98,
maturing 8/3/98, maturity value $20,385,594 (cost
$20,376,000) (a).................................. 20,376,000
------------
Total Short-Term Investments
(cost $20,376,000)................................ 20,376,000
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS -
(COST $136,223,993)......................... 99.6% 178,626,862
OTHER ASSETS AND LIABILITIES - NET........... 0.4 750,170
----- ------------
NET ASSETS................................... 100.0% $179,377,032
===== ============
</TABLE>
See Combined Notes to Financial Statements.
63
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
<CAPTION>
GROWTH & INCOME & SMALL CAP
BLUE CHIP INCOME GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND FUND FUND FUND FUND FUND
TOTAL RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
ASSETS
Investments at value
(identified cost --
$297,945,142,
$1,747,884,736,
$893,995,749,
$319,731,553,
$121,871,517,
$785,462,855 and
$136,223,993,
respectively).......... $383,073,812 $2,177,972,651 $941,812,530 $309,389,622 $139,044,426 $1,001,117,419
$178,626,862
Cash.................... 700 58,546 164,295 16,486 0
48,239 313
Receivable for
investments sold....... 36,513,342 4,727,680 25,024,357 0 2,760,788
5,129,220 1,405,282
Receivable for Fund
shares sold............ 1,882,250 6,642,137 176,442 4,313,582 84,885
824,790 147,233
Dividends and interest
receivable............. 423,533 1,166,850 3,272,724 947,695 617,985
1,248,745 342,345
Unamortized
organization
expenses............... 0 0 0 2,482 0
0 0
Prepaid expenses and
other assets........... 72,244 66,619 44,731 40,706 24,461
37,363 70,135
- ------------------------------------------------------------------------------------------------------------------------------
Total assets.......... 421,965,881 2,190,634,483 970,495,079 314,710,573 142,532,545
1,008,405,776 180,592,170
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased.............. 16,939,811 35,092,472 5,271,218 1,267,324 1,062,250
11,805,124 0
Payable for Fund shares
repurchased............ 1,170,650 5,100,629 601,200 5,761,900 97,290
4,672,270 969,418
Demand note payable..... 0 0 12,800,000 0 0
0 0
Advisory fee payable.... 215,367 1,667,830 819,191 275,512 61,885
445,512 94,340
Distribution fee
payable................ 160,609 987,570 52,500 149,321 45,943
397,253 119,892
Due to related
parties................ 5,000 0 0 0 3,535
25,469 1,916
Foreign taxes payable... 8,844 3,410 38,063 12,104 0
0 0
Accrued expenses and
other liabilities...... 57,535 461,694 259,080 158,329 5,329
237,782 29,572
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities..... 18,557,816 43,313,605 19,841,252 7,624,490 1,276,232
17,583,410 1,215,138
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............. $403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $286,984,109 $1,659,627,550 $833,102,573 $313,505,223 $108,709,536 $ 774,854,885
$118,660,810
Undistributed net
investment income...... (14,966) 360,888 13,459,757 173,362 (7,868)
(82,792) 430,969
Accumulated
undistributed net
realized gains or
losses on securities
and foreign currency
related transactions... 31,310,252 57,244,858 56,431,275 3,749,429 15,381,736
395,709 17,882,384
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 85,128,670 430,087,582 47,660,222 (10,341,931) 17,172,909
215,654,564 42,402,869
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...... $403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A................. $284,734,787 $ 296,312,480 $ 15,005,424 $ 54,142,181 $ 95,300,077 $ 476,169,512
$ 52,667,235
Class B................. 117,893,339 999,503,080 54,544,427 130,191,440 43,775,719
326,459,414 105,747,682
Class C................. 779,939 50,160,238 1,258,970 26,196,901 485,778
5,125,086 20,851,084
Class Y................. -- 801,345,080 879,845,006 96,555,561 1,694,739
183,068,354 111,031
- ------------------------------------------------------------------------------------------------------------------------------
$403,408,065 $2,147,320,878 $950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- ------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 9,360,366 10,168,501 647,121 3,436,877 8,104,711
21,422,851 2,432,921
Class B................. 3,884,909 34,605,795 2,367,514 8,307,846 3,721,068
14,707,068 4,904,830
Class C................. 25,659 1,736,422 54,643 1,673,076 41,291
231,038 966,154
Class Y................. -- 27,448,762 37,891,181 6,124,137 144,020
8,234,209 5,137
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 30.42 $ 29.14 $ 23.19 $ 15.75 $ 11.76 $ 22.23
$ 21.65
- ------------------------------------------------------------------------------------------------------------------------------
Class A -- Offering
price (based on sales
charge of 4.75%)....... $ 31.94 $ 30.59 $ 24.35 $ 16.54 $ 12.35 $ 23.34
$ 22.73
- ------------------------------------------------------------------------------------------------------------------------------
Class B................. $ 30.35 $ 28.88 $ 23.04 $ 15.67 $ 11.76 $ 22.20
$ 21.56
- ------------------------------------------------------------------------------------------------------------------------------
Class C................. $ 30.40 $ 28.89 $ 23.04 $ 15.66 $ 11.76 $ 22.18
$ 21.58
- ------------------------------------------------------------------------------------------------------------------------------
Class Y................. -- $ 29.19 $ 23.22 $ 15.77 $ 11.77 $ 22.23
$ 21.61
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
64
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF OPERATIONS
Year Ended July 31, 1998
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND FUND FUND FUND
FUND TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
INVESTMENT INCOME
Dividends (net of
foreign withholding
taxes of $56,392,
$25,234, $689,197,
$12,104, $10,435,
$130,187 and $5,544,
respectively)......... $ 4,313,767 $ 15,668,809 $ 52,734,876 $ 4,983,605 $ 6,208,578 $
25,677,634 $ 3,235,512
Interest............... 1,099,735 21,896,927 4,016,267 2,459,788 225,962
3,900,639 615,022
- -------------------------------------------------------------------------------------------------------------------------------
Total income.......... 5,413,502 37,565,736 56,751,143 7,443,393 6,434,540
29,578,273 3,850,534
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Advisory fee........... 2,052,676 16,275,918 9,685,921 2,055,006 704,533
7,023,408 1,062,354
Distribution Plan
expenses.............. 1,628,814 8,865,387 566,084 988,649 660,925
4,211,807 1,350,540
Transfer agent fees.... 670,296 3,658,406 1,768,773 515,179 268,742
1,670,576 324,338
Administrative service
fees.................. 53,198 0 0 0 42,854
438,523 33,743
Trustees' fees and
expenses.............. 13,999 45,947 29,888 11,331 3,511
39,273 7,325
Printing............... 160,647 916,116 474,221 87,074 90,104
526,008 100,958
Custodian fees......... 71,500 527,465 306,190 56,140 39,916
374,521 56,522
Registration fees...... 49,119 352,740 61,854 150,185 68,826
57,916 51,507
Amortization of
organization
expenses.............. 0 0 0 5,727 0
0 0
Other.................. 36,983 128,241 105,638 26,166 28,756
107,017 41,618
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses........ 4,737,232 30,770,220 12,998,569 3,895,457 1,908,167
14,449,049 3,028,905
Less: Indirectly paid
expenses.............. (3,604) (21,867) (28,957) (7,877) (2,764)
(10,190) (1,267)
Fee waivers and/or
reimbursement from
investment adviser.... 0 0 0 0 (204,617)
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Net expenses.......... 4,733,628 30,748,353 12,969,612 3,887,580 1,700,786
14,438,859 3,027,638
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.. 679,874 6,817,383 43,781,531 3,555,813 4,733,754
15,139,414 822,896
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS OR
LOSSES ON SECURITIES
AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gains or
losses on:
Securities............ 45,240,695 89,769,570 88,022,951 4,125,256 16,449,359
382,225,398 21,844,245
Foreign currency
related
transactions......... (58,529) 0 52,503 0 0
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gains or
losses on securities
and foreign currency
related transactions.. 45,182,166 89,769,570 88,075,454 4,125,256 16,449,359
382,225,398 21,844,245
- -------------------------------------------------------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and foreign currency
related transactions.. 18,537,520 54,312,938 (54,214,289) (17,882,408) 197,673
(290,896,507) (1,065,798)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions.. 63,719,686 144,082,508 33,861,165 (13,757,152) 16,647,032
91,328,891 20,778,447
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS............ $64,399,560 $150,899,891 $ 77,642,696 $(10,201,339) $21,380,786 $
106,468,305 $21,601,343
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August to July, effective July 31, 1998.
See Combined Notes to Financial Statements.
65
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF OPERATIONS
Year Ended August 31, 1997
<TABLE>
<CAPTION>
BLUE CHIP
FUND
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $58,633)........ $ 5,155,917
Interest....................................................... 533,010
- -------------------------------------------------------------------------------
Total income.................................................. 5,688,927
- -------------------------------------------------------------------------------
EXPENSES
Advisory fee................................................... 1,794,364
Distribution Plan expenses..................................... 1,535,556
Transfer agent fees............................................ 683,706
Administrative service fees.................................... 44,985
Trustees' fees and expenses.................................... 5,931
Professional fees.............................................. 41,471
Custodian fees................................................. 136,192
Printing....................................................... 31,980
Registration fees.............................................. 47,804
Other.......................................................... 6,423
- -------------------------------------------------------------------------------
Total expenses................................................ 4,328,412
Less: Indirectly paid expenses................................. (20,588)
- -------------------------------------------------------------------------------
Net expenses.................................................. 4,307,824
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME.......................................... 1,381,103
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gains or losses on:
Securities.................................................... 42,390,850
Foreign currency related transactions......................... (12,863)
- -------------------------------------------------------------------------------
Net realized gains or losses on securities and foreign currency
related transactions.......................................... 42,377,987
Net change in unrealized gains or losses on securities and
foreign currency related transactions......................... 35,362,301
- -------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities and
foreign currency related transactions......................... 77,740,288
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $79,121,391
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
66
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended July 31, 1998
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND FUND FUND FUND FUND
TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
OPERATIONS
Net investment
income.......... $ 679,874 $ 6,817,383 $ 43,781,531 $ 3,555,813 $ 4,733,754 $ 15,139,414
$ 822,896
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 45,182,166 89,769,570 88,075,454 4,125,256 16,449,359
382,225,398 21,844,245
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... 18,537,520 54,312,938 (54,214,289) (17,882,408) 197,673
(290,896,507) (1,065,798)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... 64,399,560 150,899,891 77,642,696 (10,201,339) 21,380,786
106,468,305 21,601,343
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... (572,879) (1,133,476) (582,857) (585,054) (3,623,474)
(4,928,756) (457,652)
Class B......... (753,205) 0 (1,826,984) (875,495) (1,224,827)
(1,461,990) (258,225)
Class C......... (10) 0 (40,251) (178,326) (12,408)
(15,608) (55,586)
Class Y......... 0 (5,146,565) (41,136,147) (1,701,966) (71,410)
(11,332,854) (895)
From net realized
gains
Class A......... 0 (7,164,362) (827,257) (213,842) (8,654,842)
(79,220,878) (3,551,251)
Class B......... (51,043,219) (23,729,561) (3,160,159) (507,582) (3,545,873)
(55,199,824) (7,082,118)
Class C......... 0 (1,087,731) (63,045) (100,773) (34,234)
(713,832) (1,542,452)
Class Y......... 0 (23,937,007) (58,431,404) (758,969) (166,884)
(82,980,185) (3,495)
- -------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (52,369,313) (62,198,702) (106,068,104) (4,922,007) (17,333,952)
(235,853,927) (12,951,674)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 114,811,777 982,241,448 36,821,129 324,098,172 27,354,893
209,984,754 40,160,932
Payment for
shares
redeemed........ (99,812,547) (402,984,465) (109,733,628) (64,094,835) (24,559,873)
(1,216,417,479) (44,846,695)
Net asset value
of shares issued
in reinvestment
of
distributions... 45,932,435 54,748,017 95,522,782 3,360,906 4,031,786
202,246,215 12,075,357
Shares issued in
acquisition of
Blanchard Growth
& Income Fund... 17,510,672 0 0 0 0
0 0
Shares issued in
acquisition of
Virtus Style
Manager Fund.... 0 75,922,310 0 0 0
0 0
Shares issued in
acquisition of
Virtus Style
Manager; Large
Cap Fund........ 0 0 0 0 0
104,172,578 0
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 78,442,337 709,927,310 22,610,283 263,364,243 6,826,806
(700,013,932) 7,389,594
- -------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 90,472,584 798,628,499 (5,815,125) 248,240,897 10,873,640
(829,399,554) 16,039,263
NET ASSETS
Beginning of
period.......... 312,935,481 1,348,692,379 956,468,952 58,845,186 130,382,673
1,820,221,920 163,337,769
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $403,408,065 $2,147,320,878 $ 950,653,827 $307,086,083 $141,256,313 $ 990,822,366
$179,377,032
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (14,966) $ 360,888 $ 13,459,757 $ 173,362 $ (7,868) $ (82,792)
$ 430,969
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the eleven-month period ended July 31, 1998. The Fund changed its fiscal
year end from August to July, effective July 31, 1998.
See Combined Notes to Financial Statements.
67
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal year ended July 31, or August 31, 1997
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY
VALUE FUND FOR
FUND* FUND** FUND** FUND** FUND** FUND**
TOTAL RETURN**
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
OPERATIONS
Net investment
income............ $ 1,381,103 $ 2,407,908 $ 21,889,648 $ 385,091 $ 2,786,986 $ 16,353,679
$ 766,801
Net realized gains
or losses on
securities and
foreign currency
related
transactions...... 42,377,987 23,375,321 44,086,999 1,108,151 11,377,530
58,756,392 8,633,551
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions...... 35,362,301 188,382,086 42,180,501 6,035,485 (1,002,220)
239,837,361 15,979,989
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations....... 79,121,391 214,165,315 108,157,148 7,528,727 13,162,296
314,947,432 25,380,341
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment income
Class A........... 0 (357,479) (248,453) (11,097) (2,030,267)
(2,943,697) (368,590)
Class B........... (2,021,947) 0 (790,199) (17,755) (639,939)
(1,098,593) (315,494)
Class C........... 0 0 (19,512) (6,915) (6,346)
(9,131) (78,332)
Class Y........... 0 (2,157,823) (20,540,101) (297,079) (40,667)
(10,102,012) 0
From net realized
gains
Class A........... 0 0 0 (1,322) 0
0 0
Class B........... (30,039,258) 0 0 (2,116) 0
0 0
Class C........... 0 0 0 (824) 0
0 0
Class Y........... 0 0 0 (35,401) 0
0 0
- -------------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders.... (32,061,205) (2,515,302) (21,598,265) (372,509) (2,717,219)
(14,153,433) (762,416)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold....... 103,353,377 465,092,821 17,909,857 50,579,448 2,117,468
210,144,988 63,866,407
Payment for shares
redeemed.......... (89,890,447) (111,499,306) (71,220,009) (8,771,326) (21,527,215)
(224,625,243) (24,402,541)
Net asset value of
shares issued in
reinvestment of
distributions..... 27,593,101 1,997,489 18,977,783 204,650 2,197,790
10,671,545 680,769
- -------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions..... 41,056,031 355,591,004 (34,332,369) 42,012,772 (17,211,957)
(3,808,710) 40,144,635
- -------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets...... 88,116,217 567,241,017 52,226,514 49,168,990 (6,766,880)
296,985,289 64,762,560
NET ASSETS
Beginning of
period............ 224,819,264 781,451,362 904,242,438 9,676,196 137,149,553
1,523,236,631 98,575,209
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD...... $312,935,481 $1,348,692,379 $956,468,952 $58,845,186 $130,382,673 $1,820,221,920
$163,337,769
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income............ $ 16,188 $ (10,791) $ 1,748,160 $ 54,884 $ 170,484 $ 2,948,270
$ (165,774)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the year ended August 31, 1997.
** Each of the Funds changed their fiscal year end to July 31. The Statements
of Changes in Net Assets are for the following periods: for Growth and In-
come Fund, Small Cap Equity Income Fund, Utility Fund and Value Fund, the
seven-month period ended July 31, 1997; for Income and Growth Fund, the six-
month period ended July 31, 1997 and for Fund for Total Return, the eight-
month period ended July 31, 1997.
See Combined Notes to Financial Statements.
68
<PAGE>
EVERGREEN
Growth and Income Funds
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
SMALL CAP
BLUE CHIP GROWTH & INCOME INCOME & GROWTH EQUITY INCOME UTILITY VALUE
FUND FOR
FUND**** FUND** FUND* FUND** FUND** FUND**
TOTAL RETURN***
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income.......... $ 1,158,899 $ 3,525,699 $ 45,851,306 $ 207,498 $ 5,338,113 $ 25,598,949
$ 853,438
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 35,400,173 11,660,346 28,617,120 329,191 3,459,558
216,135,176 1,913,430
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... (2,334,533) 102,653,116 43,508,253 833,605 (3,509,310) 11,014,356
16,084,525
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets
resulting from
operations..... 34,224,539 117,839,161 117,976,679 1,370,294 5,288,361 252,748,481
18,851,393
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (347,567) (379,400) (7,618) (3,887,411)
(5,758,586) (539,949)
Class B......... (6,695,266) (65,556) (1,152,510) (9,798) (1,173,301)
(1,939,188) (273,356)
Class C......... 0 (2,719) (39,024) (710) (11,835)
(14,165) (112,998)
Class Y......... 0 (3,098,681) (45,453,926) (186,039) (229,804)
(19,538,457) 0
From net realized
gains
Class A......... 0 (1,260,337) 0 (12,475) (2,482,046)
(46,062,049) (754,551)
Class B......... (8,574,523) (3,666,284) 0 (27,933) (986,367)
(27,670,352) (808,105)
Class C......... 0 (142,360) 0 (1,936) (10,122)
(205,316) (270,058)
Class Y......... 0 (6,654,395) 0 (279,606) (53,545)
(142,552,378) 0
- ------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (15,269,789) (15,237,899) (47,024,860) (526,115) (8,834,431) (243,740,491)
(2,759,017)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 54,640,514 470,077,641 55,014,841 4,304,325 12,422,675 396,972,164
41,871,515
Payment for
shares
redeemed........ (61,283,587) (171,525,826) (197,670,999) (1,159,053) (30,379,907) (375,117,185)
(19,063,497)
Net asset value
of shares issued
in reinvestment
of
distributions... 13,051,460 13,005,089 41,805,502 374,529 7,082,140
187,361,591 2,530,195
Shares issued in
acquisition of
FFB Lexicon
Capital
Appreciation
Fund Class Y.... 0 159,432,723 0 0 0
0 0
Shares issued in
acquisition of
FFB Lexicon
Select Value
Fund Class Y.... 0 0 0 0 0
95,883,824 0
Shares issued in
acquisition of
FFB Lexicon
Equity Fund
Class Y......... 0 0 0 0 0
14,077,973 0
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 6,408,387 470,989,627 (100,850,656) 3,519,801 (10,875,092) 319,178,367
25,338,213
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 25,363,137 573,590,889 (29,898,837) 4,363,980 (14,421,162) 328,186,357
41,430,589
NET ASSETS
Beginning of
period.......... 199,456,127 207,860,473 934,141,275 5,312,216 151,570,715 1,195,050,274
57,144,620
- ------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $224,819,264 $781,451,362 $904,242,438 $9,676,196 $137,149,553 $1,523,236,631
$98,575,209
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ 5,624,332 $ 6,087 $ 1,321,369 $ 3,333 $ 100,717 $ 292,413
$ (233,100)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the year ended January 31, 1997.
** For the year ended December 31, 1996.
*** For the year ended November 30, 1996.
**** For the year ended August 31, 1996.
See Combined Notes to Financial Statements.
69
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Growth and Income Funds consist of Evergreen Blue Chip Fund
("Blue Chip"), Evergreen Growth and Income Fund ("Growth and Income"), Ever-
green Income and Growth Fund ("Income and Growth"), Evergreen Small Cap Equity
Income Fund ("Small Cap"), Evergreen Utility Fund ("Utility"), Evergreen Value
Fund ("Value") and Evergreen Fund for Total Return ("Total Return"), which are
collectively referred to herein as the "Funds". Each of the Funds is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as di-
versified, open-end management investment companies. Each Fund is a series of
the Evergreen Equity Trust, a Delaware business Trust organized on September
18, 1997.
The Funds offer Class A, Class B, Class C and Class Y shares. 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 a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred 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 con-
tingent deferred sales charge payable on shares redeemed within one year after
the month of purchase. Class B shares purchased after January 1, 1997 will au-
tomatically convert to Class A shares after seven years. Class B shares pur-
chased prior to January 1, 1997 retain their existing conversion rights. Class
Y shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union and its affiliates, certain institutional in-
vestors or Class Y shareholders of record of certain other funds managed by
First Union and its affiliates.
2. REORGANIZATION OF EVERGREEN VALUE FUND
On January 21, 1998, Evergreen Value Fund, Class Y, executed a redemption in-
kind transaction of $793,367,277. This transaction resulted in the liquidation
of substantially all of the net assets of Value, Class Y shares. In turn, the
assets were transferred to Evergreen Select Diversified Value Fund, Class I, an
institutional fund.
To fund this redemption, investment securities, excluding cash and cash equiva-
lents, with a market value of $774,879,156, including unrealized appreciation
of $221,367,103, were transferred. Additionally the Fund used cash and cash
equivalents of $23,488,121 to complete the transaction. The gains realized from
this sale of securities are not taxable to the Fund and are not required to be
distributed for federal income tax purposes.
3. ACQUISITION INFORMATION
Effective December 1, 1997, Signet Banking Corporation ("Signet") merged with
First Union Corporation ("First Union").
Effective at the close of business on February 27, 1998, Blue Chip acquired
substantially all of the net assets of Blanchard Growth & Income Fund, an open-
end management investment company managed by a subsidiary of Signet and regis-
tered under the 1940 Act, valued at $17,510,672. The net assets were exchanged
through a non-taxable transaction for 596,231 Class A shares of Blue Chip val-
ued at $29.37 per share. The acquired net assets consisted primarily of portfo-
lio securities with unrealized appreciation of $5,643,636. The aggregate net
assets of Blue Chip after the acquisition were $365,442,145.
Effective at the close of business on February 27, 1998, Growth and Income ac-
quired substantially all of the net assets of Virtus Style Manager Fund, an
open-end management investment company managed by a subsidiary of Signet and
registered under the 1940 Act, valued at $75,922,310. The net assets were ex-
changed through a non-taxable transaction for 2,555,807 Class Y shares of
Growth and Income valued at $29.71 per share. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $10,049,313.
The aggregate net assets of Growth and Income after the acquisition were
$1,945,327,504.
Effective at the close of business on February 27, 1998, Value acquired sub-
stantially all of the net assets of Virtus Style Manager; Large Cap Fund, an
open-end management investment company managed by a subsidi-
70
<PAGE>
Combined Notes to Financial Statements(continued)
ary of Signet and registered under the 1940 Act, valued at $104,172,578. The
net assets were exchanged through a non-taxable transaction for 3,109,878 and
924,632 Class A and Y shares, respectively, of Value. The per share value on
the acquisition date was $25.82 and $25.83 for Class A and Class Y, respective-
ly. The acquired net assets consisted primarily of portfolio securities with
unrealized appreciation of 28,824,982. The aggregate net assets of Value after
the acquisition were $1,097,437,360.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
The Funds value 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. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which valuations are not available from an inde-
pendent pricing service, including restricted securities, are valued at fair
value as determined in good faith according to procedures established 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
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
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 securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Blue Chip and Total Return, along with certain other funds managed by
Keystone Investment Management Company ("Keystone"), a subsidiary of First
Union, 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.
C. Reverse Repurchase Agreements
To obtain short-term financing, the Small Cap, Total Return, Utility and Value
may enter into reverse repurchase agreements with qualified third-party broker-
dealers. Interest on the value of reverse repurchase agreements is based upon
competitive market rates at the time of issuance. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segre-
gated account with the custodian containing qualifying assets having a value
not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
71
<PAGE>
Combined Notes to Financial Statements(continued)
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of ex-
change; 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 or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include: foreign cur-
rency gains and losses between trade date and settlement date on investment se-
curities and 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. The portion of foreign currency gains and losses re-
lated to fluctuations in exchange rates between the initial purchase trade date
and subsequent sale trade date is included in realized gains or losses on secu-
rities transactions.
E. Forward Foreign Currency Exchange Contracts
The Funds 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 liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gains or losses 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 con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. 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 or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities may be subject to foreign taxes and
are accrued as applicable.
G. Federal Taxes
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). As such, the Funds
will not incur any federal income tax liability since they are expected to dis-
tribute all of their net investment company taxable income and net realized
capital gains, if any, to their shareholders. The Funds also intend to avoid
any excise tax liability by making the required distributions under the Code.
Accordingly, no provision for federal income taxes is required. To the extent
that realized capital gains can be offset by capital loss carryforwards, it is
each Fund's policy not to distribute such gains.
H. Distributions
Distributions from net investment income for the Funds, except Utility, are de-
clared and paid quarterly. Distributions for Utility from net investment income
are declared and paid monthly. Distributions from net realized capital gains,
if any, are paid 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 accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The differences between financial statements amounts
available for distribution and distributions made in accordance with income tax
regulations are primarily due to differing treatment for certain distributions
received from real estate investment trusts and net realized foreign currency
gains (losses).
72
<PAGE>
Combined Notes to Financial Statements(continued)
I. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
J. Organization Expenses
Organization expenses incurred prior to June 30, 1998 are amortized to opera-
tions over a five-year period on a straight-line basis. In the event any of the
initial shares of the Funds are redeemed by any holder during the five-year am-
ortization period, redemption proceeds will be reduced by any unamortized or-
ganization expenses in the same proportion as the number of initial shares be-
ing redeemed bears to the number of initial shares outstanding at the time of
the redemption.
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C and Class Y. Blue Chip currently
does not have any Class Y shares. Transactions in shares of the Funds were as
follows:
Blue Chip
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
July 31, 1998 * August 31, 1997 August 31, 1996
------------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 812,276 $ 24,596,278 0 0 0 0
Automatic conversion of
Class B shares to
Class A shares......... 9,140,449 250,374,069 0 0 0 0
Shares redeemed......... (1,203,287) (36,027,532) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 14,697 447,340 0 0 0 0
Shares issued in
acquisition of
Blanchard Growth &
Income Fund............ 596,231 17,510,672 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 9,360,366 256,900,827 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 3,020,854 89,396,767 3,800,615 $103,353,377 2,238,539 $ 54,640,514
Automatic conversion of
Class B shares to
Class A shares......... (9,140,449) (250,374,069) 0 0 0 0
Shares redeemed......... (2,178,914) (63,756,605) (3,349,695) (89,890,447) (2,509,938) (61,283,587)
Shares issued on
reinvestment of
distribution........... 1,678,649 45,485,085 1,079,325 27,593,101 568,144 13,051,460
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (6,619,860) (179,248,822) 1,530,245 41,056,031 296,745 6,408,387
- -------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 26,608 818,732 0 0 0 0
Shares redeemed......... (949) (28,410) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 0 10 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 25,659 790,332 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 2,766,165 $ 78,442,337 1,530,245 $ 41,056,031 296,745 $ 6,408,387
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from August 31 to July 31, effective
July 31, 1998.
73
<PAGE>
Combined Notes to Financial Statements(continued)
Growth and Income
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 7,300,804 $ 214,673,895 2,967,692 $ 71,457,862 3,719,917 $ 76,959,622
Shares redeemed......... (3,520,816) (103,702,934) (645,446) (15,573,680) (1,044,500) (21,729,967)
Shares issued on
reinvestment of
distribution........... 287,118 8,071,240 14,532 352,344 69,271 1,546,893
- --------------------------------------------------------------------------------------------------------
Net increase............ 4,067,106 119,042,201 2,336,778 56,236,526 2,744,688 56,776,548
- --------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 16,476,196 481,475,327 9,881,863 236,281,947 8,914,571 185,314,202
Shares redeemed......... (2,725,060) (79,579,083) (779,920) (18,705,681) (646,461) (13,411,376)
Shares issued on
reinvestment of
distribution........... 837,176 23,198,143 166 3,746 160,953 3,613,927
- --------------------------------------------------------------------------------------------------------
Net increase............ 14,588,312 425,094,387 9,102,109 217,580,012 8,429,063 175,516,753
- --------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 1,131,563 32,986,181 511,624 12,290,220 348,918 7,294,757
Shares redeemed......... (317,773) (9,241,480) (55,491) (1,340,999) (29,065) (597,615)
Shares issued on
reinvestment of
distribution........... 38,010 1,053,643 0 0 5,130 115,108
- --------------------------------------------------------------------------------------------------------
Net increase............ 851,800 24,798,344 456,133 10,949,221 324,983 6,812,250
- --------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 8,658,868 253,053,137 6,060,064 145,062,792 9,899,164 200,509,060
Shares redeemed......... (7,135,642) (210,408,060) (3,163,527) (75,878,946) (6,820,349) (135,786,868)
Shares issued on
reinvestment of
distribution........... 797,581 22,424,991 67,571 1,641,399 349,251 7,729,161
Shares issued in
acquisition of
Virtus Style Manager
Fund................... 2,555,807 75,922,310 0 0 0 0
Shares issued in
acquisition of
FFB Lexicon Capital
Appreciation Fund...... 0 0 0 0 8,631,861 159,432,723
- --------------------------------------------------------------------------------------------------------
Net increase............ 4,876,614 140,992,378 2,964,108 70,825,245 12,059,927 231,884,076
- --------------------------------------------------------------------------------------------------------
Net increase............ 24,383,832 $ 709,927,310 14,859,128 $355,591,004 23,558,661 $ 470,989,627
- --------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Income and Growth
<CAPTION>
Year Ended Period Ended Year Ended
July 30, 1998 July 31, 1997* January 31, 1997
------------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 204,121 $ 4,959,183 96,124 $ 2,114,635 288,739 $ 5,918,321
Shares redeemed......... (112,612) (2,739,976) (51,264) (1,121,079) (80,074) (1,646,836)
Shares issued on
reinvestment of
distribution........... 56,318 1,325,926 10,209 225,329 16,567 341,281
- --------------------------------------------------------------------------------------------------------
Net increase............ 147,827 3,545,133 55,069 1,218,885 225,232 4,612,766
- --------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 633,299 15,295,755 308,925 6,799,151 973,616 19,899,458
Shares redeemed......... (310,711) (7,455,874) (123,038) (2,685,666) (128,458) (2,649,792)
Shares issued on
reinvestment of
distribution........... 198,183 4,626,554 32,359 710,178 48,861 1,003,747
- --------------------------------------------------------------------------------------------------------
Net increase............ 520,771 12,466,435 218,246 4,823,663 894,019 18,253,413
- --------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 27,805 674,067 2,951 66,274 33,684 684,918
Shares redeemed......... (16,763) (402,792) (9,060) (189,123) (15,865) (328,507)
Shares issued on
reinvestment of
distribution........... 3,708 86,620 712 15,602 1,429 29,305
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 14,750 357,895 (5,397) (107,247) 19,248 385,716
- --------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 641,797 15,892,124 407,330 8,929,797 1,398,445 28,512,144
Shares redeemed......... (4,066,667) (99,134,986) (3,049,701) (67,224,141) (9,386,347) (193,045,864)
Shares issued on
reinvestment of
distribution........... 3,795,361 89,483,682 816,636 18,026,674 1,968,663 40,431,169
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 370,491 6,240,820 (1,825,735) (40,267,670) (6,019,239) (124,102,551)
- --------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 1,053,839 $ 22,610,283 (1,557,817) $(34,332,369) (4,880,740) $(100,850,656)
- --------------------------------------------------------------------------------------------------------
</TABLE>
*The Fund changed its fiscal year end from January 31 to July 31, effective
July 31, 1997.
74
<PAGE>
Combined Notes to Financial Statements(continued)
Small Cap
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 4,328,382 $ 72,341,164 246,413 $ 3,587,404 23,318 $ 285,774
Shares redeemed......... (1,207,491) (20,046,565) (2,663) (37,984) (17,926) (213,193)
Shares issued on
reinvestment of
distribution........... 45,725 753,748 854 12,209 1,564 19,575
- ------------------------------------------------------------------------------------------------------
Net increase............ 3,166,616 53,048,347 244,604 3,561,629 6,956 92,156
- ------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 8,426,642 140,304,860 560,543 8,164,490 27,963 341,494
Shares redeemed......... (803,676) (13,366,175) (9,769) (142,514) (966) (11,697)
Shares issued on
reinvestment of
distribution........... 79,883 1,323,369 1,366 19,472 2,883 36,358
- ------------------------------------------------------------------------------------------------------
Net increase............ 7,702,849 128,262,054 552,140 8,041,448 29,880 366,155
- ------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 1,760,785 29,361,569 178,877 2,529,352 3,956 48,265
Shares redeemed......... (281,072) (4,699,621) (6,447) (91,950) (1,838) (22,125)
Shares issued on
reinvestment of
distribution........... 16,111 266,637 524 7,467 136 1,697
- ------------------------------------------------------------------------------------------------------
Net increase............ 1,495,824 24,928,585 172,954 2,444,869 2,254 27,837
- ------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 4,923,790 82,090,579 2,593,853 36,298,202 289,906 3,628,792
Shares redeemed......... (1,558,339) (25,982,474) (562,869) (8,498,878) (75,598) (912,038)
Shares issued on
reinvestment of
distribution........... 61,107 1,017,152 11,719 165,502 25,358 316,899
- ------------------------------------------------------------------------------------------------------
Net increase............ 3,426,558 57,125,257 2,042,703 27,964,826 239,666 3,033,653
- ------------------------------------------------------------------------------------------------------
Net increase............ 15,791,847 $263,364,243 3,012,401 $ 42,012,772 278,756 $ 3,519,801
- ------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Utility
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 1,266,778 $ 14,554,038 45,144 $ 494,721 246,512 $ 2,626,118
Shares redeemed......... (1,407,032) (16,718,124) (1,294,589) (14,079,531) (1,609,448) (16,984,094)
Shares issued on
reinvestment of
distribution........... 243,720 2,889,027 147,141 1,602,820 478,287 5,051,093
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 103,466 724,941 (1,102,304) (11,981,990) (884,649) (9,306,883)
- ------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 974,483 11,445,916 123,876 1,349,827 787,800 8,401,385
Shares redeemed......... (551,773) (6,555,500) (611,224) (6,601,705) (630,402) (6,652,890)
Shares issued on
reinvestment of
distribution........... 93,247 1,107,337 52,424 571,837 183,056 1,935,353
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 515,957 5,997,753 (434,924) (4,680,041) 340,454 3,683,848
- ------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 13,355 157,299 1,231 13,731 25,812 274,673
Shares redeemed......... (6,139) (72,067) (6,079) (66,033) (13,100) (135,909)
Shares issued on
reinvestment of
distribution........... 980 11,662 536 5,855 1,963 20,723
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 8,196 96,894 (4,312) (46,447) 14,675 159,487
- ------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 100,754 1,197,639 23,627 259,189 106,165 1,120,499
Shares redeemed......... (100,753) (1,214,182) (72,220) (779,946) (644,560) (6,607,014)
Shares issued on
reinvestment of
distribution........... 2,014 23,760 1,585 17,278 7,089 74,971
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 2,015 7,217 (47,008) (503,479) (531,306) (5,411,544)
- ------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 629,634 $ 6,826,805 (1,588,548) $(17,211,957) (1,060,826) $(10,875,092)
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
75
<PAGE>
Combined Notes to Financial Statements(continued)
Value
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* December 31, 1996
---------------------------- ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 1,587,252 $ 40,192,765 948,931 $ 21,010,689 1,109,850 $ 23,895,251
Shares redeemed......... (2,758,581) (68,967,117) (1,099,102) (24,085,514) (1,836,296) (39,736,035)
Shares issued on
reinvestment of
distribution........... 3,563,487 81,070,016 127,041 2,835,467 2,371,895 49,562,452
Shares issued in the
acquisition of Virtus
Style Manager; Large
Cap Fund............... 3,109,878 80,290,504 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 5,502,036 132,586,168 (23,130) (239,358) 1,645,449 33,721,668
- -------------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 2,346,146 58,297,020 2,284,482 50,184,755 2,197,426 47,442,303
Shares redeemed......... (1,290,986) (31,809,835) (709,716) (15,577,742) (873,740) (18,943,891)
Shares issued on
reinvestment of
distribution........... 2,433,973 55,281,719 48,527 1,086,571 1,374,236 28,693,188
- -------------------------------------------------------------------------------------------------------------
Net increase............ 3,489,133 81,768,904 1,623,293 35,693,584 2,697,922 57,191,600
- -------------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 170,261 4,223,998 46,777 1,018,408 38,761 832,827
Shares redeemed......... (72,103) (1,793,135) (16,263) (355,395) (17,818) (377,207)
Shares issued on
reinvestment of
distribution........... 31,015 701,653 410 9,201 10,328 215,421
- -------------------------------------------------------------------------------------------------------------
Net increase............ 129,173 3,132,516 30,924 672,214 31,271 671,041
- -------------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 4,385,718 107,270,971 6,289,283 137,931,136 15,195,754 324,801,783
Shares redeemed......... (46,491,232) (1,113,847,392) (8,383,008) (184,606,592) (14,584,293) (316,060,052)
Shares issued on
reinvestment of
distribution........... 2,771,230 65,192,827 302,057 6,740,306 5,208,388 108,890,530
Shares issued in
acquisition of Virtus
Style Manager; Large
Cap Fund............... 924,632 23,882,074 0 0 0 0
Shares issued in
acquisition of FFB
Lexicon Select Value
Fund................... 0 0 0 0 4,720,676 95,883,824
Shares issued in
acquisition of FFB
Equity Fund............ 0 0 0 0 692,924 14,077,973
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (38,409,652) (917,501,520) (1,791,668) (39,935,150) 11,233,449 227,594,058
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (29,289,310) $ (700,013,932) (160,581) $ (3,808,710) 15,608,091 $ 319,178,367
- -------------------------------------------------------------------------------------------------------------
*The Fund changed its fiscal year end from December 31 to July 31, effective
July 31, 1997.
Total Return
<CAPTION>
Year Ended Period Ended Year Ended
July 31, 1998 July 31, 1997* November 30, 1996
---------------------------- ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 405,327 $ 8,477,778 521,092 $ 9,464,499 756,854 $ 11,818,891
Shares redeemed......... (476,275) (9,979,937) (564,385) (10,121,645) (446,563) (6,837,747)
Shares issued on
reinvestment of
distribution........... 192,513 3,761,047 18,071 331,175 71,945 1,193,118
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 121,565 2,258,888 (25,222) (325,971) 382,236 6,174,262
- -------------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 1,312,799 27,194,053 2,651,702 48,001,066 1,503,008 23,867,265
Shares redeemed......... (1,328,176) (27,515,826) (609,684) (11,087,288) (534,970) (8,156,600)
Shares issued on
reinvestment of
distribution........... 348,818 6,752,535 15,072 275,911 57,897 974,432
- -------------------------------------------------------------------------------------------------------------
Net increase............ 333,441 6,430,762 2,057,090 37,189,689 1,025,935 16,685,097
- -------------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 212,115 4,372,780 350,562 6,315,824 398,635 6,185,359
Shares redeemed......... (349,166) (7,245,174) (172,539) (3,193,608) (265,577) (4,069,150)
Shares issued on
reinvestment of
distribution........... 80,168 1,557,317 4,023 73,683 21,672 362,645
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (56,883) (1,315,077) 182,046 3,195,899 154,730 2,478,854
- -------------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 5,560 116,322 4,487 85,018 0 0
Shares redeemed......... (5,138) (105,758) 0 0 0 0
Shares issued on
reinvestment of
distribution........... 228 4,458 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 650 15,022 4,487 85,018 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 398,773 $ 7,389,595 2,218,401 $ 40,144,635 1,562,901 $ 25,338,213
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund share activity for Class Y shares reflect the period from June 10,
1997 (commencement of class operations) through July 31, 1997. The Fund
changed its fiscal year end from November 30 to July 31, effective July 31,
1997.
76
<PAGE>
Combined Notes to Financial Statements(continued)
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the period ended July 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
-----------------------------
Blue Chip*........................ $ 360,931,375 $ 391,549,349
Growth and Income................. 846,628,227 288,979,809
Income and Growth................. 1,281,952,042 1,315,701,331
Small Cap......................... 285,721,810 35,249,915
Utility........................... 86,344,853 94,184,507
Value............................. 902,213,731 1,820,554,640
Total Return...................... 107,895,706 127,869,229
</TABLE>
-------
* For the eleven-month period ended July 31,
1998. The Fund changed its fiscal year end
from August 31 to July 31, effective July 31,
1998. For the year ended August 31, 1997, cost
of purchases and proceeds from sales of in-
vestment securities for Blue Chip, excluding
short-term investments, were $295,493,216 and
$285,581,225, respectively.
On July 31, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation /
Tax Cost Appreciation Depreciation (Depreciation)
---------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip..... $ 298,069,328 $ 87,560,884 $ 2,556,400 $ 85,004,484
Growth and
Income....... 1,747,719,854 510,629,570 80,376,773 430,252,797
Income and
Growth....... 896,608,201 117,051,419 71,847,090 45,204,329
Small Cap..... 319,633,756 18,497,845 28,741,979 (10,244,134)
Utility....... 121,862,772 24,225,433 7,043,779 17,181,654
Value......... 786,172,180 244,288,036 29,342,797 214,945,239
Total Return.. 136,194,805 44,760,810 2,328,754 42,432,056
</TABLE>
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. (formerly, Evergreen Keystone Distributor, Inc.)
("EDI"), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS") serves as
principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund 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 share-
holders through expenses called "Distribution Plan expenses". Each class, ex-
cept Class Y, currently pays a service fee equal to 0.25% of the average daily
net assets 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 12b-1 fees greater than
the allowable annual amounts the Fund is permitted to pay. The Fund may reim-
burse the principal underwriter for such excess amounts in later years with an-
nual interest at the prime rate plus 1.00%.
77
<PAGE>
Combined Notes to Financial Statements(continued)
During the period ended July 31, 1998, amounts paid to EDI and/or its predeces-
sor pursuant to each Fund's Class A, Class B and Class C Distribution Plans
were as follows:
<TABLE>
<CAPTION>
Year Ended July 31, 1998
------------------------------
Class A Class B Class C
<S> <C> <C> <C>
------------------------------
Blue Chip*...................... $ 367,809 $1,259,943 $ 1,062
Growth and Income............... 597,754 7,890,229 377,404
Income and Growth............... 34,738 520,041 11,305
Small Cap....................... 80,328 755,179 153,142
Utility......................... 243,362 413,364 4,199
Value........................... 1,088,998 3,088,393 34,416
Total Return.................... 124,034 1,012,065 214,441
</TABLE>
-------
* For the eleven-month period ended July 31,
1998. The Fund changed its fiscal year end
from August 31 to July 31, effective July 31,
1998. For the year ended August 31, 1997, Blue
Chip paid $1,535,556 to EDI and/or its prede-
cessor pursuant to the Fund's Class B Distri-
bution Plan.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone is the investment adviser for Blue Chip and Total Return. In return
for providing investment management and administrative services to Blue Chip
and Total Return, the Funds pay Keystone a management fee that is calculated
daily and paid monthly. The management fee for Blue Chip is determined by ap-
plying percentage rates starting at 0.70% and declining as assets increase to
0.35% per annum, to the average daily net asset value of the Fund. The manage-
ment fee for Total Return is computed at an annual rate of 1.50% of Total Re-
turn's gross investment income plus an amount determined by applying percentage
rates starting at 0.60% and declining to 0.30% per annum as net assets in-
crease, to the average daily net asset value of the Fund.
Pursuant to an agreement with Growth and Income's, Income and Growth's and
Small Cap's investment adviser, Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly owned subsidiary of First Union, is entitled to an annual fee
based on each of Growth and Income's, Income and Growth's and Small Cap's aver-
age daily net assets, respectively, in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million......................................... 1.00%
Next $250 million.......................................... 0.90%
Over $1 billion............................................ 0.80%
</TABLE>
Evergreen Asset has agreed to reimburse Small Cap to the extent that the Fund's
operating expenses (including the investment advisory fee and amortization of
organizational expenses but excluding interest, taxes, brokerage commissions,
12b-1 distribution and shareholder services fees and extraordinary expenses)
exceed 1.50% of its average daily net assets. First Union and Evergreen Asset
can modify or terminate voluntary waivers at any time.
First Union is entitled to an annual fee of 0.50% Utility's and Value's average
daily net assets pursuant to each Fund's investment advisory agreement. First
Union voluntarily waived $204,617 of its fee for Utility for the year ended
July 31, 1998.
Evergreen Investment Services ("EIS") (formerly Evergreen Keystone Investment
Services, Inc.), a subsidiary of First Union, is the administrator and BISYS
Fund Services is sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS Fund Services provides the officers of the Funds. The administra-
tor and sub-administrator for each Fund are entitled to an annual fee based on
the average daily net assets of the funds administered by EIS for which First
Union or its investment advisory subsidiaries are also the investment advisers.
The administration fee is calculated by applying percentage rates, which start
at 0.05% and decline to 0.01% per annum as net assets
78
<PAGE>
Combined Notes to Financial Statements(continued)
increase, to the average daily net asset value of the Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to .004% per annum as net assets increase, to the average daily net as-
set value of the Fund. For Blue Chip, Growth and Income, Income and Growth,
Small Cap and Total Return the administration and sub-administration fee is
paid by their respective investment adviser and is not a Fund expense. For the
year ended July 31, 1998, Utility and Value paid $42,854 and $438,523, respec-
tively, to EIS for providing administrative services.
For the period ended July 31, 1998, Blue Chip and Total Return paid $53,198 and
$33,743, respectively, to Keystone, as reimbursement of certain administrative
expenses.
Evergreen Service Company ("ESC"), a subsidiary of First Union, serves as the
transfer and dividend disbursing agent for the Funds.
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
Growth and Income, Income and Growth, and Small Cap and also provides brokerage
services with respect to substantially all security transactions of each Fund
effected on the New York or American Stock Exchanges. For the year ended
July 31, 1998, Growth and Income, Income and Growth, and Small Cap incurred the
following brokerage commissions with Lieber & Company:
<TABLE>
<S> <C>
Growth and Income..................................... $1,460,807
Income and Growth..................................... 1,762,628
Small Cap............................................. 305,350
</TABLE>
Lieber & Company is reimbursed by Evergreen Asset, at no additional expense to
the Fund, for its cost of providing investment advisory services.
Evergreen Service Company ("ESC"), a wholly-owned subsidiary of Keystone,
serves as the transfer and dividend disbursing agent for the Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are al-
located to deferral accounts which are included in the accrued expenses for
each Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in each Funds' Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly in-
stallments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000. As of July 31, 1998, the value of the Trustees deferral ac-
count for Blue Chip, Growth and Income, Income and Growth, Small Cap, Utility,
Value and Total Return was $7,071, $32,760, $87,575, $8,678, $7,867, $82,792
and $2,334.
11. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating Funds. State Street served as agent for the Banks, and as agent was en-
titled to a fee of $15,000 which was allocated to all of the participating
Funds. This agreement was terminated on October 31, 1997.
79
<PAGE>
Combined Notes to Financial Statements(continued)
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union pro-
vided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street Bank and Trust ("State Street") and a group of Banks became effec-
tive. 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 among the Banks, under the terms
of the financing agreement. The credit facility is to be accessed by the Funds
for temporary or emergency purposes only and is subject to each Fund's borrow-
ing restrictions. Borrowings under this facility bear interest at 0.50% per an-
num 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 allo-
cated to all funds. 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 period ended July 31, 1998, the Funds, except Income and Growth, had
no significant borrowings under these agreements. At July 31, 1998, Income and
Growth had a balance pursuant to this agreement of $12,800,000.
12. CONCENTRATION OF CREDIT RISK
Utility invests a substantial portion of its assets in issuers in the Utilities
industry, therefore, it may be more affected by economic and political develop-
ments in that industry than would be a comparable general equity fund.
80
<PAGE>
Independent Auditors' Reports
The Trustees and Shareholders of
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of six of the funds comprising Evergreen Eq-
uity Trust as listed below as of July 31, 1998, and the related statements of
operations, statements of changes in net assets and financial highlights for
each of the years or periods listed below:
Evergreen Blue Chip Fund -- statements of operations for the eleven months
ended July 31, 1998 and the year ended August 31, 1997, statements of
changes in net assets for the eleven months ended July 31, 1998 and each of
the years in the two-year period ended August 31, 1998 and financial high-
lights for the periods presented on pages 30 and 31.
Evergreen Growth and Income Fund -- statement of operations for the year
ended July 31, 1998, statements of changes in net assets for the year ended
July 31, 1998, the seven months ended July 31, 1997 and the year ended De-
cember 31, 1996 and financial highlights for the periods presented on pages
32 and 33, except for the periods ended prior to December 31, 1996. The fi-
nancial highlights for the periods ended prior to December 31, 1996 were au-
dited by other auditors, whose opinion thereon dated February 15, 1996 was
unqualified.
Evergreen Small Cap Equity Income Fund -- statement of operations for the
year ended July 31, 1998, statements of changes in net assets for the year
ended July 31, 1998, the seven months ended July 31, 1997 and the year ended
December 31, 1996 and financial highlights for the periods presented on
pages 36 and 37, except for the periods ended prior to December 31, 1996.
The financial highlights for the periods ended prior to December 31, 1996
were audited by other auditors, whose opinion thereon dated February 15,
1996 was unqualified.
Evergreen Utility Fund -- statement of operations for the year ended July
31, 1998, statements of changes in net assets for the year ended July 31,
1998, the seven months ended July 31, 1997 and the year ended December 31,
1996 and financial highlights for the periods presented on pages 38 and 39.
Evergreen Value Fund -- statement of operations for the year ended July 31,
1998, the statements of changes in net assets for the year ended July 31,
1998, the seven months ended July 31, 1997 and the year ended December 31,
1996 and financial highlights for the periods presented on pages 40 and 41.
Evergreen Fund for Total Return -- statement of operations for the year
ended July 31, 1998, statements of changes in net assets for the year ended
July 31, 1998, the eight months ended July 31, 1997 and the year ended No-
vember 30, 1996 and financial highlights for the periods presented on pages
42 and 43.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these fi-
nancial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted audited stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green Blue Chip Fund, Evergreen Growth and Income Fund, Evergreen Small Cap Eq-
uity Income Fund, Evergreen Utility Fund, Evergreen Value Fund and Evergreen
Fund for Total Return (six of the funds comprising Evergreen Equity Trust) as
of July 31, 1998, the results of their operations, changes in their net assets
and financial highlights for each of the years or periods specified in the
first paragraph above in conformity with generally accepted accounting princi-
ples.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 4, 1998
81
<PAGE>
Independent Auditors' Reports
To the Trustees and Shareholders of
Evergreen Income and Growth Fund
In our opinion, the accompanying Statement of Assets and Liabilities, including
the Schedule of Investments, and the related Statements of Operations and of
Changes in Net Assets and the Financial Highlights present fairly, in all mate-
rial respects, the financial position of Evergreen Income and Growth Fund (the
"Fund") at July 31, 1998, the results of its operations for the year then ended
and the changes in its net assets and the financial highlights for the year
ended July 31, 1998, the period ended July 31, 1997, and the year ended January
31, 1997, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Fund's management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
July 31, 1998 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above. The financial highlights presented for each of
the years or periods ended through January 31, 1996 were audited by other audi-
tors, whose report dated March 31, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
September 15, 1998
82
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Funds have
designated the following amounts as long-term 28% capital gain dis-
tributions and long-term 20% capital gain distributions for the fis-
cal year ended July 31, 1998:
<TABLE>
<CAPTION>
Aggregate Per Share
----------------------- -------------
28% 20% 28% 20%
---------------------------------
<S> <C> <C> <C> <C>
Blue Chip............... $18,080,605 $16,417,783 $1.758 $1.597
Growth and Income....... 14,384,603 26,192,557 0.259 0.471
Income and Growth....... 0 0 0.000 0.000
Small Cap............... 81,536 420,422 0.004 0.022
Utility................. 5,039,111 2,587,648 0.420 0.215
Value................... 77,345,830 115,539,118 1.734 2.591
Total Return............ 4,898,662 4,494,746 0.590 0.541
</TABLE>
For corporate shareholders, the following percentages of ordinary in-
come dividends paid during the fiscal year ended July 31, 1998 quali-
fied for the dividends received deduction.
<TABLE>
<S> <C>
Blue Chip................................................. 35.96%
Growth and Income......................................... 43.91%
Income and Growth......................................... 14.91%
Small Cap................................................. 72.93%
Utility................................................... 79.50%
Value..................................................... 83.91%
Total Return.............................................. 57.85%
</TABLE>
83
<PAGE>
Evergreen Funds
<TABLE>
<S> <C> <C>
Money Market Income Domestic Growth
Treasury Money Market Fund Capital Preservation and Income Fund Strategic Growth
Fund
Money Market Fund Short Intermediate Bond Fund Stock Selector
Fund
Municipal Money Market Fund Intermediate Term Government Securities Fund Evergreen Fund
Pennsylvania Municipal Money Market Fund Intermediate Term Bond Fund Omega Fund
U.S. Government Fund Small Company
Growth Fund
Tax Exempt Diversified Bond Fund Aggressive
Growth Fund
Short Intermediate Municipal Fund Strategic Income Fund Micro Cap Fund
High Grade Tax Free Fund High Yield Bond Fund
Tax Free Fund Global
International
California Tax Free Fund Balanced Global Leaders
Fund
Connecticut Municipal Bond Fund American Retirement Fund International
Growth Fund
Florida Municipal Bond Fund Balanced Fund Global
Opportunities Fund
Florida High Income Municipal Bond Fund Tax Strategic Foundation Fund Precious Metals
Fund
Georgia Municipal Bond Fund Foundation Fund Emerging Markets
Growth Fund
Maryland Municipal Bond Fund Latin America
Fund
Massachusetts Tax Free Fund Growth & Income
Missouri Tax Free Fund Utility Fund Express Line
New Jersey Tax Free Income Fund Income and Growth Fund 800.346.3858
New York Tax Free Fund Fund for Total Return
North Carolina Municipal Bond Fund Value Fund Investor Services
Pennsylvania Tax Free Fund Blue Chip Fund 800.343.2898
South Carolina Municipal Bond Fund Growth and Income Fund
Virginia Municipal Bond Fund Small Cap Equity Income Fund Retirement Plan
Services
800.247.4075
www.evergreenfunds.com
</TABLE>
63305 543691 RV0 9/98
---------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 19
HUDSON, MA
---------------
[LOGO OF EVERGREEN FUNDS(SM)
APPEARS HERE]
200 BERKELEY STREET
BOSTON, MA 02116
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth Fund American Retirement Fund Proforma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 70.2%
Aerospace & Defense - 0.2%
Loral Space & Communications 36 $ 2,169 36 $ 2,169
----------- ---------------
Automotive Equipment & Manufacturing - 3.0%
Arvin Industries Inc. 29 1,147 29 1,147
Daimler Chrysler AG Stuttgart 25 2,583 25 2,583
Dana Corp. 526 $ 21,628 30 1,234 556 22,862
General Motors Corp. 50 4,487 50 4,487
Simpson Industries, Inc. 170 1,786 170 1,786
----------- ----------- ---------------
26,115 6,750 32,865
----------- ----------- ---------------
Banks - 12.5%
Amsouth Bancorp 12 519 12 519
Associated Banc Corp. 100 3,138 100 3,138
BancorpSouth, Inc. 284 4,881 40 687 324 5,568
BancWest Corp. 300 13,476 300 13,476
Bank of New York Co., Inc. 40 1,420 40 1,420
Bank One Corp. 32 1,692 32 1,692
Bankers Trust Corp. 170 14,799 170 14,799
BB & T Corp. 61 2,328 61 2,328
Cape Cod Bank & Trust Co. 32 608 32 608
CB Bancshares, Inc. ** 192 6,160 192 6,160
CCB Financial Corp. 50 2,702 50 2,702
Comerica, Inc. 20 1,218 20 1,218
F&M National Corp. 78 2,270 78 2,270
First American Corp. 35 1,465 35 1,465
First State Bancorp 48 907 48 907
First Tennessee National Corp. 40 1,463 40 1,463
First Union Corp. *** 8 421 8 421
First Virginia Banks, Inc. 21 980 21 980
FirstMerit Corp. 8 217 8 217
Fleet Financial Group, Inc. 30 1,329 30 1,329
Hibernia Corp. Cl. A 53 888 53 888
Huntington Bancshares, Inc. 30 934 30 934
Interchange Financial Services Corp. 319 5,350 319 5,350
KeyCorp 100 3,188 100 3,188
M & T Bank Corp. 18 9,136 18 9,136
Marshall & Ilsley Corp. 100 5,925 100 5,925
Mercantile Bancorp, Inc. 477 21,451 477 21,451
One Valley Bancorp of West Virginia, Inc. 16 492 16 492
Pacific Century Financial Corp. 116 2,563 116 2,563
PNC Bank Corp. 173 8,881 173 8,881
Premier National Bancorp, Inc. 38 662 38 662
Republic Security Financial Corp. 189 1,734 189 1,734
Second Bancorp, Inc. 79 1,758 79 1,758
Summit Bancorp 10 408 10 408
Suntrust Banks, Inc. 24 1,694 24 1,694
Susquehanna Bancshares, Inc. 111 2,165 36 700 147 2,865
United Bankshares, Inc. 7 170 7 170
USBancorp, Inc. 322 5,795 322 5,795
----------- ----------- ---------------
121,343 15,231 136,574
----------- ----------- ---------------
Building, Construction & Furnishings - 2.2%
Armstrong World Industries, Inc. 304 17,927 10 589 314 18,516
Eagle Hardware & Garden, Inc. 83 3,031 83 3,031
La-Z-Boy Chair Co. 44 799 44 799
Southdown, Inc. 23 1,252 23 1,252
----------- ----------- ---------------
18,726 4,872 23,598
----------- ----------- ---------------
Business Equipment & Services - 0.0%
Dun & Bradstreet Corp. 15 458 15 458
----------- ---------------
Capital Goods - 1.1%
Caterpillar, Inc. 271 11,759 271 11,759
----------- ---------------
Chemical & Agricultural Products - 0.5%
Du Pont (E. I.) De Nemours & Co. 100 5,119 100 5,119
----------- ---------------
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Products & Services - 1.5%
CPI Corp. 50 $ 1,322 50 $ 1,322
Lancaster Colony Corp. 80 2,275 80 2,275
Newell Co. 120 $ 4,987 15 623 135 5,610
Rubbermaid, Inc. 50 1,613 50 1,613
Service Corp. International 200 3,175 200 3,175
Tupperware Corp. 115 2,365 115 2,365
----------- ----------- ------------
10,527 5,833 16,360
----------- ----------- ------------
Diversified Companies - 0.6%
Harris Corp. 10 375 10 375
Ruddick Corp. 80 1,410 80 1,410
Tomkins Plc, ADR 225 3,347 80 1,190 305 4,537
----------- ----------- ------------
3,347 2,975 6,322
----------- ----------- ------------
Electronic Equipment & Services - 0.2%
AMP, Inc. 46 2,396 46 2,396
----------- ------------
Electrical Equipment & Services - 3.5%
Emerson Electric Co. 78 4,538 12 698 90 5,236
Hubbell, Inc. Cl. A 5 175 57 2,075 62 2,250
Hubbell, Inc. Cl. B 230 8,424 230 8,424
Thomas & Betts Corp. 449 19,836 43 1,900 492 21,736
----------- ----------- ------------
32,973 4,673 37,646
----------- ----------- ------------
Finance & Insurance - 5.9%
Dain Rauscher Corp. 30 926 30 926
Edwards (A.G.), Inc. 50 1,694 50 1,694
Exel Limited Hamilton 79 5,041 79 5,041
Hartford Financial Services Group, Inc. 20 1,039 20 1,039
LaSalle Re Holdings Ltd. 100 1,850 20 370 120 2,220
Lincoln National Corp. 15 1,249 15 1,249
Ohio Casualty Corp. 196 7,783 196 7,783
Paine Webber Group, Inc. 743 27,630 20 744 763 28,374
Provident Co., Inc. 143 6,140 143 6,140
Torchmark Corp. 290 9,516 290 9,516
Transamerica Corp. 12 672 12 672
----------- ----------- ------------
59,654 5,000 64,654
----------- ----------- ------------
Food & Beverage Products - 0.5%
Flowers Industries, Inc. 71 1,706 71 1,706
H. J. Heinz Co. 18 1,014 18 1,014
Lance, Inc. 50 931 50 931
Sara Lee Corp. 2 51 2 51
Sbarro, Inc. 62 1,673 62 1,673
Tasty Baking Corp. 20 263 20 263
----------- ----------- ------------
1,724 3,914 5,638
----------- ----------- ------------
Healthcare Products & Services - 5.5%
American Home Products Corp. 270 15,846 20 1,174 290 17,020
Baxter International, Inc. 175 12,414 30 2,128 205 14,542
Beckman Coulter, Inc. 200 9,985 200 9,985
Bristol-Myers Squibb Co. 59 7,614 14 1,795 73 9,409
Shared Medical System Corp. 152 7,167 50 2,354 202 9,521
----------- ----------- ------------
53,026 7,451 60,477
----------- ----------- ------------
Industrial Specialty Products & Services - 0.3%
Federal Signal Corp. 80 2,125 80 2,125
Leggett & Platt, Inc. 30 611 30 611
Lindberg Corp. 42 525 42 525
Timken Co. 20 434 20 434
----------- ----------- ------------
434 3,261 3,695
----------- ----------- ------------
Information Services & Technology - 1.7%
Hewlett-Packard Co. 100 7,837 100 7,837
* Network Associates, Inc. 200 10,475 200 10,475
----------- ------------
18,312 18,312
----------- ------------
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
--------------------- ------------------ -------------------
Shares Value Shares Value Shares Value
<S> <C> <C> <C> <C> <C> <C>
Machinery - Diversified - 0.1%
Hardinge, Inc. 83 $ 1,328 83 $ 1,328
--------- ---------
Metal Products & Services - 0.0%
Titanium Metals Corp. 50 444 50 444
--------- ---------
Oil/Energy - 5.4%
Amerada Hess Corp. 50 $ 2,375 50 2,375
Atlantic Richfield Co. 337 19,335 23 1,320 360 20,655
Consolidated Natural Gas Co. 6 313 6 313
Equitable Resources, Inc. 293 7,639 293 7,639
Exxon Corp. 15 1,085 15 1,085
Mobil Corp. 10 877 10 877
Texaco, Inc. 12 568 12 568
Williams Companies, Inc. 548 18,091 60 1,980 608 20,071
YPF SA, ADR 158 5,036 158 5,036
----------- --------- ---------
52,789 5,830 58,619
----------- --------- ---------
Oil Field Services - 0.1%
BP Amoco Plc 11 859 11 859
Lufkin Industries, Inc. 32 605 32 605
--------- ---------
1,464 1,464
--------- ---------
Other - 2.5%
AMR Corp. 50 2,937 50 2,937
Brandywine Realty Trust REIT 10 165 10 165
British Airways, ADR 34 2,208 34 2,208
Cincinnati Bell, Inc. 50 1,016 50 1,016
Companhia Paranaense de Energia-Copel, Plc, ADR 300 1,200 300 1,200
Convergys Corp. 50 900 50 900
Delta Air Lines, Inc. 65 3,546 65 3,546
Ingersoll Rand Co., 6.75%, PRIDES 100 2,462 100 2,462
Lincoln National Corp. 5 417 5 417
Lincoln National Corp., Inc., 7.75%, PRIDES 267 6,656 267 6,656
NICOR, Inc. 22 841 22 841
S&P 500 Depositary Receipts 36 4,597 36 4,597
----------- ---------
26,945 26,945
----------- ---------
Printing, Publishing, Broadcasting & Entertainment - 0.4%
Bowne & Co., Inc. 52 798 52 798
Reader's Digest Association, Inc. 50 1,438 50 1,403 100 2,841
Time Warner, Inc. 12 725 12 725
----------- --------- ---------
1,438 2,926 4,364
----------- --------- ---------
Real Estate - 3.6%
Burnham Pacific Properties, Inc. REIT 24 283 24 283
Canadian Hotel Properties REIT 838 4,337 838 4,337
Equity Residential Properties Trust REIT 125 5,082 125 5,082
Gables Residential Trust REIT 313 7,172 313 7,172
Kranzco Realty Trust REIT 462 6,526 462 6,526
Meditrust Co. REIT 850 13,334 850 13,334
Post Property, Inc. REIT 75 2,794 75 2,794
----------- ---------
39,528 39,528
----------- ---------
Retailing & Wholesale - 0.6%
Freds, Inc. 60 776 60 776
J. C. Penney Co., Inc. 43 1,685 43 1,685
Longs Drug Stores Corp. 30 1,149 30 1,149
Saks, Inc. 70 2,587 70 2,587
--------- ---------
6,197 6,197
--------- ---------
Thrift Institutions - 0.3%
First Essex Bancorp, Inc. 56 998 56 998
Horizon Financial Corp. 18 245 18 245
Jacksonville Bancorp, Inc. 122 1,952 122 1,952
Peoples Heritage Financial Group 10 188 10 188
----------- --------- ---------
3,138 245 3,383
----------- --------- ---------
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
----------------- ----------------- -------------------
Shares Value Shares Value Shares Value
<S> <C> <C> <C> <C> <C> <C>
Transportation - 2.4%
Delta Air Lines, Inc. 20 $ 1,091 20 $ 1,091
* UAL Corp. 150 $ 9,338 20 1,245 170 10,583
Union Pacific Corp. 260 13,374 27 1,389 287 14,763
--------- --------- ----------
22,712 3,725 26,437
--------- --------- ----------
Utilities - Electric - 4.4%
Black Hills Corp. 11 264 11 264
Central Hudson Gas & Electric Corp. 6 262 6 262
FPL Group, Inc. 239 13,115 239 13,115
Houston Industries, Inc. 80 2,430 80 2,430
Interstate Energy Corp. 124 3,560 19 558 143 4,118
LG & E Energy Corp. 65 1,728 65 1,728
MDU Resources Group, Inc. 180 4,140 180 4,140
Midamerican Energy Holdings Co. 125 3,352 125 3,352
Potomac Electric Power Co. 146 3,415 146 3,415
PP&L Resources, Inc. 51 1,374 37 987 88 2,361
Public Service Company of New Mexico 40 753 40 753
Public Service Enterprise Group, Inc. 53 2,103 53 2,103
Sempra Energy 93 2,139 93 2,139
TNP Enterprises, Inc. 150 5,342 35 1,245 185 6,587
Wisconsin Energy Corp. 40 1,040 40 1,040
--------- --------- ----------
36,552 11,255 47,807
--------- --------- ----------
Utilities - Gas - 4.9%
Chesapeake Utilities Corp. 78 1,380 78 1,380
Keyspan Energy 1,036 28,033 94 2,544 1,130 30,577
Northwest Natural Gas Co. 39 922 39 922
Peoples Energy Corp. 336 11,602 55 1,898 391 13,500
Piedmont Natural Gas Co., Inc. 98 3,029 98 3,029
South Jersey Industries, Inc. 10 256 10 256
UGI Corp. 190 4,176 190 4,176
Yankee Energy System, Inc. 8 230 8 230
--------- --------- ----------
48,706 5,364 54,070
--------- --------- ----------
Utilities - Telephone - 6.3%
Frontier Corp. 305 11,022 35 1,264 340 12,286
GTE Corp. 250 16,875 250 16,875
* Nortel Inversora SA MEDS 100 4,463 100 4,463
Telecom Corp. New Zealand Ltd. 1,503 31,093 1,503 31,093
U.S. West, Inc. 20 1,234 40 2,468 60 3,702
--------- --------- ----------
64,687 3,732 68,419
--------- --------- ----------
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost - $633,982,
$86,861 and $720,810, respectively) 659,554 107,493 767,047
- ---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - 18.8%
Aerospace & Defense - 1.1%
* Loral Space & Communications 200 12,050 200 12,050
--------- ----------
Banks - 0.9%
National Australia Bank, Ltd., 7.875%, Ser. UNIT 210 6,379 50 1,519 260 7,898
WBK Trust, 10.00% STRYPES
(exchangeable for Westpac Banking Corp. Common Stock) 58 1,885 58 1,885
--------- --------- ----------
6,379 3,404 9,783
--------- --------- ----------
Communications Systems & Services - 1.8%
AirTouch Communications, Inc., 6.00%, Ser. B 200 15,675 15 1,176 215 16,851
Qwest Trends Trust, 5.75%, 144A 50 2,669 50 2,669
--------- --------- ----------
18,344 1,176 19,520
--------- --------- ----------
Diversified Companies - 0.2%
Ingersoll Rand Co., 6.75% PRIDES 79 1,950 79 1,950
--------- ----------
Electrical Equipment & Services - 0.8%
Pioneer Standard Financial Trust, 6.75%, 3/31/2028, 144A 165 6,930 50 2,100 215 9,030
--------- --------- ----------
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Finance & Insurance - 2.1%
American General Corp., $3.00, Ser. A, MIPS 20 $ 1,785 20 $ 1,785
American Heritage Life Investment Corp., 8.50%, PRIDES 13 864 13 864
Frontier Financing Trust, 6.25%, TOPRS 270 $ 12,050 11 491 281 12,541
Frontier Financing Trust, 6.25%, TOPRS, 144A 20 893 20 893
Philadelphia Consolidated Holdings, Inc., PRIDES 125 1,250 125 1,250
St. Paul Capital, 6.00%, MIPS 100 5,800 100 5,800
--------- ---------- ------------
17,850 5,283 23,133
--------- ---------- ------------
Food & Beverage Products - 2.5%
Dole Food Co., 7.00%, TRACES 200 6,100 200 6,100
Wendys Financing I, 5.00%, Ser. A, TECONS 400 21,450 400 21,450
--------- ------------
27,550 27,550
--------- ------------
Leisure & Tourism - 0.4%
Lodgian Capital Trust I, 7.00%, CRESTS, 144A 170 3,655 50 1,075 220 4,730
--------- ---------- ------------
Metal Products & Services - 0.3%
Timet Capital Trust I, 6.625%, 11/01/2026, BUCS, 144A 100 2,512 20 502 120 3,014
--------- ---------- ------------
Oil/Energy - 0.4%
Callon Petroleum Co., 8.50%, Ser. A 95 2,565 16 437 111 3,002
Nuevo Energy Co., 5.75%, Ser. A, TECONS 48 1,581 48 1,581
--------- ---------- ------------
4,146 437 4,583
--------- ---------- ------------
Oil Field Services - 0.3%
Evi Inc., 5.00% 100 3,062 100 3,062
--------- ------------
Printing, Publishing, Broadcasting & Entertainment - 1.5%
Houston Industries, Inc., 7.00%, ACES
(exchangeable for Time Warner, Inc. Common Stock) 85 9,042 27 2,872 112 11,914
Merrill Lynch & Co., Inc. 6.00%, STRYPES due 6/1/1999
(exchangeable for Cox Communications, Inc. Common Stock) 20 1,193 20 1,193
TCI Communications, Inc., $2.125, Ser. A 10 1,375 10 1,375
Merrill Lynch & Co., Inc. 8.50%, STRYPES due 5/15/2001
(exchangeable for Dollar General Corp. Common Stock) 65 2,470 65 2,470
--------- ---------- ------------
9,042 7,910 16,952
--------- ---------- ------------
Retailing & Wholesale - 0.1%
CVS Automatic Common Exchange Security, TRACES 7 724 7 724
---------- ------------
Telecommunication Services & Equipment - 3.3%
Qualcomm Financial Trust I, 5.75%, 3/01/2012 700 36,841 700 36,841
--------- ------------
Transportation - 1.9%
CNF Trust I, 5.00%, Ser. A, TECONS
(Exchangeable for CNF Transportation, Inc. common stock) 69 4,199 20 1,222 89 5,421
Union Pacific Capital Trust, 6.25%, TIDES, 144A 280 14,000 20 1,000 300 15,000
--------- ---------- ------------
18,199 2,222 20,421
--------- ---------- ------------
Utilities - Electric - 0.5%
BNDES Participacoes S.A., 10.50%, DECS 168 2,604 45 698 213 3,302
Texas Utilities Co. 40 2,215 40 2,215
--------- ---------- ------------
2,604 2,913 5,517
--------- ---------- ------------
Utilities - Gas - 0.7%
MCN Corp., 8.75%, PRIDES 394 7,200 394 7,200
--------- ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred (cost - $187,792,
$28,315 and $216,107, respectively) 176,364 29,696 206,060
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
---------------------- --------------------- --------------------
Principal Principal Principal
Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
CONVERTIBLE DEBENTURES - 3.2%
Business Equipment & Services - 0.0%
Interim Services, Inc., 4.50%, 6/1/2005 $ 250 $ 221 $ 250 $ 221
---------- ---------
Consumer Products & Services - 0.2%
Action Performance Companies, Inc., 4.75%, 4/1/2005, 144A 2,000 2,270 2,000 2,270
---------- ---------
Electrical Equipment & Services - 1.8%
* Phototronics, Inc., 6.00%, 6/01/2004 $ 9,700 $ 10,815 9,700 10,815
* Solectron Corp., 0.00%, 1/27/2019, 144A 16,000 7,640 4,000 1,910 20,000 9,550
--------- ---------- ---------
18,455 1,910 20,365
--------- ---------- ---------
Leisure & Tourism - 0.2%
Family Golf Centers, Inc., 5.75%, 10/15/2004, 144A 2,500 2,059 2,500 2,059
---------- ---------
Oil/Energy - 0.0%
Swift Energy Co., 6.25%, 11/15/2006 820 597 820 597
--------- ---------
Oil Field Services - 0.2%
Nabors Industries, Inc., 5.00%, 5/15/2006 2,000 1,935 2,000 1,935
---------- ---------
Retailing & Wholesale - 0.2%
Central Garden & Pet Co.:
6.00%, 11/15/2003, 144A 500 438 500 438
6.00%, 11/15/2003 1,600 1,400 1,600 1,400
---------- ---------
1,838 1,838
---------- ---------
Transportation - 0.6%
Continental Airlines Inc., 6.75%, 4/15/2006 5,000 6,094 1,000 1,219 6,000 7,313
--------- ---------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Debentures (cost $24,356,
$12,449 and $36,805, respectively) 25,146 11,452 36,598
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.3%
Banks - 0.1%
NationsBank Corp., 6.50%, 8/15/2003 1,000 1,037 1,000 1,037
---------- ---------
Finance & Insurance - 0.1%
American General Finance Corp., 7.125%, 12/1/1999 1,000 1,013 1,000 1,013
---------- ---------
Telecommunication Services & Equipment - 0.1%
GTE Southwest, Inc., 5.82%, 12/1/1999, Ser. A 1,000 1,005 1,000 1,005
---------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $0,
$3,011 and $3,011 respectively) 3,055 3,055
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT & AGENCY OBLIGATIONS - 6.1%
U.S. Government Agency Notes & Bonds - 5.3%
Federal Farm Credit Bank MTN, 5.75%, 12/7/2028 2,000 1,993 2,000 1,993
Federal Home Loan Bank:
5.375%, 10/06/2003 2,000 1,990 2,000 1,990
5.50%, 12/11/2013 3,000 3,001 3,000 3,001
5.65%, 12/29/2000 2,000 2,024 2,000 2,024
6.53%, 12/28/2007 2,000 2,030 2,000 2,030
7.00%, 7/14/2005 2,000 2,048 2,000 2,048
Federal Home Loan Mortgage Corp.:
6.54%, 12/10/2007 2,000 2,073 2,000 2,073
6.54%, 3/19/2008 2,000 2,034 2,000 2,034
6.91%, 6/20/2005 1,000 1,022 1,000 1,022
7.585%, 9/19/2006 2,000 2,116 2,000 2,116
7.865%, 8/8/2011 2,000 2,114 2,000 2,114
</TABLE>
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and Growth American Retirement
Fund Fund Proforma Combined
------------------------------------------- --------------------
Principal Principal Principal
Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Federal National Mortgage Assn.:
5.65%, 2/22/2028 $ 5,000 $ 4,917 $ 5,000 $ 4,917
6.00%, 1/14/2005 1,850 1,882 1,850 1,882
6.10%, 1/26/2005 2,215 2,241 2,215 2,241
6.16%, 1/23/2008 3,000 3,062 3,000 3,062
6.24%, 1/14/2008 2,000 2,045 2,000 2,045
6.32%, 3/3/2008 3,000 3,096 3,000 3,096
6.41%, 3/8/2006 1,000 1,069 1,000 1,069
6.42%, 2/12/2008 5,000 5,099 5,000 5,099
6.46%, 1/1/2008 2,000 2,065 2,000 2,065
6.52%, 3/5/2008 4,000 4,086 4,000 4,086
7.28%, 5/23/2007 3,000 3,174 3,000 3,174
Federal National Mortgage Assn.:
MTN, 6.875%, 9/24/2012 2,355 2,551 2,355 2,551
Student Loan Marketing Assn., 5.90%, 2/20/2001 1,000 1,004 1,000 1,004
---------- ------------
58,736 58,736
---------- ------------
U.S. Treasury Bonds - 0.8%
U.S. Treasury Bonds:
6.00%, 2/15/2026 6,000 6,589 6,000 6,589
7.125%, 2/15/2023 1,500 1,857 1,500 1,857
---------- ------------
8,446 8,446
---------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (cost $0, $65,339
and $65,339, respectively) 67,182 67,182
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.5%
U.S. Government Agency Obligations - 1.5%
Federal Farm Credit Bank Discount Notes
4.725%, 2/24/1999 $ 1,720 $ 1,715 $ 1,720 $ 1,715
--------- ------------
Federal Home Loan Mortgage Discount Notes:
4.69%, 2/18/1999 1,220 1,217 1,220 1,217
4.70%, 2/8/1999 575 575 575 575
4.72%, 2/16/1999 790 788 790 788
4.72%, 2/18/1999 9,690 9,668 9,690 9,668
4.73%, 2/19/1999 380 379 380 379
4.74%, 2/8/1999 1,600 1,599 1,600 1,599
4.75%, 2/11/1999 230 230 230 230
--------- ---------- ------------
12,055 2,401 14,456
--------- ---------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (cost - $13,770,
$2,401 and $16,171, respectively) 13,770 2,401 16,171
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost - $859,900,
$198,376 and $1,058,276, respectively) (99.9%) 874,834 221,279 1,096,113
Other Assets and Liabilities - net (0.1%) (2,501) 838 (1,663)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS (100.0%) $ 872,333 $ 222,117 $ 1,094,450
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Investment in non-controlled affiliate. Income & Growth Fund owned
over 5% of the outstanding voting shares of CB Bancshares, Inc. The
Fund had a cost basis of $6,024,625 in the issue at January 31, 1999.
*** At January 31, 1999, American Retirement Fund owned 8,000 shares of
common stock of First Union Corp. at a cost of $106,108. These shares
were purchased by the Fund prior to the acquistion of the investment
advisor and Lieber & Company by First Union.
144A Security that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. This security has been
determined to be liquid under guidelines established by the Board of
Trustees.
Summary of Abbreviations
ACES Automatically Convertible Equity Securities
ADR American Depository Receipts
BUCS Beneficial Unsecured Convertible Securities
CRESTS Convertible Redeemable Equity Structured Trust Securities
DECS Dividend Enhanced Convertible Stock
MEDS Manditorilly Exchangeable Debt Securities
MIPS Monthly Income Preferred Shares
MTN Medium Term Notes
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
STRYPES Structured Yield Product Exchangeable for Stock
TECONS Term Convertible Shares
TIDES Term Income Deferrable Equitable Securities
TOPRS Trust Originated Preferred Securities
TRACES Trust Automatic Common Exchangeable Securities
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Statements of Assets and Liabilities (000's)
January 31, 1999
<TABLE>
<CAPTION>
American
Income and Retirement ProForma
Growth Fund Fund Adjustments Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of securities $ 859,900 $ 198,376 $ 1,058,276
Net unrealized gains or losses on securities 14,934 22,903 37,837
- ------------------------------------------------------------------------------------------------------------------------------------
Market value of securities 874,834 221,279 1,096,113
Cash 67 42 109
Foreign currency, at value (cost $3,886, $0 and $3,886 respectively) 3,887 0 3,887
Receivable for securities sold 4,306 453 4,759
Receivable for Fund shares sold 85 234 319
Dividends and interest receivable 2,198 1,811 4,009
Prepaid expenses and other assets 66 32 98
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 885,443 223,851 1,109,294
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for securities purchased 10,491 1,259 11,750
Payable for Fund shares redeemed 1,460 199 1,659
Advisory fee payable 741 167 908
Distribution Plan expenses payable 21 61 82
Accrued expenses and other liabilities 397 48 445
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 13,110 1,734 14,844
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 872,333 $ 222,117 $ 1,094,450
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets represented by
Paid-in capital $ 862,334 $ 199,312 $ 1,061,646
Undistributed (overdistributed) net investment income 13,093 583 13,676
Accumulated net realized gains or losses on securities
and foreign currency related transactions (18,030) (681) (18,711)
Net unrealized gains or losses on securities
and foreign currency related transactions 14,936 22,903 37,839
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 872,333 $ 222,117 $ 1,094,450
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
Net assets $ 13,379 $ 28,167 $ 41,546
Shares outstanding 650 1,845 (477)(a) 2,018
Net asset value $20.59 $15.27 $20.59
Maximum offering price (based on sales charge of 4.75%) $21.62 $16.03 $21.62
Class B
Net assets $ 51,033 $ 157,742 $208,775
Shares outstanding 2,500 10,389 (2,662)(a) 10,227
Net asset value $20.41 $15.18 $20.41
Class C
Net assets $ 1,074 $ 2,195 $3,269
Shares outstanding 53 144 (37)(a) 160
Net asset value $20.41 $15.22 $20.41
Class Y
Net assets $ 806,847 $ 34,013 $840,860
Shares outstanding 39,172 2,227 (576)(a) 40,823
Net asset value $20.60 $15.27 $20.60
</TABLE>
(a) Reflects the impact of converting shares of the target fund into the
survivor fund.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Income and Growth Fund
Pro Forma Combining Financial Statements (Unaudited)
Statements of Operations (000's)
January 31, 1999
<TABLE>
<CAPTION>
Income and American Pro Forma
Growth Fund Retirement Fund Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of
$449, $4 and $453, respectively) $ 51,154 $ 5,361 $ 56,515
Interest 3,446 5,400 8,846
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment income 54,600 10,761 65,361
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses
Advisory fee 9,240 1,717 179(a) 11,136
Distribution Plan expenses 589 1,678 2,259
Transfer agent fee 1,698 473 2,171
Trustees' fees and expenses 26 6 32
Printing and postage expenses 272 147 (81)(b) 338
Custodian fee 239 58 297
Registration and filing fees 86 76 (70)(c) 92
Professional fees 38 26 (20)(c) 44
Other 72 5 12 (d) 89
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 12,252 4,186 20 16,458
Less: Fee waivers and expense reimbursements 0 0 (821)(e) (821)
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses 12,252 4,186 (801) 15,637
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 42,348 6,575 801 49,724
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities
and foreign currency related transactions
Net realized gains or losses on:
Securities 68,474 1,239 0 69,713
Foreign currency related transactions 63 0 0 63
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gains or losses on securities
and foreign currency related transactions 68,537 1,239 0 69,776
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains or losses on securities
and foreign currency related transactions (110,158) (8,839) 0 (118,997)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities
and foreign currency related transactions (41,621) (7,600) 0 (49,221)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 727 $ (1,025) $ 801 $ 503
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects an increase based on the surviving fund's fee schedule.
(b) Reflects expected cost savings when the funds are combined.
(c) Reflects a savings resulting from the elimination of duplicate expenses.
(d) Reflects an increase when the funds are combined.
(e) Reflects a 7 basis point Advisory Fee Waiver implemented due to the merger.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Income and Growth Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
January 31, 1999
1. Basis of Combination The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Schedule of Investments and the related
Pro Forma Combining Statement of Operations ("Pro Forma Statements"),
reflect the accounts of Evergreen Income and Growth Fund ("Income and Growth
Fund") and Evergreen American Retirement Fund ("American Retirement Fund")
at January 31, 1999 and for the respective periods then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of
American Retirement Fund. The Reorganization provides for the acquisition of
the assets and identified liabilities of American Retirement Fund by Income
and Growth Fund, in exchange for Class A, Class B, Class C and Class Y
shares of Income and Growth Fund. Thereafter, there will be a distribution
of Class A, Class B, Class C and Class Y shares of Income and Growth Fund to
the respective shareholders of American Retirement Fund in liquidation and
subsequent termination thereof. As a result of the Reorganization, the
shareholders of American Retirement Fund will become the owners of that
number of full and fractional Class A, Class B, Class C and Class Y shares
of Income and Growth Fund having an aggregate net asset value equal to the
aggregate net asset value of their shares of American Retirement Fund as of
the close of business immediately prior to the date that American Retirement
Fund net assets are exchanged for Class A, Class B, Class C and Class Y
shares of Income and Growth Fund.
The Pro Forma Statements reflect the expenses of each Fund in carrying out
its obligations under the Reorganization as though the merger occurred at
the beginning of the respective periods presented.
The information contained herein is based on the experience of each Fund for
the respective periods then ended and is designed to permit shareholders of
the consolidating mutual funds to evaluate the financial effect of the
proposed Reorganization. The expenses of American Retirement Fund in
connection with the Reorganization (including the cost of any proxy
soliciting agents) will be borne by First Union National Bank of North
Carolina. It is not anticipated that the securities of the combined
portfolio will be sold in significant amounts in order to comply with the
policies and investment practices of Income and Growth Fund.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statement
of Additional Information.
2. Shares of Beneficial Interest The Pro Forma net asset values per share
assume the issuance of Class A, Class B, Class C and Class Y shares of
Income and Growth Fund which would have been issued at January 31, 1999 in
connection with the proposed Reorganization. Shareholders of American
Retirement Fund would receive Class A, Class B, Class C and Class Y shares
of Income and Growth Fund based on conversion ratios determined on January
31, 1999. The conversion ratios are calculated by dividing the net asset
value of American Retirement Fund by the net asset value per share of the
respective class of Income and Growth Fund.
3. Pro Forma Operations The Pro Forma Combining Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of
each Fund's gross investment income. Pro Forma operating expenses include
the actual expenses of the Funds adjusted to reflect the expected expenses
of the combined entity. The combined pro forma expenses were calculated by
determining the expense rates based on the combined average assets of the
two funds and applying those rates to the average net assets of the Income
and Growth Fund for the twelve months ended January 31, 1999 and to the
average net assets of the American Retirement Fund for the twelve months
ended January 31, 1999. The adjustments reflect those amounts needed to
adjust the combined expenses to these rates.
EVERGREEN EQUITY TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1.Declaration of Trust. Incorporated by reference to Evergreen Equity Trust's
Registration Statement on Form N-1A filed on October 8, 1997. Registration No.
333-37453 ("Form N-1A Registration Statement")
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Evergreen Equity Trust Articles II., III.6(c), IV.(3), IV.(8),
V., VI., VII., and VIII and ByLaws Articles II., III., and VIII.
6.(a).Investment Advisory Agreement between Evergreen Asset Management Corp. and
Evergreen Equity Trust. Incorporated by reference to the Form N-1A
Registration Statement.
6(b). Form of Interim Investment Advisory Agreement. Exhibit B to Prospectus
contained in Part A of this Registration Statement.
6(c. Sub-Advisory Agreement between Evergreen Asset Management Corp. and
Lieber & Company.
7(a). Distribution Agreement between Evergreen Distributor, Inc. and Evergreen
Equity Trust. Incorporated by reference to the Form N-1A Registration Statement.
7(b). Form of Dealer Agreement for Class A , Class B and Class C shares used by
Evergreen Distributor, Inc. Incorporated by reference to the Form N-1A
Registration Statement.
8. Form of Deferred Compensation Plan. Incorporated by reference to the
Form N-1A Registration Statement.
9. Agreement between State Street Bank and Trust Company and Evergreen
Equity Trust. Incorporated by reference to Form N-1A Registration
Statement. Registration Statement.
10. Rule 12b-1 Distribution Plan. Incorporated by reference to the Form N-1A
Registration Statement.
11. Opinion and Consent of Sullivan & Worcester LLP. To be Filed by Amendment on
or about May 13, 1999.
12. Tax Opinion and Consent of Sullivan & Worcester LLP. To be Filed by
Amendment on or about May 13, 1999.
13. Not applicable.
14. Consent of KPMG Peat Marwick LLP. Filed herewith.
15. Consent of PricewaterhouseCoopers LLP. Filed herewith.
16. Not applicable.
17. Powers of Attorney. Previously Filed.
18. Form of Proxy Card. Filed herewith.
19. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus that is a part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by person who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a apart of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new Registration Statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act the Trust has duly caused this Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Columbus, and
State of Ohio, on the 12th day of April, 1999.
EVERGREEN EQUITY TRUST
By: /s/ William J. Tomko
----------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 12th day of April, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee
Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD
- ------------------------------ -------------------------------
David M. Richardson* Russell A. Salton, III MD*
Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
*By: /s/ Catherine E. Foley
- -------------------------------
Catherine E. Foley
Attorney-in-Fact
</TABLE>
*Catherine Foley, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
11 Opinion and Consent of Sullivan & Worcester LLP
12 Consent of KPMG Peat Marwick LLP
13 Consent of PricewaterhouseCoopers LLP
14 Form of Proxy
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
April 12, 1999
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen Equity Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 18, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen Income and Growth Fund (the "Acquiring Fund"), a series of the Trust.
We understand that the Trust is about to file a Registration Statement on Form
N-14 for the purpose of registering shares of the Trust under the Securities Act
of 1933, as amended (the "1933 Act"), in connection with the proposed
acquisition by the Acquiring Fund of all of the assets of Evergreen American
Retirement Fund (the "Acquired Fund"), a series of the Trust, in exchange solely
for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the
identified liabilities of the Acquired Fund pursuant to an Agreement and Plan of
Reorganization, the form of which is included in the Form N-14 Registration
Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware. To the extent that the conclusions based on the
laws of the State of Delaware are involved in the opinion set forth herein
below, we have relied, in rendering such opinions, upon our examination of
Chapter 38 of Title 12 of the Delaware Code Annotated, as amended, entitled
"Treatment of Delaware Business Trusts" (the "Delaware business trust law") and
on our knowledge of interpretation of analogous common law of The Commonwealth
of Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on July 23, 1999, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Equity Trust
We consent to the use of our report, dated May 1, 1998, for Evergreen American
Retirement Fund, a portfolio of Evergreen Equity Trust, incorporated herein by
reference and to the reference to our firm under the caption "FINANCIAL
STATEMENTS AND EXPERTS" in the Prospectus/Proxy Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 12, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus/Proxy
Statement (the "Prospectus/Proxy") and the Statement of Additional Information
constituting parts of this Registration Statement on Form N-14 (the Registration
Statement") of Evergreen Equity Trust of our report dated September 15, 1998
relating to the financial statements and financial highlights of Evergreen
Income and Growth Fund (the "Fund") appearing in the Fund's July 31, 1998 Annual
Report to Shareholders, which is also incorporated by reference into the
Registration Statement.
We also consent to the reference to us under the heading "Financial Statements
and Experts" in such Prospectus/Proxy.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts
April 12, 1999
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at
perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN AMERICAN RETIREMENT FUND,
a series of Evergreen Equity Trust
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce and Maureen E. Towle or any of them as Proxies of the
undersigned, with full power of substitution, to vote on behalf of the
undersigned all shares of Evergreen American Retirement Fund, a series of
Evergreen Equity Trust ("American Retirement Fund") that the undersigned is
entitled to vote at the special meeting of shareholders of American Retirement
Fund to be held at 2:00 p.m. on Friday, July 23, 1999 at the offices of the
Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116
and at any adjournments thereof, as fully as the undersigned would be entitled
to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If
joint owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
Date , 1998
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN EQUITY
TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO
BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY WILL BE VOTED
AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE BOARD OF
TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMENDS A VOTE FOR THE PROPOSALS.
PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby
Evergreen Income and Growth Fund, a series of Evergreen Equity Trust, will (i)
acquire all of the assets of American Retirement Fund in exchange for
shares of Evergreen Income and Growth Fund; and (ii) assume the identified
liabilities of American Retirement Fund, as substantially described in the
accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
