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 Utility 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.
Evergreen Investment Management Company
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- 37453); 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, 1999 will be filed with the Commission
on or about October 29, 1999.
It is proposed that this filing will become effective on August 13,
1999 pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
AMERICA'S UTILITY FUND, INC.
901 East Byrd Street
Richmond, Virginia 23219
August 27, 1999
Dear Shareholder,
I am writing to shareholders of America's Utility Fund, Inc. (the "Fund") to
inform you of a Special Shareholders' meeting to be held on October 15, 1999.
Before that meeting, I would like your vote on the important issues affecting
your Fund as described in the attached Prospectus/Proxy Statement.
The meeting being held is to vote on three proposals designed to integrate the
Mentor family of mutual funds into the Evergreen family of funds. In effect,
your Fund will merge with Evergreen Utility Fund after your Fund is converted
into a newly organized series of Evergreen Equity Trust. The proposals
contemplate that the conversion to a series of Evergreen Equity Trust will occur
in October 1999 and the merger of the two Funds will occur in March 2000. This
two-step consolidation is caused by certain timing issues.
The Prospectus/Proxy Statement includes three proposals. The first proposal
requests that shareholders consider and vote upon the conversion of the Fund to
a series of Evergreen Equity Trust, a Delaware business trust. If approved, the
Fund will change its name to Evergreen America's Utility Fund and its shares
will be converted to Class A shares of Evergreen America's Utility Fund. After
the conversion, the Fund will conduct its business until the effective date of
the reorganization described below.
The second proposal requests that shareholders consider the adoption of
standardized investment restrictions for the Fund. This proposal is intended to
provide consistency and increased flexibility throughout the Evergreen fund
family.
The third proposal requests that shareholders consider and act upon an Agreement
and Plan of Reorganization whereby all of the assets of the Fund would be
acquired by Evergreen Utility Fund in exchange for Class A shares of Evergreen
Utility Fund and the assumption by Evergreen Utility Fund of the identified
liabilities of the Fund. You will receive shares of Evergreen Utility Fund
having an aggregate net asset value equal to the aggregate net asset value of
your Fund shares. Details about Evergreen Utility Fund's investment objective,
portfolio management team, performance, etc. are contained in the attached
Prospectus/Proxy Statement. For federal income tax purposes, the transaction is
a non-taxable event for shareholders.
<PAGE>
The Board of Directors of America's Utility Fund, Inc. has
approved the proposals and recommends that you vote FOR these
proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals. If you attend the meeting, you may vote your shares in person. If
you do not expect to attend the meeting, either complete, date, sign and return
the enclosed proxy card in the enclosed postage paid envelope, or vote by
calling toll free 1-800-690-6903, 24 hours a day, or vote through the Internet.
You may also FAX your completed and signed proxy card (both front and back
sides) to Management Information Services, an ADP Company, our proxy tabulator
at 1-800-451-8683. Instructions on how to complete the proxy card, vote by
telephone or vote through the Internet are included immediately after the Notice
of Special Meeting.
If you have any questions about the proxy, please call our proxy solicitor,
Shareholder Communications Corporation at 1-800-645- 7816. If we do not receive
your completed proxy card or your telephone or Internet vote within several
weeks, you may be contacted by Shareholder Communications Corporation, who will
remind you to vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
----------------
Paul F. Costello
President
America's Utility Fund, Inc.
<PAGE>
[SUBJECT TO COMPLETION, JULY 14, 1999 PRELIMINARY COPY]
AMERICA'S UTILITY FUND, INC.
901 East Byrd Street
Richmond, Virginia 23219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 15, 1999
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of America's Utility Fund, Inc. (the "Fund") will be held at the
offices of the Fund, 901 East Byrd Street, Richmond, Virginia 23219 on October
15, 1999 at 2:00 p.m.
for the following purposes:
1. To consider and act upon an Agreement and Plan of Conversion and
Termination (the "Conversion Plan") providing for the reorganization of the Fund
as a series (the "Successor Fund") of Evergreen Equity Trust, a Delaware
business trust, and in connection therewith, the acquisition of all of the
assets of the Fund in exchange for shares of the Successor Fund, and the
assumption by the Successor Fund of all of the liabilities of the Fund. The
Conversion Plan also provides for the distribution of such shares of the
Successor Fund to shareholders of the Fund in liquidation and subsequent
termination of the Fund.
2. To consider and act upon the adoption of standardized fundamental
investment restrictions by amending or reclassifying the current fundamental
investment restrictions of the Fund.
3. To consider and act upon an Agreement and Plan of Reorganization
(the "Reorganization Plan") providing for the acquisition of all of the assets
of the Successor Fund by Evergreen Utility Fund, a series of Evergreen Equity
Trust ("Evergreen Utility"), in exchange for shares of Evergreen Utility and the
assumption by Evergreen Utility of the identified liabilities of the Successor
Fund. The Reorganization Plan also provides for distribution of these shares of
Evergreen Utility to shareholders of the Successor Fund in liquidation and
subsequent termination of the Successor Fund. A vote in favor of the
Reorganization Plan is a vote in favor of the liquidation and dissolution of the
Successor Fund.
4. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of the Fund, the Directors of the Fund have fixed the close
of business on August 17, 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
<PAGE>
SIGN WITHOUT DELAY AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE, OR FOLLOW THE INSTRUCTIONS IMMEDIATELY AFTER THIS NOTICE
RELATING TO TELEPHONE OR INTERNET VOTING 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 Directors
Michael H. Koonce
Secretary
August 27, 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>
INSTRUCTIONS FOR TELEPHONE VOTING
To vote by telephone follow the three easy steps below:
1. Call 1-800-690-6903.
2. Please have your Proxy Card at hand when you call.
3. Enter the twelve-digit "Control No." found on the card, then
follow the simple recorded instructions.
INSTRUCTIONS FOR INTERNET VOTING
To vote by Internet follow the three easy steps below:
1. Go to website www.proxyvote.com
2. Please have your Proxy Card on hand.
3. Enter the twelve-digit "Control No." found on the card, then
follow the simple instructions.
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED AUGUST 27, 1999
CONVERSION OF
AMERICA'S UTILITY FUND, INC.
901 East Byrd Street
Richmond, Virginia 23219
Into a Series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
AND
ACQUISITION OF ASSETS OF
AMERICA'S UTILITY FUND, INC.
By and in Exchange for Shares of
EVERGREEN UTILITY FUND
a series of
Evergreen Equity Trust
Introduction
This Prospectus/Proxy Statement is being furnished to the shareholders
of America's Utility Fund, Inc. ("America's Utility") in connection with a
Special Meeting of Shareholders to be held on October 15, 1999 at 2:00 p.m. at
the offices of America's Utility, 901 East Byrd Street, Richmond, Virginia
23219, and any adjournments thereof (the "Meeting"). The Prospectus/Proxy
Statement, which consists of four parts, proposes that America's Utility, a
Maryland corporation, become a part of the Evergreen mutual fund family.
Shareholders of the other mutual funds in the Mentor family of funds are also
being asked to approve mergers or conversions of their funds into the Evergreen
family of funds which are managed by subsidiaries of First Union Corporation.
The mergers and conversions are designed to integrate and enhance the investment
management, distribution and operations of all the mutual funds in the Evergreen
and Mentor families of funds.
The ultimate objective is for America's Utility to be merged into
Evergreen Utility Fund ("Evergreen Utility") whose
<PAGE>
investment objectives and policies are similar to those of America's Utility.
Because of certain timing issues which are described in Part III, it is proposed
that America's Utility first convert to a series of Evergreen Equity Trust, a
Delaware business trust (the "Conversion"). Evergreen Utility and America's
Utility are hereinafter sometimes each referred to as the "Fund" and
collectively as the "Funds."
Part I describes the Conversion. Part II relates to the adoption by
America's Utility of fundamental investment restrictions common to all Evergreen
Funds. If approved by shareholders, the Conversion and the adoption of common
fundamental investment restrictions will be effective on or about October 15,
1999 and America's Utility's name will change to Evergreen America's Utility
Fund ("Evergreen America's Utility").
At the Meeting, shareholders of America's Utility are also being asked
to approve the merger of their Fund with Evergreen Utility (the
"Reorganization"). This merger is scheduled to take place in March 2000. The
Reorganization is described in Part III.
In Part IV, voting information concerning the shareholders' meeting is
presented.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I .........................................................................................................5
Introduction .............5
Selection of Delaware Business Trust Form
of Organization .............5
Description of the Conversion .............6
Evergreen Trust .............8
Certain Comparative Information About
America's Utility and Evergreen Trust .............9
Current and Successor Advisory Agreements ............13
Administration Agreements ............14
Current and Successor Distribution Arrangements ............14
Names ............15
Certain Votes to be Taken Prior to the Conversion ............15
Investment Objectives and Restrictions ............15
Federal Income Tax Consequences ............15
Appraisal Rights ............16
Recommendation of Directors ............16
PART II ........................................................................................................17
Adoption of Standardized Investment
Restrictions (Proposals 2A-2G) ............17
Reclassification of Fundamental Restrictions
as Nonfundamental (Proposal 2H) ............18
Recommendation of Directors ............18
PART III ........................................................................................................26
COMPARISON OF FEES AND EXPENSES..................................................................................30
SUMMARY ........................................................................................................34
Proposed Plan of Reorganization ............35
Tax Consequences ............36
Investment Objectives and Policies of the Funds ............36
Comparative Performance Information for Each Fund ............37
Management of the Funds ............40
Investment Advisers ............40
Administrator ............41
Portfolio Management ............41
Distribution of Shares ............42
Purchase and Redemption Procedures ............43
Exchange Privileges ............44
Dividend Policy ............44
Risks ............45
<PAGE>
REASONS FOR THE REORGANIZATION...................................................................................48
Agreement and Plan of Reorganization ............50
Federal Income Tax Consequences ............52
Pro-forma Capitalization ............54
Shareholder Information ............55
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.................................................................55
ADDITIONAL INFORMATION...........................................................................................57
FINANCIAL STATEMENTS AND EXPERTS.................................................................................57
LEGAL MATTERS....................................................................................................58
PART IV ........................................................................................................58
VOTING INFORMATION CONCERNING THE MEETING........................................................................58
OTHER BUSINESS...................................................................................................61
EXHIBIT A.......................................................................................................A-1
EXHIBIT B.......................................................................................................B-1
EXHIBIT C.......................................................................................................C-1
EXHIBIT D.......................................................................................................D-1
EXHIBIT E.......................................................................................................E-1
</TABLE>
<PAGE>
PART I
PROPOSAL 1 - THE PROPOSED CONVERSION OF AMERICA'S UTILITY TO A
CORRESPONDING SERIES OF A DELAWARE BUSINESS TRUST
Introduction
At the Meeting, the shareholders of America's Utility will be asked to
approve an Agreement and Plan of Conversion and Termination (the "Conversion
Plan") which provides for the Conversion of the Fund into a corresponding series
(the "Successor Fund") of Evergreen Equity Trust, a Delaware business trust
("Evergreen Trust"). The Conversion is part of an overall restructuring of the
Mentor family of funds, each of which is advised by an affiliate of First Union
National Bank ("FUNB"). FUNB and its other investment adviser affiliates serve
as investment advisers to the Evergreen Funds. The Evergreen Funds were
reorganized into series of Delaware business trusts beginning in December 1997.
The restructuring into a series of the Evergreen Trust involves, among
other components, the Conversion, the adoption of standardized fundamental
investment restrictions, and the reclassification of certain investment
restrictions from fundamental to nonfundamental. The adoption of standardized
investment restrictions and the reclassification of certain investment
restrictions from fundamental to nonfundamental are discussed in Part II of this
Prospectus/Proxy Statement.
Selection of Delaware Business Trust Form of Organization
On July 13, 1999, the Board of Directors of America's Utility
unanimously approved a proposal by America's Utility's investment adviser to
reorganize the Fund as separate series of Evergreen Trust. America's Utility is
currently organized as a Maryland corporation. America's Utility is proposed to
be structured as a series of a Delaware business trust, as opposed to a
corporation, due to the inherent flexibility of the business trust form of
organization. The principal reason for reorganizing America's Utility in
Delaware is the availability of certain advantages of Delaware law with respect
to business trusts. The Delaware Business Trust Act (the "Delaware Act") has
been specifically drafted to accommodate the unique governance needs of
investment companies and provides that its policy is to give maximum freedom of
contract to the trust instrument of a Delaware business trust.
Many of the benefits of the Delaware business trust are
similar to those of a Maryland corporation. Under the Delaware
<PAGE>
Act, a shareholder of a Delaware business trust is 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, Delaware law is
generally considered to afford more protection against shareholder liability
than is afforded to shareholders of business trusts organized in other states.
See "Certain Comparative Information About America's Utility and Evergreen Trust
- - Shareholder Liability." Similarly, Delaware law provides that, should a
Delaware trust issue multiple series of shares, each series will not be liable
for the debts of another series, another potential though remote risk in the
case of other business trusts.
In addition, Delaware has obtained a favorable national reputation for
its business laws and business environment. The Delaware courts, which may be
called upon to interpret the Delaware Act, are among the nation's most highly
respected and have an expertise in corporate matters which in part grew out of
the fact that Delaware legal issues are concentrated in the Court of Chancery
where there are no juries and where judges issue written opinions explaining
their decisions. Accordingly, there is a well established body of precedent
which may be relevant in deciding issues pertaining to a Delaware business
trust.
There are other advantages that may be afforded by a Delaware business
trust that are not available to Maryland corporations. Under Delaware law, the
Successor Fund will have the flexibility to respond to future business
contingencies. For example, the Trustees of Evergreen Trust will have the power
to incorporate Evergreen Trust, to merge or consolidate it with another entity,
to cause each series to become a separate trust, and to change Evergreen Trust's
domicile without a shareholder vote. This flexibility could help to assure that
Evergreen Trust operates under the most advanced form of organization and could
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
Description of the Conversion
The detailed terms and conditions of the Conversion are contained in
the Conversion Plan. The information in this Prospectus/Proxy Statement with
respect to the Conversion Plan is qualified in its entirety by reference to, and
made subject to, the complete text of the form of the Conversion Plan, a copy of
which is attached to this Prospectus/Proxy Statement as Exhibit A.
<PAGE>
If shareholders of America's Utility do not approve the Conversion,
that Fund will continue as currently organized.
If the shareholders of America's Utility approve the Conversion and the
conditions of the Conversion are satisfied, all of the assets and liabilities of
the Fund will be transferred to the Successor Fund and each shareholder of the
Fund will receive shares of the Successor Fund (the "New Shares"). The New
Shares of the Successor Fund will be issued to America's Utility in
consideration of the transfer to the Successor Fund by the Fund of all assets
and liabilities of America's Utility. Immediately thereafter, America's Utility
will liquidate and distribute the New Shares to its shareholders. Holders of
shares of America's Utility will receive Class A New Shares of the Successor
Fund. The Class A shares of the Successor Fund have a distribution-related fee
that is similar to the shareholder servicing-related fee of the shares of
America's Utility held prior to the Conversion. As a result of the Conversion,
each shareholder will receive, in exchange for his or her America's Utility
shares, New Shares with a total net asset value equal to the total net asset
value of the shareholder's Fund shares immediately prior to the consummation of
the Conversion. For information on Class A shares of the Successor Fund, see
"Part III - Summary - Distribution of Shares."
It will not be necessary for holders of share certificates of America's
Utility to exchange their certificates for new certificates following
consummation of the Conversion. Certificates for shares of the Fund issued prior
to the Conversion will represent outstanding shares of the Successor Fund after
the Conversion. Shareholders of the Fund who have not been issued certificates
and whose shares are held in an open account will automatically have those
shares designated as shares of the Successor Fund.
If approved by shareholders of America's Utility, it is currently
contemplated that the Conversion will become effective on or about the close of
business on October 15, 1999. However, the Conversion may become effective at
another time and date should the Meeting be adjourned to a later date or should
any other condition to the Conversion not be satisfied at that time.
Notwithstanding prior shareholder approval, the Conversion Plan may be
terminated at any time prior to its implementation by the mutual agreement of
the parties thereto.
Evergreen Trust
Evergreen Trust was established pursuant to an Agreement and
Declaration of Trust ("Declaration of Trust") under the laws of the State of
Delaware. Evergreen Trust is organized as a "series
<PAGE>
company" as that term is used in Rule 18f-2 under the Investment Company Act of
1940, as amended (the "1940 Act"). Evergreen Trust consists of the Successor
Fund and other mutual funds of the same asset class.
The Board of Trustees of Evergreen Trust is currently comprised of
individuals who do not currently serve as directors of America's Utility.
Accordingly, different individuals will have ultimate responsibility for the
oversight and management of the Successor Fund subsequent to the Conversion.
However, it is anticipated that subsequent to the Conversion, two current
Directors of America's Utility, Arnold H. Dreyfuss and Louis W. Moelchert, Jr.,
will be nominated and elected as Trustees of Evergreen Trust. Information with
respect to the current Trustees of Evergreen Trust, including compensation
received, is set forth in Exhibit B.
Evergreen Trust is authorized to issue shares divisible into an
indefinite number of different series. The interests of investors in the various
series of Evergreen Trust will be separate and distinct. All consideration
received for the sales of shares of a particular series of Evergreen Trust, all
assets in which such consideration is invested, and all income, earnings and
profits derived from such investments, will be allocated to that series. The
Declaration of Trust of Evergreen Trust provides that the Board of Trustees may:
(i) establish one or more additional series thereof; (ii) issue the shares of
any series in any number of classes; (iii) issue shares of a series to different
groups of investors; and (iv) convert a series into a pooled fund structure,
without any further action by the shareholders of Evergreen Trust.
The Declaration of Trust of Evergreen Trust provides for shareholder
voting only for the following matters: (a) the election or removal of Trustees
as provided in the Declaration of Trust; and (b) with respect to such additional
matters relating to Evergreen Trust as may be required by (i) applicable law,
(ii) any by-laws adopted by the Trustees, or (iii) as the Trustees may consider
necessary or desirable. Certain of the foregoing matters will involve separate
votes of one or more of the affected series (or affected classes of a series) of
Evergreen Trust, while others will require a vote of Evergreen Trust's
shareholders as a whole.
All shares of all series vote together as a single class for the
election or removal of Trustees of Evergreen Trust with each having one vote for
each dollar of net asset value applicable to each share, regardless of series.
See "Certain Comparative Information About America's Utility and Evergreen Trust
- - Voting
Rights" below.
As required by the 1940 Act, shareholders of each series of Evergreen
Trust, voting separately, will have the power to vote at special meetings for,
among other things, changes in
<PAGE>
fundamental investment restrictions applicable to such series, approval of any
new or amended investment advisory agreement, approval of any new or amended
Rule 12b-1 plan and certain other matters that affect the shareholders of that
series. If, at any time, less than a majority of the Trustees holding office has
been elected by the shareholders, the Trustees then in office will call a
shareholders' meeting for the purpose of electing Trustees of Evergreen Trust.
Certain Comparative Information About America's Utility and
Evergreen Trust
As a Delaware business trust, Evergreen Trust's operations will be
governed by its Declaration of Trust and applicable Delaware law, rather than by
the Articles of Incorporation and By-laws of America's Utility and applicable
Maryland law. As discussed below, certain of the differences between America's
Utility and Evergreen Trust derive from provisions of Evergreen Trust's
Declaration of Trust and By-laws. Shareholders entitled to vote at the Meeting
may obtain a copy of Evergreen Trust's Declaration of Trust and By-laws, without
charge, upon written request to Evergreen Trust at the address on the cover page
of this Prospectus/Proxy Statement.
Capitalization. The beneficial interests in Evergreen Trust are issued
as transferable shares of beneficial interest, $.001 par value per share. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
and to divide such shares into an unlimited number of series or classes thereof,
all without shareholder approval. Each share of a series of Evergreen Trust
represents an equal proportionate interest in the assets and liabilities
belonging to that series (or class) as declared by the Board of Trustees.
America's Utility consists of 500,000,000 shares of common stock, all of one
class, $0.001 par value per share.
Amendments to Governing Instrument. Generally, the provisions of the
Declaration of Trust of Evergreen Trust may be amended without shareholder
approval so long as such amendment is not in contravention of applicable law, by
an instrument in writing signed by a majority of the then Trustees of Evergreen
Trust (or by an officer of Evergreen Trust pursuant to the vote of a majority of
such Trustees). Under the Declaration of Trust of Evergreen Trust, except as
provided by applicable law, a quorum is 25% of the shares entitled to vote. The
quorum requirement of America's Utility is one-third of the shares issued and
outstanding and entitled to vote except as otherwise provided by law or the
Articles of Incorporation. Under Maryland law, the Articles of Incorporation may
be amended by the vote of
<PAGE>
a majority of the shares of the Fund issued and outstanding and entitled to
vote.
Voting Rights. The By-laws of Evergreen Trust and of America's Utility
each provide that meetings of the shareholders for the purpose of voting on the
removal of any Trustee or Director shall be called promptly by the Trustees or
Directors upon the written request of shareholders holding at least 10% of the
outstanding shares of Evergreen Trust or America's Utility entitled to vote.
Like America's Utility, Evergreen Trust will not be required to hold annual
meetings of its shareholders and, at this time, does not intend to do so. Under
the By-laws of both America's Utility and Evergreen Trust, the record date may
not be more than 90 days nor less than 10 days preceding the scheduled meeting
date.
The Declaration of Trust of Evergreen Trust provides for shareholder
voting in certain circumstances. See "Evergreen Trust" above. Shareholders of
America's Utility have the power to vote with respect to the election of
Directors, the removal of Directors, the approval or termination of any
investment advisory or management agreement, amendments to the Articles of
Incorporation, and with respect to certain other actions, such as a transfer of
all or substantially all of America's Utility's assets or the dissolution of the
Fund.
A Trustee of Evergreen Trust may be removed at any meeting of
shareholders by a vote of at least two-thirds of the outstanding shares of
Evergreen Trust. Under Maryland law, a Director of America's Utility may be
removed by the affirmative vote of a majority of shares entitled to vote.
The Declaration of Trust of Evergreen Trust provides that a majority of
the shares voted at a meeting at which a quorum is present shall decide any
questions and that a plurality shall elect a Trustee, except when a different
vote is required or permitted by any provision of the 1940 Act or other
applicable law or by the Declaration of Trust or the By-laws of Evergreen Trust.
Under the Articles of Incorporation of America's Utility and applicable Maryland
law, a majority vote of shares outstanding is generally required to decide a
question, except that election of Directors requires a plurality. Shareholders
of Evergreen Trust are not required to approve the termination of Evergreen
Trust. Shareholders of America's Utility are required to approve the Fund's
termination under Maryland law.
Under the Declaration of Trust of Evergreen Trust, each share of the
Successor Fund is entitled to one vote for each dollar of net asset value
applicable to such share. Under the Articles of Incorporation of America's
Utility each share is
<PAGE>
entitled to one vote and each fractional share is entitled to a proportionate
fractional vote. Under the Declaration of Trust of Evergreen Trust, voting power
is related to the dollar value of the shareholders' investments rather than to
the number of shares held.
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 under the laws of
any other state. As a result, to the extent that Evergreen Trust or a
shareholder is subject to the jurisdiction of courts in those states, the courts
may not apply Delaware law, and may thereby subject shareholders of a Delaware
trust to liability. To guard against this risk, the Declaration of Trust: (a)
provides that any written obligation of Evergreen Trust may contain a statement
that such obligation may only be enforced against the assets of Evergreen 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
Evergreen Trust. Accordingly, the risk of a shareholder of Evergreen Trust
incurring financial loss beyond that shareholder's investment because of
shareholder liability is limited to circumstances in which: (i) a court refuses
to apply Delaware law; (ii) no contractual limitation of liability was in
effect; and (iii) Evergreen Trust itself would be unable to meet its
obligations. In view of Delaware law, the nature of Evergreen Trust's business,
and the nature of its assets, the risk of personal liability to a shareholder of
Evergreen Trust is remote.
Shareholders of America's Utility as shareholders of a Maryland
corporation may not be held personally liable under applicable state law for the
obligations of America's Utility. Because every state provides comparable
protection for shareholders of corporations incorporated in that state, it is
highly likely that the courts of every state would recognize the protection
provided by Maryland law.
Liability and Indemnification of Trustees/Directors. Under the
Declaration of Trust of Evergreen 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 the duties of a Trustee. Trustees and
officers of Evergreen Trust are entitled to be indemnified for the expenses of
litigation against them except with respect to any matter as to which it has
been determined that such person
<PAGE>
(i) did not act in good faith in the reasonable belief that his or her action
was in or not opposed to the best interests of Evergreen Trust; or (ii) had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties; and (iii) for a criminal proceeding, had
reasonable cause to believe that his or her conduct was unlawful, such
determination to be based upon the outcome of a court action or administrative
proceeding or a reasonable determination, following a review of the facts, 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. Evergreen Trust may also advance
money to any Trustee or officer involved in a proceeding discussed above
provided that the Trustee or officer undertakes to repay Evergreen Trust if his
or her conduct is later determined to preclude indemnification and certain other
conditions are met. It is currently the view of the staff of the Securities and
Exchange Commission ("SEC") that to the extent that any provisions such as those
described above are inconsistent with the 1940 Act, the provisions of the 1940
Act may preempt the foregoing provisions.
The Articles of Incorporation of America's Utility provides that its
Directors shall not be liable to America's Utility or its shareholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted by
law (including the 1940 Act) as currently in effect or thereafter amended. The
Articles of Incorporation generally also provide that Directors and officers of
America's Utility will be indemnified to the fullest extent permitted by law
(including the 1940 Act) against liability and expenses of litigation against
them unless their conduct constituted willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office.
Right of Inspection. The By-laws of Evergreen Trust provide that no
shareholder of Evergreen Trust shall have any right to inspect any account or
book or document of Evergreen Trust except as conferred by law or otherwise by
the Trustees or by resolution of the shareholders. The Articles of Incorporation
of America's Utility provides that shareholders shall only have such right to
inspect the records, documents, accounts and books of the Fund as may be granted
by the Board of Directors of the Fund or as may be required by applicable law.
Maryland law permits a shareholder to inspect certain records of a Maryland
corporation during usual business hours.
The foregoing is only a summary of certain of the
differences between the governing instruments and laws generally
<PAGE>
applicable to America's Utility and Evergreen Trust. It is not a
complete list of differences. Shareholders should refer directly
to the provisions of the governing instruments and applicable law
for more complete information.
Current and Successor Advisory Agreements
As a result of the Conversion, the Successor Fund will be subject to a
new investment advisory agreement (the "Successor Advisory Agreement") between
Evergreen Trust on behalf of the Successor Fund and Mentor Investment Advisors,
LLC ("Mentor"), the current investment adviser of America's Utility. The current
investment advisory agreement of America's Utility (the "Current Advisory
Agreement") is similar in many respects to the Successor Advisory Agreement.
Except as noted below, the Successor Advisory Agreement contains the material
terms of the Current Advisory Agreement. Most importantly, the rate at which
fees are required to be paid by America's Utility for investment advisory
services, as a percentage of average daily net assets, will remain the same for
the Successor Fund.
The following summarizes certain aspects of the Current Advisory
Agreement and the Successor Advisory Agreement for each Fund.
Brokerage Transactions. The Successor Advisory Agreement sets forth
specific terms as to brokerage transactions and the investment adviser's use of
broker-dealers. For example, the investment adviser will be obligated to use its
best efforts to seek to execute portfolio transactions at prices which, under
the circumstances, result in total costs or proceeds being most favorable to the
Successor Fund. In assessing the best overall terms available for any
transaction, the investment adviser will consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer,
research services provided and the reasonableness of the commission, if any,
both for the specific transaction and on a continuing basis. The Successor
Advisory Agreement also incorporates the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), which permits an
investment adviser to have its client, including an investment company, pay more
than the lowest available commission for executing a securities trade in return
for research services and products. The Current Advisory Agreement of America's
Utility permits the investment adviser to execute portfolio transactions and
select brokers pursuant to the provisions of Section 28(e) of the 1934 Act.
<PAGE>
Liability. Both the Successor Advisory Agreement and the Current
Advisory Agreement provide that the investment adviser shall have no liability
in connection with rendering services thereunder, other than liabilities
resulting from the adviser's willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties.
Amendments. The Current Advisory Agreement of America's Utility
provides that all changes (rather than only substantial changes) must be
approved by a majority of the shares of the Fund. The Successor Advisory
Agreement provides that only amendments of substance require shareholder
approval.
Administration Agreements
Mentor Investment Group, LLC ("MIG") served as administrator for
America's Utility until June 1999.
Evergreen Investment Services, Inc. ("EIS"), located at 200 Berkeley
Street, Boston, Massachusetts 02116, currently serves as administrator to
America's Utility for the same fee (0.39% of the Fund's average daily net
assets) previously charged by MIG. After the Conversion, EIS will serve as
administrator to the Successor Fund. It is anticipated that no material change
will occur in America's Utility's administrative fees or arrangements as a
result of the Conversion.
Current and Successor Distribution Arrangements
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal distributor for America's Utility. Mentor Distributors,
LLC is a wholly-owned subsidiary of BISYS Fund Services, Inc. ("BISYS") of the
same address.
After the Conversion, Evergreen Distributor, Inc., an affiliate of
BISYS, located at 125 West 55th Street, New York, New York 10019, will serve as
principal underwriter for the Successor Fund. It is anticipated that no material
change will occur in America's Utility's distribution agreement or the Fund's
aggregate amount payable under the Fund's shareholder servicing- related
expenses as a result of the Conversion.
Names
At the time of its Conversion into the Successor Fund, the name of
America's Utility will change by adding "Evergreen" to its name. The name of the
Successor Fund will be Evergreen America's Utility Fund.
Certain Votes to be Taken Prior to the Conversion
<PAGE>
Prior to the Conversion, Evergreen Distributor, Inc. will own a single
outstanding share of the Successor Fund. The purpose of the issuance by the
Successor Fund of this nominal share prior to the effective time of the
Conversion is to enable Evergreen Trust to eliminate the need to incur the
additional expense by Evergreen Trust of having to hold a separate meeting of
shareholders of the Successor Fund in order to comply with certain shareholder
approval requirements of the 1940 Act.
Investment Objectives and Restrictions
The Successor Fund will have the same investment objective as America's
Utility. The investment restrictions of America's Utility are proposed to be
changed as described in Part II below.
Except as described in Part II below, the investment adviser does not
presently intend to change in any material way for the Successor Fund the
investment strategy or operations currently employed for America's Utility.
Federal Income Tax Consequences
It is anticipated that the transactions contemplated by the Conversion
will be tax-free. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington,, D.C. 20036, counsel to the Successor Fund, has informed the Board
of Directors of America's Utility and the Board of Trustees of Evergreen Trust
that if substantially all of the assets and liabilities of America's Utility are
transferred to the Successor Fund, it will issue an opinion that the Conversion
will not give rise to the recognition of income, gain or loss to America's
Utility, the Successor Fund, or shareholders of America's Utility for federal
income tax purposes pursuant to sections 361, 1032(a) and 354(a)(1),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
Such opinion will be based upon customary representations of America's Utility
and Evergreen Trust and certain customary assumptions. The receipt of such an
opinion is a condition to the consummation of the Conversion.
A shareholder's adjusted basis for tax purposes in shares of the
Successor Fund after the Conversion will be the same as the shareholder's
adjusted basis for tax purposes in the shares of America's Utility immediately
before the Conversion. The holding period for the shares of the Successor Fund
received in the Conversion will include a shareholder's holding period for
shares of America's Utility (provided that the shares of America's Utility were
held as capital assets on the date of the Conversion). Shareholders should
consult their own tax advisers
<PAGE>
with respect to the state and local tax consequences of the
proposed transaction.
Appraisal Rights
Neither America's Utility's Articles of Incorporation nor Maryland law
grants shareholders of the America's Utility any rights in the nature of
appraisal or dissenters' rights with respect to any action upon which such
shareholders may be entitled to vote. However, the right of mutual fund
shareholders to redeem their shares is not affected by the proposed Conversion.
Recommendation of Directors
In evaluating the Conversion Plan, the Board of Directors reviewed the
potential benefits associated with the proposed Conversion and adoption of the
Declaration of Trust of Evergreen Trust. In this regard, the Directors of the
Fund considered: (i) the potential disadvantages which apply to operating
America's Utility under its current form of organization; (ii) the advantages
which apply to operating the Successor Fund as a series of a Delaware business
trust; (iii) the advantages of adopting Evergreen Trust's Declaration of Trust
under Delaware law; (iv) the possible economies of scale that could result in
cost savings as a result of the smaller Mentor fund family becoming a part of
the larger Evergreen family of funds; (v) the fact that there will eventually be
no change in the investment advisory function; and (vi) the expected federal tax
consequences to America's Utility, the Successor Fund and shareholders of
America's Utility resulting from the proposed Conversion, and the likelihood
that no recognition of income, gain or loss for federal income tax purposes will
occur as a result thereof.
At the meeting of the Board called for the purpose on July 13, 1999,
the Board of Directors of America's Utility voted to approve the proposed Plan
of Conversion for America's Utility and determined that participation in the
Conversion is in the best interests of the Fund and that the interests of
existing shareholders will not be diluted as a result of the Conversion.
THE DIRECTORS OF AMERICA'S UTILITY RECOMMEND THAT THE
SHAREHOLDERS OF AMERICA'S UTILITY APPROVE PROPOSAL 1.
PART II
<PAGE>
PROPOSAL 2 - CHANGES TO FUNDAMENTAL
INVESTMENT RESTRICTIONS
Adoption of Standardized Investment Restrictions (Proposals 2A-
2G)
The primary purpose of Proposals 2A through 2G below is to revise and
standardize the Fund's fundamental investment restrictions (except for the
Fund's fundamental investment restriction with respect to concentration) (the
"Restrictions"). The Directors have concurred with the efforts of the investment
advisers to the various funds comprising the Mentor mutual fund family to
analyze the fundamental and nonfundamental investment restrictions of the
various funds offered by the Mentor and Evergreen families of mutual funds and,
where practicable and appropriate to a fund's investment objective and policies
as in the case of America's Utility, propose to shareholders adoption of
standardized Restrictions.
It is not anticipated that any of the changes will substantially affect
the way America's Utility is currently managed. These proposals are being
presented to shareholders for approval because it is believed that increased
standardization will help to promote operational efficiencies and facilitate
monitoring of compliance with the Restrictions. Because the proposed
standardized fundamental Restrictions in general are phrased relatively more
broadly than the Fund's current fundamental Restrictions, the investment adviser
is expected to be able to respond more expeditiously to market, industry or
regulatory developments. Set forth below, as sub-sections of this Proposal, are
general descriptions of each of the proposed changes. You will be given the
option to approve all, some, or none of the proposed changes on the proxy card
enclosed with this proxy statement.
A listing of the current fundamental Restrictions of the Fund is set
forth in Exhibit C. Those fundamental Restrictions that you are being requested
to vote to standardize are shown in Exhibit C by an "S", which stands for "To be
Standardized." If a particular change is not approved by shareholders, the
current fundamental Restriction will remain in place.
If approved by shareholders, the revised fundamental Restrictions
described in Proposals 2A through 2G will remain fundamental and, as such,
cannot be changed without a further shareholder vote. If a proposed standardized
fundamental Restriction is not approved by shareholders, the current Restriction
will remain fundamental and shareholder approval (and
<PAGE>
its attendant costs and delays) will continue to be required
prior to any change in the Restriction.
Reclassification of Fundamental Restrictions as Nonfundamental
(Proposal 2H)
The reclassification from fundamental to nonfundamental of certain of
the Fund's other current fundamental Restrictions will enhance the ability of
the Fund to achieve its respective investment objective because its investment
adviser will have greater investment management flexibility to respond to
changed market, industry or regulatory conditions without the delay and expense
of the solicitation of shareholder approval.
Recommendation of Directors
The Directors of America's Utility have reviewed the potential benefits
associated with the proposed standardization of the Fund's fundamental
Restrictions (Proposals 2A through 2G below) as well as the potential benefits
associated with the reclassification of certain of the Fund's other fundamental
Restrictions to nonfundamental (Proposal 2H).
At the meeting of the Directors called for the purpose on July 13,
1999, the Directors of America's Utility voted to approve the proposed
standardization of the Fund's fundamental Restrictions (Proposals 2A through 2G
below) and the reclassification from fundamental to nonfundamental of certain of
the Fund's other fundamental Restrictions (Proposal 2H below).
THE DIRECTORS OF AMERICA'S UTILITY RECOMMEND THAT THE
SHAREHOLDERS OF AMERICA'S UTILITY APPROVE PROPOSAL 2.
Proposal 2A: To Amend the Fundamental Restriction Concerning
Diversification of Investments
The current fundamental Restriction of the Fund concerning
diversification of investments provides generally that the Fund will not
purchase the securities of an issuer if the purchase would cause more than 5% of
the Fund's total assets taken at current value to be invested in the securities
of such issuer, except U.S. government securities for temporary investment or if
the purchase would cause more than 10% of any class of securities of an issuer
or more than 10% of the outstanding voting securities of any one issuer to be
held in the Fund's portfolio. The Fund applies the 5% of assets test and the 10%
of any class and of outstanding voting securities tests to 100% of its total
assets. It is proposed that shareholders approve new language standardizing
these Restrictions including the percentage of
<PAGE>
total assets to which the Restriction is applied and eliminating the limitation
with respect to classes of shares.
The Fund has elected to be a "diversified" open-end management
investment company under the 1940 Act, which requires the 5% of assets and 10%
of outstanding voting securities tests described above to apply to 75% of the
total assets of the Fund. As mentioned above, the current policy of the Fund is
for the 10% voting securities of an issuer test and the 5% of total assets test
to be applied to 100% of the Fund's assets, rather than to 75% of its assets.
The primary purpose of the proposed change with respect to the Fund is to allow
the Fund to invest in accordance with the less restrictive limits contained in
the 1940 Act for diversified investment companies. For this same reason, the 10%
limitation with respect to any class of shares would be eliminated. The proposed
changes would allow the Fund the flexibility to purchase larger amounts of
issuers' securities when its investment adviser deems an opportunity attractive.
The new policy would allow the investment policies of the Fund to conform with
the definition of "diversified" as it appears in the 1940 Act.
The amendment of the fundamental Restriction will allow the Fund to
respond more quickly to changes of the 1940 Act standard, as well as to other
legal, regulatory, and market developments without the delay or expense of a
shareholder vote. The amendment of the fundamental Restriction would also
standardize the Restrictions across the Evergreen and Mentor families of funds.
Adoption of this change is not expected to materially affect the operation of
the Fund.
The Fund is not changing its current classification as a diversified
fund. As proposed, the Fund's fundamental Restriction regarding diversification
will be replaced with the following fundamental Restriction:
"The Fund may not make any investment inconsistent with the
Fund's classification as a diversified investment company
under the Investment Company Act of 1940."
Proposal 2B: To Amend the Fundamental Restriction Concerning
the Issuance of Senior Securities
The Fund's current fundamental Restriction regarding the issuance of
senior securities states that the Fund will not issue any senior securities,
other than as consistent with borrowings permitted under the restriction on
borrowing which is discussed below.
<PAGE>
It is proposed that shareholders approve replacing the Fund's current
fundamental Restriction concerning the issuance of senior securities with the
following fundamental Restriction governing the issuance of senior securities:
"Except as permitted under the
Investment Company Act of 1940, the
Fund may not issue senior
securities."
The primary purpose of this proposed change is to standardize the
Fund's fundamental Restriction regarding senior securities.
The proposed fundamental Restriction clarifies that the Fund may issue
senior securities to the full extent permitted under the 1940 Act. Although the
definition of a "senior security" involves complex statutory and regulatory
concepts, a senior security is generally an obligation of the Fund which has a
claim to the Fund's assets or earnings that takes precedence over the claims of
the Fund's shareholders. The 1940 Act generally prohibits open-end investment
companies (i.e. mutual funds) from issuing any senior securities; however, under
current SEC staff interpretations, mutual funds are permitted to engage in
certain types of transactions that might be considered "senior securities" as
long as certain conditions are satisfied. For example, a transaction that
obligates a Fund to pay money at a future date (e.g., the purchase of securities
to be settled on a date that is farther away than the normal settlement period)
may be considered a "senior security." A mutual fund is permitted to enter into
this type of transaction if it maintains a segregated account containing liquid
securities in an amount equal to its obligation to pay cash for the securities
at a future date. The Fund would engage in transactions that could be considered
to involve "senior securities" only in accordance with applicable regulatory
requirements under the 1940 Act.
Adoption of the proposed fundamental Restriction concerning senior
securities is not expected to materially affect the operation of the Fund.
However, adoption of a standardized fundamental Restriction will facilitate the
Fund's investment adviser's investment compliance efforts and will allow the
Fund to respond to legal, regulatory and market developments which may make the
use of permissible senior securities advantageous to the Fund and its
shareholders.
Proposal 2C: To Amend the Fundamental Restriction Concerning
Borrowing
<PAGE>
The Fund's current fundamental Restriction concerning borrowing states
that the Fund will not borrow money or securities for any purpose except that
borrowing up to 10% of the Fund's total assets is permitted for emergency
purposes. When reviewing the Fund's policies on borrowings as set forth in
Exhibit C, you should also review the Fund's policy on the issuance of senior
securities since the topics are interrelated.
In general, under the 1940 Act, a fund may not borrow money, except
that (i) a fund may borrow from banks (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), (ii) a fund may borrow up to an additional 5%
of its total assets for temporary purposes, and (iii) a fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
It is proposed that shareholders approve replacing the Fund's current
fundamental Restriction regarding borrowing with the following fundamental
Restriction:
"The Fund may not borrow money,
except to the extent permitted by
applicable law."
If the proposal is approved, the Fund will disclose that it will not
engage in leveraging. The primary purpose of the proposed change to the
fundamental Restriction concerning borrowing is to standardize the Restriction.
Adoption of the proposed Restriction is not currently expected to
materially affect the operations of the Fund. The Fund's current Restriction
restricts borrowing to a lower percentage of total assets than the 33 1/3%
permitted under the 1940 Act. The proposed Restriction therefore would allow a
Fund to purchase a security while borrowings representing more than 10% of total
assets are outstanding. While the Fund has no current intention to use leverage,
the flexibility to do so may be beneficial to the Fund at a future date.
Proposal 2D: To Amend the Fundamental Restriction Concerning
Underwriting
The Fund is currently subject to a fundamental Restriction concerning
underwriting. The Restriction provides that the Fund may not act as underwriter
of securities of other issuers; provided that this policy shall not be construed
to prevent or limit in any manner the right of the Fund to purchase securities
for investment purposes. It is proposed that shareholders
<PAGE>
approve replacing the current fundamental Restriction with the following
fundamental Restriction concerning underwriting:
"The Fund may not underwrite securities of other issuers,
except insofar as the Fund may technically be deemed an
underwriter in connection with the disposition of its
portfolio securities."
The primary purposes of the proposed change are to clarify that the
Fund is not prohibited from selling securities if, as a result of the sale, the
Fund would be considered an underwriter under the federal securities laws and to
standardize the language of the Fund's fundamental Restriction regarding
underwriting. While the proposed change will have no current impact on the Fund,
adoption of the proposed standardized fundamental Restriction will advance the
goals of standardization.
Proposal 2E: To Amend the Fundamental Restriction Concerning
Investment in Real Estate
The Fund currently has a fundamental Restriction concerning the
purchase of real estate. The Restriction states that the Fund will not own, buy
or sell real estate or interests in real estate. The Fund may, however, purchase
and sell securities which are secured by real estate and securities of companies
that invest or deal in real estate.
Shareholders are being asked to approve an amended Restriction similar
to that described above. As proposed, the Fund's current fundamental Restriction
will be replaced by the following fundamental Restriction:
"The Fund may not purchase or sell real estate, except that,
to the extent permitted by applicable law, the Fund may invest
in (a) securities directly or indirectly secured by real
estate, or (b) securities issued by issuers that invest in
real estate."
The primary purpose of the proposed amendment is to standardize the
Fund's fundamental Restriction concerning real estate.
To the extent that the Fund buys securities and instruments of
companies in the real estate business, the Fund's performance will be affected
by the condition of the real estate market.
<PAGE>
This industry is sensitive to factors such as changes in real estate values and
property taxes, overbuilding, variations in rental income, and interest rates.
Performance could also be affected by the structure, cash flow, and management
skill of real estate companies.
While the proposed change will have no current impact on the Fund,
adoption of the proposed standardized fundamental Restriction will advance the
goals of standardization.
Proposal 2F: To Amend the Fundamental Investment Restriction
Concerning Commodities
The Fund is currently subject to a fundamental Restriction that
provides that the Fund will not own, buy or sell commodities or commodity
contracts, except that the Fund may purchase or sell foreign currencies, foreign
currency futures contracts and related options.
It is proposed that shareholders approve replacing the current
fundamental Restriction with the following fundamental Restriction concerning
commodities:
"The Fund may not purchase or sell commodities or contracts on
commodities except to the extent that the 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 without registering as a
commodity pool operator under the Commodity Exchange Act."
The Fund currently has the ability to invest in only those financial
futures that involve foreign currencies. Under the proposed amendment, the Fund
will also be able to invest in other types of financial futures, such as stock
index futures or futures on U.S. Treasury securities. These types of futures may
be used for hedging or for investment purposes and involve certain risks.
While the proposed change will have no material impact on the operation
of the Fund, adoption of the proposed fundamental Restriction will advance the
goals of standardization.
Proposal 2G: To Amend the Fundamental Investment Restriction
Concerning Lending
<PAGE>
The Fund's current fundamental Restriction concerning lending states
that the Fund shall not lend its portfolio securities except under certain
percentage and other limitations. In general, it is the Fund's current policy
that such loans must be secured continuously by U.S. government securities, cash
or cash collateral maintained on a current basis in an amount at least equal to
the market value of the securities loaned. During the existence of the loan, the
Fund must continue to receive the equivalent of the interest and dividends paid
by the issuer on the securities loaned and interest on the investment of the
collateral; the Fund must have the right to call the loan and obtain the
securities loaned at any time on reasonable notice, including the right to call
the loan to enable the Fund to vote the securities. To comply with previous (but
as a result of federal legislation enacted in 1996, now superseded) requirements
of certain state securities administrators, such loans were not to exceed
one-third of the Fund's net assets taken at market value.
It is proposed that shareholders approve replacing the current
fundamental Restriction with the following amended fundamental Restriction
concerning lending:
"The 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 investments shall not be deemed to be the making of a
loan."
The proposal is not expected materially to currently affect the
operations of the Fund. Gains or losses in the market value of a loaned security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it will not be able to retrieve the securities on a timely
basis, possibly losing the opportunity to sell the securities at a desirable
price. Also, if the borrower files for bankruptcy or becomes insolvent, the
Fund's ability to dispose of the securities may be delayed. Lending the Fund's
portfolio securities would include the ability to invest in direct debt
instruments such as loans and loan participation interests, which are interests
in amounts owed to another party by a company, government or other borrower.
These types of securities may have additional risks beyond conventional debt
securities because they may provide less legal protection for the Fund, or there
may be a requirement that the Fund supply additional cash to a borrower on
demand.
<PAGE>
The adoption of the standardized fundamental Restriction will advance
the goals of standardization.
Proposal 2H: Reclassification as Nonfundamental of All Current
Fundamental Restrictions Other Than the
Fundamental Restrictions Described in the
Foregoing Proposals 2A through 2G.
Like all mutual funds, when the Fund was established the Board of
Directors adopted certain investment Restrictions that would govern the efforts
of the Fund's investment adviser in seeking the Fund's investment objective.
Some of these Restrictions were designated as "fundamental" and, as such, may
not be changed unless the change has first been approved by the Directors and
then by the shareholders of the Fund. Many of the Fund's investment restrictions
were required to be classified as fundamental under the securities laws of
various states. Since October 1996, such state securities laws and regulations
regarding fundamental investment restrictions have been preempted by federal law
and no longer apply.
The Fund's fundamental Restrictions were established to reflect certain
regulatory, business or industry conditions as they existed at the time the Fund
was established. Many such conditions no longer exist. The 1940 Act requires
only that the Restrictions discussed in Proposals 2A through 2G above (and the
fundamental investment restriction with respect to concentration) be classified
as fundamental. As a result, this Proposal 2H proposes to reclassify as
nonfundamental all current fundamental Restrictions of the Fund other than the
fundamental Restrictions discussed in the foregoing Proposals 2A through 2G and
the Fund's fundamental investment restriction with respect to concentration for
which no change has been proposed.
Nonfundamental Restrictions may be changed or eliminated by the
Trustees at any time without approval of the Fund's shareholders. The current
fundamental Restrictions proposed to be reclassified as nonfundamental are shown
in Exhibit C by an "R", which stands for "To be Reclassified."
None of the proposed changes will materially alter the way in which the
Fund is currently managed. Indeed, the Directors believe that approval of the
reclassification of fundamental Restrictions to nonfundamental Restrictions will
enhance the ability of the Fund to achieve its investment objective because the
Fund's investment adviser will have greater investment management flexibility to
respond to changed market, industry or regulatory conditions without the delay
and expense of the solicitation of shareholder approval.
<PAGE>
PART III
PROPOSAL 3 - MERGER OF AMERICA'S UTILITY INTO EVERGREEN UTILITY
This Prospectus/Proxy Statement is also being furnished to shareholders
of America's Utility in connection with a proposed Agreement and Plan of
Reorganization (the "Reorganization Plan") to be submitted to shareholders of
America's Utility for consideration at the Meeting. As discussed above in Part I
regarding the Conversion Plan, prior to the Reorganization, America's Utility
will be converted to a series of a Delaware business trust (Evergreen Trust) to
be known as Evergreen America's Utility Fund. Subject to shareholder approval,
the Conversion will occur on or about October 15, 1999. Because of programming
freezes in place as a result of upcoming year 2000 and other issues, the
Reorganization cannot occur during the period between October 1, 1999 and March
1, 2000.
In order for shareholders of America's Utility to have an understanding
about the main purpose of this Prospectus/Proxy Statement and the
Reorganization, the discussion in this Part III refers to America's Utility and
not Evergreen America's Utility.
The Reorganization Plan provides for all of the assets of America's
Utility to be acquired by Evergreen Utility in exchange for shares of Evergreen
Utility and the assumption by Evergreen Utility of the identified liabilities of
America's Utility (hereinafter referred to as the "Reorganization"). Following
the Reorganization, shares of Evergreen Utility will be distributed to
shareholders of America's Utility in liquidation of America's Utility and such
Fund will be terminated. Holders of shares of America's Utility will receive
Class A shares of Evergreen Utility. Class A shares of Evergreen Utility have a
distribution-related fee similar to the shareholder servicing- related fee of
the shares of America's Utility held prior to the Reorganization.
No sales charge will be imposed in connection with Class A shares of
Evergreen Utility received by holders of shares of America's Utility. As a
result of the proposed Reorganization, shareholders of America's Utility will
receive that number of full and fractional shares of Evergreen Utility having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of America's Utility. The Reorganization is being
structured as a tax-free reorganization for federal income tax purposes.
Evergreen Utility is a separate series of Evergreen Trust.
Evergreen Utility seeks high current income and moderate capital
growth as its primary investment objective. Evergreen Utility
<PAGE>
invests at least 65% of its assets in stocks and investment grade bonds of
utility companies (including gas, electric, and telecommunications companies).
The investment objective of America's Utility is similar -- to seek current
income and moderate capital growth by investing primarily in securities issued
by utility companies.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Utility that
shareholders of America's Utility should know when voting on the Reorganization.
Certain relevant documents listed below, which have been filed with the SEC, are
incorporated in whole or in part by reference into this Prospectus/Proxy
Statement. A Statement of Additional Information dated August 27, 1999 relating
to this Prospectus/Proxy Statement and the Reorganization which includes the
financial statements of Evergreen Utility dated July 31, 1998 and January 31,
1999 and of America's Utility dated December 31, 1998, has been filed with the
SEC and is incorporated by reference in its entirety into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to Evergreen Utility at 200 Berkeley
Street, Boston, Massachusetts 02116 or by calling toll-free 1-800-645-7816.
The Prospectus of Evergreen Utility 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 incorporated herein by reference
in their entirety, insofar as they relate to Class A shares of Evergreen Utility
only, and not to any other fund described therein. Shareholders of America's
Utility will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the Class A shares of Evergreen Utility that they will
receive as a result of the consummation of the Reorganization. Additional
information about Evergreen Utility 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 Evergreen
Utility at the address or telephone number listed in the paragraph above.
The Prospectus of America's Utility dated May 3, 1999, is incorporated
herein in its entirety by reference. Copies of the Prospectus, the related
Statement of Additional Information dated May 3, 1999 and the Annual Report for
the fiscal year ended December 31, 1998, are available upon request and without
charge by writing to America's Utility at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800-645-7816.
<PAGE>
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>
COMPARISON OF FEES AND EXPENSES
The amounts for Class A shares of Evergreen Utility set forth in the
following tables and in the examples are based on the expenses of Evergreen
Utility for the twelve-month period ended January 31, 1999. The amounts for
shares of America's Utility set forth in the following tables and in the
examples are based on the expenses of America's Utility for the twelve-month
period ended January 31, 1999. The pro forma amounts for Class A shares of
Evergreen Utility are based on what the estimated combined expenses of Evergreen
Utility would have been for the twelve-month period ended January 31, 1999.
The following tables show for Evergreen Utility, America's Utility and
Evergreen Utility pro forma, assuming consummation of the Reorganization, the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the shares (Class A shares with respect to Evergreen
Utility and Evergreen Utility pro forma) of each Fund.
<PAGE>
<TABLE>
<CAPTION>
Comparison of Class A Shares
of Evergreen Utility With Shares of America's Utility
Evergreen Utility America's Utility
<S> <C> <C>
Shareholder
Transaction Expenses
Maximum Sales Load 4.75% None
Imposed on Purchases
(as a percentage of
offering price)
Contingent Deferred None None
Sales Charge (as a (1)
percentage of
original purchase
price or redemption
proceeds, whichever
is lower)
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee (2) 0.50% 0.26%
12b-1 Fees (3) 0.25% None
Shareholder
Servicing Plan Fees None 0.25%
Other Expenses 0.31% 0.81%
-----
Annual Fund 1.06% 1.32%
===== =====
Operating Expenses
(4)
</TABLE>
<PAGE>
Evergreen Utility Pro Forma
Class A
-------
Shareholder Transaction
Expenses
Maximum Sales Load 4.75%
Imposed on Purchases
(as a percentage of
offering price)
Contingent Deferred None(1)
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee (2) 0.50%
12b-1 Fees (3) 0.25%
Shareholder Servicing
Plan Fees None
Other Expenses 0.53%
-------
Annual Fund Operating 1.28%
Expenses (4) =======
- -------------------
(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%
upon redemption within one year after the month of purchase.
(2) Net Management Fee after waiver is 0.45% for Evergreen Utility and
0.29% for Evergreen Utility pro forma.
(3) Class A shares of Evergreen Utility 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.
<PAGE>
(4) After waivers, Annual Fund Operating Expenses for Evergreen Utility
would be 1.01%, for the twelve-month period ended January 31, 1999, and
would be 1.07% for Evergreen Utility pro forma for the twelve-month
period ended January 31, 1999.
Examples. The following tables show for Evergreen Utility and America's
Utility, and for Evergreen Utility pro forma, assuming consummation of the
Reorganization, examples of the cumulative effect of shareholder transaction
expenses and annual fund operating expenses indicated above on a $10,000
investment in the shares of America's Utility, the Class A shares of Evergreen
Utility and the Class A shares of Evergreen Utility pro forma) for the periods
specified, assuming (i) a 5% annual return, and (ii) redemption at the end of
such period. In the case of Evergreen Utility pro forma, the examples do not
reflect the imposition of the 4.75% maximum sales load on purchases because
America's Utility shareholders who receive Class A shares of Evergreen Utility
in the Reorganization will not incur any sales load.
<PAGE>
Evergreen Utility
Three Five
One Year Years Years Ten Years
$ 578 $ 796 $1,032 $1,708
America's Utility
Three Five
One Year Years Years Ten Years
$ 134 $ 418 $ 723 $1,590
Evergreen Utility Pro Forma
Three Five
One Year Years Years Ten Years
$ 130 $ 406 $ 702 $1,545
The purpose of the foregoing examples is to assist America's Utility
shareholders in understanding the various costs and expenses that an investor in
Evergreen Utility as a result of the Reorganization would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in America's Utility. 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.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectus of Evergreen Utility dated December 1, 1998 and the Prospectus of
America's Utility dated May 3, 1999 (which are incorporated herein by reference)
and the Reorganization Plan, the form of which is attached to this
Prospectus/Proxy Statement as Exhibit D.
<PAGE>
Proposed Plan of Reorganization
The Reorganization Plan provides for the transfer of all of the assets
of America's Utility (which at the time of the Reorganization will be known as
Evergreen America's Utility pursuant to the Conversion Plan described above) in
exchange for shares of Evergreen Utility and the assumption by Evergreen Utility
of the identified liabilities of America's Utility. The identified liabilities
consist only of those liabilities reflected on the Fund's statement of assets
and liabilities determined immediately preceding the Reorganization. The
Reorganization Plan also calls for the distribution of shares of Evergreen
Utility to America's Utility shareholders in liquidation of America's Utility as
part of the Reorganization. As a result of the Reorganization, the holders of
shares of America's Utility will become the owners of that number of full and
fractional Class A shares of Evergreen Utility having an aggregate net asset
value equal to the aggregate net asset value of the shareholders' shares of
America's Utility, as of the close of business immediately prior to the date
that America's Utility's assets are exchanged for shares of Evergreen Utility.
See "Reasons for the Reorganization - Agreement and Plan of Reorganization."
The Board of Directors of America's Utility, including the Directors
who are not "interested persons," as such term is defined in the 1940 Act (the
"Independent Directors"), have concluded that the Reorganization would be in the
best interests of shareholders of America's Utility. Accordingly, the Board of
Directors has submitted the Reorganization Plan for the approval of America's
Utility's shareholders.
In addition, subsequent to the Conversion of America's Utility to
Evergreen America's Utility, the Trustees of Evergreen Trust will review the
Reorganization Plan on behalf of Evergreen America's Utility (referred to in
this Part III as America's Utility) to determine whether the Reorganization
remains in the best interests of the shareholders of Evergreen America's Utility
and that the interests of shareholders of Evergreen America's Utility will not
be diluted as a result of the transactions contemplated by the Reorganization
even though shareholders of America's Utility have previously approved the
Reorganization.
THE BOARD OF DIRECTORS OF AMERICA'S UTILITY
RECOMMENDS APPROVAL BY SHAREHOLDERS OF AMERICA'S
UTILITY OF THE REORGANIZATION PLAN EFFECTING THE
REORGANIZATION.
The Trustees of Evergreen Trust have also approved the Reorganization
Plan on behalf of Evergreen Utility.
<PAGE>
Approval of the Reorganization on the part of America's Utility will
require the affirmative vote of a majority of America's Utility's shares voted
and entitled to vote, at a Meeting at which a quorum of the Fund's shares is
present. One- third of the outstanding shares entitled to vote, represented in
person or by proxy, is required to constitute a quorum at the Meeting. See
"Voting Information Concerning the Meeting."
The Reorganization is scheduled to take place on or about March 11,
2000. If the shareholders of America's Utility do not vote to approve the
Conversion and/or the Reorganization, the Directors of America's Utility or the
Trustees of Evergreen Trust, as the case may be, will consider other possible
courses of action in the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, America's Utility
will have received an opinion of Sullivan & Worcester LLP that the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its shareholders for federal income tax purposes as a result of the
receipt of shares of Evergreen Utility in the Reorganization. The holding period
and aggregate tax basis of shares of Evergreen Utility that are received by
America's Utility'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 America's Utility in the hands of
Evergreen Utility as a result of the Reorganization will be the same as in the
hands of the Fund immediately prior to the Reorganization, and no gain or loss
will be recognized by Evergreen Utility upon the receipt of the assets of the
Fund in exchange for shares of Evergreen Utility and the assumption by Evergreen
Utility of the identified liabilities of America's Utility.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Utility and
America's Utility are similar.
Evergreen Utility seeks a high current income and moderate capital
growth as its investment objective. In pursuing its investment objective, the
Fund invests at least 65% of its assets in common and preferred stocks and
investment grade bonds and convertible preferred stocks of utility companies
(including gas, electric, and telecommunications companies). The Fund may also
invest up to 35% of its assets in common stocks of non-utility companies and up
to 25% of its assets in foreign securities.
<PAGE>
The investment objective of America's Utility is to seek current income
and moderate capital growth by investing primarily in securities issued by
utility companies. The Fund normally invests at least 65% of its assets in
securities issued by utility companies. The Fund's investments in utility
companies may include both equity securities, such as common stock and preferred
stocks, and debt securities, such as bonds. The Fund may invest the balance of
its assets in investments that include common stock and other equity securities
issued by non-utility companies, as well as debt securities, such as U.S.
government securities and corporate bonds, notes and debentures. The Fund's debt
securities will typically have short to intermediate maturities (up to five
years). The Fund may invest without limit, in foreign securities. See
"Comparison of Investment Objectives and Policies" below.
Comparative Performance Information for Each Fund
Discussions of the manner of calculation of total return are contained
in each Fund's respective Prospectus and Statement of Additional Information.
Past performance is not an indication of future results. The calculations of
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment date.
The charts below show the percentage gain or loss in each calendar year
since inception for the Class A shares of Evergreen Utility and the shares of
America's Utility. They should give you a general idea of how each Fund's return
has varied from year-to-year. The graphs include the effects of Fund expenses,
but not sales charges (if applicable to the Fund's shares). Returns would be
lower if any applicable sales charges were included.
Year-by-Year Total Return for Class A Shares
of Evergreen Utility
94* 95 96 97 98
40%
30% 30.70 29.35
20%
10%
0 4.40
- -10% -5.60
Best Quarter: ______ _____%
Worst Quarter: ______ _____%
<PAGE>
- ---------------
*Since inception on 1/4/94 to 12/31/94
Year-to-date total return through 6/30/99 is ___%.
<TABLE>
<CAPTION>
Year-by-Year Total Return for Shares of America's Utility
93 94 95 96 97 98
<S> <C> <C> <C> <C> <C> <C>
40%
30% 32.30
20% 23.31
10% 13.26 15.47
0 5.46
- -10% -13.10
Best Quarter: 4th Quarter 1997 + 13.26%
Worst Quarter: 1st Quarter 1994 -10.96%
</TABLE>
The next table lists each Fund's average year-by-year return for the
1-year period, 5-year period and since inception (through 12/31/98), including
the applicable sales charge for Class A shares of Evergreen Utility. This table
is intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of the table you can compare the Funds' performance with
the Standard & Poor's 500 Composite Index ("S&P 500 Index") and the S&P
Utilities Index. The S&P 500 Index is an unmanaged index tracking the
performance of 500 publicly-traded U.S. stocks and is often used to indicate the
performance of the overall stock market. The S&P Utilities Index tracks the
performance of utility stocks within the larger S&P 500 Index, which are
investments similar to those of the Fund. Neither index is an actual investment.
Average Annual Total Return (1)
<PAGE>
<TABLE>
<CAPTION>
1 Year 5 Years From
Ended Ended Inception To
December December December 31, Inception
31, 1998 31, 1998 1998 Date
------- -------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
Utility
Class A
shares
(with sales
charge) 6.01% N/A 12.09% 1/4/94
---- -----
Evergreen
Utility
Class A
shares 11.33% N/A 13.19% 1/4/94
(without ------ ------
sales charge)
America's
Utility 15.47% 11.54% 12.49% 05/05/92
------ ------ ------
S&P 500 Index 28.58% 24.06% 20.48%/24.04%*
------ ------ --------------
S&P Utilities
Index 14.77% 14.04% 14.53%/13.90%*
------ ------ --------------
</TABLE>
- --------------
* Inception date is 05/05/92 and 1/4/94, respectively.
(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.
Important information about Evergreen Utility is also contained in
management's discussion of Evergreen Utility's performance, attached hereto as
Exhibit E. This information also appears in Evergreen Utility's most recent
Annual Report.
Management of the Funds
The overall management of Evergreen Utility and of America's Utility is
the responsibility of, and is supervised by, the Board of Trustees of Evergreen
Trust and the Board of Directors of America's Utility, respectively. Subsequent
to the Conversion, the overall management of America's Utility will be the
<PAGE>
responsibility of, and will be supervised by, the Board of
Trustees of Evergreen Trust.
Investment Advisers
The investment adviser to Evergreen Utility is Evergreen Investment
Management ("EIM") (formerly known as the Capital Management Group), a division
of FUNB. EIM is located at 201 South College Street, Charlotte, North Carolina
28288-0630. FUNB is a subsidiary of First Union Corporation ("First Union"), the
sixth largest bank holding company in the United States based on total assets as
of March 31, 1999. EIM and its affiliates manage the Evergreen family of mutual
funds with assets of approximately $56.7 billion as of March 31, 1999. For
further information regarding FUNB and First Union, see "Organization and
Service Providers - Service Providers - Investment Advisor" in the Prospectuses
of Evergreen Utility.
EIM manages investments and supervises the daily business affairs of
Evergreen Utility subject to the authority of the Trustees. EIM is entitled to
receive from the Fund an annual fee equal to 0.50% of the Fund's average daily
net assets.
Mentor serves as the investment adviser for America's Utility. Mentor
has overall responsibility for portfolio management of the Fund. For its
services as investment adviser, Mentor is entitled to receive a fee as follows:
for the first $5 million of assets under management, 0.75% of the average daily
net assets in the Fund; for the next $5 million under management, 0.50% of the
average daily net assets in the Fund; for the next $90 million under management,
0.25% of the average daily net assets in the Fund; for the next $100 million
under management, 0.20% of the average daily net assets in the Fund; for the
next $100 million under management, 0.15% of the average daily net assets in the
Fund; and for any amounts over $300 million under management, 0.10% of the
average daily net assets in the Fund.
Each investment adviser 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. Each investment adviser may 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, Evergreen Utility could
be adversely affected if the computer systems used by the Fund's investment
adviser 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." The Fund's
<PAGE>
investment adviser 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. In addition, issuers of securities in which the
Fund invests, especially foreign issuers, may be adversely affected by Year 2000
Problems. Such problems could negatively impact the value of the Fund's
portfolio securities.
Administrator
As described in Part 1 - "Administrative Agreements," EIS acts as
administrator for America's Utility. EIS also acts as the administrator for
Evergreen Utility and provides the Fund with facilities, equipment and
personnel. EIS is entitled to receive an administration fee from Evergreen
Utility based on the aggregate average daily net assets of all the mutual funds
advised by FUNB and its affiliates for which EIS serves as administrator,
calculated in accordance with the following schedule: 0.050% on the first $7
billion, 0.035% on the next $3 billion, 0.030% on the next $5 billion, 0.020% on
the next $10 billion, 0.015% on the next $5 billion and 0.010% on assets in
excess of $30 billion.
Portfolio Management
The day-to-day management of Evergreen Utility is handled by Matthew D.
Finn and Doris Kelley-Watkins. Mr. Finn is Chief Investment Officer of the
Growth and Income Group of Evergreen Investment Management Company ("EIMC"), an
indirect wholly-owned subsidiary of FUNB, and has been associated with EIM since
March 1998. Previously, he was a Vice President and portfolio manager with
Advantus Capital Management, Inc. from April 1994 to March 1998 and a portfolio
manager with Unified Capital Management from September 1993 to April 1994. Mr.
Finn has been co-manager of Evergreen Utility since April 1999. Ms.
Kelley-Watkins joined Evergreen Asset Management Corp., an indirect wholly-owned
subsidiary of FUNB, as a Vice President and analyst in February 1996 and has
been associated with EIM since August 1996. She was a First Vice President and
senior industry specialist when she left Merrill Lynch in February 1996 after 20
years with that company. Ms. Kelley-Watkins has been co-manager of Evergreen
Utility since August 1996.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services,
acts as underwriter of shares of Evergreen Utility. EDI distributes the Fund's
shares directly or through broker-dealers, banks (including FUNB), or other
financial
<PAGE>
intermediaries. Evergreen Utility offers four classes of shares: Class A, Class
B, Class C and Class Y. The Class B, Class C and Class Y shares of Evergreen
Utility are not involved in the Reorganization. Each class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below for a discussion of Class A shares.) No class
bears the distribution expenses relating to the shares of any other class.
In the proposed Reorganization, shareholders of America's Utility will
receive Class A shares of Evergreen Utility. The Class A shares of Evergreen
Utility have similar arrangements with respect to the imposition of a
distribution-related fee as the shares of America's Utility with respect to a
shareholder servicing-related fee. Because the Reorganization will be effected
at net asset value without the imposition of a sales charge, Evergreen Utility
shares acquired by shareholders of America's Utility pursuant to the proposed
Reorganization would not be subject to any initial sales charge or contingent
deferred sales charge ("CDSC") as a result of the Reorganization.
The following is a summary description of charges and fees for the
Class A shares of Evergreen Utility which will be received by America's Utility
shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Prospectus of Evergreen Utility and America's Utility and in each
Fund's 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 a 12b-1 fee. 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 for Evergreen Utility. No initial sales charge will be imposed on
Class A shares of Evergreen Utility received by America's Utility's shareholders
in the Reorganization.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses.
Evergreen Utility has adopted a 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
<PAGE>
class. This amount may be increased to the full plan amount for
the Fund by the Trustees without shareholder approval.
America's Utility has adopted a Shareholder Servicing Plan with respect
to its shares under which the Fund's may pay for shareholder servicing-related
expenses at an annual rate of 0.25% of the average daily net assets attributable
to the class.
Consistent with the requirements of Rule 12b-1 and the applicable rules
of the National Association of Security Dealers, Inc., following the Conversion
and the Reorganization of Evergreen Utility may make distribution-related and
shareholder servicing-related payments with respect to America's Utility shares
sold prior to the Conversion and the Reorganization including payments to
America's Utility former underwriter.
Additional information regarding the 12b-1 plan adopted by Evergreen
Utility and the Shareholder Servicing Plan adopted by America's Utility is
included in its respective Prospectus and Statement of Additional Information.
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. Generally, the minimum initial
purchase requirement for each Fund is $1,000. There is no minimum for subsequent
purchases of shares of Evergreen Utility. For America's Utility, the minimum for
subsequent investments is $40. Each Fund provides for telephone, mail or wire
redemption of shares at net asset value, less any CDSC, if applicable, 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 respective Prospectuses for each Fund.
Evergreen Utility may involuntarily redeem shareholders' accounts that have less
than $1,000 of invested funds. America's Utility may involuntarily redeem and
terminate those shareholder accounts which fall below a minimum investment
balance of $240. Effective September 1, 1999, the minimum investment balance for
America's Utility will be $1,000. All funds invested in each Fund are invested
in full and fractional shares. The Funds reserve the right to reject any
purchase order.
<PAGE>
Exchange Privileges
Shares of America's Utility do not have any exchange privileges. Holders of
shares of a class of Evergreen Utility may exchange their shares for shares of
the same class of any other Evergreen fund. America's Utility shareholders will
be receiving Class A shares of Evergreen Utility in the Reorganization and,
accordingly, with respect to shares of Evergreen Utility received in the
Reorganization, the exchange privilege is limited to Class A shares of other
Evergreen funds. Evergreen Utility 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 Evergreen Utility's
Prospectus and Statement of Additional Information.
Dividend Policy
Each Fund distributes its investment company taxable income monthly 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 respective Prospectuses of each Fund for
further information concerning dividends and distributions.
After the Reorganization, shareholders of America's Utility who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Evergreen Utility reinvested in
shares of Evergreen Utility. Shareholders of America's Utility who have elected
to receive dividends and/or distributions in cash will receive dividends and/or
distributions from Evergreen Utility in cash after the Reorganization, although
they may, after the Reorganization, elect to have such dividends and/or
distributions reinvested in additional shares of Evergreen Utility.
Each of Evergreen Utility and America's Utility has qualified and
intends to continue to qualify to be treated as a regulated investment company
under 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
<PAGE>
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 investment
objectives and policies, see "Comparison of Investment Objectives and Policies."
Utility Industry Risk. Each Fund normally invests at least 65% of its
total assets in the securities of utility companies. The value of an investment
in a Fund could be negatively affected by adverse developments in the utility
industry. These could include decreases in the demand for utility company
products and services, increased competition resulting from deregulation, and
rising energy costs, among others. Such developments also could cause utility
companies to reduce the dividends they pay on their stock, potentially
decreasing the dividends shareholders receive from the Fund. Finally, utility
companies typically borrow heavily to support continuing operations. Increases
in interest rates could increase utility companies' borrowing costs, which could
adversely impact their financial results and stock price, and ultimately the
value and total return of the Fund's shares.
Concentration Risk. Funds that concentrate their investments in a
single industry may face increased risk of price fluctuation over more
diversified funds due to adverse developments within that industry.
Stock Market Risk. Investment in the Funds 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 and
dividend yield and total return earned on an investment would likely decline.
Even if general economic conditions do not change, an investment may decline in
value if the particular industries, issuers or sectors the Funds invest in do
not perform well.
Each Fund invests in debt securities. The main risks of investing in
debt securities are:
Interest Rate Risk. Bond prices move inversely to interest
rates, i.e., as interest rates decline the values of the bonds
<PAGE>
increase, and vice versa. The longer the maturity of a bond, the greater the
exposure to market price fluctuations. The same market factors are reflected in
the share price or net asset value of bond funds which will vary with interest
rates. Prices of longer-term bonds tend to be more volatile in periods of
changing interest rates than prices of shorter-term securities.
Credit Risk. A Fund's income and/or share price may be adversely
affected if the issuer of a debt security has its credit rating reduced or fails
to make scheduled interest and principal payments. Neither Fund is required to
sell or otherwise dispose of any security that loses its rating or has its
rating reduced after the Fund has purchased it.
Derivatives Risk. Each Fund may invest in derivatives, including
options, futures and options on futures. The market values of derivatives or
structured securities may vary depending upon the manner in which the
investments have been structured and may fluctuate much more rapidly and to a
much greater extent than investments in other securities. As a result, the
values of such investments may change at rates in excess of the rates at which
traditional fixed income securities change and, depending on the structure of a
derivative, could change in a manner opposite to the change in the market value
of a traditional fixed income security. See the Prospectus and Statement of
Additional Information of Evergreen Utility for further discussion of the risks
inherent in the use of certain derivatives.
Foreign Investment Risk. Each Fund may purchase obligations of foreign
governments and corporations. Investment in foreign securities generally entails
more risk than investment in domestic issuers for the following reasons:
publicly available information on issuers and securities may be scarce; many
foreign countries do not follow the same accounting, auditing and financial
reporting standards as are used in the United States; market trading volumes may
be smaller, resulting in less liquidity and more price volatility compared to
U.S. securities; there may be less regulation of securities trading and its
participants; unfavorable changes in a foreign country's currency may adversely
affect the value of foreign securities held by the Fund; the possibility may
exist for expropriation, confiscatory taxation, nationalization, establishment
of price controls, political or social instability or negative diplomatic
developments; and dividend or interest withholding may be imposed at the source.
When a Fund invests in foreign securities, they usually will be
denominated in foreign currencies and the Fund temporarily may hold funds in
foreign securities. Thus, the value of the Fund's shares may be affected by
changes in exchange rates.
<PAGE>
Oil Industry Investment Risk. Each Fund may invest in securities of
issuers engaged in the production, refining, sale, or distribution of oil or
oil-related products. Under certain market conditions, the prices of such
securities may vary inversely to the prices of securities of utility companies,
and so may provide some limited protection against a decline in the Fund's net
asset value at times of a general decline in prices of securities of utilities
companies. The Funds may invest in such securities in an attempt to gain such
protection or in an attempt to increase the Funds' investment return.
The prices of securities of companies in the oil industry and the price
of oil are subject to substantial fluctuations, and may be affected by
unpredictable economic and political circumstances, including, for example:
social, political, or military disturbances in or near oil-producing countries
or oil shipping or pipeline routes; the taxation and regulatory policies of
various governments; the activities and policies of OPEC (an organization of
major oil producing countries); the discovery of new oil and gas reserves and
the development of new techniques for producing, refining, and transporting oil,
gas, and related products; energy conservation practices; and the development of
alternative energy sources and alternative uses for oil and gas products. In
addition, the facilities and other assets of such companies may be subject to
the risks of nationalization or expropriation, confiscatory taxation, and risks
of political or financial instability and diplomatic developments that could
affect their values adversely.
REASONS FOR THE REORGANIZATION
In order to combine and simplify the offering of mutual funds that are
advised by First Union and its affiliates, the Mentor funds are being brought
into the Evergreen fund family. Certain Mentor funds will continue as series of
applicable Evergreen Delaware business trusts. Other Mentor funds, including
America's Utility, are in the process of being combined with existing Evergreen
funds in cases where the funds have similar investment objectives and policies.
Mentor is an indirect majority-owned subsidiary of First Union Capital
Markets Corp., which is in turn a wholly-owned subsidiary of First Union. EVEREN
Capital Corporation currently has a 45% ownership interest in Mentor. It is
anticipated that First Union will acquire EVEREN Capital Corporation in
September, 1999.
At a meeting of the Board of Directors of America's Utility held on
July 13, 1999, all of the Directors, including the Independent Directors,
considered and approved the Conversion and
<PAGE>
the Reorganization as being in the best interests of shareholders
of America's Utility.
In approving the Reorganization Plan, the Directors reviewed various
factors about the Funds and the proposed Reorganization. There are substantial
similarities between Evergreen Utility and America's Utility. Specifically,
Evergreen Utility and America's Utility have similar investment objectives and
policies and comparable risk profiles. See "Comparison of Investment Objectives
and Policies" below. At the same time, the Board of Directors evaluated the
potential economies of scale associated with larger mutual funds and concluded
that operational efficiencies may be achieved by combining America's Utility
with Evergreen Utility. As of June 30, 1999, Evergreen Utility's net assets were
approximately $166 million and America's Utility's net assets were approximately
$165 million.
In addition, assuming that an alternative to the Reorganization would
be that America's Utility continue its existence and be separately managed by
FUNB or one of its affiliates, America's Utility would be offered through common
distribution channels with Evergreen Utility. America's Utility would also have
to bear the cost of maintaining its separate existence. Mentor and FUNB believe
that the prospect of dividing the resources of the Evergreen mutual fund
organization between two similar funds could result in each Fund being
disadvantaged due to an inability to achieve optimum size, performance levels
and greater economies of scale. 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, Mentor and FUNB believe that the proposed
Reorganization would be in the best interests of each Fund and its shareholders.
The Board of Directors of America's Utility met and considered the
recommendation of Mentor and FUNB, and, in addition, considered among other
factors, (i) the terms and conditions of the Reorganization; (ii) expense
ratios, fees and expenses of Evergreen Utility and America's Utility; (iii) the
comparative performance records of each of the Funds; (iv) compatibility of
their investment objectives and policies; (v) the investment experience,
expertise and resources of FUNB; (vi) the service and distribution resources
available to the Evergreen funds and the broad array of investment alternatives
available to shareholders of the Evergreen funds; (vii) the personnel and
financial resources of First Union and its affiliates; (viii) the fact that
Evergreen Utility will assume the identified liabilities of America's Utility;
and (ix) the expected federal income tax consequences of the Reorganization.
During their consideration
<PAGE>
of the Reorganization the Directors met with Fund counsel and counsel to the
Independent Directors regarding the legal issues involved.
In addition, the Directors considered that there are alternatives
available to shareholders of America's Utility, including the ability to redeem
their shares, as well as the option to vote against the Reorganization.
THE DIRECTORS OF AMERICA'S UTILITY RECOMMEND
THAT THE SHAREHOLDERS OF AMERICA'S UTILITY APPROVE
THE PROPOSED REORGANIZATION.
The Trustees of Evergreen Trust also concluded at a meeting on June 18,
1999 that the proposed Reorganization would be in the best interests of
shareholders of Evergreen Utility and that the interests of the shareholders of
Evergreen Utility would not be diluted as a result of the transactions
contemplated by the Reorganization. Subsequent to the Conversion of America's
Utility into Evergreen America's Utility, a series of Evergreen Trust, which is
scheduled to occur on or about October 15, 1999, the Trustees of Evergreen Trust
will review the proposed Reorganization to determine whether the proposed
Reorganization remains in the best interests of the shareholders of Evergreen
America's Utility and that the interests of the shareholders of Evergreen
America's Utility will not be diluted as a result of the transactions
contemplated by the Reorganization.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Reorganization Plan (Exhibit D hereto).
The Reorganization Plan provides that Evergreen Utility will acquire
all of the assets of America's Utility in exchange for shares of Evergreen
Utility and the assumption by Evergreen Utility of the identified liabilities of
America's Utility on or about March 11, 2000 or such other date as may be agreed
upon by the parties (the "Closing Date"). Prior to the Closing Date, America's
Utility will endeavor to discharge all of its known liabilities and obligations.
Evergreen Utility will not assume any liabilities or obligations of America's
Utility other than those reflected in an unaudited statement of assets and
liabilities of America's Utility 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 Evergreen Utility to be received by the shareholders of America's
Utility will be determined by multiplying the respective outstanding class of
shares of America's Utility by a factor which shall be
<PAGE>
computed by dividing the net asset value per share of the respective class of
shares of America's Utility by the net asset value per share of the respective
class of shares of Evergreen Utility. 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 Evergreen
Utility, 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 Prospectus and Statement of Additional Information of Evergreen
Utility, 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, America's Utility 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, America's
Utility 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
Evergreen Utility received by America's Utility. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Fund's shareholders on Evergreen Utility's share records. Each account
will represent the respective pro rata number of full and fractional shares of
Evergreen Utility due to the Fund's shareholders. All issued and outstanding
shares of America's Utility, including those represented by certificates, will
be canceled. The shares of Evergreen Utility to be issued will have no
preemptive or conversion rights. After these distributions and the winding up of
its affairs, America's Utility will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Reorganization Plan, including approval by America's Utility's
shareholders and the
<PAGE>
determination by the Trustees of Evergreen Trust, subsequent to the meeting of
America's Utility's shareholders, that the Reorganization remains in the best
interests of the shareholders of both America's Utility and Evergreen Utility
and the interests of each Fund's shareholders will not be diluted as a result of
the transactions contemplated by the Reorganization, 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 America's Utility's
shareholders, the Reorganization Plan may be terminated (a) by the mutual
agreement of America's Utility and Evergreen Utility; 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.
The expenses of America's Utility and Evergreen Utility in connection with
the Conversion and the Reorganization (including the cost of any proxy
soliciting agent) will be borne equally by the Funds whether or not the
Conversion and the Reorganization are consummated. It is expected that the cost
of retaining Shareholders Communication Corporation to assist in the proxy
solicitation process will not exceed $____.
If the Conversion and/or the Reorganization is not approved by
shareholders of America's Utility, the Board of Directors of America's Utility
or the Board of Trustees Evergreen Equity Trust, as the case may be, will
consider other possible courses of action in the best interests of shareholders.
Federal Income Tax Consequences
The Reorganization 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 Reorganization, America's Utility 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 Reorganization:
(1) The transfer of all of the assets of America's Utility solely in
exchange for shares of Evergreen Utility and the assumption by Evergreen Utility
of the identified liabilities, followed by the distribution of Evergreen
Utility's shares by America's Utility in dissolution and liquidation of
America's Utility, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and Evergreen Utility and
<PAGE>
America's Utility 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 America's Utility on the
transfer of all of its assets to Evergreen Utility solely in exchange for
Evergreen Utility's shares and the assumption by Evergreen Utility of the
identified liabilities of America's Utility or upon the distribution of
Evergreen Utility's shares to America's Utility's shareholders in exchange for
their shares of America's Utility;
(3) The tax basis of the assets transferred will be the same to
Evergreen Utility as the tax basis of such assets to America's Utility
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Utility will include the period during which the
assets were held by America's Utility;
(4) No gain or loss will be recognized by Evergreen Utility upon the
receipt of the assets from America's Utility solely in exchange for the shares
of Evergreen Utility and the assumption by Evergreen Utility of the identified
liabilities of America's Utility;
(5) No gain or loss will be recognized by America's Utility's
shareholders upon the issuance of the shares of Evergreen Utility to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of America's Utility; and
(6) The aggregate tax basis of the shares of Evergreen Utility,
including any fractional shares, received by each of the shareholders of
America's Utility pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of America's Utility held by such shareholder
immediately prior to the Reorganization, and the holding period of the shares of
Evergreen Utility, including fractional shares, received by each such
shareholder will include the period during which the shares of America's Utility
exchanged therefor were held by such shareholder (provided that the shares of
America's Utility were held as a capital asset on the date of the
Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of America's Utility 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 Evergreen Utility
shares he or she received. Shareholders of America's Utility should consult
their tax
<PAGE>
advisers regarding the effect, if any, of the proposed Reorganization in light
of their individual circumstances. Since the foregoing discussion relates only
to the federal income tax consequences of the Reorganization, shareholders of
America's Utility should also consult their tax advisers as to the state and
local tax consequences, if any, of the Reorganization.
As of June 30, 1999, America's Utility had a capital loss carryforward
of approximately $584,000. The utilization of the capital loss carryforward by
Evergreen Utility following the Reorganization will be subject to various
limitations, which cannot be calculated precisely at this time. On a pro forma
basis, all such limitations are greater than the capital loss carryforward with
the exception of the following:
For Evergreen Utility's taxable year which includes the merger date,
utilization of the capital loss carryforward would be limited to
Evergreen Utility's net capital gain for the year multiplied by a
fraction, the numerator of which is the days in the taxable year
following the merger date and the denominator of which is 365.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen Utility
and America's Utility as of January 31, 1999, and the capitalization of
Evergreen Utility 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 2.77 Class A shares of Evergreen Utility
issued for each share of America's Utility.
Capitalization of America's Utility,
Evergreen Utility and Evergreen Utility
pro forma
<TABLE>
<CAPTION>
America's Evergreen Evergreen Utility
Utility Utility (After Reorganization)
------------- ------------- ----------------------
<S> <C> <C> <C>
Net Assets
Class A........................ $162,459,861 $ 94,953,830 $257,413,691
Class B........................ N/A $ 46,418,758 $ 46,418,758
Class C........................ N/A $ 629,717 $ 629,717
Class Y........................ N/A $ 2,847,607 $ 2,847,607
------------ ------------ ------------
Total Net $162,459,861 $144,849,912 $307,309,773
Assets . . .
<PAGE>
Net Asset Value Per
Share
Class A........................ $30.16 $10.90 10.90
Class B........................ N/A $10.90 10.90
Class C........................ N/A $10.90 10.90
Class Y........................ N/A $10.90 10.90
Shares Outstanding
Class A........................ 5,387,389 8,714,406 23,621,161
Class B........................ N/A 4,258,428 4,258,428
Class C........................ N/A 57,786 57,786
Class Y........................ N/A 261,270 261,270
----------- ---------- -----------
All Classes.................... 5,387,389 13,291,890 28,198,645
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; 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 Reorganization.
Shareholder Information
As of August 17, 1999 (the "Record Date"), there were _____ shares of
America's Utility outstanding. As of June 30, 1999, the officers and Directors
of America's Utility beneficially owned as a group less than 1% of the
outstanding shares of America's Utility. To the knowledge of America's Utility,
as of June 30, 1999 no person owned of record or beneficially more than 5% of
the outstanding shares of common stock of the Fund as of such date.
<PAGE>
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 respective Prospectuses and Statements of
Additional Information of the Funds. The investment objective, policies and
restrictions of Evergreen Utility can be found in the Prospectus for Evergreen
Utility under the sections "Fund Summaries" and "Other Fund Practices." The
Prospectuses for Evergreen Utility also offer additional funds advised by FUNB
or its affiliates. These additional funds are not involved in the
Reorganization, their investment objectives and policies are not discussed in
this Prospectus/Proxy Statement, and their shares are not offered hereby. The
investment objective, policies and restrictions of America's Utility can be
found in the Prospectus of the Fund under the sections "Fund Summary" and "Other
Investment Strategies and Risks." The investment objective of America's Utility
and the investment objective of Evergreen Utility are non-fundamental and can be
changed by the Board of Trustees/Directors without shareholder approval.
The investment objectives and policies of Evergreen Utility and
America's Utility are similar.
Evergreen Utility seeks a high current income and moderate capital
growth as its investment objective. In pursuing its investment objective, the
Fund invests at least 65% of its assets in common and preferred stocks and
investment grade bonds and convertible preferred stocks of utility companies
(including gas, electric, and telecommunications companies). The Fund may also
invest up to 35% of its assets in common stocks of non-utility companies and up
to 25% of its assets in foreign securities. Currently, substantially all of the
Fund's assets are invested in common and preferred stocks.
The Fund's managers consider a number of factors when selecting utility
company stocks: a history of high dividends and profits; the size of the
company's market and market share; competitive or technological advantages that
may help it in the future; potential merger activity; and the projected
volatility of the company or industry.
The Fund may also invest in high quality money market instruments in
response to adverse economic, political or market conditions.
<PAGE>
The investment objective of America's Utility is to seek current income
and moderate capital growth by investing primarily in securities issued by
utility companies. The Fund normally invests at least 65% of its assets in
securities issued by utility companies. The Fund's investments in utility
companies may include both equity securities, such as common stock and preferred
stocks, and debt securities, such as bonds. The Fund may invest the balance of
its assets in investments that include common stock and other equity securities
issued by non-utility companies, as well as investment grade debt securities,
such as U.S. government securities and corporate bonds, notes and debentures.
Currently, most of the Fund's assets are invested in common and preferred
stocks. The Fund may invest without limit, in foreign securities.
The types of investments held by the Fund will vary with the investment
adviser's view of general economic and market conditions, such as, for example,
changes in interest rates. The investment adviser will decide to buy or sell
securities based on a variety of factors, including overall quality, relative
yields, performance relative to proprietary models, and the investment adviser's
general evaluation of such securities and their potential to produce current
income or capital growth.
After the Reorganization, Evergreen Utility may dispose of a portion of
the securities received from America's Utility in the ordinary course of
business. This may result in additional transaction costs (and/or capital gains)
to shareholders of Evergreen Utility.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectus and Statement of Additional Information of each
Fund.
ADDITIONAL INFORMATION
Evergreen Utility. Information concerning the operation and management
of Evergreen Utility is incorporated herein by reference from the Prospectus
dated December 1, 1998, a copy of which is enclosed, and the 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 Evergreen
Utility at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-645-7816.
<PAGE>
America's Utility . Information about the Fund is included in its
current Prospectus dated May 3, 1999 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 Prospectus and Statement of
Additional Information are available upon request and without charge by writing
to America's Utility at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-645- 7816.
Evergreen Utility and America's Utility are each subject to the
informational requirements of the 1934 Act 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 Evergreen Utility and
America's Utility.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Evergreen Utility 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 KPMG 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 America's Utility as of December 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 KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
<PAGE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Utility will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
PART IV
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Directors of America's Utility, to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., October 15, 1999, at
the offices of the America's Utility, 901 East Byrd Street, Richmond, Virginia
23219, 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 America's Utility on or about August 27, 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 one-third of the outstanding shares entitled to vote at the Meeting 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 Conversion, FOR the adoption of standardized
fundamental investment restrictions, FOR the proposed Reorganization 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 either the Conversion
Plan or the Reorganization Plan, which must be approved by a majority of the
votes cast and entitled to vote. However, such abstentions and "broker
non-votes" will have the effect of being counted as votes against the adoption
of standardized fundamental investment restrictions, which must be approved by a
certain percentage of the Fund's outstanding voting securities as described
below. A proxy may be revoked at any time on or before the Meeting by written
notice to the Secretary of America's Utility 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
<PAGE>
such specifications, FOR approval of the Conversion Plan, FOR adoption of
standardized fundamental investment restrictions, and FOR approval of the
Reorganization Plan and the Reorganization contemplated thereby.
Approval of the Conversion Plan and the Reorganization 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 full share outstanding is
entitled to one vote and each fractional share outstanding is entitled to a
proportionate share of one vote.
Pursuant to the 1940 Act, the affirmative vote of the holders of a
majority of the outstanding voting securities of the Fund is required to approve
and the adoption of standardized fundamental investment restrictions (proposals
2A to 2H). Under the 1940 Act, the affirmative vote of a "majority of the
outstanding voting securities" of the Fund is defined as the lesser of (a) 67%
or more of the voting securities of the Fund present or represented by proxy at
the Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (b) more than 50%
of the outstanding voting securities of the Fund.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, e-mail or personal solicitations
conducted by officers and employees of Mentor or FUNB, their affiliates or other
representatives of America's Utility (who will not be paid for their
solicitation activities). Shareholder Communications Corporation and its agents
have been engaged by America's Utility to assist in soliciting proxies. If you
wish to participate in the Meeting, you may submit the proxy card included with
this Prospectus/Proxy Statement, vote by fax, vote by telephone or Internet or
attend in person. Any proxy given by you is revocable.
In the event that sufficient votes to approve the Conversion and the
Reorganization are not received by October 15, 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 for a
period of not more than 120 days in the aggregate, 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 votes cast on the question in person or by proxy at the session
of the Meeting to be adjourned. The persons named
<PAGE>
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 Conversion or Reorganization
will not be entitled under either Delaware or Maryland law or the Declaration of
Trust of Evergreen Equity Trust or the Articles of Incorporation of America's
Utility to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Conversion and the Reorganization as
proposed are not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that, if the Conversion and the
Reorganization are consummated, shareholders will be free to redeem the shares
of Evergreen Utility which they receive in the transaction at their then-current
net asset value. In addition, shares of America's Utility may be redeemed at any
time prior to the consummation of the Conversion or the Reorganization.
Shareholders of America's Utility may wish to consult their tax advisers as to
any differing consequences of redeeming Fund shares prior to the Conversion or
the Reorganization or exchanging such shares in the Conversion or the
Reorganization.
America's Utility does not hold annual shareholder meetings. If the
Conversion or the Reorganization is not approved, shareholders wishing to submit
proposals for consideration for inclusion in a proxy statement for a subsequent
shareholder meeting should send their written proposals to the Secretary of
America's Utility at the address set forth on the cover of this Prospectus/Proxy
Statement such that they will be received by the Fund in a reasonable period of
time prior to any such meeting.
The votes of the shareholders of Evergreen Utility are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise America's Utility 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.
OTHER BUSINESS
The Directors of America's Utility 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.
<PAGE>
THE DIRECTORS OF AMERICA'S UTILITY RECOMMEND APPROVAL OF THE CONVERSION
PLAN, THE ADOPTION OF STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS AND THE
APPROVAL OF THE REORGANIZATION PLAN AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF THESE PROPOSALS.
August 27, 1999
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION dated _____________,
1999 (the "Agreement"), between America's Utility Fund, Inc., a Maryland
corporation having its principal office at 901 East Byrd Street, Richmond,
Virginia 23219 (the "Original Fund") and Evergreen Equity Trust, a Delaware
business trust having its principal office at 200 Berkeley Street, Boston,
Massachusetts 02116 (the "Successor Trust") on behalf of its Evergreen America's
Utility Fund (the "Successor Fund"), one of the Successor Trust's series
portfolios.
WHEREAS, the Board of Directors of the Original Fund and the Board of
Trustees of the Successor Trust have respectively determined that it is in the
best interests of the Original Fund and the Successor Fund, respectively, that
the assets of the Original Fund be acquired by the Successor Fund pursuant to
this Agreement and in accordance with, respectively, the applicable laws of the
State of Maryland and the State of Delaware; and
WHEREAS, the parties desire to enter into a plan of exchange which
would constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"):
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. PLAN OF EXCHANGE.
(a) Subject to the terms and conditions set forth herein, on
the Exchange Date (as defined herein), the Original Fund shall assign, transfer
and convey the assets, including all securities and cash held by the Original
Fund (subject to the liabilities of the Original Fund) to the Successor Fund and
the Successor Fund shall acquire all of the assets of the Original Fund (subject
to the liabilities of the Original Fund) in exchange for full and fractional
shares of beneficial interest of the Successor Fund, $.001 par value per share
(the "Successor Fund Shares"), to be issued by the Successor Trust on behalf of
the Successor Fund, having, in the case of the Successor Fund, an aggregate net
asset value equal to the value of the net assets of the Original Fund acquired.
The value of the assets of the Original Fund and the net asset value per share
of the Fund Shares of the Successor Fund shall be determined as of the Valuation
Date (as defined herein) in accordance with the procedures for determining the
value of the Original Fund's assets set forth in the Successor Fund's
Declaration of Trust and the then-current prospectus and statement of additional
information for the Successor Fund that forms a part of the Successor Fund's
Registration Statement on Form N-1A (the "Registration Statement"). In lieu of
delivering certificates for the Fund
<PAGE>
Shares, the Successor Trust shall credit the Fund Shares to the Original Fund's
account on the share record books of the Successor Trust and shall deliver a
confirmation thereof to the Original Fund. The Original Fund shall then deliver
written instructions to the Successor Trust's transfer agent to establish
accounts for the shareholders on the share record books relating to the Original
Fund. Holders of shares of the Original Fund shall receive in the transaction
described above, Class A shares of the Successor Fund. Fund Shares of such
class shall have the same aggregate net asset value as the aggregate net asset
value of the shares of the Original Fund.
(b) Delivery of the assets of the Original Fund shall be made not later
than the next business day following the Valuation Date (the "Exchange Date").
Assets transferred shall be delivered to State Street Bank and Trust Company,
the Successor Trust's custodian (the "Custodian"), for the account of the
Successor Trust and the Successor Fund, with all securities not in bearer or
book entry form duly endorsed, or accompanied by duly executed separate
assignments or stock powers, in proper form for transfer, with signatures
guaranteed, and with all necessary stock transfer stamps, sufficient to transfer
good and marketable title thereto (including all accrued interest and dividends
and rights pertaining thereto) to the Custodian for the account of the Successor
Trust and the Successor Fund free and clear of all liens, encumbrances, rights,
restrictions and claims. All cash delivered shall be in the form of immediately
available funds payable to the order of the Custodian for the account of the
Successor Trust and the Successor Fund. All assets delivered to the Custodian as
provided herein shall be allocated by the Successor Trust to the Successor Fund.
(c) The Original Fund will pay or cause to be paid to the Successor Trust
any interest received on or after the Exchange Date with respect to assets
transferred from the Original Fund to the Successor Fund hereunder and to the
Successor Trust any distributions, rights or other assets received by the
Original Fund after the Exchange Date as distributions on or with respect to the
securities transferred from the Original Fund to the Successor Fund hereunder
and to the Successor Trust shall allocate any such distributions, rights or
other assets to the Successor Fund. All such assets shall be deemed included in
assets transferred to the Successor Fund on the Exchange Date and shall not be
separately valued.
(d) The Valuation Date shall be October 15, 1999, or such earlier or
later date as may be mutually agreed upon by the parties.
(e) As soon as practicable after the Exchange Date, the Original Fund shall
distribute all of the Successor Fund Shares received by it among the
shareholders of the Original Fund in proportion to the number of shares each
such shareholder holds in the Original Fund and, upon the effecting of such a
distribution on behalf of the Fund, the Original Fund will dissolve and
terminate. After the Exchange Date, the Original Fund shall not conduct any
business except in connection with its dissolution and termination.
<PAGE>
2. THE ORIGINAL FUND'S REPRESENTATIONS AND WARRANTIES. The Original Fund
represents and warrants to and agrees with the Successor Trust as follows:
(a) The Original Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland and has power to
own all of its properties and assets and, subject to the approval of its
shareholders as contemplated hereby, to carry out this Agreement.
(b) The Original Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full force and
effect.
(c) On the Exchange Date, the Original Fund will have full right, power
and authority to sell, assign, transfer and deliver the assets to be transferred
by it hereunder.
(d) The current prospectus and statement of additional information of
the Original 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 Securities and Exchange Commission
(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.
(e) The Original 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 Original Fund's Articles of Incorporation
or By-Laws or of any material agreement, indenture, instrument, contract, lease,
or other undertaking to which the Original Fund is a party or by which it is
bound.
(f) Except as otherwise disclosed in writing to and accepted by the
Successor 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 Original 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 Original Fund to
carry out the transactions contemplated by this Agreement. The Original 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 Original Fund at December 31, 1998
are in accordance with generally accepted accounting principles consistently
applied, and
<PAGE>
such statements (copies of which have been furnished to the Successor Fund)
fairly reflect the financial condition of the Original Fund as of such date, and
there are no known contingent liabilities of the Original Fund as of such date
not disclosed therein.
(h) Since December 31, 1998 there has not been any material adverse
change in the Original Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Original Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Successor Trust. For the purposes of this subparagraph (h), a
decline in the net asset value of the Original Fund shall not constitute a
material adverse change.
(i) At the Exchange Date, all federal and other tax returns and reports
of the Original 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 Original 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 Original 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 required to so qualify.
(k) All issued and outstanding shares of the Original Fund are, and at
the Exchange Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Original Fund. All of the issued and outstanding
shares of the Original Fund will, at the time of the Exchange Date, be held by
the persons and in the amounts set forth in the records of the transfer agent.
The Original Fund does not have outstanding any options, warrants, or other
rights to subscribe for or purchase any of the Original Fund shares, nor is
there outstanding any security convertible into any of the Original Fund shares.
(l) At the Exchange Date, the Original Fund will have good and
marketable title to the Original Fund's assets to be transferred to the
Successor Fund pursuant to Section 1 and full right, power, and authority to
sell, assign, transfer, and deliver such assets hereunder, and, upon delivery
and payment for such assets, the Successor Trust 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 Successor Trust and accepted by the Successor Trust.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Original Fund
and, subject to the approval of the shareholders of the Original Fund, this
Agreement constitutes a valid and binding obligation of the Original Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization,
<PAGE>
moratorium, and other laws relating to or affecting creditors' rights and to
general equity principles.
(n) The information furnished by the Original 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 is accurate and complete in all material respects and
complies in all material respects with federal securities and other laws and
regulations thereunder applicable thereto.
3. THE SUCCESSOR TRUST'S REPRESENTATIONS AND WARRANTIES. The Successor
Trust represents and warrants to and agrees with the Original Fund as
follows:
(a) The Successor Trust is a business trust duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
power to carry on its business as it is now being conducted and to carry out
this Agreement on behalf of the Successor Fund.
(b) The Successor Trust is registered as an open-end management
investment company and adopts the Registration Statement of the Original Fund,
for purposes of the 1933 Act.
(c) At the Exchange Date, the Fund Shares to be issued to the Original
Fund will have been duly authorized and, when issued and delivered pursuant to
this Agreement, will be legally and validly issued and will be fully paid and
non-assessable by the Successor Trust. No Successor Trust or Successor Fund
shareholder will have any preemptive right of subscription or purchase in
respect thereof.
(d) The current prospectuses and statement of additional information of
the Successor 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.
(e) The Successor Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Successor
Trust's Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Successor Fund is
a party or by which it is bound.
(f) Except as otherwise disclosed in writing to the Original Fund and
accepted by the Original 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 Successor Trust 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 Successor Trust to carry out the
<PAGE>
transactions contemplated by this Agreement. The Successor Trust 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.
(g) Successor Fund has no known liabilities of a material amount,
contingent or otherwise.
(h) At the Exchange Date there has not been any material adverse change
in the Successor Fund's financial condition, assets, liabilities, or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Successor Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Original Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Successor Fund shall not constitute a
material adverse change.
(i) At the Exchange Date, all federal and other tax returns and reports
of the Successor Fund required by law then to be filed by such date 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 Successor Trust'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 Successor 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 required to so qualify.
(k) All issued and outstanding Successor Fund Shares are, and at the
Exchange Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Successor Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Successor Fund
Shares, nor is there outstanding any security convertible into any Successor
Fund Shares.
(l) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Successor Trust,
and this Agreement constitutes a valid and binding obligation of the Successor
Trust 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.
(m) The Successor Fund Shares to be issued and delivered to the
Original Fund, for the account of the Original Fund shareholders, pursuant to
the terms of this Agreement will, at the Exchange Date, have been duly
authorized and, when so issued
<PAGE>
and delivered, will be duly and validly issued Successor Fund Shares, and will
be fully paid and non-assessable.
(n) The information furnished by the Successor Trust 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 is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
4. THE SUCCESSOR TRUST'S CONDITIONS PRECEDENT. The
obligations of the Successor Trust hereunder shall be subject to the following
conditions:
(a) The Original Fund shall have furnished to the Successor Trust a
statement of the Original Fund's assets, including a list of securities owned by
the Original Fund with their respective tax costs and values determined as
provided in Section 1 hereof, all as of the Exchange Date.
(b) As of the Exchange Date, all representations and warranties of the
Original Fund made in this Agreement shall be true and correct as if made at and
as of such date, and the Original Fund shall have complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such date.
(c) For the Original Fund, a vote approving this Agreement and the
transactions and exchange contemplated hereby shall have been duly adopted by
the shareholders of the Original Fund.
(d) The Successor Fund shall have received on the Exchange Date an
opinion of Ropes & Gray, counsel to the Original Fund, in a form satisfactory to
the Successor Trust covering the following points:
(i) The Original Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
the power to own all of its properties and assets and to carry on its business
as presently conducted.
(ii) The Original Fund is a Maryland corporation 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.
(iii) This Agreement has been duly authorized, executed and
delivered by the Original Fund and, assuming due authorization, execution, and
delivery of this Agreement by the Successor Trust, is a valid and binding
obligation of the Original Fund enforceable against the Original Fund in
accordance with its terms, subject as to
<PAGE>
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and to general equity
principles.
(iv) 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 Maryland is required for consummation by the
Original Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the Securities Exchange Act of 1934, as amended
("the 1934 Act") and the 1940 Act, and as may be required under state securities
laws.
(v) 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 Original Fund's Articles of Incorporation 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 Original
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
Original Fund is a party or by which it is bound.
(vi) Only insofar as they relate to the Original Fund, the
descriptions in the proxy materials of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present the
information required to be shown.
(vii) 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 Original Fund or any of its properties
or assets and the Original 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 proxy materials.
(viii) 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 Original Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Original 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 Ropes & Gray appropriate to render the opinions expressed
therein.
5. THE ORIGINAL FUND'S CONDITIONS PRECEDENT. The obligations of the
Original Fund hereunder shall be subject to the following conditions: (a) that
as of the Exchange Date all representations and warranties of the Successor
Trust made in the Agreement shall be true and correct as if made at and as of
such date, and that the Successor Trust shall have complied with all of the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such date.
<PAGE>
(b) The Original Fund shall have received on the Exchange Date an
opinion from Sullivan & Worcester LLP, counsel to the Successor Trust, dated as
of the Exchange Date, in a form reasonably satisfactory to the Original Fund,
covering the following points:
(i) The Successor 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.
(ii) The Successor 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.
(iii) This Agreement has been duly authorized, executed, and
delivered by the Successor Trust and, assuming due authorization, execution and
delivery of this Agreement by the Original Fund, is a valid and binding
obligation of the Successor Fund enforceable against the Successor Trust 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.
(iv) The Successor Fund Shares to be issued and delivered to
the Original Fund on behalf of the Original 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
Successor Fund has any preemptive rights in respect thereof.
(v) 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 Successor
Trust 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.
(vi) 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 Successor 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 Successor
Trust 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
Successor Trust is a party or by which it is bound.
(vii) Only insofar as they relate to the Successor Trust and
the Successor Fund, the descriptions in the proxy materials of statutes, legal
and
<PAGE>
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(viii) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Successor Trust and the
Successor Fund, existing on or before the effective date of the proxy materials
or the Exchange Date required to be described in the proxy materials which are
not described or filed as required.
(ix) 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 Successor Trust
or any of its properties or assets and the Successor Trust 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 proxy materials.
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.
6. THE SUCCESSOR TRUST'S AND THE ORIGINAL FUND'S CONDITIONS PRECEDENT. The
obligations of both the Successor Trust as to the Successor Fund and the
Original Fund hereunder shall be subject to the following conditions:
(a) The receipt of such authority, including "no-action" letters and
orders from the Commission or state securities commissions, as may be necessary
to permit the parties to carry out the transaction contemplated by this
Agreement shall have been received.
(b) The Successor Trust's adoption of the Registration Statement on
Form N- 1A under the 1933 Act shall have become effective, and any
post-effective amendments to such Registration Statement as are determined by
the Trustees of the Successor Trust to be necessary and appropriate, shall have
been filed with the Commission and shall have become effective.
(c) The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted nor threatened to institute
any proceeding seeking to enjoin consummation of the reorganization transactions
contemplated hereby under Section 25(c) of the 1940 Act and no other action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency which seeks to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the transactions contemplated
herein.
(d) 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
<PAGE>
"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 Successor Fund or the Original Fund, provided that
either party hereto may for itself waive any of such conditions.
(e) The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Successor Trust and the Original Fund
substantially to the effect that for federal income tax purposes:
(i) The transfer of all of the Original Fund assets in
exchange for the Successor Fund Shares and the assumption by the Successor Fund
of all the liabilities of the Original Fund followed by the distribution of the
Successor Fund Shares to the Original Fund shareholders in dissolution and
liquidation of the Original Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code and the Successor Trust and the
Original Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(ii) No gain or loss will be recognized by the Successor Fund
upon the receipt of the assets of the Original Fund solely in exchange for the
Successor Fund Shares and the assumption by the Successor Fund of the
liabilities of the Original Fund.
(iii) No gain or loss will be recognized by the Original Fund
upon the transfer of the Original Fund assets to the Successor Fund in exchange
for the Successor Fund Shares and the assumption by the Successor Fund of the
liabilities of the Original Fund or upon the distribution (whether actual or
constructive) of the Successor Fund Shares to Original Fund shareholders in
exchange for their shares of the Original Fund.
(iv) No gain or loss will be recognized by the Original Fund
Shareholders upon the exchange of their Original Fund shares for the Successor
Fund Shares in liquidation of the Original Fund.
(v) The aggregate tax basis for the Successor Fund Shares
received by each Original Fund shareholder pursuant to the transactions
contemplated by this Agreement will be the same as the aggregate tax basis of
the Original Fund shares held by such shareholder immediately prior to the
transactions contemplated by this Agreement, and the holding period of the
Successor Fund Shares to be received by each Original Fund Shareholder will
include the period during which the Original Fund shares exchanged therefor were
held by such shareholder (provided the Original Fund shares were held as capital
assets on the date of the transactions contemplated by this Agreement).
<PAGE>
(vi) The tax basis of the Original Fund assets acquired by the
Successor Fund will be the same as the tax basis of such assets to the Original
Fund immediately prior to the transactions contemplated by this Agreement, and
the holding period of the assets of the Original Fund in the hands of the
Successor Fund will include the period during which those assets were held by
the Original Fund.
Notwithstanding anything herein to the contrary, neither the Successor
Fund nor the Original Fund may waive the conditions set forth in this Section 6.
7. INDEMNIFICATION. The Successor Trust hereby agrees with the Original
Fund and each Director of the Original Fund: (i) to indemnify each Director of
the Original Fund against all liabilities and expenses referred to in the
indemnification provisions of the Original Fund organizational documents, to the
extent provided therein, incurred by any Director of the Original Fund; and (ii)
in addition to the indemnification provided in (i) above, to indemnify each
Director of the Original Fund against all liabilities and expenses and pay the
same as they arise and become due, without any exception, limitation or
requirement of approval by any person, and without any right to require
repayment thereof by any such Director (unless such Director has had the same
repaid to him or her) based upon any subsequent or final disposition or findings
made in connection therewith or otherwise, if such action, suit or other
proceeding involves such Director's participation in authorizing or permitting
or acquiescing in, directly or indirectly, by action or inaction, the making of
any distribution in any manner of all or any assets of the Original Fund without
making provision for the payment of any liabilities of any kind, fixed or
contingent, of the Original Fund, which liabilities were not actually and
consciously personally known to such Director to exist at the time of such
Director's participation in so authorizing or permitting or acquiescing in the
making of any such distribution.
8. TERMINATION OF AGREEMENT. As to the Original Fund and the Successor
Fund, this Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Original Fund or
the Board of Trustees of the Successor Trust, at any time prior to the Exchange
Date (and notwithstanding any vote of the shareholders of the Original Fund) if
circumstances should develop that, in the opinion of either the Board of
Directors of the Original Fund or the Board of Trustees of the Successor Trust,
make proceeding with this Agreement inadvisable.
As to the Original Fund and the Successor Fund, if this Agreement is
terminated and the exchange contemplated hereby is abandoned pursuant to the
provisions of this Section 8, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or the Trustees,
officers or shareholders of the Successor
<PAGE>
Trust or the Directors, officers or shareholders of the Original Fund, in
respect of this Agreement.
9. WAIVER AND AMENDMENTS. At any time prior to the Exchange Date, any of
the conditions set forth in Section 4 may be waived by the Board of Trustees of
the Successor Trust, and any of the conditions set forth in Section 5 may be
waived by the Board of Directors of the Original Fund, if, in the judgment of
the waiving party, such waiver will not have a material adverse effect on the
benefits intended under this Agreement to the shareholders of the Original Fund
or the shareholders of the Successor Fund, as the case may be. In addition,
prior to the Exchange Date, any provision of this Agreement may be amended or
modified by the Board of Directors of the Original Fund and the Board of
Trustees of the Successor Trust in such manner as may be mutually agreed upon in
writing by such Directors/Trustees if such amendment or modification would not
have a material adverse effect upon the benefits intended under this Agreement
and would be consistent with the best interests of shareholders.
10. NO SURVIVAL OF REPRESENTATIONS. None of the representations
and warranties included or provided for herein shall survive consummation of the
transactions contemplated hereby.
11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflict of laws; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Original Fund,
shall be governed and construed in accordance with the laws of the State of
Maryland without giving effect to principles of conflict of laws.
12. CAPACITY OF DIRECTORS/TRUSTEES, ETC. With respect to both the Original
Fund and the Successor Trust, the names used herein refer respectively to the
Fund/Trust created and, as the case may be, the Directors/Trustees, as
directors/ trustees but not individually or personally, acting from time to time
under organizational documents filed in Maryland in the case of the Original
Fund and Delaware, in the case of the Successor Trust, which are hereby referred
to and are also on file at the principal offices of the Original Fund or, as the
case may be, the Successor Trust. The obligations of the Original Fund or of the
Successor Trust entered into in the name or on behalf thereof by any of the
Directors/Trustees, representatives or agents of the Original Fund or the
Successor Trust, as the case may be, are made not individually, but in such
capacities, and are not binding upon any of the Directors/Trustees, shareholders
or representatives of the Original Fund or, as the case may be, the Successor
Trust personally, but bind only the trust property, and all persons dealing with
the Original Fund or any Successor Fund of the Successor Trust must look solely
to the trust property belonging to such Original Fund or, as the case may be,
Successor Fund for the enforcement of any claims against the Original Fund or,
as the case may be, Successor Fund.
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, the Original Fund and the Successor Trust have
caused this Agreement and Plan of Conversion and Termination to be executed as
of the date above first written.
America's Utility Fund, Inc.
ATTEST:_______________________ By:___________________________
Title:
Evergreen Equity Trust
on behalf of
Evergreen America's Utility Fund
ATTEST:_______________________ By:___________________________
Title:
<PAGE>
EXHIBIT B
MANAGEMENT OF EVERGREEN TRUST
Evergreen Trust is supervised by a Board of Trustees that is responsible for
representing the interests of the shareholders. The Trustees meet periodically
throughout the year to oversee the Successor Fund's activities, reviewing, among
other things, each Successor Fund's performance and its contractual arrangements
with various service providers. Each Trustee is paid a fee for his or her
services.
Evergreen Trust has an Executive Committee which consists of the
Chairman of the Board, James Howell, and Messrs. Scofield and Salton, each of
whom is an Independent Trustee. The executive Committee recommends Trustees to
fill vacancies, prepares the agenda for Board meetings and acts on routine
matters between scheduled Board meetings.
Set forth below are the Trustees and officers of Evergreen Trust and
their principal occupations and 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 Principal Occupations for Last
<S> <C> <C>
with Trust Five Years
Laurence B. Ashkin Trustee Real estate developer and
(DOB: 2/2/28) construction consultant; and
President of Centrum Equities
and Centrum Properties, Inc.
Charles A. Austin Trustee Investment Counselor to Appleton
III partners, Inc.; former Director,
(DOB: 10/23/34) Executive Vice President and
Treasurer, State Street Research
& Management Company (investment
advice); Director, The Andover
Companies (Insurance); and
Trustee, Arthritis Foundation of
New England
<PAGE>
K. Dun Gifford Trustee Trustee, Treasurer and Chairman
(DOB: 10/12/38) of the Finance 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)
James S. Howell Chairman of Former Chairman of the
(DOB: 8/13/24) the Board of Distribution Foundation for the
Trustees Carolinas; and former Vice
President of Lance Inc. (food
manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief
(DOB: 2/14/39) Executive Officer, 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-
(DOB: 7/14/39) Yamoto, Inc. (steel producer).
Thomas L. McVerry Trustee Former Vice President and
(DOB: 8/2/39) Director of Rexham Corporation
(manufacturing); and former
Director of Carolina Cooperative
Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of
(DOB: 8/26/55) William Walt Pettit, P.A.
<PAGE>
David M. Richardson Trustee Vice Chair and former Executive
(DOB: 9/14/41) Vice President, 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, Trustee Medical Director, U.S. Health
III, MD Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care
Consultant; and former
president, Primary Physician
Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael
(DOB: 2/20/43) S. Scofield.
Richard J. Shima Trustee Former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (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.
Anthony J. Fischer* President Vice President/Client Services,
(DOB: 2/10/59) and BISYS Fund Services.
Treasurer
<PAGE>
Nimish S. Bhatt** Vice Assistant Vice President,
(DOB: 6/6/63) President EAMC/First Union Bank; former
and Senior Tax Consulting/Acting
Assistant Manager, Investment Companies
Treasurer Group, PricewaterhouseCoopers
LLP, New York.
Bryan Haft** Vice Team Leader, Fund
(DOB: 1/23/65 President Administration, BISYS Fund
Services
Michael H. Koonce Secretary Senior Vice President and
(DOB: 4/20/60) Assistant General Counsel, First
Union Corporation; former Senior
Vice President and General
Counsel, Colonial Management
Association, Inc.
</TABLE>
*Address: BISYS Fund Services, 90 Park Avenue, New York,
New York 10016
**Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
Listed below is the Trustee compensation paid by Evergreen Trust and
the other trusts in the Evergreen Fund Complex for the twelve months ended March
31, 1999. The Trustees do not receive pension or retirement benefits from the
Funds.
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from the Trust and
Trustee from the Trust Fund Complex Paid to
Trustees*
<S> <C> <C>
Laurence B. Ashkin $22,911 $75,000
Charles A. Austin, III $22,911 $75,000
K. Dun Gifford $22,141 $72,500
James S. Howell $29,532 $97,500
Leroy Keith, Jr. $22,141 $72,500
Gerald M. McDonnell $22,911 $75,000
Thomas L. McVerry $26,295 $86,000
William Walt Pettit $22,141 $72,500
David M. Richardson $22,928 $71,875
Russell A. Salton, III $23,378 $77,500
MD
Michael S. Scofield $23,378 $77,500
Richard J. Shima $22,141 $72,500
</TABLE>
*Certain Trustees have elected to defer all or part of their total compensation
for the twelve months ended March 31, 1999. The amounts listed below will be
payable in later years to the respective Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,000
McVerry $86,000
Pettit $72,500
Salton $77,000
Scofield $11,250
<PAGE>
EXHIBIT C
AMERICA'S UTILITY FUND, INC.
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS
"S": Fundamental Restriction to be Standardized
"R": Fundamental Restriction to be Reclassified as Non-Fundamental
<TABLE>
<CAPTION>
Topic AMERICA'S UTILITY FUND, INC.
<S> <C> <C>
1. Diversification The Fund will not purchase any security (other than obligations
(S) issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, for temporary
investment) if as a result more than
5% of the Fund's total assets are
invested in the securities of any
one issuer.
The Fund will not purchase any
security if as a result the Fund
would then hold more than 10% of any
class of securities of an issuer
(taking all common stock issues as a
single class, all preferred stock
issues as a single class and all
debt issues as a single class) or
more than 10% of the outstanding
voting securities of any one issuer.
2. Concentration The Fund will concentrate its investments (more than 25% of its
assets) in securities issued by utility companies.
3. Issuing Senior Securities The Fund will not issue senior securities
(S) other than as consistent with borrowings permitted under
"Borrowing". (See "Borrowing".)
4. Borrowing The Fund will not borrow money or securities for any purpose
(S) except to the extent that borrowing up to 10% of the Fund's total
assets is permitted for emergency
purposes. (Any such borrowings will
be made on a temporary basis from
banks and will not be made for
investment purposes.) Money borrowed
will be repaid before additional
portfolio securities are purchased.
5. Underwriting Securities The Fund will not underwrite securities of
of Other Issuers other issuers; provided, that this policy shall not be
(S) construed to prevent or limit in any manner the right of the Fund
to purchase securities for investment purposes.
<PAGE>
6. Real Estate The Fund will not own, buy or sell real estate or interests
(S) in real estate; provided, that the Fund may purchase and sell
securities which are secured by real estate and
securities of companies which invest
or deal in real estate.
7. Commodities The Fund will not own, buy or sell commodities or commodity
(S) contracts (except that the Fund may purchase and sell foreign
currencies, foreign currency futures contracts and related options).
8. Loans to Others The Fund will not make loans to other persons other
(S) than (i) through the purchase of a portion of an issue of publicly
distributed debt securities which
are not considered loans, (ii)
through the purchase of bonds,
debentures, commercial paper,
corporate notes and similar
evidences of indebtedness of a type
commonly sold privately to financial
institutions, or (iii) by entering
into repurchase agreements with
respect to not more than 25% of its
total assets (taken at current
value).
9. Unseasoned Issuers The Fund will not invest more than 5% of its total
(R) assets in any issuer or issuers having a record of less than three
years continuous operation, which may include the operations of
predecessor companies.
10. Control or Management The Fund will not purchase securities for the
(R) purpose of exercising control over the issuers thereof.
11. Short Sales The Fund will not effect short sales of securities.
(R)
12. Margin Purchases The Fund will not buy securities on margin. (Margin
(R) payments in connection with transactions in futures contracts,
options, forward contracts, and other financial
instruments are not considered to
constitute the purchase of
securities on margin for this
purpose.)
13. Other Investment The Fund will not invest in the securities of other
Companies investment companies except by purchases in the open market
(R) involving only customary brokerage commissions and as a result of
which not more than 5% of its total assets
(taken at current value) would be
invested in such securities, or
except as part of a merger,
consolidation or other acquisition.
<PAGE>
14. Officers' and Directors' The Fund will not invest in securities of any
Onwership of Shares issuer if, to the knowledge of the Fund, any
(R) officer or director of the Fund or of the Manager owns more than
1/2 of 1% of the outstanding securities of such issuer, and such
officers and directors who own more
than 1/2 of 1% own in the aggregate
more than 5% of the outstanding
securities of such issuer.*
15. Warrants The Fund will not invest in warrants unless acquired as a unit
(R) or attached to other securities.
16. Oil, Gas and Minerals The Fund will not invest in limited partnerships
(R) or similar interests in oil, gas and other mineral exploration
development programs; provided, that the Fund
may invest in the securities of
other corporations whose activities
include such exploration and
development.
17. Restricted Securities The Fund will not purchase any security
(R) restricted as to disposition under federal securities laws.
18. Options The Fund will not invest in puts, calls, straddles, spreads, or
(R) any combination thereof (except that the Fund may invest in foreign
currency futures and options transactions and forward contracts).
* Mentor Investment Advisors, LLC is the Fund's investment manager.
</TABLE>
<PAGE>
EXHIBIT D
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this __ day of ________, 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
Utility Fund series (the "Acquiring Fund"), and the Trust, with respect to its
Evergreen America's Utility Fund series (the "Selling Fund"). For purposes of
this Agreement, the Selling Fund shall be deemed to include, as applicable, the
Selling Fund's predecessor, America's Utility Fund, Inc. ("America's Utility").
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 (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A 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, pursuant to an Agreement and Plan of Conversion and
Termination approved by the shareholders of America's Utility, on October __,
1999 America's Utility was reorganized as a series of the Trust.
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
<PAGE>
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, computed in the manner and as of the
time and date set forth in paragraphs 2.2 and 2.3; and (ii) to assume the
identified liabilities of the Selling Fund, as set forth in paragraph 1.3. Such
transactions shall take place on the Closing Date provided for in paragraph 3.1.
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,
<PAGE>
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
<PAGE>
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 Prospectus/Proxy
Statement on Form N-14 which has been distributed to shareholders of the Selling
Fund as described in paragraph 4.1(o).
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
<PAGE>
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 the Selling Fund by the ratio computed by dividing the net asset value per
share of the Selling Fund by the net asset value per share of Class A shares of
the Acquiring Fund determined in accordance with paragraph 2.2. Holders of Class
A shares of the Selling Fund will receive Class A shares 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 of the Reorganization (the "Closing")
shall take place on or about March __, 2000 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.
<PAGE>
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 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, have
been paid, or provision for payment 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:
<PAGE>
(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 prospectus 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
<PAGE>
business or its ability to consummate the transactions herein
contemplated.
(g) The unaudited semi-annual financial statements of the
Selling Fund at June 30, 1999 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 June 30, 1999 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.
<PAGE>
(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 including the shareholders of the Selling Fund and 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 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 is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations thereunder applicable thereto.
(o) The Selling Fund has provided the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus, which
included the proxy statement of the Selling Fund (the "Prospectus/Proxy
Statement"), all of which was 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 shareholders of the Selling
Fund to approve this Agreement and the transactions contemplated hereby. The
Prospectus/Proxy Statement included in the Registration Statement (other than
information therein that relates to the Acquiring Fund) does 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
<PAGE>
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,
1999 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.
<PAGE>
(g) Since July 31, 1999 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.
<PAGE>
(m) The information 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 is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
(n) The Prospectus/Proxy Statement included in the
Registration Statement (only insofar as it relates to the Acquiring Fund) does
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 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.
5.3 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.
5.4 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.
<PAGE>
5.5 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 LLP and
certified by the Trust's President and Treasurer.
5.6 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause KPMG 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
carryforwards (if any) 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 President or Vice
President and its Treasurer or Assistant Treasurer, 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
<PAGE>
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.
<PAGE>
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus/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/Proxy Statement
include and relate to only the text of such Prospectus/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
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the
<PAGE>
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,
<PAGE>
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/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) 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/Proxy Statement.
(h) 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/Proxy Statement
include and relate to only the text of such Prospectus/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
<PAGE>
option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 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.
8.2 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.
8.3 No stop orders suspending the effectiveness of the Registration
Statement 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.
8.4 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 shareholders of the Selling Fund 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).
8.5 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
<PAGE>
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
8.5.
8.6 The Acquiring Fund shall have received from KPMG LLP a letter
addressed to the Acquiring Fund, in form and substance satisfactory to the
Acquiring Fund, to the effect that:
<PAGE>
(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/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/Proxy
Statement agree to the underlying accounting records of the Acquiring Fund and
the Selling Fund or with written estimates provided by officers of the Trust who
have responsibility for financial and reporting matters, and were found to be
mathematically correct; and
(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 pro forma expense ratios appearing in the Registration
Statement and Prospectus/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 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 net asset value per share of the Selling Fund as of the
Valuation Date was computed and the valuation of the portfolio was consistent
with the valuation practices of the Acquiring Fund.
8.7 The Selling Fund shall have received from KPMG 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
<PAGE>
Act and the applicable published rules and regulations
thereunder;
(b) they had performed limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards) which consisted of a reading of any
unaudited pro forma financial statements included in the Registration Statement
and Prospectus/Proxy Statement, and making inquiries of appropriate officials of
the Trust responsible for financial and accounting matters whether such
unaudited pro forma financial statements 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/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 pro forma
expense ratios appearing in the Registration Statement and Prospectus/Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
8.8 The Board of Trustees of the Trust, subsequent to the vote of the
shareholders of Evergreen America's Utility, shall have considered and approved
the Reorganization as in the best interests of both the Selling Fund and the
Acquiring Fund.
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, whether incurred before or after the date of this Agreement,
will be borne equally by the Selling Fund and the Acquiring Fund. 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
<PAGE>
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/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, its Trustees or officers, to the
other party, 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
<PAGE>
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 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
<PAGE>
Acquiring Fund and of the Selling Fund as provided in the Declaration of Trust
of the Trust.
<PAGE>
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 AMERICA'S
UTILITY FUND
By:
Name:
Title:
EVERGREEN EQUITY TRUST ON
BEHALF OF EVERGREEN UTILITY
FUND
By:
Name:
Title:
<PAGE>
EXHIBIT E
- --------------------------------------------------------------------------------
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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CONVERSION OF
AMERICA'S UTILITY FUND, INC.
901 East Byrd Street
Richmond, Virginia 23219
(800) 869-6042
Into a Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
AND
ACQUISITION OF THE ASSETS OF
AMERICA'S UTILITY FUND, INC.
By and In Exchange For Shares of
EVERGREEN UTILITY FUND
a series of
EVERGREEN EQUITY TRUST
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of America's Utility Fund, Inc.
("America's Utility"), to Evergreen Utility Fund ("Evergreen Utility"), a series
of Evergreen Equity Trust, in exchange for Class A shares of beneficial
interest, $.001 par value per share, of Evergreen Utility, 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 America's
Utility dated May 3, 1999;
(2) The Statement of Additional Information of Evergreen
Utility dated December 1, 1998;
(3) Annual Report of America's Utility for the year ended December
31, 1998;
<PAGE>
(4) Annual Report of Evergreen Utility for the year ended July 31,
1998;
(5) Semi-Annual Report of Evergreen Utility for the six month
period ended January 31, 1999; and
(6) Pro-Forma Combining Financial Statements for January 31, 1999
and the twelve months then ended (unaudited).
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen Utility and America's Utility dated August 27, 1999. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Utility or America's Utility at the telephone numbers or
addresses set forth above.
The date of this Statement of Additional Information is August 27,
1999.
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of America's Utility Fund, Inc. dated
May 3, 1999, as revised from time to time. Certain disclosure has been
incorporated by reference from the Fund's Annual Report. A free copy of both
the Prospectus and the Annual Report may be obtained by writing Mentor Services
Company, Inc., 901 East Byrd Street, P.O. Box 26501, Richmond, Virginia
23261-6501, or by calling 1-800-487-3863.
<PAGE>
TABLE OF CONTENTS
PAGE
-----
Fund History and Classification ......................... 2
Investment Restrictions ................................. 2
Certain Investment Techniques ........................... 4
Management of the Fund .................................. 8
Control Persons and Principal Holders ................... 11
Investment Advisory Services ............................ 11
Other Services .......................................... 12
Brokerage ............................................... 14
Fund Shares ............................................. 16
Determination of Net Asset Value ........................ 16
Tax Status .............................................. 17
Distribution ............................................ 19
Performance Information ................................. 19
Members of Investment Teams at Mentor Advisors .......... 23
Independent Auditors .................................... 24
Ratings ................................................. 25
Financial Statements .................................... 27
i
<PAGE>
FUND HISTORY AND CLASSIFICATION
America's Utility Fund, Inc. (the "Fund") is a Maryland corporation
organized on January 28, 1992. The Fund is an open-end, diversified, management
investment company with 500,000,000 shares of authorized common stock, $.001 par
value.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions, which may not be
changed without approval by the holders of a majority of the outstanding shares
of the Fund. The Fund will not:
1. Purchase any security (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, for temporary
investment) if as a result more than 5% of the Fund's total assets are
invested in the securities of any one issuer; the Fund will concentrate its
investments (more than 25% of its assets) in securities issued by utility
companies.
2. Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class and
all debt issues as a single class) or more than 10% of the outstanding
voting securities of any one issuer.
3. Borrow money or securities for any purpose except to the extent that
borrowing up to 10% of the Fund's total assets is permitted for emergency
purposes. (Any such borrowings will be made on a temporary basis from banks
and will not be made for investment purposes.) Money borrowed will be
repaid before additional portfolio securities are purchased.
4. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or of the Manager owns more than 1/2
of 1% of the outstanding securities of such issuer, and such officers and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.
5. Purchase securities for the purpose of exercising control over the
issuers thereof.
6. Underwrite securities of other issuers; provided, that this policy
shall not be construed to prevent or limit in any manner the right of the
Fund to purchase securities for investment purposes.
7. Make loans to other persons other than (i) through the purchase of a
portion of an issue of publicly distributed debt securities which are not
considered loans, (ii) through the purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of indebtedness of
a type commonly sold privately to financial institutions, or (iii) by
entering into repurchase agreements with respect to not more than 25% of
its total assets (taken at current value).
8. Buy securities on margin, or effect short sales of securities.
(Margin payments in connection with transactions in futures contracts,
options, forward contracts, and other financial instruments are not
considered to constitute the purchase of securities on margin for this
purpose.)
9. Issue senior securities other than as consistent with borrowings
permitted under 3 above.
10. Invest in the securities of other investment companies except by
purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total
2
<PAGE>
assets (taken at current value) would be invested in such securities, or
except as part of a merger, consolidation or other acquisition.
11. Own, buy or sell commodities or commodity contracts (except that the
Fund may purchase and sell foreign currencies, foreign currency futures
contracts and related options), or real estate or interests in real estate;
provided, that the Fund may purchase and sell securities which are secured
by real estate and securities of companies which invest or deal in real
estate.
12. Invest in warrants unless acquired as a unit or attached to other
securities.
13. Invest in puts, calls, straddles, spreads, or any combination
thereof (except that the Fund may invest in foreign currency futures and
options transactions and forward contracts).
14. Invest in limited partnerships or similar interests in oil, gas and
other mineral exploration development programs; provided, that the Fund may
invest in the securities of other corporations whose activities include
such exploration and development.
15. Invest more than 5% of its total assets in any issuer or issuers
having a record of less than three years continuous operation, which may
include the operations of predecessor companies.
16. Purchase any security restricted as to disposition under federal
securities laws.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that the approval of a majority of the outstanding shares of the
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund and (2) 67% or more of the shares present at
a meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of
such investment.
It is also a policy of the Fund, which may be changed without
shareholder approval, not to purchase any voting security of any electric
or gas utility company (as defined by the Public Utility Holding Company
Act of 1935) if as a result the Fund would then hold 5% or more of the
outstanding voting securities of such company.
Although not a fundamental policy, the Fund will not invest in
securities which are not readily marketable. (Foreign currency forward
contracts, futures contracts, and options are not considered securities for
this purpose.)
3
<PAGE>
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment techniques in
which the Fund may engage, and certain of the risks they may entail.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which the Fund acquires a
security for a relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus
interest). It is the Fund's present intention to enter into repurchase
agreements only with member banks of the Federal Reserve System and securities
dealers meeting certain criteria as to creditworthiness and financial condition
established by the Board of Directors and only with respect to obligations of
the U.S. government or its agencies or instrumentalities or other high quality
short term debt obligations. Repurchase agreements may also be viewed as loans
made by the Fund which are collateralized by the securities subject to
repurchase. Mentor Advisors will monitor such transactions to ensure that the
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. If
the seller defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale including accrued
interest are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
collateral to the seller's estate.
FOREIGN SECURITIES
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation of assets, nationalization, or other adverse political
or economic developments. Foreign companies may not be subject to auditing and
financial reporting standards and requirements comparable to those which apply
to U.S. companies. Foreign brokerage commissions and other fees are generally
higher than in the United States. It may be more difficult to obtain and
enforce a judgment against a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates; exchange control
regulations; foreign withholding taxes or restrictions or prohibitions on the
repatriation of foreign currencies and may incur costs in connection with
conversion between currencies.
Income received by the Fund from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by the Fund will reduce its net income available for distribution to
stockholders.
4
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the Fund will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with transaction hedging. The Fund
may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume
a long position in the futures contract until the expiration of the option. A
call option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by the Fund are denominated or are quoted
in their principle trading markets or an increase in the value of currency for
securities which the Fund expects to purchase. In connection with position
hedging, the Fund may buy or sell foreign currency futures contracts and put
and call options on foreign currencies and on foreign currency futures
contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities of the Fund if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to deliver.
5
<PAGE>
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they
tend to limit any potential gain which might result from the increase in the
value of such currency.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase
or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board
of trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related
option position and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin on its
futures positions.
6
<PAGE>
FOREIGN CURRENCY OPTIONS. Options on foreign currencies are traded
primarily in the over-the-counter market, although options on foreign
currencies have recently been listed on several exchanges. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the U.S.
options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments
in debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within
a foreign country, and the Fund may be required to accept or make delivery of
the underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
7
<PAGE>
MANAGEMENT OF THE FUND
The Directors are responsible for generally overseeing the Fund's
business.
OFFICERS AND DIRECTORS
The Directors and officers of the Fund are as follows. Unless otherwise
noted, the address of each officer and director is 901 East Byrd Street,
Richmond, Virginia 23219.
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ----------------------- --------------------------------------------------
<S> <C> <C>
Daniel J. Ludeman (41)* Chairman and Director Chairman and Chief Executive Officer Mentor
c/o Mentor Funds Investment Group, Inc.; Chairman and Director
901 E. Byrd Street Mentor Income Fund, Inc.; Chairman and
Richmond, VA 23219 Trustee, Cash Resource Trust, Mentor Variable
Investment Portfolios, Mentor Funds and
Mentor Institutional Trust.
Arnold H. Dreyfuss (70) Director Chairman, Eskimo Pie Corporation; Trustee,
P.O. Box 18156 Cash Resource Trust, Mentor Variable
Richmond, Virginia 23226 Investment Portfolios, Mentor Funds and
Mentor Institutional Trust; Director, Mentor
Income Fund, Inc.; formerly, Chairman and
Chief Executive Officer, Hamilton
Beach/Proctor-Silex, Inc.
Thomas F. Keller (67) Director R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and Former Dean of Fuqua
Duke University School of Business, Duke University; Director
Durham, NC 27706 of LADD Furniture, Inc., Wendy's
International, Inc., American Business
Products, Inc., Dimon, Inc., and Biogen, Inc.;
Director of Nations Balanced Target Maturity
Fund, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc., Hatteras Income
Securities, Inc., Nations Institutional Reserves,
Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., and Nations
LifeGoal Funds, Inc. Trustee, Cash Resource
Trust, Mentor Variable Investment Portfolios,
Mentor Funds and Mentor Institutional Trust;
Director, Mentor Income Fund, Inc.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------ -------------- ------------------------------------------------
<S> <C> <C>
Louis W. Moelchert, Jr. (57) Director Vice President for Investments, University of
University of Richmond Richmond; Trustee, Cash Resource Trust,
Richmond, VA 23173 Mentor Variable Investment Portfolios, Mentor
Funds and Mentor Institutional Trust; Director,
Mentor Income Fund, Inc.
Troy A. Peery, Jr. (52) Director Trustee, Cash Resource Trust, Mentor Variable
c/o Mentor Funds Investment Portfolios, Mentor Funds and
901 E. Byrd Street Mentor Institutional Trust; Director, Mentor
Richmond, VA 23219 Income Fund, Inc. Formerly, President of
Heilig-Meyers Company.
Peter J. Quinn, Jr. (38)* Director Managing Director, Mentor Investment Group,
c/o Mentor Funds LLC, and Mentor Services Company, Inc.;
901 E. Byrd Street Trustee, Cash Resource Trust, Mentor Variable
Richmond, VA 23219 Investment Portfolios, Mentor Funds and
Mentor Institutional Trust; Director, Mentor
Income Fund, Inc.
Arch T. Allen, III (58) Director Attorney at law, Raleigh, North Carolina;
c/o Mentor Funds Trustee, Cash Resource Trust, Mentor Variable
901 E. Byrd Street Investment Portfolios, Mentor Funds and
Richmond, VA 23219 Mentor Institutional Trust; Director, Mentor
Income Fund, Inc.; formerly, Vice Chancellor
for Development and University Relations,
University of North Carolina at Chapel Hill.
Weston E. Edwards (64) Director President, Weston Edwards & Associates;
c/o Mentor Funds Trustee, Cash Resource Trust, Mentor Variable
901 E. Byrd Street Investment Portfolios, Mentor Funds and
Richmond, VA 23219 Mentor Institutional Trust; Director, Mentor
Income Fund, Inc.; Founder and Chairman,
The Housing Roundtable; formerly, President,
Smart Mortgage Access, Inc.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ---------------------- -------------------------------------------------
<S> <C> <C>
Jerry R. Barrentine (64) Director President, J.R. Barretine & Associates; Trustee,
c/o Mentor Funds Cash Resource Trust, Mentor Variable
901 E. Byrd Street Investment Portfolios, Mentor Funds and
Richmond, VA 23219 Mentor Institutional Trust; Director, Mentor
Income Fund, Inc.; formerly, Executive Vice
President and Chief Financial Officer,
Barclays/American Mortgage Director
Corporation; Managing Partner, Barrentine Lott
& Associates.
J. Garnett Nelson (59) Director Consultant, Mid-Atlantic Holdings, LLC;
c/o Mentor Funds Trustee, Cash Resource Trust, Mentor Variable
901 E. Byrd Street Investment Portfolios, Mentor Funds and
Richmond, VA 23219 Mentor Institutional Trust; Director, Mentor
Income Fund, Inc., GE Investment Funds, Inc.,
and Lawyers Title Corporation; Member,
Investment Advisory Committee, Virginia
Retirement System; formerly, Senior Vice
President, The Life Insurance Company of
Virginia.
Paul F. Costello (38) President Managing Director, Mentor Investment Group,
c/o Mentor Funds LLC; President, Cash Resource Trust, Mentor
901 E. Byrd Street Income Fund, Inc., Mentor Institutional Trust,
Richmond, VA 23219 Mentor Variable Investment Portfolios and
Mentor Funds; Director, Mentor Perpetual
Advisors, LLC.
Terry L. Perkins (51) Treasurer, Secretary Senior Vice President and Treasurer, Mentor
c/o Mentor Funds Investment Group, LLC; Treasurer, Mentor
901 E. Byrd Street Institutional Trust, Cash Resource Trust,
Richmond, VA 23219 Mentor Variable Investment Portfolios, Mentor
Funds, and Mentor Income Fund, Inc.
Michael Wade (32) Assistant Treasurer Vice President and Controller, Mentor
c/o Mentor Funds Investment Group, LLC Assistant Treasurer,
901 E. Byrd Street Mentor Income Fund, Inc., Cash Resource
Richmond, VA 23219 Trust, Mentor Institutional Trust, Mentor
Variable Investment Portfolios and Mentor
Funds.
</TABLE>
10
<PAGE>
DIRECTOR COMPENSATION
The table below shows the fees paid to each current Director by the Fund
for its 1998 fiscal year, and for the Mentor Family of Funds for the 1998
calendar year.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM ALL COMPLEX
TRUSTEES FROM THE FUND FUNDS (29 FUNDS)
- ---------------------------------------- ------------------------ -------------------
<S> <C> <C>
Daniel J. Ludeman ............... $ 0 $ 0
Arnold H. Dreyfuss+ ............. $521 $32,000
Thomas F. Keller+ ............... $443 $32,000
Louis W. Moelchert, Jr. ......... $492 $32,000
Troy A. Peery, Jr.+ ............. $492 $40,000
Peter J. Quinn, Jr.+ ............ $ 0 $ 0
Arch T. Allen, III+ ............. $540 $32,000
Weston E. Edwards+ .............. $540 $40,000
Jerry R. Barrentine+ ............ $540 $42,000
J. Garnett Nelson+ .............. $540 $35,000
</TABLE>
- ----------
+ Elected as a Director December 22, 1997
The Directors do not receive pension or retirement benefits from the Fund.
The Articles of Incorporation of the Fund provide that the Fund will
indemnify its Directors and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Fund, except if it is determined in the manner specified in
the Articles of Incorporation that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Fund or
that such indemnification would relieve any officer or Director of any
liability to the Fund or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of his or her duties. The Fund,
at its expense, provides liability insurance for the benefit of its Directors
and officers.
CONTROL PERSONS AND PRINCIPAL HOLDERS
The Directors and officers as a group owned less than 1% of the
outstanding shares of common stock of the Fund as of April 15, 1999. To the
knowledge of the Fund, as of April 15, 1999 no person owned of record or
beneficially more than 5% of the outstanding shares of common stock of the Fund
as of such date.
INVESTMENT ADVISORY SERVICES
Investment decisions for the Fund and for the other investment advisory
clients of Mentor Advisors and its affiliates are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which
11
<PAGE>
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in
Mentor Advisors' opinion is equitable to each and in accordance with the amount
being purchased or sold by each. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients. Mentor Advisors employs a professional staff of
investment personnel who draw upon a variety of resources for research
information for the Fund.
Expenses incurred in the operation of the Fund, including but not limited
to taxes, interest, brokerage fees and commissions, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and
legal services, investor servicing fees and expenses, charges for the printing
of prospectuses and statements of additional information for regulatory
purposes or for distribution to shareholders, certain shareholder report
charges, and charges relating to corporate matters are borne by the Fund.
The Management Contract is subject to annual approval (beginning in 2000)
by (i) the Board of Directors or (ii) vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance is also approved by a majority of the Directors
who are not "interested persons" (as defined in the 1940 Act) of the Fund or
Mentor Advisors by vote cast in person at a meeting called for the purpose of
voting on such approval. The Management Contract is terminable without penalty,
on not more than sixty days' notice by the Fund or Mentor Advisors.
Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
LLC ("Mentor") and its affiliates. Mentor is a subsidiary of Wheat First
Butcher Singer, Inc., which in turn is a wholly owned subsidiary of First Union
Corp. ("First Union"). First Union is a leading financial services company;
First Union has announced plans to acquire EVEREN Capital Corporation, which
currently has a minority ownership interest in Mentor.
MANAGEMENT FEES
Under the Management Contract, the Fund pays a monthly management fee,
calculated daily, to Mentor Advisors at the following rates, expressed as a
percentage of the Fund's average daily net assets: 0.75% of the first $5
million, 0.50% of the next $5 million, 0.25% of the next $90 million, 0.20% of
the next $100 million, 0.15% of the next $100 million, and 0.10% thereafter.
The Fund paid management fees in the following amounts for the fiscal
years indicated below:
1998 1997 1996
------------- ----------- -----------
$ 401,554 $371,906 $352,144
Mentor (throughout the period from August 21, 1995 to December 31, 1997)
paid the expenses of the Fund to the extent total Fund operating expenses
exceeded 1.21% of the Fund's average daily net assets. As a result of this
expense limitation, Mentor incurred expenses of $144,093 and $124,524,
respectively, for the 1996 and 1997 fiscal years.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Mentor acts as administrator to the Fund pursuant to an Administrative
Services Agreement. Pursuant to the Administrative Services Agreement, Mentor
assists the Fund in preparation of certain reports to shareholders of the Fund,
tax returns, and filings with the SEC, prepares and furnishes reports to the
Fund's Board of Directors, and generally assists in the Fund's business
operations.
12
<PAGE>
The Administrative Services Agreement is subject to annual approval
(beginning in 2000) by the Board of Directors, provided that the continuance is
also approved by a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund, or Mentor, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Agreement is
terminable without penalty, immediately upon notice, by the Board of Directors
or by vote of the holders of a majority of the Fund shares, and on not less
than thirty days' notice by Mentor.
The Fund pays Mentor for such services at an annual rate of 0.65% of the
Fund's average daily net assets, less the amount of any management fees paid to
Mentor Advisors pursuant to the Management Contract.
ADMINISTRATIVE FEES
The Fund paid the following fees for administrative services for the
fiscal years indicated below.
1998 1997 1996
------------- ----------- -----------
$ 619,122 $596,068 $617,040
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Service Agreement dated February
1, 1998 with Mentor, pursuant to which Mentor, by itself or through other
financial institutions, provides shareholder support services to the Fund and
its shareholders. These services may include, but are not limited to, providing
office space and various clerical, supervisory, and computer personnel for the
maintenance of shareholder accounts, processing purchase and redemption
transactions, and providing assistance to shareholders. In return for providing
these services, the Fund pays Mentor a fee, at the annual rate of 0.25% of the
Fund's average daily net assets.
The Fund paid shareholder services fees to Mentor of $392,568 during
fiscal year 1998.
TRANSFER AGENT SERVICES
Prior to December 15, 1997, AUF Service Company received fees from State
Street Bank and Trust Company ("State Street"), the Fund's transfer agent, for
services performed under a Sub-Transfer Agency Agreement dated August 21, 1995.
Pursuant to that Agreement, AUF Service Company provided certain transfer agent,
dividend disbursing agent, and other services to the Fund and its shareholders
who purchased shares of the Fund through facilities made available to Virginia
Power and North Carolina Power customers. State Street's address is P.O. Box
8602, Boston, Massachusetts.
CUSTODY ARRANGEMENTS
Pursuant to a Custody Agreement dated March 1, 1995, Investors Fiduciary
Trust Corporation ("IFTC"), 127 West 10th Street, Kansas City, Missouri
64105, serves as custodian to the Fund.
13
<PAGE>
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Fund
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, Mentor Advisors receives brokerage and research services and other
similar services from many broker-dealers with which it places the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by Mentor Advisors' managers and analysts. Where the
services referred to above are not used exclusively by Mentor Advisors for
research purposes, Mentor Advisors, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly relates to
its non-research use. Some of these services are of value to Mentor Advisors
and its affiliates in advising various of its clients (including the Fund),
although not all of these services are necessarily useful and of value in
managing the Fund. The management fee paid by the Fund Portfolio is not reduced
because Mentor Advisors or its affiliates receive these services even though
Mentor Advisors might otherwise be required to purchase some of these services
for cash.
Mentor Advisors places all orders for the purchase and sale of portfolio
investments for the Fund and buys and sells investments for the Fund through a
substantial number of brokers and dealers. Mentor Advisors seeks the best
overall terms available for the Fund, except to the extent it may be permitted
to pay higher brokerage commissions as described below. In doing so, Mentor
Advisors, having in mind the Fund's best interests, considers all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other investment, the
amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved, and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, the Mentor Advisors may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Mentor Advisors an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Fund on an
agency basis in excess of the commission which another broker-dealer would have
charged for effecting that transaction. Mentor Advisors' authority to cause the
Fund to pay any such greater commissions is also subject to such policies as
the Board of Directors may adopt from time to time. Mentor Advisors does not
currently intend to cause the Fund to make such payments. It is the position of
the staff of the Securities and Exchange Commission that Section 28(e) does not
apply to the payment of such
14
<PAGE>
greater commissions in "principal" transactions. Accordingly, Mentor Advisors
will use its best efforts to obtain the best overall terms available with
respect to such transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to such other policies as the Board of
Directors may determine, Mentor Advisors may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
The Directors have determined that portfolio transactions for the Fund may
be effected through Wheat, First Securities, Inc. ("Wheat"), First Union
Brokerage Services ("FUBS"), and EVEREN Securities, Inc. ("EVEREN"),
broker-dealers affiliated with Mentor Advisors. The Directors have adopted
certain policies incorporating the standards of Rule 17e-l issued by the SEC
under the 1940 Act which requires, among other things, that the commissions
paid to Wheat, FUBS, and EVEREN must be reasonable and fair compared to the
commissions, fees, or other remuneration received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. Wheat, FUBS, and EVEREN will not participate in
brokerage commissions given by the Fund to other brokers or dealers.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may
be obtained elsewhere. The Fund will in no event effect principal transactions
with Wheat, FUBS, and EVEREN in over-the-counter securities in which Wheat,
FUBS, or EVEREN makes a market.
Under rules adopted by the SEC, Wheat, FUBS, and EVEREN may not execute
transactions for the Fund on the floor of any national securities exchange, but
may effect transactions for the Fund by transmitting orders for execution and
arranging for the performance of this function by members of the exchange not
associated with them. Wheat, FUBS, and EVEREN will be required to pay fees
charged to those persons performing the floor brokerage elements out of the
brokerage compensation they receive from the Fund.
BROKERAGE COMMISSIONS
The Fund paid brokerage commissions in the following amounts during the
periods set forth below:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1996 1997 1998
------------- ------------- ------------
$102,955 $161,766 $75,556
15
<PAGE>
The following table shows brokerage commissions paid by the Fund to
affiliated brokers for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1996 1997 1998
--------------- ------------- ------------
<S> <C> <C> <C>
Wheat First Securities, Inc. ......... $ 39,946 $41,440 $21,507
EVEREN Securities, Inc. .............. $ 3,360(2) $18,544 $13,300
FUBS ................................. N/A N/A $ N/A
</TABLE>
- ----------
(2) For the period November, 1996 through December 31, 1996.
For fiscal 1996 the brokerage commissions shown above paid to Wheat
amounted to 38.8% of the Fund's aggregate brokerage commissions on 11.45% of
the Fund's aggregate dollar amount of brokerage transactions. For fiscal 1996
the brokerage commissions shown above paid to EVEREN amounted to 3.26% of the
Fund's aggregate brokerage commissions on 0.71% of the Fund's aggregate dollar
amount of brokerage transactions. For fiscal 1997 the brokerage commissions
shown above paid to Wheat amounted to 25.62% of the Fund's aggregate brokerage
commissions on 22.39% of the Fund's aggregate dollar amount of brokerage
transaction. For fiscal 1997 the brokerage commissions shown above paid to
EVEREN amounted to 11.46% of the Fund's aggregate brokerage commissions on
11.32% of the Fund's aggregate dollar amount of brokerage transactions. For
fiscal 1998 the brokerage commissions shown above paid to Wheat amounted to
28.4% of the Fund's aggregate brokerage commissions on 28.5% of the Fund's
aggregate dollar amount of brokerage transactions. For fiscal 1998 the
brokerage commissions shown above paid to EVEREN amounted to 19.6% of the
Fund's aggregate brokerage commissions on 19.4% of the Fund's aggregate dollar
amount of brokerage transactions.
FUND SHARES
Each share has one vote, with fractional shares voting proportionately.
Shares of the Fund are freely transferable, are entitled to dividends as
declared by the Board of Directors, and, if the Fund were liquidated, would
receive the net assets of the Fund. The Fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. Although the Fund is not
required to hold annual meetings of its shareholders, shareholders have the
right to call a meeting to elect or remove Directors, or to take other actions
as provided in the Articles of Incorporation. In the interest of economy and
convenience, the Fund will not issue certificates for its shares.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per share each day the New York
Stock Exchange (the "Exchange") is open.
Securities for which market quotations are readily available are valued at
prices which, in the opinion of the Board of Directors or Mentor Advisors, most
nearly represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are reported
(as in the case of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are stated at the
mean between the last reported bid and asked prices. Short-term investments
having remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Board of Directors.
Liabilities are deducted from the total, and the resulting amount is divided by
the number of shares of the Fund outstanding.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services, which determine
valuations for normal, institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders.
If any securities held by the Fund are restricted as to resale, Mentor
Advisors determines their fair values. The fair value of such securities is
generally determined as the amount which the Fund could reasonably expect
16
<PAGE>
to realize from an orderly disposition of such securities over a reasonable
period of time. The valuation procedures applied in any specific instance are
likely to vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical data
relating to the investment and to the nature of the restrictions on disposition
of the securities (including any registration expenses that might be borne by
the Fund in connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the investment, the market
value of any unrestricted securities of the same class (both at the time of
purchase and at the time of valuation), the size of the holding, the prices of
any recent transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
In the case of certain fixed-income securities, including certain less
common mortgage-backed securities, market quotations are not readily available
to the Fund on a daily basis, and pricing services may not provide price
quotations. In such cases, Mentor Advisors is typically able to obtain dealer
quotations for each of the securities on at least a weekly basis. On any day
when it is not practicable for Mentor Advisors to obtain an actual dealer
quotation for a security, Mentor Advisors may reprice the securities based on
changes in the value of a U.S. Treasury security of comparable duration. When
the next dealer quotation is obtained, Mentor Advisors compares the dealer
quote against the price obtained by it using its U.S. Treasury spread
calculation, and makes any necessary adjustments to its calculation
methodology. Mentor Advisors attempts to obtain dealer quotes for each security
at least weekly, and on any day when there has been an unusual occurrence
affecting the securities which, in Mentor Advisors' view, makes pricing the
securities on the basis of U.S. Treasuries unlikely to provide a fair value of
the securities.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of the Fund's shares are computed as of such times. Also, because of the
amount of time required to collect and process trading information as to large
numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Board of Directors.
TAX STATUS
The Fund intends to qualify each year and elect to be taxed as a regulated
investment company under Subchapter M of the United States Internal Revenue
Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, 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 stock, securities, or
currencies and (b) diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least
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50% of the value of its total assets consists of cash, cash items, U.S.
Government Securities, and other securities limited generally with respect to
any one issuer to not more than 5% of the total assets of the Fund and not more
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any issuer
(other than U.S. Government Securities). In order to receive the favorable tax
treatment accorded regulated investment companies and their shareholders,
moreover, the Fund must in general distribute with respect to each taxable year
at least 90% of the sum of its taxable net investment income, its net
tax-exempt income, and the excess, if any, of net short-term capital gains over
net long-term capital losses for such year.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. Each Portfolio
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November, or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
The Fund is required to withhold 31% of all income dividends and capital
gain distributions, and 31% of the gross proceeds of all redemptions of Fund
shares, in the case of any shareholder who does not provide a correct taxpayer
identification number, about whom the Fund is notified that the shareholder has
under reported income in the past, or who fails to certify to the Fund that the
shareholder is not subject to such withholding. Tax-exempt shareholders are not
subject to these back-up withholding rules so long as they furnish the Fund
with a proper certification.
Foreign currency-denominated securities and related hedging transactions.
The Fund's transactions in foreign currencies, foreign currency-denominated
debt securities, and certain foreign currency options, futures contracts, and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value
of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of stock or
securities of foreign corporations, the Fund may elect to permit shareholders
to claim a credit or deduction on their income tax returns for their pro rata
portion of qualified taxes paid by the Fund to foreign countries. In such a
case, shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign tax
credit or deduction in respect of foreign taxes paid by the Fund may be subject
to certain limitations imposed by the Code (including, with respect to a
foreign tax credit, a holding period requirement imposed pursuant to the Tax
payer Relief Act of 1997), as a result of which a shareholder may not get a
full credit or deduction for the amount of such taxes. Shareholders who do not
itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however, this tax
can be avoided by making an election to mark such investments to market
annually or to treat the passive foreign investment company as a "qualified
electing fund."
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The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and regulations. The Code and regulations a re subject to change by legislative
or administrative actions. Dividends and distributions also may be subject to
foreign, state and federal taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, foreign, state or local
taxes. The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
they could be subject to the backup withholding rules described above or that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
DISTRIBUTION
Mentor Distributors, LLC ("Mentor Distributors") serves as distributor of
the Fund under a Distribution Agreement dated February 1, 1998. Pursuant to the
Distribution Agreement, Mentor Distributors agrees to bear the expenses of
printing any promotional or sales literature used by Mentor Distributors or
furnished by Mentor Distributors to dealers in connection with the public
offering of the Fund's shares, including expenses of advertising in connection
with such public offerings. Mentor Distributors has not undertaken to sell any
specified number of shares of the Fund.
The Fund or Mentor Distributors may terminate the Distribution Agreement
on sixty days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of its assignment.
PERFORMANCE INFORMATION
Total return for the one-, five-, and ten-year periods (or for the life of
the Fund, if shorter) is determined by calculating the actual dollar amount of
investment return on a $1,000 investment in the Fund at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount. Total return for a period of one year is equal to the
actual return of the Fund during that period. Total return calculations assume
reinvestment of all Fund distributions at net asset value per share on their
respective reinvestment dates. The total return for the one-year period ending
December 31, 1998 and the average annual total return for the life of the Fund
(May 5, 1992 through December 31, 1998) were 15.47% and 12.48%, respectively.
The Fund's yield is presented for a specified thirty-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Fund during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the net asset
value per share on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by the Fund is generally calculated using the
yield to maturity (or first expected c all date) of such obligations based on
their market values (or, in the case of receivables-backed securities such as
GNMA's, based on cost). Dividends on equity securities are accrued daily at
their stated dividend rates. The yield for the Fund for the thirty-day period
ended December 31, 1998 was 3.99%.
All data for the Fund are based on past performance and do not predict
future results.
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<PAGE>
Independent statistical agencies measure the Fund's investment performance
and publish comparative information showing how the Fund, and other investment
companies, performed in specified time periods. Agencies whose reports are
commonly used for such comparisons are set forth below. From time to time, the
Fund may distribute these comparisons to its shareholders or to potential
investors. The agencies listed below measure performance based on the basis of
their own criteria rather than on the basis of the standardized performance
measures described above.
Lipper Analytical Services, Inc. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated by
Lipper, reflecting generally changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, for example year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a fund's historical risk/ reward
ratio relative to other funds with similar objectives. The performance
factor is a weighted-average assessment of the Portfolio's 3-year, 5-year,
and 10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are derived
from a purely quantitative system that does not utilize the subjective
criteria customarily employed by rating agencies such as Standard & Poor's
Corporation and Moody's Investor Service, Inc.
Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year performance. Mutual funds are ranked in general
categories (e.g., international bond, international equity, municipal bond,
and maximum capital gain). Weisenberger rankings do not reflect deduction
of sales charges or fees.
Independent publications may also evaluate the Fund's performance.
certain of those publications are listed below. The Fund may distribute
evaluations by or excerpts from these publications to its shareholders or
to potential investors. The following illustrates the types of information
provided by these publications.
Business Week publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total
return reflecting changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales charges.
Portfolios are not categorized; they compete in a large universe of over
2,000 funds. The source for rankings is data generated by Morningstar, Inc.
Investor's Business Daily publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given category.
The categories are based loosely on the type of fund, e.g., growth funds,
balanced funds, U.S. government funds, GNMA funds, growth and income funds,
corporate bond funds, etc. Performance periods for sector equity funds can
vary from 4 weeks to 39 weeks; performance periods for other fund groups
vary from 1 year to 3 years. Total return performance reflects changes in
net asset value and reinvestment of dividends and capital gains. The
rankings are based strictly on total return. They do not reflect deduction
of any sales charges Performance grades are conferred from A+ to E. An A+
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<PAGE>
rating means that the fund has performed within the top 5% of a general
universe of over 2000 funds; an A rating denotes the top 10%; an A- is
given to the top 15%, etc.
Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical Services.
The Lipper total return data reflects changes in net asset value and
reinvestment of distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term intervals (current
quarter or year-to-date, for example) to long-term periods (five-year or
ten-year performance, for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital Appreciation Portfolios,
Growth Portfolios, U.S. Government Portfolios, Equity Income Portfolios,
Global Portfolios, etc. Occasionally, Barron's modifies the Lipper
information by ranking the funds in asset classes. "Large funds" may be
those with assets in excess of $25 million; "small funds" may be those with
less than $25 million in assets.
The Wall Street Journal publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a given
Lipper Analytical Services category. Lipper provides the rankings based on
its total return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales charges. The
Scorecard portrays 4-week, year-to-date, one-year and 5-year performance;
however, the ranking is based on the one-year results. The rankings for any
given category appear approximately once per month.
Fortune magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are placed
in stock or bond fund categories (for example, aggressive growth stock
funds, growth stock funds, small company stock funds, junk bond funds,
Treasury bond funds etc.), with the top-10 stock funds and the top-5 bond
funds appearing in the rankings. The rankings are based on 3- year
annualized total return reflecting changes in net asset value and
reinvestment of distributions and not reflecting sales charges. Performance
is adjusted using quantitative techniques to reflect the risk profile of
the fund.
Money magazine periodically publishes mutual fund rankings on a database
of funds tracked for performance by Lipper Analytical Services. The funds
are placed in 23 stock or bond fund categories and analyzed for five-year
risk adjusted return. Total return reflects changes in net asset value and
reinvestment of all dividends and capital gains distributions and does not
reflect deduction of any sales charges. Grades are conferred (from A to E):
the top 20% in each category receive an A, the next 20% a B, etc. To be
ranked, a fund must be at least one year old, accept a minimum investment
of $25,000 or less and have had assets of at least $25 million as of a
given date.
Financial World publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds, global
bond funds, growth and income funds, U.S. government bond funds, etc. To
compete, funds must be over one year old, have over $1 million in assets,
require a maximum of $10,000 initial investment, and should be available in
at least 10 states in the United States. The funds receive a composite past
performance rating, which weighs the intermediate - and long-term past
performance of each fund versus its category, as well as taking into
account its risk, reward to risk, and fees. An A+ rated fund is one of the
best, while a D- rated fund is one of the worst. The source for Financial
World rating is Schabacker investment management in Rockville, Maryland.
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<PAGE>
Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond
funds, municipal bond funds, etc. Data sources include Lipper Analytical
Services and CDA Investment Technologies. The ratings are based strictly on
performance at net asset value over the given cycles. Portfolios performing
in the top 5% receive an A+ rating; the top 15% receive an A rating; and so
on until the bottom 5% receive an F rating. Each fund exhibits two ratings,
one for performance in "up" markets and another for performance in "down"
markets.
Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three- and
five-year total return performance reflecting changes in net asset value
and reinvestment of dividends and capital gains and not reflecting
deduction of any sales charges. Portfolios are ranked by tenths: a rank of
1 means that a fund was among the highest 10% in total return for the
period; a rank of 10 denotes the bottom 10%. Portfolios compete in
categories of similar funds -- aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global governmental bond funds,
mortgage-backed securities funds, etc. Kiplinger's also provides a
risk-adjusted grade in both rising and falling markets. Portfolios are
graded against others with the same objective. The average weekly total
return over two years is calculated. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund.
U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch Carre &
Co., a Boston research firm. Over 2000 funds are tracked and divided into
10 equity, taxable bond and tax-free bond categories. Portfolios compete
within the 10 groups and three broad categories. The OPI is a number from
0-100 that measures the relative performance of funds at least three years
old over the last 1, 3, 5 and 10 years and the last six bear markets. Total
return reflects changes in net asset value and the reinvestment of any
dividends and capital gains distributions and does not reflect deduction of
any sales charges. Results for the longer periods receive the most weight.
The 100 Best Mutual Portfolios You Can Buy (1992), authored by Gordon K.
Williamson. The author's list of funds is divided into 12 equity and bond
fund categories, and the 100 funds are determined by applying four
criteria. First, equity funds whose current management teams have been in
place for less than five years are eliminated. (The standard for bond funds
is three years.) Second, the author excludes any fund that ranks in the
bottom 20 percent of its category's risk level. Risk is determined by
analyzing how many months over the past three years the fund has
underperformed a bank CD or a U.S. Treasury bill. Third, a fund must have
demonstrated strong results for current three-year and five-year
performance. Fourth, the fund must either possess, in Mr. Williamson's
judgment, "excellent" risk-adjusted return or "superior" return with low
levels of risk. Each of the 100 funds is ranked in five categories: total
return, risk/volatility, management, current income and expenses. The
rankings follow a fivepoint system: zero designates "poor"; one point means
"fair"; two points denote "good"; three points qualify as a "very good";
four points rank as "superior"; and five points mean "excellent."
22
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MEMBERS OF INVESTMENT TEAMS AT MENTOR ADVISORS
The following persons are investment personnel of Mentor Advisors, as
indicated.
LARGE CAPITALIZATION QUALITY EQUITY GROWTH
JOHN G. DAVENPORT, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Davenport has twelve years of investment management experience. He joined
the Mentor organization after heading equity research for Lowe, Brockenbrough,
Tierney, & Tattersall. He earned his undergraduate business degree from the
University of Richmond and his graduate degree in business from the University
of Virginia.
RICHARD H. SKEPPSTROM II -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Skeppstrom has six years of investment management experience. He has earned
both his undergraduate degree and masters of business administration from the
University of Virginia.
RICHARD L. RICE, CFA -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Rice has twenty-four years' experience in the securities industry. Prior to
joining the Mentor organization in 1993, he was a partner in the equity
management software firm, Parata Analytics Research, which was acquired by the
Mentor organization. His previous responsibilities include director of Research
for Signet Asset Management, Senior Research Analyst for Capitoline Investment
Services, and research positions at First Atlanta Corp. and Southeast Banking.
He earned his undergraduate business degree from the University of Florida.
ACTIVE FIXED-INCOME
P. MICHAEL JONES, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Jones has eleven years of investment management experience.Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
DENNIS F. CLARY, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Clary joined Mentor in 1998 and has over 20 years of investment management
experience. Prior to joining Mentor's Fixed Income Team, he worked for three
years as a Vice President and Senior Portfolio Manager for First America
Investment Corporation. He previously was employed for four years as a Vice
President and Portfolio Manager at CSI Asset Management, Inc. and prior to that
for four years in a similar role by Investment & Capital Management
Corporation. Mr. Clary received his BA and MBA degrees from Ohio State
University.
TIMOTHY ANDERSON, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Anderson has 8 years of investment management experience. He joined Mentor
in June, 1998. Prior to joining Mentor's Fixed-Income Team, he worked for two
years as a Senior Fixed Income Analyst at Investment Advisors, Inc. Previous to
that he was employed for five years as a Senior Investment Analyst at St. Paul
Fire & Marine Insurance Company and for two years as an Analyst for Duff &
Phelps Credit Rating Company. He received a BS degree from DePaul University
and an MBA degree from the University of Chicago.
TODD C. KUIMJIAN -- CREDIT/RESEARCH ANALYST
Mr. Kuimjian has three years of investment experience. He is responsible for
maintaining credit information on corporate issuers and assisting Mr.
McClelland in evaluating the risk/return characteristics of corporate
securities. Prior to assuming his current duties, Mr. Kuimjian served as an
investment accountant/systems analyst and later as a senior investment
administrator within Mentor's investment services group. He holds an
undergraduate degree from Virginia Polytechnic Institute and is also a CPA.
KEITH WANTLING
Mr. Wantling has five years of experience. Mr. Wantling performs analysis and
screening for credit sensitive private label mortgage-backed securities and
directs the firm's portfolio analysis effort. He holds his undergraduate degree
in accounting information systems from Virginia Polytechnic Institute.
SMALL-TO-MEDIUM CAPITALIZATION EQUITY GROWTH
THEODORE W. PRICE, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Price has over thirty years of investment management experience, with over
twenty-three years' tenure at Charter Asset Management, the predecessor to
Mentor Advisors. He has managed Mentor Growth Portfolio since its inception. He
earned both his undergraduate degree and masters of business administration
from the University of Virginia.
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<PAGE>
LINDA A. ZIGLAR, CFA -- PORTFOLIO MANAGER
Ms. Ziglar has seventeen years of investment management experience. Ms. Ziglar
joined Charter Asset Management, the predecessor to Mentor Advisors, from
Federated Investors, where she managed $300 million in equity assets. She holds
an undergraduate degree from Randolph-Macon Woman's College where she graduated
summa cum laude. She also holds a graduate degree in business administration
from the University of Pittsburgh.
JEFFREY S. DRUMMOND, CFA -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Drummond has eight years of investment management experience. Mr. Drummond
began his career as a portfolio analyst in the Investment Strategy Department
at Wheat First Butcher Singer, where he shared responsibility for directing
$100 million in assets following the Strategic Sectors Portfolio. He received
his undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
EDWARD RICK IV
Mr. Rick has two years of investment management experience. He received his
undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Fund's independent accountants, providing audit services, tax
return review and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange Commission
filings. Prior to the 1997 fiscal year, Deloitte & Touche L.L.P., 707 East Main
Street, Richmond, Virginia 23219, served as the Fund's independent accountants.
24
<PAGE>
RATINGS
The rating services' descriptions of corporate bonds are:
MOODY'S INVESTORS SERVICE, INC.:
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.
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.
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.
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.
STANDARD & POOR'S:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than for bonds in higher rated categories.
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating
assigned by S&P. Commercial paper rated A-1 by S&P has the following
characteristics:
o liquidity ratios are adequate to meet cash requirements;
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<PAGE>
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer has a
strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative- type risks which may be inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet
such obligations.
NOTE RATINGS:
MIG1/VMIG1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are a mple although not so large as in the preceding group.
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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FINANCIAL STATEMENTS
The Independent Auditors' Report, financial highlights, and financial
statements in respect of the Fund, included in the Fund's Annual Report for the
fiscal year ended December 31, 1998, filed electronically on February 26, 1999
(File No. 811-6549; Accession No. 916641-99-000118), are incorporated by
reference into the Statement of Additional Information.
27
EVERGREEN EQUITY TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(800) 633-2700
GROWTH AND INCOME FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 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 FUND ("SMALL CAP")
EVERGREEN UTILITY FUND ("UTILITY")
EVERGREEN VALUE FUND ("VALUE")
EVEGREEN FUND FOR TOTAL RETURN ("TOTAL RETURN")
(EACH A "FUND"; TOGETHER, THE "FUNDS" )
EACH FUND IS A SERIES OF 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 but should
be read in conjunction with the prospectuses dated December 1, 1998 for the Fund
in which you are interested. 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 except Blue Chip. You may obtain either
of these prospectuses by calling (800) 343-2898.
Certain information may be incorporated by reference to the Funds'
Annual Report dated July 31, 1998. You may obtain a copy of the Annual Report at
no cost by calling (800) 343-2898.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY................................................................ 3
INVESTMENT POLICIES.......................................................... 3
OTHER SECURITIES AND PRACTICES............................................... 5
PRINCIPAL HOLDERS OF FUND SHARES............................................. 5
EXPENSES..................................................................... 11
PERFORMANCE.................................................................. 18
SERVICE PROVIDERS............................................................ 20
FINANCIAL STATEMENTS......................................................... 21
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES............... 2-1
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................. 2-9
SALES CHARGE WAIVERS AND REDUCTIONS.........................................2-10
PERFORMANCE CALCULATIONS....................................................2-13
PRINCIPAL UNDERWRITER.......................................................2-14
DISTRIBUTION EXPENSES UNDER RULE 12b-1......................................2-15
TAX INFORMATION.............................................................2-17
BROKERAGE...................................................................2-20
ORGANIZATION................................................................2-21
INVESTMENT ADVISORY AGREEMENT...............................................2-22
MANAGEMENT OF THE TRUST.....................................................2-23
CORPORATE AND MUNICIPAL BOND RATINGS........................................2-25
ADDITIONAL INFORMATION......................................................2-36
<PAGE>
PART 1
TRUST HISTORY
The Evergreen Equity Trust is an open-end management investment
company, which was organized as a Delaware business trust on September 18, 1997.
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.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
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 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the 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 the 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, each 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), except that Utility will concentrate its investments in
utility industries.
FURTHER EXPLANATION OF CONCENTRATION POLICY: Each Fund except Utility
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), except that Utility is required to invest at least 65% of
its total assets in utility industries.
3
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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 and enter into reverse repurchase
agreements 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 purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. 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 and engage in short sales to the extent permitted by
applicable law
5. UNDERWRITING
Each Fund may not underwrite securities of other issuers, except
insofar as a 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, a 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 a 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 a 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, a 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 the Fund any income accruing on the security. The
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 the Fund and its shareholders.
4
<PAGE>
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections under
"Additional Information on Securities and Investment Practices" in Part 2 of
this SAI:
Defensive Investments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Options
Futures Transactions
Foreign Securities (not applicable to Small Cap and Growth/Income)
Foreign Currency Transactions (not applicable to Small Cap and Growth/Income)
High Yield, High Risk Bonds (applicable only to Total Return and Growth/Income)
Illiquid and Restricted Securities
Investment in Other Investment Companies
Short Sales
PRINCIPAL HOLDERS OF FUND SHARES
As of August 31, 1998, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares 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 the
outstanding shares of any class of each Fund as of August 31, 1998.
BLUE CHIP CLASS A
NONE
BLUE CHIP CLASS B
MLPF&S FOR THE SOLE BENEFIT OF ITS 7.688%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
5
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BLUE CHIP CLASS C
FIRST UNION BROKERAGE SERVICES 29.714%
FIRST AFRICAN BAPTIST CHURCH
CLIFTON AND LAURELS AVS
SHARON HILL, PA 19079
STEVE M WILSON TRUSTEE 6.787%
BONE & JOINT CLINIC PSP
FBO EMPLOYEES
ATTN: SECURITY SERVICES
P.O. BOX 61837
NEW ORLEANS, LA 70161-1837
MLPF&S FOR THE SOLE BENEFIT OF ITS 6.578%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
GROWTH/INCOME CLASS A
NONE
GROWTH/INCOME CLASS B
NONE
GROWTH/INCOME CLASS C
MLPF&S FOR THE SOLE BENEFIT OF ITS 25.191%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
GROWTH/INCOME CLASS Y
FIRST UNION NATIONAL BANK/EB/INT 47.893%
REINVEST ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST. 3RD FL. CMG 1151
CHARLOTTE, NC 28202-1911
FIRST UNION NATIONAL BK/EB/INT 26.664%
CASH ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST., 3RD FLOOR
CMG 1151
CHARLOTTE, NC 28202-1911
INCOME/GROWTH CLASS A
NONE
6
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INCOME/GROWTH CLASS B
NONE
INCOME/GROWTH CLASS C
MLPF&S FOR THE SOLE BENEFIT OF ITS 17.308%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
FUBS & CO. FEBO 5.630%
LAST STOP INC.
8661 COLESVILLE ROAD
SILVER SPRING, MD 20910-3933
INCOME/GROWTH CLASS Y
NONE
SMALL CAP CLASS A
MLPF&S FOR THE SOLE BENEFIT OF ITS 5.691%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
SMALL CAP CLASS B
MLPF&S FOR THE SOLE BENEFIT OF ITS 9.978%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
SMALL CAP CLASS C
MLPF&S FOR THE SOLE BENEFIT OF ITS 27.568%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
SMALL CAP CLASS Y
FIRST UNION NATIONAL BK/EB/INT 56.737%
CASH ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST. 3RD FL. CMG 1151
CHARLOTTE, NC 28202-1911
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<PAGE>
FIRST UNION NATIONAL BANK/EB/INT 24.825%
REINVEST ACCOUNT
ATTN: TRUST OPERATIONS FUND GROUP
401 S. TRYON ST. 3RD FL. CMG 1151
CHARLOTTE, NC 28202-1911
CITIBANK NA 6.453%
DELTA AIRLINES MASTER TRUST
JOE VILLELLA CITICORP SERVICES
MTCA B3-06, WORLD WIDE SEC. SERV.
CITIBANK CENTER TAMPA
TAMPA, FL 33610
TOTAL RETURN CLASS A
MLPF&S FOR THE SOLE BENEFIT OF ITS 5.664%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
TOTAL RETURN CLASS B
MLPF&S FOR THE SOLE BENEFIT OF ITS 10.492%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
TOTAL RETURN CLASS C
LAVEDNA ELLINGSON 15.648%
DOUGLAS ELLINGSON TRUSTEES
LAVEDNA ELLINGSON MARITAL TRUST
U/A DTD 5-1-86
8510 MCCLINTOCK
TEMPE, AZ 85284-2527
MLPF&S FOR THE SOLE BENEFIT OF ITS 11.422%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
TOTAL RETURN CLASS Y
STATE STREET BK AND TRUST CO. TRUST 26.777%
IRA FBO
KATHERINE ANN MEWHINNEY
2323 FAIRWAY DRIVE
WINSTON SALEM, NC 27103-3653
8
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STATE STREET BANK AND TRUST CO CUSTOMER 16.711%
IRA FBO
KATHY E. CORELLA
3481 KATHRYN STREET
VICKSBURG, MI 49097-1058
STATE STREET BK AND TRUST CO. CUST. 15.806%
IRA FBO
GLENN WESSEL
15000 SE 13TH COURT
SUNRISE, FL 33326-1923
STATE STREET BANK AND TRST CO CUST 8.094%
IRA FBO
MIRIAM ERSHKOWITZ
1500 LOCUST ST. APT 2911
PHILADELPHIA, PA 1910-4322
SSB C/F IRA REGULAR 6.057%
THOMAS P. CONWAY
129 PILGIM PL.
VALLEY STREAM, NY 11580-5338
STATE STREET BK AND TRUST CO. CUST. 5.563%
IRA FBO
FRANK TRANES
51 BROOKWOOD DRIVE
WESTPORT, MA 02790-4304
STATE STREET BANK AND TRUST CO. 5.501%
IRA FBO
RICHARD L. HOPP
53230 SULA DRIVE
SHELBY TOWNSHIP, MI 48315
UTILITY CLASS A
NONE
UTILITY CLASS B
NONE
UTILITY CLASS C
MLPF&S FOR THE SOLE BENEFIT OF ITS 10.778%
CUSTOMERS
ATTN: FUND ADMINISTRATION
4800 DEER LAKE DRIVE E. 2ND FLOOR
JACKSONVILLE, FL 32246-6484
9
<PAGE>
FUBS & CO FEBO 7.945%
EVELYN L. SMITH
CREG SMITH
3294 MYRTLE STREET
HAPEVILLE, GA 30354-1418
FUBS & CO FEBO 6.842%
THOMAS MCKINNEY AND
LOTTIE MCKINNEY
170 SCOTT BLVD.
TYRONE, GA 30290-9767
FIRST UNION BROKERAGE SERVICES 6.525%
MAX RAY AND JERALYNE RAY
ROUTE 2 BOX 498
GREENMOUNTAIN, NC 28740-9209
UTILITY CLASS Y
FIRST UNION NATIONAL BANK 70.058%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR CMG-1151
301 S. TRYON STREET
CHARLOTTE, NC 28202-1910
FIRST UNION NATIONAL BANK 16.538%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR CMG-1151
301 S.TRYON STREET
CHARLOTTE, NC 28202-1910
KHALID IQBAL C/F 5.798%
FATIMA KHALID IQBAL
UNIF GIFT MIN ACT KY
401 BOGLE STREET
SOMERSET, KY 42503-2870
VALUE CLASS A
NONE
VALUE CLASS B
NONE
VALUE CLASS C
DONALDSON LUFKIN JENRETTE 12.256%
SECURITIES CORPORATION INC.
P.O. BOX 2052
JERSEY CITY, NJ 07303-9998
10
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VALUE CLASS Y
FIRST UNION NATIONAL BANK 65.570%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
CMG-1151 11TH FLOOR
301 S. TRYON STREET
CHARLOTTE, NC 28202-1910
FIRST UNION NATIONAL BANK 27.959%
TRUST ACCOUNTS
ATTN: GINNY BATTEN
11TH FLOOR CMG-1151
301 S. TRYON STREET
CHARLOTTE, NC 28202-1910
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. (For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.) Evergreen Asset
Management Corp. ("EAMC") is the investment advisor to Growth/Income,
Income/Growth and Small Cap. Lieber & Company acts as sub-advisor to these
Funds, and is reimbursed by EAMC for the costs of providing sub-advisory
services. EAMC is entitled to receive from each of these Funds an annual fee
based on the Fund's average daily net assets, as follows:
AVERAGE DAILY NET ASSETS FEE
first $750 million 1.00%
next $250 million 0.90%
over $1 billion 0.80%
The Capital Management Group of First Union National Bank ("CMG") is
the investment advisor to Utility and Value. CMG is entitled to receive from
each of these Funds an annual fee equal to 0.50% of the average daily net assets
of the Fund.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Blue Chip. EIMC is
entitled to receive from Blue Chip an annual fee based on the Fund's average
daily net assets, as follows:
AVERAGE DAILY NET ASSETS FEE
first $100 million 0.70%
next $100 million 0.65%
next $100 million 0.60%
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AVERAGE DAILY NET ASSETS FEE
next $100 million 0.55%
next $100 million 0.50%
next $500 million 0.45%
next $500 million 0.40%
over $1.5 billion 0.35%
EIMC is also the investment advisor to Total Return. EIMC is entitled
to receive from Total Return an annual fee based on 1.5% of the Fund's gross
dividend and interest income plus a percentage of the Fund's average daily net
assets, as follows:
AVERAGE DAILY NET ASSETS FEE
first $100 million 0.60%
next $100 million 0.55%
next $100 million 0.50%
next $100 million 0.45%
next $100 million 0.40%
next $500 million 0.35%
over $1 billion 0.30%
Advisory Fees Paid
Below are the advisory fees accrued by each Fund for the last three
fiscal periods.
FISCAL PERIOD/FUND ADVISORY FEE WAIVER
PERIODS ENDED 1998
Blue Chip (1) $2, 052,676 -0-
Growth/Income (2) $16,275,918 -0-
Income/Growth (2) $9,685,921 -0-
Small Cap (2) $2,055,006 -0-
Total Return (2) $1,062,354 -0-
Utility (2) $704,533 $204,617
Value (2) $7,023,408 -0-
PERIODS ENDED 1997
Blue Chip (3) $1,794,364 -0-
12
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FISCAL PERIOD/FUND ADVISORY FEE WAIVER
Growth/Income (4) $5,736,248 -0-
Income/Growth (5) $4,371,784 -0-
Income/Growth (6) $8,823,541 -0-
Small Cap (4) $180,153 $35,183
Total Return (7) $546,092 -0-
Utility (4) $382,537 $146,640
Value (4) $4,753,235 -0-
PERIODS ENDED 1996
Blue Chip (8) $1,492,757 -0-
Growth/Income (9) $5,287,338 $5,000
Income/Growth (10) $9,343,195 -0-
Small Cap (9) $63,333 $63,333
Total Return (11) $448,266 -0-
Utility (9) $725,733 $396,483
Value (9) $6,950,730 -0-
(1) Eleven months ended 7/31/98
(2) Year ended 7/31/98
(3) Year ended 8/31/97
(4) Seven months ended 7/31/97
(5) Six months ended 7/31/97
(6) Year ended 1/31/97
(7) Eight months ended 7/31/97
(8) Year ended 8/31/96
(9) Year ended 12/31/96
(10) Year ended 1/31/96
(11) Year ended 11/30/96
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber & Company for the last three
fiscal periods. For more information regarding brokerage commissions, see
"Brokerage" in Part 2 of this SAI.
FISCAL PERIOD/FUND TOTAL PAID TO ALL TOTAL PAID TO
BROKERS LIEBER
PERIODS ENDED 1998
Blue Chip (1) $722,562 -0-
Growth/Income (2) $1,527,103 $1,460,628
13
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FISCAL PERIOD/FUND TOTAL PAID TO ALL TOTAL PAID TO
BROKERS LIEBER
Income/Growth (2) $2,839,407 $1,762,628
Small Cap (2) $382,504 $305,340
Total Return (2) $247,967 -0-
Utility (2) $255,495 -0-
Value (2) $2,277,475 -0-
PERIODS ENDED 1997
Blue Chip (3) $656,022 -0-
Growth/Income (4) $412,968 $348,590
Income/Growth (5) $1,575,483 $1,066,378
Income/Growth (6) $3,529,313 $2,835,293
Small Cap (4) $74,018 $61,390
Total Return (7) $153,935 -0-
Utility (4) $220,091 -0-
Value (4) $273,045 -0-
PERIODS ENDED 1996
Blue Chip (8) $684,496 -0-
Growth/Income (9) $519,064 $429,888
Income/Growth (10) $3,255,068 -0-
Small Cap (9) $14,647 $13,246
Total Return (11) $227,013 -0-
Utility (9) $323,978 -0-
Value (9) $3,164,292 -0-
(1) Eleven months ended 7/31/98
(2) Year ended 7/31/98
(3) Year ended 8/31/97
(4) Seven months ended 7/31/97
(5) Six months ended 7/31/97
(6) Year ended 1/31/97
(7) Eight months ended 7/31/97
(8) Year ended 8/31/96
(9) Year ended 12/31/96
(10) Year ended 1/31/96
(11) Year ended 11/30/96
14
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Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year ended July 31, 1998, (1) the
percentage of aggregate brokerage commissions paid by each applicable Fund to
Lieber & Company and (2) the percentage of each applicable Fund's aggregate
dollar amount of commissionable transactions effected through Lieber & Company.
For more information, see "Selection of Brokers" under "Brokerage" in Part 2 of
this SAI.
FUND PERCENTAGE OF PERCENTAGE OF
COMMISSIONS TO COMMISSIONABLE
LIEBER & COMPANY TRANSACTIONS THROUGH
LIEBER & COMPANY
Growth/Income 95.65% 91.92%
Income/Growth 62.08% 43.68%
Small Cap 79.83% 68.15%
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last three fiscal periods.
For more information, see "Principal Underwriter" in Part 2 of this SAI.
FISCAL PERIOD/FUND TOTAL UNDERWRITING UNDERWRITING
COMMISSIONS COMMISSIONS RETAINED
PERIODS ENDED 1998
Blue Chip (1) $1,989,997 $23,620
Growth/Income (2) $20,963,554 $603,197
Income/Growth (2) $649,901 $26,252
Small Cap (2) $6,344,098 $182,887
Total Return (2) $849,763 $30,676
Utility (2) $327,363 $13,944
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FISCAL PERIOD/FUND TOTAL UNDERWRITING UNDERWRITING
COMMISSIONS COMMISSIONS RETAINED
Value (2) $2,716,315 $109,283
PERIODS ENDED 1997
Blue Chip (3) $1,017,961 $363,862
Growth/Income (4) $1,796,199 $169,177
Income/Growth (5) $41,996 $4,196
Income/Growth (6) $187,403 $20,208
Small Cap (4) $72,045 $8,281
Total Return (7) $128,762 $7,709
Utility (4) $15,633 $1,789
Value (4) $479,927 $51,343
PERIODS ENDED 1996
Blue Chip (8) $1,415,505 $334,606
Growth/Income (9) $1,473,258 $158,858
Income/Growth (10) $98,890 $10,733
Small Cap (9) $3,568 $340
Total Return (11) $355,043 ($595,877)
Utility (9) $74,988 $7,857
Value (9) $522,573 $56,609
(1) Eleven months ended 7/31/98
(2) Year ended 7/31/98
(3) Year ended 8/31/97
(4) Seven months ended 7/31/97
(5) Six months ended 7/31/97
(6) Year ended 1/31/97
(7) Eight months ended 7/31/97
(8) Year ended 8/31/96
(9) Year ended 12/31/96
(10) Year ended 1/31/96
(11) Year ended 11/30/96
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year ended
July 31, 1998. For more information, see "Distribution Expenses Under Rule
12b-1" in Part 2 of this SAI.
16
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<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND
===================
DISTRIBUTION SERVICE DISTRIBUTION SERVICE DISTRIBUTION SERVICE
FEES FEES FEES FEES FEES FEES
================ ================= ================= ================= ================= =================
<S> <C> <C> <C> <C> <C> <C>
Blue Chip* -0- $367,809 $902,416 $357,527 $797 $265
Growth/Income -0- $597,754 $5,917,672 $1,972,557 $283,053 $94,351
Income/Growth -0- $34,738 $390,031 $130,010 $8,479 $2,826
Small Cap -0- $80,328 $563,006 $192,173 $114,856 $38,286
Total Return -0- $124,034 $759,037 $253,028 $160,743 $53,698
Utility -0- $243,362 $310,023 $103,341 $3,149 $1,050
Value -0- $1,088,998 $2,316,295 $772,098 $25,812 $8,604
*Eleven months ended 7/31/98
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust
individually and by the Trust and the eight other trusts in the Evergreen Fund
Complex for the twelve months ended July 31, 1998. The Trustees do not receive
pension or retirement benefits from the Funds. For more information, see
"Management of the Trust" in Part 2 of this SAI.
TOTAL COMPENSATION
AGGREGATE FROM TRUST AND FUND
COMPENSATION FROM COMPLEX PAID TO
TRUSTEE TRUST TRUSTEES**
Laurence B. Ashkin $28,558 $71,260
Charles A. Austin, III $23,408 $58,883
K. Dun Gifford $22,100 $56,104
James S. Howell $37,630 $98,463
Leroy Keith Jr. $22,862 $57,584
Gerald M. McDonnell $30,905 $76,283
Thomas L. McVerry $32,869 $82,742
William Walt Pettit $28,025 $68,625
David M. Richardson $22,954 $57,551
Russell A. Salton, III $30,960 $77,675
Michael S. Scofield $33,464 $86,639
17
<PAGE>
AGGREGATE TOTAL COMPENSATION
TRUSTEE COMPENSATION FROM FROM TRUST AND FUND
TRUST COMPLEX PAID TO
TRUSTEES**
Richard J. Shima $26,977 $68,684
Robert J. Jeffries* $3,114 $24,706
Foster Bam* $5,353 $48,683
*Former Trustee; retired as of December 31, 1997.
**Certain Trustees have elected to defer all or part of their
total compensation for the twelve months ended July 31, 1998.
The amounts listed below will be payable in later years to the
respective Trustees:
Austin $6,387
McVerry $82,742
Howell $72,753
Salton $77,675
Petit $68,625
McDonnell $76,283
Scofield $18,953
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of July 31, 1998. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
FUND/CLASS ONE YEAR FIVE YEARS TEN YEARS OR INCEPTION DATE
SINCE INCEPTION
BLUE CHIP
<S> <C> <C> <C> <C>
Class A N/A N/A 6.00% 1/20/98
Class B 10.14% 17.29% 14.35% 9/11/35
Class C N/A N/A 8.80% 1/22/98
GROWTH/INCOME
Class A 5.97% N/A 23.25% 1/3/95
Class B 5.44% N/A 23.57% 1/3/95
Class C 9.47% N/A 24.08% 1/3/95
Class Y 11.56% 19.25% 16.75% 10/15/86
18
<PAGE>
FUND/CLASS ONE YEAR FIVE YEARS TEN YEARS OR INCEPTION DATE
SINCE INCEPTION
INCOME/GROWTH
2.80% N/A 14.85% 1/3/95
Class A
Class B 2.29% N/A 14.99% 1/3/95
Class C 6.16% N/A 15.56% 1/3/95
Class Y 8.16% 10.90% 10.78% 8/31/78
SMALL CAP
Class A (1.66%) N/A 19.30% 1/3/95
Class B (2.51%) N/A 19.51% 1/3/95
Class C 1.49% N/A 20.01% 1/24/95
Class Y 3.57% N/A 15.62% 10/1/93
TOTAL RETURN
Class A 8.44% 16.45% 14.65% 4/14/87
Class B 8.01% 16.45% 15.84% 2/1/93
Class C 11.99% 16.65% 15.95% 2/1/93
Class Y 14.29% N/A 20.80% 1/13/97
UTILITY
Class A 11.73% N/A 10.72% 1/4/94
Class B 11.31% N/A 10.79% 1/4/94
Class C 15.31% N/A 14.25% 9/2/94
Class Y 17.60% N/A 13.70% 2/28/94
VALUE
Class A 4.35% 16.19% 14.71% 4/12/85
Class B 4.18% 16.30% 15.41% 2/2/93
Class C 7.83% N/A 18.64% 9/2/94
Class Y 9.79% 17.62% 16.85% 1/3/91
</TABLE>
19
<PAGE>
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value ("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 of Class A shares of
each Fund aggregating less than $100,000 based upon the NAV of each Fund's Class
A shares at the end of each Fund's latest fiscal period. For more information,
see "Purchase, Redemption and Pricing of Shares."
PER SHARE OFFERING PRICE
FUND DATE NAV SALES CHARGE PER SHARE
===================== ========== ============== ============== ==============
BLUE CHIP 7/31/98 $30.42 4.75% $31.94
GROWTH/INCOME 7/31/98 $29.14 4.75% $30.59
INCOME/GROWTH 7/31/98 $23.19 4.75% $24.35
SMALL CAP 7/31/98 $15.75 4.75% $16.54
UTILITY 7/31/98 $11.76 4.75% $12.35
VALUE 7/31/98 $22.23 4.75% $23.34
TOTAL RETURN 7/31/98 $21.65 4.75% $22.73
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator for
Utility and Value, subject to the supervision and control of the Trust's Board
of Trustees. EIS provides the Funds with facilities, equipment and personnel and
is entitled to receive a fee from the Fund based on the total assets of all
mutual funds for which EIS serves as administrator and a First Union Corporation
subsidiary serves as investment advisor. The fee paid to EIS is calculated in
accordance with the following schedule:
ASSETS FEE
first $7 billion 0.050%
next $3 billion 0.035%
next $5 billion 0.030%
next $10 billion 0.020%
next $5 billion 0.015%
over $30 billion 0.010%
20
<PAGE>
EIS also provides facilities, equipment and personnel to Blue Chip,
Growth/Income, Income/Growth, Small Cap and Total Return on behalf of the
investment advisor. Blue Chip and Total Return reimburse EIS for providing such
services.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Fund's transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O.
Box 2121, Boston, Massachusetts 02106-2121.
The Fund pays ESC an annual fees as follows:
FUND TYPE ANNUAL FEE ANNUAL FEE
PER OPEN PER CLOSED
ACCOUNT ACCOUNT
Monthly Dividend Funds $25.50 $9.00
- ---------------------- ------ -----
Quarterly Dividend Funds $24.50 $9.00
- ------------------------ ------ -----
Semiannual Dividend Funds $23.50 $9.00
- ------------------------- ------ -----
Annual Dividend Funds $23.50 $9.00
- --------------------- ------ -----
Money Market Funds $25.50 $9.00
- ------------------ ------ -----
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.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the financial statements of each Fund except Income/Growth.
Independent Accountants
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036 audits the financial statements of Income/Growth.
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.
21
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
22
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund in which you are interested.
See the list under "Other Securities and Practices" in Part 1 of this SAI to
determine which of the sections below are applicable.
Defensive Investments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
bankers' acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. EVERGREEN FUND FOR TOTAL RETURN may also invest
in debt securities and high grade preferred stocks for defensive purposes when
its investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The 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.
2- 1
<PAGE>
Securities Issued by the Government National Mortgage Association ("GNMA")
The Fund 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 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
The Fund 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 Fund 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, the 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 the 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 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 the 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.
Repurchase Agreements
The Fund 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
2- 2
<PAGE>
least $1 billion in assets, primary dealers in U.S. Government securities or
other financial institutions believed by the investment advisor to be
creditworthy. In a repurchase agreement the 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.
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 the 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 the Fund
might be delayed pending court action. The Fund's investment advisor 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 Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the 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 the 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 the
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
An option is a right to buy or sell a security for a specified price
within a limited time period. The option buyer pays the option seller (known as
the "writer") for the right to buy, which is a "call" option, or the right to
sell, which is a "put" option. Unless the option is terminated, the option
seller must then buy or sell the security at the agreed-upon price when asked to
do so by the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
2- 3
<PAGE>
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The 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 the 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
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities 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. The 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.
The Fund may sell or purchase futures contracts. When a futures contract
is sold by the 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 increases. Thus, the Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the 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 the Fund to pay a premium. In exchange for the premium, the 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, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The 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. The 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 the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
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
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage
2- 4
<PAGE>
market, interest rate or exchange rate risk, unanticipated changes in interest
rates or market prices could result in poorer performance than if it had not
entered into these transactions. Even if the investment advisor correctly
predicts interest rate movements, a hedge could be unsuccessful if changes in
the value of the Fund's futures position did not correspond to changes in the
value of its investments. This lack of correlation between the Fund's futures
and securities positions may be caused by differences between the futures and
securities markets or by differences between the securities underlying the
Fund's futures position and the securities held by or to be purchased for the
Fund. The Fund's investment advisor will attempt to minimize these risks through
careful selection and monitoring of the Fund's futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund 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, the 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 Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather the 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 the 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 the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the 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 the 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 NAV the Fund will
mark-to-market its open futures positions. The Fund is also required to deposit
and maintain margin when it writes call options on futures contracts.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also 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. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; 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
2-5
<PAGE>
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
As one way of managing exchange rate risk, the 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 the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the 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 the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Inc. ("Fitch") or below Baa by Moody's Investors Service, Inc. ("Moody's"),
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds 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 the issuer's inability to meet
specific 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.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, 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 junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are
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<PAGE>
more sensitive to news about an issuer or the economy which is, or investors
perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the 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.
The 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 the
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
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks 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, the 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 the Fund.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The 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. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
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<PAGE>
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
orinstrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds are
usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
Virgin Islands, Guam and Puerto Rico
2-8
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The Fund may invest in obligations of the governments of the Virgin
Islands, Guam and Puerto Rico to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which the Fund is
named. The Fund does not presently intend to invest more than (a) 5% of its net
assets in the obligations of each of the Virgin Islands and Guam or (b) 25% of
its net assets in the obligations of Puerto Rico. Accordingly, the Fund may be
adversely affected by local political and economic conditions and developments
within the Virgin Islands, Guam and Puerto Rico affecting the issuers of such
obligations.
PURCHASE, REDEMPTION AND PRICING OF SHARES
You may buy shares of the Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. The 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 the
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem the
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 of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
Class B Shares
The Fund offers Class B shares at NAV without an initial sales charge.
With certain exceptions, however, the Fund 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 Fund
offers Class C shares at NAV
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without an initial sales charge. With certain exceptions, however, the Fund
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 (2)
certain institutional investors and (3) investment advisory clients of CMG,
EAMC, EIMC, Meridian Investment Company, First International Advisors, Ltd., or
their affiliates. Class Y shares are offered at NAV without a front-end or
back-end sales charge and do not bear any Rule 12b-1 distribution expenses.
Contingent Deferred Sales Charge
The Fund 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 Expenses Under Rule 12b-1"
below). If imposed, the 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, the 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 AND REDUCTIONS
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%).
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%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
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<PAGE>
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 Fund may sell its shares at NAV 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 advisors;
4. investment advisors, 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 advisors or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisors 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 the Fund by the broker-dealer;
7. employees of First Union National Bank ("FUNB"), its
affiliates, the Distributor, any broker-dealer with whom the
Distributor has entered into an agreement to sell shares of
the Fund, 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 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, the 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 Fund will not charge any
CDSC on redemptions by such purchasers.
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<PAGE>
Waiver of CDSCS
The Fund does 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 NAV 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. 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).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen fund. See "By Exchange" under "How to Buy Shares" in the
prospectus. 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.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest 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 Fund will hold the check amount in a no-interest account in the
shareholder's name until the shareholder updates his or her address or automatic
reinvestment begins. Uncashed or returned redemption checks will also be handled
in the manner described above.
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<PAGE>
Calculation of NAV
The Fund calculates its NAV once daily on Monday through Friday, as
described in the prospectus. The Fund will not compute its NAV on the following
days the New York Stock Exchange is closed: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the 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 the 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.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the 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 the relevant periods. The following
is the formula used to calculate average annual total return:
n
P(1+T) =ERV
P= initial payment of $1,000
T= average total return
n= number of years
ERV= ending redeemable value of the initial $1,000
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<PAGE>
Current, Effective and Tax-equivalent Yields
The Fund may quote a "current yield" or "effective yield" from time to
time. The current yield is an annualized yield based on the actual total return
for a seven-day period. The effective yield is an annualized yield based on a
compounding of the current yield. These yields are each computed by first
determining the net change in account value for a hypothetical account having a
share balance of one share at the beginning of a seven-day period (shown as
"beginning account value" in the formula below), excluding capital changes. The
net change in account value will generally equal the total dividends declared
with respect to the account. The yields are then computed as follows:
Current Yield = Beginning Account Value x 365/7
Effective Yield = [(1 + Total Dividend for 7 days) 365/7]-1
Yield fluctuations may reflect changes in the Fund's net investment
income. Portfolio changes resulting from net purchases or net redemptions of the
Fund's shares may also affect the yield. Accordingly, the Fund's yield may vary
from day to day. The yield stated for a particular past period is not
necessarily representative of its future yield. Since the Fund uses the
amortized cost method of net asset value computation, it does not anticipate any
change in yield resulting from unrealized gains or losses or unrealized
appreciation or depreciation not reflected in the yield computation, or change
in net asset value during the period used for computing yield. If any of these
conditions should occur, yield quotations would be suspended. The Fund's yield
is not guaranteed, and the principal is not insured.
Yield information is useful in reviewing the 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 (1) the kind and quality of the instruments the Fund holds, (2)
portfolio maturity, (3) operating expenses and (4) market conditions.
In periods of declining interest rates, yields will tend to be somewhat
higher than prevailing market rates. In periods of rising interest rates, 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.
A tax-equivalent yield is calculated, reflecting the rate an investor
would need to earn from a fully taxable investment to equal the yield the Fund
would provide after federal taxes. The following formula is used:
Tax-Equivalent Yield = Effective Yield
----------------------
1 - Federal Tax Rate
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of shares of the Fund. The Trust has entered into a
Principal Underwriting Agreement ("Underwriting Agreement") with the Distributor
with respect to each class of the 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 Fund and the Fund reserves
the right, in its sole discretion, to reject any order received. Under the
Underwriting Agreement, the Fund 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 Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "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.
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<PAGE>
DISTRIBUTION EXPENSES UNDER RULE 12B-1
The Fund bears some of the costs of selling its Class A, Class B and,
if applicable, Class C shares, including certain advertising, marketing and
shareholder service expenses, pursuant to Rule 12b-1 of the 1940 Act. These
"12b-1 fees" or "distribution fees" are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B and, if applicable, Class C
Shares, the Fund may incur expenses for distribution costs up to a maximum
annual percentage of the average daily net assets attributable to a class, as
follows:
Class A 0.75%*
Class B 1.00%
Class C 1.00%
*Currently limited to 0.25% or less. See the expense table in the prospectus
of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above.
Amounts paid under the Plans are used to compensate the Distributor
pursuant to Distribution Agreements (each an "Agreement," together, the
"Agreements") that the Fund has entered into with respect to its Class A, Class
B and, if applicable, Class C shares. The compensation is based on a maximum
annual percentage of the average daily net assets attributable to a class, as
follows:
Class A 0.25%*
Class B 1.00%
Class C 1.00%
*May be lower. See the expense table in the prospectus of the Fund in which
you are interested.
The Agreements provide that the Distributor will use the distribution
fees received from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
2-15
<PAGE>
The Agreements also provide that the Distributor may use distribution
fees to make interest and principal payments in respect of amounts that have
been financed to pay broker-dealers or other persons for distributing Fund
shares. The Distributor may assign its rights to receive compensation under the
Plans to secure such financings. FUNB or its affiliates may finance payments
made by the Distributor to compensate broker-dealers or other persons for
distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to the Distributor under the Agreements may be paid by the
Fund's Distributor to the acquired fund's distributor or its predecessor.
Since the Distributor's compensation under the Agreements is not
directly tied to the expenses incurred by the Distributor, the compensation
received by it under the Agreements during any fiscal year may be more or less
than its actual expenses and may result in a profit to the Distributor.
Distribution expenses incurred by the Distributor in one fiscal year that exceed
the compensation paid to the Distributor for that year may be paid from
distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least 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 Plans, the Treasurer of the Trust reports the amounts
expended under the Plans 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.
The advisor may from time to time from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
("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 the 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.
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 the 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
2-16
<PAGE>
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.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the 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 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 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 the 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 the 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 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, the Fund need
give no notice to the Distributor. Any Distribution Agreement will terminate
automatically in the event of its assignment. For more information about 12b-1
fees, see "Expenses" in the prospectus and "12b-1 Fees" under "Expenses" in Part
1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If the (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, the 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, the 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 the Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
2-17
<PAGE>
Taxes on Distributions
Unless the Fund is a municipal bond fund, 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 the 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. Unless the Fund is a municipal bond fund or U.S. Treasury
money market fund, it 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.
If the Fund is a municipal bond fund or U.S. Treasury money market
fund, none of its income will consist of corporate dividends; therefore, none of
its distributions will qualify for the 70% dividends-received deduction for
corporations.
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 the 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 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 advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the 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.
2-18
<PAGE>
Special Tax Information for Municipal Bond Fund Shareholders
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
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 share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code) of a facility financed with an issue of tax-exempt obligations or a
"related person" to such a user should consult his tax advisor concerning his
qualification to receive exempt interest dividends should the Fund hold
obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
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 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. 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 not allow a shareholder to realize a loss
on the sale of Fund shares held by the shareholder for six months or less to the
extent the shareholder received exempt interest dividends on such shares.
Moreover, 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
distributions of net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers to
the Fund and to certify as to its correctness and certain other shareholders may
be subject to a 31% federal income
2-19
<PAGE>
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 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
the 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 the 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.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securites, it expects to buy and sell
them 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, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the 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 the 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, the investment advisor
seeks brokers who can provide the most benefit to the Fund. When selecting a
broker, the investment 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.
2-20
<PAGE>
The 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 the investment advisor do
not replace, but supplement, the services an investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor 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 investment advisor may
also consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
If the Fund is advised by EAMC, Lieber & Company, an affiliate of EAMC
and a member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions effected on
those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the 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. The investment 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 Fund, but the ideal price or trading volume may not always be achieved for
the individual Fund.
ORGANIZATION
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
the 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 NAV applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the 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 meetings of
shareholders for the
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<PAGE>
purpose of electing Trustees will be held, unless required by law (for such
reasons as electing or removing Trustees, changing fundamental policies, and
approving advisory agreements or 12b-1 plans), 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.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory Agreement")
. Under the Advisory Agreement, and subject to the supervision of the Trust's
Board of Trustees, the investment advisor furnishes to the 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 investment advisor pays for all of the
expenses incurred in connection with the provision of its services. The Fund
pays for all charges and expenses, other than those specifically referred to as
being borne by the investment 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; (5) brokerage commissions, brokers' fees and expenses; (6)
issue and transfer taxes; (7) applicable costs and expenses under the
Distribution Plan (as described below) (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 the Fund and its shares with
the SEC or under state or other securities laws; (11) expenses of preparing,
printing
2-22
<PAGE>
and mailing prospectuses, SAIs, notices, reports and proxy materials to
shareholders of the Fund; (12) expenses of shareholders' and Trustees' meetings;
(13) charges and expenses of legal counsel for the Fund and for the Independent
Trustees on matters relating to the 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 the Fund. For information on advisory fees
paid by the Fund, see "Expenses" in Part 1 of this SAI.
The 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 the
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 Agreement 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. The 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 the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, and Messrs. Scofield and Salton, each of whom is an
Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and 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.
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<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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.
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)
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,
(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 Rexham
(DOB: 8/2/39) Corporation (manufacturing); 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.
2-24
<PAGE>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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.
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BYSIS Fund Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, EAMC/First Union Bank;
former Senior Tax Consulting/Acting Manager,
Investment Companies Group,
PricewaterhouseCoopers LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
Michael H. Koonce Secretary Senior Vice President and Assistant General
(DOB: 4/20/60) Counsel, First Union Corporation; former Senior
Vice President and General Counsel, Colonial
Management Associates, Inc.
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar
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<PAGE>
among the different services. As an example, the chart below compares basic
ratings for long-term bonds. The "Credit Quality" terms in the chart are for
quick reference only. Following the chart are the specific definitions each
service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
<TABLE>
<CAPTION>
MOODY'S S&P FITCH CREDIT QUALITY
================= ================= ================ ==================================================
<S> <C> <C> <C>
Aaa AAA AAA Excellent Quality (lowest risk)
Aa AA AA Almost Excellent Quality (very low risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some risk)
Ba BB BB Questionable Quality (definite risk)
B B B Low Quality (high risk)
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
D DDD/DD/D In Default
================= ================= ================ ==================================================
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
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
edged." 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.
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 risk appear somewhat larger than the AAA securities.
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 some time in the future.
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.
BA Bonds which are rated BA are judged to have speculative elements; their
future cannot be
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<PAGE>
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.
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.
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.
CA Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated 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.
NOTE: MOODY'S APPLIES NUMERICAL MODIFIERS, 1, 2 AND 3 IN EACH GENERIC RATING
CLASSIFICATION FROM Aa TO Caa. THE MODIFIER 1 INDICATES THAT THE COMPANY RANKS
IN THE HIGHER END OF ITS GENERIC RATING CATEGORY; THE MODIFIER 2 INDICATES A
MID-RANGE RAKING AND THE MODIFIER 3 INDICATES THAT THE COMPANY RANKS IN THE
LOWER END OF ITS GENERIC RATING CATEGORY.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC AND C: AS DESCRIBED BELOW, OBLIGATIONS RATED BB, B, CCC,
CC, AND C ARE REGARDED AS HAVING SIGNIFICANT SPECULATIVE CHARACTERISTICS. BB
INDICATES THE LEAST DEGREE OF SPECULATION AND C THE HIGHEST. WHILE SUCH
OBLIGATIONS WILL LIKELY HAVE SOME QUALITY AND PROTECTIVE CHARACTERISTICS, THESE
MAY BE OUTWEIGHED BY LARGE UNCERTAINTIES OR MAJOR EXPOSURES TO ADVERSE
CONDITIONS.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to
2-27
<PAGE>
meet it financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
o On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
o Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
INVESTMENT GRADE
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
SPECULATIVE GRADE
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly
2-28
<PAGE>
as the result of adverse economic change over time; however, business or
financial alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ OR - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
PRIME-1 Issuers rated PRIME-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. PRIME-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2 Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
2-29
<PAGE>
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
o On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
o Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
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<PAGE>
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
AAA Bonds 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.
AA Bonds 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 risk appear somewhat larger than the AAA securities.
A Bonds 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 some time in the future.
BAA Bonds 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.
BA Bonds 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.
B Bonds 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.
CAA Bonds 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.
CA Bonds rated CA represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated 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.
NOTE: MOODY'S APPLIES NUMERICAL MODIFIERS 1, 2 AND 3 IN EACH GENERIC RATING
CLASSIFICATION FROM Aa TO B. THE MODIFIER 1 INDICATES THAT THE COMPANY RANKS IN
THE HIGHER END OF ITS GENERIC RATING
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<PAGE>
CATEGORY; THE MODIFIER 2 INDICATES A MID-RANGE RAKING AND THE MODIFIER 3
INDICATES THAT THE COMPANY RANKS IN THE LOWER END OF ITS GENERIC RATING
CATEGORY.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC AND C: AS DESCRIBED BELOW, OBLIGATIONS RATED BB, B, CCC,
CC, AND C ARE REGARDED AS HAVING SIGNIFICANT SPECULATIVE CHARACTERISTICS. BB
INDICATES THE LEAST DEGREE OF SPECULATION AND C THE HIGHEST. WHILE SUCH
OBLIGATIONS WILL LIKELY HAVE SOME QUALITY AND PROTECTIVE CHARACTERISTICS, THESE
MAY BE OUTWEIGHED BY LARGE UNCERTAINTIES OR MAJOR EXPOSURES TO ADVERSE
CONDITIONS.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the
addition of a plus or
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<PAGE>
minus sign to show relative standing within the major rating categories.
Fitch Municipal Long-Term Bond Ratings
INVESTMENT GRADE
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
SPECULATIVE GRADE
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ OR - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
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<PAGE>
Moody's Municipal Short-Term Issuer Ratings
PRIME-1 Issuers rated PRIME-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. PRIME-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2 Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
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<PAGE>
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including
24387
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<PAGE>
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 the Fund's prospectus, SAI or in
supplemental sales literature issued by the Fund or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
The 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.
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2-36
AMERICA'S
UTILITY FUND
NINETEEN
NINETY EIGHT
ANNUAL
REPORT
[America Utility Logo]
------------------
AMERICA'S
UTILITY FUND
------------------
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[America Utility Logo]
To our shareholders:
On behalf of all the associates at Mentor Investment Group, we would like
to take this opportunity to thank you for your investment in the America's
Utility Fund. This Annual Report reaffirms our commitment to our shareholders
and details the financial performance of these investments for the period ended
December 31, 1998.
Founded in 1970, Mentor Investment Group is an investment advisory firm
with more than $15 billion under management. We pride ourselves on a strong
heritage of providing quality service and a variety of investment choices that
help meet our shareholders' financial objectives by offering mutual funds and
separately-invested portfolios.
In the commentary that follows, Mentor's investment team presents
insightful perspectives on the markets and strategies that shaped their
investment decisions for the past fiscal year. Our investment teams operate
with these priorities:
Focus -- In most money management companies, each investment manager has
multiple responsibilities. At Mentor, our investment managers are singularly
focused on enhancing the value of their portfolios. This means that you can be
assured of a consistent, proven approach to developing a winning financial
strategy.
Opportunities -- By offering six different management styles, portfolio
diversification is simplified. By offering multiple styles, Mentor gives
investors the tools for long-term investment success through diversification
and accommodation of changing investment needs.
Service -- To help serve our shareholders, Mentor has a fully dedicated
Investor Relations Center. Our Relationship Coordinators are professionally
trained and licensed to serve clients' needs.
Technology -- Abreast of the most advanced technology and using the
latest analytical tools, our investment managers have the ability to survey the
financial markets and make informed decisions about where the best place is to
invest.
We at Mentor are honored to be a partner in the management of your
financial assets. Mentor Investment Group provides diversified investment
styles and services to over one million shareholders. We serve individuals,
corporations, endowments, foundations, public funds, and municipalities. To
learn more about Mentor, please contact your consultant or us at (800)
382-0016.
We look forward to making the Mentor formula work for you, and to a
mutually beneficial relationship.
Sincerely,
/s/ Daniel J. Ludeman /s/ Paul F. Costello
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Daniel J. Ludeman Paul F. Costello
Chairman President
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Dollar-Cost Averaging
More and more, investors are using dollar-cost averaging to avoid trying
to time investment purchases or sales.
America's Utility Fund, with its dollar-cost averaging installment
payment option, has provided shareholders with a way to turn market uncertainty
to their advantage.*
Dollar-cost averaging means you simply invest the same amount of money at
evenly spaced time periods. It doesn't matter whether the market moves up or
down while you're investing.
The chart below illustrates how dollar-cost averaging works.** Assume you
decide to invest $30 a month in a mutual fund over the next 12 months and the
fund price fluctuates.
When the price of the fund is low, you buy more shares; when the price is
high you buy fewer shares. This can potentially result in an average cost per
share that is less than the average share price.
In the illustration provided below, the average cost of shares purchased
is $10.88. Had you made a lump-sum investment in January, the cost would have
been $15 per share.
So rather than trying to figure out the best time to buy and sell, you
may want to invest on a periodic basis and avoid the highs and lows.
America's Utility Fund offers investors this option through our monthly
installment plan with a $40 per month minimum.
<TABLE>
<CAPTION>
Total
Shares Cumulative Shares Cost of
Month Share Price Purchased Purchased Investment
<S> <C> <C> <C> <C> <C>
January $ 15.00 2.0 2.0 $ 30.00
February $ 20.00 1.5 3.5 $ 60.00
March $ 15.00 2.0 5.5 $ 90.00
April $ 12.00 2.5 8.0 $ 120.00
May $ 10.00 3.0 11.0 $ 150.00
June $ 8.00 3.8 14.8 $ 180.00
July $ 10.00 3.0 17.8 $ 210.00
August $ 10.00 3.0 20.8 $ 240.00
September $ 10.00 3.0 23.8 $ 270.00
October $ 8.00 3.8 27.6 $ 300.00
November $ 10.00 3.0 30.6 $ 330.00
December $ 12.00 2.5 33.1 $ 360.00
Average Price Per Share $ 11.67
Average Dollar Cost
of Shares Purchases $ 10.88
Cost of Lump-Sum
Purchase in January $ 15.00
</TABLE>
* This method of investing involves continous investment in a security
regardless of fluctuating price levels and you should consider your financial
ability to continue purchases through periods of low price levels. It won't
assure a profit or protect you from loss in declining markets or against loss
if you stop the program when the value of your account is less than the cost of
the shares you bought.
** This hypothetical example does not represent the results of an
installment purchase in America's Utility Fund. America's Utility Fund may
perform better or worse than this example.
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Management Discussion and Analysis
by John G. Davenport, CFA and Richard L. Rice, CFA,
Portfolio Managers
Investors in medium to larger market capitalization stocks experienced
another year of outstanding returns in 1998. Your America's Utility Fund
provided a total return of 15.5% including capital appreciation and dividend
income, slightly ahead of the 14.8% return of the Standard & Poor's Utility
Index.* The broader, capitalization-weighted S&P 500 Composite** gained a
remarkable 28.6% - a record-breaking achievement as the index was up 20%+ for
four consecutive years. This return, however, is not representative of how the
average stock in the S&P index performed last year. Simply averaging returns of
the 500 individual stocks in the index produces a gain of about one-half that
of the weighted index. By comparison, smaller capitalization stocks, in
general, did not enjoy double-digit gains. In fact, the Russell 2000 index of
smaller capitalization issues actually declined 2.6%.
The widening performance disparity between the largest, most liquid stocks
and smaller capitalization issues is an unhealthy trend last observed in the
early 1970's when the "nifty fifty" phrase described the same anomaly. Valuation
levels have reached similar extremes and evidence of speculative excesses can be
easily observed, as seen in the mania surrounding internet-related stocks and
stock split announcements. How long these frenzied trading patterns can persist
is anybody's guess, but we can observe that the "nifty fifty" era of extremes
was subsequently resolved through a market "correction".
For a brief period during the third quarter of 1998 it appeared that the
broad market had entered a "corrective phase" as the S&P 500 index declined 10%
on emerging market concerns and potential repercussions of the near collapse of
a large hedge fund. (America's Utility Fund gained 2.2% during the quarter).
But the market decline was short-lived. Investors responded enthusiastically
during the fourth quarter to the Federal Reserve's eased monetary policy, lower
interest rates, continued strong economic growth and lower energy prices. The
S&P 500 soared 21.3% during the period - the second strongest quarter in sixty
years - fueled by mutual fund flows into the largest capitalization growth
stocks.
Looking Ahead. . .
In some respects we have entered the New Year in uncharted waters. The
economy's unexpected resiliency has produced the longest peacetime expansion on
record (it will enter its ninth year in April), providing the foundation for
years of phenomenal stock market gains and positive consumer attitudes. At a
time when many foreign economies are either slowing significantly or already in
recession, the U.S. has become the global engine of growth - a condition that
is inherently unsustainable. Excessive debt, which has financed over-capacity
in some emerging and developed countries, still represents a significant
impediment to smooth transactions to economic vitality and financial stability.
Meanwhile, with investors basking in economic bliss, the potential for
negative surprises could easily produce volatile market swings during the New
Year and a re-assessment of what constitutes reasonable value. America's
Utility Fund remains well-positioned in seasoned, good-quality utility and
other undervalued stocks which would benefit from a constructive shift in
investor preferences toward conservative investments.
February 1999
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*The S&P Utilities Index is one of the four broad sectors in the S&P 500
Index and includes all the utility stocks in the S&P 500 Index. It is a
market-value weighted index (stock price times shares outstanding), with each
stock affecting the Index in proportion to its market value. This Index,
calculated by Standard & Poor's, is a total return index with dividends
reinvested. Investors may not invest in an index. The S&P Utilities Index is
used as the benchmark for the performance of America's Utility Fund (AUF)
because it is identified by the investment advisor as the index that most
accurately reflects the management style and portfolio composition of AUF.
**The Standard & Poor's Index (S&P 500) is an unmanaged,
market-value-weighted index of 500 widely held domestic common stocks. An
unmanaged index does not reflect expenses and may not correspond to the
performance of a managed portfolio in which expenses are incurred. Investors
cannot invest in the S&P Index.
-The Russell 2000 is composed of the 2,000 smallest stocks in the Russell
3000 Index and represents approximately 7% of the U.S. equity market
capitalization. The Russell 3000 is composed of the 3,000 largest U.S.
companies by market capitalization and represents approximately 98% of the U.S.
market. The indexes are not adjusted for sales charges or other fees.
While the portfolio managers will endeavor to manage the fund in
accordance with the process described, there are no guarantees that they will
be successful.
This material must be preceded or accompanied by a current prospectus for
America's Utility Fund, which contains complete information regarding fees,
sales charges, and expenses. Please read it carefully before you invest or send
money.
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Average Annual Total Returns
for the Periods Ended December 31, 1998
One Year Since Inception (5/5/92)*
15.47% 12.48%
SEC current yield as of December 31, 1998 1.82%**
[graph]
<TABLE>
<CAPTION>
5/92 6/92 9/92 12/92 3/93 6/93 9/93 12/93 3/94 6/94 9/94
<S> <C>
America's
Utility Fund 10,000 10,170 10,892 11,190 12,235 12,642 13,198 12,679 11,290 10,728 11,141
S&P Utilities
Index 9,985.40 10,121.50 10,918.85 11,194.63 12,402.49 12,696.41 13,585.54 12,811.28 11,753.12 11,750.47 11,805.80
12/94 3/95 6/95 9/95 12/95 3/96 6/96 9/96 12/96 3/97
<CAPTION>
America's
Utility Fund 11,019 11,759 12,479 13,485 14,577 14,507 14,839 114,340 15,373 15,158
S&P Utilities Index 11,793.53 12,607.05 13,543.69 15,062.91 16,749.98 15,953.49 16,757.75 16,192.97 17,273.02 16,691.36
6/97 9/97 12/97 3/98 6/98 9/98 12/98
<CAPTION>
America's
Utility Fund 16,149 16,737 18,957 20,521 19,950 20,390 21,889
S&P Utilities Index 17,671.54 18,519.96 21,530.67 22,740.52 23,015.81 24,081.15 24,710.23
</TABLE>
Past performance is not indicative of future performance. Your investment
return and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than the original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
* Reflects operation of America's Utility Fund from the date of
inception 5/5/92 through 12/31/98.
** SEC current yield is calculated by dividing the net investment income
per share for the 30 days ended 12/31/98 by the offering price per
share on that date. The figure is then compounded and annualized.
*** Represents a hypothetical investment of $10,000 in America's Utility
Fund. Performance assumes the reinvestment of all dividends and
distributions.
- The S&P Utilities Index is one of four broad sectors in the S&P 500
Index and includes all the utility stocks in the S&P 500 Index. It is
a market-value weighted index (stock price times shares outstanding),
with each stock affecting the Index in proportion to its market
value. This Index, calculated by Standard & Poor's, is a total return
index with dividends reinvested. Investors may not invest in an
index. The S&P Utilities Index is used as the benchmark for the
performance of America's Utility Fund (AUF) because it is identified
by the investment advisor as the index that most accurately reflects
the management style and portfolio composition of AUF.
This material must be preceded or accompanied by a current Prospectus for
America's Utility Fund, which contains complete information regarding fees,
sales charges, and expenses. Please read it carefully before you invest or send
money.
America's Utility Fund, Inc.
Portfolio of Investments
December 31, 1998
<TABLE>
<CAPTION>
Market Value
Shares Common Stocks - 91.60% (Note 2)
- ---------- --------------------------------------- --------------
<S> <C> <C>
Public Utility - Electric - 42.69%
94,100 Allegheny Energy, Inc. $ 3,246,450
253,800 DPL, Inc. 5,488,425
78,800 Duke Energy Corporation 5,048,125
125,000 Eastern Utilities Associates Company 3,531,250
82,000 Endesa S.A. * 2,214,000
150,600 FirstEnergy Corporation 4,903,912
67,000 FPL Group, Inc. 4,128,875
73,810 Gener S.A.* 1,180,960
77,600 GPU, Inc. 3,428,950
165,700 LG&E Energy Corporation 4,691,381
90,800 New Century Energies, Inc. 4,426,500
120,600 NIPSCO Industries, Inc. 3,670,762
150,800 Northern States Power Company 4,184,700
171,400 Potomac Electric Power Company 4,509,963
89,700 SCANA Corporation 2,892,825
161,500 Southern Company 4,693,594
154,600 TECO Energy, Inc. 4,357,788
156,700 Western Resources, Inc. 5,210,275
-----------
71,808,735
-----------
Public Utility - Natural Gas - 11.26%
30,000 Consolidated Natural Gas Company 1,620,000
74,000 Enron Corporation 4,222,625
93,000 KeySpan Energy Corporation 2,883,000
78,000 NICOR, Inc. 3,295,500
170,000 Questar Corporation 3,293,750
142,710 Sempra Energy 3,621,266
-----------
18,936,141
-----------
Telecommunications - 22.09%
100,000 Ameritech Corporation 6,337,500
112,800 Bell Atlantic Corporation 6,408,450
84,000 GTE Corporation 5,664,750
66,921 MCI WorldCom, Inc. 4,801,582
124,000 SBC Communications, Inc. 6,649,500
49,600 Sprint Corporation 4,172,600
24,800 Sprint Corporation - PCS Group @ 573,500
18,916 Telefonica S.A.* 2,560,740
-----------
37,168,622
-----------
Non-Utility Securities - 15.56%
32,300 BankAmerica Corporation 1,942,037
30,000 Bemis Company, Inc. 1,138,125
15,000 Bristol-Myers Squibb Company 2,007,187
31,000 CarrAmerica Realty Corporation 744,000
43,000 Colonial Properties Trust 1,144,875
24,000 Emerson Electric Company 1,501,500
29,800 Federal National Mortgage Association 2,205,200
28,000 Highwoods Properties, Inc. 721,000
21,500 Johnson & Johnson 1,803,313
76,200 Liberty Property Trust 1,876,425
56,500 Mack-Cali Realty Corporation 1,744,437
20,300 Mobil Corporation 1,768,638
54,000 Nationwide Health Properties, Inc. 1,164,375
23,000 Realty Income Corporation 572,125
53,400 Sherwin-Williams Company 1,568,625
108,600 Sysco Corporation 2,979,713
31,200 W. W. Grainger, Inc. 1,298,700
-----------
26,180,275
-----------
Total Common Stocks
(cost $108,535,312) 154,093,773
-----------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
America's Utility Fund, Inc.
Portfolio of Investments (continued)
<TABLE>
<CAPTION>
Shares or
Principal Market Value
Amount (Note 2)
- ------------- ---------------
<S> <C> <C>
Preferred Stock - 0.31%
20,000 BankAmerica Trust (cost $500,000) $ 527,500
------------
Corporate Bonds - 4.25%
$2,000,000 Appalachian Power Company, 7.38%,
8/15/02 2,033,496
1,250,000 Duke Energy Corporation, 8.00%,
11/01/99 1,276,685
2,000,000 Texas Utilities Electric Company,
8.25%, 4/01/04 2,229,906
1,500,000 Wisconsin Public Service, 7.30%,
10/01/02 1,607,705
------------
Total Corporate Bonds
(cost $6,947,630) 7,147,792
------------
Repurchase Agreement - 3.63%
6,098,001 Goldman Sachs & Company Dated
12/31/98, 5.08%, due 1/04/99,
collateralized by $6,059,676 Federal
National Mortgage Association,
7.50%, 11/01/13, market value
$6,233,891 (cost $6,098,001) 6,098,001
------------
Total Investments - 99.79%
(cost $122,080,943) 167,867,066
Other Assets less Liabilities - 0.21% 361,461
------------
Net Assets - 100.00% $168,228,527
============
</TABLE>
* American Depository Receipt.
@ Non-income producing
Investment Transactions
Cost of purchases and proceeds from sales of securities, other than short-term
securities, aggregated $17,044,935 and $26,475,385, respectively.
Income Tax Information
At December 31, 1998, the aggregated cost of investment securities for federal
income tax purposes was $122,080,943. Net unrealized appreciation aggregated
$45,786,123, of which $47,395,191, related to appreciated investment securities
and $1,609,068, related to depreciated investment securities.
See notes to financial statements.
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<S> <C>
Assets
Investments, at market value
(cost $122,080,943) (Note 2) $ 167,867,066
Collateral for securities loaned (Note 2) 9,399,808
Receivables
Fund shares sold 21,913
Dividends and interest 532,333
-------------
Total assets 177,821,120
-------------
Liabilities
Payables
Securities loaned (Note 2) 9,399,808
Fund shares redeemed 16,941
Accrued expenses and other liabilities 175,844
-------------
Total liabilities 9,592,593
-------------
Net Assets $ 168,228,527
=============
Net Assets represented by:
Additional paid-in capital $ 121,286,074
Accumulated undistributed net investment income 5,418
Accumulated net realized gain on investment
transactions 1,150,912
Net unrealized appreciation of investments 45,786,123
-------------
Net Assets $168,228,527
=============
Net Asset Value per Share $ 31.12
=============
Shares Outstanding 5,405,255
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
America's Utility Fund, Inc.
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
Investment income
Dividends $ 5,528,460
Interest 785,187
-----------
Total investment income 6,313,647
-----------
Expenses
Administrative fee (Note 3) 619,122
Transfer agent fee 442,614
Management fee (Note 3) 401,554
Shareholder service fee (Note 3) 392,568
Shareholder reports and postage expenses 111,790
Legal fees 30,833
Custodian and accounting fees 27,903
Registration expenses 21,139
Directors' fees and expenses 4,426
Audit fees 3,824
Miscellaneous 5,082
-----------
Total expenses 2,060,855
-----------
Net investment income 4,252,792
-----------
Realized and unrealized gain on investments
Net realized gain on investments (Note 2) 7,218,482
Change in unrealized appreciation on investments 11,651,258
-----------
Net gain on investments 18,869,740
-----------
Net increase in net assets resulting from operations $23,122,532
===========
</TABLE>
See notes to financial statements.
Statements of Changes in Net Assets
For the Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net Increase in Net Assets
Operations
Net investment income $ 4,252,792 $ 4,921,978
Net realized gain on investments 7,218,482 5,451,642
Change in unrealized appreciation
on investments 11,651,258 20,063,982
------------- -------------
Increase in net assets resulting from
operations 23,122,532 30,437,602
------------- -------------
Distributions to Shareholders
From net investment income (4,247,374) (5,168,432)
From net realized gain on
investments (7,764,700) (4,139,573)
------------- -------------
Total distributions to
shareholders (12,012,074) (9,308,005)
------------- -------------
Capital Share Transactions
(Note 4)
Proceeds from sale of shares 10,490,427 12,123,469
Reinvested distributions 11,341,961 8,532,056
Shares redeemed (21,767,705) (29,147,694)
------------- -------------
Net change in net assets
resulting from capital share
transactions 64,683 (8,492,169)
------------- -------------
Total increase in net assets 11,175,141 12,637,428
Net Assets
Beginning of year 157,053,386 144,415,958
------------- -------------
End of year (including
accumulated undistributed net
investment income of $5,418
and $0, respectively) $ 168,228,527 $ 157,053,386
============= =============
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights
Year Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year $ 29.03 $ 25.07 $ 24.72 $ 19.50 $ 23.54
-------- -------- -------- -------- --------
Income from investment operations
Net investment income 0.76 0.92 0.98 0.96 0.96
Net realized and unrealized gain (loss) on investments 3.65 4.79 0.33 5.22 (4.04)
-------- -------- -------- -------- --------
Total from investment operations 4.41 5.71 1.31 6.18 (3.08)
-------- -------- -------- -------- --------
Less distributions
From net investment income (0.76) (0.96) (0.96) (0.96) (0.96)
From net realized capital gains (1.56) (0.79) - - -
--------- --------- --------- --------- --------
Total distributions (2.32) (1.75) (0.96) (0.96) (0.96)
--------- --------- --------- --------- --------
Net asset value, end of year $ 31.12 $ 29.03 $ 25.07 $ 24.72 $ 19.50
========= ========= ========= ========= ========
Total Return* 15.47% 23.31% 5.46% 32.30% (13.10%)
Ratios / Supplemental Data
Net assets, end of year (in millions) $ 168.23 $ 157.05 $ 144.42 $ 162.83 $ 125.01
Ratio of expenses to average net assets 1.31% 1.21% 1.27% 1.21% 1.21%
Ratio of expenses to average net assets excluding waiver 1.31% 1.30% 1.36% 1.34% 1.33%
Ratio of net investment income to average net assets 2.71% 3.46% 3.90% 4.40% 4.66%
Portfolio turnover rate 11.22% 26.47% 24.05% 27.77% 28.85%
</TABLE>
* Total return does not include sales commissions and is not annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
America's Utility Fund, Inc.
Notes to Financial Statements
December 31, 1998
Note 1: Organization
America's Utility Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund was organized as a Maryland corporation on January 28, 1992. On
February 14, 1992 (initial investment date), the Fund sold 500,000 shares of
common stock to Dominion Resources, Inc., for $10,000,000. The Fund commenced
sales to the public on May 5, 1992.
The Fund's investment objective is to seek current income and moderate capital
growth by investing primarily in securities issued by utility companies. The
Fund's investments in utility companies may include equity securities, (common
and preferred stocks) and debt securities.
Note 2: Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates,
any such differences are expected to be immaterial to the net assets of the
Fund.
(a) Security Valuations. Investments in securities traded on a national
securities exchange and over-the-counter securities quoted on the NASDAQ
National Market System are valued at the last reported sales price or, lacking
any sales, at the last available current bid price. Securities traded in the
over-the-counter market, other than those quoted on the NASDAQ National Market
System, are valued at the last available bid price. Short-term investments with
remaining maturities of 60 days or less are carried at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith under
procedures approved by the Board of Directors.
(b) Repurchase Agreements. It is the policy of the Fund to require that
repurchase agreement investments be fully collateralized at all times.
Procedures have been established by the Fund to monitor, on a daily basis, the
market value of each repurchase agreement's underlying securities to ensure the
existence of a proper level of collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
the Fund's advisor to be creditworthy pursuant to guidelines established by the
Fund's Board of Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the
Fund could receive less than the repurchase price on the sale of collateral
securities.
(c) Federal Income Taxes. No provision for federal income taxes has been made
since it is the Fund's policy to comply with the provisions applicable to
regulated investment companies under the Internal Revenue Code and to
distribute to its shareholders within the allowable time limit substantially
all taxable income and realized capital gains.
(d) Distributions. Distributions from net investment income are declared and
paid quarterly. Distributions of capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
(e) Dividends. Dividends to shareholders are recorded on the ex-dividend date.
Dividends from net investment income are declared and paid quarterly.
Distributions of capital gains, if any, are made annually.
(f) Security Transactions. The Fund records security transactions on the trade
date. Gains and losses on securities sold are determined on the first-in,
first-out (FIFO) method. Dividends to shareholders are recorded on the
ex-dividend date. Discounts and premiums on securities purchased are amortized
over the life of the respective securities.
(g) Investment Income. Dividend income is recognized on the ex-dividend date.
Interest income is recognized daily on an accrual basis and includes
amortization of premiums and discounts.
(h) Portfolio Securities Loaned. The Fund is authorized by the Board of
Directors to participate in securities lending transactions.
The Fund may receive fees for participating in securities lending transactions.
During the period that a security is out on loan, the Fund continues to receive
interest or dividends on the securities loaned. The Fund receives collateral in
an amount at least equal to, at all times, the fair value of the securities
loaned plus interest. When cash is received as collateral, the Fund records an
asset and obligation for the market value of that collateral. Cash received as
collateral may be reinvested, in which case that security is recorded as an
asset of the Fund. Variations in the market value of the securities loaned
occurring during the term of the loan are reflected in the value of the Fund.
At December 31, 1998, the Fund had loaned securities to brokers which were
collateralized by cash. Income from securities lending activities amounted to
$31,362 for the year ended December 31, 1998. The risks to the Fund from
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due. At December 31, 1998, the
market value of the securities on loan and the related cash collateral were
$9,182,989 and $9,399,808, respectively.
Note 3: Administrative Services Fees and Other Transactions with Affiliates
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
manager to the Fund under an Investment Advisory Agreement. Pursuant to this
Agreement, Mentor Advisors receives for its services an annual investment
management fee expressed as a percentage of the average daily net assets of the
Fund as follows: 0.75% of the first $5 million of average daily net assets,
0.50% of the next $5 million, 0.25% of the next $90 million, 0.20% of the next
$100 million, 0.15% of the next $100 million and 0.10% of the average daily net
assets in excess of $300 million. Mentor Advisors is a wholly owned subsidiary
of Mentor Investment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Group, LLC, ("Mentor") which is in turn a partially owned subsidiary of Wheat
First Union. EVEREN Capital Corporation owns 20% of the outstanding interest in
Mentor.
Mentor provides administrative personnel and services to the Fund under an
Administrative Services Agreement. Pursuant to the Agreement, the Fund pays
Mentor a fee at the annual rate of 0.65% of the Fund's average daily net
assets, less the amount of any management fees paid to Mentor Advisors pursuant
to the Investment Advisory Agreement.
The Fund entered into a Shareholder Services Agreement with Mentor, pursuant to
which Mentor, itself, through other financial institutions, provides
shareholder support services to the Fund and its shareholders. The Fund paid
fees to Mentor under that agreement at an annual rate of 0.25% of the Fund's
average daily net assets.
Note 4: Capital Share Transactions
As of December 31, 1998 there were 500,000,000 shares of $0.0001 par value
capital stock authorized. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------ ---------------
<S> <C> <C>
Shares sold 350,374 468,044
Shares issued upon reinvestment
of dividends 369,078 310,707
Shares redeemed (724,206) (1,129,220)
-------- ----------
(4,754) (350,469)
======== ==========
</TABLE>
Year 2000 (unaudited)
The Fund receives services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after the
Year 1999 because of the inability of computer software to distinguish the Year
2000 from the Year 1900. Mentor Advisors is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. There can be no assurance, however, that these
steps will be sufficient to avoid any adverse impact on the Fund from this
problem.
Federal Tax Status of Dividends Declared (unaudited)
Of the ordinary income distributions paid during the year ended December 31,
1998, the Fund is designating 100% as eligible for the dividends-received
exclusion for corporations. Long-term capital gain dividends paid during the
period are presented below. For federal income tax purposes, dividends from
short-term capital gains are classified as ordinary income. All net investment
income dividends were ordinary income. The percentage of qualifying dividends
eligible for the corporate dividends received deduction are also listed below.
<TABLE>
<S> <C>
Total Long-Term Qualifying Dividends
Capital Gain Dividends $4,952,065 100%
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
America's Utility Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
America's Utility Fund, Inc., including the portfolio of investments, as of
December 31, 1998, and the related statements of operations for the year then
ended, changes in net assets and financial highlights for each of the years in
the two-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the years in the
three-year period ended December 31, 1996 were audited by other auditors whose
report dated February 4, 1997 expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. 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 America's Utility Fund, Inc. as of December 31, 1998, the results
of its operations, changes in its net assets and financial highlights for the
periods specified in the first paragraph above, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
February 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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>
Semiannual Report
as of January 31, 1999
Evergreen
Growth and Income Funds
[EVERGREEN LOGO Evergreen Funds(SM)
APPEARS HERE] SINCE 1932
<PAGE>
Table of Contents
Letter to Shareholders.............................. 1
For Your Information................................ 2
Evergreen Blue Chip Fund
Fund at a Glance................................... 3
Portfolio Manager Interview........................ 4
Evergreen Equity Income Fund
(formerly Evergreen Fund for Total Return)
Fund at a Glance................................... 7
Portfolio Manager Interview........................ 8
Evergreen Growth and Income Fund
Fund at a Glance................................... 11
Portfolio Manager Interview........................ 12
Evergreen Income and Growth Fund
Fund at a Glance................................... 15
Portfolio Manager Interview........................ 16
Evergreen Small Cap Value Fund
(formerly Evergreen Small Cap Equity Income Fund)
Fund at a Glance................................... 19
Portfolio Manager Interview........................ 20
Evergreen Utility Fund
Fund at a Glance................................... 23
Portfolio Manager Interview........................ 24
Evergreen Value Fund
Fund at a Glance................................... 26
Portfolio Manager Interview........................ 27
Financial Highlights
Evergreen Blue Chip Fund........................... 30
Evergreen Equity Income Fund....................... 32
Evergreen Growth and Income Fund................... 34
Evergreen Income and Growth Fund................... 36
Evergreen Small Cap Value Fund..................... 38
Evergreen Utility Fund............................. 40
Evergreen Value Fund 42
Schedule of Investments
Evergreen Blue Chip Fund........................... 44
Evergreen Equity Income Fund....................... 46
Evergreen Growth and Income Fund................... 48
Evergreen Income and Growth Fund................... 53
Evergreen Small Cap Value Fund..................... 56
Evergreen Utility Fund............................. 59
Evergreen Value Fund............................... 61
Statements of Assets and Liabilities................ 63
Statements of Operations............................ 64
Statements of Changes in Net Assets................. 65
Combined Notes to Financial Statements.............. 68
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies with
over $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
----------------------
March 1999
Dear Shareholders:
[PHOTO OF WILLIAM M. ENNIS
MANAGING DIRECTOR
APPEARS HERE]
We are pleased to provide you the Evergreen Growth and Income Funds semiannual
report covering the six months ended January 31, 1999.
As we move ahead into 1999, we feel very positive about the overall economy. For
nearly the past seven years, it has sustained a low inflation level along with
low unemployment and solid economic growth. While we acknowledge the increased
volatility we saw emerge in mid-1998 will certainly be present in 1999, we are
still optimistic about the economy. We strongly recommend the value of having a
financial representative who can help you manage your investments and ensure
they match your long-term goals.
Evergreen Web site Enhancements
We've expanded and redesigned our Web site to provide you with quick and easy
access to the information that matters most to you. Come visit us at
www.evergreen-funds.com and experience for yourself the many enhancements and
user-friendly features we've added. You can learn more about Evergreen's history
and investment philosophy, access expanded fund profiles and performance data--
including daily net asset values (NAVs)--or visit the Investor Education section
to gain new insights and knowledge to help you make more informed investment
decisions.
Introduction of the Euro
On January 1, 1999, eleven European countries adopted the euro as their
currency. Currently, the wholesale markets and government and financial sectors
have converted to the euro, and new securities will be issued in euro
denomination only. Full conversion to the new currency will not be completed
until 2002.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
As always, if you have any questions about the funds in this report or any other
Evergreen Funds, please contact your financial representative or call us at
800.343.2898, and we will be happy to assist you.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
For Your Information
--------------------
New Evergreen Funds
Evergreen introduces three new funds:
Evergreen Tax Strategic Equity Fund: seeks to maximize the after-tax total
return on its portfolio of investments by using a combination of stock selection
strategies and trading techniques.
Evergreen Select Equity Index Fund: seeks investment results that achieve price
and yield performance similar to the S&P 500 Index.
Evergreen Masters Fund: blends growth and value, large- and mid-cap stocks into
one convenient portfolio. Diversification is taken one step further by employing
four management teams, Evergreen, MFS, Oppenheimer and Putnam.
Talk to your financial representative or call us at 800.343.2898 for a
prospectus and more information.
Fund Name Changes--Effective April 6, 1999
Evergreen Fund for Total Return is changing its name to Evergreen Equity Income
Fund to better reflect its investment objective. The Fund's primary objective
will change from "to seek total return from a combination of capital growth and
income" to "to seek primarily current income and secondarily capital growth."
The Fund's investment policy will change to ensure that at least 65% of assets
are in dividend-paying equity securities. Formerly, the prospectus required 65%
of assets be invested in equity securities. This will help ensure the Fund will
meet its primary investment objective of income.
Evergreen Small Cap Equity Income Fund is changing its name to Evergreen Small
Cap Value Fund which means that the Fund will de-emphasize income-producing
securities and broaden its investment universe to enable it to focus on capital
growth.
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
Year 2000/1/
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. Although Evergreen Funds is striving to
identify and correct every issue under our control related to the Year 2000, it
would be impossible to guarantee a problem-free transition into the next
millennium. Our goal, however, is that our shareholders experience virtually no
impact on the products and services we deliver.
Visit us at
www.evergreen-funds.com
You may have noticed our recent reconstruction on our web site. We have
redesigned the site to make it easier to use, as well as added more fund
information. We invite you to check it out and we welcome any feedback.
/1/ The information above constitutes Year 2000 readiness disclosure.
2
<PAGE>
E V E R G R E E N
Blue Chip Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
-------------------------
[PHOTO OF JUDITH A. WARNERS APPEARS HERE]
Judith A. Warners
Tenure: January 1995
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
1/31/99.
[MORNINGSTAR'S
STYLE BOX The Equity Style Box placement is based on a fund's price-to-
APPEARS HERE] 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.
/2/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. Historical performance for Classes A and C prior to
inception reflects that of Class B, the original class offered, the inception
date of which is 9/11/35, and has been adjusted for appropriate 12b-1 fees for
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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 9/11/35 Class A Class B Class C
Class Inception Date 1/20/98 9/11/35 1/22/98
................................................................................
Average Annual Returns*
................................................................................
6 months with sales charge 7.22% 7.01% 11.09%
................................................................................
6 months w/o sales charge 12.58% 12.01% 12.09%
................................................................................
1 year with sales charge 17.97% 17.74% 21.99%
................................................................................
1 year w/o sales charge 23.84% 22.74% 22.99%
................................................................................
3 years 22.08% 22.76% 23.22%
................................................................................
5 years 20.42% 18.31% 18.39%
................................................................................
10 years 14.61% 14.33% 14.23%
................................................................................
Since Inception 9.29% 9.17% 9.14%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
30-day SEC Yield 0.10% -0.62% -0.62%
................................................................................
6-month income distributions per share $0.03 -- --
................................................................................
6-month capital gain distributions per share $2.38 $2.38 $2.38
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Evergreen Blue Chip S&P 500 Consumer Price Index - US
---- ------------------- ------- -------------------------
1/31/89 $ 10,000 $ 10,000 $ 10,000
12/31/90 $ 11,465 $ 11,889 $ 11,049
12/31/92 $ 14,779 $ 16,693 $ 11,714
12/31/94 $ 15,271 $ 18,618 $ 12,362
12/31/96 $ 24,388 $ 31,496 $ 13,097
1/31/99 $ 39,229 $ 56,220 $ 13,526
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).
3
<PAGE>
E V E R G R E E N
Blue Chip Fund
Portfolio Manager Interview
How did the Fund perform during the six-month period?
The Fund did well against mutual funds with similar objectives, while trailing
the overall market, as reflected by the Standard & Poor's 500 Index. For the six
months ended January 31, 1999, the Fund's Class A shares had a total return of
12.58%, while Class B shares had a return of 12.01% and Class C shares returned
12.09%. These returns are unadjusted for any applicable sales charges. During
the same period, the average growth and income fund had a return of 7.88%,
according to Lipper Inc., an independent monitor of mutual fund performance,
while the S&P 500 had a return of 15.02%.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $481,408,984
................................................................................
Number of Holdings 101
................................................................................
P/E Ratio* 32.9x
................................................................................
Beta* 1.04
................................................................................
*as of 12/31/98
What was the investment environment like during the six months?
It began with a great deal of turmoil following the Russian government's default
of part of its external debt in early August, an event that reverberated
throughout the world's financial markets, causing a liquidity crisis. This
volatility pulled down every emerging market as well as the U.S. stock market.
To illustrate, the Standard & Poor's 500 Index, an index of large company stocks
in the United States, fell by 14.4% from August 1 through October 8, 1998. It
was then that the U.S. Federal Reserve started lowering short-term interest
rates to restore liquidity to the markets. The Federal Reserve cut rates three
successive times in October and November, encouraging confidence among
investors. From October 8 through the end of the fiscal period on January 31,
1999, the S&P 500 rose by 33.4%. In the August through October 8 decline, the
biggest losers were the financial stocks, while in the October 8 through January
31 rally, the biggest gainers were technology stocks. Throughout the period,
energy stocks suffered, as global deflation undermined the prices of
commodities, including oil.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Information Services & Technology 17.6%
................................................................................
Healthcare Products & Services 15.3%
................................................................................
Retailing & Wholesale 8.5%
................................................................................
Printing, Publishing, Broadcasting & Entertainment 6.6%
................................................................................
Banks 6.2%
................................................................................
4
<PAGE>
E V E R G R E E N
Blue Chip Fund
Portfolio Manager Interview
Within this changing environment, what strategies did you pursue?
Early in the period, we continued lightening our holdings in the finance sector,
a strategy we began in July when Federal Reserve Board Chairman Alan Greenspan
started sending out conflicting signals about the direction of interest rates.
We believed financial service stocks might have peaked. This helped the Fund's
performance, because we had reduced our exposure before the market started
sliding. Within finance, we continued to focus on money center banks, super-
regional banks and insurance companies. Two core holdings throughout the period
were Associates First Capital, a consumer lending company, and American
International Group, an insurance company. Both were strong performers. The
Fund's emphasis on finance stocks declined during the period from about 19.5% of
net assets on August 1 to about 11% on January 31.
We also lightened our emphasis on healthcare companies somewhat during the fall.
We saw some disappointments in the sales of new drugs and we felt the stock
prices of some pharmaceutical prices may have become excessive. This industry,
however, remains an area of emphasis, at 15.3% of net assets on January 31,
because of its long-term outlook. This is a good example of our strategy of
alternately increasing and decreasing our commitment to an area, depending on
whether we see relative value in the stocks.
We added to our technology holdings, which rose from 12.8% of net assets at the
start of the period to about 22% on January 31. We emphasized the large, high-
quality names like IBM, Microsoft, Intel, Compaq Computer, Gateway 2000, Hewlett
Packard, Motorola, Cisco Systems and EMC. We also added several technology
companies, including America Online and Sun Microsystems.
We also added to our consumer staples holdings with companies, such as Gillette
and Proctor & Gamble, trading at what we believe to be attractive values after
the stock prices fell following the announcement of earnings disappointments.
This industry rose from 11.7% of the Fund's net assets to about 15% at the end
of the period.
We also added several retailers and automobile companies during the six months.
Two retailers that were very good performers were Safeway and CVS.
The most noteworthy area of de-emphasis was in energy, where our weighting was
cut in half, from about 8% to about 4% of net assets.
We started the six-month period with a relatively high cash position of about
13.3%, which helped protect the Fund during the market slide early in the
period. As we found buying opportunities, we put the money to work. At the end
of the period, the Fund's cash position had declined to about 5% of net assets.
In all areas, we continued to emphasize large, high-quality, multi-national
companies. In fact, we had a greater emphasis on the very big companies at the
end of the period than we did at the beginning of the period.
5
<PAGE>
E V E R G R E E N
Blue Chip Fund
Portfolio Manager Interview
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
Microsoft Corp. 4.2%
................................................................................
General Electric Co. 3.6%
................................................................................
Merck & Co., Inc. 2.2%
................................................................................
International Business Machines Corp. 2.0%
................................................................................
Intel Corp. 1.9%
................................................................................
American Home Products Corp. 1.8%
................................................................................
Wal-Mart Stores, Inc. 1.8%
................................................................................
Time Warner, Inc. 1.7%
................................................................................
Tyco International Ltd. 1.6%
................................................................................
Medtronic, Inc. 1.6%
................................................................................
What areas were the biggest contributors to performance?
The technology stocks were very strong factors in the performance. The best
performers during the period included America Online, Microsoft, Intel, EMC, Sun
Microsystems and Ascend Communications. Ascend was helped by the announcement it
will be acquired by Lucent Technologies.
Telephone and telecommunications stocks also helped performance. Contributors
included AT&T, MCI WorldCom, U.S. West and TCI Group, which is the subject of a
pending takeover by AT&T.
What is your outlook?
We don't think the volatility will end. We expect to continue to emphasize
large-capitalization global leaders. Many companies with dominant positions in
their markets and strong pricing power have been able to sustain their strong
stock performance, even in the face of some expectations that earnings will
slow. We will be sticking to our fundamental analysis, looking for companies
that demonstrate they can execute their strategies and can manage their
businesses in a period of volatility. We also will tend to be opportunistic when
out-of-favor companies show evidence that they can improve their earnings. This
happened during the period with technology companies, which were coming out of a
depressed earnings situation in early 1998 and showed good growth potential. On
the margin, we may begin to take some profits from our technology holdings and
add to our positions in basic industries, where we see some interesting values
among companies with the potential to increase their earnings at a healthy rate.
We also may increase our weightings in consumer goods companies with depressed
stock valuations.
We expect the Fund will continue to find opportunities among world market
leaders and among firms that dominate their specific market niches.
6
<PAGE>
E V E R G R E E N
Equity Income Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
----------------
[PHOTO OF HARLAN R. SONDERLING APPEARS HERE]
Harlan R. Sonderling,
CPA, CFA
Tenure: June 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] 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.
/2/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. Historical performance for Classes B, C, and Y prior to
inception reflects that of Class A, the original class offered, the inception
date of which is 4/14/87, and includes appropriate 12b-1 fees for Class A. If
appropriate fees for Classes B and C were reflected, returns for these classes
would have been lower. For Class Y, if 12b-1 fees were not reflected, returns
would have been higher. Returns reflect expense limits previously in effect,
without which returns would have been lower.
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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 4/14/87 Class A Class B Class C Class Y
Class Inception Date 4/14/87 2/1/93 2/1/93 1/13/97
................................................................................
Average Annual Returns
................................................................................
6 months with sales charge -2.39% -2.36% 1.19% n/a
................................................................................
6 months w/o sales charge 2.47% 2.08% 2.08% 2.56%
................................................................................
1 year with sales charge 7.27% 6.91% 10.78% n/a
................................................................................
1 year w/o sales charge 12.64% 11.77% 11.76% 12.84%
................................................................................
3 years 18.44% 18.69% 19.41% 20.43%
................................................................................
5 years 15.07% 15.06% 15.28% 16.22%
................................................................................
10 years 13.86% 13.87% 13.88% 14.43%
................................................................................
Since Inception 12.48% 12.49% 12.50% 12.96%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 1.07% 0.38% 0.39% 1.37%
................................................................................
6-month income dividends per share $0.12 $0.06 $0.06 $0.15
................................................................................
6-month capital gain dividends
per share $2.74 $2.74 $2.74 $2.74
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Evergreen Equity Income S&P 500 Consumer Price Index - US
---- ----------------------- ------- -------------------------
1/31/89 $ 10,000 $ 10,000 $ 10,000
12/31/90 $ 11,718 $ 11,889 $ 11,049
12/31/92 $ 15,361 $ 16,693 $ 11,714
12/31/94 $ 16,640 $ 18,618 $ 12,362
12/31/96 $ 27,368 $ 31,496 $ 13,097
1/31/99 $ 38,441 $ 56,220 $ 13,526
Comparison of change in value of a $10,000 investment in Evergreen Equity Income
Fund Class A, the Standard and Poor's 500 Index (S&P 500) and the Consumer Price
Index (CPI).
7
<PAGE>
E V E R G R E E N
Equity Income Fund
Portfolio Manager Interview
How did the Evergreen Equity Income Fund (formerly Evergreen Fund for Total
Return) perform?
The Fund's performance lagged its peer group for the six months of this period,
although it remained above the median for the past 12 months. For the six months
ended January 31, 1999, the Fund's Class A shares had a total return of 2.47%.
During the same six months, Class B and Class C shares each had a return of
2.08% and Class Y shares had a return of 2.56%. These returns are unadjusted for
any applicable sales charges. During the same six months, the median return of
equity income funds was 4.58%, according to Lipper Inc., an independent monitor
of mutual fund performance.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $163,036,522
................................................................................
Number of Holdings 63
................................................................................
P/E Ratio* 32.9x
................................................................................
Beta* 0.90
................................................................................
*as of 12/31/98
What factors affected performance?
The Fund's performance was held back by its emphasis on dividend-paying, value
stocks across a range of market capitalizations during a time when the stock
market was rewarding high-growth, highly valued, large-capitalization companies.
In the past six months, performance suffered from over-weightings in financial
services companies, which were hit very hard in the market decline of the third
calendar quarter of 1998, and from holdings in real estate investment trusts and
utilities. The Fund held both types of securities because of their historical
above-average yields and prospects for modest dividend growth.
Financial services company stocks performed poorly in the third quarter. The
devaluation and default in Russia, combined with problems in Latin America and
Asia, put great pressure on financial stocks, contributing to investors' worries
that loan quality would deteriorate if the problems of emerging markets were to
spread and slow down global economic growth. These stocks did not fully
participate in the fourth calendar quarter's market surge, which was led by
technology stocks and large-company growth stocks. Because of the Fund's
conservative, value orientation, it tends not to emphasize technology and growth
stocks.
Yield-oriented investments, such as real estate investment trusts, utilities and
energy, underperformed during the fourth quarter rally. In general, the six-
month period did not favor value- or yield-oriented investments.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Banks 12.5%
................................................................................
Finance & Insurance 10.9%
................................................................................
Healthcare Products & Services 8.7%
................................................................................
Utilities--Electric 7.9%
................................................................................
Utilities--Telephone 7.2%
................................................................................
8
<PAGE>
E V E R G R E E N
Equity Income Fund
Portfolio Manager Interview
What were your primary strategies during the six months?
We emphasized our long-term strategy of investing in value-oriented, dividend-
paying common stocks. This led us to emphasize financial services, utilities,
capital goods, healthcare, and real estate investment trusts. We also continued
to underweight technology and consumer staples. We de-emphasized technology
stocks because of their relatively high valuations and poor dividend yields. We
tended to avoid consumer staples--companies that produce consumer goods--because
of their deteriorating earnings growth outlooks.
The largest weighting, at about 23% of net assets on January 31, 1999, was in
financial services. We were attracted by a combination of earnings growth,
attractive stock valuations, and healthy dividend yields. Fleet Financial, a New
England-based regional banking company, is a good example of our investments.
This is a well-capitalized bank that continues to increase both its earnings and
dividends. It has a sound growth strategy and a strong competitive position.
Electric utilities may offer the Fund sustainable dividend yields as well as
defensive price protection if economic growth were to slow. A good example of a
strong utility is the Southern Company. It offers a healthy earnings record, a
modestly growing dividend and attractive, long-term prospects in its core
Southeastern markets.
We also have invested in real estate investment trusts (REITs) because of their
attractive dividends.
Healthcare, more precisely pharmaceutical companies, accounted for more than 8%
of net assets on January 31. We were attracted to this industry because of its
historical consistent earnings growth and its underlying fundamental strength.
One of the Fund's core holdings is Merck, the nation's largest pharmaceutical
company. Rising sales, including strong unit growth in a period of fairly stable
pricing, has helped sustain its earnings growth.
We recently have added to our energy position to take advantage of the extremely
low stock prices. We believe energy stocks already discounted a very poor
outlook for energy prices and so may offer growth potential when the environment
changes. One of our major energy holdings is Texaco, which offers a high and
safe dividend. In an era of industry consolidation, Texaco also remains a
potentially valuable acquisition candidate. Energy stocks accounted for 6.2% of
net assets on January 31.
We also have recently added to our holdings among both long-distance and
regional Bell telephone companies. Their appeal included strong business growth
and the prospect of new business opportunities in an era of deregulation.
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
Tyco International Ltd. 3.3%
................................................................................
General Electric Co. 2.6%
................................................................................
Merck & Co., Inc. 2.6%
................................................................................
Costco Companies, Inc. 2.5%
................................................................................
Greenpoint Financial Corp. 2.5%
................................................................................
Fleet Financial Group, Inc. 2.2%
................................................................................
Philip Morris Companies, Inc. 2.2%
................................................................................
U.S. West, Inc. 2.2%
................................................................................
BankAmerica Corp. 2.1%
................................................................................
EMC Corp. 2.0%
................................................................................
9
<PAGE>
E V E R G R E E N
Equity Income Fund
Portfolio Manager Interview
What are some other examples of companies in which you have invested?
General Motors is a company we like. GM may be poised to exceed Wall Street's
earnings expectation because of rising operating income margins and recovery of
lost market share.
Another example is Tyco International, a manufacturing conglomerate. While its
dividend yield is lower than those of many of our other investments, this
company continues to post better earnings than expected, driven by both revenue
growth and cost reductions in acquired companies.
While we have tended to de-emphasize technology, EMC has remained a core
technology holding in the Fund, despite the fact it pays no dividends. This
company has achieved consistent earnings growth because of strong demand for its
data storage products.
What is your outlook?
By historical measures, stock valuations are high in terms of earnings
multiples, dividend yields and book value. Inflation and interest rates remain
low however, and productivity gains in industry suggest that corporations
continue to offer the opportunity for long-term growth of both income and
capital. Historically, investors have been willing to pay more for future
earnings when interest rates are low, as they are now.
The U.S. economy keeps growing, and it appears unlikely to falter in its growth
despite international turmoil and some political uncertainty. The confidence of
the American consumer remains high, and corporate management has become adept at
controlling costs by managing inventories and production capacity.
In this environment, we believe our value-oriented and dividend-paying stocks
will do well. We think we will continue to find opportunities, keeping in mind
that dividends are a critical component of investing for total return.
Please note the Fund's name change:
Effective April 6, 1999, Evergreen Fund for Total Return will be re-named the
Evergreen Equity Income Fund. The Fund's primary objective will change from "to
seek total return from a combination of capital growth and income" to "to seek
primarily current income and secondarily capital growth." The Fund's investment
policy will change to ensure that at least 65% of assets are in dividend-paying
equity securities. Formerly, the prospectus required 65% of assets be invested
in equity securities. This will help ensure the Fund will meet its primary
investment objective of income.
10
<PAGE>
E V E R G R E E N
Growth and Income Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
--------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: July 1997 - January 1999
[PHOTO OF PHILIP M. FOREMAN APPEARS HERE]
Philip M. Foreman
Tenure: January 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] 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.
/2/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. Historical performance for Classes A, B, and C prior
to inception reflects that of Class Y, the original class offered, the inception
date of which is 10/15/86, and does not reflect 12b-1 fees. If such fees were
reflected, returns would have been lower. Returns reflect expense limits
previously in effect, without which returns would have been lower.
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
Mid-Cap 400 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 10/15/86 Class A Class B Class C Class Y
Class Inception Date 1/3/95 1/3/95 1/3/95 10/15/86
................................................................................
Average Annual Returns*
................................................................................
6 months with sales charge -4.24% -4.70% -0.77% n/a
................................................................................
6 months w/o sales charge 0.53% 0.17% 0.20% 0.67%
................................................................................
1 year with sales charge -0.12% -0.90% 3.13% n/a
................................................................................
1 year w/o sales charge 4.87% 4.10% 4.13% 5.14%
................................................................................
3 years 15.87% 16.15% 16.90% 18.07%
................................................................................
5 years 15.95% 16.18% 16.42% 17.32%
................................................................................
10 years 14.88% 15.10% 15.12% 15.56%
................................................................................
Since Inception 14.10% 14.29% 14.30% 14.65%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 0.25% -0.48% -0.48% 0.51%
................................................................................
6-month income dividends
per share $0.06 -- -- $0.09
................................................................................
6-month capital gain distributions
per share $0.78 $0.78 $0.78 $0.78
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Evergreen
Date GROWTH & INCOME FUND S&P 400 Consumer Price Index - US
---- -------------------- ------- -------------------------
1/31/95 $ 10,000 $ 10,000 $ 10,000
12/31/95 $ 13,078 $ 12,959 $ 10,206
12/31/96 $ 16,153 $ 15,448 $ 10,552
12/31/97 $ 21,148 $ 20,430 $ 10,732
1/31/99 $ 21,920 $ 23,387 $ 10,898
Comparison of change in value of a $10,000 investment in Evergreen Growth and
Income Fund Class A, the Standard and Poor's 400 Mid-Cap Index (S&P 400) and the
Consumer Price Index (CPI).
11
<PAGE>
E V E R G R E E N
Growth and Income Fund
Portfolio Manager Interview
How did the Evergreen Growth and Income Fund perform during the last six months?
In the first half of the 1999 fiscal year, the period ended January 31, 1999,
the Fund's Class Y shares showed a gain of 0.67%. Classes A, B, and C returned
0.53%, 0.17%, and 0.20%, respectively, unadjusted for applicable sales charges.
This compared with a gain of 9.6% by the Standard & Poor's 400, a mid-cap index.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $2,069,644,958
................................................................................
Number of Holdings 294
................................................................................
P/E Ratio* 18.8x
................................................................................
Beta* 0.92
................................................................................
*as of 12/31/98
How did the overall market and economic environment impact the Fund's
investments and performance?
The Fund's comparatively heavy weighting in banks and other financial stocks, as
well as in energy-related issues, had a significantly negative impact on overall
performance. These were offset by excellent performance in communication
systems, electronic equipment and information technology. The Fund has had a
highly rewarding, long-term emphasis in all of these sectors, but the changed
economic and subsequent market environment in the third and fourth quarters
emphasized uncertainties in the financial and energy sectors of the investment
market.
The Fund started the fiscal year with a comparatively large cash equivalent
reserve position, did this help or hinder performance?
The cash equivalent reserve position definitely helped the Fund's performance
during this period to establish new and increased positions, which, we believe,
will prove highly rewarding over the longer term. On August 1, 1998, the Fund
had a cash equivalent position of 18.3% of net assets, and by January 31, 1999,
that position was down to 7.7%. We built this cash position in anticipation of a
highly volatile market, expecting opportunities to buy comparatively undervalued
growth stocks, following the Fund's long-term "value-timing" strategy.
The substantial and aggressive purchasing during the market sell-off has proven
highly rewarding. For example, the Fund's purchase of 120,000 shares of Sanmina
Corp. at $24 1/2 early in September provided a 168.3% gain by January 31, 1999,
as the shares rose to $66 1/4. Other purchases with gains of between 50% and
100% included shares of Lowe's Companies, Inc., Carnival Corp., Harley-Davidson,
Inc., Scientific Atlanta Inc., Home Depot, Inc. , Perkin-Elmer Corp., Gucci
Group N.V., Southwest Airlines Co., Tommy Hilfiger Corp., AFLAC, Inc., and Saks,
Inc. Significantly, these sizable gains came from a highly diverse group of
companies in which the Fund earlier held positions, and from others which are
new positions.
While the financial group was under pressure, we took advantage of this weakness
to make some highly rewarding purchases. Examples include new positions in
Household International, Inc., which has risen 40.2% since the October 8th
purchase; and MBIA Inc., up 30.7%; additions to the position of State Street
Corp., up 39.3%; BankAmerica Corp., up 38.6%; Citigroup, Inc., up 19.6%; and the
aforementioned AFLAC, Inc.,
12
<PAGE>
E V E R G R E E N
Growth and Income Fund
Portfolio Manager Interview
which was up 52.1%. A major new holding was established in Mellon Bank Corp.
with purchases made throughout the period. The only financial issue purchased
with a significant decline were the shares of MGIC Investment Corp., which were
down 12.3% from a purchase in August, reflecting possible legislative changes in
the mortgage insurance business.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Banks 10.5%
................................................................................
Healthcare Products & Services 10.3%
................................................................................
Finance & Insurance 9.1%
................................................................................
Industrial Specialty Products & Services 6.1%
................................................................................
Printing, Publishing, Broadcasting & Entertainment 5.5%
................................................................................
Many issues had dramatic recoveries during the six months. Which were the Fund's
top performers?
The top performers were in electronic technology and communications. The leader
was Jabil Circuit, Inc., up 105.3%; followed by KLA-Tencor Corp., up 94.5%;
Cisco Systems, Inc., up 78.1%; Intel Corp., up 66.7%; AirTouch Communications,
Inc., up 64.2%; MCI WorldCom, Inc., up 52.4%; Lowe's Companies, Inc., up 51.7%;
and AT&T Corp., up 49.6%.
How did mergers and acquisitions help the Fund?
Mergers and acquisitions again demonstrated that the Fund held many issues which
other companies considered undervalued and attractive for acquisition. Eleven
companies in the portfolio were either acquired, merged, or received offers
which are now pending, with an average gain of 77.2% on the completed
acquisitions. The largest gain was in the shares of Crestar Financial Corp.
(acquired by Sun Trust Banks, Inc.), providing a 247.9% gain since purchased in
September, 1996. Another regional bank acquired was Firstar Corp. (acquired by
Star Banc Corp.), with a 42.3% gain just seven months after its purchase for the
Fund. A lesser known holding, Dominick's Supermarkets, Inc., was purchased by
Safeway Inc., with a gain of 159.3% for the Fund in a one-year holding period.
AirTouch Communications, Inc. has received an acquisition bid from Vodafone
Group Plc, which will provide a 290.1% gain upon completion since our original
purchase in May, 1992, and MCI Communications Corp. was acquired by WorldCom,
Inc., with a 138.0% gain in three and a half years. Still pending is the
acquisition of Jacor Communications, Inc. by Clear Channel Communications, Inc.,
with a projected gain of 159.3% as of January 31, 1999. Other holdings which
were acquired or had offers included: Mercantile Stores Co., Inc., Camco
International, Inc., Life Re Corp., Commonwealth Energy System, and UNUM Corp.
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
Time Warner, Inc. 1.5%
................................................................................
Webster Financial Corp. 1.5%
................................................................................
Kansas City Southern Industries, Inc. 1.4%
................................................................................
Policy Management Systems Corp. 1.2%
................................................................................
Federal National Mortgage Association 1.2%
................................................................................
Jacor Communications, Inc. 1.2%
................................................................................
McKesson HBOC, Inc. 1.2%
................................................................................
Mellon Bank Corp. 1.1%
................................................................................
Lincare Holdings, Inc. 1.1%
................................................................................
Union Pacific Corp. 1.0%
................................................................................
13
<PAGE>
E V E R G R E E N
Growth and Income Fund
Portfolio Manager Interview
What is the outlook for the weaker-performing sectors and companies in the Fund?
The weakest-performing sector in the Fund during the six months was related to
energy, with the Fund's oil field services stocks down 42.8%, and oil production
issues down 24.8%. The oil and gas business is clearly in its own recession;
crude oil prices have fallen from just under $20 per barrel at the beginning of
1998, to about $11 per barrel in early 1999. This price weakness is largely
attributed to declines in demand stemming from the broad-based Asian recession,
together with sustained production from exporting nations under pressure to earn
dollars. In the U.S., the situation is further aggravated by mild weather
conditions, bringing less than normal consumption and, thus, increased
inventories. Our expectation is that oil prices will only gradually recover in
line with improved economies in Asia and Europe, bringing demand back to trend
line. This situation will sustain economic pressure on all facets of the
industry, and will bring increased pressure for efficiencies to be gained
through mergers. With what we believe to be a number of severely undervalued
companies in the portfolio (based on previous and projected earning power and
assets), we believe that some reasonable degree of recovery can be expected for
these holdings.
The financial holdings of the Fund, especially its bank position, appear to us
to offer sound opportunities for growth, and will benefit from the industry's
continuing trend toward consolidation. Even during the weakness last fall, we
still saw merger and acquisition opportunities in the Fund's holdings including:
Citicorp (now Citigroup, Inc.), Firstar Corp., and Crestar Financial Corp. The
Fund is carefully positioned in shares of a number of bank holding companies,
most of which have strong regional or specialty franchises. We anticipate that
their growth and financial strength, at well below typical market valuations,
will provide continuing opportunities for sizable capital appreciation. Finance
and insurance holdings, which range from AFLAC, Inc. to UNUM Corp., should
benefit by similar forces. New names added to the group during the six months
included: Household International, Inc., MBIA Inc., and Progressive Corp. In
each case, our purchases were made during periods of market weakness.
What is the Fund's strategy for the second half of fiscal 1999?
The Fund's strategy will be to concentrate intensely on undervalued growth
opportunities. We have appointed a new portfolio manager for the Fund, Philip M.
Foreman. Mr. Foreman has demonstrated, through his last several years as manager
of the W-M Growth & Income Fund, a highly successful utilization of strategies
very similar to the "value-timing" strategies of this Fund. He has already
initiated increasing the concentration in a number of the Fund's very successful
holdings, and adding new ones characterized by consecutive years of earnings
growth, well-defined management strategies in place, and, yet, current
opportunities to buy these shares at below normal valuation. With Mr. Foreman's
leadership and the support of our strong research group, we anticipate a return
to the Fund's historical outperformance of its benchmark, the S&P 400
Index.
14
<PAGE>
E V E R G R E E N
Income and Growth Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
--------------
[PHOTO OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: August 1978
[PHOTO OF IRENE D. O'NEILL APPEARS HERE]
Irene D. O'Neill
Tenure: December 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] The Equity Style Box placement is based on a fund's price-
to-earnings and price-to-book ratio relative to the S&P 500,
as well as the size of the companies in which it invests, or
median market capitalization.
Source: 1998 Morningstar, Inc.
/2/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. Historical performance for Classes A, B, and C prior to
inception reflects that of Class Y, the original class offered, the inception
date of which is 8/31/78, and does not include 12b-1 fees. If such fees were
reflected, returns would have been lower. Returns reflect expense limits
previously in effect, without which returns would have been lower.
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 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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 8/31/78 Class A Class B Class C Class Y
Class Inception Date 1/3/95 1/3/95 1/3/95 8/31/78
................................................................................
Average Annual Returns*
................................................................................
6 months with sales charge -4.87% -4.91% -1.37% n/a
................................................................................
6 months w/o sales charge -0.11% -0.48% -0.48% 0.05%
................................................................................
1 year with sales charge -4.79% -5.08% -1.65% n/a
................................................................................
1 year w/o sales charge -0.04% -0.74% -0.78% 0.26%
................................................................................
3 years 9.53% 9.69% 10.50% 11.61%
................................................................................
5 years 8.95% 9.08% 9.35% 10.22%
................................................................................
10 years 9.52% 9.73% 9.72% 10.16%
................................................................................
Since Inception 13.57% 13.67% 13.67% 13.89%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.00% 1.36% 1.36% 2.35%
................................................................................
6-month income dividends
per share $ 0.42 $ 0.37 $ 0.37 $ 0.48
................................................................................
6-month capital gain distributions
per share $ 2.13 $ 2.13 $ 2.13 $ 2.13
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Evergreen
Date INCOME & GROWTH FUND Wilshire 5000 Consumer Price Index - US
---- -------------------- ------------- -------------------------
12/31/94 $ 10,000 $ 10,000 $ 10,000
12/31/95 $ 12,371 $ 13,341 $ 10,247
12/31/96 $ 13,932 $ 15,853 $ 10,595
12/31/97 $ 17,452 $ 20,477 $ 10,775
1/31/99 $ 17,269 $ 25,824 $ 10,942
Comparison of change in value of a $10,000 investment in Evergreen Income and
Growth Fund Class A, the Wilshire 5000 Index and the Consumer Price Index (CPI).
15
<PAGE>
E V E R G R E E N
Income and Growth Fund
Portfolio Manager Interview
How did the Fund perform?
For the six months ended January 31, 1999, the Evergreen Income and Growth Fund
continued to pursue its historic commitment to provide substantial current
income, as well as an objective of competitive, long-term growth. The Fund
finished 1998 with a current yield in the top quartile of funds in the Income
category, as measured by Lipper Inc., an independent monitor of mutual fund
performance. For the six months, it also outperformed the highest-yielding (top
20%) subset of the S&P 500 Index although it did underperform the S&P 500 Index.
During the six months ended January 31, 1999, the Fund's original Class Y shares
had a total return of 0.05%, while Classes A, B and C shares had returns of -
0.11%, -0.48% and -0.48%, respectively. These returns are before deduction of
any sales charges, if applicable.
During 1998, the Fund continued its long-term record of providing generous
current income. The Fund's Class Y shares, for example, paid out $1.015 per
share in ordinary dividends during the 1998 calendar year, $.902 per share in
short-term capital gains (which are treated as income for tax purposes) and
$1.223 per share in long-term capital gains.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $872,333,002
................................................................................
Number of Holdings 135
................................................................................
P/E Ratio* 15.0x
................................................................................
Beta* 0.67
................................................................................
*as of 12/31/98
What were your principal themes during the six-month period?
We looked for opportunities created by:
. Evergreen's value-timing strategy, which entails finding companies that are
temporarily out of favor in the stock market, but nevertheless have attractive
underlying value.
. The continued merger-and-acquisition trend in American industry, which in 1998
alone resulted in transactions valued at more than $1 trillion.
. Corporate re-structuring programs that can improve long-term earnings
performance.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Banks 14.6%
................................................................................
Finance & Insurance 8.8%
................................................................................
Electrical Equipment & Services 6.7%
................................................................................
Oil / Energy 6.7%
................................................................................
Utilities--Gas 6.4%
................................................................................
16
<PAGE>
E V E R G R E E N
Income and Growth Fund
Portfolio Manager Interview
What were some examples of the value-timing strategy?
Several companies involved in the telecommunications industry presented
excellent opportunities for the Fund. The investment in convertible bonds issued
by Houston Industries was a good example, as it allowed us to participate in the
growth of Time-Warner, which had purchased the cable television business of
Houston Industries. The convertible bonds, which were issued for tax reasons to
enable Houston Industries to sell Time-Warner stock it had received in the
original transaction, rose by 26% during the six months under review. This
investment allowed the Fund to successfully gain access to Time-Warner's growth
through Houston's convertible bond.
Air Touch Communications convertible bonds were another successful
telecommunications-related investment for the Fund. These bonds had an
attractive yield of 6% when first purchased. With the benefit of a pending
acquisition by Vodafone Group, Plc, the value of the bonds rose by 34.4% during
the six months under review.
Two other notable telecommunications-related investments were in Frontier Corp.
and Williams Companies, Inc. Frontier Corp. had a 17% return for the Fund during
the six months. This company, in addition to offering a traditional telephone
business based in Rochester, N.Y., has the technology to help companies design
web sites for the Internet. Williams Companies, whose traditional business had
been transportation of natural gas and other energy services, suffered as warm
weather and low energy prices created an environment which hurt its stock. We
thought the low stock price did not reflect the growth potential on its
Internet, wireless and fiber-optic transmission businesses. The stock, purchased
by the Fund in September, rose by 26.6% by January 31.
Other value-timing contributors included GTE, which rose by 24%, partly on news
of its potential from the pending merger with Bell Atlantic; General Motors,
which also rose by 24% during six months; and Bank West, a Hawaii-based banking
company. We purchased this stock as a value-timing opportunity when investors
were concerned about the secondary impact from financial problems in Japan which
has been a big tourist support for Hawaii.
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
Qualcomm Financial Trust I 4.2%
................................................................................
Telecom Corp. New Zealand Ltd. 3.6%
................................................................................
Keyspan Energy 3.2%
................................................................................
Paine Webber Group, Inc. 3.2%
................................................................................
Dana Corp. 2.5%
................................................................................
Mercantile Bancorp, Inc. 2.5%
................................................................................
Wendys Financing I 2.5%
................................................................................
Thomas & Betts Corp. 2.3%
................................................................................
Atlantic Richfield Co. 2.2%
................................................................................
Williams Companies, Inc. 2.1%
................................................................................
17
<PAGE>
E V E R G R E E N
Income and Growth Fund
Portfolio Manager Interview
How did the Fund benefit from the merger-and-acquisition trend?
During the six-month period, one acquisition involving a Fund holding was
completed, and four others were announced.
Mercantile Stores was purchased by Dillard's Department Stores, for a 92.5% gain
for the Fund since the original investment in Mercantile in October, 1994. Among
the four pending acquisitions, MidAmerican Energy Holdings Co. had a 41% gain
during the six months. Mid-American is expected to be acquired by CalEnergy Co.
Provident Companies Inc., which has a pending merger with Unum Corp., had a
16.6% gain during the six months.
What were some examples of the restructuring theme?
Union Pacific Railroad was a company that began restructuring itself after
operational difficulties arose from its merger with Southern Pacific. We
believed, however, that the company had great asset value and rebound potential.
We began to invest in March, 1998. During the six months under review, the
restructuring began to take effect, and the Fund had a gain of 22.2%.
Baxter International, a provider of healthcare products and services, is
benefitting from its restructuring efforts. Its stock rose by 18.6% during the
six months.
What industries helped performance, and what industries held back performance?
In general, consumer companies, health-related companies and telecommunications
firms supported the performance during the six months. The poorest-performing
groups included the electric and gas utilities and the real estate investment
trusts. The Fund reduced its emphasis in both those areas during the six months.
Financial services stocks also held back performance, but we think this may be a
temporary situation. We believe this industry should be a strong performer
again, helped by continued merger-and-acquisition activity.
What is your outlook?
We believe the American consumer will continue to be a strong force in the
domestic economy, helping propel growth in Gross Domestic Product. In addition,
we think inflation will remain under control at relatively low levels. Both
these factors--strong consumer spending and low inflation--tend to support the
performance of the stock market.
The risk could be market volatility because of surprises related to
international financial problems. We will continue to invest in companies
offering growth rooted in value, an approach which may give us some downside
protection in the event of a market downturn. This strategy should allow us to
benefit from long-term growth trends, such as we see in the telecommunications
and computer industries and the healthcare sector. Continued consolidation
should help our financial services investment sector.
18
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
--------------
[PHOTO OF NOLA MADDOX FALCONE APPEARS HERE]
Nola Maddox Falcone, CFA
Tenure: October 1993
[PHOTO OF JORDAN ALEXANDER APPEARS HERE]
Jordan Alexander, CFA
Tenure: January 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] 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.
/2/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. Historical performance for Classes A, B, and C prior to
inception reflects that of Class Y, the original class offered, the inception
date of which is 10/1/93, and does not include 12b-1 fees. If such fees were
reflected, returns would have been lower. Returns reflect expense limits
previously in effect, without which returns would have been lower.
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.
Smaller capitalization stock investing may offer the potential for greater long
term results; however, it is also generally associated with greater price
volatility due to the higher risk of failure.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 10/1/93 Class A Class B Class C Class Y
Class Inception Date 1/3/95 1/3/95 1/24/95 10/1/93
................................................................................
Average Annual Returns*
6 months with sales charge -9.50% -9.98% -6.27% n/a
................................................................................
6 months w/o sales charge -4.96% -5.34% -5.35% -4.90%
................................................................................
1 year with sales charge -12.36% -13.12% -9.57% n/a
................................................................................
1 year w/o sales charge -7.98% -8.67% -8.68% -7.74%
................................................................................
3 years 11.23% 11.38% 12.16% 13.34%
................................................................................
5 years 11.52% 11.67% 11.90% 12.86%
................................................................................
Since Inception 11.74% 12.01% 12.10% 12.99%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 1.34% 0.66% 0.66% 1.66%
................................................................................
6-month income dividends
per share $ 0.18 $ 0.12 $ 0.12 $ 0.19
................................................................................
6-month capital gain distributions
per share $ 0.18 $ 0.18 $ 0.18 $ 0.18
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Evergreen Wilshire Consumer Price
Date Small Cap Value Russell 2000 Sm Cp Val Index - US
---- --------------- ------------ --------- ----------
1/31/95 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/31/95 $ 12,820 $ 13,008 $ 12,284 $ 10,206
12/31/96 $ 15,642 $ 15,154 $ 14,180 $ 10,552
12/31/97 $ 20,857 $ 18,542 $ 18,781 $ 10,732
1/31/99 $ 18,571 $ 18,310 $ 17,724 $ 10,898
Comparison of Change in value of a $10,000 investment in Evergreen Small Cap
Value Fund Class A, the Russell 2000 Index, Wilshire Small Cap Value Index and
the Consumer Price Index (CPI).
19
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Portfolio Manager Interview
How did the Fund perform during the period?
The Fund continued its strong, long-term record of outperforming its benchmark.
For the six months ended January 31, 1999, the Evergreen Small Cap Value Fund's
Class A shares, unadjusted for sales charges, declined 4.96%, outperforming its
benchmark, the Wilshire Small Cap Value Index, which declined 5.22% during the
same period. The Russell 2000 Index had a positive return of 2.41%, primarily
because it had a higher market capitalization weighting and higher technology
and healthcare stock weightings, all of which performed well. Since its
inception on October 1, 1993, the Fund's original Class Y shares have had a
cumulative total return of 91.86%, well ahead of the 73.18% return of the
Wilshire Small Cap Value Index and the 81.91% return of the Russell 2000 Index.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $301,240,712
................................................................................
Number of Holdings 159
................................................................................
P/E Ratio* 13.6x
................................................................................
Beta* 0.62
................................................................................
*as of 12/31/98
What were some of the companies that helped performance during the six months?
The strongest performers during the period included many new issues that were
added to the Fund in recent months. The top performers during the six months
were: Craftmade International, up 67.4%; Helix Technology, which rose 65.4%;
Scientific Atlanta, up 56.3%; International Multifoods, up 51.3%; American
Woodmark, which appreciated 50.7%; First Coastal Bankshares, up 46.8%; Standard
Pacific, up 44.6%; Long Drug Stores Corp., up 36.5%; General Housewares Corp.,
which rose 32.7%; Matthews International, which gained 30.2%; and Spartech
Corp., up 25.5%.
Many of the new issues added to the Fund are benefiting from the continued
strength of the U.S. economy. For example, American Woodmark, a manufacturer and
distributor of kitchen and bathroom cabinets, has been helped by the strength of
the remodeling and new home construction markets in the U.S. The company
reported a 22% increase in earnings during the 1998 fiscal year and is expected
to see earnings growth accelerate to an average of 30% annually over the next
two years. Despite the stock's recent strong performance, we believe the stock
remains undervalued. Standard Pacific, a homebuilder focused on markets in
California, Arizona and Texas, is another good example of this theme. The
company recently reported record earnings and a strong order backlog, with year-
over-year fourth quarter 1998 earnings up 125.8% and new home orders up 14%. The
California housing market appears to be in the early stages of a housing
recovery and we expect the company to continue to do well.
20
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Portfolio Manager Interview
In general, stocks in the consumer-related and electrical and electronic
equipment/communication services industry sectors were the best performers for
the Fund. The financial services sector, including banks, thrifts and insurance
stocks, underperformed during the period, but we expect this to be temporary
because of the favorable outlook for continued consolidation in the industry.
Energy also lagged in performance, although the impact to the Fund was less
significant because we have reduced the weighting in this area.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Banks 11.0%
................................................................................
Consumer Products & Services 10.6%
................................................................................
Building, Construction & Furnishings 6.4%
................................................................................
Telecommunication Services & Equipment 6.2%
................................................................................
Utilities--Gas 5.9%
................................................................................
What were some of the themes that guided the Fund's investment strategy?
During the period, the Fund invested in stocks of undervalued companies with a
positive outlook for improving performance through restructuring. It also
invested in companies in consolidating industries that may be merger and
acquisition candidates. International Multifoods Corp. is a good example of the
restructuring theme. The company, which operates a food service distribution
business in the United States and a food processing business in the United
States and Canada, is restructuring under new management. We expect the
company's restructuring to position it for consistent and strong earnings growth
over the next several years. The stock has been one of the best performers since
we added it to the Fund in early October, and we expect continued success with
the restructuring to provide a strong catalyst for the stock during the next 12
months.
Merger and acquisition activity also continued to help the performance of the
Fund. During the six-month period, six of the Fund's holdings were involved in
completed mergers and a seventh transaction was pending. The average return to
the Fund from the completed transactions was 35.2%. Maryland Federal Bancorp,
the issue which provided the highest return to the Fund, was acquired by BB&T
and generated a total return of 107.3%, since the initial investment in January
1997. First Palm Beach Bancorp was acquired by Republic Security Financial, for
a 58.3% gain to the Fund since its initial investment in December 1996.
Learonal, Inc. was acquired by Rohm & Haas for a gain of 49.7% to the Fund since
its initial investment in July 1997. A pending transaction involves the
acquisition of First Coastal Bancshares by Centura Banks. As we look at the
financial markets and the relative disparities between the valuations of large
companies and small companies, we believe the pace of merger and acquisition
activity will remain strong.
21
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Portfolio Manager Interview
What is the outlook for the Fund?
We are very positive about the potential for strong, small-cap stock performance
for three main reasons. First, the valuations of small cap companies relative to
the stocks of larger companies are at 20-year lows. This disparity has prompted
many small cap companies to announce stock buyback programs in recent months, an
indication that management is confident about their company's prospects. Second,
we believe the attractive valuations of many small cap companies should lead to
an acceleration of merger and acquisition activity, as larger companies can use
their cash or stock to buy undervalued small companies. Third, the action of the
Federal Reserve late last year to reduce the discount rate three times should be
very positive for small cap stocks. Historically, small cap stocks have tended
to outperform large caps following such action by the Federal Reserve.
Looking forward, we continue to see opportunities to invest in undervalued,
entrepreneurial companies with strong growth prospects. The disparity of small
cap stock prices in relation to large company stocks has drawn the attention of
a number of well-known strategists and investors, suggesting a growing market
belief in the compelling value to be found in small cap companies. As we have
seen several times in the past, the current value disparity of small cap
companies could set the stage for a small cap stock rally similar to those
experienced in 1967-68, 1975-76 and 1991-92. Small cap stocks were similarly out
of favor before each of those rallies.
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
CPI Corp. 2.7%
................................................................................
Curtiss Wright Corp. 2.7%
................................................................................
Boston Acoustics, Inc. 2.6%
................................................................................
Semco Energy, Inc. 2.4%
................................................................................
Alpharma, Inc. 5.75%, 4/01/05, 144A 2.3%
................................................................................
Scientific Atlanta, Inc. 2.1%
................................................................................
Helix Technology Corp. 2.0%
................................................................................
Matthews International Corp. Cl. A 1.8%
................................................................................
SierraWest Bancorp 1.8%
................................................................................
Antec Corp. 4.50%, 5/15/03 1.7%
................................................................................
Name Change
Please note: effective April 6, 1999, the Evergreen Small Cap Equity Income Fund
will change its name to Evergreen Small Cap Value Fund, which means that the
Fund will de-emphasize income-producing securities and broaden its investment
universe to enable it to focus on capital growth.
22
<PAGE>
E V E R G R E E N
Utility Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
--------------
[PHOTO OF PAUL A.DILELLA APPEARS HERE]
Paul A.DiLella
Tenure: July 1996
[PHOTO OF DORIS A. KELLEY-WATKINS APPEARS HERE]
Doris A. Kelley-Watkins
Tenure: February 1997
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] 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.
/2/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. Historical performance for Classes C and Y reflects
that of Class A, the original class offered, the inception date of which is
1/4/94, and includes appropriate 12b-1 fees for Class A. If appropriate fees for
Class C were reflected, returns would have been lower. For Class Y, if 12b-1
fees were not reflected, returns would have been higher. Returns reflect expense
limits previously in effect, without which returns would have been lower.
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.
Funds that concentrate their investments in a single industry may face increased
risk of price fluctuation over more diversified funds due to adverse
developments within that industry.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 1/4/94 Class A Class B Class C Class Y
Class Inception Date 1/4/94 1/4/94 9/2/94 2/28/94
................................................................................
Average Annual Returns*
................................................................................
6 months with sales charge 0.22% 0.21% 3.92% n/a
................................................................................
6 months w/o sales charge 5.24% 4.84% 4.84% 5.27%
................................................................................
1 year with sales charge 2.79% 2.42% 6.15% n/a
................................................................................
1 year w/o sales charge 7.89% 7.08% 7.08% 8.16%
................................................................................
3 years 10.06% 10.18% 10.96% 12.07%
................................................................................
5 years 10.83% 10.83% 11.16% 12.17%
................................................................................
Since Inception 10.73% 10.85% 11.06% 12.05%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 2.47% 1.82% 1.84% 2.85%
................................................................................
6-month income distributions
per share $ 0.23 $ 0.19 $ 0.19 $ 0.26
................................................................................
6-month capital gain distributions
per share $ 1.28 $ 1.28 $ 1.28 $ 1.28
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Consumer Price
Date Evergreen Utility S&P 500 S&P Utility Index - US
---- ----------------- ------- ----------- ----------
1/31/94 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/31/94 $ 9,405 $ 9,799 $ 9,696 $ 10,239
12/31/95 $ 12,298 $ 13,482 $ 13,684 $ 10,492
12/31/96 $ 12,839 $ 16,576 $ 14,110 $ 10,848
12/31/97 $ 16,607 $ 22,107 $ 17,590 $ 11,033
1/31/99 $ 17,516 $ 29,589 $ 19,257 $ 11,204
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 Utility), the Standard and
Poor's 500 Index (S&P 500) and the Consumer Price Index (CPI).
23
<PAGE>
E V E R G R E E N
Utility Fund
Portfolio Manager Interview
How did the Fund perform during the fiscal period?
For the six months ended January 31, 1999, the Evergreen Utility Fund Class A
shares returned 5.24%, compared to the 7.89% return of the S&P Utilities Index.
Classes B, C, and Y returned, 4.84%, 4.84%, and 5.27%, respectively. These
returns are unadjusted for any applicable sales charges.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $144,849,912
................................................................................
Number of Holdings 38
................................................................................
P/E Ratio* 21.5x
................................................................................
Beta* 0.70
................................................................................
*as of 12/31/98
What was the investment environment like during the fiscal period?
The past six months consisted of two distinctly different periods. Equity
investors witnessed sharp declines during the first two months, before stocks
rebounded sharply in the final four months of the period. The market's initial
decline was a result of international volatility filtering back to U.S. markets,
while its subsequent four-month comeback was spurred by resilient U.S. economic
growth, emerging market stability and support by the Federal Reserve Board, in
the form of three interest rate cuts.
How has the Fund's investment objective fared in the recent environment?
The Evergreen Utility Fund's primary objective of high current income may be
achieved by investing the majority of its assets in income-oriented sectors and,
specifically, maintaining a 65% minimum weighting in utility companies. Over the
past several quarters, investors' appetite for visible and predictable earnings
growth has propelled growth-oriented sectors such as technology, while causing
income-oriented sectors, such as utilities, to lag. As a result, our Fund has
trailed the exceptional returns of the S&P 500 Index. Careful navigation through
a volatile investing environment, and strong stock selection amid dynamic
changes within the utility industry itself, however, have allowed the Fund to
outpace its benchmark, the S&P Utilities Index.
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Utilities--Electric 48.0%
................................................................................
Utilities--Telephone 21.8%
................................................................................
Communication Systems & Services 6.6%
................................................................................
Utilities--Gas 5.8%
................................................................................
Oil / Energy 3.2%
................................................................................
24
<PAGE>
E V E R G R E E N
Utility Fund
Portfolio Manager Interview
What areas of the portfolio allowed you to outperform your benchmark?
The Fund's weighting in the telecommunications sector had an especially positive
impact on performance. Within this area Sprint Corp., GTE Corp. and BellSouth
all posted six-month returns over 26%.
The energy sector's performance can be pinpointed as one of the Fund's biggest
negative influences, especially during the last few months. Plummeting oil
prices and the global economic slowdown had a punishing effect on energy stocks.
For example, R&B Falcon, a contract driller of oil wells, declined -21% in the
six-month period.
Looking ahead, do you foresee any changes within the utility industry?
Going forward, we believe the effects of deregulation will continue to intensify
competition and change the operating environment for utility companies. Stock
selection will be even more critical as we navigate through this evolving
industry landscape.
Furthermore, we anticipate increasing consolidation as foreign investors step in
and aggressively pursue U.S. utility companies. This increasing merger activity
is similar to recent activity among financial companies, and we intend to
capitalize upon this evolving industry landscape. Within this environment, stock
selection will be even more critical; however, we expect this activity to fuel
the performance of utility companies, as well as our Fund, in 1999.
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
BellSouth Corp. 4.6%
................................................................................
AirTouch Communications, Inc. 3.8%
................................................................................
Houston Industries, Inc. 3.6%
................................................................................
Energy East Corp. 3.5%
................................................................................
Sprint Corp. (Common Stock) 3.5%
................................................................................
Sprint Corp. (8.25%, DECS) 3.5%
................................................................................
U.S. West, Inc. 3.4%
................................................................................
Keyspan Energy 3.4%
................................................................................
GTE Corp. 3.3%
................................................................................
PacifiCorp 3.2%
................................................................................
25
<PAGE>
E V E R G R E E N
Value Fund
Fund at a Glance as of January 31, 1999
Portfolio
Management
--------------
[PHOTO OF MATTHEW D. FINN APPEARS HERE]
Matthew D. Finn, CFA
Tenure: March 1998
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[MORNINGSTAR'S 1/31/99.
STYLE BOX
APPEARS HERE] 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.
/2/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. Historical performance for Class B, C, and Y prior to
inception reflects that of Class A, the original class offered, the inception
date of which is 4/12/85, and includes appropriate 12b-1 fees for Class A. If
appropriate fees for Classes B and C were reflected, returns for these classes
would have been lower. For Class Y, if 12b-1 fees were not reflected, returns
would have been higher. Returns reflect expense limits previously in effect,
without which returns would have been lower.
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.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date: 4/12/85 Class A Class B Class C Class Y
Class Inception Date 4/12/85 2/2/93 9/2/94 1/31/91
................................................................................
Average Annual Returns*
................................................................................
6 months with sales charge 3.09% 2.83% 6.84% n/a
................................................................................
6 months w/o sales charge 8.24% 7.83% 7.84% 8.41%
................................................................................
1 year with sales charge 10.05% 9.69% 13.67% n/a
................................................................................
1 year w/o sales charge 15.53% 14.66% 14.67% 15.81%
................................................................................
3 years 16.58% 16.89% 17.63% 18.78%
................................................................................
5 years 16.22% 16.32% 16.62% 17.65%
................................................................................
10 years 13.99% 14.08% 14.18% 14.79%
................................................................................
Since Inception 14.20% 14.27% 14.34% 14.78%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
30-day SEC Yield 0.58% -0.11% -0.11% 0.86%
................................................................................
6-month income dividends
per share $0.11 $0.05 $0.05 $0.14
................................................................................
6-month capital gain distributions
per share $0.13 $0.13 $0.13 $0.13
................................................................................
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Evergreen Value S&P 500 Consumer Price Index - US
---- --------------- ------- -------------------------
1/31/89 $ 10,000 $ 10,000 $ 10,000
12/31/89 $ 11,921 $ 12,270 $ 10,413
12/31/90 $ 11,512 $ 11,889 $ 11,049
12/31/91 $ 14,409 $ 15,511 $ 11,387
12/31/92 $ 15,518 $ 16,693 $ 11,714
12/31/93 $ 16,962 $ 18,376 $ 12,040
12/31/94 $ 17,278 $ 18,618 $ 12,362
12/31/95 $ 22,771 $ 25,616 $ 12,667
12/31/96 $ 27,079 $ 31,496 $ 13,097
12/31/97 $ 34,045 $ 42,004 $ 13,320
1/31/99 $ 38,781 $ 56,220 $ 13,526
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).
26
<PAGE>
E V E R G R E E N
Value Fund
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Value Fund had very good performance for a value-oriented fund in
a period in which the growth style of investing was more in favor. For the six
months ended on January 31, 1999, the Fund's Class A shares had a total return
of 8.24%, while Class B and C shares had returns, of 7.83% and 7.84%,
respectively, unadjusted for applicable sales charges. Class Y shares had a
return of 8.41%. During the same six-month period, the average return of growth
and income funds was 7.88%, as measured by Lipper Inc., an independent monitor
of mutual funds; while the Russell 1000 Value Index had a return of 5.79%; and
the S&P Barra Value Index, composed of the value stocks in the S&P 500, had a
return of 6.65%.
Portfolio
Characteristics
---------------
(as of 1/31/99)
Total Net Assets $979,915,942
................................................................................
Number of Holdings 95
................................................................................
P/E Ratio* 21.7x
................................................................................
Beta* 0.97
................................................................................
*as of 12/31/98
What were the factors affecting performance during the six months?
The Fund was defensively positioned at the start of the period in August, and
this helped performance during the down market in August and September. However,
this defensive tilt that helped us in those two months hurt relative performance
when the market came roaring back in October through December. The high-
volatility, technology stocks that value investors tend to de-emphasize led the
market rally during those months. We did begin to make changes in December,
however, and that helped us finish the period with a strong January.
What were your principal decisions during the period?
We made reductions in our weightings in financial services, healthcare and
oil/energy. The net reduction in financial services, which has been an area of
emphasis, was relatively minor, as banks were reduced, but finance and insurance
holdings were increased. I would ascribe this to the effects of normal portfolio
management and the fact that we found potentially better opportunities
elsewhere.
The Fund had been over-weighted versus the value indexes in pharmaceuticals
since March because we thought there was good potential in the industry. That
decision helped performance, but by December we thought the industry's move had
run its course and we cut the Fund's exposure. During the six months, the Fund's
allocation in healthcare fell from 13% to 3.2% of net assets.
27
<PAGE>
E V E R G R E E N
Value Fund
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 1/31/99 net assets)
Finance & Insurance 14.1%
................................................................................
Banks 13.5%
................................................................................
Information Services & Technology 12.8%
................................................................................
Utilities--Telephone 7.1%
................................................................................
Electrical Equipment & Services 5.3%
................................................................................
As investors became more concerned that economic growth would slow, we started
seeing some attractive values in cyclical industries, such as auto
manufacturing, retailing, basic materials, chemicals and transportation.
Cyclical industries are those whose earnings tend to be closely tied to the
business cycle. Companies in these industries tend to do well when the economy
is expanding. Because their stocks run in and out of favor, they sometimes
represent opportunities for value investors.
We added to the Fund's position in General Motors after its stock price fell in
last summer's strike. That has been a good investment for us. Other consumer
cyclicals added to the portfolio included Federated Department Stores and Tommy
Hilfiger, the clothing company. Both have done well for the Fund.
In basic materials we added Louisiana Pacific, a lumber and buildings materials
company; Morton International, a specialty chemicals company; Stone Smurfit
Container; and British Steel and A.K. Steel. In transportation, we added C.N.F.
Transportation, a truck and air freight company.
The Fund's weighting in communications services rose from 1.8% to 7.4% during
the period. The most significant move was adding to the investment in AT&T,
which has been a strong performer for the Fund.
Large-company, growth stocks have been market leaders for more than two years.
How has this affected your strategy as a value manager?
At the beginning of 1999, we were seeing some strength in companies with
sensitivity to the economic cycle, which often are value stocks. At the same
time, I would have to say that large company growth stocks still appear to be
leading the market.
We have not changed our investment approach. We still focus on the value of a
company, which we define as the present value of future cash flow. We take
growth rates into account when we do a valuation. We try to find rapidly growing
companies that are at attractive prices. Value and growth are opposite sides of
the same coin. We are not bogged down in buying broken companies, i.e.,
companies that are in poor businesses, have a poor competitive position or bad
management. The overall characteristics of the Fund are of value, however, with
a lower portfolio price/earnings ratio than the overall market.
Our outlook for value stocks is very positive. Typically, when investors are
optimistic about the economy--as they seem to be--value does better.
A good illustration of our investment style is the Fund's position in Oracle
Corp, a large, database software company. This is the type of company many
people would not associate with the value style; however, it showed up on our
screen when its earnings became depressed as it was rolling out new products. It
was a fallen growth stock that had underperformed for a couple of years. The
stock price had declined from more than $40 a share to between $20 and $30 when
we started buying it. The stock then turned around and rose to $60 a share, when
we started cutting back to take profits. This is an example of how we can remain
true to the value style, with a low portfolio price/earnings ratio, and still
invest in rapidly growing areas from time to time if valuations allow it. We
keep our discipline because we believe it will work in the long run.
28
<PAGE>
E V E R G R E E N
Value Fund
Portfolio Manager Interview
Top 10 Equity Holdings
-----------------------------
(based on 1/31/99 net assets)
Oracle Systems Corp. 3.2%
................................................................................
Bankamerica Corp. 2.7%
................................................................................
Pharmacia & Upjohn, Inc. 2.4%
................................................................................
Waste Management, Inc. 2.2%
................................................................................
Fleet Financial Group, Inc. 2.2%
................................................................................
Tommy Hilfiger Corp. 2.2%
................................................................................
AT&T Corp. 2.1%
................................................................................
Chase Manhattan Corp. 2.1%
................................................................................
Citigroup, Inc. 2.0%
................................................................................
Louisiana Pacific Corp. 2.0%
................................................................................
What is your general outlook?
Lots of people look at current valuations in the market and say they are high.
It is true that valuations are high when you look at historical averages;
however, they are not high when compared to other periods in which inflation was
very low.
We think the market's current valuations make sense, given the very low
inflation and interest rates. Investors will pay higher values for any given
level of earnings when interest rates are low. That's a fundamental tenet of
Finance 101. While others say earnings are cyclically above normal, we see many
cyclical companies that already have earnings at depressed levels. They
represent opportunities for value investors.
We also believe there is another, secular component to the economy that gives us
reason for encouragement. This is the trend of corporate management to use
technology to improve productivity and to be more judicious in the use of
capital. Management today is not just building headquarters and facilities
willy-nilly. They are investing to earn a return, which is positive for
profitability. We believe management today is smarter.
While we think a lot of the easy money has been made in the stock market, we
think there will be opportunities for disciplined value investors. We will view
market setbacks as buying opportunities. We think the economy will grow over the
long run, and expect the earnings of companies in our portfolio will
grow.
29
<PAGE>
E V E R G R E E N
Blue Chip Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1999 Period Ended
(Unaudited) # July 31, 1998 (a)
<S> <C> <C>
CLASS A SHARES
Net asset value, beginning of period $ 30.42 $ 27.39
-------- --------
...............................................................................
Income from investment operations
...............................................................................
Net investment income 0.05 0.08
...............................................................................
Net realized and unrealized gains or losses
on securities and foreign currency related
transactions 3.50 3.01
-------- --------
...............................................................................
Total from investment operations 3.55 3.09
-------- --------
...............................................................................
Less distributions to shareholders from
...............................................................................
Net investment income (0.03) (0.06)
...............................................................................
Net realized gains (2.38) 0
-------- --------
...............................................................................
Total distributions to shareholders (2.41) (0.06)
-------- --------
...............................................................................
Net asset value, end of period $ 31.56 $ 30.42
-------- --------
...............................................................................
Total return* 12.58% 11.29%
...............................................................................
Ratios and supplemental data
...............................................................................
Net assets, end of period (thousands) $340,293 $284,735
...............................................................................
Ratios to average net assets
Expenses 1.22%+ 1.20%+
...............................................................................
Net investment income 0.42%+ 0.49%+
...............................................................................
Portfolio turnover rate 73% 112%
...............................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended August 31,
January 31, 1999 Period Ended --------------------------------------
(Unaudited) # July 31, 1998 (b) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 30.35 $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42
-------- -------- -------- -------- -------- --------
.....................................................................................................
Income from investment
operations
.....................................................................................................
Net investment income (0.05) (0.12) 0.15 0.12 0.25 0.16
.....................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 3.43 5.72 7.97 3.69 2.66 (0.35)
-------- -------- -------- -------- -------- --------
Total from investment
operations 3.38 5.60 8.12 3.81 2.91 (0.19)
-------- -------- -------- -------- -------- --------
.....................................................................................................
Less distributions to
shareholders from
Net realized gains (2.38) (4.96) (3.18) (0.98) (2.78) (1.74)
-------- -------- -------- -------- -------- --------
.....................................................................................................
Net investment income 0 (0.08) (0.20) (0.76) (0.36) (0.28)
.....................................................................................................
Total distributions to
shareholders (2.38) (5.04) (3.38) (1.74) (3.14) (2.02)
-------- -------- -------- -------- -------- --------
.....................................................................................................
Net asset value, end of
period $ 31.35 $ 30.35 $ 29.79 $ 25.05 $ 22.98 $ 23.21
-------- -------- -------- -------- -------- --------
.....................................................................................................
Total return* 12.01% 20.89% 34.76% 17.31% 13.87% (0.72%)
.....................................................................................................
Ratios and supplemental
data
.....................................................................................................
Net assets, end of
period (thousands) $140,231 $117,893 $312,935 $224,819 $199,456 $208,532
.....................................................................................................
Ratios to average net
assets
Expenses 1.97%+ 1.68%+ 1.57% 1.85% 1.75% 2.07%
.....................................................................................................
Net investment income (0.34%)+ (0.02%)+ 0.55% 0.52% 1.09% 0.67%
.....................................................................................................
Portfolio turnover rate 73% 112% 109% 139% 115% 73%
.....................................................................................................
</TABLE>
(a) For the period from January 20, 1998 (commencement of class operations) to
July 31, 1998.
(b) For the eleven months ended July 31, 1998. The Fund changed its fiscal year
end from August 31 to July 31, effective July 31, 1998.
* Excluding applicable sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding throughout the
period.
See Combined Notes to Financial Statements.
30
<PAGE>
E V E R G R E E N
Blue Chip Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
January 31, 1999 Period Ended
(Unaudited) # July 31, 1998 (a)
<S> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $30.40 $27.70
------ ------
.................................................................................
Income from investment operations
.................................................................................
Net investment income (0.05) 0
.................................................................................
Net realized and unrealized gains or
losses on securities and foreign currency
related transactions 3.46 2.72
------ ------
.................................................................................
Total from investment operations 3.41 2.72
------ ------
.................................................................................
Less distributions to shareholders from
.................................................................................
Net investment income 0 (0.02)
.................................................................................
Net realized gains (2.38) 0
.................................................................................
Total distributions to shareholders (2.38) (0.02)
------ ------
.................................................................................
Net asset value, end of period $31.43 $30.40
------ ------
.................................................................................
Total return* 12.09% 9.80%
.................................................................................
Ratios and supplemental data
.................................................................................
Net assets, end of period (thousands) $ 885 $ 780
.................................................................................
Ratios to average net assets
Expenses 1.98%+ 2.02%+
.................................................................................
Net investment income (0.38%)+ (0.27%)+
.................................................................................
Portfolio turnover rate 73% 112%
.................................................................................
</TABLE>
(a) For the period from January 22, 1998 (commencement of class operations) to
July 31, 1998.
* Excluding applicable sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding throughout the
period.
See Combined Notes to Financial Statements.
31
<PAGE>
E V E R G R E E N
Equity Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July
31, Year Ended November 30,
Six Months Ended ---------------- -------------------------
January 31, 1999 1997
(Unaudited) 1998 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 21.65 $ 20.69 $ 17.33 $ 13.83 $ 11.75 $ 12.31
------- ------- ------- ------- ------- -------
...........................................................................................
Income from investment
operations
...........................................................................................
Net investment income 0.14 0.21 0.18 0.26 0.25 0.24
...........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.33 2.46 3.34 3.83 2.80 (0.56)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.47 2.67 3.52 4.09 3.05 (0.32)
------- ------- ------- ------- ------- -------
...........................................................................................
Less distributions to
shareholders from
Net realized gains (2.74) (1.52) 0 (0.33) (0.65) 0
------- ------- ------- ------- ------- -------
...........................................................................................
Net investment income (0.12) (0.19) (0.16) (0.26) (0.32) (0.24)
...........................................................................................
Total distributions to
shareholders (2.86) (1.71) (0.16) (0.59) (0.97) (0.24)
------- ------- ------- ------- ------- -------
...........................................................................................
Net asset value, end of
period $ 19.26 $ 21.65 $ 20.69 $ 17.33 $ 13.83 $ 11.75
------- ------- ------- ------- ------- -------
...........................................................................................
Total return* 2.47% 13.85% 20.40% 29.83% 26.57% (2.65%)
...........................................................................................
Ratios and supplemental
data
...........................................................................................
Net assets, end of
period (thousands) $52,669 $52,667 $47,812 $40,487 $27,037 $23,162
...........................................................................................
Ratios to average net
assets
Expenses 1.24%+ 1.21% 1.24%+ 1.41% 1.69% 1.59%
...........................................................................................
Net investment income 1.55%+ 1.01% 1.46%+ 1.66% 1.94% 1.93%
...........................................................................................
Portfolio turnover rate 65% 66% 41% 41% 77% 57%
...........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July Year Ended November
Six Months Ended 31, 30,
January 31, 1999 ------------------ ------------------------
(Unaudited) 1998 1997 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 21.56 $ 20.63 $ 17.31 $ 13.84 $ 11.77 $12.32
------- -------- ------- ------- ------- ------
...........................................................................................
Income from investment
operations
...........................................................................................
Net investment income 0.08 0.06 0.09 0.15 0.15 0.15
...........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.31 2.45 3.31 3.80 2.82 (0.56)
------- -------- ------- ------- ------- ------
...........................................................................................
Total from investment
operations 0.39 2.51 3.40 3.95 2.97 (0.41)
------- -------- ------- ------- ------- ------
...........................................................................................
Less distributions to
shareholders from
Net realized gains (2.74) (1.52) 0 (0.33) (0.65) 0
------- -------- ------- ------- ------- ------
...........................................................................................
Net investment income (0.06) (0.06) (0.08) (0.15) (0.25) (0.14)
...........................................................................................
Total distributions to
shareholders (2.80) (1.58) (0.08) (0.48) (0.90) (0.14)
------- -------- ------- ------- ------- ------
...........................................................................................
Net asset value, end of
period $ 19.15 $ 21.56 $ 20.63 $ 17.31 $ 13.84 $11.77
------- -------- ------- ------- ------- ------
...........................................................................................
Total return* 2.08% 13.01% 19.68% 28.73% 25.59% (3.36%)
...........................................................................................
Ratios and supplemental
data
...........................................................................................
Net assets, end of
period (thousands) $90,736 $105,748 $94,309 $43,526 $20,605 $7,314
...........................................................................................
Ratios to average net
assets
Expenses 1.99%+ 1.97% 2.02%+ 2.18% 2.47% 2.31%
...........................................................................................
Net investment income 0.79%+ 0.25% 0.58%+ 0.88% 1.06% 1.27%
...........................................................................................
Portfolio turnover rate 65% 66% 41% 41% 77% 57%
...........................................................................................
</TABLE>
(a) For the eight months ended July 31, 1997. The Fund changed its fiscal year
end from November 30 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
32
<PAGE>
E V E R G R E E N
Equity Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended November
31, 30,
Six Months Ended ---------------- -----------------------
January 31, 1999 1997
(Unaudited) # 1998 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $ 21.58 $ 20.65 $ 17.32 $ 13.85 $11.78 $12.33
------- ------- ------- ------- ------ ------
...........................................................................................
Income from investment
operations
...........................................................................................
Net investment income 0.08 0.05 0.09 0.14 0.16 0.15
...........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.31 2.46 3.32 3.81 2.81 (0.56)
------- ------- ------- ------- ------ ------
...........................................................................................
Total from investment
operations 0.39 2.51 3.41 3.95 2.97 (0.41)
------- ------- ------- ------- ------ ------
...........................................................................................
Less distributions to
shareholders from
Net realized gains (2.74) (1.52) 0 (0.33) (0.65) 0
------- ------- ------- ------- ------ ------
...........................................................................................
Net investment income (0.06) (0.06) (0.08) (0.15) (0.25) (0.14)
...........................................................................................
Total distributions to
shareholders (2.80) (1.58) (0.08) (0.48) (0.90) (0.14)
------- ------- ------- ------- ------ ------
...........................................................................................
Net asset value, end of
period $ 19.17 $ 21.58 $ 20.65 $ 17.32 $13.85 $11.78
------- ------- ------- ------- ------ ------
...........................................................................................
Total return* 2.08% 12.99% 19.73% 28.71% 25.57% (3.36%)
...........................................................................................
Ratios and supplemental
data
...........................................................................................
Net assets, end of
period (thousands) $19,383 $20,851 $21,125 $14,562 $9,503 $5,968
...........................................................................................
Ratios to average net
assets
Expenses 1.99%+ 1.97% 2.01%+ 2.17% 2.47% 2.34%
...........................................................................................
Net investment income 0.80%+ 0.25% 0.66%+ 0.89% 1.16% 1.21%
...........................................................................................
Portfolio turnover rate 65% 66% 41% 41% 77% 57%
...........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July
Six Months Ended 31,
January 31, 1999 ----------------
(Unaudited) # 1998 1997 (b)
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning of period $21.61 $20.62 $17.74
------ ------ ------
...........................................................................................
Income from investment operations
...........................................................................................
Net investment income 0.17 0.24 0.18
...........................................................................................
Net realized and unrealized gains or losses
on securities and foreign currency related
transactions 0.32 2.51 2.86
------ ------ ------
...........................................................................................
Total from investment operations 0.49 2.75 3.04
------ ------ ------
...........................................................................................
Less distributions to shareholders from
...........................................................................................
Net investment income (0.15) (0.24) (0.16)
...........................................................................................
Net realized gains (2.74) (1.52) 0
------ ------ ------
...........................................................................................
Total distributions to shareholders (2.89) (1.76) (0.16)
------ ------ ------
...........................................................................................
Net asset value, end of period $19.21 $21.61 $20.62
------ ------ ------
...........................................................................................
Total return 2.56% 14.29% 17.22%
...........................................................................................
Ratios and supplemental data
...........................................................................................
Net assets, end of period (thousands) $ 249 $ 111 $ 93
...........................................................................................
Ratios to average net assets
Total expenses 0.99%+ 0.93% 1.34%+
...........................................................................................
Net investment income 1.79%+ 1.31% 0.79%+
...........................................................................................
Portfolio turnover rate 65% 66% 41%
...........................................................................................
</TABLE>
(a) For the eight months ended July 31, 1997. The Fund changed its fiscal year
end from November 30 to July 31, effective July 31, 1997.
(b) For the period from January 13, 1997 (commencement of class operations) to
July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding throughout the
period.
See Combined Notes to Financial Statements.
33
<PAGE>
E V E R G R E E N
Growth and Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended
Six Months Ended 31, December 31,
January 31, 1999 ---------------- ----------------
(Unaudited) 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $29.14 $27.26 $22.53 $18.63 $14.48
------ ------ ------ ------ ------
.................................................................................
Income from investment
operations
.................................................................................
Net investment income 0.07 0.16 0.08 0.12 0.13
.................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.07 2.86 4.72 4.26 4.64
------ ------ ------ ------ ------
.................................................................................
Total from investment
operations 0.14 3.02 4.80 4.38 4.77
------ ------ ------ ------ ------
.................................................................................
Less distributions to
shareholders from
Net realized gains (0.78) (1.01) 0 (0.35) (0.48)
------ ------ ------ ------ ------
.................................................................................
Net investment income (0.06) (0.13) (0.07) (0.13) (0.14)
.................................................................................
Total distributions to
shareholders (0.84) (1.14) (0.07) (0.48) (0.62)
------ ------ ------ ------ ------
.................................................................................
Net asset value, end of
period $28.44 $29.14 $27.26 $22.53 $18.63
------ ------ ------ ------ ------
.................................................................................
Total return* 0.53% 11.26% 21.33% 23.50% 33.00%
.................................................................................
Ratios and supplemental
data
.................................................................................
Net assets, end of
period (millions) $ 286 $ 296 $ 166 $ 85 $ 19
.................................................................................
Ratios to average net
assets
Expenses 1.46%+ 1.46% 1.47%+ 1.41% 1.55%+
.................................................................................
Net investment income 0.53%+ 0.61% 0.57%+ 0.70% 0.99%+
.................................................................................
Portfolio turnover rate 7% 20% 6% 14% 17%
.................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July Year Ended
Six Months Ended 31, December 31,
January 31, 1999 ----------------- -----------------
(Unaudited) 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $28.88 $27.10 $22.43 $18.59 $14.48
------ ------ ------ ------ ------
.................................................................................
Income from investment
operations
.................................................................................
Net investment income (0.03) (0.02) (0.02) 0 0.05
.................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.07 2.81 4.69 4.20 4.61
------ ------ ------ ------ ------
.................................................................................
Total from investment
operations 0.04 2.79 4.67 4.20 4.66
------ ------ ------ ------ ------
.................................................................................
Less distributions to
shareholders from
Net realized gains (0.78) (1.01) 0 (0.35) (0.48)
------ ------ ------ ------ ------
.................................................................................
Net investment income 0 0 0 (0.01) (0.07)
.................................................................................
Total distributions to
shareholders (0.78) (1.01) 0 (0.36) (0.55)
------ ------ ------ ------ ------
.................................................................................
Net asset value, end of
period $28.14 $28.88 $27.10 $22.43 $18.59
------ ------ ------ ------ ------
.................................................................................
Total return* 0.17% 10.44% 20.82% 22.60% 32.20%
.................................................................................
Ratios and supplemental
data
.................................................................................
Net assets, end of
period (millions) $ 985 $1,000 $ 542 $ 245 $ 46
.................................................................................
Ratios to average net
assets
Expenses 2.21%+ 2.21% 2.25%+ 2.17% 2.24%+
.................................................................................
Net investment income (0.22%)+ (0.14%) (0.19%)+ (0.06%) 0.30%+
.................................................................................
Portfolio turnover rate 7% 20% 6% 14% 17%
.................................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
34
<PAGE>
E V E R G R E E N
Growth and Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended December 31,
January 31, 1999 ----------------------- ---------------------------
(Unaudited) 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $28.89 $ 27.10 $ 22.43 $ 18.58 $ 14.48
------ --------- --------- ----------- -----------
...................................................................................................
Income from investment
operations
...................................................................................................
Net investment income (0.03) (0.02) (0.02) 0 0.06
...................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.07 2.82 4.69 4.21 4.60
------ --------- --------- ----------- -----------
...................................................................................................
Total from investment
operations 0.04 2.80 4.67 4.21 4.66
------ --------- --------- ----------- -----------
...................................................................................................
Less distributions to
shareholders from
...................................................................................................
Net investment income 0 0 0 (0.01) (0.08)
...................................................................................................
Net realized gains (0.78) (1.01) 0 (0.35) (0.48)
------ --------- --------- ----------- -----------
...................................................................................................
Total distributions to
shareholders (0.78) (1.01) 0 (0.36) (0.56)
------ --------- --------- ----------- -----------
...................................................................................................
Net asset value, end of
period $28.15 $ 28.89 $ 27.10 $ 22.43 $ 18.58
------ --------- --------- ----------- -----------
...................................................................................................
Total return* 0.20% 10.47% 20.82% 22.60% 32.20%
...................................................................................................
Ratios and supplemental
data
...................................................................................................
Net assets, end of
period (millions) $ 46 $ 50 $ 24 $ 10 $ 20
...................................................................................................
Ratios to average net
assets
Expenses 2.21%+ 2.21% 2.25%+ 2.17% 2.15%+
...................................................................................................
Net investment income (0.22%)+ (0.13%) (0.19%)+ (0.06%) 0.35%+
...................................................................................................
Portfolio turnover rate 7% 20% 6% 14% 17%
...................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended December 31,
January 31, 1999 ---------------------- -------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $29.19 $ 27.29 $ 22.55 $ 18.64 $ 14.52 $ 15.41
------ --------- --------- ------- ------- -------
...................................................................................................
Income from investment
operations
...................................................................................................
Net investment income 0.11 0.24 0.11 0.18 0.18 0.14
...................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.07 2.87 4.73 4.25 4.59 0.12
------ --------- --------- ------- ------- -------
...................................................................................................
Total from investment
operations 0.18 3.11 4.84 4.43 4.77 0.26
------ --------- --------- ------- ------- -------
...................................................................................................
Less distributions to
shareholders from
Net realized gains (0.78) (1.01) 0 (0.35) (0.48) (1.01)
------ --------- --------- ------- ------- -------
...................................................................................................
Net investment income (0.09) (0.20) (0.10) (0.17) (0.17) (0.14)
...................................................................................................
Total distributions to
shareholders (0.87) (1.21) (0) (0.52) (0.65) (1.15)
------ --------- --------- ------- ------- -------
...................................................................................................
Net asset value, end of
period $28.50 $ 29.19 $ 27.29 $ 22.55 $ 18.64 $ 14.52
------ --------- --------- ------- ------- -------
...................................................................................................
Total return 0.67% 11.56% 21.52% 23.80% 32.90% 1.70%
...................................................................................................
Ratios and supplemental
data
...................................................................................................
Net assets, end of
period (millions) $ 752 $ 801 $ 616 $ 442 $ 141 $ 73
...................................................................................................
Ratios to average net
assets
Expenses 1.21%+ 1.20% 1.21%+ 1.16% 1.27% 1.33%
...................................................................................................
Net investment income 0.78%+ 0.86% 0.82%+ 0.93% 1.11% 0.96%
...................................................................................................
Portfolio turnover rate 7% 20% 6% 14% 17% 29%
...................................................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
35
<PAGE>
E V E R G R E E N
Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended January 31,
January 31, 1999 ----------------------- --------------------------
(Unaudited) 1998 1997 (b) # 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 23.19 $ 23.94 $ 21.79 $20.15 $17.28 $17.09
------- --------- --------- ------ ------ ------
..................................................................................................
Income from investment
operations
..................................................................................................
Net investment income 0.44 1.05 0.52 1.02 1.01 0.02
..................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.49) 0.81 2.15 1.67 2.94 0.17
------- --------- --------- ------ ------ ------
..................................................................................................
Total from investment
operations (0.05) 1.86 2.67 2.69 3.95 0.19
------- --------- --------- ------ ------ ------
..................................................................................................
Less distributions to
shareholders from
Net realized gains (2.13) (1.59) 0 0 0 0
------- --------- --------- ------ ------ ------
..................................................................................................
Net investment income (0.42) (1.02) (0.52) (1.05) (1.08) 0
..................................................................................................
Total distributions to
shareholders (2.55) (2.61) (0.52) (1.05) (1.08) 0
------- --------- --------- ------ ------ ------
..................................................................................................
Net asset value, end of
period $ 20.59 $ 23.19 $ 23.94 $21.79 $20.15 $17.28
------- --------- --------- ------ ------ ------
..................................................................................................
Total return* (0.11%) 7.93% 12.45% 13.80% 23.40% 1.10%
..................................................................................................
Ratios and supplemental
data
..................................................................................................
Net assets, end of
period (thousands) $13,379 $ 15,005 $ 11,955 $9,678 $4,412 $ 119
..................................................................................................
Ratios to average net
assets
..................................................................................................
Expenses 1.50%+ 1.50% 1.45%+ 1.44% 1.36% 1.45%+
..................................................................................................
Net investment income 4.15%+ 4.20% 4.69%+ 4.93% 5.39% 4.09%+
..................................................................................................
Portfolio turnover rate 43% 133% 72% 168% 138% 151%
..................................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended January 31,
January 31, 1999 ----------------------- --------------------------
(Unaudited) 1998 1997 (b) # 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 23.04 $ 23.81 $ 21.69 $ 20.08 $ 17.28 $17.09
------- --------- --------- ------- ------- ------
..................................................................................................
Income from investment
operations
..................................................................................................
Net investment income 0.34 0.86 0.43 0.89 0.91 0.02
..................................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.47) 0.81 2.15 1.64 2.87 0.17
------- --------- --------- ------- ------- ------
..................................................................................................
Total from investment
operations (0.13) 1.67 2.58 2.53 3.78 0.19
------- --------- --------- ------- ------- ------
..................................................................................................
Less distributions to
shareholders from
Net realized gains (2.13) (1.59) 0 0 0 0
------- --------- --------- ------- ------- ------
..................................................................................................
Net investment income (0.37) (0.85) (0.46) (0.92) (0.98) 0
..................................................................................................
Total distributions to
shareholders (2.50) (2.44) (0.46) (0.92) (0.98) 0
------- --------- --------- ------- ------- ------
..................................................................................................
Net asset value, end of
period $ 20.41 $ 23.04 $ 23.81 $ 21.69 $ 20.08 $17.28
------- --------- --------- ------- ------- ------
..................................................................................................
Total return* (0.48%) 7.13% 12.06% 13.00% 22.40% 1.10%
..................................................................................................
Ratios and supplemental
data
..................................................................................................
Net assets, end of
period (thousands) $51,033 $ 54,544 $ 43,977 $35,323 $14,750 $ 599
..................................................................................................
Ratios to average net
assets
..................................................................................................
Expenses 2.25%+ 2.25% 2.20%+ 2.19% 2.11% 2.23%+
..................................................................................................
Net investment income 3.39%+ 3.46% 3.94%+ 4.17% 4.69% 3.23%+
..................................................................................................
Portfolio turnover rate 43% 133% 72% 168% 138% 151%
..................................................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
(b) For the six months ended July 31, 1997. The Fund changed its fiscal year
end from January 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
# Net investment income is based on average shares outstanding throughout the
period.
+ Annualized.
See Combined Notes to Financial Statements.
36
<PAGE>
E V E R G R E E N
Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended January 31,
January 31, 1999 ----------------------- ------------------------
(Unaudited) 1998 1997 (b) # 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $23.04 $ 23.81 $ 21.69 $20.08 $17.27 $17.09
------ --------- --------- ------ ------ ------
...............................................................................................
Income from investment
operations
...............................................................................................
Net investment income 0.36 0.87 0.44 0.87 0.90 0.01
...............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.49) 0.80 2.14 1.66 2.89 0.17
------ --------- --------- ------ ------ ------
...............................................................................................
Total from investment
operations (0.13) 1.67 2.58 2.53 3.79 0.18
------ --------- --------- ------ ------ ------
...............................................................................................
Less distributions to
shareholders from
...............................................................................................
Net investment income (0.37) (0.85) (0.46) (0.92) (0.98) 0
...............................................................................................
Net realized gains (2.13) (1.59) 0 0 0 0
------ --------- --------- ------ ------ ------
...............................................................................................
Total distributions to
shareholders (2.50) (2.44) (0.46) (0.92) (0.98) 0
------ --------- --------- ------ ------ ------
...............................................................................................
Net asset value, end of
period $20.41 $ 23.04 $ 23.81 $21.69 $20.08 $17.27
------ --------- --------- ------ ------ ------
...............................................................................................
Total return* (0.48%) 7.13% 12.06% 12.90% 22.40% 1.10%
...............................................................................................
Ratios and supplemental
data
...............................................................................................
Net assets, end of
period (thousands) $1,074 $ 1,259 $ 950 $ 982 $ 523 $ 24
...............................................................................................
Ratios to average net
assets
Expenses 2.25%+ 2.25% 2.20%+ 2.19% 2.11% 2.22%+
...............................................................................................
Net investment income 3.36%+ 3.48% 4.06%+ 4.15% 4.67% 2.68%+
...............................................................................................
Portfolio turnover rate 43% 133% 72% 168% 138% 151%
...............................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended July 31, Year Ended January 31,
January 31, 1999 ---------------------- ------------------------ Year Ended
(Unaudited) 1998 1997 (b) 1997 1996 1995 (c) March 31, 1994
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $23.22 $ 23.98 $ 21.81 $20.16 $17.28 $18.29 $20.90
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Income from investment
operations
................................................................................................................
Net investment income 0.46 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 (0.47) 0.89 2.16 1.66 2.87 (0.55) (1.41)
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Total from investment
operations (0.01) 1.91 2.71 2.74 3.97 0.32 (0.33)
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Less distributions to
shareholders from
Net realized gains (2.13) (1.59) 0 0 0 (0.25) (1.20)
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Net investment income (0.48) (1.08) (0.54) (1.09) (1.09) (1.08) (1.08)
................................................................................................................
Total distributions to
shareholders (2.61) (2.67) (0.54) (1.09) (1.09) (1.33) (2.28)
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Net asset value, end of
period $20.60 $ 23.22 $ 23.98 $21.81 $20.16 $17.28 $18.29
------ --------- --------- ------ ------ ------ ------
................................................................................................................
Total return 0.05% 8.16% 12.65% 14.10% 23.50% 1.90% (2.10%)
................................................................................................................
Ratios and supplemental
data
................................................................................................................
Net assets, end of
period (millions) $ 807 $ 880 $ 900 $ 858 $ 914 $ 942 $1,065
................................................................................................................
Ratios to average net
assets
Expenses 1.25%+ 1.25% 1.20%+ 1.18% 1.19% 1.24%+ 1.18%
................................................................................................................
Net investment income 4.39%+ 4.46% 4.97%+ 5.14% 5.70% 5.70%+ 5.29%
................................................................................................................
Portfolio turnover rate 43% 133% 72% 168% 138% 151% 106%
................................................................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
January 31, 1995.
(b) For the six months ended July 31, 1997. The Fund changed its fiscal year
end from January 31 to July 31, effective July 31, 1997.
(c) For the ten months ended January 31, 1995. The Fund changed its fiscal year
end from March 31 to January 31, effective January 31, 1995.
* Excluding applicable sales charges.
# Net investment income is based on average shares outstanding throughout the
period.
+ Annualized.
See Combined Notes to Financial Statements.
37
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended
Six Months Ended 31, December 31,
January 31, 1999 ------------------- ----------------
(Unaudited) 1998 1997 (b) # 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 15.75 $ 15.69 $13.10 $11.57 $ 9.64
------- ------- ------ ------ ------
..................................................................................
Income from investment
operations
..................................................................................
Net investment income 0.16 0.29 0.14 0.34 0.34
..................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.94) 0.24 2.59 2.13 2.45
------- ------- ------ ------ ------
..................................................................................
Total from investment
operations (0.78) 0.53 2.73 2.47 2.79
------- ------- ------ ------ ------
..................................................................................
Less distributions to
shareholders from
Net realized gains (0.18) (0.19) (0.01) (0.60) (0.49)
------- ------- ------ ------ ------
..................................................................................
Net investment income (0.18) (0.28) (0.13) (0.34) (0.37)
..................................................................................
Total distributions to
shareholders (0.36) (0.47) (0.14) (0.94) (0.86)
------- ------- ------ ------ ------
..................................................................................
Net asset value, end of
period $ 14.61 $ 15.75 $15.69 $13.10 $11.57
------- ------- ------ ------ ------
..................................................................................
Total return* (4.96%) 3.24% 20.99% 22.00% 29.50%
..................................................................................
Ratios and supplemental
data
..................................................................................
Net assets, end of
period (thousands) $74,510 $54,142 $4,239 $ 336 $ 216
..................................................................................
Ratios to average net
assets
Expenses 1.61%+ 1.68% 1.71%+ 1.75% 1.75%+
..................................................................................
Net investment income 2.32%+ 1.95% 1.88%+ 3.08% 3.39%+
..................................................................................
Portfolio turnover rate 28% 18% 13% 50% 48%
..................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Six Months Ended Year Ended July 31, December 31,
January 31, 1999 -------------------- ----------------
(Unaudited) 1998 1997 (b) # 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 15.67 $ 15.64 $13.09 $11.57 $ 9.64
-------- -------- ------ ------ ------
..................................................................................
Income from investment
operations
..................................................................................
Net investment income 0.12 0.19 0.08 0.27 0.28
..................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.96) 0.22 2.57 2.11 2.43
-------- -------- ------ ------ ------
..................................................................................
Total from investment
operations (0.84) 0.41 2.65 2.38 2.71
-------- -------- ------ ------ ------
..................................................................................
Less distributions to
shareholders from
Net realized gains (0.18) (0.19) (0.01) (0.60) (0.49)
-------- -------- ------ ------ ------
..................................................................................
Net investment income (0.12) (0.19) (0.09) (0.26) (0.29)
..................................................................................
Total distributions to
shareholders (0.30) (0.38) (0.10) (0.86) (0.78)
-------- -------- ------ ------ ------
..................................................................................
Net asset value, end of
period $ 14.53 $ 15.67 $15.64 $13.09 $11.57
-------- -------- ------ ------ ------
..................................................................................
Total return* (5.34%) 2.49% 20.37% 21.10% 28.70%
..................................................................................
Ratios and supplemental
data
..................................................................................
Net assets, end of
period (thousands) $125,717 $130,191 $9,462 $ 692 $ 266
..................................................................................
Ratios to average net
assets
..................................................................................
Expenses 2.38%+ 2.43% 2.46%+ 2.50% 2.50%+
..................................................................................
Net investment income 1.60%+ 1.20% 1.12%+ 2.39% 2.67%+
..................................................................................
Portfolio turnover rate 28% 18% 13% 50% 48%
..................................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
# Net investment income is based on average shares outstanding throughout the
period.
+ Annualized.
See Combined Notes to Financial Statements.
38
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ------------------- ---------------------
(Unaudited) 1998 1997 (b) # 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $ 15.66 $ 15.63 $13.09 $11.56 $ 9.74
------- ------- ------ ------ ------
....................................................................................
Income from investment
operations
....................................................................................
Net investment income 0.12 0.19 0.10 0.28 0.28
....................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.96) 0.22 2.54 2.10 2.33
------- ------- ------ ------ ------
....................................................................................
Total from investment
operations (0.84) 0.41 2.64 2.38 2.61
------- ------- ------ ------ ------
....................................................................................
Less distributions to
shareholders from
Net realized gains (0.18) (0.19) (0.01) (0.60) (0.49)
------- ------- ------ ------ ------
....................................................................................
Net investment income (0.12) (0.19) (0.09) (0.25) (0.30)
....................................................................................
Total distributions to
shareholders (0.30) (0.38) (0.10) (0.85) (0.79)
------- ------- ------ ------ ------
....................................................................................
Net asset value, end of
period $ 14.52 $ 15.66 $15.63 $13.09 $11.56
------- ------- ------ ------ ------
....................................................................................
Total return* (5.35%) 2.49% 20.30% 21.10% 27.30%
....................................................................................
Ratios and supplemental
data
....................................................................................
Net assets, end of
period (thousands) $25,770 $26,197 $2,770 $ 56 $ 24
....................................................................................
Ratios to average net
assets
Expenses 2.38%+ 2.43% 2.45%+ 2.50% 2.50%+
....................................................................................
Net investment income 1.60%+ 1.20% 1.20%+ 2.33% 2.63%+
....................................................................................
Portfolio turnover rate 28% 18% 13% 50% 48%
....................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July
Six Months Ended 31, Year Ended December 31,
January 31, 1999 ------------------- ----------------------------------
(Unaudited) 1998 1997 (b) # 1996 1995 1994 1993 [c]
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 15.77 $ 15.71 $ 13.12 $11.58 $ 9.70 $10.15 $10.00
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Income from investment
operations
....................................................................................................
Net investment income 0.20 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 (0.98) 0.24 2.56 2.13 2.38 (0.41) 0.15
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Total from investment
operations (0.78) 0.58 2.75 2.51 2.76 (0.07) 0.25
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Less distributions to
shareholders from
Net realized gains (0.18) (0.19) (0.01) (0.60) (0.50) (0.05) 0
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Net investment income (0.19) (0.33) (0.15) (0.37) (0.38) (0.33) (0.10)
....................................................................................................
Total distributions to
shareholders (0.37) (0.52) (0.16) (0.97) (0.88) (0.38) (0.10)
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Net asset value, end of
period $ 14.62 $ 15.77 $ 15.71 $13.12 $11.58 $ 9.70 $10.15
------- ------- ------- ------ ------ ------ ------
....................................................................................................
Total return (4.90%) 3.57% 21.09% 22.40% 29.10% (0.70%) 2.50%
....................................................................................................
Ratios and supplemental
data
....................................................................................................
Net assets, end of
period (thousands) $75,244 $96,556 $42,374 $8,592 $4,806 $3,613 $2,236
....................................................................................................
Ratios to average net
assets
Expenses 1.39%+ 1.39% 1.39%+ 1.50% 1.50%+ 1.48% 0.00%+
....................................................................................................
Net investment income 2.61%+ 2.23% 2.39%+ 3.36% 3.56% 3.72% 4.07%+
....................................................................................................
Portfolio turnover rate 28% 18% 13% 50% 48% 9% 15%
....................................................................................................
</TABLE>
(a) For the period from January 24, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
(c) For the period from October 1, 1993 (commencement of class operations) to
December 31, 1993.
* Excluding applicable sales charges.
# Net investment income is based on average shares outstanding throughout the
period.
+ Annualized.
See Combined Notes to Financial Statements.
39
<PAGE>
E V E R G R E E N
Utility Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July
Six Months Ended 31, Year Ended December 31,
January 31, 1999 ----------------- ---------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $ 11.76 $ 11.45 $ 10.57 $ 10.80 $ 9.00 $10.00
------- ------- ------- ------- -------- ------
..............................................................................................
Income from investment
operations
..............................................................................................
Net investment income 0.23 0.43 0.25 0.41 0.44 0.45
..............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.42 1.44 0.87 0.05 2.25 (1.01)
------- ------- ------- ------- -------- ------
..............................................................................................
Total from investment
operations 0.65 1.87 1.12 0.46 2.69 (0.56)
------- ------- ------- ------- -------- ------
..............................................................................................
Less distributions to
shareholders from
Net realized gains (1.28) (1.12) 0 (0.28) (0.45) 0
------- ------- ------- ------- -------- ------
..............................................................................................
Net investment income (0.23) (0.44) (0.24) (0.41) (0.44) (0.44)
..............................................................................................
Total distributions to
shareholders (1.51) (1.56) (0.24) (0.69) (0.89) (0.44)
------- ------- ------- ------- -------- ------
..............................................................................................
Net asset value, end of
period $ 10.90 $ 11.76 $ 11.45 $ 10.57 $ 10.80 $ 9.00
------- ------- ------- ------- -------- ------
..............................................................................................
Total return* 5.24% 17.30% 10.72% 4.40% 30.70% (5.60%)
..............................................................................................
Ratios and supplemental
data
..............................................................................................
Net assets, end of
period (thousands) $94,954 $95,300 $91,638 $96,243 $107,872 $4,190
..............................................................................................
Ratios to average net
assets
Expenses 1.02%+ 0.99% 1.00%+ 0.87% 0.79% 0.53%+
..............................................................................................
Net investment income 4.03%+ 3.58% 3.85%+ 3.87% 4.51% 5.07%+
..............................................................................................
Portfolio turnover rate 34% 62% 50% 59% 88% 23%
..............................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July
Six Months Ended 31, Year Ended December 31,
January 31, 1999 ----------------- --------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 11.76 $ 11.46 $ 10.58 $ 10.81 $ 9.00 $ 10.00
------- ------- ------- ------- ------- -------
..............................................................................................
Income from investment
operations
..............................................................................................
Net investment income 0.19 0.34 0.20 0.33 0.37 0.39
..............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.42 1.44 0.87 0.05 2.26 (1.01)
------- ------- ------- ------- ------- -------
..............................................................................................
Total from investment
operations 0.61 1.78 1.07 0.38 2.63 (0.62)
------- ------- ------- ------- ------- -------
..............................................................................................
Less distributions to
shareholders from
Net realized gains (1.28) (1.12) 0 (0.28) (0.45) 0
------- ------- ------- ------- ------- -------
..............................................................................................
Net investment income (0.19) (0.36) (0.19) (0.33) (0.37) (0.38)
..............................................................................................
Total distributions to
shareholders (1.47) (1.48) (0.19) (0.61) (0.82) (0.38)
------- ------- ------- ------- ------- -------
..............................................................................................
Net asset value, end of
period $ 10.90 $ 11.76 $ 11.46 $ 10.58 $ 10.81 $ 9.00
------- ------- ------- ------- ------- -------
..............................................................................................
Total return* 4.84% 16.31% 10.21% 3.60% 29.90% (6.20%)
..............................................................................................
Ratios and supplemental
data
..............................................................................................
Net assets, end of
period (thousands) $46,419 $43,776 $36,738 $38,511 $35,662 $28,792
..............................................................................................
Ratios to average net
assets
Expenses 1.77%+ 1.74% 1.75%+ 1.62% 1.53% 1.27%+
..............................................................................................
Net investment income 3.30%+ 2.82% 3.10%+ 3.12% 3.78% 4.19%+
..............................................................................................
Portfolio turnover rate 34% 62% 50% 59% 88% 23%
..............................................................................................
</TABLE>
(a) For the period from January 4, 1994 (commencement of class operations) to
December 31, 1994.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
40
<PAGE>
E V E R G R E E N
Utility Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ---------------- ------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $11.76 $11.46 $10.58 $10.82 $ 9.01 $9.33
------ ------ ------ ------ ------ -----
..........................................................................................
Income from investment
operations
..........................................................................................
Net investment income 0.19 0.34 0.20 0.33 0.37 0.12
..........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.42 1.44 0.87 0.04 2.26 (0.33)
------ ------ ------ ------ ------ -----
..........................................................................................
Total from investment
operations 0.61 1.78 1.07 0.37 2.63 (0.21)
------ ------ ------ ------ ------ -----
..........................................................................................
Less distributions to
shareholders from
Net realized gains (1.28) (1.12) 0 (0.28) (0.45) 0
------ ------ ------ ------ ------ -----
..........................................................................................
Net investment income (0.19) (0.36) (0.19) (0.33) (0.37) (0.11)
..........................................................................................
Total distributions to
shareholders (1.47) (1.48) (0.19) (0.61) (0.82) (0.11)
------ ------ ------ ------ ------ -----
..........................................................................................
Net asset value, end of
period $10.90 $11.76 $11.46 $10.58 $10.82 $9.01
------ ------ ------ ------ ------ -----
..........................................................................................
Total return* 4.84% 16.31% 10.21% 3.50% 29.80% (2.20%)
..........................................................................................
Ratios and supplemental
data
..........................................................................................
Net assets, end of
period (thousands) $ 630 $ 486 $ 379 $ 396 $ 246 $ 128
..........................................................................................
Ratios to average net
assets
Expenses 1.77%+ 1.74% 1.75%+ 1.63% 1.54% 1.94%+
..........................................................................................
Net investment income 3.34%+ 2.82% 3.10%+ 3.13% 3.76% 3.96%+
..........................................................................................
Portfolio turnover rate 34% 62% 50% 59% 88% 23%
..........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ---------------- ------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994 (c)
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $11.77 $11.46 $10.58 $10.82 $ 9.00 $ 9.51
------ ------ ------ ------ ------ ------
..........................................................................................
Income from investment
operations
..........................................................................................
Net investment income 0.24 0.46 0.25 0.44 0.47 0.37
..........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0.43 1.45 0.88 0.03 2.27 (0.50)
------ ------ ------ ------ ------ ------
..........................................................................................
Total from investment
operations 0.67 1.91 1.13 0.47 2.74 (0.13)
------ ------ ------ ------ ------ ------
..........................................................................................
Less distributions to
shareholders from
Net realized gains (1.28) (1.12) 0 (0.28) (0.45) 0
------ ------ ------ ------ ------ ------
..........................................................................................
Net investment income (0.26) (0.48) (0.25) (0.43) (0.47) (0.38)
..........................................................................................
Total distributions to
shareholders (1.54) (1.60) (0.25) (0.71) (0.92) (0.38)
------ ------ ------ ------ ------ ------
..........................................................................................
Net asset value, end of
period $10.90 $11.77 $11.46 $10.58 $10.82 $ 9.00
------ ------ ------ ------ ------ ------
..........................................................................................
Total return 5.27% 17.60% 10.85% 4.50% 31.30% (1.60%)
..........................................................................................
Ratios and supplemental
data
..........................................................................................
Net assets, end of
period (thousands) $2,848 $1,695 $1,627 $2,000 $7,791 $5,201
..........................................................................................
Ratios to average net
assets
Expenses 0.76%+ 0.74% 0.74%+ 0.61% 0.54% 0.40%+
..........................................................................................
Net investment income 4.30% 3.82% 4.06%+ 4.01% 4.76% 4.93%+
..........................................................................................
Portfolio turnover rate 34% 62% 50% 59% 88% 23%
..........................................................................................
</TABLE>
(a) For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
(c) For the period from February 28, 1994 (commencement of class operations) to
December 31, 1994.
* Excluding applicable sales charges.
+ Annualized
See Combined Notes to Financial Statements.
41
<PAGE>
E V E R G R E E N
Value Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ---------------- ----------------------
(Unaudited) 1998 1997 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $22.23 $24.64 $20.57 $20.45 $16.62 $17.63
------ ------ ------ ------ ------ ------
.......................................................................................
Income from investment
operations
.......................................................................................
Net investment income 0.11 0.26 0.21 0.38 0.55 0.52
.......................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.70 2.00 4.05 3.49 4.69 (0.20)
------ ------ ------ ------ ------ ------
.......................................................................................
Total from investment
operations 1.81 2.26 4.26 3.87 5.24 0.32
------ ------ ------ ------ ------ ------
.......................................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (4.38) 0 (3.34) (0.90) (0.82)
------ ------ ------ ------ ------ ------
.......................................................................................
Net investment income (0.11) (0.29) (0.19) (0.41) (0.51) (0.51)
.......................................................................................
Total distributions to
shareholders (0.24) (4.67) (0.19) (3.75) (1.41) (1.33)
------ ------ ------ ------ ------ ------
.......................................................................................
Net asset value, end of
period $23.80 $22.23 $24.64 $20.57 $20.45 $16.62
------ ------ ------ ------ ------ ------
.......................................................................................
Total return* 8.24% 9.55% 20.78% 18.90% 31.80% 1.90%
.......................................................................................
Ratios and supplemental
data
.......................................................................................
Net assets, end of
period (millions) $ 480 $ 476 $ 392 $ 328 $ 292 $ 189
.......................................................................................
Ratios to average net
assets
Expenses 1.00%+ 1.01% 0.92%+ 0.91% 0.90% 0.93%
.......................................................................................
Net investment income 1.06%+ 1.04% 1.66%+ 1.77% 2.78% 2.96%
.......................................................................................
Portfolio turnover rate 75% 69% 6% 91% 53% 70%
.......................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July
Six Months Ended 31, Year Ended December 31,
January 31, 1999 ------------------ ----------------------------
(Unaudited) 1998 1997 (a) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $ 22.20 $ 24.63 $ 20.58 $ 20.45 $ 16.62 $ 17.63
-------- -------- -------- -------- -------- --------
...............................................................................................
Income from investment
operations
...............................................................................................
Net investment income 0.04 0.08 0.12 0.22 0.39 0.42
...............................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.69 1.99 4.03 3.50 4.70 (0.20)
-------- -------- -------- -------- -------- --------
...............................................................................................
Total from investment
operations 1.73 2.07 4.15 3.72 5.09 0.22
-------- -------- -------- -------- -------- --------
...............................................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (4.38) 0 (3.34) (0.90) (0.82)
-------- -------- -------- -------- -------- --------
...............................................................................................
Net investment income (0.05) (0.12) (0.10) (0.25) (0.36) (0.41)
...............................................................................................
Total distributions to
shareholders (0.18) (4.50) (0.10) (3.59) (1.26) (1.23)
-------- -------- -------- -------- -------- --------
...............................................................................................
Net asset value, end of
period $ 23.75 $ 22.20 $ 24.63 $ 20.58 $ 20.45 $ 16.62
-------- -------- -------- -------- -------- --------
...............................................................................................
Total return* 7.83% 8.73% 20.23% 18.10% 30.90% 1.30%
...............................................................................................
Ratios and supplemental
data
...............................................................................................
Net assets, end of
period (thousands) $337,559 $326,459 $276,256 $197,411 $141,072 $104,297
...............................................................................................
Ratios to average net
assets
Expenses 1.75%+ 1.76% 1.67%+ 1.66% 1.65% 1.53%
...............................................................................................
Net investment income 0.31%+ 0.30% 0.92%+ 1.01% 2.04% 2.36%
...............................................................................................
Portfolio turnover rate 75% 69% 6% 91% 53% 70%
...............................................................................................
</TABLE>
(a) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
42
<PAGE>
E V E R G R E E N
Value Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ---------------- ------------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value,
beginning of period $22.18 $24.61 $20.56 $20.44 $16.61 $18.28
------ ------ ------ ------ ------ ------
........................................................................................
Income from investment
operations
........................................................................................
Net investment income 0.03 0.10 0.12 0.22 0.39 0.19
........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.70 1.97 4.03 3.50 4.70 (0.81)
------ ------ ------ ------ ------ ------
........................................................................................
Total from investment
operations 1.73 2.07 4.15 3.72 5.09 (0.62)
------ ------ ------ ------ ------ ------
........................................................................................
Less distributions to
shareholders from
From net realized gains (0.13) (4.38) 0 (3.34) (0.90) (0.82)
------ ------ ------ ------ ------ ------
........................................................................................
Net investment income (0.05) (0.12) (0.10) (0.26) (0.36) (0.23)
........................................................................................
Total distributions to
shareholders (0.18) (4.50) (0.10) (3.60) (1.26) (1.05)
------ ------ ------ ------ ------ ------
........................................................................................
Net asset value, end of
period $23.73 $22.18 $24.61 $20.56 $20.44 $16.61
------ ------ ------ ------ ------ ------
........................................................................................
Total return* 7.84% 8.74% 20.25% 18.10% 30.90% (3.40%)
........................................................................................
Ratios and supplemental
data
........................................................................................
Net assets, end of
period (thousands) $4,492 $5,125 $2,507 $1,458 $ 811 $ 485
........................................................................................
Ratios to average net
assets
Expenses 1.75%+ 1.76% 1.66%+ 1.67% 1.65% 1.68%+
........................................................................................
Net investment income 0.33%+ 0.29% 0.94%+ 1.00% 2.03% 2.16%+
........................................................................................
Portfolio turnover rate 75% 69% 6% 91% 53% 70%
........................................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended July Year Ended December
Six Months Ended 31, 31,
January 31, 1999 ---------------- ----------------------
(Unaudited) 1998 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $22.23 $24.64 $20.57 $20.45 $16.61 $17.63
------ ------ ------ ------ ------ ------
........................................................................................
Income from investment
operations
........................................................................................
Net investment income 0.15 0.35 0.25 0.44 0.57 0.56
........................................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 1.70 1.97 4.03 3.49 4.72 (0.20)
------ ------ ------ ------ ------ ------
........................................................................................
Total from investment
operations 1.85 2.32 4.28 3.93 5.29 0.36
------ ------ ------ ------ ------ ------
........................................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (4.38) 0 (3.34) (0.90) (0.82)
------ ------ ------ ------ ------ ------
........................................................................................
Net investment income (0.14) (0.35) (0.21) (0.47) (0.55) (0.56)
........................................................................................
Total distributions to
shareholders (0.27) (4.73) (0.21) (3.81) (1.45) (1.38)
------ ------ ------ ------ ------ ------
........................................................................................
Net asset value, end of
period $23.81 $22.23 $24.64 $20.57 $20.45 $16.61
------ ------ ------ ------ ------ ------
........................................................................................
Total return 8.41% 9.79% 20.93% 19.20% 32.20% 2.10%
........................................................................................
Ratios and supplemental
data
........................................................................................
Net assets, end of
period (millions) $ 158 $ 183 $1,149 $ 996 $ 761 $ 507
........................................................................................
Ratios to average net
assets
Expenses 0.75%+ 0.70% 0.67%+ 0.66% 0.65% 0.68%
........................................................................................
Net investment income 1.33%+ 1.47% 1.91%+ 2.02% 3.02% 3.21%
........................................................................................
Portfolio turnover rate 75% 69% 6% 91% 53% 70%
........................................................................................
</TABLE>
(a) For the period from September 2, 1994 (commencement of class operations) to
December 31, 1994.
(b) For the seven months ended July 31, 1997. The Fund changed its fiscal year
end from December 31 to July 31, effective July 31, 1997.
* Excluding applicable sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
43
<PAGE>
E V E R G R E E N
Blue Chip Fund
Schedule of Investments
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 94.5%
Automotive Equipment &
Manufacturing - 1.2%
30,000 Daimler Chrysler AG................................ $ 3,106,875
45,000 Ford Motor Co. .................................... 2,764,687
------------
5,871,562
------------
Banks - 6.2%
120,000 AmSouth Bancorp.................................... 5,287,500
60,000 BankAmerica Corp. ................................. 4,012,500
50,000 Chase Manhattan Corp. ............................. 3,846,875
85,000 Dime Bancorp, Inc. ................................ 2,061,250
90,000 Fleet Financial Group, Inc. ....................... 3,988,125
65,000 Mellon Bank Corp. ................................. 4,355,000
37,000 National City Corp. ............................... 2,629,312
90,000 North Fork Bancorp, Inc. .......................... 1,890,000
50,000 US Bancorp......................................... 1,684,375
------------
29,754,937
------------
Business Equipment &
Services - 1.7%
120,000 Modis Professional Services, Inc. ................. 1,747,500
79,000 Paychex, Inc. ..................................... 3,843,844
20,000 Xerox Corp. ....................................... 2,480,000
------------
8,071,344
------------
Chemical & Agricultural
Products - 0.7%
45,000 Monsanto Co. ...................................... 2,140,313
55,000 Morton International, Inc. ........................ 1,423,125
------------
3,563,438
------------
Communication Systems & Services - 0.9%
50,000 * Tellabs, Inc. ................................... 4,289,063
------------
Consumer Products &
Services - 2.3%
67,000 Gillette Co. ...................................... 3,936,250
60,000 Procter & Gamble Co. .............................. 5,452,500
100,800 Stewart Enterprises, Inc. Cl. A.................... 1,748,250
------------
11,137,000
------------
Diversified Companies - 1.6%
102,500 Tyco International Ltd. ........................... 7,898,906
------------
Electrical Equipment &
Services - 5.1%
75,000 Emerson Electric Co. .............................. 4,364,063
166,700 General Electric Co. .............................. 17,482,662
40,000 Honeywell, Inc. ................................... 2,607,500
------------
24,454,225
------------
Finance & Insurance - 4.8%
62,500 American International Group, Inc. ................ 6,433,594
100,028 Associates First Capital Corp. Cl. A............... 4,057,386
85,000 Federal National Mortgage Association.............. 6,194,375
90,000 Franklin Resources, Inc. .......................... 3,015,000
45,000 Greenpoint Financial Corp. ........................ 1,473,750
35,000 Hartford Financial Services Group, Inc. ........... 1,817,812
------------
22,991,917
------------
Food & Beverage Products - 2.8%
72,700 Coca Cola Co. ..................................... 4,757,306
200,000 Flowers Industries, Inc. .......................... 4,812,500
50,000 McDonald's Corp. .................................. 3,940,625
------------
13,510,431
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 15.3%
145,000 American Home Products Corp. ...................... $ 8,509,688
57,500 Biogen, Inc. ...................................... 5,631,406
52,000 Bristol-Myers Squibb Co. .......................... 6,665,750
93,750 Cardinal Health, Inc. ............................. 6,931,641
220,000 *Health Management Associates, Inc. Cl. A.......... 2,763,750
51,000 Johnson & Johnson.................................. 4,335,000
48,000 Lilly (Eli) & Co. ................................. 4,497,000
97,900 Medtronic, Inc. ................................... 7,801,406
73,500 Merck & Co., Inc. ................................. 10,786,125
43,000 Pfizer, Inc. ...................................... 5,530,875
117,000 Pharmacia & Upjohn, Inc. .......................... 6,727,500
60,000 Schering-Plough Corp. ............................. 3,270,000
------------
73,450,141
------------
Industrial Specialty Products & Services - 0.8%
100,000 Ecolab, Inc. ...................................... 3,875,000
------------
Information Services & Technology - 17.6%
20,000 America Online, Inc. .............................. 3,513,750
55,000 *American Power Conversion Corp. .................. 2,810,156
51,100 *Applied Materials, Inc. .......................... 3,227,284
140,000 Compaq Computer Corp. ............................. 6,667,500
50,500 *EMC Corp. ........................................ 5,498,188
75,000 *Gateway 2000, Inc. ............................... 5,793,750
90,000 Hewlett-Packard Co. ............................... 7,053,750
66,300 Intel Corp. ....................................... 9,337,941
53,000 International Business Machines Corp. ............. 9,712,250
115,400 *Microsoft Corp. .................................. 20,191,394
95,000 *Oracle Systems Corp. ............................. 5,257,656
28,400 *Solectron Corp. .................................. 2,529,375
27,500 *Sun Microsystems, Inc. ........................... 3,073,984
------------
84,666,978
------------
Leisure & Tourism - 0.7%
80,000 Royal Caribbean Cruises Ltd. ...................... 3,180,000
------------
Oil/Energy - 3.9%
31,500 Anadarko Petroleum Corp. .......................... 852,469
24,000 BP Amoco Plc....................................... 1,947,000
100,000 Burlington Resources, Inc. ........................ 3,025,000
71,100 Exxon Corp. ....................................... 5,008,106
8,000 Mobil Corp. ....................................... 701,500
50,000 Royal Dutch Petroleum Co. ......................... 2,003,125
52,100 Texaco, Inc. ...................................... 2,468,237
92,500 Unocal Corp. ...................................... 2,636,250
------------
18,641,687
------------
Printing, Publishing, Broadcasting &
Entertainment - 6.6%
117,500 CBS Corp. ......................................... 3,995,000
70,000 *Clear Channel Communications, Inc. ............... 4,331,250
90,000 Disney (Walt) Co. ................................. 2,970,000
73,100 *Tele Communications, Inc. ........................ 5,014,203
130,000 Time Warner, Inc. ................................. 8,125,000
40,000 *Univision Communications, Inc. Cl. A.............. 1,795,000
63,000 *Viacom, Inc. Cl. B................................ 5,355,000
------------
31,585,453
------------
</TABLE>
44
<PAGE>
E V E R G R E E N
Blue Chip Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - 1.0%
112,504 Equity Office Properties Trust REIT................. $ 2,868,852
80,000 First Industrial Realty Trust, Inc. REIT............ 2,055,000
------------
4,923,852
------------
Retailing & Wholesale - 8.5%
59,500 *Costco Companies, Inc. ............................ 4,929,203
136,600 CVS Corp. .......................................... 7,478,850
59,600 Dayton Hudson Corp. ................................ 3,799,500
118,200 Home Depot, Inc. ................................... 7,136,325
100,000 * Office Depot, Inc. ............................... 3,475,000
100,000 * Safeway, Inc. .................................... 5,612,500
98,000 Wal-Mart Stores, Inc. .............................. 8,428,000
------------
40,859,378
------------
Telecommunication Services & Equipment - 4.7%
80,000 *Ciena Corp......................................... 1,602,500
50,000 *Cisco Systems, Inc................................. 5,585,937
85,000 *MCI WorldCom, Inc.................................. 6,776,094
77,500 Motorola, Inc....................................... 5,599,375
23,000 Nokia Corp. ADR..................................... 3,312,000
------------
22,875,906
------------
Transportation - 0.7%
78,100 CNF Transportation, Inc............................. 3,465,688
------------
Utilities - Electric - 2.2%
45,000 Consolidated Edison, Inc............................ 2,224,687
50,000 Dominion Resources, Inc............................. 2,237,500
30,000 Duke Power Co....................................... 1,854,375
55,000 Florida Progress Corp............................... 2,289,375
45,000 Texas Utilities Co. ................................ 1,977,188
------------
10,583,125
------------
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Telephone - 5.2%
115,000 Ameritech Corp. ................................... $ 7,489,375
81,100 AT&T Corp. ........................................ 7,359,825
52,500 Bell Atlantic Corp. ............................... 3,150,000
35,000 GTE Corp. ......................................... 2,362,500
80,000 U.S. West, Inc. ................................... 4,935,000
------------
25,296,700
------------
Total Common Stocks (cost $341,036,441)............ 454,946,731
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.0%
Iron & Steel - 0.0%
$ 110,000 Compania Vale do Rio Doce Navegacao SA 1.00%,
12/31/1999 (cost $0).............................. $ 6
------------
SHORT-TERM INVESTMENTS - 7.0%
Repurchase Agreement - 7.0%
33,820,000 Evergreen Joint Repurchase Agreement, Investments
in repurchase agreements, in a joint trading
account purchased 1/29/1999, 4.77%, maturing
2/1/1999, maturity value
$33,833,443 (cost $33,820,000)(a)................. 33,820,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $374,856,441)........................ 101.5% 488,766,737
Other Assets and Liabilities - net.......... (1.5) (7,357,753)
----- ------------
Net Assets.................................. 100.0% $481,408,984
===== ============
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collaterized by U.S. government
and/or agency obligations based on market prices plus accrued
interest at January 29, 1999.
Summary of Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
45
<PAGE>
E V E R G R E E N
Equity Income Fund
Schedule of Investments
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 88.6%
Automotive Equipment & Manufacturing - 1.4%
25,000 General Motors Corp. ............................... $ 2,243,750
------------
Banks - 12.5%
90,000 Associated Banc Corp. .............................. 2,804,062
50,000 BankAmerica Corp. .................................. 3,343,750
100,000 Charter One Financial, Inc. ........................ 2,803,125
80,000 Fleet Financial Group, Inc. ........................ 3,545,000
30,000 Mellon Bank Corp. .................................. 2,010,000
150,000 North Fork Bancorp, Inc. ........................... 3,150,000
80,000 US Bancorp.......................................... 2,695,000
------------
20,350,937
------------
Business Equipment &
Services - 1.7%
90,000 Dun & Bradstreet Corp. ............................. 2,745,000
------------
Chemical & Agricultural
Products - 3.0%
76,000 Morton International, Inc. ......................... 1,966,500
96,000 Rohm & Haas Co. .................................... 2,976,000
------------
4,942,500
------------
Diversified Companies - 3.3%
70,000 Tyco International Ltd. ............................ 5,394,375
------------
Electrical Equipment &
Services - 3.7%
40,000 General Electric Co. ............................... 4,195,000
20,000 *Solectron Corp. ................................... 1,781,250
------------
5,976,250
------------
Finance & Insurance - 10.9%
38,000 Citigroup, Inc. .................................... 2,130,375
125,000 Greenpoint Financial Corp. ......................... 4,093,750
86,000 HSB Group, Inc. .................................... 3,246,500
20,000 Lehman Brothers Holdings, Inc. ..................... 1,093,750
20,000 Lincoln National Corp. ............................. 1,666,250
60,000 Nationwide Financial Services, Inc. Cl. A........... 2,876,250
45,000 UNUM Corp. ......................................... 2,719,687
------------
17,826,562
------------
Food & Beverage Products - 3.4%
35,000 H.J. Heinz Co. ..................................... 1,970,938
75,000 Philip Morris Companies, Inc. ...................... 3,525,000
------------
5,495,938
------------
Healthcare Products &
Services - 8.7%
40,000 American Home Products Corp. ....................... 2,347,500
3,100 Biogen, Inc. ....................................... 303,606
20,000 Johnson & Johnson................................... 1,700,000
80,000 Mallinckrodt, Inc. ................................. 2,795,000
28,500 Merck & Co., Inc. .................................. 4,182,375
50,000 Pharmacia & Upjohn, Inc. ........................... 2,875,000
------------
14,203,481
------------
Industrial Specialty Products & Services - 0.9%
40,000 Trinity Industries, Inc. ........................... 1,430,000
------------
Information Services & Technology - 5.4%
57,000 *BMC Software, Inc. ................................ 2,659,406
30,000 *EMC Corp. ......................................... 3,266,250
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services & Technology - continued
15,800 International Business Machines Corp. ............. $ 2,895,350
------------
8,821,006
------------
Oil/Energy - 6.2%
94,000 Anadarko Petroleum Corp. .......................... 2,543,875
18,000 Mobil Corp. ....................................... 1,578,375
60,000 Texaco, Inc. ...................................... 2,842,500
110,000 Unocal Corp. ...................................... 3,135,000
------------
10,099,750
------------
Paper & Packaging - 1.5%
105,000 Consolidated Papers, Inc. ......................... 2,434,688
------------
Printing, Publishing, Broadcasting &
Entertainment - 1.0%
50,000 CBS Corp. ......................................... 1,700,000
------------
Real Estate - 4.6%
40,000 Boston Properties, Inc. REIT....................... 1,300,000
55,000 Equity Office Properties Trust REIT................ 1,402,500
31,000 Equity Residential Properties Trust REIT........... 1,261,312
50,000 First Industrial Realty Trust, Inc. REIT........... 1,284,375
55,000 Prentiss Properties Trust REIT..................... 1,165,313
30,000 Spieker Properties, Inc. REIT...................... 1,020,000
------------
7,433,500
------------
Retailing & Wholesale - 3.9%
50,000 *Costco Companies, Inc. ........................... 4,142,188
76,686 *Staples, Inc. .................................... 2,197,533
------------
6,339,721
------------
Transportation - 1.4%
45,000 Union Pacific Corp. ............................... 2,314,688
------------
Utilities - Electric - 7.9%
50,000 Dominion Resources, Inc. .......................... 2,237,500
75,000 Edison International............................... 2,085,937
50,000 Houston Industries, Inc. .......................... 1,518,750
114,000 Southern Co. ...................................... 3,070,875
80,000 Teco Energy, Inc. ................................. 1,860,000
50,000 Texas Utilities Co. ............................... 2,196,875
------------
12,969,937
------------
Utilities - Telephone - 7.2%
40,000 Ameritech Corp. ................................... 2,605,000
18,000 AT&T Corp. ........................................ 1,633,500
50,000 Bell Atlantic Corp. ............................... 3,000,000
15,000 GTE Corp. ......................................... 1,012,500
57,000 U.S. West, Inc. ................................... 3,516,188
------------
11,767,188
------------
Total Common Stocks (cost $115,606,743)............ 144,489,271
------------
PREFERRED STOCKS - 1.0%
Consumer Products &
Services - 1.0%
30,000 Newell Financial Trust I, 5.25%, 144A
(cost $1,500,000)................................. 1,597,500
------------
</TABLE>
46
<PAGE>
E V E R G R E E N
Equity Income Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 2.7%
Building, Construction & Furnishings - 0.8%
150,000 Kaufman & Broad Home Corp. PRIDES, 8.25%............ $ 1,350,000
------------
Retailing & Wholesale - 1.9%
50,000 Kmart Financing I, 7.75%............................ 3,137,500
------------
Total Convertible Preferred (cost $4,110,665)....... 4,487,500
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.8%
Consumer Products &
Services - 0.8%
$ 1,000,000 Sunrise Assisted Living, Inc.
5.50%, 6/15/2002, 144A
(cost $1,000,000) ................................. 1,243,480
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 6.5%
Repurchase Agreement - 6.5%
$10,625,000 Evergreen Joint Repurchase Agreement, Investments
in repurchase agreements, in a joint trading
account, purchased 1/29/1999, 4.77% maturing
2/1/1999, maturity value
$10,629,223 (cost $10,625,000) (a)............... $ 10,625,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $132,842,408)...... 99.6% 162,442,751
Other Assets and Liabilities - net.......... 0.4 593,771
----- ------------
Net Assets.................................. 100.0% $163,036,522
===== ============
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices plus accrued
interest at January 29, 1999.
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:
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
47
<PAGE>
E V E R G R E E N
Growth and Income Fund
Schedule of Investments
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 92.1%
Aerospace & Defense - 1.6%
232,000 Boeing Co....................................... $ 8,018,500
780,000 Bombardier, Inc., Cl. B......................... 11,641,791
280,000 Sundstrand Corp................................. 12,460,000
------------
32,120,291
------------
Automotive Equipment & Manufacturing - 1.2%
105,875 Daimler Chrysler AG............................. 10,964,680
110,000 Ford Motor Co................................... 6,758,125
427,800 Meritor Automotive, Inc......................... 7,459,762
------------
25,182,567
------------
Banks - 10.5%
131,850 AmSouth Bancorp................................. 5,809,641
15,600 Astoria Financial Corp.......................... 713,700
160,000 Bank of New York Co., Inc....................... 5,680,000
130,284 Bank One Corp................................... 6,823,624
103,125 BankAmerica Corp................................ 6,896,484
70,000 BankBoston Corp................................. 2,585,625
33,640 BB & T Corp..................................... 1,286,730
286,500 BSB Bancorp, Inc................................ 7,663,875
135,000 Carolina First Corp............................. 2,961,563
14,300 Centura Banks, Inc.............................. 1,008,150
40,779 Charter One Financial, Inc...................... 1,141,812
13,521 Commerce Bancorp, Inc........................... 610,128
55,600 Cullen/Frost Bankers, Inc....................... 2,887,725
71,824 First American Corp............................. 2,998,652
236,250 First Security Corp............................. 4,813,594
114,550 First Virginia Banks, Inc....................... 5,412,488
96,476 Firstar Corp.................................... 8,507,977
23,600 FirstMerit Corp................................. 625,400
100,000 Fleet Financial Group, Inc...................... 4,431,250
210,000 Hibernia Corp. Cl. A............................ 3,517,500
10,000 Huntington Bancshares, Inc...................... 311,250
15,100 JSB Financial, Inc.............................. 838,050
221,200 KeyCorp......................................... 7,050,750
22,650 Keystone Financial, Inc......................... 801,244
250,000 Marshall & Ilsley Corp.......................... 14,812,500
341,000 Mellon Bank Corp................................ 22,847,000
747,100 Pacific Century Financial Corp.................. 16,436,200
130,000 Peoples Heritage Financial Group................ 2,340,000
42,600 PNC Bank Corp................................... 2,180,588
230,000 SouthTrust Corp................................. 8,538,750
140,300 State Street Corp............................... 10,031,450
113,475 Summit Bancorp.................................. 4,631,198
43,920 Suntrust Banks, Inc............................. 3,093,615
180,000 Susquehanna Bancshares, Inc..................... 3,498,750
12,785 Union Planters Corp............................. 581,718
1,030,000 Webster Financial Corp.......................... 30,771,250
225,400 Wells Fargo Co.................................. 7,874,912
62,000 Wilmington Trust Corp........................... 3,704,500
------------
216,719,643
------------
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Building, Construction & Furnishings - 3.1%
64,700 Armstrong World Industries, Inc. ............... $ 3,809,213
360,000 * Furniture Brands International, Inc. ......... 8,460,000
349,100 * Jacobs Engineering Group, Inc................. 14,640,381
218,600 Lennar Corp..................................... 5,984,175
226,000 Lone Star Industries, Inc....................... 8,305,500
40,000 Sherwin Williams Co............................. 1,025,000
70,400 Southdown, Inc.................................. 3,911,600
182,500 * Toll Brothers, Inc............................ 4,197,500
393,200 * US Home Corp.................................. 13,958,600
------------
64,291,969
------------
Business Equipment & Services - 4.7%
354,000 Air Express International Corp.................. 6,681,750
259,600 * Atlas Air, Inc................................ 13,353,175
794,300 Circle International Group, Inc................. 13,652,031
180,000 * Compuware Corp................................ 11,925,000
143,000 Convergys Corp.................................. 2,574,000
133,000 Equifax, Inc.................................... 5,261,812
33,436 First Data Corp................................. 1,281,017
140,000 Petroleum Helicopters, Inc...................... 2,310,000
537,700 Pittston Burlington Group....................... 6,149,944
224,700 * Platinum Technology Corp...................... 2,977,275
470,000 * Policy Management Systems Corp................ 25,233,125
337,000 Reynolds & Reynolds Co., Cl. A.................. 6,740,000
------------
98,139,129
------------
Capital Goods - 0.4%
177,200 Caterpillar, Inc................................ 7,674,975
------------
Chemical & Agricultural Products - 2.9%
130,000 Air Products & Chemicals, Inc................... 4,371,250
44,000 Albemarle Corp.................................. 1,020,250
200,000 Du Pont (E. I.) De Nemours & Co. ............... 10,237,500
265,000 Engelhard Corp.................................. 5,184,062
165,000 * Grace (W.R.) & Co............................. 2,258,438
64,300 H.B. Fuller Co.................................. 2,764,900
255,000 Morton International, Inc....................... 6,598,125
180,000 Nalco Chemical Co............................... 4,950,000
237,000 Pioneer Hi-Bred International, Inc. ............ 6,710,062
260,000 Praxair, Inc.................................... 8,401,250
160,200 Sigma-Aldrich Corp.............................. 4,565,700
175,000 Solutia, Inc.................................... 3,346,875
------------
60,408,412
------------
Communication Systems & Services - 2.2%
160,000 * AirTouch Communications, Inc.................. 15,450,000
248,820 * American Tower Systems Corp................... 6,407,115
93,000 * Cisco Systems, Inc............................ 10,375,312
153,292 * MCI WorldCom, Inc............................. 12,225,037
------------
44,457,464
------------
</TABLE>
48
<PAGE>
E V E R G R E E N
Growth and Income Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Consumer Products & Services - 4.4%
295,200 Black & Decker Corp............................. $ 15,645,600
90,000 Colgate-Palmolive Co............................ 7,239,375
9,800 GC Companies, Inc............................... 370,563
187,000 Gucci Group..................................... 12,867,937
60,700 Harley-Davidson, Inc............................ 3,156,400
175,100 Harman International Industries, Inc............ 7,354,200
185,000 Hillenbrand Industries, Inc..................... 8,695,000
177,000 Lancaster Colony Corp........................... 5,033,437
192,000 Newell Co....................................... 7,980,000
500,000 Premark International, Inc...................... 17,125,000
368,000 Service Corp.................................... 5,842,000
9,100 Toro Co......................................... 316,225
------------
91,625,737
------------
Diversified Companies - 0.7%
135,000 Harnischfeger Industries, Inc................... 1,139,062
310,000 ITT Industries, Inc............................. 12,419,375
------------
13,558,437
------------
Electronic Equipment & Services - 1.9%
220,000 Baldor Electric Co.............................. 4,358,750
110,000 * Dupont Photomasks, Inc........................ 5,610,000
106,000 * Jabil Circuit, Inc............................ 7,572,375
259,800 * KLA-Tencor Corp............................... 15,003,450
115,000 * Sanmina Corp.................................. 7,618,750
------------
40,163,325
------------
Electrical Equipment & Services - 2.5%
159,300 Applied Power, Inc. Cl. A....................... 5,894,100
143,000 Belden, Inc..................................... 2,868,938
65,000 Diebold, Inc.................................... 2,210,000
10,000 Emerson Electric Co............................. 581,875
100,000 General Electric Co............................. 10,487,500
209,000 Honeywell, Inc.................................. 13,624,187
175,100 Perkin Elmer Corp............................... 16,645,444
18,648 Zilog, Inc...................................... 9,324
------------
52,321,368
------------
Finance & Insurance - 9.1%
145,000 AFLAC, Inc...................................... 6,216,875
253,300 American Bankers Insurance Group, Inc........... 11,651,800
107,000 Chubb Corp...................................... 6,286,250
193,750 Citigroup, Inc.................................. 10,862,109
314,750 Edwards (A.G.), Inc............................. 10,662,156
60,268 Exel Limited Hamilton........................... 3,845,852
305,000 Federal Home Loan Mortgage Corp................. 18,910,000
345,000 Federal National Mortgage Association........... 25,141,875
42,750 First American Financial Corp................... 1,306,547
448,740 Frontier Insurance Group, Inc................... 6,759,146
200,000 Hartford Financial Services Group, Inc. ........ 10,387,500
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Finance & Insurance - continued
75,000 Household International, Inc.................... $ 3,295,313
117,500 LaSalle Re Holdings Ltd. ....................... 2,173,750
180,132 Legg Mason, Inc. ............................... 5,358,927
218,500 Lehman Brothers Holdings, Inc. ................. 11,949,219
105,400 MBIA, Inc. ..................................... 6,910,288
67,500 Meadowbrook Insurance Group, Inc. .............. 1,139,063
52,300 Mercury General Corp. .......................... 1,987,400
114,200 MGIC Investment Corp. .......................... 4,182,575
272,100 Paine Webber Group, Inc. ....................... 10,118,719
208,200 Price (T.) Rowe & Associates, Inc. ............. 7,612,312
85,000 Progressive Corp. .............................. 10,619,687
18,300 Reinsurance Group Of America.................... 1,043,100
153,000 UNUM Corp. ..................................... 9,246,937
------------
187,667,400
------------
Food & Beverage Products - 1.4%
90,000 Bestfoods ...................................... 4,528,125
350,000 Darden Restaurants, Inc. ....................... 6,562,500
20,000 International Home Foods, Inc. ................. 352,500
365,000 Sara Lee Corp. ................................. 9,307,500
416,500 * Vlasic Foods International, Inc. ............. 8,434,125
------------
29,184,750
------------
Forest Products - 0.1%
120,000 Deltic Timber Corp. ............................ 2,865,000
------------
Healthcare Products &
Services - 10.3%
235,000 Abbott Laboratories............................. 10,912,812
592,200 * Acuson Corp. ................................. 7,920,675
300,000 American Home Products Corp. ................... 17,606,250
50,000 Amerisource Health Corp. ....................... 3,875,000
65,000 Baxter International, Inc. ..................... 4,610,938
160,800 Beckman Coulter, Inc. .......................... 8,019,900
160,000 Dura Pharmaceuticals, Inc. ..................... 2,310,000
110,000 * Elan Corp Plc, ADR ........................... 7,425,000
362,000 First Health Group Corp. ....................... 6,108,750
185,000 * Foundation Health Systems, Inc. .............. 1,699,688
60,000 HCR Manor Care, Inc. ........................... 1,605,000
421,625 * Health Management Associates, Inc. Cl. A ..... 5,296,664
246,000 * HEALTHSOUTH Corp. ............................ 3,336,375
45,100 Johnson & Johnson............................... 3,833,500
63,000 Lilly (Eli) & Co. .............................. 5,902,312
650,000 * Lincare Holdings, Inc. ....................... 22,750,000
330,000 McKesson HBOC, Inc. ............................ 24,791,250
20,000 Merck & Co., Inc. .............................. 2,935,000
283,800 Owens & Minor, Inc. ............................ 3,724,875
84,200 Pfizer, Inc. ................................... 10,830,225
531,500 * Quorum Health Group, Inc. .................... 4,517,750
382,000 Schering-Plough Corp. .......................... 20,819,000
225,000 Shared Medical System Corp. .................... 10,575,000
</TABLE>
49
<PAGE>
E V E R G R E E N
Growth and Income Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - continued
256,000 * Sybron International Corp. ................... $ 6,912,000
120,000 * Tenet Healthcare Corp. ....................... 2,490,000
162,000 Warner-Lambert Co. ............................. 11,694,375
39,558 West Co., Inc. ................................. 1,389,475
------------
213,891,814
------------
Industrial Specialty Products & Services - 6.1%
527,400 AptarGroup, Inc. ............................... 14,404,613
164,625 Autoliv, Inc. .................................. 6,595,289
400,000 Bemis Co., Inc. ................................ 13,600,000
150,000 Borg-Warner Automotive, Inc. ................... 7,218,750
42,000 Carpenter Technology Corp. ..................... 1,249,500
71,800 Danaher Corp. .................................. 3,841,300
52,500 Donaldson, Inc. ................................ 961,406
244,000 Dover Corp. .................................... 7,579,250
137,118 Flowserve Corp. ................................ 2,305,296
21,900 * Halter Marine Group, Inc. .................... 112,238
235,300 JLG Industries, Inc. ........................... 3,705,975
33,500 Magna International, Inc. Cl. A ................ 1,989,063
250,000 Parker Hannifin Corp. .......................... 7,687,500
604,100 Pittston Brink's Group.......................... 17,443,387
260,000 Snap-on, Inc. .................................. 8,840,000
280,000 * Strattec Security Corp. ...................... 8,995,000
216,300 * UCAR International, Inc. ..................... 3,988,031
680,300 * Unova, Inc. .................................. 12,883,181
25,000 Vulcan Materials Co. ........................... 3,439,063
------------
126,838,842
------------
Information Services & Technology - 2.1%
183,800 * Adaptec, Inc. ................................ 4,250,375
80,000 * Applied Materials, Inc. ...................... 5,055,000
13,300 * Choicepoint, Inc. ............................ 724,850
400,000 Computer Associates International, Inc. ........ 20,250,000
40,000 Hewlett-Packard Co. ............................ 3,135,000
72,000 Intel Corp. .................................... 10,147,500
------------
43,562,725
------------
Leisure & Tourism - 0.8%
100,000 Carnival, Corp. Cl. A........................... 4,906,250
273,800 Gaylord Entertainment Co. ...................... 8,248,225
166,351 Starwood Hotels & Resorts....................... 4,158,775
------------
17,313,250
------------
Manufacturing - Distributing - 0.3%
301,400 Hussmann International, Inc. ................... 5,048,450
------------
Metal Products & Services - 0.3%
356,700 * Steel Dynamics, Inc. ......................... 5,930,137
------------
Oil/Energy - 3.9%
20,000 Amerada Hess Corp. ............................. 950,000
50,000 Anadarko Petroleum Corp. ....................... 1,353,125
38,000 Atlantic Richfield Co. ......................... 2,180,250
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Oil/Energy - continued
320,000 Berry Petroleum Co. Cl. A...................... $ 4,060,000
507,400 Cabot Oil & Gas Corp. Cl. A.................... 6,659,625
70,000 Chevron Corp. ................................. 5,232,500
90,000 Coastal Corp. ................................. 2,683,125
164,300 * Denbury Resources, Inc. ..................... 852,306
160,000 * Houston Exploration Co. ..................... 2,280,000
110,300 Kerr-McGee Corp. .............................. 3,743,306
209,500 Murphy Oil Corp. .............................. 7,646,750
203,900 National Fuel Gas Co. ......................... 8,627,519
221,200 * Nuevo Energy Co. ............................ 1,880,200
495,000 * Oryx Energy Co. ............................. 6,032,813
400,000 * Santa Fe Energy Resources, Inc. ............. 2,325,000
321,600 Southwestern Energy Co. ....................... 2,251,200
50,000 Texaco, Inc. .................................. 2,368,750
100,000 Tosco Corp. ................................... 2,175,000
305,000 Transocean Offshore, Inc. ..................... 7,796,562
113,520 Union Pacific Resource Group, Inc. ............ 915,255
274,000 Williams Companies, Inc. ...................... 9,042,000
------------
81,055,286
------------
Oil Field Services - 1.1%
260,300 * Atwood Oceanics, Inc. ....................... 5,173,463
113,140 Halliburton Co. ............................... 3,358,844
96,500 Helmerich & Payne, Inc. ....................... 1,694,781
824,500 * R & B Falcon Corp. .......................... 5,823,031
61,714 Schlumberger Ltd. ............................. 2,939,129
535,500 * Varco International, Inc. ................... 3,915,844
------------
22,905,092
------------
Paper & Packaging - 0.3%
88,440 * Sealed Air Corp. ............................ 4,692,847
75,000 Westvaco Corp. ................................ 1,654,688
------------
6,347,535
------------
Printing, Publishing, Broadcasting &
Entertainment - 5.5%
84,000 * Chancellor Media Corp. ...................... 4,830,000
49,805 Comcast Corp. ................................. 3,385,962
255,000 * Emmis Broadcasting Corp. Cl. A............... 13,068,750
360,000 * Jacor Communications, Inc. .................. 25,065,000
40,000 Knight-Ridder, Inc. ........................... 1,910,000
15,000 McGraw-Hill Companies, Inc. ................... 1,621,875
305,700 New York Times Co. ............................ 10,489,331
43,000 Scripps (E.W.) Co. Cl. A....................... 1,905,438
370,000 TCA Cable TV, Inc. ............................ 14,268,125
500,000 Time Warner, Inc. ............................. 31,250,000
2,800 Washington Post Co., Cl. B..................... 1,593,200
95,000 * Young Broadcasting, Inc. Cl. A............... 4,298,750
------------
113,686,431
------------
Real Estate - 2.1%
40,000 AMB Property Corp. REIT........................ 885,000
20,000 Apartment Investment & Management Co. Cl. A
REIT.......................................... 747,500
60,000 Arden Realty Group, Inc. REIT.................. 1,350,000
</TABLE>
50
<PAGE>
E V E R G R E E N
Growth and Income Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - continued
71,200 Berkshire Realty Co., Inc. REIT................. $ 694,200
158,000 Brandywine Realty Trust REIT.................... 2,607,000
145,000 CarrAmerica Realty Corp. REIT................... 3,190,000
20,000 CBL & Associates Properties, Inc. REIT.......... 492,500
98,000 Crescent Real Estate Equities, Inc. REIT ....... 2,076,375
75,000 Entertainment Properties Trust REIT............. 1,237,500
66,100 Gables Residential Trust REIT................... 1,516,169
125,000 Kilroy Realty Corp. REIT........................ 2,726,562
64,000 Kimco Realty Corp. REIT......................... 2,496,000
85,000 Liberty Property Trust REIT..................... 2,008,125
160,000 *Lodgian, Inc. ................................. 720,000
260,000 Mack-Cali Realty Corp. REIT..................... 7,767,500
195,000 Meditrust Co. REIT.............................. 3,059,062
150,695 Patriot American Hospitality, Inc. REIT......... 809,986
132,600 Sunstone Hotel Investors, Inc. REIT............. 1,102,238
255,300 Weeks Corp. REIT................................ 7,020,750
------------
42,506,467
------------
Retailing & Wholesale - 4.0%
211,600 *Autozone, Inc. ................................ 7,167,950
169,000 Avnet, Inc. .................................... 7,594,437
267,000 *Cole National Corp. Cl. A...................... 4,438,875
70,000 Home Depot, Inc. ............................... 4,226,250
215,000 J. C. Penney Co., Inc. ......................... 8,425,312
92,600 Longs Drug Stores Corp. ........................ 3,547,738
290,000 Lowe's Companies, Inc. ......................... 16,910,625
222,000 Rite Aid Corp. ................................. 10,905,750
456,685 *Saks, Inc. .................................... 16,811,717
20,400 Shopko Stores, Inc. ............................ 647,700
8,200 Timberland Co. Cl. A............................ 369,000
34,500 *Tommy Hilfiger Corp. .......................... 2,432,250
------------
83,477,604
------------
Telecommunication Services & Equipment - 0.5%
168,000 *Aspect Telecommunications Corp. ............... 1,512,000
50,000 Mediaone Group, Inc. ........................... 2,803,125
110,000 Scientific Atlanta, Inc. ....................... 3,423,750
70,000 *Univision Communications, Inc. Cl. A........... 3,141,250
------------
10,880,125
------------
Thrift Institutions - 0.0%
27,900 St. Paul Bancorp, Inc. ......................... 645,188
------------
Transportation - 4.0%
65,000 AMR Corp. ...................................... 3,818,750
570,000 Burlington Northern Santa Fe Corp. ............. 19,736,250
612,600 Kansas City Southern Industries, Inc. .......... 29,098,500
227,750 Southwest Airlines Co. ......................... 6,120,781
30,000 UAL Corp. ...................................... 1,867,500
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Transportation - continued
413,000 Union Pacific Corp. .......................... $ 21,243,688
25,000 US Airways Group, Inc. ....................... 1,243,750
-------------
83,129,219
-------------
Utilities - Electric - 1.4%
64,000 Commonwealth Energy System.................... 2,512,000
140,900 Energy East Corp. ............................ 7,212,319
70,000 Houston Industries, Inc. ..................... 2,126,250
40,000 Texas Utilities Co. .......................... 1,757,500
400,000 TNP Enterprises, Inc. ........................ 14,225,000
-------------
27,833,069
-------------
Utilities - Gas - 1.0%
265,800 Keyspan Energy................................ 7,193,212
288,100 Northwest Natural Gas Co. .................... 6,770,350
220,300 Piedmont Natural Gas Co., Inc. ............... 6,801,763
-------------
20,765,325
-------------
Utilities - Telephone - 1.7%
101,200 AT&T Corp. ................................... 9,183,900
150,000 Century Telephone Enterprises, Inc. .......... 10,200,000
143,000 Cincinnati Bell, Inc. ........................ 2,904,687
175,000 GTE Corp. .................................... 11,812,500
-------------
34,101,087
-------------
Total Common Stocks (cost $1,480,847,819)..... 1,906,298,113
-------------
PREFERRED STOCKS - 0.0%
Healthcare Products &
Services - 0.0%
130,000 *Fresenius National Med Care, Inc. Series D
(cost $22,740)............................... 3,250
-------------
CONVERTIBLE PREFERRED - 0.2%
Paper & Packaging - 0.2%
78,375 *Sealed Air Corp., $2.00, Series A
(cost $2,426,965)............................ 4,163,672
-------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 8.9%
Commercial Paper - 7.3%
$16,290,000 Bank Austria Inc.
5.13%, 2/22/1999............................. 16,241,252
28,020,000 Four Winds Funding Corp. 4.85%, 2/26/1999..... 27,925,627
FPL Fuels, Inc.
18,660,000 5.25%, 2/1/1999............................... 18,660,000
9,692,000 5.35%, 2/12/1999.............................. 9,676,156
45,700,000 General Electric Capital Corp. 5.43%,
2/3/1999..................................... 45,686,214
880,000 GTE Corp.
4.85%, 2/24/1999............................. 877,273
29,350,000 Martin Marietta Materials 5.30%, 2/12/1999.... 29,302,470
</TABLE>
51
<PAGE>
E V E R G R E E N
Growth and Income Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
Commercial Paper - continued
$ 285,000 Michigan Consolidated Gas Co. 5.45%, 2/9/1999..... $ 284,655
2,040,000 Morgan (J.P.) & Co., Inc. 5.40%, 2/8/1999......... 2,037,858
--------------
150,691,505
--------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. Government Agency Obligations - 1.6%
Federal Home Loan Mortgage Discount Notes
$ 8,430,000 4.69%, 2/18/1999................................. $ 8,411,330
800,000 4.72%, 2/18/1999................................. 798,217
25,000,000 4.73%, 2/19/1999................................. 24,940,875
--------------
34,150,422
--------------
Total Short-Term Investments
(cost $184,841,927)............................. 184,841,927
--------------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments -(cost $1,668,139,451)........... 101.2% 2,095,306,962
Other Assets and Liabilities - net................. (1.2) (25,662,004)
----- --------------
Net Assets......................................... 100.0% $2,069,644,958
===== ==============
</TABLE>
* Non-income producing securities.
Summary of Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
52
<PAGE>
E V E R G R E E N
Income and Growth Fund
Schedule of Investments
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 75.6%
Automotive Equipment & Manufacturing - 3.0%
525,900 Dana Corp.............................................. $21,627,637
50,000 General Motors Corp. .................................. 4,487,500
-----------
26,115,137
-----------
Banks - 13.9%
11,775 AmSouth Bancorp........................................ 518,836
100,000 Associated Banc Corp. ................................. 3,137,500
284,000 BancorpSouth, Inc. .................................... 4,881,250
300,300 BancWest Corp. ........................................ 13,475,962
170,100 Bankers Trust Corp. ................................... 14,798,700
192,500 + CB Bancshares, Inc. ................................. 6,160,000
49,700 CCB Financial Corp. ................................... 2,702,437
77,606 F&M National Corp...................................... 2,269,976
35,100 First American Corp. .................................. 1,465,425
40,000 First Tennessee National Corp. ........................ 1,462,500
20,750 First Virginia Banks, Inc. ............................ 980,438
8,200 FirstMerit Corp. ...................................... 217,300
30,000 Fleet Financial Group, Inc. ........................... 1,329,375
319,410 Interchange Financial Services Corp. .................. 5,350,117
100,000 KeyCorp ............................................... 3,187,500
18,271 M & T Bank Corp. ...................................... 9,135,500
100,000 Marshall & Ilsley Corp. ............................... 5,925,000
477,346 Mercantile Bancorp, Inc. .............................. 21,450,736
15,625 One Valley Bancorp of West Virginia, Inc. ............. 492,188
116,500 Pacific Century Financial Corp. ....................... 2,563,000
173,500 PNC Bank Corp. ........................................ 8,881,031
37,840 Premier National Bancorp, Inc. ........................ 662,200
79,254 Second Bancorp, Inc. .................................. 1,758,448
10,000 Summit Bancorp ........................................ 408,125
111,375 Susquehanna Bancshares, Inc. .......................... 2,164,852
7,000 United Bankshares, Inc. ............................... 169,750
321,960 USBancorp, Inc. ....................................... 5,795,280
-----------
121,343,426
-----------
Building, Construction &
Furnishings - 2.1%
304,500 Armstrong World Industries, Inc. ...................... 17,927,437
44,400 La-Z-Boy Chair Co. .................................... 799,200
-----------
18,726,637
-----------
Capital Goods - 1.3%
271,500 Caterpillar, Inc. ..................................... 11,759,344
-----------
Chemical & Agricultural
Products - 0.6%
100,000 Du Pont (E. I.) De Nemours & Co. ...................... 5,118,750
-----------
Consumer Products &
Services - 1.2%
120,000 Newell Co. ............................................ 4,987,500
200,000 Service Corp. International............................ 3,175,000
115,000 Tupperware Corp. ...................................... 2,364,688
-----------
10,527,188
-----------
Diversified Companies - 0.4%
225,000 Tomkins Plc, ADR....................................... 3,346,875
-----------
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - 3.8%
78,000 Emerson Electric Co. .................................. $4,538,625
5,000 Hubbell, Inc. Cl. A.................................... 175,000
230,000 Hubbell, Inc. Cl. B.................................... 8,423,750
448,900 Thomas & Betts Corp. .................................. 19,835,769
----------
32,973,144
----------
Finance & Insurance - 6.8%
50,000 Edwards (A.G.), Inc. .................................. 1,693,750
79,000 Exel Limited Hamilton.................................. 5,041,188
100,000 LaSalle Re Holdings Ltd................................ 1,850,000
195,800 Ohio Casualty Corp..................................... 7,783,050
743,000 Paine Webber Group, Inc................................ 27,630,312
143,200 Provident Co., Inc. ................................... 6,139,700
290,000 Torchmark Corp......................................... 9,515,625
----------
59,653,625
----------
Food & Beverage Products - 0.2%
2,000 Sara Lee Corp. ........................................ 51,000
62,400 Sbarro, Inc............................................ 1,673,100
----------
1,724,100
----------
Healthcare Products &
Services - 6.1%
270,000 American Home Products Corp. .......................... 15,845,625
175,000 Baxter International, Inc. ............................ 12,414,062
200,200 Beckman Coulter, Inc. ................................. 9,984,975
59,400 Bristol-Myers Squibb Co................................ 7,614,338
152,500 Shared Medical System Corp. ........................... 7,167,500
----------
53,026,500
----------
Industrial Specialty Products & Services - 0.0%
20,000 Timken Co.............................................. 433,750
----------
Information Services &
Technology - 2.1%
100,000 Hewlett-Packard Co..................................... 7,837,500
200,000 *Network Associates, Inc. ............................. 10,475,000
----------
18,312,500
----------
Oil/Energy - 6.1%
50,000 Amerada Hess Corp. .................................... 2,375,000
337,000 Atlantic Richfield Co. ................................ 19,335,375
6,100 Consolidated Natural Gas Co. .......................... 313,006
293,100 Equitable Resources, Inc. ............................. 7,638,919
548,200 Williams Companies, Inc. .............................. 18,090,600
158,000 YPF SA, ADR............................................ 5,036,250
----------
52,789,150
----------
Printing, Publishing, Broadcasting
& Entertainment - 0.2%
50,000 Reader's Digest Association, Inc. ..................... 1,437,500
----------
Real Estate - 4.5%
23,800 Burnham Pacific Properties, Inc. REIT.................. 282,625
838,300 Canadian Hotel Properties REIT......................... 4,337,473
124,900 Equity Residential Properties Trust REIT............... 5,081,869
312,700 Gables Residential Trust REIT.......................... 7,172,556
</TABLE>
53
<PAGE>
E V E R G R E E N
Income and Growth Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - continued
462,000 Kranzco Realty Trust REIT........................... $ 6,525,750
850,000 Meditrust Co. REIT.................................. 13,334,375
75,000 Post Property, Inc. REIT............................ 2,793,750
--------------
39,528,398
--------------
Thrift Institutions - 0.4%
56,000 First Essex Bancorp, Inc............................ 997,500
122,000 Jacksonville Bancorp, Inc........................... 1,952,000
10,430 Peoples Heritage Financial Group.................... 187,740
--------------
3,137,240
--------------
Transportation - 2.6%
150,000 * UAL Corp.......................................... 9,337,500
260,000 Union Pacific Corp.................................. 13,373,750
--------------
22,711,250
--------------
Utilities - Electric - 4.2%
10,650 Black Hills Corp.................................... 264,253
6,500 Central Hudson Gas & Electric Corp. 262,031
239,000 FPL Group, Inc...................................... 13,115,125
123,826 Interstate Energy Corp.............................. 3,559,998
65,524 LG & E Energy Corp.................................. 1,728,196
180,000 MDU Resources Group, Inc............................ 4,140,000
125,000 Midamerican Energy Holdings Co...................... 3,351,563
146,500 Potomac Electric Power Co........................... 3,415,281
51,500 PP&L Resources, Inc................................. 1,374,406
150,200 TNP Enterprises, Inc................................ 5,341,487
--------------
36,552,340
--------------
Utilities - Gas - 5.6%
78,300 Chesapeake Utilities Corp........................... 1,380,038
1,035,848 Keyspan Energy...................................... 28,032,636
336,300 Peoples Energy Corp................................. 11,602,350
98,100 Piedmont Natural Gas Co., Inc....................... 3,028,837
10,000 South Jersey Industries, Inc........................ 256,250
190,381 UGI Corp............................................ 4,176,483
8,300 Yankee Energy System, Inc........................... 229,288
--------------
48,705,882
--------------
Utilities - Telephone - 7.4%
305,100 Frontier Corp....................................... 11,021,738
250,000 GTE Corp............................................ 16,875,000
100,000 * Nortel Inversora SA MEDS.......................... 4,462,500
1,503,000 Telecom Corp. New Zealand Ltd....................... 31,093,312
20,000 U.S. West, Inc...................................... 1,233,750
--------------
64,686,300
--------------
Other Securities - 3.1%............................. 26,944,981
--------------
Total Common Stocks (cost $633,982,081)............. 659,554,017
--------------
CONVERTIBLE PREFERRED - 20.2%
Aerospace & Defense - 1.4%
200,000 * Loral Space & Communications...................... 12,050,000
--------------
Banks - 0.7%
210,000 National Australia Bank, Ltd. 7.875%, Series UNIT... 6,378,750
--------------
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - continued
Communication Systems &
Services - 2.1%
200,000 AirTouch Communications, Inc. 6.00%, Series B......... $15,675,000
50,000 Qwest Trends Trust
5.75%, 144A.......................................... 2,668,750
-----------
18,343,750
-----------
Electrical Equipment &
Services - 0.8%
165,000 Pioneer Standard Financial Trust 6.75%, 144A.......... 6,930,000
-----------
Finance & Insurance - 2.0%
270,000 Frontier Financing Trust 6.25%, TOPRS................. 12,050,100
100,000 St. Paul Capital
6.00%, MIPS.......................................... 5,800,000
-----------
17,850,100
-----------
Food & Beverage Products - 3.2%
200,000 Dole Food Co.
7.00%, TRACES........................................ 6,100,000
400,000 Wendys Financing I
5.00%, Series A, TECONS.............................. 21,450,000
-----------
27,550,000
-----------
Leisure & Tourism - 0.4%
170,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A.................................. 3,655,000
-----------
Metal Products & Services - 0.3%
100,000 Timet Capital Trust I
6.625%, BUCS, 144A................................... 2,512,500
-----------
Oil/Energy - 0.5%
95,000 Callon Petroleum Co.
8.50%, Series A...................................... 2,565,000
48,000 Nuevo Energy Co.
5.75%, Series A, TECONS.............................. 1,581,000
-----------
4,146,000
-----------
Oil Field Services - 0.4%
100,000 Evi, Inc.
5.00%................................................ 3,062,500
-----------
Printing, Publishing, Broadcasting & Entertainment -
1.0%
85,000 Houston Industries, Inc.
7.00%, ACES (exchangeable for Time Warner, Inc.
common stock)........................................ 9,041,875
-----------
Telecommunication Services & Equipment - 4.2%
700,000 Qualcomm Financial Trust I
5.75%, 3/01/12....................................... 36,841,000
-----------
Transportation - 2.1%
68,700 CNF Trust I
5.00%, Series A, TECONS (exchangeable for CNF
Transportation, Inc. common stock)................... 4,199,288
280,000 Union Pacific Capital Trust 6.25%, 144A............... 14,000,000
-----------
18,199,288
-----------
</TABLE>
54
<PAGE>
E V E R G R E E N
Income and Growth Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - continued
Utilities - Electric - 0.3%
168,000 BNDES Participacoes S.A. 10.50%, DECS............. $ 2,604,000
--------------
Utilities - Gas - 0.8%
394,500 MCN Corp.
8.75%, PRIDES.................................... 7,199,625
--------------
Total Convertible Preferred
(cost $187,792,487).............................. 176,364,388
--------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 2.9%
Electrical Equipment &
Services - 2.1%
$ 9,700,000 * Photronics, Inc.
6.00%, 6/1/2004.................................. 10,815,500
16,000,000 * Solectron Corp.
0.00%, 1/27/2019, 144A........................... 7,640,000
--------------
18,455,500
--------------
Oil/Energy - 0.1%
820,000 Swift Energy Co.
6.25%, 11/15/2006................................ 596,550
--------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - continued
Transportation - 0.7%
$ 5,000,000 Continental Airlines Inc.
6.75%, 4/15/2006................................. $ 6,093,750
--------------
Total Convertible Debentures
(cost $24,356,034)............................... 25,145,800
--------------
SHORT-TERM INVESTMENTS - 1.6%
U.S. Government Agency Obligations - 1.6%
1,720,000 Federal Farm Credit Bank
Discount Notes
4.725%, 2/24/1999................................ 1,714,808
Federal Home Loan Mortgage Discount Notes
1,600,000 4.74%, 2/8/1999.................................. 1,598,525
790,000 4.72%, 2/16/1999................................. 788,446
9,690,000 4.72%, 2/18/1999................................. 9,668,402
--------------
Total Short-Term Investments
(cost $13,770,181)............................... 13,770,181
--------------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments -
(cost $859,900,783).................................. 100.3% 874,834,386
Other Assets and
Liabilities - net.................................... (0.3) (2,501,384)
----- ------------
Net Assets .......................................... 100.0% $872,333,002
===== ============
</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. The Fund has a cost basis of
$6,024,625 in the issue at January 31, 1999. The Fund earned $3,240 of in-
come from this investment during the six months ending January 31, 1999.
144A Security that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. This security has been deter-
mined 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 Mandatorially Exchangeable Debt Securities
MIPS Monthly Income Preferred Shares
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
TECONS Term Convertible Shares
TOPRS Trust Originated Preferred Securities
TRACES Trust Automatic Common Exchangeable Securities
See Combined Notes to Financial Statements.
55
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Schedule of Investments
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 81.0%
Aerospace & Defense - 2.7%
214,300 Curtiss Wright Corp. ................................... $ 8,009,462
------------
Automotive Equipment & Manufacturing - 0.6%
15,000 Arvin Industries, Inc. ................................. 593,438
103,200 Simpson Industries, Inc. ............................... 1,083,600
------------
1,677,038
------------
Banks - 10.5%
108,750 ABC Bancorp............................................. 1,318,594
31,500 Amcore Financial, Inc. ................................. 724,500
6,000 Bancorp South, Inc. .................................... 103,125
20,000 Bank of Essex........................................... 340,000
61,700 Britton & Koontz Capital Corp. ......................... 1,203,150
28,800 BSB Bancorp, Inc. ...................................... 770,400
2,625 Carrollton Bancorp ..................................... 85,313
25,000 CB Bancshares, Inc. .................................... 800,000
34,177 Commercial Bankshares, Inc. ............................ 743,350
8,200 Community Bancshares, Inc. ............................. 211,150
60,000 Cowlitz Bancorp......................................... 465,000
2,500 First Midwest Bancorp, Inc. ............................ 90,938
60,000 First Oak Brook Bancshares, Inc. Cl. A.................. 1,102,500
95,552 First State Bancorp..................................... 1,815,488
221,900 Granite State Bankshares, Inc. ......................... 4,798,587
77,868 Hubco, Inc. ............................................ 2,520,976
32,000 Independent Bankshares, Inc. ........................... 344,000
20,943 Interchange Financial Services Corp. ................... 350,795
15,000 James River Bankshares, Inc. ........................... 255,000
30,000 New England Community Bancorp, Inc...................... 616,875
4,000 Northern States Financial Corp.......................... 96,000
87,125 One Valley Bancorp of West Virginia, Inc................ 2,744,437
40,000 Pacific Bank, N.A. ..................................... 810,000
4,668 Pacific Century Financial Corp. ........................ 102,696
16,082 Premier National Bancorp, Inc. ......................... 281,435
90,000 Prosperity Bancshares, Inc. ............................ 1,136,250
67,104 Republic Security Financial Corp. ...................... 616,518
214,000 SierraWest Bancorp ..................................... 5,403,500
24,000 South Alabama Bancorp, Inc. ............................ 372,000
60,000 Southside Bancshares Corp. ............................. 757,500
11,250 Susquehanna Bancshares, Inc. ........................... 218,672
23,200 Union Bankshares Corp. ................................. 382,800
------------
31,581,549
------------
Building, Construction &
Furnishings - 6.4%
50,000 American Woodmark Corp. ................................ 1,893,750
3,000 Craftmade International, Inc. .......................... 49,500
150,000 D.R. Horton, Inc. ...................................... 3,168,750
76,714 Knape & Vogt Manufacturing Co. ......................... 1,332,906
80,000 La-Z-Boy Chair Co. ..................................... 1,440,000
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Building, Construction &
Furnishings - continued
100,000 Pillowtex Corp. ........................................ $ 2,193,750
280,000 Shelby Williams Industries, Inc. ....................... 3,710,000
210,500 Standard Pacific Corp. ................................. 2,947,000
65,100 TJ International, Inc. ................................. 1,570,537
42,413 *Toll Brothers, Inc. ................................... 975,499
------------
19,281,692
------------
Business Equipment &
Services - 0.9%
165,400 Tab Products Co. ....................................... 951,050
60,000 *Zebra Technologies Corp. Cl. A......................... 1,811,250
------------
2,762,300
------------
Consumer Products &
Services - 9.1%
311,500 CPI Corp. .............................................. 8,235,281
93,500 General Housewares Corp. ............................... 1,273,938
110,000 Lancaster Colony Corp. ................................. 3,128,125
196,500 Matthews International Corp. Cl. A...................... 5,551,125
114,100 Mikasa, Inc. ........................................... 1,297,888
100,500 Polaris Industries, Inc. ............................... 3,303,937
146,100 Stride Rite Corp. ...................................... 1,442,738
328,600 York Group, Inc. ....................................... 3,306,537
------------
27,539,569
------------
Electronic Equipment &
Services - 3.1%
338,700 Boston Acoustics, Inc. ................................. 7,959,450
50,000 *Hadco Corp. ........................................... 1,500,000
------------
9,459,450
------------
Electrical Equipment &
Services - 2.3%
292,800 Helix Technology Corp. ................................. 6,002,400
80,000 Kent Electronics Corp. ................................. 1,025,000
------------
7,027,400
------------
Finance & Insurance - 2.2%
15,000 Enhance Financial Services Group, Inc. ................. 375,000
5,000 LaSalle Re Holdings Ltd. ............................... 92,500
164,900 Morgan Keegan, Inc. .................................... 2,978,506
122,500 Pxre Corp. ............................................. 2,503,594
16,000 Trenwick Group, Inc. ................................... 528,000
------------
6,477,600
------------
Food & Beverage Products - 3.5%
121,220 Bridgford Foods Corp. .................................. 1,515,250
200,000 International Multifoods Corp. ......................... 4,825,000
20,000 Lance, Inc. ............................................ 372,500
93,000 Michael Foods, Inc. .................................... 2,080,875
77,300 Smithfield Companies, Inc. ............................. 589,412
15,000 Smucker (J. M.) Co. .................................... 337,500
35,000 Smucker (J. M.) Co. Cl. A............................... 875,000
------------
10,595,537
------------
</TABLE>
56
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 1.6%
130,000 *ADAC Laboratories..................................... $ 2,868,125
50,000 Jones Pharma, Inc. .................................... 1,593,750
18,700 Kewaunee Scientific Corp. ............................. 212,713
------------
4,674,588
------------
Industrial Specialty Products &
Services - 3.7%
50,000 Badger Meter, Inc. .................................... 1,831,250
100,000 Federal Signal Corp. .................................. 2,656,250
64,100 Gorman Rupp Co. ....................................... 1,065,663
15,500 Graco, Inc. ........................................... 379,750
116,374 Hach Co. .............................................. 1,367,394
254,474 Hach Co. Cl. A......................................... 2,481,121
18,700 Met-Pro Corp. ......................................... 216,219
46,400 Spartech Corp. ........................................ 1,107,800
2,200 Superior Telecom, Inc. ................................ 97,350
------------
11,202,797
------------
Information Services &
Technology - 0.2%
32,500 Timberline Software Corp. ............................. 546,406
------------
Machinery - Diversified - 1.3%
235,250 Hardinge, Inc. ........................................ 3,778,703
------------
Oil/Energy - 4.3%
201,900 Berry Petroleum Co. Cl. A.............................. 2,561,606
235,500 Cabot Oil & Gas Corp. Cl. A............................ 3,090,938
155,600 Penn Virginia Corp. ................................... 3,189,800
100,909 Pennzoil-Quaker State Co. ............................. 1,551,476
370,000 Southwestern Energy Co. ............................... 2,590,000
------------
12,983,820
------------
Oil Field Services - 0.9%
146,200 Lufkin Industries, Inc. ............................... 2,722,975
------------
Paper & Packaging - 0.7%
154,050 Tuscarora, Inc. ....................................... 2,147,072
------------
Printing, Publishing, Broadcasting & Entertainment -
0.9%
41,300 Banta Corp. ........................................... 986,038
116,300 Bowne & Co., Inc. ..................................... 1,788,112
------------
2,774,150
------------
Real Estate - 3.2%
6,291 Bradley Real Estate, Inc. REIT......................... 126,606
230,000 Eastgroup Properties, Inc. REIT........................ 4,211,875
60,000 Innkeepers USA Trust REIT.............................. 697,500
95,000 Parkway Properties, Inc. REIT.......................... 3,010,313
100,000 RFS Hotel Investors, Inc. REIT......................... 1,268,750
50,000 Sunstone Hotel Investors, Inc.REIT..................... 415,625
------------
9,730,669
------------
Retailing & Wholesale - 2.2%
48,200 Ethan Allen Interiors, Inc. ........................... 2,301,550
75,000 Freds, Inc. ........................................... 970,313
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
36,900 Longs Drug Stores Corp. ................................. $ 1,413,731
200,000 Pier 1 Imports, Inc. .................................... 1,900,000
-----------
6,585,594
-----------
Telecommunication Services & Equipment - 4.5%
250,000 Communications Systems, Inc. ............................ 2,656,250
349,695 Hickory Tech Corp. ...................................... 4,633,459
200,000 Scientific Atlanta, Inc. ................................ 6,225,000
-----------
13,514,709
-----------
Textile & Apparel - 0.5%
53,900 Oxford Industries, Inc. ................................. 1,411,506
-----------
Thrift Institutions - 4.7%
32,500 Abington Bancorp, Inc. .................................. 491,563
16,800 Bancorp Connecticut, Inc. ............................... 259,350
228,394 Community Savings Bankshares, Inc. ...................... 2,797,826
92,000 First Coastal Bankshares, Inc. .......................... 2,162,000
6,000 First Essex Bancorp, Inc. ............................... 106,875
16,800 *Golden St. Bancorp, Inc. ............................... 313,950
50,000 Harbor Florida Bancshares, Inc. ......................... 556,250
312,900 Horizon Financial Corp. ................................. 4,238,817
38,000 Jacksonville Bancorp, Inc. .............................. 608,000
69,200 Metrowest Bank........................................... 441,150
100,000 St. Paul Bancorp, Inc. .................................. 2,312,500
-----------
14,288,281
-----------
Transportation - 0.5%
50,000 ASA Holdings, Inc. ...................................... 1,562,500
-----------
Utilities - Electric - 2.6%
136,800 Madison Gas & Electric Co. .............................. 2,907,000
135,000 MDU Resources Group, Inc. ............................... 3,105,000
100,300 Public Service Co. of New Mexico......................... 1,886,894
-----------
7,898,894
-----------
Utilities - Gas - 5.9%
82,200 Chesapeake Utilities Corp. .............................. 1,448,775
15,000 Connecticut Energy Corp. ................................ 405,938
80,000 CTG Resources, Inc. ..................................... 1,810,000
64,800 Delta Natural Gas Co., Inc. ............................. 1,166,400
20,000 Eastern Enterprises...................................... 805,000
27,400 NUI Corp. ............................................... 623,350
36,600 Public Service Co. of North Carolina, Inc. .............. 848,663
450,100 Semco Energy, Inc. ...................................... 7,314,125
85,500 UGI Corp. ............................................... 1,875,656
48,100 Yankee Energy System, Inc. .............................. 1,328,762
-----------
17,626,669
-----------
Other Securities - 2.0%.................................. 6,016,424
-----------
Total Common Stocks
(cost $251,927,418)..................................... 243,877,354
-----------
</TABLE>
57
<PAGE>
E V E R G R E E N
Small Cap Value Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 4.6%
Electrical Equipment &
Services - 1.6%
110,000 Pioneer Standard Financial Trust
6.75%, 144A............................................. $ 4,620,000
-----------
Finance & Insurance - 1.9%
12,000 American Heritage Life Investment Corp. 8.50%, PRIDES.... 798,000
80,000 Frontier Financing Trust
6.25%, TOPRS............................................ 3,570,400
125,000 Philadelphia Consolidated Holdings, Inc. 7.00%, PRIDES... 1,250,000
-----------
5,618,400
-----------
Leisure & Tourism - 0.9%
130,000 Lodgian Capital Trust I
7.00%, CRESTS, 144A..................................... 2,795,000
-----------
Oil/Energy - 0.2%
26,000 Callon Petroleum Co.
8.50%, Series A......................................... 702,000
-----------
Total Convertible Preferred
(cost $19,358,375)...................................... 13,735,400
-----------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 11.0%
Banks - 0.5%
$1,350,000 Surety Capital Corp.
9.00%, 3/31/2008...................................... 1,350,000
---------
Business Equipment &
Services - 1.0%
1,250,000 Interim Services, Inc.
4.50%, 6/1/2005....................................... 1,104,687
200,000 Personnel Group Of America, Inc.
5.75%, 7/1/2004....................................... 203,250
Tecnomatix Technologies Ltd.
500,000 5.25%, 8/15/2004, 144A................................. 369,375
2,000,000 5.25%, 8/15/2004....................................... 1,477,500
---------
3,154,812
---------
Consumer Products &
Services - 1.5%
4,000,000 Action Performance Companies, Inc. 4.75%, 4/1/2005,
144A.................................................. 4,540,000
---------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - continued
Healthcare Products &
Services - 3.7%
$5,000,000 Alpharma, Inc.
5.75%, 4/1/2005, 144A................................. $6,825,000
4,300,000 Carematrix
6.25%, 8/15/2004...................................... 4,412,875
----------
11,237,875
----------
Leisure & Tourism - 1.9%
2,400,000 Family Golf Centers, Inc.
5.75%, 10/15/2004, 144A............................... 1,977,000
3,370,000 Speedway Motorsports, Inc.
5.75%, 9/30/2003...................................... 3,631,175
----------
5,608,175
----------
Retailing & Wholesale - 0.7%
Central Garden & Pet Co.
500,000 6.00%, 11/15/2003, 144A................................ 437,500
2,000,000 6.00%, 11/15/2003...................................... 1,750,000
----------
2,187,500
----------
Telecommunication Services & Equipment - 1.7%
Antec Corp.
500,000 4.50%, 5/15/2003, 144A................................. 563,750
4,000,000 4.50%, 5/15/2003....................................... 4,510,000
----------
5,073,750
----------
Total Convertible Debentures
(cost $31,298,620).................................... 33,152,112
----------
SHORT-TERM INVESTMENTS - 2.6%
U.S. Government Agency Obligations - 2.6%
Federal Home Loan Mortgage
Discount Notes
6,000,000 4.72%, 2/11/1999....................................... 5,992,134
2,000,000 4.72%, 2/18/1999....................................... 1,995,542
----------
Total Short-Term Investments
(cost $7,987,676)..................................... 7,987,676
----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments -
(cost $310,572,089)................................... 99.2% 298,752,542
Other Assets and
Liabilities - net..................................... 0.8 2,488,170
----- ------------
Net Assets............................................. 100.0% $301,240,712
===== ============
</TABLE>
* Non-income producing securities.
144A Security that may be resold to "qualified institutional buyers" un-
der 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:
CRESTS Convertible Redeemable Equity Structured Trust Securities
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
TOPRS Trust Originated Preferred Securities
See Combined Notes to Financial Statements.
58
<PAGE>
E V E R G R E E N
Utility Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 76.4%
Communication Systems &
Services - 2.8%
50,000 *MCI WorldCom, Inc. .................................. $ 3,987,500
------------
Healthcare Products & Services - 2.1%
100,000 Mylan Laboratories, Inc. ............................. 3,050,000
------------
Oil/Energy - 3.2%
70,000 Enron Corp. .......................................... 4,620,000
------------
Real Estate - 2.9%
190,000 FelCor Lodging Trust Inc. REIT........................ 4,144,375
------------
Utilities - Electric - 41.3%
100,000 Central Hudson Gas & Electric Corp. .................. 4,031,250
100,000 Cinergy Corp. ........................................ 3,131,250
1,000,000 Companhia Paranaense de
Energia-Copel, Plc, ADR.............................. 4,000,000
70,000 Duke Power Co. ....................................... 4,326,875
100,000 Energy East Corp. .................................... 5,118,750
170,000 Houston Industries, Inc. ............................. 5,163,750
125,000 Interstate Energy Corp. .............................. 3,593,750
165,000 MDU Resources Group, Inc. ............................ 3,795,000
225,000 PacifiCorp............................................ 4,626,562
150,000 PP&L Resources, Inc. ................................. 4,003,125
175,000 Public Service Co. of New Mexico...................... 3,292,188
100,000 Public Service Enterprise Group, Inc. ................ 3,968,750
175,000 Sempra Energy......................................... 4,025,000
140,000 Teco Energy, Inc. .................................... 3,255,000
135,000 Wisconsin Energy Corp. ............................... 3,510,000
------------
59,841,250
------------
Utilities - Gas - 5.8%
180,000 Keyspan Energy........................................ 4,871,250
45,000 Northwest Natural Gas Co. ............................ 1,057,500
60,000 Peoples Energy Corp. ................................. 2,070,000
25,000 Semco Energy, Inc. ................................... 406,250
------------
8,405,000
------------
Utilities - Telephone - 18.3%
25,000 AT&T Corp. ........................................... 2,248,438
150,000 BellSouth Corp. ...................................... 6,693,750
55,000 Frontier Corp. ....................................... 1,986,875
70,000 GTE Corp. ............................................ 4,725,000
60,000 Sprint Corp. ......................................... 5,032,500
30,000 *Sprint Corp. (PCS Group)............................. 956,250
80,000 U.S. West, Inc. ...................................... 4,935,000
------------
26,577,813
------------
Total Common Stocks
(cost $93,671,648)................................... 110,625,938
------------
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 19.5%
Communication Systems &
Services - 3.8%
70,000 AirTouch Communications, Inc.
6.00%, Series B..................................... $ 5,486,250
------------
Printing, Publishing, Broadcasting & Entertainment -
2.9%
40,000 Houston Industries, Inc.
7.00%, ACES (exchangeable for Time Warner, Inc.
common stock)....................................... 4,255,000
------------
Telecommunication Services &
Equipment - 2.6%
70,000 Qualcomm Financial Trust I
5.75%, 3/01/2012.................................... 3,718,750
------------
Utilities - Electric - 6.7%
70,000 AES Trust I
5.375%, Series A, TECONS............................ 3,797,500
135,000 BNDES Participacoes S.A.
10.50%, DECS........................................ 2,092,500
70,000 Texas Utilities Co.
9.25%, PRIDES....................................... 3,876,250
------------
9,766,250
------------
Utilities - Telephone - 3.5%
60,000 Sprint Corp.
8.25%, DECS
(exchangeable for Southern N.E. Telephone common
stock).............................................. 4,998,750
------------
Total Convertible Preferred
(cost $22,835,090).................................. 28,225,000
------------
</TABLE>
59
<PAGE>
E V E R G R E E N
Utility Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 2.3%
Information Services &
Technology - 2.3%
$4,000,000 Adaptec, Inc. 4.75%, 2/1/2004
(cost $3,530,000)................................... $ 3,330,000
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.7%
Repurchase Agreement - 1.7%
$2,512,390 Dresdner Bank AG
4.70%, dated 1/31/1999,
due 2/1/1999, maturity value $2,512,718 (cost
$2,512,390)(a).................................... $ 2,512,390
------------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments -
(cost $122,549,128)................................. 99.9% 144,693,328
Other Assets and
Liabilities - net................................... 0.1 156,584
----- ------------
Net Assets........................................... 100.0% $144,849,912
===== ============
</TABLE>
* Non-income producing securities.
(a) At January 29, 1999, the repurchase agreement was collateralized by:
$2,460,000 U.S. Treasury Notes, 5.50%, 5/31/03; value including ac-
crued interest-- $2,563,015.
Summary of Abbreviations:
ACES Automatically Convertible Equity Securities
ADR American Depository Receipt
DECS Dividend Enhanced Convertible Stock
PRIDES Preferred Redeemable Increased Dividend Equity Securities
REIT Real Estate Investment Trust
TECONS Term Convertible Shares
See Combined Notes to Financial Statements.
60
<PAGE>
E V E R G R E E N
Value Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 97.8%
Automotive Equipment & Manufacturing - 1.9%
115,200 Ford Motor Co. ......................................... $ 7,077,600
131,950 General Motors Corp. ................................... 11,842,513
------------
18,920,113
------------
Banks - 13.5%
366,300 Bank One Corp. ......................................... 19,184,962
392,000 BankAmerica Corp. ...................................... 26,215,000
85,600 BankBoston Corp. ....................................... 3,161,850
263,300 Chase Manhattan Corp. .................................. 20,257,644
481,450 Fleet Financial Group, Inc. ............................ 21,334,253
305,000 Republic New York Corp. ................................ 11,170,625
185,700 SouthTrust Corp. ....................................... 6,894,112
748,750 Sovereign Bancorp, Inc. ................................ 9,499,766
55,800 TCF Financial Corp. .................................... 1,245,038
107,600 Union Planters Corp. ................................... 4,895,800
260,300 US Bancorp Delaware..................................... 8,768,856
------------
132,627,906
------------
Business Equipment & Services - 1.0%
326,850 Dun & Bradstreet Corp. ................................. 9,968,925
------------
Chemical & Agricultural
Products - 2.8%
173,600 Du Pont (E. I.) De Nemours & Co. ....................... 8,886,150
246,800 Great Lakes Chemical Corp. ............................. 9,347,550
370,850 Morton International, Inc. ............................. 9,595,744
------------
27,829,444
------------
Communication Systems &
Services - 0.4%
10,000 Lucent Technologies, Inc. .............................. 1,125,625
34,200 *MCI WorldCom, Inc. .................................... 2,727,450
------------
3,853,075
------------
Consumer Products & Services - 1.1%
235,450 Fort James Corp. ....................................... 8,446,769
19,600 Gillette Co. ........................................... 1,151,500
16,800 Procter & Gamble Co. ................................... 1,526,700
------------
11,124,969
------------
Diversified Companies - 2.6%
267,150 Tenneco, Inc. .......................................... 8,248,256
228,500 Tyco International Ltd. ................................ 17,608,782
------------
25,857,038
------------
Electrical Equipment &
Services - 5.3%
145,100 General Electric Co. ................................... 15,217,363
158,600 Motorola, Inc. ......................................... 11,458,850
282,500 Tandy Corp. ............................................ 15,255,000
216,150 Thomas & Betts Corp. ................................... 9,551,128
------------
51,482,341
------------
Environmental Services - 2.2%
429,600 Waste Management, Inc. ................................. 21,453,150
------------
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Finance & Insurance - 14.1%
114,500 American International Group, Inc. ..................... $ 11,786,344
203,800 Associates First Capital Corp. Cl. A.................... 8,266,638
352,450 Citigroup, Inc. ........................................ 19,759,228
32,600 Federal Home Loan Mortgage Corp. ....................... 2,021,200
171,000 Federal National Mortgage Association................... 12,461,625
211,300 Greenpoint Financial Corp. ............................. 6,920,075
259,800 Hartford Financial Services Group, Inc. ................ 13,493,362
374,100 Household International, Inc. .......................... 16,437,019
2,600 Lincoln National Corp. ................................. 216,613
291,700 MBIA, Inc. ............................................. 19,124,581
118,200 Morgan Stanley, Dean Witter,
Discover & Co. ........................................ 10,261,237
171,000 Provident Co., Inc. .................................... 7,331,625
238,800 Washington Mutual, Inc. ................................ 10,029,600
------------
138,109,147
------------
Food & Beverage Products - 3.6%
406,600 American Stores Co. .................................... 14,739,250
622,700 Archer Daniels Midland Co. ............................. 9,418,337
23,700 Coca Cola Co. .......................................... 1,550,869
283,300 Fortune Brands, Inc. ................................... 9,419,725
------------
35,128,181
------------
Healthcare Products & Services - 3.2%
20,000 Abbott Laboratories .................................... 928,750
18,000 Bristol-Myers Squibb Co. ............................... 2,307,375
18,200 Johnson & Johnson....................................... 1,547,000
27,800 Lilly (Eli) & Co. ...................................... 2,604,512
415,200 Pharmacia & Upjohn, Inc. ............................... 23,874,000
------------
31,261,637
------------
Information Services &
Technology - 12.8%
352,100 *American Power Conversion Corp. ....................... 18,001,112
157,350 *Gateway 2000, Inc. .................................... 12,155,288
219,400 Hewlett-Packard Co. .................................... 17,195,475
18,000 Intel Corp. ............................................ 2,536,875
53,850 International Business Machines Corp. .................. 9,868,013
566,900 *Oracle Systems Corp. .................................. 31,392,087
310,850 *SCI Systems, Inc. ..................................... 17,096,750
127,800 *Sun Microsystems, Inc. ................................ 14,281,650
52,650 *Synopsys, Inc. ........................................ 3,056,991
------------
125,584,241
------------
Iron & Steel - 1.8%
245,100 AK Steel Holding Corp. ................................. 5,101,144
130,400 Bethlehem Steel Corp. .................................. 1,124,700
517,400 British Steel Plc ...................................... 11,382,800
------------
17,608,644
------------
Oil/Energy - 5.1%
66,400 Anadarko Petroleum Corp. ............................... 1,796,950
9,900 Chevron Corp. .......................................... 740,025
124,300 Exxon Corp. ............................................ 8,755,381
</TABLE>
61
<PAGE>
E V E R G R E E N
Value Fund
Schedule of Investments (continued)
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Oil/Energy - continued
110,800 Mobil Corp. ............................................ $ 9,715,775
49,300 Royal Dutch Petroleum Co. .............................. 1,975,081
381,400 Texaco, Inc. ........................................... 18,068,825
320,100 Unocal Corp. ........................................... 9,122,850
------------
50,174,887
------------
Paper & Packaging - 2.8%
970,800 Louisiana Pacific Corp. ................................ 19,476,675
458,518 Smurfit Container Corp. ................................ 7,393,603
------------
26,870,278
------------
Printing, Publishing, Broadcasting &
Entertainment - 2.8%
163,100 CBS Corp. .............................................. 5,545,400
33,000 Disney (Walt) Co. ...................................... 1,089,000
274,000 Tele Communications, Inc. .............................. 18,786,125
18,500 *Viacom, Inc. Cl. B..................................... 1,572,500
------------
26,993,025
------------
Retailing & Wholesale - 2.7%
116,500 *Federated Department Stores, Inc. ..................... 4,871,156
300,450 *Tommy Hilfiger Corp. .................................. 21,181,725
------------
26,052,881
------------
Telecommunication Services & Equipment - 2.1%
116,250 Mediaone Group, Inc. ................................... 6,517,265
304,050 *Univision Communications, Inc. Cl. A................... 13,644,244
------------
20,161,509
------------
Transportation - 4.5%
277,500 Burlington Northern Santa Fe Corp. ..................... 9,608,437
429,800 Canadian Pacific Ltd. .................................. 8,730,313
206,500 CNF Transportation, Inc. ............................... 9,163,438
186,200 Northwest Airlines Corp. ............................... 4,972,620
227,900 Union Pacific Corp. .................................... 11,722,606
------------
44,197,414
------------
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Electric - 2.9%
290,000 CMS Energy Corp. ....................................... $ 12,415,625
62,900 GPU, Inc. .............................................. 2,681,112
444,800 Houston Industries, Inc. ............................... 13,510,800
------------
28,607,537
------------
Utilities - Gas - 1.5%
389,700 NICOR, Inc. ............................................ 15,027,806
------------
Utilities - Telephone - 7.1%
173,750 Ameritech Corp. ........................................ 11,315,469
228,400 AT&T Corp. ............................................. 20,727,300
164,500 Bell Atlantic Corp. .................................... 9,870,000
65,400 BellSouth Corp. ........................................ 2,918,475
145,450 GTE Corp. .............................................. 9,817,875
244,450 U.S. West, Inc. ........................................ 15,079,509
------------
69,728,628
------------
Total Common Stocks
(cost $773,762,829).................................... 958,622,776
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 2.4%
U.S. Government Agency Obligations - 2.4%
$22,856,000 Federal Agricultural Mortgage
Corp. 4.62%, 2/1/1999 (cost $22,856,000)........... 22,856,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments -
(cost $796,618,829).................................. 100.2% 981,478,776
Other Assets and
Liabilities - net.................................... (0.2) (1,562,834)
----- ------------
Net Assets............................................ 100.0% $979,915,942
===== ============
</TABLE>
* Non-income producing securities.
See Combined Notes to Financial Statements.
62
<PAGE>
E V E R G R E E N
Growth and Income Funds
Statements of Assets and Liabilities
January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Growth Income
Equity and and Small Cap
Blue Chip Income Income Growth Value Utility Value
Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $374,856,441 $132,842,408 $1,668,139,451 $859,900,783 $310,572,089 $122,549,128 $796,618,829
Net unrealized gains or
losses on securities... 113,910,296 29,600,343 427,167,511 14,933,603 (11,819,547) 22,144,200 184,859,947
- -----------------------------------------------------------------------------------------------------------------------------
Market value of
securities............. 488,766,737 162,442,751 2,095,306,962 874,834,386 298,752,542 144,693,328 981,478,776
Cash.................... 713 1,284 106,561 66,693 56,959 0 42,976
Foreign currency (cost
$0, $0, $0, $3,885,728,
$0, $0, and $0,
respectively).......... 0 0 0 3,886,789 0 0 0
Receivable for
securities sold........ 3,760,330 1,935,019 10,215,042 4,305,568 233,470 8,568,101 13,972,497
Receivable for Fund
shares sold............ 2,263,061 80,301 1,708,330 84,602 4,321,782 144,734 425,568
Dividends and interest
receivable............. 379,229 284,014 1,311,643 2,198,210 802,081 882,195 1,177,810
Prepaid expenses and
other assets........... 112,559 22,344 95,009 66,267 41,690 28,661 57,557
- -----------------------------------------------------------------------------------------------------------------------------
Total assets........... 495,282,629 164,765,713 2,108,743,547 885,442,515 304,208,524 154,317,019 997,155,184
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for securities
purchased.............. 12,568,757 1,311,238 30,217,159 10,490,744 1,618,750 9,221,035 14,764,125
Payable for Fund shares
redeemed............... 882,534 236,904 6,322,800 1,460,048 964,395 116,572 1,668,281
Advisory fee payable.... 238,219 85,677 1,577,750 740,574 259,917 63,392 410,915
Distribution Plan
expenses payable....... 114,892 73,731 436,948 21,135 81,553 36,893 215,700
Due to other related
parties................ 6,317 2,955 0 0 0 3,403 25,958
Accrued expenses and
other liabilities...... 62,926 18,686 543,932 397,012 43,197 25,812 154,263
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities...... 13,873,645 1,729,191 39,098,589 13,109,513 2,967,812 9,467,107 17,239,242
- -----------------------------------------------------------------------------------------------------------------------------
Net assets.............. $481,408,984 $163,036,522 $2,069,644,958 $872,333,002 $301,240,712 $144,849,912 $979,915,942
- -----------------------------------------------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $345,079,983 $121,828,719 $1,637,043,445 $862,334,333 $330,048,009 $123,228,198 $702,091,992
Undistributed
(overdistributed) net
investment income...... 39,183 575,864 (150,813) 13,093,058 67,241 32,678 (155,681)
Accumulated net realized
gains or losses on
securities and foreign
currency related
transactions........... 22,379,522 11,031,596 5,584,548 (18,029,939) (17,054,991) (555,164) 93,119,684
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 113,910,296 29,600,343 427,167,778 14,935,550 (11,819,547) 22,144,200 184,859,947
- -----------------------------------------------------------------------------------------------------------------------------
Total net assets........ $481,408,984 $163,036,522 $2,069,644,958 $872,333,002 $301,240,712 $144,849,912 $979,915,942
- -----------------------------------------------------------------------------------------------------------------------------
Net assets consist of
Class A................. $340,292,978 $ 52,668,635 $ 286,027,701 $ 13,379,023 $ 74,509,741 $ 94,953,830 $479,970,015
Class B................. 140,231,442 90,736,212 985,367,391 51,033,169 125,716,900 46,418,758 337,559,484
Class C................. 884,564 19,382,507 45,820,338 1,074,297 25,769,887 629,717 4,492,085
Class Y................. -- 249,168 752,429,528 806,846,513 75,244,184 2,847,607 157,894,358
- -----------------------------------------------------------------------------------------------------------------------------
$481,408,984 $163,036,522 $2,069,644,958 $872,333,002 $301,240,712 $144,849,912 $979,915,942
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding
Class A................. 10,782,409 2,734,450 10,055,806 649,836 5,099,381 8,714,406 20,163,970
Class B................. 4,473,639 4,738,484 35,015,037 2,500,100 8,652,109 4,258,428 14,212,581
Class C................. 28,142 1,011,011 1,627,989 52,629 1,775,316 57,786 189,291
Class Y................. -- 12,969 26,396,915 39,171,763 5,146,616 261,270 6,631,694
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per
share
Class A................. $ 31.56 $ 19.26 $ 28.44 $ 20.59 $ 14.61 $ 10.90 $ 23.80
- -----------------------------------------------------------------------------------------------------------------------------
Class A--Offering price
(based on sales charge
of 4.75%).............. $ 33.13 $ 20.22 $ 29.86 $ 21.62 $ 15.34 $ 11.44 $ 24.99
- -----------------------------------------------------------------------------------------------------------------------------
Class B................. $ 31.35 $ 19.15 $ 28.14 $ 20.41 $ 14.53 $ 10.90 $ 23.75
- -----------------------------------------------------------------------------------------------------------------------------
Class C................. $ 31.43 $ 19.17 $ 28.15 $ 20.41 $ 14.52 $ 10.90 $ 23.73
- -----------------------------------------------------------------------------------------------------------------------------
Class Y................. -- $ 19.21 $ 28.50 $ 20.60 $ 14.62 $ 10.90 $ 23.81
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
63
<PAGE>
E V E R G R E E N
Growth and Income Funds
Statements of Operations
Six Months Ended January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Growth Income
Equity and and Small Cap
Blue Chip Income Income Growth Value Utility Value
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $19,622,
$4,315, $282,295, $0,
$0, $63,834 and $0,
respectively).......... $ 2,331,345 $ 1,681,404 $12,284,469 $ 23,388,813 $ 4,448,140 $3,481,061 $ 8,416,391
Interest................ 978,397 581,620 7,845,816 1,473,140 1,463,069 187,179 1,223,985
- -------------------------------------------------------------------------------------------------------------------------
Total investment
income................. 3,309,742 2,263,024 20,130,285 24,861,953 5,911,209 3,668,240 9,640,376
- -------------------------------------------------------------------------------------------------------------------------
Expenses
Advisory fee............ 1,263,145 507,662 8,999,624 4,347,516 1,492,844 362,777 2,334,043
Distribution Plan
expenses............... 989,226 628,361 5,354,259 278,223 841,126 351,193 2,170,124
Transfer agent fee...... 546,967 164,782 2,627,334 837,156 472,564 127,540 865,512
Administrative services
fees................... 31,144 13,351 0 0 0 19,078 122,756
Trustees' fees and
expenses............... 5,678 2,018 22,072 12,040 3,081 1,505 17,300
Other................... 125,119 114,838 589,616 325,787 86,187 47,634 180,192
- -------------------------------------------------------------------------------------------------------------------------
Total expenses......... 2,961,279 1,431,012 17,592,905 5,800,722 2,895,802 909,727 5,689,927
Less: Fee credits...... (7,577) (3,644) (39,394) (20,572) (17,071) (2,956) (16,320)
- -------------------------------------------------------------------------------------------------------------------------
Net expenses........... 2,953,702 1,427,368 17,553,511 5,780,150 2,878,731 906,771 5,673,607
- -------------------------------------------------------------------------------------------------------------------------
Net investment income... 356,040 835,656 2,576,774 19,081,803 3,032,478 2,761,469 3,966,769
- -------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions
Net realized gains or
losses on:
Securities............. 23,876,928 14,577,533 5,460,482 11,230,833 (17,096,277) (546,693) 98,276,360
Foreign currency
related transactions.. 0 0 0 (190,424) 0 0 558
- -------------------------------------------------------------------------------------------------------------------------
Net realized gains or
losses on securities
and foreign currency
related transactions... 23,876,928 14,577,533 5,460,482 11,040,409 (17,096,277) (546,693) 98,276,918
- -------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions........... 28,781,626 (12,802,526) (2,919,804) (32,724,672) (1,477,616) 4,971,291 (30,794,617)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions... 52,658,554 1,775,007 2,540,678 (21,684,263) (18,573,893) 4,424,598 67,482,301
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations........ $53,014,594 $ 2,610,663 $ 5,117,452 $ (2,602,460) $(15,541,415) $7,186,067 $ 71,449,070
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
64
<PAGE>
E V E R G R E E N
Growth and Income Funds
Statements of Changes in Net Assets
Six Months Ended January 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Equity Growth and Income and Small Cap
Blue Chip Income Income Growth Value Utility Value
Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment
income........... $ 356,040 $ 835,656 $ 2,576,774 $ 19,081,803 $ 3,032,478 $ 2,761,469 $ 3,966,769
Net realized gains
or losses on
securities and
foreign currency
related
transactions..... 23,876,928 14,577,533 5,460,482 11,040,409 (17,096,277) (546,693) 98,276,918
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions..... 28,781,626 (12,802,526) (2,919,804) (32,724,672) (1,477,616) 4,971,291 (30,794,617)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations...... 53,014,594 2,610,663 5,117,452 (2,602,460) (15,541,415) 7,186,067 71,449,070
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment
income
Class A.......... (301,891) (322,926) (618,275) (270,374) (755,525) (1,918,706) (2,354,330)
Class B.......... 0 (302,935) 0 (911,505) (1,072,671) (741,748) (679,263)
Class C.......... 0 (63,972) 0 (19,723) (212,803) (8,070) (9,129)
Class Y.......... 0 (928) (2,470,200) (18,246,900) (1,097,600) (52,399) (996,936)
Net realized gains
Class A.......... (22,171,083) (6,542,911) (8,009,500) (1,297,466) (792,880) (10,191,078) (2,706,113)
Class B.......... (10,585,999) (12,308,775) (27,000,584) (4,982,320) (1,601,327) (4,842,643) (1,893,542)
Class C.......... (50,576) (2,556,957) (1,332,807) (108,434) (315,684) (52,067) (26,406)
Class Y.......... 0 (19,678) (20,777,901) (79,113,403) (998,252) (304,419) (926,882)
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders.... (33,109,549) (22,119,082) (60,209,267) (104,950,125) (6,846,742) (18,111,130) (9,592,601)
- -----------------------------------------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from
shares sold...... 189,275,854 23,884,142 223,145,876 10,894,748 132,564,757 8,382,531 31,073,041
Payment for shares
redeemed......... (160,647,806) (41,400,459) (302,663,731) (77,088,435) (121,856,536) (9,337,129) (112,348,121)
Net asset value of
shares issued in
reinvestment of
distributions.... 29,467,826 20,684,226 56,933,750 95,425,447 5,834,565 15,473,260 8,512,187
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions.... 58,095,874 3,167,909 (22,584,105) 29,231,760 16,542,786 14,518,662 (72,762,893)
- -----------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets..... 78,000,919 (16,340,510) (77,675,920) (78,320,825) (5,845,371) 3,593,599 (10,906,424)
Net assets
Beginning of
period........... 403,408,065 179,377,032 2,147,320,878 950,653,827 307,086,083 141,256,313 990,822,366
- -----------------------------------------------------------------------------------------------------------------------------
End of period..... $ 481,408,984 $163,036,522 $2,069,644,958 $ 872,333,002 $ 301,240,712 $144,849,912 $ 979,915,942
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed
(overdistributed)
net investment
income........... $ 39,183 $ 575,864 $ (150,813) $ 13,093,058 $ 67,241 $ 32,678 $ (155,681)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
65
<PAGE>
E V E R G R E E N
Growth and Income Funds
Statements of Changes In Net Assets
Year Ended July 31, 1998
<TABLE>
<CAPTION>
Equity Growth and Income and Small Cap
Blue Chip Income Income Growth Value Utility Value
Fund(a) Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment
income............ $ 679,874 $ 822,896 $ 6,817,383 $ 43,781,531 $ 3,555,813 $ 4,733,754 $ 15,139,414
Net realized gains
or losses on
securities and
foreign currency
related
transactions...... 45,182,166 21,844,245 89,769,570 88,075,454 4,125,256 16,449,359 382,225,398
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions...... 18,537,520 (1,065,798) 54,312,938 (54,214,289) (17,882,408) 197,673 (290,896,507)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting
from operations.. 64,399,560 21,601,343 150,899,891 77,642,696 (10,201,339) 21,380,786 106,468,305
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment
income
Class A........... (572,879) (457,652) (1,133,476) (582,857) (585,054) (3,623,474) (4,928,756)
Class B........... (753,205) (258,225) 0 (1,826,984) (875,495) (1,224,827) (1,461,990)
Class C........... (10) (55,586) 0 (40,251) (178,326) (12,408) (15,608)
Class Y........... 0 (895) (5,146,565) (41,136,147) (1,701,966) (71,410) (11,332,854)
Net realized gains
Class A........... 0 (3,551,251) (7,164,362) (827,257) (213,842) (8,654,842) (79,220,878)
Class B........... (51,043,219) (7,082,118) (23,729,561) (3,160,159) (507,582) (3,545,873) (55,199,824)
Class C........... 0 (1,542,452) (1,087,731) (63,045) (100,773) (34,234) (713,832)
Class Y........... 0 (3,495) (23,937,007) (58,431,404) (758,969) (166,884) (82,980,185)
- ------------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders..... (52,369,313) (12,951,674) (62,198,702) (106,068,104) (4,922,007) (17,333,952) (235,853,927)
- ------------------------------------------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from
shares sold....... 114,811,777 40,160,932 982,241,448 36,821,129 324,098,172 27,354,893 209,984,754
Payment for shares
redeemed.......... (99,812,547) (44,846,695) (402,984,465) (109,733,628) (64,094,835) (24,559,873) (1,216,417,479)
Net asset value of
shares issued in
reinvestment of
distributions..... 45,932,435 12,075,357 54,748,017 95,522,782 3,360,906 4,031,786 202,246,215
Net asset value of
shares issued in
acquisition of:
Blanchard Growth &
Income Fund...... 17,510,672 0 0 0 0 0 0
Virtus Style
Manager Fund..... 0 0 75,922,310 0 0 0 0
Virtus Style
Manager; Large
Cap Fund......... 0 0 0 0 0 0 104,172,578
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting
from capital
share
transactions..... 78,442,337 7,389,594 709,927,310 22,610,283 263,364,243 6,826,806 (700,013,932)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets...... 90,472,584 16,039,263 798,628,499 (5,815,125) 248,240,897 10,873,640 (829,399,554)
Net assets
Beginning of
period............ 312,935,481 163,337,769 1,348,692,379 956,468,952 58,845,186 130,382,673 1,820,221,920
- ------------------------------------------------------------------------------------------------------------------------------
End of period...... $403,408,065 $179,377,032 $2,147,320,878 $ 950,653,827 $307,086,083 $141,256,313 $ 990,822,366
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed
(overdistributed)
net investment
income............ $ (14,966) $ 430,969 $ 360,888 $ 13,459,757 $ 173,362 $ (7,868) $ (82,792)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the eleven months 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.
66
<PAGE>
E V E R G R E E N
Growth and Income Funds
Statement of Changes in Net Assets
Year Ended August 31, 1997
<TABLE>
<CAPTION>
Blue Chip
Fund
- --------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income........................................... $ 1,381,103
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 increase in net assets resulting from operations........... 79,121,391
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class B........................................................ (2,021,947)
From net realized gain
Class B........................................................ (30,039,258)
- --------------------------------------------------------------------------------
Total distributions to shareholders............................ (32,061,205)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold....................................... 103,353,377
Payment for shares redeemed..................................... (89,890,447)
Net asset value of shares issued in reinvestment of
distributions.................................................. 27,593,101
- --------------------------------------------------------------------------------
Net increase in net assets resulting from capital share
transactions.................................................. 41,056,031
- --------------------------------------------------------------------------------
Total increase in net assets.................................. 88,116,217
Net assets
Beginning of period............................................. 224,819,264
- --------------------------------------------------------------------------------
End of period................................................... $312,935,481
- --------------------------------------------------------------------------------
Undistributed net investment income............................. $ 16,188
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
67
<PAGE>
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Growth and Income Funds consist of Evergreen Blue Chip Fund
("Blue Chip Fund"), Evergreen Equity Income Fund ("Equity Income Fund") (for-
merly Evergreen Fund for Total Return), Evergreen Growth and Income Fund
("Growth and Income Fund"), Evergreen Income and Growth Fund ("Income and
Growth Fund"), Evergreen Small Cap Value Fund ("Small Cap Value Fund") (for-
merly Evergreen Small Cap Equity Income Fund), Evergreen Utility Fund ("Utility
Fund") and Evergreen Value Fund ("Value Fund"), (collectively, the "Funds").
Each Fund is a diversified series of the Evergreen Equity Trust (the "Trust"),
a Delaware business Trust organized on September 18, 1997. The Trust is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and/or 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 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 only to investment advisory clients of First
Union Corporation ("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 as of December 30, 1994.
2. 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
Securities traded on a national securities exchange or included on the Nasdaq
National Market System ("NMS") and other securities traded in the over-the-
counter market are valued at the last reported sales price on the exchange
where primarily traded. Securities traded on an exchange or NMS for which there
has been no sale and other securities traded in the over-the-counter market are
valued at the mean between the last reported bid and asked price. Corporate
bonds, U.S. Government obligations, mortgage and other asset backed securities
and other fixed income securities are valued at prices provided by an indepen-
dent pricing service. In determining value for normal institutional-size trans-
actions, the pricing service uses methods based on market transactions for com-
parable securities and analysis of various relationships between similar secu-
rities, which are generally recognized by institutional traders. Securities for
which valuations are not available from an independent pricing service, includ-
ing restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Trustees. Short-term in-
vestments 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 in a segregated account 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 mar-
ket value of the securities pledged falls below the carrying value of the re-
purchase 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 es-
tablished by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Blue Chip Fund and Equity Income Fund, along with certain other funds
managed by Evergreen Investment Management Company
68
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
("EIMC") (formerly Keystone Investment Management Company), a subsidiary of
First Union, may transfer uninvested cash balances into a joint trading ac-
count. These balances are invested in one or more repurchase agreements that
are fully collateralized by U.S. Treasury and/or federal agency obligations.
C. 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 gains or losses resulting from changes in foreign
currency exchange rates is a component of net unrealized gains or losses on se-
curities and foreign currency related transactions. Net realized foreign cur-
rency gains or losses on foreign currency related transactions includes foreign
currency gains and losses between trade date and settlement date on investment
securities transactions, foreign currency related transactions and the differ-
ence 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 or
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.
D. 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.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date 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 are subject to foreign taxes, which
are accrued as applicable.
F. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated invest-
ment 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 in-
come and net capital gains, if any, to their shareholders. The Funds also in-
tend to avoid any excise tax liability by making the required distributions un-
der the Code. Accordingly, no provision for federal 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.
G. Distributions
Distributions from net investment income for the Funds, except Utility Fund,
are declared and paid quarterly. Distributions from net investment income for
Utility Fund are declared and paid monthly. Distributions from net realized
capital gains, if any, are paid at least annually. Distributions to sharehold-
ers 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 significant differences between financial statements
amounts available for distribution and distributions made in accordance with
income tax
69
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
regulations are primarily due to differing treatment for certain distributions
received from real estate investment trusts and certain operating expenses.
Certain distributions paid during previous years have been reclassified to con-
form to current year presentation.
H. 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.
I. Organization Expenses
Organization expenses for Small Cap Value Fund are amortized over a five-year
period on a straight-line basis. In the event any of the initial shares of the
Fund are redeemed by any holder during the five-year amortization period, re-
demption 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. As of Janu-
ary 31, 1999 all organization expenses for Small Cap Value Fund have been fully
amortized.
3. REORGANIZATION OF EVERGREEN VALUE FUND
On January 21, 1998, Value Fund, Class Y, executed a redemption in-kind trans-
action of $793,367,277. This transaction resulted in the liquidation of sub-
stantially all of the net assets of Value Fund, Class Y shares. In turn, the
assets were transferred to Evergreen Select Diversified Value Fund ("Select Di-
versified Value Fund"), Class I, an institutional balanced 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 from this
sale of securities are not taxable to the Value Fund and are not required to be
distributed for federal income tax purposes.
4. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
EIMC serves as the investment advisor to Blue Chip Fund and Equity Income Fund.
In return for providing investment advisory services to Blue Chip Fund and Eq-
uity Income Fund, the Funds pay EIMC an advisory fee that is calculated daily
and paid monthly. The advisory fee for Blue Chip Fund is determined by applying
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 advisory fee
for Equity Income Fund is computed at an annual rate of 1.50% of Equity Income
Fund's gross dividend and interest income plus an amount determined by applying
percentage rates, starting at 0.60% and declining to 0.30% per annum as net as-
sets increase, to the average daily net asset value of the Fund.
Evergreen Investment Management ("EIM"), formerly Capital Management Group, a
division of First Union National Bank ("FUNB"), serves as the investment advi-
sor to Utility Fund and Value Fund and is paid an advisory fee that is computed
and paid monthly at an annual rate of 0.50% of each Fund's average daily net
assets.
Evergreen Asset Management Corp. ("EAMC"), a wholly owned subsidiary of First
Union, serves as the investment advisor to Growth and Income Fund, Income and
Growth Fund and Small Cap Value Fund and is paid an advisory fee that is com-
puted daily and paid monthly based on each Fund's average daily net assets, 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>
Lieber & Company, an affiliate of First Union, provides investment sub-advisory
services to Growth and Income Fund, Income and Growth Fund and Small Cap Value
Fund. Expenses associated with these services are a cost of EAMC and are not a
fund expense.
70
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Lieber & Company also provides brokerage services to Growth and Income Fund,
Income and Growth Fund and Small Cap Value Fund with respect to substantially
all security transactions of the Funds effected on the New York or American
Stock Exchanges. For the six months ended January 31, 1999, Income and Growth,
Growth and Income and Small Cap Value Fund incurred broker commissions of
$543,687, $688,394 and $167,765, respectively, with Lieber & Company.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and The BISYS Group, Inc. ("BISYS") serves as the sub-administrator
to the Funds. As administrator, EIS provides the Funds with facilities, equip-
ment and personnel. As sub-administrator to the Funds, BISYS provides the offi-
cers of the Funds. Officers of the Funds and affiliated Trustees receive no
compensation directly from 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 invest-
ment 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 in-
crease, 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 the six months ended January 31, 1999, Utility Fund and Value Fund paid or
accrued to EIS and BISYS the following amounts for administrative and sub-ad-
ministrative services:
<TABLE>
<CAPTION>
Administration Sub-administration
Fee Fee
-----------------------------------------
<S> <C> <C>
Utility Fund.................. $15,246 $ 3,832
Value Fund.................... 98,099 24,657
</TABLE>
For Growth and Income Fund, Income and Growth Fund and Small Cap Value Fund,
the administration and sub-administration fee is paid by the investment advisor
and is not a fund expense. For the six months ended January 31, 1999, Blue Chip
Fund and Equity Income Fund reimbursed EIMC for certain accounting and adminis-
trative expenses amounting to $31,144 and $13,351, respectively.
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc., a wholly-owned subsidiary of BISYS, serves as
principal underwriter to the Funds.
Each Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940
Act, for each class of shares, except Class Y. Distribution plans permit a Fund
to compensate 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 the Fund through "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 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.
For the six months ended January 31, 1999, amounts accrued to EDI 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>
Blue Chip Fund.................... $346,630 $ 639,119 $ 3,477
Equity Income Fund................ 63,273 467,317 97,771
Growth and Income Fund............ 353,842 4,764,678 235,739
Income and Growth Fund............ 16,975 255,701 5,547
Small Cap Value Fund.............. 75,424 637,676 128,026
Utility Fund...................... 120,749 227,949 2,495
Value Fund........................ 568,397 1,580,189 21,538
</TABLE>
With respect to Class B and Class C shares, the principal underwriter may pay
distribution fees greater than the allowable annual amounts each Fund is per-
mitted to pay under the Distribution Plans.
71
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
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.
6. ACQUISITIONS
Effective on the close of business on February 27, 1998, Blue Chip Fund ac-
quired substantially all of the assets and assumed certain liabilities of
Blanchard Growth & Income Fund, an open-end management investment company reg-
istered under the 1940 Act, in exchange of shares. The net assets were ex-
changed through a tax-free exchange for 596,231 shares of Class A of Blue Chip
Fund. The acquired net assets consisted primarily of portfolio securities with
unrealized appreciation of $5,643,636. The net assets of Blue Chip Fund and
Blanchard Growth & Income Fund immediately prior to the acquisition were
$347,931,473 and $17,510,672, respectively. The aggregate net assets of Blue
Chip Fund immediately after the acquisition were $365,442,145.
Effective on the close of business on February 27, 1998, Growth and Income Fund
acquired substantially all of the assets and assumed certain liabilities of
Virtus Style Manager Fund, an open-end management investment company registered
under the 1940 Act, in exchange of shares. The net assets were exchanged
through a tax-free exchange for 2,555,807 shares of Class Y of Growth and In-
come Fund. The acquired net assets consisted primarily of portfolio securities
with unrealized appreciation of $10,049,313. The net assets of Growth and In-
come Fund and Virtus Style Manager Fund immediately prior to the acquisition
were $1,869,405,194 and $75,922,310, respectively. The aggregate net assets of
Growth and Income Fund immediately after the acquisition were $1,945,327,504.
Effective on the close of business on February 27, 1998, Value Fund acquired
substantially all of the assets and assumed certain liabilities of Virtus Style
Manager; Large Cap Fund, an open-end management investment company registered
under the 1940 Act, in an exchange of shares. The net assets were exchanged
through a tax-free exchange for 3,109,878 and 924,632 shares of Class A and
Class Y of Value Fund. The acquired net assets consisted primarily of portfolio
securities with unrealized appreciation of $28,824,982. The net assets of Value
Fund and Virtus Style Manager; Large Cap Fund immediately prior to the acquisi-
tion were $993,264,782 and $104,172,577, respectively. The aggregate net assets
of Value Fund immediately after the acquisition were $1,097,437,360.
72
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
7. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C and/or Class Y. Blue Chip currently does
not have any Class Y shares. Transactions in shares of the Funds were as fol-
lows:
Blue Chip Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended Year Ended
January 31, 1999 July 31, 1998 (a) August 31, 1997
------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 4,326,992 $ 124,839,750 812,276 $ 24,596,278 0 0
Automatic conversion of
Class B shares to Class
A shares............... 899,942 27,236,701 9,140,449 250,374,069 0 0
Shares redeemed......... (3,587,049) (101,890,425) (1,203,287) (36,027,532) 0 0
Shares issued on
reinvestment of
distribution........... 682,100 19,381,644 14,697 447,340 0 0
Shares issued in
acquisition of
Blanchard Growth and
Income Fund............ 0 0 596,231 17,510,672 0 0
- ---------------------------------------------------------------------------------------------------------
Net increase............ 2,321,985 69,567,670 9,360,366 256,900,827 0 0
- ---------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 2,161,876 62,310,801 3,020,854 89,396,767 3,800,615 $103,353,377
Automatic conversion of
Class B shares to Class
A shares............... (899,942) (27,236,701) (9,140,449) (250,374,069) 0 0
Shares redeemed......... (1,928,261) (56,679,724) (2,178,914) (63,756,605) (3,349,695) (89,890,447)
Shares issued on
reinvestment of
distribution........... 355,115 10,035,608 1,678,649 45,485,085 1,079,325 27,593,101
- ---------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (311,212) (11,570,016) (6,619,860) (179,248,822) 1,530,245 41,056,031
- ---------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 71,071 2,125,303 26,608 818,732 0 0
Shares redeemed......... (70,373) (2,077,657) (949) (28,410) 0 0
Shares issued on
reinvestment of
distribution........... 1,785 50,574 0 10 0 0
- ---------------------------------------------------------------------------------------------------------
Net increase............ 2,483 98,220 25,659 790,332 0 0
- ---------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... $ 58,095,874 $ 78,442,337 $ 41,056,031
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the eleven months ended July 31, 1998. The Fund changed its fiscal year
end from August 31 to July 31, effective July 31, 1998.
Equity Income Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 370,486 $ 7,284,373 405,327 $ 8,477,777
Shares redeemed........... (412,833) (8,112,134) (476,275) (9,979,937)
Shares issued on
reinvestment of
distribution............. 343,876 6,512,096 192,513 3,761,047
- -------------------------------------------------------------------------------
Net increase.............. 301,529 5,684,335 121,565 2,258,887
- -------------------------------------------------------------------------------
Class B
Shares sold............... 683,888 13,688,515 1,312,799 27,194,053
Shares redeemed........... (1,471,602) (28,845,823) (1,328,176) (27,515,826)
Shares issued on
reinvestment of
distribution............. 621,368 11,690,630 348,818 6,752,535
- -------------------------------------------------------------------------------
Net increase (decrease)... (166,346) (3,466,678) 333,441 6,430,762
- -------------------------------------------------------------------------------
Class C
Shares sold............... 131,514 2,642,632 212,115 4,372,780
Shares redeemed........... (217,311) (4,302,891) (349,166) (7,245,174)
Shares issued on
reinvestment of
distribution............. 130,654 2,460,894 80,168 1,557,317
- -------------------------------------------------------------------------------
Net increase (decrease)... 44,857 800,635 (56,883) (1,315,077)
- -------------------------------------------------------------------------------
Class Y*
Shares sold............... 13,689 268,622 5,560 116,322
Shares redeemed........... (6,948) (139,611) (5,138) (105,758)
Shares issued on
reinvestment of
distribution............. 1,091 20,606 228 4,458
- -------------------------------------------------------------------------------
Net increase.............. 7,832 149,617 650 15,022
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions....... $ 3,167,909 $ 7,389,594
- --------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Growth and Income Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
------------------------- -------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.............. 2,717,801 $ 74,944,584 7,300,804 $ 214,673,895
Shares redeemed.......... (3,130,970) (86,422,362) (3,520,816) (103,702,934)
Shares issued on
reinvestment of
distribution............ 300,474 8,411,837 287,118 8,071,240
- --------------------------------------------------------------------------------
Net increase (decrease).. (112,695) (3,065,941) 4,067,106 119,042,201
- --------------------------------------------------------------------------------
Class B
Shares sold.............. 3,242,125 87,661,203 16,476,196 481,475,327
Shares redeemed.......... (3,777,880) (101,929,718) (2,725,060) (79,579,083)
Shares issued on
reinvestment of
distribution............ 944,997 26,223,708 837,176 23,198,143
- --------------------------------------------------------------------------------
Net increase............. 409,242 11,955,193 14,588,312 425,094,387
- --------------------------------------------------------------------------------
Class C
Shares sold.............. 305,638 8,273,924 1,131,563 32,986,181
Shares redeemed.......... (459,504) (12,491,296) (317,773) (9,241,480)
Shares issued on
reinvestment of
distribution............ 45,433 1,261,217 38,010 1,053,643
- --------------------------------------------------------------------------------
Net increase (decrease).. (108,433) (2,956,155) 851,800 24,798,344
- --------------------------------------------------------------------------------
Class Y
Shares sold.............. 1,908,120 52,266,165 8,658,868 253,053,137
Shares redeemed.......... (3,709,933) (101,820,355) (7,135,642) (210,408,060)
Shares issued on
reinvestment of
distribution............ 749,966 21,036,988 797,581 22,424,991
Shares issued in
acquisition of Virtus
Style Manager Fund...... 0 0 2,555,807 75,922,310
- --------------------------------------------------------------------------------
Net increase (decrease).. (1,051,847) (28,517,202) 4,876,614 140,992,378
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions............ $ (22,584,105) $ 709,927,310
</TABLE>
- --------------------------------------------------------------------------------
Income and Growth Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 30, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 58,129 $ 1,222,305 204,121 $ 4,959,183
Shares redeemed........... (125,770) (2,643,188) (112,612) (2,739,976)
Shares issued on
reinvestment of
distribution............. 70,356 1,471,407 56,318 1,325,926
- -------------------------------------------------------------------------------
Net increase.............. 2,715 50,524 147,827 3,545,133
- -------------------------------------------------------------------------------
Class B
Shares sold............... 152,440 3,204,175 633,299 15,295,755
Shares redeemed........... (284,853) (5,964,912) (310,711) (7,455,874)
Shares issued on
reinvestment of
distribution............. 264,999 5,499,804 198,183 4,626,554
- -------------------------------------------------------------------------------
Net increase.............. 132,586 2,739,067 520,771 12,466,435
- -------------------------------------------------------------------------------
Class C
Shares sold............... 5,957 126,523 27,805 674,067
Shares redeemed........... (13,238) (272,856) (16,763) (402,792)
Shares issued on
reinvestment of
distribution............. 5,267 109,309 3,708 86,620
- -------------------------------------------------------------------------------
Net increase (decrease)... (2,014) (37,024) 14,750 357,895
- -------------------------------------------------------------------------------
Class Y
Shares sold............... 300,883 6,341,745 641,797 15,892,124
Shares redeemed........... (3,240,570) (68,207,479) (4,066,667) (99,134,986)
Shares issued on
reinvestment of
distribution............. 4,220,269 88,344,927 3,795,361 89,483,682
- -------------------------------------------------------------------------------
Net increase.............. 1,280,582 26,479,193 370,491 6,240,820
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions....... $ 29,231,760 $ 22,610,283
- -------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Small Cap Value Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 6,045,592 $ 88,589,723 4,328,382 $ 72,341,164
Shares redeemed........... (4,485,999) (65,838,837) (1,207,491) (20,046,565)
Shares issued on
reinvestment of
distribution............. 102,911 1,496,736 45,725 753,748
- -------------------------------------------------------------------------------
Net increase.............. 1,662,504 24,247,622 3,166,616 53,048,347
- -------------------------------------------------------------------------------
Class B
Shares sold............... 1,799,514 26,238,034 8,426,642 140,304,860
Shares redeemed........... (1,631,929) (23,632,815) (803,676) (13,366,175)
Shares issued on
reinvestment of
distribution............. 176,678 2,559,231 79,883 1,323,369
- -------------------------------------------------------------------------------
Net increase.............. 344,263 5,164,450 7,702,849 128,262,054
- -------------------------------------------------------------------------------
Class C
Shares sold............... 511,050 7,438,068 1,760,785 29,361,569
Shares redeemed........... (443,266) (6,377,682) (281,072) (4,699,621)
Shares issued on
reinvestment of
distribution............. 34,456 498,714 16,111 266,637
- -------------------------------------------------------------------------------
Net increase.............. 102,240 1,559,100 1,495,824 24,928,585
- -------------------------------------------------------------------------------
Class Y
Shares sold............... 709,150 10,298,932 4,923,790 82,090,579
Shares redeemed........... (1,774,325) (26,007,202) (1,558,339) (25,982,474)
Shares issued on
reinvestment of
distribution............. 87,654 1,279,884 61,107 1,017,152
- -------------------------------------------------------------------------------
Net increase (decrease)... (977,521) (14,428,386) 3,426,558 57,125,257
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions....... $ 16,542,786 $263,364,243
- --------------------------------------------------------------------------------
</TABLE>
Utility Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
--------------------- ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.................. 172,864 $ 1,997,120 1,266,778 $ 14,554,039
Shares redeemed.............. (462,547) (5,355,001) (1,407,032) (16,718,124)
Shares issued on reinvestment
of distribution............. 899,379 10,185,940 243,720 2,889,027
- -------------------------------------------------------------------------------
Net increase................. 609,696 6,828,059 103,466 724,942
- -------------------------------------------------------------------------------
Class B
Shares sold.................. 368,834 4,244,744 974,483 11,445,916
Shares redeemed.............. (286,484) (3,289,676) (551,773) (6,555,500)
Shares issued on reinvestment
of distribution............. 455,010 5,155,127 93,247 1,107,337
- -------------------------------------------------------------------------------
Net increase................. 537,360 6,110,195 515,957 5,997,753
- -------------------------------------------------------------------------------
Class C
Shares sold.................. 24,825 286,912 13,355 157,299
Shares redeemed.............. (13,232) (151,924) (6,139) (72,067)
Shares issued on reinvestment
of distribution............. 4,902 55,528 980 11,662
- -------------------------------------------------------------------------------
Net increase................. 16,495 190,516 8,196 96,894
- -------------------------------------------------------------------------------
Class Y
Shares sold.................. 156,453 1,853,755 100,754 1,197,639
Shares redeemed.............. (45,967) (540,528) (100,753) (1,214,182)
Shares issued on reinvestment
of distribution............. 6,764 76,665 2,014 23,760
- -------------------------------------------------------------------------------
Net increase................. 117,250 1,389,892 2,015 7,217
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share
transactions................ $14,518,662 $ 6,826,806
- --------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Value Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
------------------------ ----------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 535,158 $ 11,768,462 1,587,252 $ 40,192,765
Shares redeemed......... (2,011,180) (43,621,283) (2,758,581) (68,967,117)
Shares issued on
reinvestment of
distribution........... 217,141 4,878,786 3,563,487 81,070,016
Shares issued in the
acquisition of Virtus
Style Manager; Large
Cap Fund............... 0 0 3,109,878 80,290,504
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (1,258,881) (26,974,035) 5,502,036 132,586,168
- --------------------------------------------------------------------------------
Class B
Shares sold............. 542,771 11,777,878 2,346,146 58,297,020
Shares redeemed......... (1,149,184) (24,857,895) (1,290,986) (31,809,835)
Shares issued on
reinvestment of
distribution........... 111,926 2,520,096 2,433,973 55,281,719
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (494,487) (10,559,921) 3,489,133 81,768,904
- --------------------------------------------------------------------------------
Class C
Shares sold............. 21,724 473,607 170,261 4,223,998
Shares redeemed......... (65,000) (1,403,028) (72,103) (1,793,135)
Shares issued on
reinvestment of
distribution........... 1,529 34,419 31,015 701,653
- --------------------------------------------------------------------------------
Net increase
(decrease)............. (41,747) (895,002) 129,173 3,132,516
- --------------------------------------------------------------------------------
Class Y
Shares sold............. 322,956 7,053,094 4,385,718 107,270,971
Shares redeemed......... (1,973,281) (42,465,915) (46,491,232) (1,113,847,392)
Shares issued on
reinvestment of
distribution........... 47,810 1,078,886 2,771,230 65,192,827
Shares issued in the
acquisition of Virtus
Style Manager; Large
Cap Fund............... 0 0 924,632 23,882,074
- --------------------------------------------------------------------------------
Net decrease............ (1,602,515) (34,333,935) (38,409,652) (917,501,520)
- --------------------------------------------------------------------------------
Net decrease in net
assets resulting from
capital share
transactions........... $(72,762,893) $ (700,013,932)
</TABLE>
- --------------------------------------------------------------------------------
8. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended January 31,
1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
--------------------------------
<S> <C> <C>
Blue Chip Fund............ $324,179,259 $270,872,888
Equity Income Fund........ 93,521,714 101,729,832
Growth and Income Fund.... 269,427,398 116,477,061
Income and Growth Fund.... 365,028,236 424,129,096
Small Cap Value Fund...... 98,085,282 80,790,261
Utility Fund.............. 25,789,727 26,822,918
Value Fund................ 654,841,866 662,610,832
</TABLE>
9. EXPENSE OFFSET ARRANGEMENTS
The Funds have entered into expense offset arrangements with ESC and their cus-
todian whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of each Fund's related expenses. The assets deposited
with ESC and the custodian under these expense offset arrangements could have
been invested in income-producing assets. The amount of fee credits received by
each Fund and the impact on each Fund's expense ratio represented as a percent-
age of its average daily net assets were as follows:
<TABLE>
<CAPTION>
Total
Fee Credits % of Average
Received Daily Net Assets
-------------------------
<S> <C> <C>
Blue Chip Fund..................... $ 7,577 0.00%
Equity Income Fund................. 3,644 0.00
Growth and Income Fund............. 39,394 0.00
Income and Growth Fund............. 20,572 0.01
Small Cap Value Fund............... 17,071 0.01
Utility Fund....................... 2,956 0.00
Value Fund......................... 16,320 0.00
</TABLE>
76
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of each Fund may defer any or all compensation related
to performance of duties as a Trustee. The Trustees' deferred balances are al-
located to deferral accounts, which are included in the accrued expenses for
the 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 the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments 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.
11. FINANCING AGREEMENT
Certain Evergreen Funds and State Street Bank and Trust Company ("State
Street") and a group of banks (collectively, the "Banks") entered into a fi-
nancing agreement dated December 22, 1997, as amended on November 20, 1998. Un-
der this agreement, the Banks provide an unsecured credit facility in the ag-
gregate amount of $400 million ($275 million committed and $125 million uncom-
mitted). 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 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 in-
curred on the unused portion of the 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 allo-
cated to all of the Funds.
This agreement was amended and renewed on December 22, 1998. The amended fi-
nancing agreement became effective on December 22, 1998 among all of the Ever-
green Funds, State Street and The Bank of New York ("BONY"). Under this agree-
ment, State Street and BONY provide an unsecured credit facility in the aggre-
gate amount of $150 million ($125 million committed and $25 million uncommit-
ted). The remaining terms and conditions of the agreement are unaffected.
During the six months ended January 31, 1999, the Funds had no significant
borrowings under these agreement.
12. CONCENTRATION OF CREDIT RISK
Utility Fund invests a substantial portion of its assets in issuers in the
utilities industry, therefore, it may be more affected by economic and politi-
cal developments in that industry than would be a comparable general equity
fund.
13. DISTRIBUTIONS TO SHAREHOLDERS
During the period from January 31, 1999 to March 31, 1999, the Utility Fund de-
clared the following distributions from net investment income.
<TABLE>
<CAPTION>
Record Date Payable Date Class A Class B Class C Class Y
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 12, 1999 February 17, 1999 $0.031 $0.025 $0.025 $0.033
March 12, 1999 March 16, 1999 $0.030 $0.023 $0.023 $0.032
</TABLE>
On March 23, 1999 the following Fund's declared distributions from net invest-
ment income. These distributions were payable on March 24, 1999 to shareholders
of record March 22, 1999.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
------------------------------
<S> <C> <C> <C> <C>
Equity Income Fund............ $0.079 $0.041 $0.041 $0.091
Growth and Income Fund........ -- -- -- $0.005
Income and Growth Fund........ $0.257 $0.216 $0.216 $0.270
Small Cap Value Fund.......... $0.069 $0.043 $0.043 $0.078
Value Fund.................... $0.034 -- -- $0.049
</TABLE>
These distributions are not reflected in these financial statements.
77
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
14. NAME CHANGES
Effective April 6, 1999, Evergreen Small Cap Equity Income Fund and Evergreen
Fund for Total Return will change their names to Evergreen Small Cap Value Fund
and Evergreen Equity Income Fund, respectively.
In connection with this name change, the investment objective of the Evergreen
Equity Income Fund has been revised to seek primarily current income and sec-
ondarily capital growth. Additionally, the investment strategy of the Evergreen
Equity Income Fund has been clarified so that the Fund invests at least 65% in
common stocks of large, established companies (above $5 billion in market capi-
talization) with a history of paying dividends.
ADDITIONAL INFORMATION - YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors 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 advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
78
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
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Income and Growth Fund
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Value Fund
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<PAGE>
<PAGE>
Evergreen Utility Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments
January 31, 1999
<TABLE>
<CAPTION>
Mentor America's Utilities
Evergreen Utility Fund Fund, Inc. Proforma Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 84.2%
Banks - 0.7%
SouthTrust Corp. 60,500 $ 2,259,297 60,500 $ 2,259,297
----------- -----------
Capital Goods - 0.4%
W.W. Grainger, Inc. 31,200 1,271,400 31,200 1,271,400
----------- -----------
Communication Systems & Services - 3.0%
MCI WorldCom, Inc. 50,000 $ 3,987,500 66,921 5,328,585 116,921 9,316,085
----------- ----------- -----------
Finance & Insurance - 0.7%
Federal National Mortgage Association 29,800 2,171,675 29,800 2,171,675
----------- -----------
Food & Beverage Products - 1.0%
SYSCO Corp. 108,600 2,959,350 108,600 2,959,350
----------- -----------
Healthcare Products & Services - 2.2%
Bristol-Myers Squibb Co. 15,000 1,922,813 15,000 1,922,813
Johnson & Johnson 21,500 1,827,500 21,500 1,827,500
Mylan Laboratories, Inc. 100,000 3,050,000 100,000 3,050,000
----------- ----------- -----------
3,050,000 3,750,313 6,800,313
----------- ----------- -----------
Industrial Specialty Products & Services - 0.4%
The Sherwin-Williams Co. 53,400 1,368,375 53,400 1,368,375
----------- -----------
Oil/Energy - 4.4%
Emerson Electric Co. 40,000 2,327,500 40,000 2,327,500
Enron Corp. 70,000 4,620,000 74,000 4,884,000 144,000 9,504,000
Mobil Corp. 20,300 1,780,056 20,300 1,780,056
----------- ----------- -----------
4,620,000 8,991,556 13,611,556
----------- ----------- -----------
Paper & Packaging - 0.3%
Bemis Co., Inc. 30,000 1,020,000 30,000 1,020,000
----------- -----------
Real Estate - 3.9%
CarrAmerica Realty Corp. 31,000 682,000 31,000 682,000
Colonial Properties Trust REIT 43,000 1,177,125 43,000 1,177,125
FelCor Lodging Trust Inc. REIT 190,000 4,144,375 190,000 4,144,375
Highwoods Properties, Inc. 28,000 675,500 28,000 675,500
Liberty Properties Trust REIT 76,200 1,800,225 76,200 1,800,225
Mack-Cali Realty Corp. 56,500 1,687,938 56,500 1,687,938
Nationwide Health Properties REIT 54,000 1,120,500 54,000 1,120,500
Realty Income Corp. 23,000 549,125 23,000 549,125
----------- ----------- -----------
4,144,375 7,692,413 11,836,788
----------- ----------- -----------
Utilities - Electric - 41.7%
Allegheny Energy, Inc. 94,100 2,975,913 94,100 2,975,913
Central Hudson Gas & Electric Corp. 100,000 4,031,250 100,000 4,031,250
Cinergy Corp. 100,000 3,131,250 100,000 3,131,250
Companhia Parananese de Energia-Copel, Plc, ADR 1,000,000 4,000,000 1,000,000 4,000,000
DPL, Inc. 253,800 4,806,337 253,800 4,806,337
Duke Power Co. 70,000 4,326,875 78,800 4,870,825 148,800 9,197,700
Eastern Utilities Ltd. 77,000 2,276,312 77,000 2,276,312
Endesa SA, ADR 82,000 2,306,250 82,000 2,306,250
Energy East Corp. 100,000 5,118,750 100,000 5,118,750
FPL Group, Inc. 67,000 3,676,625 67,000 3,676,625
First Energy Corp. 150,600 4,678,013 150,600 4,678,013
GPU, Inc. 77,600 3,307,700 77,600 3,307,700
Gener SA, ADR 73,810 996,435 73,810 996,435
Houston Industries, Inc. 170,000 5,163,750 170,000 5,163,750
Interstate Energy Corp. 125,000 3,593,750 125,000 3,593,750
LG&E Energy Corp. 165,700 4,370,337 165,700 4,370,337
MDU Resources Group, Inc. 165,000 3,795,000 165,000 3,795,000
NIPSCO Industries, Inc. 120,600 3,271,275 120,600 3,271,275
New Century Energies, Inc. 90,800 3,995,200 90,800 3,995,200
Northern States Enterprises 150,800 4,062,175 150,800 4,062,175
PacifiCorp 225,000 4,626,562 225,000 4,626,562
</TABLE>
<PAGE>
Evergreen Utility Fund
Pro Forma Combining Financial Statements (Unaudited)
Schedules of Investments
January 31, 1999
<TABLE>
<CAPTION>
Mentor America's Utilities
Evergreen Utility Fund Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS - continued
Utilities - Electric - continued
Potomac Electric Power Co. 171,400 $ 3,995,763
PP&L Resources, Inc. 150,000 $ 4,003,125
Public Service Co. of New Mexico 175,000 3,292,188
Public Service Enterprise Group, Inc. 100,000 3,968,750
SCANA Corp. 89,700 2,483,569
Sempra Energy 175,000 4,025,000 142,710 3,282,330
Southern Co. 161,500 4,350,406
Teco Energy, Inc. 140,000 3,255,000 154,600 3,594,450
Western Resources, Inc. 156,700 4,926,256
Wisconsin Energy Corp. 135,000 3,510,000
------------ ------------
59,841,250 68,226,171
------------ ------------
Utilities - Gas - 6.0%
Consolidated Natural 30,000 1,539,375
Keyspan Energy 180,000 4,871,250 93,000 2,516,812
Nicor, Inc. 78,000 3,007,875
Northwest Natural Gas Co. 45,000 1,057,500
Peoples Energy Corp. 60,000 2,070,000
Questar Corp. 170,000 2,836,875
Semco Energy, Inc. 25,000 406,250
------------ ------------
8,405,000 9,900,937
------------ ------------
Utilities - Telephone - 19.5%
AT&T Corp. 25,000 2,248,438
Ameritech Corp. 100,000 6,512,500
Bell Atlantic Corp. 112,800 6,768,000
BellSouth Corp. 150,000 6,693,750
Frontier Corp. 55,000 1,986,875
GTE Corp. 70,000 4,725,000 84,000 5,670,000
SBC Communications, Inc. 124,000 6,696,000
Sprint Corp. 60,000 5,032,500 49,600 4,160,200
* Sprint Corp. (PCS Group) 30,000 956,250 24,800 790,500
Telefonica de Espana 18,916 2,615,123
U.S. West, Inc. 80,000 4,935,000
------------ ------------
26,577,813 33,212,323
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost - $93,671,648,
$108,236,558 and $201,908,206, respectively) 110,625,938 148,152,395
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 0.2%
Banks - 0.2%
BankAmerica Trust 20,000 521,250
------------
- ----------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (cost - $0,
$500,000 and $500,000, respectively) 521,250
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - 9.2%
Communications Systems & Services - 1.8%
AirTouch Communications, Inc., 6.00%, Ser. B 70,000 5,486,250
------------
Printing, Publishing, Broadcasting & Entertainment -
1.4%
Houston Industries, Inc., 7.00%, ACES
(exchangeable for Time Warner, Inc. Common Stock) 40,000 4,255,000
------------
Telecommunication Services & Equipment - 1.2%
Qualcomm Financial Trust I, 5.75%, 3/01/2012 70,000 3,718,750
------------
Utilities - Electric - 3.2%
AES Trust I, 5.375%, Series A, TECONS 70,000 3,797,500
BNDES Participacoes SA, 10.5%, DECS 135,000 2,092,500
Texas Utilities Co., 9.25%, PRIDES 70,000 3,876,250
------------
9,766,250
------------
Utilities - Telephone - 1.6%
Sprint Corp., 8.25%, DECS
(exchangeable for Southern N.E. Telephone common
stock) 60,000 4,998,750
- ----------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred (cost - $22,835,090,
$0 and $22,835,090, respectively) 28,225,000
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Proforma Combined
- -------------------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - continued
Utilities - Electric - continued
Potomac Electric Power Co. 171,400 $ 3,995,763
PP&L Resources, Inc. 150,000 4,003,125
Public Service Co. of New Mexico 175,000 3,292,188
Public Service Enterprise Group, Inc. 100,000 3,968,750
SCANA Corp. 89,700 2,483,569
Sempra Energy 317,710 7,307,330
Southern Co. 161,500 4,350,406
Teco Energy, Inc. 294,600 6,849,450
Western Resources, Inc. 156,700 4,926,256
Wisconsin Energy Corp. 135,000 3,510,000
-------------
128,067,421
-------------
Utilities - Gas - 6.0%
Consolidated Natural 30,000 1,539,375
Keyspan Energy 273,000 7,388,062
Nicor, Inc. 78,000 3,007,875
Northwest Natural Gas Co. 45,000 1,057,500
Peoples Energy Corp. 60,000 2,070,000
Questar Corp. 170,000 2,836,875
Semco Energy, Inc. 25,000 406,250
-------------
18,305,937
-------------
Utilities - Telephone - 19.5%
AT&T Corp. 25,000 2,248,438
Ameritech Corp. 100,000 6,512,500
Bell Atlantic Corp. 112,800 6,768,000
BellSouth Corp. 150,000 6,693,750
Frontier Corp. 55,000 1,986,875
GTE Corp. 154,000 10,395,000
SBC Communications, Inc. 124,000 6,696,000
Sprint Corp. 109,600 9,192,700
* Sprint Corp. (PCS Group) 54,800 1,746,750
Telefonica de Espana 18,916 2,615,123
U.S. West, Inc. 80,000 4,935,000
-------------
59,790,136
-------------
- -------------------------------------------------------------------------------------------
Total Common Stocks (cost - $93,671,648,
$108,236,558 and $201,908,206, respectively) 258,778,333
- -------------------------------------------------------------------------------------------
PREFERRED STOCKS - 0.2%
Banks - 0.2%
BankAmerica Trust 20,000 521,250
-------------
- -------------------------------------------------------------------------------------------
Total Preferred Stocks (cost - $0,
$500,000 and $500,000, respectively) 521,250
- -------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - 9.2%
Communications Systems & Services - 1.8%
AirTouch Communications, Inc., 6.00%, Ser. B 70,000 5,486,250
-------------
Printing, Publishing, Broadcasting & Entertainment -
Houston Industries, Inc., 7.00%, ACES
(exchangeable for Time Warner, Inc. Common Stock) 40,000 4,255,000
-------------
Telecommunication Services & Equipment - 1.2%
Qualcomm Financial Trust I, 5.75%, 3/01/2012 70,000 3,718,750
-------------
Utilities - Electric - 3.2%
AES Trust I, 5.375%, Series A, TECONS 70,000 3,797,500
BNDES Participacoes SA, 10.5%, DECS 135,000 2,092,500
Texas Utilities Co., 9.25%, PRIDES 70,000 3,876,250
-------------
9,766,250
-------------
Utilities - Telephone - 1.6%
Sprint Corp., 8.25%, DECS
(exchangeable for Southern N.E. Telephone common sto 60,000 4,998,750
- -------------------------------------------------------------------------------------------
Total Convertible Preferred (cost - $22,835,090,
$0 and $22,835,090, respectively) 28,225,000
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mentor America's Utilities
Evergreen Utility Fund Fund, Inc. Proforma Combined
- ----------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
Amount Value Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONVERTIBLE DEBENTURES - 1.1%
Information Services & Technology - 1.1%
Adaptec, Inc., 4.75%, 2/1/04 $ 4,000,000 $ 3,330,000 $4,000,000 $3,330,000
----------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Debentures (cost $3,530,000,
$0 and $3,530,000, respectively) 3,330,000 3,330,000
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 2.3%
Utilities - Electric - 2.3%
Appalachian Power Co. $ 2,000,000 $ 2,036,463 2,000,000 2,036,463
Duke Energy Corp. 1,250,000 1,274,760 1,250,000 1,274,760
Texas Utility Electric 2,000,000 2,229,723 2,000,000 2,229,723
Wisconsin Public Services 1,500,000 1,606,216 1,500,000 1,606,216
- ----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $0,
$6,942,932 and $6,942,932, respectively) 7,147,162 7,147,162
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.7%
Repurchase Agreements - 2.7%
Dresdner Bank AG Repurchase Agreement
4.70%, dated 1/31/1999,
due 2/1/1999, maturity value
$2,512,718 (cost $2,512,390)(a) 2,512,390 2,512,390 2,512,390 2,512,390
Goldman Sachs Repurchase Agreement
4.77%, dated 1/31/1999,
due 2/1/1999, maturity value
$5,844,521 (cost $5,843,747) (b) 5,843,747 5,843,747 5,843,747 5,843,747
- ----------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (cost - $2,512,390,
$5,843,747 and $8,356,137, respectively) 2,512,390 5,843,747 8,356,137
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost - $122,549,128,
$121,523,237 and $244,072,365,
respectively) - 99.7% 144,693,328 161,664,554 306,357,882
Other Assets and Liabilities - net - 0.3% 156,584 795,307 951,891
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% 144,849,912 $162,459,861 307,309,773
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At January 31, 1999, the repurchase agreement was collateralized by:
$2,460,000 U.S. Treasury Notes, 5.50%, 5/31/2003; value including
accrued interest - $2,563,015.
(b) At January 31, 1999, the repurchase agreement was collateralized by:
$5,794,613 Federal Home Loan Mortgage Corp., 7.50%, 9/1/2010; value
including accrued interest - $5,965,735.
<TABLE>
<CAPTION>
Summary of Abbreviations
<S> <C> <C> <C>
ACES Automatically Convertible Equity Securities PRIDES Preferred Redeemable Increased Dividend Equity Securities
ADR American Depository Receipts REIT Real Estate Investment Trust
DECS Dividend Enhanced Convertible Stock TECONS Term Convertible Shares
</TABLE>
See Notes to Pro Forma Combining Financial Statements.
5794612.71
1.02953125
5,965,734.87
<PAGE>
Evergreen Utility Fund
Pro Forma Combining Financial Statements (Unaudited)
Statements of Assets and Liabilities
January 31, 1999
<TABLE>
<CAPTION>
Mentor
America's
Evergreen Utilities Fund, ProForma
Utility Fund Inc. Adjustments. Combined
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of securities $ 122,549,128 $ 121,523,237 $ 244,072,365
Net unrealized gains or losses on securities 22,144,200 40,141,317 62,285,517
- -----------------------------------------------------------------------------------------------------------------------------------
Market value of securities 144,693,328 161,664,554 306,357,882
Receivable for securities sold 8,568,101 3,515,102 12,083,203
Receivable for Fund shares sold 144,734 0 144,734
Dividends and interest receivable 882,195 644,699 1,526,894
Prepaid expenses and other assets 28,661 0 28,661
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 154,317,019 165,824,355 320,141,374
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for securities purchased 9,221,035 3,133,097 12,354,132
Payable for Fund shares redeemed 116,572 0 116,572
Advisory fee payable 63,392 0 63,392
Distribution Plan expenses payable 36,893 0 36,893
Due to custodian bank 0 15,167 15,167
Due to other related parties 3,403 0 3,403
Accrued expenses and other liabilities 25,812 216,230 242,042
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,467,107 3,364,494 12,831,601
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 144,849,912 $ 162,459,861 $ 307,309,773
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets represented by
Paid-in capital $ 123,228,198 $ 120,609,945 $ 243,838,143
Undistributed net investment income 32,678 286,409 319,087
Accumulated net realized gains or losses on securities (555,164) 1,422,190 867,026
Net unrealized gains or losses on securities 22,144,200 40,141,317 62,285,517
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 144,849,912 $ 162,459,861 $ 307,309,773
- -----------------------------------------------------------------------------------------------------------------------------------
Class A (IS - Mentor)
Net assets $ 94,953,830 $ 162,459,861 $ 257,413,691
Shares outstanding 8,714,406 5,387,389 9,519,366 (a) 23,621,161
Net asset value $ 10.90 $ 30.16 $ 10.90
Maximum offering price (based on sales charge of 4.75%) $ 11.44 $ 31.66 $ 11.44
Class B
Net assets $ 46,418,758 $ 46,418,758
Shares outstanding 4,258,428 4,258,428
Net asset value $ 10.90 $ 10.90
Class C
Net assets $ 629,717 $ 629,717
Shares outstanding 57,786 57,786
Net asset value $ 10.90 $ 10.90
Class Y
Net assets $ 2,847,607 $ 2,847,607
Shares outstanding 261,270 261,270
Net asset value $ 10.90 $ 10.90
</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 Utility Fund
Pro Forma Combining Financial Statements (Unaudited)
Statements of Operations
January 31, 1999
<TABLE>
<CAPTION>
Mentor America's
Evergreen Utility Utilities Pro Forma
Fund Funds Inc. Adjustments Combined
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of
$74,269, $31,139 and $105,408, respectively) $ 6,595,461 $ 5,509,088 $ 12,104,549
Interest 338,635 787,964 1,126,599
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 6,934,096 6,297,052 13,231,148
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses
Advisory fee 727,648 405,881 381,742 (a) 1,515,271
Distribution Plan expenses 700,459 393,776 1,094,235
Transfer agent fee 254,797 462,203 562,726 (c) 1,279,726
Administrative services fees 38,801 617,933 (575,934) (b) 80,800
Trustees' fees and expenses 3,174 737 2,699 (h) 6,610
Printing and postage expenses 47,195 112,180 (61,095) (e) 98,280
Custodian fee 34,505 28,478 8,871 (d) 71,854
Registration and filing fees 41,791 21,867 (18,701) (f) 44,957
Professional fees 20,676 31,568 (29,382) (g) 22,862
Other 3,215 492 2,989 (h) 6,696
===================================================================================================================================
Total expenses 1,872,261 2,075,115 273,915 4,221,291
Fee waivers and expense reimbursements (75,546) 0 (560,808) (i) (636,354)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 1,796,715 2,075,115 (286,893) 3,584,937
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 5,137,381 4,221,937 286,893 9,646,211
===================================================================================================================================
Net realized and unrealized gains or losses on securities
Net realized gains or losses on securities 12,476,123 6,986,061 19,462,184
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains or losses on securities (6,892,980) 8,333,242 1,440,262
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities 5,583,143 15,319,303 20,902,446
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 10,720,524 $ 19,541,240 286,893 $ 30,548,657
===================================================================================================================================
</TABLE>
(a) Reflects an increase based on the surviving fund's fee schedule.
(b) Reflects a decrease based on the surviving fund's administrative rate.
(c) Reflects an increase based on the surviving fund's average account size.
(d) Reflects an increase based on the surviving fund's custody rate.
(e) Reflects a decrease based on surviving fund's rate and combined fund's
assets.
(f) Reflects a savings resulting from duplicate state reg fees being
eliminated.
(g) Reflects a savings resulting from duplicate audit fees being eliminated.
(h) Reflects an increase based on combined fund's assets.
(i) Adjustment reflects waivers that will be in place for the combined
surviving fund.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Utility 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 Utility Fund ("Evergreen
Fund") and Mentor America's Utility Fund, Inc. ("Mentor 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
the Mentor Fund. The Reorganization provides for the acquisition of all
assets and the identified liabilities of the Mentor Fund Class IS, in
exchange for Class A of the Evergreen Fund. Thereafter, there will be a
distribution of Class A shares of the Evergreen Fund to the Class IS
shareholders of the Mentor Fund in liquidation and subsequent termination
thereof. As a result of the Reorganization, the Class IS shareholders of
the Mentor Fund will become the owners of that number of full and
fractional Class A shares of the Evergreen Fund having an aggregate net
asset value equal to the aggregate net asset value of their shares of the
Mentor Fund as of the close of business immediately prior to the date that
the Mentor Fund net assets are exchanged for Class A shares of the
Evergreen 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 the Mentor 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 the Evergreen 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 shares of the Evergreen Fund which would
have been issued at January 31, 1999 in connection with the proposed
Reorganization. Class IS shareholders of the Mentor Fund would receive
Class A shares of the Evergreen Fund based on a conversion ratio determined
on January 31, 1999. The conversion ratio is calculated by dividing the net
asset value of Class IS of the Mentor Fund by the net asset value per share
of Class A of the Evergreen 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 net assets of the two funds and applying those rates to the average
net assets of the Evergreen Fund for the twelve months ended January 31,
1999, and to the average net assets of the Mentor Fund for the twelve
months ended January 31, 1999. The adjustments reflect those amounts needed
to adjust the combined expenses to these rates.
<PAGE>
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/Directors" under the caption "Certain
Comparative Information About America's Utility and Evergreen Trust" 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 December 12, 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 D to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Trust 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. Form of Investment Advisory Agreement between Evergreen Investment Management
and Evergreen Equity Trust. Incorporated by reference to the Form N-1A
Registration Statement.
7(a). Principal Underwriting Agreements between Evergreen Equity Trust and
Evergreen Distributor, Inc. 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.
<PAGE>
9. Form of Custody Agreement between State Street Bank and Trust Company and
Evergreen Equity Trust. Incorporated by reference to Form N-1A Registration
Statement.
10(a). Rule 12b-1 Distribution Plans. Incorporated by reference to the Form N-1A
Registration Statement.
10(b). Multiple Class Plan. Incorporated by reference to the
Form N-1A Registration Statement.
11. Opinion and consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester LLP. To be filed by
amendment.
13. Not applicable.
14(a). Consent of KPMG LLP (with respect to Evergreen Utility Fund). Filed
herewith.
14(b). Consent of KPMG LLP (with respect to America's Utility Fund, Inc.). Filed
herewith.
15. Not applicable.
16. Powers of Attorney. Incorporated by reference to the Form N-1A Registration
Statement.
17. Form of Proxy Card. Filed herewith.
Item 17. 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 persons 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 part 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
<PAGE>
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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York and State
of New York, on the 12th day of July, 1999.
EVERGREEN EQUITY TRUST
By: /s/Anthony J. Fischer
-----------------------
Name: Anthony J. Fischer
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities indicated on the 12th day
of July, 1999.
Signatures Title
- ---------- -----
/s/Anthony J. Fischer President and
- --------------------- Treasurer
Anthony J. Fischer
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ----------------------
Gerald M. McDonnell
/s/Thomas L. McVerry* Trustee
<PAGE>
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
* By: /s/Maureen E. Towle
-------------------
Attorney-in-Fact
Maureen E. Towle, 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 and included as Exhibit 16 to this
Registration Statement.
<PAGE>
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
July 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 Utility 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 America's Utility Fund, Inc.
(which, subject to shareholder approval, will be converted in October, 1999 into
a series of the Trust) (the "Acquired Fund"), 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
<PAGE>
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 October 15, 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
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Equity Trust
We consent to the use of our report, dated September 4, 1998, for Evergreen
Utility 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 LLP
-----------
KPMG LLP
Boston, Massachusetts
July 12, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
America's Utility Fund, Inc.
We consent to the use of our report, dated February 12, 1998, for America's
Utility Fund, Inc. 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 LLP
-----------
KPMG LLP
Boston, Massachusetts
July 12, 1999
<PAGE>
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.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AMERICA'S UTILITY FUND, INC.
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 15, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Paul F. Costello, Gordon Forrester, 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 America's Utility Fund, Inc.
("America's Utility"), that the undersigned is entitled to vote at the special
meeting of shareholders of America's Utility to be held at 2:00 p.m. on Friday,
October 15, 1999 at the offices of America's Utility, 901 East Byrd Street,
Richmond, Virginia 23219 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 , 1999
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
-1-
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERICA'S
UTILITY FUND, INC. 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 DIRECTORS OF AMERICA'S UTILITY FUND, INC., 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 Conversion and Termination
whereby America's Utility will be reorganized as a series of Evergreen Equity
Trust.
---- FOR ---- AGAINST ---- ABSTAIN
2. To approve the proposed changes to America's Utility's fundamental
investment restrictions.
---- FOR ---- AGAINST ---- ABSTAIN
[ ] To vote against the proposed changes to one or
more of the specific fundamental investment
restrictions, but to approve the others, fill in
the box at the left AND indicate the item
number(s) of the fundamental investment
restrictions you do not want to change on this
line:
-----------------------
3. To approve an Agreement and Plan of Reorganization whereby Evergreen
Utility Fund, a series of Evergreen Equity Trust, will (i) acquire all of the
assets of America's Utility in exchange for shares of Evergreen Utility Fund;
and (ii) assume the identified liabilities of America's Utility, as
substantially described in the accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
4. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
-2-
<PAGE>
