EVERGREEN EQUITY TRUST /DE/, N-30D, 2000-05-23

EVERGREEN EQUITY TRUST /DE/
N-30D, 2000-05-23

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<PAGE>

Semiannual Report

as of March 31, 2000

EVERGREEN EQUITY AND FIXED INCOME FUNDS

[LOGO OF EVERGREEN FUNDS]

[SEAL]
<PAGE>

Table of Contents

Letter to Shareholders .................................................... 1

Evergreen Capital Balanced Fund
Fund at a Glance ........................................................ 2
Portfolio Manager Interview ............................................. 3

Evergreen High Income Fund
Fund at a Glance ........................................................ 5
Portfolio Manager Interview ............................................. 6

Financial Highlights
Evergreen Capital Balanced Fund ......................................... 8
Evergreen High Income Fund .............................................. 10

Schedule of Investments
Evergreen Capital Balanced Fund ......................................... 12
Evergreen High Income Fund .............................................. 15

Statements of Assets and Liabilities ...................................... 19

Statements of Operations .................................................. 20

Statements of Changes in Net Assets ....................................... 21

Combined Notes to Financial Statements .................................... 23

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Evergreen Funds
- --------------------------------------------------------------------------------

Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $80 billion in assets under management.

With over 80 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: NOT FDIC INSURED May lose value . Not bank guaranteed
------------------------------------------------------------------

Evergreen Distributor,Inc.
Evergreen(SM) is a service mark of Evergreen Investment Services,Inc.
<PAGE>

Letter to Shareholders
----------------------
May 2000

[PHOTO]

William M. Ennis
President and CEO

Dear Evergreen Shareholders,

We are pleased to provide the Evergreen Equity and Fixed Income Funds semiannual
report, which covers the six-month period ended March 31, 2000.

U.S. Markets Experience Volatility

During the past six months, U.S. equity markets experienced significant ups and
downs. Technology, communications and biotechnology stocks reigned supreme
during the first half of the period only to undergo a volatile environment
during the latter half of the period. While these sectors experienced sharp
corrections late in the period, they remain favored sectors.

The Federal Reserve Board increased interest rates three times during the
six-month period resulting in the highest Fed funds rate since May 1995.
Normally, the tightening of the money supply would curtail consumer spending,
however, investors in stocks and equity funds seemed to be ignoring the Fed's
actions to insulate the economy from the threat of inflation.

Despite the recent volatility, the threat of inflation and the Federal Reserve's
response to it, investors remain positive about the U.S. economy and the long-
term potential of the U.S. markets. At Evergreen, we believe the economy is
still fundamentally strong and that the Federal Reserve will continue to act
aggressively to contain inflation. We remain cautiously optimistic about
continued growth in the markets.

We believe that sound investing is about taking steps to meet your long-term
financial needs and goals. We remind you to take advantage of your financial
advisor's expertise to develop and refine a financial plan that will enable you
to meet your objectives. Evergreen Funds offers a broad mix of stock, bond and
money market funds that should assist you in choosing the most appropriate for
your portfolio.

Website Enhancements

Please visit our enhanced website, evergreen-funds.com, for more information
about Evergreen Funds. The site offers an array of helpful information including
an investment education center, interactive calculators to assist your
investment planning and general information about Evergreen Funds.

Thank you for your continued investment in Evergreen Funds.

Sincerely,

/s/ William M. Ennis

William M. Ennis
President and CEO
Evergreen Investment Company, Inc.

1
<PAGE>

EVERGREEN
Capital Balanced Fund
Fund at a Glance as of March 31, 2000

"We believe the financial markets are abundant with both pockets of opportunity
and historic levels of risk."

Portfolio Management
--------------------

[PHOTO] [PHOTO]

John Davenport P.Michael Jones
Tenure: June 1994 Tenure: June 1994

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CURRENT INVESTMENT STYLE1
- --------------------------------------------------------------------------------

[STYLE BOX]

Morningstar's Style Box is based on a portfolio date as of 3/31/2000.

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.

The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.

1 Source: 2000 Morningstar, Inc.

2 Past performance is no guarantee of future results. 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 performance of each class may vary
based on differences in loads, fees and expenses paid by the shareholders
investing in each class. Performance includes the reinvestment of income
dividends and capital gain distributions.

Historical performance shown for Classes A, B, and Y prior to their inception is
based on the performance of Class C, the original class offered. These
historical returns for Classes A and Y have not been adjusted to reflect the
effect of each Class' 12b-1 fees. These fees are 0.25% for Class A and 1.00% for
Classes B and C. Class Y does not pay a 12b-1 fee. If these fees had been
reflected, returns for Classes A and Y would have been higher. Returns reflect
expense limits previously in effect, without which returns would have been
lower.

Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations.

All data is as of March 31, 2000 and subject to change.

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PERFORMANCE AND RETURNS2
- --------------------------------------------------------------------------------
Portfolio Inception Date: 6/21/1994 Class A Class B Class C Class Y
Class Inception Date 9/16/1998 10/18/1999 6/21/1994 9/16/1998
Average Annual Returns*
6 month with sales charge -1.92% -2.33% 0.57% n/a
6 month w/o sales charge 3.00% 2.56% 2.56% 2.99%
1 year with sales charge -1.26% -2.10% 0.80% n/a
1 year w/o sales charge 3.69% 2.78% 2.78% 4.23%
5 years 16.70% 16.44% 16.44% 16.75%
Since Portfolio Inception 15.88% 15.66% 15.65% 15.92%
Maximum Sales Charge 4.75% 5.00% 2.00% n/a
Front End CDSC CDSC
6-month income dividends
per share $0.19 $0.11 $0.11 $0.22
6-month capital gain distributions
per share $0.37 $0.37 $0.37 $0.37

* Adjusted for maximum applicable sales charge.

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LONG TERM GROWTH
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[GRAPH]

Class C CPI S&P 500 LBABI
------- --- ------- -----
6/21/94 10,000 10,000 10,000 10,000
3/31/95 10,822 10,230 11,508 10,608
3/31/96 13,206 10,520 15,203 11,753
3/31/97 15,256 10,811 18,217 12,330
3/31/98 20,555 10,959 26,960 13,808
3/31/99 22,533 11,149 31,941 14,702
3/31/00 23,163 11,495 37,670 14,978

Comparison of a $10,000 investment in Evergreen Capital Balanced Fund, Class C
shares2, versus a similar investment in the Lehman Brothers Aggregate Bond Index
(LBABI), the Standard and Poor's 500 Index (S&P 500) and the Consumer Price
Index (CPI).

The LBABI and S&P 500 are unmanaged market indices which do not include
transaction costs associated with buying and selling securities nor any mutual
fund expenses. 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
Capital Balanced Fund
Portfolio Manager Interview

How did the Fund perform?

The Fund's Class C shares returned 2.56% for the six-month period ended March
31, 2000. Performance is before deduction of any applicable sales charge. For
the same period, the Fund's benchmarks, the S&P 500 and the Lehman Brothers
Aggregate Bond Index returned 17.51% and 2.08%, respectively.

We attribute the Fund's underperformance to its lack of exposure to the
technology stocks that led the stock indices higher over the past six months. We
believed many of those stocks were significantly overvalued, and in accordance
with the Fund's philosophy, chose to invest in what we believe to be more
attractively valued stocks that demonstrated sound business fundamentals.

Portfolio
Characteristics
---------------

Total Net Assets $470,524,892
Number of Holdings 129
P/E Ratio 21.9x
Beta 0.57

What factors most influenced the Fund's investment environment during the
period?

Narrow leadership in the stock market and rising interest rates in the bond
market had the greatest effects on the environment. Large-cap technology stocks
led equity indices higher, as investor demand drove prices to unprecedented--and
in our opinion, significantly over-valued--levels. During the period, an average
technology stock on the NASDAQ 100 sold at 95 times earnings--a stark contrast
to the S&P 500 Index's price/earnings ratio of 26. The NASDAQ is a broad-based
index representative of U.S. equities. Technology stocks were among the hardest
hit, however, when the NASDAQ and small-cap stocks began to slide in March.

In the bond market, the Federal Reserve pushed short-term interest rates higher
on concerns about excessive economic growth and signs of potential inflation. In
particular, investors monitored rising energy prices and continued tight labor
markets. Long-term interest rates initially rose but ended the period lower, as
a shrinking supply and growing demand for the safety of U.S. Treasuries in light
of the volatility in equities, pushed prices higher.

Top 5 Industries--Equity
------------------------
(as a percentage of 3/31/2000 net assets)

Commercial Services & Supplies 6.3%
Banks 4.9%
Finance & Insurance 4.8%
Industrial Conglomerates 4.8%
Food & Drug Retailing 4.1%
Diversified Financials 4.1%

Top 5 Industries--Bond
----------------------
(as a percentage of 3/31/2000 net assets)

Mortgaged-Backed Securities 21.9%
U.S. Treasury Obligations 7.8%
Asset-Backed Securities 5.5%
Yankee Obligations 1.8%
Finance & Insurance 1.7%

What strategies did you use to manage the Fund?

In addition to maintaining a high degree of portfolio diversification, we
invested in companies that exhibited certain qualities. We selected companies
that were larger, well-established and high quality, and exhibited revenue and
earnings growth at a solid, above average rate, typically 15% annually or
higher. We also selected those whose stock prices were relatively attractively
priced.

3
<PAGE>

EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview

The actual fundamental performance of the Fund's holdings was solid. Most of the
companies generated average earnings growth of 16-17%, which was consistent with
last year's growth and in-line with our expectations for 2000. We think that
kind of performance eventually will be rewarded with higher stock prices;
especially since they are typically priced at 20.5 times earnings, which in our
opinion, represents attractive value.

We adjusted the asset-allocation targets, enabling the Fund to take better
advantage of some of the attractive values we believe exist in equities. We have
raised the Fund's equity target to 56% from 52%, lowered the fixed-income target
to 43% from 46% and have maintained a minimal cash position of 1%. As of the end
of the period, one of the Fund's larger positions was Tyco International, Ltd.,
a multi-industry company whose businesses include telecommunications and
healthcare. We estimate Tyco's earnings could grow by 40% in 2000 and its stock
is selling at 22 times earnings. Another holding was Tenet Healthcare Corp., a
leading hospital management company with, in our opinion, excellent management.
Selling at 14 times earnings, Tenet's earnings are on track to grow at 15% this
year. Finally, we expect SYSCO, Corp., a leader in the solidly performing food
industry, to contribute generously to the portfolio's returns. SYSCO's earnings
are anticipated to grow by 20% this year, and at the end of the fiscal period,
the stock was selling at 27 times estimated earnings.

Our fixed income strategy focused on bonds with longer maturities in light of
our expectations that the Federal Reserve Board could continue to raise
short-term interest rates, as well as the positive supply and demand factors
that are influencing the longer end of the yield curve. We emphasized
mortgage-backed securities, underweighted corporate bonds and kept a neutral
position in U.S. Treasuries.

Top 10
Equity Holdings
---------------
(as a percentage of 3/31/2000 net assets)

S&P 500 Depository Receipt (Spiders) 4.8%
Tyco International, Ltd. 3.0%
Intel Corp. 2.8%
Tenet Healthcare Corp. 2.5%
SYSCO Corp. 2.5%
Interpublic Group of Companies, Inc. 2.4%
Automatic Data Processing, Inc. 2.4%
Federal National Mortgage Assoc 2.3%
First Data Corp. 2.3%
Wells Fargo Co. 2.2%

Top 5
Bond Holdings
-------------
(as a percentage of 3/31/2000 net assets)

Coupon Maturity
------ --------
GNMA 7.00% 04/15/2024 3.4%
U.S. Treasury Notes 4.80% 11/15/2008 2.7%
FHLMC 6.00% 03/01/2009 2.0%
FNMA 8.50% 04/01/2025 1.9%
FNMA 8.50% TBA 1.8%

What is your outlook?

We believe the financial markets are abundant with bothpockets of opportunity
and historic levels of risk. In our opinion, investors have pushed some stocks
to dangerously overvalued levels; and in so doing, have tended to leave many
strong companies with healthy, growing businesses overlooked. The sharp retreat
that has recently affected many of the overvalued, high-flying stocks has
refocused attention on the long-term wisdom of disregarding valuations. We would
not be surprised to see a more value-oriented style of investing come back into
vogue. In our opinion, that is where opportunity exists over the long-run in
high-quality, sensibly priced companies with sound business fundamentals.

4
<PAGE>

EVERGREEN
High Income Fund
Fund at a Glance as of March 31, 2000

"Once economic growth slows to a sustainable pace and the Federal Reserve Board
is done raising interest rates,we think the market could be poised for a
rebound."

Portfolio Management
--------------------

[PHOTO] [PHOTO]

Timothy Anderson P. Michael Jones
Tenure: June 1999 Tenure: June 1999

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CURRENT INVESTMENT STYLE1
- --------------------------------------------------------------------------------

[STYLE BOX]

Morningstar's Style Box is based on a portfolio date as of 3/31/2000.

The Fixed-Income Style Box placement is based on a fund's average effective
maturity or duration and the average credit rating of the bond portfolio.

1 Source: 2000 Morningstar, Inc.

Historical performance shown for Classes B and Y prior to their inception is
based on the performance of Class A, one of the original classes offered along
with Class C. These historical returns for Classes B and Y have not been
adjusted to reflect the effect of each Class' 12b-1 fees. These fees are 0.25%
for Class A and 1.00% for Classes B and C. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns for Class B would have been lower while
returns for Class Y would have been higher. Returns reflect expense limits
previously in effect, without which returns would have been lower.

Funds that invest in high yield, lower rated bonds may contain more risk due to
increased possibility of default.

Foreign investments may contain more risk due to the inherent risks associated
with changing political climates, foreign market instability and foreign
currency fluctuations.

U.S. government guarantees apply only to the underlying securities of the Fund's
portfolio and not to the Fund's shares.

All data is as of March 31, 2000 and subject to change.

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PERFORMANCE AND RETURNS2
- --------------------------------------------------------------------------------
Portfolio Inception Date 6/23/1998 Class A Class B Class C Class Y
Class Inception Date 6/23/1998 10/18/1999 6/23/1998 10/18/1999
Average Annual Returns*
6 month with sales charge -3.60% -4.18% -1.15% n/a
6 month w/o sales charge 0.34% 0.81% -0.02% 1.30%
1 year with sales charge -6.93% -7.30% -4.55% n/a
1 year w/o sales charge -2.32% -2.68% -2.78% -2.21%
Since Portfolio Inception -4.13% -3.81% -2.50% -1.39%
Maximum Sales Charge 4.75% 5.00% 2.00% n/a
Front End CDSC CDSC
6-month income dividends
per share $0.50 $0.46 $0.46 $0.51

* Adjusted for maximum applicable sales charge.

- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------

[GRAPH]

CPI MLHYM2 Class A

6/30/98 10,000 10,000 9,533
9/30/98 10,037 9,642 8,882
12/31/98 10,055 9,919 9,217
3/31/99 10,123 10,026 9,501
6/30/99 10,196 10,094 9,391
9/30/99 10,301 9,967 9,172
12/31/99 10,325 10,075 9,473
3/31/00 10,437 9,920 9,280

Comparison of a $10,000 investment in Evergreen High Income Fund, Class A
shares2, versus a similar investment in the Merrill Lynch High Yield Master II
Bond Index (MLHYM2) and the Consumer Price Index (CPI).

The MLHYM2 is an unmanaged market index which does not include transaction costs
associated with buying and selling securities nor any mutual fund expenses. 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.

5
<PAGE>

EVERGREEN
High Income Fund
Portfolio Manager Interview

How did the Fund perform?

Evergreen High Income Fund's Class A shares returned 1.18% for the six-month
period ended March 31, 2000. Performance is before deduction of any applicable
sales charge. The Fund surpassed its benchmark, the Merrill Lynch High Yield
Master II Bond Index, which returned -0.30% for the same period. We attribute
the outperformance to careful sector and security selection.

Portfolio
Characteristics
---------------

Total Net Assets $206,484,935
Average Credit Quality B
Effective Maturity 6.7 years
Average Duration 4.2 years

What affected the Fund's investment environment during the period?

The biggest influence was the one-way flow of money out of taxable fixed income
funds. Redemptions hit high yield bond funds the hardest, and fund managers had
to sell assets to meet these outflows. The meteoric rise in the NASDAQ--a
staggering 88% from its six-month low on October 19, 1999 to its all-time high
on March 10, 2000--hurt the high yield bond market in two ways. First, it
attracted money out of high yield bond funds. Then, when the NASDAQ hit an air
pocket in mid-March, the repercussions flowed over to the high yield bond
market, pushing prices considerably lower. The NASDAQ is a broad-based index
representative of U.S. equities.

With such a difficult environment, what strategies did you use to manage the
Fund?

We concentrated on sector and security selection. We continued to focus on solid
"B"-rated securities, highly liquid issues and the telecommunications industry.
These sectors performed very well during the fourth quarter of 1999, giving a
solid boost to performance. However, both these sectors underperformed during
the first quarter of 2000, as high yield bond portfolio managers sold the more
liquid issues to meet shareholder redemptions. We continued to keep the Fund
well-diversified and did not own any common stock, during the period. As of
March 31, 2000, the Fund's average quality stood at "B".

Top 5 Industries
----------------
(as a percentage of 3/31/2000 net assets)

Communication Systems & Services 23.9%
Telecommunication Services & Equipment 17.6%
Oil/Energy 6.7%
Gaming 6.4%
Healthcare Products & Services 4.1%

- --------------------------------------------------------------------------------
PORTFOLIO QUALITY
- --------------------------------------------------------------------------------
(as a percentage of 3/31/2000 portfolio assets)

[PIE CHART]

AAA -- 7.6%
BB -- 5.1%
B -- 85.0%
Not Rated-- 2.3%

6
<PAGE>

EVERGREEN
High Income Fund
Portfolio Manager Interview

What is your outlook for high yield bonds over the next six months?

We are cautiously optimistic. We think there are several signs that the high
yield bond market could begin to turnaround. With yields around 12% as of the
end of the period, we believe many high yield bonds are undervalued. High yield
bonds now provide approximately 6 percentage point yield advantages over U.S.
Treasuries with 10-year maturities. These yield advantages have reached levels
not seen since the international financial crisis in the second half of 1998.
Sentiment among high yield bond investors also has become more positive
recently. Many collateralized bond obligations (CBOs)--which use high yield
bonds for collateral--are currently purchasing pools of high yield debt, which
should improve the prospects for demand. The sell-off in the equity markets
could also help demand, as investors seek refuge from the volatility in stocks
and refocus their attention on the value available in high yield bonds. At some
point, perhaps we will see investors rebalance their portfolios and redirect
some of their assets to high yield bond funds. Once economic growth slows to a
sustainable pace and the Federal Reserve Board is done raising interest rates,
we think the market could be poised for a rebound.

7
<PAGE>

EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 ------------------------------
(Unaudited) 1999 1998 (a)
<S> <C> <C> <C>
CLASS A SHARES (c)
Net asset value, beginning of
period $ 15.15 $ 13.69 $ 13.69
-------- ------------- -----------
Income from investment
operations
Net investment income 0.17 0.29 0
Net realized and unrealized
gains or losses on securities 0.28 1.44 0
-------- ------------- -----------
Total from investment
operations 0.45 1.73 0
-------- ------------- -----------
Distributions to shareholders from
Net investment income (0.19) (0.22) 0
Net realized gains (0.37) (0.05) 0
-------- ------------- -----------
Total distributions to
shareholders (0.56) (0.27) 0
-------- ------------- -----------
Net asset value, end of period $ 15.04 $ 15.15 $ 13.69
-------- ------------- -----------
Total return* 3.00% 12.67% 0.00%
Ratios and supplemental data
Net assets, end of period
(thousands) $181,847 $ 138,686 $ 3,534
Ratios to average net assets
Expenses++ 1.73%+ 1.50% 1.35%+
Net investment income 2.23%+ 1.83% 1.52%+
Portfolio turnover rate 83% 140% 89%
</TABLE>

<TABLE>
<CAPTION>
Period Ended
March 31, 2000
(Unaudited) (b)
<S> <C>
CLASS B SHARES
Net asset value, beginning of period $14.79
------
Income from investment operations
Net investment income 0.12
Net realized and unrealized gains or losses on securities 0.60
------
Total from investment operations 0.72
------
Distributions to shareholders from
Net investment income (0.11)
Net realized gains (0.37)
------
Total distributions to shareholders (0.48)
------
Net asset value, end of period $15.03
------
Total return* 4.85%
Ratios and supplemental data
Net assets, end of period (thousands) $2,947
Ratios to average net assets
Expenses++ 2.50%+
Net investment income 1.46%+
Portfolio turnover rate 83%
</TABLE>
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) For the period from October 18, 1999 (commencement of class operations) to
March 31, 2000.
(c) Effective October 18, 1999, shareholders of Mentor Balanced Portfolio Class
A, Class B and Class Y shares became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of
Evergreen Capital Balanced Fund.
* Excluding applicable sales charges.
++ The ratio of expenses to average net assets includes fee waivers but
excludes expense reductions.
+ Annualized.

See Combined Notes to Financial Statements.

8
<PAGE>

EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 2000 ------------------------------------------- Period Ended
(Unaudited) 1999 1998 (d) 1997 1996 1995 (b) December 31, 1994 (c)
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS C SHARES (a)
Net asset value,
beginning of period $ 15.12 $ 13.69 $17.61 $16.28 $14.85 $12.44 $12.50
-------- -------- ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.11 0.17 0.45 0.43 0.42 0.36 0.22
Net realized and
unrealized gains or
losses on securities 0.28 1.45 1.43 3.35 2.09 2.08 (0.09)
-------- -------- ------ ------ ------ ------ ------
Total from investment
operations 0.39 1.62 1.88 3.78 2.51 2.44 0.13
-------- -------- ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.11) (0.14) (0.71) (0.43) (0.48) (0.03) (0.19)
Net realized gains (0.37) (0.05) (5.09) (2.02) (0.60) 0 0
-------- -------- ------ ------ ------ ------ ------
Total distributions to
shareholders (0.48) (0.19) (5.80) (2.45) (1.08) (0.03) (0.19)
-------- -------- ------ ------ ------ ------ ------
Net asset value, end of
period $ 15.03 $ 15.12 $13.69 $17.61 $16.28 $14.85 $12.44
-------- -------- ------ ------ ------ ------ ------
Total return* 2.56% 11.87% 11.86% 26.09% 18.00% 19.28% 1.00%
Ratios and supplemental data
Net assets, end of
period (thousands) $285,702 $218,816 $5,645 $4,102 $3,825 $3,210 $2,911
Ratios to average net assets
Expenses++ 2.48%+ 2.23% 0.52% 0.50% 0.50% 0.50%+ 0.50%+
Net investment income 1.48%+ 1.05% 2.63% 2.78% 2.83% 3.26%+ 3.32%+
Portfolio turnover rate 83% 140% 89% 80% 103% 65% 71%
</TABLE>

<TABLE>
<CAPTION>
Year Ended
Six Months Ended September 30,
March 31, 2000 -------------------
(Unaudited) 1999 1998 (d)(e)
<S> <C> <C> <C>
CLASS Y SHARES (a)
Net asset value, beginning of period $15.12 $13.69 $13.69
------ ------ ------
Income from investment operations
Net investment income 0.19 0.19 0.01
Net realized and unrealized gains or
losses on securities 0.26 1.57 (0.01)
------ ------ ------
Total from investment operations 0.45 1.76 0.00
------ ------ ------
Distributions to shareholders from
Net investment income (0.22) (0.28) 0
Net realized gains (0.37) (0.05) 0
------ ------ ------
Total distributions to shareholders (0.59) (0.33) 0
------ ------ ------

Net asset value, end of period $14.98 $15.12 $13.69
------ ------ ------
Total return 2.99% 12.91% 0.00%
Ratios and supplemental data
Net assets, end of period (thousands) $ 28 $ 26 $3,642
Ratios to average net assets
Expenses++ 1.48%+ 1.14% 1.10%+
Net investment income 2.49%+ 1.59% 2.31%+
Portfolio turnover rate 83% 140% 89%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Balanced Portfolio Class
A, Class B and Class Y shares became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of
Evergreen Capital Balanced Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Balanced Portfolio was
redesignated as Class C shares of Capital Balanced Fund.
(b) For the nine months ended September 30, 1995. The Fund changed its fiscal
year end from December 31 to September 30, effective September 30, 1995.
(c) For the period from June 21, 1994 (commencement of operations) to December
31, 1994.
(d) Prior to September 16, 1998 all shareholders of the former Mentor Balanced
Portfolio were Class B shareholders. On September 16, 1998 a portion of
these shares were converted to Class Y shares (See Note (a) above).
(e) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
* Excluding applicable sales charges.
++ The ratio of expenses to average net assets includes fee waivers but
excludes expense reductions.
+ Annualized.

See Combined Notes to Financial Statements.

9
<PAGE>

EVERGREEN
High Income Fund
Financial Highlights
(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
Six Months Ended September 30,
March 31, 2000 -----------------
(Unaudited) 1999 1998(a)
<S> <C> <C> <C>
CLASS A SHARES (c)
Net asset value, beginning of period $ 10.29 $ 10.92 $ 12.00
-------- -------- -------
Income from investment operations
Net investment income 0.46 1.04 0.24
Net realized and unrealized gains or
losses on securities (0.41) (0.58) (1.04)
-------- -------- -------
Total from investment operations 0.05 0.46 (0.80)
-------- -------- -------
Distributions to shareholders from net
investment income (0.50) (1.09) (0.28)
-------- -------- -------

Net asset value, end of period $ 9.84 $ 10.29 $ 10.92
-------- -------- -------
Total return* 0.34% 4.07% (6.75%)
Ratios and supplemental data
Net assets, end of period (thousands) $116,183 $146,179 $50,887
Ratios to average net assets
Expenses++ 1.23%+ 1.11% 0.60%+
Net investment income 9.33%+ 9.00% 7.36%+
Portfolio turnover rate 54% 79% 27%
</TABLE>

<TABLE>
<CAPTION>
Period Ended
March 31, 2000
(Unaudited) (b)
<S> <C>
CLASS B SHARES
Net asset value, beginning of period $10.27
------
Income from investment operations
Net investment income 0.46
Net realized and unrealized gains or losses on securities (0.43)
------
Total from investment operations 0.03
------

Distributions to shareholders from net investment income (0.46)
------

Net asset value, end of period $ 9.84
------
Total return* 0.20%
Ratios and supplemental data
Net assets, end of period (thousands) $ 794
Ratios to average net assets
Expenses++ 2.01%+
Net investment income 8.55%+
Portfolio turnover rate 54%
</TABLE>
(a) For the period from June 23, 1998 (commencement of class operations) to
September 30, 1998.
(b) For the period from October 18, 1999 (commencement of class operations) to
March 31, 2000.
(c) Effective October 18, 1999, shareholders of Mentor High Income Portfolio
Class A and Class B shares became owners of that number of full and frac-
tional shares of Class A and Class C shares, respectively, of Evergreen
High Income Fund.
* Excluding applicable sales charges.
++ The ratio of expenses to average net assets includes fee waivers but
excludes expense reductions.
+ Annualized.

See Combined Notes to Financial Statements.

10
<PAGE>

EVERGREEN
High Income Fund
Financial Highlights
(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
Six Months Ended September 30,
March 31, 2000 -----------------
(Unaudited) 1999 1998(a)
<S> <C> <C> <C>
CLASS C SHARES (b)
Net asset value, beginning of period $ 10.29 $ 10.91 $ 12.00
------- -------- -------
Income from investment operations
Net investment income 0.43 0.97 0.22
Net realized and unrealized gains or
losses on securities (0.42) (0.57) (1.05)
------- -------- -------
Total from investment operations 0.01 0.40 (0.83)
------- -------- -------
Distributions to shareholders from net
investment income (0.46) (1.02) (0.26)
------- -------- -------

Net asset value, end of period $ 9.84 $ 10.29 $ 10.91
------- -------- -------
Total return* (0.02%) 3.64% (6.95%)
Ratios and supplemental data
Net assets, end of period (thousands) $89,507 $107,565 $62,869
Ratios to average net assets
Expenses++ 1.96%+ 1.58% 1.10%+
Net investment income 8.61%+ 8.53% 6.87%+
Portfolio turnover rate 54% 79% 27%
</TABLE>

<TABLE>
<CAPTION>
Period Ended
March 31, 2000
(Unaudited) (c)
<S> <C>
CLASS Y SHARES
Net asset value, beginning of period $10.27
------
Income from investment operations
Net investment income 0.53
Net realized and unrealized gains or losses on securities (0.45)
------
Total from investment operations 0.08
------

Distributions to shareholders from net investment income (0.51)
------

Net asset value, end of period $ 9.84
------
Total return 0.65%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1
Ratios to average net assets
Expenses++ 0.83%+
Net investment income 9.72%+
Portfolio turnover rate 54%
</TABLE>
(a) For the period from June 23, 1998 (commencement of class operations) to
September 30, 1998.
(b) Effective October 18, 1999, shareholders of Mentor High Income Portfolio
Class A and Class B shares became owners of that number of full and frac-
tional shares of Class A and Class C shares, respectively, of Evergreen
High Income Fund. Additionally, the accounting and performance history of
Class B shares of Mentor High Income Portfolio was redesignated as Class C
shares of Evergreen High Income Fund.
(c) For the period from October 18, 1999 (commencement of class operations) to
March 31, 2000.
* Excluding applicable sales charges.
++ The ratio of expenses to average net assets includes fee waivers but
excludes expense reductions.
+ Annualized.

See Combined Notes to Financial Statements.

11
<PAGE>

EVERGREEN
Capital Balanced Fund
Schedule of Investments
March 31, 2000 (Unaudited)

Shares Value
<C> <S> <C>

COMMON STOCKS - 50.5%
Aerospace & Defense - 0.6%
48,600 United Technologies Corp. .............................. $ 3,070,912
------------
Banks - 4.9%
77,965 Charter One Financial, Inc.............................. 1,637,265
2,901 M&T Bank Corp.(a)....................................... 1,295,297
146,600 SouthTrust Corp. ....................................... 3,729,137
39,000 Wachovia Corp. ......................................... 2,634,938
119,880 Washington Mutual, Inc.................................. 3,176,820
256,895 Wells Fargo Co.(a)...................................... 10,516,639
------------
22,990,096
------------
Building Products - 1.2%
277,700 Masco Corp.(a).......................................... 5,692,850
------------
Chemicals - 1.6%
334,385 Sherwin Williams Co. ................................... 7,335,571
------------
Commercial Services &
Supplies - 6.3%
231,800 Automatic Data Processing, Inc.......................... 11,184,350
97,645 * Computer Sciences Corp................................ 7,726,161
241,600 First Data Corp......................................... 10,690,800
------------
29,601,311
------------
Computers & Peripherals - 2.0%
79,500 International Business Machines Corp.................... 9,381,000
------------
Diversified Financials - 4.1%
56,860 American Express Co..................................... 8,468,586
189,710 Federal National Mortgage Assn.......................... 10,706,758
------------
19,175,344
------------
Diversified Telecommunication Services - 0.6%
377 * MCI WorldCom, Inc..................................... 17,083
69,300 SBC Communications, Inc. ............................... 2,910,600
------------
2,927,683
------------
Electric Utilities - 0.6%
50,000 Duke Energy Corp........................................ 2,625,000
------------
Food & Drug Retailing - 4.1%
243,800 Albertsons, Inc. ....................................... 7,557,800
329,535 SYSCO Corp.............................................. 11,760,280
------------
19,318,080
------------
Food Products - 0.6%
61,000 Bestfoods............................................... 2,855,563
------------
Health Care Providers &
Services - 2.5%
519,970 * Tenet Healthcare Corp................................. 11,959,310
------------
Household Durables - 1.2%
220,150 Newell Rubbermaid, Inc.(a).............................. 5,462,472
------------
Industrial Conglomerates - 4.8%
159,800 Danaher Corp............................................ 8,149,800
285,690 Tyco International, Ltd................................. 14,248,789
------------
22,398,589
------------
</TABLE>
<TABLE>
<CAPTION>

Shares Value
<C> <S> <C>

COMMON STOCKS - continued
Machinery - 1.0%
82,035 Illinois Tool Works, Inc........................... $ 4,532,434
------------
Media - 2.4%
242,670 Interpublic Group of Companies, Inc................ 11,466,157
------------
Multiline Retail - 0.2%
33,000 May Dept. Stores Co.(a)............................ 940,500
------------
Personal Products - 2.0%
170,600 Kimberly-Clark Corp................................ 9,553,600
------------
Pharmaceuticals - 4.1%
174,500 American Home Products Corp........................ 9,357,562
53,570 Bristol-Myers Squibb Co. .......................... 3,093,668
30,105 Johnson & Johnson.................................. 2,109,232
80,000 Pfizer, Inc. ...................................... 2,925,000
44,000 Schering-Plough Corp............................... 1,617,000
------------
19,102,462
------------
Road & Rail - 0.5%
154,072 Werner Enterprises, Inc............................ 2,619,224
------------
Semiconductor Equipment & Products - 2.8%
101,000 Intel Corp. ....................................... 13,325,687
------------
Software - 1.4%
113,000 Computer Associates International, Inc............. 6,688,187
------------
Tobacco - 1.0%
228,000 Philip Morris Cos., Inc............................ 4,816,500
------------
Total Common Stocks
(cost $215,374,639)............................... 237,838,532
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>

ASSET-BACKED SECURITIES - 6.0%
$ 10,959 AFG Receivables Trust
Ser. 1997-A, Class B,
6.65%, 10/15/2002................................. 10,937
1,300,000 American Express Credit Account
Ser. 1999-2, Class A,
5.95%, 12/15/2006................................. 1,245,368
1,000,000 BankBoston Home Equity Loan Trust
Ser. 1998-2, Class A3,
6.01%, 6/25/2013.................................. 972,125
2,800,000 Capital Auto Receivables Asset Trust
Ser. 1999-2, Class A4,
6.30%, 5/15/2004.................................. 2,772,014
2,900,000 Capital One Master Trust
Ser. 1998-4, Class A,
5.43%, 1/15/2007.................................. 2,730,654
1,684,616 Continental Airlines Trust
Ser. 1997-1, Class A,
7.461%, 4/1/2015.................................. 1,643,621
25,000 Credit Suisse First Boston Mtge.
Securities Corp.
Ser. 1996-2, Class A6,
7.18%, 2/25/2018.................................. 24,186
</TABLE>

12
<PAGE>

EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

ASSET-BACKED SECURITIES - continued
$ 2,025,000 Discover Card Master Trust I
Ser. 1996-3, Class A,
6.05%, 8/18/2008.................................. $ 1,911,509
770,000 EQCC Home Equity Loan Trust
Ser. 1998-2, Class A6F,
6.159%, 4/15/2008................................. 742,792
2,200,000 Ford Credit Auto Owner Trust
Ser. 1999-C, Class A4,
6.08%, 9/16/2002.................................. 2,177,263
1,300,000 GE Capital Mtge. Funding Corp.
Ser. 1999-HE3, Class A3,
7.11%, 7/25/2014.................................. 1,288,332
1,100,000 Household Home Equity Loan Trust
Ser. 1999-1, Class A2,
6.95%, 6/20/2000.................................. 1,091,041
Key Auto Fin. Trust:
2,850,000 Ser. 1999-1, Class A3,
5.63%, 7/15/2003.................................. 2,811,368
2,680,000 Ser. 1999-1, Class A4,
5.83%, 1/15/2007.................................. 2,606,501
1,690,868 Northwest Airlines Corp.
Ser. 1999-2, Class B,
7.95%, 3/1/2015................................... 1,754,341
2,500,000 Saxon Asset Securities Trust
Ser. 1999-2, Class A6,
6.415%, 3/25/2014................................. 2,361,262
Union Acceptance Corp.:
45,000 Ser. 1997-A, Class A3,
6.48%, 5/10/2004.................................. 44,386
250,000 Ser. 1998-D, Class A3,
5.75%, 6/9/2003................................... 248,206
1,750,000 WFS Finl. Owner Trust Ser. 1999-C,
Class A2,
6.92%, 1/20/2004.................................. 1,744,444
------------
Total Asset-Backed Securities
(cost $28,801,605)................................ 28,180,350
------------
CORPORATE BONDS AND NOTES - 5.6%
Airlines - 0.3%
1,600,000 Delta Air Lines, Inc. Notes,
8.30%, 12/15/2029................................. 1,467,237
------------
Cable/Other Video
Distribution - 0.6%
3,000,000 Time Warner, Inc. Deb.,
6.875%, 6/15/2018................................. 2,664,960
------------
Finance & Insurance - 1.7%
1,000,000 Allstate Corp. Deb.,
6.75%, 5/15/2018.................................. 877,370
1,600,000 ERAC USA Fin. Co. Notes,
7.95%, 12/15/2009................................. 1,583,352
General Electric Capital Corp. Notes:
300,000 6.29%, 12/15/2007................................. 295,677
4,500,000 7.25%, 2/1/2005 (a)............................... 4,503,969
500,000 Security Benefit Life Co.
8.75%, 5/15/2016.................................. 515,266
100,000 Toyota Motor Credit Corp.
5.625%, 11/13/2003................................ 95,131
------------
7,870,765
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Healthcare Products &
Services - 0.1%
$ 330,000 SmithKline Beecham Corp.
6.625%, 10/1/2001................................. $ 327,837
------------
Information Services
& Technology - 0.3%
1,500,000 Sun Microsystems, Inc. Sr. Notes,
7.65%, 8/15/2009.................................. 1,510,850
------------
Oil/Energy - 1.0%
1,800,000 Conoco, Inc. Notes,
6.35%, 4/15/2009.................................. 1,679,918
1,000,000 Enron Corp. Notes,
6.725%, 11/17/2008................................ 925,954
250,000 Pacific Gas & Electric Co. MTN,
5.93%, 10/8/2003.................................. 239,537
2,000,000 Williams Gas Pipelines Co. Sr. Notes,
7.375%, 11/15/2006................................ 1,959,400
------------
4,804,809
------------
Printing, Publishing, Broadcasting &
Entertainment - 0.4%
1,750,000 Times Mirror Co. Notes,
7.45%, 10/15/2009................................. 1,725,441
------------
Retailing & Wholesale - 0.4%
1,810,000 Wal-Mart Stores, Inc. Sr. Notes,
6.875%, 8/10/2009................................. 1,766,560
------------
Telecommunication Services &
Equipment - 0.1%
785,000 U.S. West Capital Funding, Inc. Deb.,
6.875%, 7/15/2028................................. 693,427
------------
Thrift Institutions - 0.1%
250,000 Great Western Finl. Corp.
6.375%, 7/1/2000.................................. 249,525
250,000 Home Savings America Irwindale, CA
Sub. Note, 6.00%, 11/1/2000....................... 248,232
------------
497,757
------------
Utilities - Electric - 0.6%
1,000,000 Duke Energy Corp. Ser. A, Sr. Notes,
6.00%, 12/1/2028.................................. 787,816
250,000 Florida Power & Light Co.
5.375%, 4/1/2000.................................. 250,000
1,500,000 Georgia Power Co.
5.50%, 12/1/2005.................................. 1,369,852
500,000 System Energy Resources, Inc.
7.71%, 8/1/2001................................... 499,830
------------
2,907,498
------------
Total Corporate Bonds and Notes
(cost $27,217,963)................................ 26,237,141
------------
MORTGAGE-BACKED SECURITIES - 21.9%
FHLMC:
9,935,000 6.00%, 3/1/2009................................... 9,356,982
4,624,923 8.50%, 9/1/2020................................... 4,733,424
FNMA
8,280,000 8.50% TBA......................................... 8,422,250
FNMA:
6,548,173 6.00%, 8/1/2006................................... 6,276,227
5,757,960 6.50%, 11/1/2014.................................. 5,544,916
</TABLE>

13
<PAGE>

EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

MORTGAGE-BACKED SECURITIES - continued
FNMA - continued
$ 3,500,000 6.625%, 9/15/2009 (a).............................. $ 3,371,686
10,782,420 7.00%, 8/1/2029.................................... 10,369,130
12,765,244 7.50%, 9/1/2029.................................... 12,561,383
5,733,773 8.00%, 10/1/2014 - 11/1/2014....................... 5,808,713
8,566,633 8.50%, 4/1/2025.................................... 8,777,458
GNMA:
9,544,094 6.50%, 5/15/2028 - 4/15/2029....................... 9,008,248
19,158,598 7.00%, 1/15/2024 - 7/15/2024....................... 18,684,433
------------
Total Mortgage-Backed Securities
(cost $104,236,270)................................ 102,914,850
------------
U.S. TREASURY OBLIGATIONS - 7.8%
U.S. Treasury Bonds:
7,300,000 5.25%, 11/15/2028 - 2/15/2029...................... 6,538,875
450,000 6.125%, 8/15/2029 (a)(d)........................... 459,141
4,150,000 6.50%, 11/15/2026 (d).............................. 4,379,549
5,269,000 7.25%, 5/15/2016 (a)............................... 5,825,538
1,000,000 9.00%, 11/15/2018.................................. 1,304,688
2,610,000 9.25%, 2/15/2016 (a)............................... 3,397,079
U.S. Treasury Notes:
13,960,000 4.75%, 11/15/2008 (a).............................. 12,585,819
2,300,000 7.50%, 2/15/2005 (a)............................... 2,409,970
------------
Total U.S. Treasury Obligations
(cost $35,502,448)................................. 36,900,659
------------
YANKEE OBLIGATIONS - 1.8%
Diversified Companies - 0.3%
1,500,000 Rothmans Nederland Holdings BV
6.875%, 5/6/2008................................... 1,288,376
------------
Government - 0.8%
1,500,000 Province of Ontario, Canada
7.75%, 6/4/2002.................................... 1,514,545
2,500,000 Quebec Province Canada
5.75%, 2/15/2009................................... 2,231,657
------------
3,746,202
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

YANKEE OBLIGATIONS - continued
Telecommunication Services & Equipment - 0.7%
Cable & Wireless Communications:
$ 1,540,000 6.625%, 3/6/2005................................... $ 1,523,350
2,000,000 6.75%, 12/1/2008................................... 2,008,552
------------
3,531,902
------------
Total Yankee Obligations
(cost $8,959,603).................................. 8,566,480
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>

UNIT INVESTMENT TRUST - 4.8%
Finance & Insurance
150,000 S&P 500 Depositary Receipt (Spiders)
(cost $22,678,524) (a)............................. 22,584,375
------------
MUTUAL FUND SHARES - 13.1%
61,711,916 Navigator Prime Portfolio (c)
(cost $61,711,916)................................. 61,711,916
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

REPURCHASE AGREEMENT - 1.1%
$ 4,962,595 State Street Bank & Trust Co., dated
03/31/2000, 6.05%, maturing
4/3/2000, maturity value
$4,965,097
(cost $4,962,595) (b)............................ 4,962,595
------------
Total Investment - (cost
$509,445,563)............................. 112.6% 529,896,898
Other Assets and
Liabilities - net......................... (12.6) (59,372,006)
----- ------------
Net Assets................................. 100.0% $470,524,892
===== ============
</TABLE>
(a) All or a portion of this security is on loan.
(b) The repurchase agreement is fully collateralized by $5,105,000 FNMA, 5.94%,
9/4/2001; value including accrued interest - $5,067,703.
(c) Represents investment of cash collateral received for securities on loan.
(d) All or a portion of this security was pledged to cover initial margin re-
quirements for open future contracts.
* Non-income producing security.

Summary of Abbreviations:
ADR American Depository Receipt
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
MTN Medium Term Note
TBA To Be Announced

See Combined Notes to Financial Statements.

14
<PAGE>

EVERGREEN
High Income Fund
Schedule of Investments
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - 89.0%
Aerospace & Defense - 1.7%
$1,550,000 Atlas Air, Inc.,
Sr. Notes,
10.75%, 8/1/2005................................... $ 1,557,750
2,000,000 K & F Inds., Inc., Sr. Sub. Notes, Ser. B,
9.25%, 10/15/2007.................................. 1,850,000
------------
3,407,750
------------
Automotive Equipment &
Manufacturing - 1.3%
1,500,000 Hayes Wheels Intl., Inc.,
Sr. Sub. Notes, Ser. B,
9.125%, 7/15/2007.................................. 1,346,250
1,400,000 Tenneco Automotive, Inc.,
Sr. Sub. Notes, Ser. B,
11.625%, 10/15/2009................................ 1,372,000
------------
2,718,250
------------
Building, Construction &
Furnishings - 0.2%
1,000,000 Cathay Intl. Ltd.,
Sr. Notes,
13.00%, 4/15/2008 (a).............................. 445,000
------------
Cable/Other Video
Distribution - 1.4%
1,650,000 Charter Communications,
Sr. Notes,
8.625%, 4/1/2009................................... 1,464,375
1,500,000 Classic Cable, Inc.,
Sr. Sub. Notes,
9.375%, 8/1/2009................................... 1,402,500
------------
2,866,875
------------
Chemical & Agricultural
Products - 1.5%
2,000,000 Agriculture Minerals & Chemicals,
Sr. Notes,
10.75%, 9/30/2003.................................. 1,510,000
1,700,000 Lyondell Chemical Co.,
Sr. Sub. Notes,
10.875%, 5/1/2009.................................. 1,610,750
------------
3,120,750
------------
Communication Systems &
Services - 23.8%
Airgate PCS, Inc.:
1,500,000 Sr. Sub. Notes, Step Bond,
(Eff. Yield 12.42%) (b),
0.00%, 10/1/2009................................... 1,104,375
1,900,000 Sr. Sub. Notes, Step Bond,
(Eff. Yield 12.94%) (b),
0.00%, 10/1/2009................................... 1,045,000
1,000,000 Capstar Broadcasting Partners,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.48%) (b),
0.00%, 2/1/2009.................................... 895,000
1,470,000 CD Radio, Inc., Sr. Secd. Notes,
14.50%, 5/15/2009.................................. 1,367,100
4,000,000 Century Communications Corp.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.85%) (b),
0.00%, 1/15/2008................................... 1,650,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Communication Systems &
Services - continued
$1,300,000 Charter Communications, Sr. Notes,
8.25%, 4/1/2007.................................... $ 1,168,375
1,000,000 Chippac Intl. Ltd., Sr. Sub. Notes,
12.75%, 8/1/2009 (a)............................... 1,057,500
2,500,000 Clearnet Communications, Inc.,
Sr. Disc. Notes,
14.75%, 12/15/2005................................. 2,512,500
1,500,000 Crown Castle Intl. Corp.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.42%) (b),
0.00%, 11/15/2007.................................. 1,042,500
1,500,000 Diamond Cable Communications,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.69%) (b),
0.00%, 12/15/2005.................................. 1,410,000
1,000,000 Dura Operating Corp.,
Sr. Gtd. Notes,
9.00%, 5/1/2009.................................... 890,000
1,600,000 Exodus Communications, Inc.,
Sr. Notes,
10.75%, 12/15/2009................................. 1,592,000
700,000 Filtronic PLC,
Sr. Notes,
10.00%, 12/1/2005.................................. 679,000
Frontiervision Holdings LP:
1,000,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.67%) (b),
0.00%, 9/15/2007................................... 875,000
1,175,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.26%) (b),
0.00%, 9/15/2007................................... 1,028,125
3,500,000 Intermedia Communications, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.37%) (b),
0.00%, 5/15/2006................................... 3,272,500
Level 3 Communications, Inc.:
2,000,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.47%) (b),
0.00%, 12/1/2008................................... 1,105,000
1,500,000 Sr. Notes,
9.125%, 5/1/2008................................... 1,301,250
1,000,000 11.25%, 3/15/2010 (a),............................. 965,000
1,500,000 Metricom, Inc.,
Sr. Notes,
13.00%, 2/15/2010.................................. 1,177,500
1,450,000 MGC Communications, Inc.,
Sr. Notes,
13.00%, 4/1/2010 (a)............................... 1,384,750
Nextel Communications, Inc.:
3,000,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.26%) (b),
0.00%, 9/15/2007................................... 2,197,500
1,000,000 Sr. Ser. Notes,
12.00%, 11/1/2008.................................. 1,070,000
Nextel Partners, Inc.:
1,000,000 Sr. Notes,
11.00%, 3/15/2010.................................. 972,500
3,000,000 Sr. Notes, Step Bond,
(Eff. Yield 12.29%) (b),
0.00%, 2/1/2009.................................... 1,920,000
</TABLE>

15
<PAGE>

EVERGREEN
High Income Fund
Schedule of Investments (continued)
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Communication Systems & Services - continued
Nextlink Communications, Inc.:
$2,750,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 12.11%) (b),
0.00%, 12/1/2009 (a)............................... $ 1,457,500
2,450,000 Sr. Notes,
10.75%, 6/1/2009................................... 2,352,000
2,000,000 NTL Communications Corp.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 9.78%) (b),
0.00%, 10/1/2008................................... 1,295,000
1,650,000 Rhythms Netconnections, Inc.,
Sr. Notes,
14.00%, 2/15/2010 (a).............................. 1,427,250
1,000,000 Sovereign Bancorp, Inc.,
Sr. Notes,
10.50%, 11/15/2006................................. 993,750
1,980,000 Startec Global Communications Corp.,
Sr. Notes,
12.00%, 5/15/2008.................................. 1,633,500
2,300,000 Telewest Communications, PLC,
Sr. Disc. Deb.,
11.00%, 10/1/2007.................................. 2,162,000
3,300,000 U.S. Unwired, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 12.31%) (b),
0.00%, 11/1/2009 (a)............................... 1,773,750
Worldwide Fiber, Inc.,
Sr. Notes,
1,500,000 12.00%, 8/1/2009................................... 1,425,000
1,000,000 12.50%, 12/15/2005................................. 985,000
------------
49,187,225
------------
Consumer Products &
Services - 4.0%
1,500,000 Decision One Holdings Corp.,
Sr. Disc. Notes, Step Bond, (Eff.
Yield 10.20%) (b),
0.00%, 8/1/2008.................................... 9,375
1,450,000 Globix Corp.,
Sr. Notes (a),
12.50%, 2/1/2010................................... 1,341,250
1,500,000 Pantry, Inc.,
Gtd. Notes,
10.25%, 10/15/2007................................. 1,327,500
2,500,000 Premier Graphics, Inc.,
Sr. Gtd. Notes,
11.50%, 12/1/2005.................................. 1,137,500
2,000,000 Sleepmaster LLC,
Sr. Sub. Notes,
11.00%, 5/15/2009.................................. 1,930,000
1,000,000 Verio, Inc.,
Sr. Notes,
11.25%, 12/1/2008.................................. 995,000
1,500,000 Weight Watchers Intl., Inc., Sr. Sub. Notes,
13.00%, 10/1/2009 (a).............................. 1,537,500
------------
8,278,125
------------
Diversified Companies - 1.5%
1,000,000 Blount, Inc.,
Sr. Sub. Notes,
13.00%, 8/1/2009................................... 1,027,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Diversified Companies - continued
$2,450,000 Pioneer Amers Acquisition Corp.,
Sr. Secd. Notes, Ser. B,
9.25%, 6/15/2007.................................... $ 2,082,500
------------
3,110,000
------------
Electronic Equipment &
Services - 3.0%
1,900,000 Amkor Tech., Inc.,
Sr. Sub. Notes,
10.50%, 5/1/2009.................................... 1,866,750
2,000,000 Fairchild Semiconductor Corp.,
Sr. Sub. Notes,
10.375%, 10/1/2007.................................. 1,975,000
2,000,000 Integrated Circuit Systems, Inc.,
Sr. Sub. Notes,
11.50%, 5/15/2009................................... 2,270,000
------------
6,111,750
------------
Finance & Insurance - 1.8%
1,500,000 Aetna Inds., Inc.,
Sr. Notes,
11.875%, 10/1/2006.................................. 1,372,500
2,000,000 Asat Fin., LLC,
Sr. Gtd. Notes,
12.50%, 11/1/2006................................... 2,390,000
------------
3,762,500
------------
Food & Beverage Products - 2.8%
1,520,000 Agrilink Foods, Inc.,
Sr. Sub. Notes,
11.875%, 11/1/2008.................................. 1,461,100
2,000,000 Del Monte Foods Co.,
Sr. Sub. Notes,
12.25%, 4/15/2007................................... 2,100,000
1,250,000 Luiginos, Inc.,
Sr. Sub. Notes,
10.00%, 2/1/2006.................................... 1,043,750
2,000,000 Vlasic Foods Intl., Inc.,
Sr. Sub. Notes, Ser. B,
10.25%, 7/1/2009.................................... 1,210,000
------------
5,814,850
------------
Forest Products - 0.6%
1,400,000 Millar Western Forest Products Ltd.,
Sr. Notes,
9.875%, 5/15/2008................................... 1,330,000
------------
Gaming - 6.4%
2,375,000 Argosy Gaming Co.,
Sr. Sub. Notes,
10.75%, 6/1/2009.................................... 2,416,563
2,000,000 Coast Hotels & Casinos, Inc.,
Sr. Sub. Notes,
9.50%, 4/1/2009..................................... 1,825,000
1,900,000 Hollywood Casino Corp.,
Sr. Secd. Notes,
11.25%, 5/1/2007.................................... 1,909,500
2,225,000 Hollywood Park, Inc.,
Sr. Sub. Notes, Ser. B,
9.50%, 8/1/2007..................................... 2,180,500
</TABLE>

16
<PAGE>

EVERGREEN
High Income Fund
Schedule of Investments(continued)
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Gaming - continued
$1,125,000 Isle of Capri Casinos, Inc.,
Sr. Sub. Notes,
8.75%, 4/15/2009................................... $ 990,000
2,025,000 Majestic Star Casino, LLC,
Sr. Secd. Notes,
10.875%, 7/1/2006.................................. 1,893,375
3,000,000 Premier Parks, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.53%) (b),
0.00%, 4/1/2008.................................... 1,916,250
------------
13,131,188
------------
Healthcare Products &
Services - 4.1%
1,500,000 Iasis Healthcare Corp.,
Sr. Sub. Notes,
13.00%, 10/15/2009 (a)............................. 1,492,500
1,000,000 Intersil Corp.,
Sr. Notes,
13.25%, 8/15/2009.................................. 1,140,000
1,500,000 Oxford Health Plans, Inc.,
Sr. Notes,
11.00%, 5/15/2005.................................. 1,492,500
2,500,000 Tenet Healthcare Corp.,
Sr. Sub. Notes,
8.625%, 1/15/2007.................................. 2,375,000
2,000,000 Triad Hospitals Holdings,
Sr. Sub. Notes,
11.00%, 5/15/2009.................................. 2,015,000
------------
8,515,000
------------
Holding Companies - 1.3%
1,400,000 Lifepoint Holdings, Inc.,
Sr. Sub. Notes, Ser. B,
10.75%, 5/15/2009.................................. 1,407,000
1,475,000 Venture Holdings Trust,
Sr. Notes,
11.00%, 6/1/2007................................... 1,327,500
------------
2,734,500
------------
Industrial Specialty Products &
Services - 0.4%
1,000,000 Hydrochemical Indl. Services, Inc.,
Sr. Sub. Notes, Ser. B,
10.375%, 8/1/2007.................................. 775,000
------------
Lease Rental Obligations - 0.9%
2,000,000 Nations Rent, Inc.,
Sr. Sub. Notes,
10.375%, 12/15/2008................................ 1,795,000
------------
Manufacturing - Distributing - 0.5%
2,000,000 Decora Inds., Inc.,
Sr. Secd. Notes,
11.00%, 5/1/2005................................... 1,070,000
------------
Oil/Energy - 6.7%
1,000,000 Chesapeake Energy Corp.,
Sr. Sub. Notes, Ser. B,
9.625%, 5/1/2005................................... 932,500
Cross Timbers Oil Co.,
Sr. Sub. Notes, Ser. B,
1,120,000 8.75%, 11/1/2009................................... 1,030,400
1,000,000 9.25%, 4/1/2007.................................... 950,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Oil/Energy - continued
$2,300,000 Eott Energy Partners LP,
Sr. Notes,
11.00%, 10/1/2009.................................. $ 2,311,500
1,000,000 Houston Exploration Co.,
Sr. Sub. Notes,
8.625%, 1/1/2008................................... 927,500
1,500,000 Parker Drilling Co.,
Sr. Notes, Ser. D,
9.75%, 11/15/2006.................................. 1,428,750
2,000,000 Pride Petroleum Svcs., Inc.,
Sr. Notes,
9.375%, 5/1/2007................................... 1,925,000
2,600,000 Swift Energy Co.,
Sr. Sub. Notes,
10.25%, 8/1/2009................................... 2,496,000
1,900,000 Tesoro Petroleum Corp.,
Sr. Sub. Notes, Ser. B,
9.00%, 7/1/2008.................................... 1,767,000
------------
13,768,650
------------
Paper & Packaging - 2.7%
2,000,000 Pacific Papers, Inc.,
Sr. Notes,
10.00%, 3/15/2009.................................. 1,950,000
1,750,000 Packaging Corp. of America,
Sr. Sub. Notes,
9.625%, 4/1/2009................................... 1,732,500
2,000,000 Repap New Brunswick, Inc.,
Sr. Secd. Notes, 1st Priority,
9.00%, 6/1/2004.................................... 1,895,000
------------
5,577,500
------------
Pharmaceuticals - 1.0%
2,000,000 King Pharmaceuticals, Inc.,
Sr. Sub. Notes,
10.75%, 2/15/2009.................................. 1,990,000
------------
Real Estate - 0.9%
2,000,000 Intrawest Corp.,
Sr. Notes,
9.75%, 8/15/2008................................... 1,910,000
------------
Retailing & Wholesale - 2.0%
1,250,000 Community Distributors, Inc.,
Sr. Notes, Ser. B,
10.25%, 10/15/2004................................. 1,007,813
100,000 Kmart Corp.,
Debentures,
8.375%, 12/1/2004.................................. 97,515
2,000,000 Owens & Minor, Inc.,
Sr. Sub. Notes,
10.875%, 6/1/2006.................................. 2,060,000
1,000,000 Phar Mor, Inc.,
Notes,
11.72%, 9/11/2002.................................. 855,000
------------
4,020,328
------------
Telecommunication Services &
Equipment - 17.5%
1,900,000 Adelphia Communications Corp.,
Sr. Notes,
9.375%, 11/15/2009................................. 1,790,750
3,000,000 Alamosa Holdings, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 12.79%) (b),
0.00%, 2/15/2010................................... 1,470,000
</TABLE>

17
<PAGE>

EVERGREEN
High Income Fund
Schedule of Investments(continued)
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued
Telecommunication Services &
Equipment - continued
Allegiance Telecom, Inc.:
$2,350,000 Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.70%) (b),
0.00%, 2/15/2008..................................... $ 1,656,750
1,000,000 Sr. Notes,
12.875%, 5/15/2008................................... 1,095,000
1,450,000 Flag Telecom Holdings Ltd.,
Sr. Notes,
11.625%, 3/30/2010 (a)............................... 1,377,500
2,000,000 Hermes Europe Railtel BV,
Sr. Notes,
11.50%, 8/15/2007.................................... 1,890,000
2,135,000 ICG Holdings, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 10.35%) (b),
0.00%, 5/1/2006...................................... 1,745,362
2,400,000 Insight Midwest LP,
Sr. Notes,
9.75%, 10/1/2009 (a)................................. 2,406,000
3,000,000 McLeod USA, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 8.98%) (b),
0.00%, 3/1/2007...................................... 2,370,000
Metromedia Fiber Network, Inc.:
500,000 Sr. Notes,
10.00%, 12/15/2009................................... 479,375
1,900,000 Sr. Notes, Ser. B,
10.00%, 11/15/2008................................... 1,814,500
2,800,000 Microcell Telecommunications, Inc.,
Sr. Disc. Notes, Ser. B, Step Bond,
(Eff. Yield 10.49%) (b),
0.00%, 6/1/2006...................................... 2,492,000
2,000,000 Omnipoint Corp., Sr. Notes,
11.50%, 9/15/2009 (a)................................ 2,130,000
2,000,000 Price Communications Wireless, Inc.,
Sr. Sub. Notes,
11.75%, 7/15/2007.................................... 2,170,000
300,000 Primus Telecommunications Group,
Sr. Notes,
11.75%, 8/1/2004..................................... 286,500
PSINet, Inc.,
Sr. Notes,
1,000,000 10.50%, 12/1/2006.................................... 960,000
2,000,000 11.50%, 11/1/2008.................................... 2,010,000
4,000,000 Triton PCS, Inc.,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 11.91%) (b),
0.00%, 5/1/2008...................................... 2,720,000
3,000,000 United Pan Europe Commerce,
Sr. Disc. Notes, Step Bond,
(Eff. Yield 11.92%) (b),
0.00%, 11/1/2009..................................... 1,545,000
1,250,000 Voicestream Wireless Co.,
Sr. Notes,
10.375%, 11/15/2009 (a).............................. 1,250,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>

CORPORATE BONDS AND NOTES - continued

Telecommunication Services &
Equipment - continued
$2,500,000 Williams Communications Group, Inc.,
Sr. Notes,
10.875%, 10/1/2009................................. $ 2,481,250
------------
36,139,987
------------
Textile & Apparel - 1.0%
200,000 Consoltex Group,
Sr. Sub. Notes, Ser. B,
11.00%, 10/1/2003.................................. 183,000
2,000,000 Supreme Intl. Corp.,
Sr. Sub. Notes, 12.25%, 4/1/2006................... 1,910,000
------------
2,093,000
------------
Total Corporate Bonds and Notes
(cost $195,862,249)................................ 183,673,228
------------
<CAPTION>

Shares Value
<C> <S> <C>

PREFERRED STOCKS - 0.5%
Telecommunication Services &
Equipment - 0.5%
11,806 Rural Cellular Corp., Sr. Exchangable
Preferred (cost $897,988).......................... 1,124,503
------------
WARRANTS - 1.0%
Building, Construction &
Furnishings - 0.2%
2,000 * Splitrock Services, Inc., Expires
7/15/2008 (a)...................................... 478,000
------------
Communication Systems &
Services - 0.1%
1,500 * Metricom, Inc., Expires 2/15/10................... 120,188
2,000 * Startec Global Communications,
Expires 5/15/2008 (a).............................. 37,000
------------
157,188
------------
Finance & Insurance - 0.1%
2,000 * Asat Fin., LLC, Expires 11/1/2006................. 270,000
------------
Holding Companies - 0.5%
1,000 * Intersil Corp., Expires 8/15/2009 (a)............. 925,500
------------
Telecommunication Services &
Equipment - 0.1%
2,000 * American Mobile Satellite Corp.,
Expires 4/1/2008 (a)............................... 230,250
------------
Total Warrants
(cost $592,871).................................... 2,060,938
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
REPURCHASE AGREEMENT - 7.7%
15,898,871 State Street Bank & Trust Co. dated
3/31/2000, 6.05%, maturing
4/03/2000, maturity value
$15,906,887 (c) (cost $15,898,871)................ 15,898,871
------------
Total Investments -
(cost $213,251,979)...................... 98.2% 202,757,540
Other Assets and
Liabilities - net........................ 1.8 3,727,395
----- ------------
Net Assets................................ 100.0% $206,484,935
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A of the Securities Act of 1933, as amended. These securities have been
determined to be liquid under guidelines established by the Board of Trust-
ees.
(b) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(c) The repurchase agreement is fully collateralized by $15,850,000 FNMA 5.65%,
4/28/00; value including accrued interest - $16,220,589.
* Non-income producing security

See Combined Notes to Financial Statements.

18
<PAGE>

EVERGREEN
Equity and Fixed Income Funds
Statements of Assets and Liabilities
March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Capital
Balanced High Income
Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Identified cost of securities...................... $509,445,563 $213,251,979
Net unrealized gains or losses on securities....... 20,451,335 (10,494,439)
- --------------------------------------------------------------------------------
Market value of securities......................... 529,896,898 202,757,540
Cash............................................... 30,188 0
Receivable for securities sold..................... 10,257,283 0
Receivable for Fund shares sold.................... 126,104 1,039,961
Dividends and interest receivable.................. 2,701,019 5,444,476
Deferred organization expenses..................... 0 11,288
Prepaid expenses and other assets.................. 50,519 392,120
- --------------------------------------------------------------------------------
Total assets...................................... 543,062,011 209,645,385
- --------------------------------------------------------------------------------
Liabilities
Distributions payable.............................. 1,419 889,798
Payable for securities purchased................... 8,478,116 0
Payable for Fund shares redeemed................... 2,084,771 2,247,094
Payable for securities on loan..................... 61,711,916 0
Payable for daily variation margin on open futures
contracts......................................... 18,703 0
Advisory fee payable............................... 28,888 11,805
Distribution Plan expenses payable................. 26,687 9,774
Due to other related parties....................... 5,778 1,686
Accrued expenses and other liabilities............. 180,841 293
- --------------------------------------------------------------------------------
Total liabilities................................. 72,537,119 3,160,450
- --------------------------------------------------------------------------------
Net assets.......................................... $470,524,892 $206,484,935
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital.................................... $446,242,433 $243,139,366
Undistributed (overdistributed) net investment
income or loss.................................... 23,520 (2,417,074)
Accumulated net realized gains or losses on
securities and futures contracts.................. 4,133,635 (23,742,918)
Net unrealized gains or losses on securities and
futures contracts................................. 20,125,304 (10,494,439)
- --------------------------------------------------------------------------------
Total net assets.................................... $470,524,892 $206,484,935
- --------------------------------------------------------------------------------
Net assets consists of
Class A............................................ $181,847,358 $116,182,858
Class B............................................ 2,947,204 794,491
Class C............................................ 285,702,301 89,506,582
Class Y............................................ 28,029 1,004
- --------------------------------------------------------------------------------
Total net assets.................................... $470,524,892 $206,484,935
- --------------------------------------------------------------------------------
Shares outstanding
Class A............................................ 12,093,053 11,810,905
Class B............................................ 196,131 80,762
Class C............................................ 19,004,417 9,098,817
Class Y............................................ 1,871 102
- --------------------------------------------------------------------------------
Net asset value per share
Class A............................................ $ 15.04 $ 9.84
- --------------------------------------------------------------------------------
Class A - Offering price (based on sales charge of
4.75%)............................................ $ 15.79 $ 10.33
- --------------------------------------------------------------------------------
Class B............................................ $ 15.03 $ 9.84
- --------------------------------------------------------------------------------
Class C............................................ $ 15.03 $ 9.84
- --------------------------------------------------------------------------------
Class Y............................................ $ 14.98 $ 9.84
- --------------------------------------------------------------------------------
</TABLE>

See Combined Notes to Financial Statements.

19
<PAGE>

EVERGREEN
Equity and Fixed Income Funds
Statements of Operations
Six Months Ended March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Capital
Balanced High Income
Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest............................................ $ 5,873,802 $12,436,752
Dividends........................................... 1,080,825 0
- --------------------------------------------------------------------------------
Total investment income.............................. 6,954,627 12,436,752
- --------------------------------------------------------------------------------
Expenses
Advisory fee........................................ 1,321,435 825,212
Distribution Plan expenses.......................... 1,260,791 664,957
Administrative services fees........................ 264,287 117,887
Transfer agent fee.................................. 593,636 89,581
Trustees' fees and expenses......................... 5,183 2,496
Printing and postage expenses....................... 110,339 51,201
Custodian fee....................................... 89,921 44,432
Registration and filing fees........................ 177,541 14,238
Professional fees................................... 10,284 10,119
Organization expenses............................... 0 1,749
Other............................................... 30,619 1,989
- --------------------------------------------------------------------------------
Total expenses..................................... 3,864,036 1,823,861
Less: Expense reductions........................... (7,604) (11,780)
- --------------------------------------------------------------------------------
Net expenses....................................... 3,856,432 1,812,081
- --------------------------------------------------------------------------------
Net investment income............................... 3,098,195 10,624,671
- --------------------------------------------------------------------------------
Net realized and unrealized gains or losses on
securities and futures contracts
Net realized gains or losses on:
Securities......................................... 5,857,416 (10,160,352)
Futures contracts.................................. 277,399 0
- --------------------------------------------------------------------------------
Net realized gains or losses on securities and
futures contracts.................................. 6,134,815 (10,160,352)
- --------------------------------------------------------------------------------
Net change in unrealized gains or losses on
securities and futures contracts................... 11,176,392 722,398
- --------------------------------------------------------------------------------
Net realized and unrealized gains or losses on
securities and futures contracts................... 17,311,207 (9,437,954)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations......................................... $20,409,402 $ 1,186,717
- --------------------------------------------------------------------------------
</TABLE>

See Combined Notes to Financial Statements.

20
<PAGE>

EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Six Months Ended March 31, 2000 (Unaudited)

<TABLE>
<CAPTION>
Capital High
Balanced Fund Income Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................ $ 3,098,195 $ 10,624,671
Net realized gains or losses on securities and
futures contracts............................... 6,134,815 (10,160,352)
Net change in unrealized gains or losses on
securities and futures contracts................ 11,176,392 722,398
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations..................................... 20,409,402 1,186,717
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class A......................................... (1,645,319) (6,469,403)
Class B......................................... (16,689) (18,609)
Class C......................................... (1,432,319) (4,543,379)
Class Y......................................... (386) (318)
Net realized gains
Class A......................................... (3,193,726) 0
Class B......................................... (30,739) 0
Class C......................................... (5,162,823) 0
Class Y......................................... (633) 0
- --------------------------------------------------------------------------------
Total distributions to shareholders............. (11,482,634) (11,031,709)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold........................ 33,999,241 42,561,680
Net asset value of shares issued in reinvestment
of distributions................................ 11,026,657 6,538,495
Payment for shares redeemed...................... (122,125,080) (86,513,994)
Net asset value of shares issued in acquisition.. 181,168,894 0
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from capital share transactions................ 104,069,712 (37,413,819)
- --------------------------------------------------------------------------------
Total increase (decrease) in net assets........ 112,996,480 (47,258,811)
Net assets
Beginning of period.............................. 357,528,412 253,743,746
- --------------------------------------------------------------------------------
End of period.................................... $ 470,524,892 $206,484,935
- --------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income........................................... $ 23,520 $ (2,417,074)
- --------------------------------------------------------------------------------
</TABLE>

See Combined Notes to Financial Statements.

21
<PAGE>

EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1999

<TABLE>
<CAPTION>
Capital
Balanced High
Fund Income Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................. $ 3,860,451 $ 20,622,448
Net realized gains or losses on securities and
futures contracts................................ 7,191,289 (13,493,851)
Net change in unrealized gains or losses on
securities and futures contracts................. 5,962,995 (1,893,351)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations....................................... 17,014,735 5,235,246
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class A.......................................... (1,667,411) (13,172,505)
Class C (a)...................................... (2,118,036) (9,182,508)
Class Y.......................................... (912) 0
Net realized gains
Class A.......................................... (206,847) 0
Class C (a)...................................... (736,381) 0
Class Y.......................................... (655) 0
- --------------------------------------------------------------------------------
Total distributions to shareholders.............. (4,730,242) (22,355,013)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold......................... 190,802,847 188,593,421
Net asset value of shares issued in reinvestment
of distributions................................. 3,532,642 10,030,172
Payment for shares redeemed....................... (84,513,846) (41,516,220)
Net asset value of shares issued in acquisition... 222,601,303 0
- --------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions.............................. 332,422,946 157,107,373
- --------------------------------------------------------------------------------
Total increase in net assets.................... 344,707,439 139,987,606
Net assets
Beginning of period............................... 12,820,973 113,756,140
- --------------------------------------------------------------------------------
End of period..................................... $357,528,412 $253,743,746
- --------------------------------------------------------------------------------
Undistributed (overdistributed) net investment
income (loss)..................................... $ 20,038 $ (2,010,036)
- --------------------------------------------------------------------------------
</TABLE>
(a) Effective October 18, 1999, shareholders of Evergreen Capital Balanced Fund
and Evergreen High Income Fund Class B shares became owners of that number
of full and fractional shares of Class C shares of Evergreen Capital Bal-
anced Fund and Evergreen High Income Fund, respectively.

See Combined Notes to Financial Statements.

22
<PAGE>

Combined Notes to Financial Statements (Unaudited)

1. ORGANIZATION

The Evergreen Equity and Fixed Income Funds consist of Evergreen Capital Bal-
anced Fund ("Capital Balanced Fund") (formerly Mentor Balanced Portfolio) and
Evergreen High Income Fund ("High Income Fund") (formerly Mentor High Income
Portfolio), (collectively, the "Funds"). Each Fund is a diversified series of a
Delaware business trust, an open-end management investment company organized on
September 18, 1997 and registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). Capital Balanced Fund is a diversified series of Ev-
ergreen Equity Trust and High Income Fund is a diversified series of Evergreen
Fixed Income Trust. Prior to October 18, 1999, the Funds were a diversified se-
ries of a Massachusetts business trust.

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 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 follow the conversion rights at the
time the shares were purchased. Class C shares are sold subject to a 2.00% con-
tingent deferred sales charge payable on shares redeemed within one year after
the month of purchase and a 1.00% contingent deferred sales charge if such
shares are redeemed within two years after the month of purchase. Class C
shares purchased prior to February 1, 2000 follow the contingent deferred sales
charge schedule at the time the shares were initially purchased. 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 advi-
sory clients of First Union Corporation ("First Union") and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates as of December 30, 1994.

Prior to October 18, 1999, Capital Balanced Fund offered Class A shares with a
maximum front end sales charge of 5.75%. Effective October 18, 1999, the former
Mentor Balanced Portfolio and former Mentor High Income Portfolio Class B
shares became Class C shares of the respective Funds.

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 the security is primarily traded. Securities traded on an exchange or NMS
and other securities traded in the over-the-counter market for which there has
been no sale 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 independent pricing service. In determining a price for normal institution-
al-size transactions, the pricing service uses methods based on market transac-
tions for comparable securities and analysis of various relationships between
similar securities which are generally recognized by institutional traders.

Securities for which valuations are not available may be valued by brokers
which use prices provided by market makers or estimates of market value ob-
tained from yield data relating to investments or securities with similar char-
acteristics. Otherwise, securities for which valuations are not readily avail-
able (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Trustees.

23
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

Mutual fund shares held in a Fund are valued at the net asset value of each mu-
tual fund.

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 in a segregated account by the custodian on
the Fund's behalf. Collateral for certain tri-party repurchase agreements is
held at the counterparty's custodian in a segregated account for the benefit of
the Fund and the counterparty. Each Fund monitors the adequacy of the collat-
eral daily and will require the seller to provide additional collateral in the
event the market value of the securities pledged falls below the carrying value
of the repurchase agreement, including accrued interest. Each Fund will only
enter into repurchase agreements with banks and other financial institutions,
which are deemed by the investment advisor to be creditworthy pursuant to
guidelines established by the Board of Trustees.

C. Reverse Repurchase Agreements
To obtain short-term financing, the Funds may enter into reverse repurchase
agreements with qualified third-party broker-dealers. Interest on the value of
reverse repurchase agreements is based upon competitive market rates at the
time of issuance. At the time the Fund enters into a reverse repurchase agree-
ment, it will establish and maintain a segregated account with the custodian
containing qualifying assets having a value not less than the repurchase price,
including accrued interest. If the counterparty to the transaction is rendered
insolvent, the ultimate realization of the securities to be repurchased by the
Fund may be delayed or limited.

D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Each Fund may invest in securities principally traded in foreign markets.
Foreign currency amounts are translated into U.S. dollars as follows: market
value of investments, other assets and liabilities at the daily rate of ex-
change; purchases and sales of investments and 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 gain or loss 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 gain or loss
on securities.

E. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.

The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts ("variation mar-
gin") as the value of the contract changes. Such changes are recorded as
unrealized gains or losses. Realized gains or losses are recognized on closing
the contract.

Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the Statements of
Assets and Liabilities.

F. 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

24
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

assets or liabilities. Forward contracts are recorded at the forward rate and
marked-to-market daily. Realized gains and losses arising from such transac-
tions are included in net realized gain or loss on foreign currency related
transactions. The Fund bears the risk of an unfavorable change in the foreign
currency exchange rate underlying the forward contract and is subject to the
credit risk that the other party will not fulfill their obligations under the
contract. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statements of Assets and Liabilities.

G. When-issued and Delayed Delivery Transactions
The Funds record when-issued or delayed delivery transactions on the trade date
and will segregate with the custodian qualifying assets having a value suffi-
cient to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked-to-market daily and the Fund
begins earning interest on the settlement date. Losses may arise due to changes
in the market value of the underlying securities or if the counterparty does
not perform under the contract.

H. Securities Lending
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other qualified financial organizations.
The Funds' investment adviser will monitor the creditworthiness of such borrow-
ers. Loans of securities may not exceed 33 1/3% of a Fund's total assets and
will be collateralized by cash, letters of credit or U.S. Government securities
that are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities, including accrued interest. The
Fund monitors the adequacy of the collateral daily and will require the bor-
rower to provide additional collateral in the event the value of the collateral
falls below 100% of the market value of the securities on loan. While such se-
curities are on loan, the borrower will pay a Fund any income accruing thereon,
and the Fund may invest any cash collateral received in portfolio securities,
thereby increasing its return. A Fund will have the right to call any such loan
and obtain the securities loaned at any time on five days' notice. Any gain or
loss in the market price of the loaned securities, which occurs during the term
of the loan, would affect a Fund and its investors. A Fund may pay fees in con-
nection with such loans.

I. Mortgage Dollar Roll Transactions
Each Fund may engage in mortgage dollar roll transactions with respect to mort-
gage-backed securities issued by GNMA, FNMA and FHLMC. In a mortgage dollar
roll transaction, a Fund sells a mortgage-backed security to a financial insti-
tution, such as a bank or broker/dealer and simultaneously agrees to repurchase
a substantially similar (i.e. same type, coupon and maturity) security from the
institution at a later date at an agreed upon price. The mortgage-backed secu-
rities that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the roll period the Fund foregoes principal and
interest paid on the securities. The Fund receives compensation from the inter-
est earned on the cash proceeds of the initial sale and in the form of a fee
which is recorded as deferred income and amortized to income over the roll pe-
riod, or alternatively, a lower price for the security upon its repurchase.
Mortgage dollar rolls may be renewed with a new purchase and repurchase price
and cash settlement made at each renewal without physical delivery of the secu-
rities subject to the contract.

J. Interest-Rate Swap
An interest-rate swap is a contract between two parties on a specified princi-
pal amount (referred to as the notional principal) for a specified period. In
the most common instance, a swap involves the exchange of streams of variable
and fixed rate interest payments. During the term of the swap, changes in the
value of the swap are recognized as unrealized gains or losses by marking-to-
market the value of the swap. When the swap is terminated, the Fund will record
a realized gain or loss.

K. 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

25
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

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 and capital
gains realized on some foreign securities may be subject to foreign taxes,
which are accrued as applicable.

L. 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.

M. Distributions
Distributions from net investment income for Capital Balanced Fund are declared
and paid quarterly to all shareholders invested in the Fund. Distributions from
net investment income for High Income Fund are declared daily and paid monthly
to all shareholders invested in the Fund. Distributions from net realized capi-
tal 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.

N. 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.

O. Organization Expenses
Organization expenses for High Income Fund are amortized to operations over a
five-year period on a straight-line basis. In the event any of the initial
shares of the Funds are redeemed by any holder during the five-year amortiza-
tion period, redemption proceeds will be reduced by any unamortized organiza-
tion expenses in the same proportion as the number of initial shares being re-
deemed bears to the number of initial shares outstanding at the time of the re-
demption.

3. INVESTMENT ADVISORY AGREEMENT(S) AND OTHER AFFILIATED TRANSACTIONS

Mentor Investment Advisors, LLC ("Mentor Advisors"), a subsidiary of First
Union, is the investment advisor to each Fund and is paid a management fee that
is computed and paid daily. The management fee for Capital Balanced Fund is
calculated at an annual rate of 0.75% of the Fund's average daily net assets.
The management fee for High Income Fund is calculated at an annual rate of
0.70% of the Fund's average daily net assets.

Evergreen Investment Services ("EIS"), an indirect, wholly-owned subsidiary of
First Union National Bank ("FUNB"), is the administrator to the Funds. As ad-
ministrator, EIS provides the Funds with facilities, equipment and personnel.
EIS is entitled to a fee at an annual rate of 0.15% and 0.10% of the average
daily net assets of Capital Balanced Fund and High Income Fund, respectively.

Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.

Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
FUNB, is the transfer and dividend disbursing agent for the Funds.

4. DISTRIBUTION PLANS

Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of the BISYS
Group, Inc. ("BISYS"), serves as principal underwriter to the Funds.

26
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

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 service fees to broker-dealers who sell shares of the Fund,
are paid by the Fund through "Distribution Plan expenses". Under the Distribu-
tion Plans, Class A incurs distributions fees equal to 0.25% of the average
daily net asset of the class, all of which is used to pay for shareholder serv-
ice fees. Class B and Class C incur distribution fees equal to 1.00% of the av-
erage daily net assets of each class. Of this amount, 0.25% of the distribution
fees incurred is used to pay for shareholder service fees and 0.75% is used to
pay for distribution-related costs. Distribution Plan expenses are calculated
and paid daily.

During the six months ended March 31, 2000, amounts paid or accrued to EDI pur-
suant 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>
Capital Balanced Fund................ $150,495 $8,944 $977,370
High Income Fund..................... 147,737 2,159 394,775
</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.

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.

Prior to October 18, 1999, Mentor Distributors, LLC ("Mentor Distributors")
served as principal underwriter to the Funds. Mentor Distributors is a wholly
owned subsidiary of BISYS Fund Services, Inc. The former Mentor Funds had
adopted a Distribution Plan under Rule 12b-1 of the 1940 Act for its Class B
shares. To compensate Mentor Distributors for the services it provided and for
the expenses it incurred, Class B shares of the former Mentor Capital Balanced
Portfolio and former Mentor High Income Portfolio paid a distribution fee of
0.75% and 0.50%, respectively, which was accrued daily and paid monthly.

Prior to October 18, 1999, the former Mentor Funds had also adopted a Share-
holder Servicing Plan (the "Service Plan") with Mentor Distributors with re-
spect to its Class A and Class B shares. Under the Service Plan, financial in-
stitutions entered into shareholder service agreements with the Fund to provide
administrative support services to their customers who from time to time might
have been owners of record or beneficial owners of Class A or Class B shares of
one or more Mentor Funds. In return for providing these support services, a fi-
nancial institution might have received payments from one or more Mentor Funds
at an annual rate of 0.25% of the average daily net assets of the Class A or
Class B shares of the Mentor Fund beneficially owned by the financial institu-
tion's customers for whom it was a holder of record or with whom it had a ser-
vicing relationship.

For the six months ended March 31, 2000, amounts paid or accrued to Mentor Dis-
tributors pursuant to each former Mentor Fund's Class A and Class B Distribu-
tion and Service Plans were $16,502 and $107,480, respectively, for Capital
Balanced Portfolio and $19,377 and $100,909, respectively, for High Income
Portfolio.

5. ACQUISITIONS

Effective on the close of business on March 10, 2000, Capital Balanced Fund ac-
quired substantially all the assets and assumed certain liabilities of Ever-
green Capital Income and Growth Fund, in an exchange for Class A, Class C and
Class Y shares of Capital Balanced Fund.

Effective on the close of business on November 16, 1998, the Capital Balanced
Fund acquired substantially all the assets and assumed certain liabilities of
Mentor Strategy Portfolio in exchange for Class A and Class B shares of Capital
Balanced Fund.

27
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

These acquisitions were accomplished by a tax-free exchange of the respective
shares of each Fund. The value of net assets acquired, number of shares issued,
unrealized appreciation acquired and the aggregate net assets of each Fund im-
mediately after the acquisition were as follows:

<TABLE>
<CAPTION>
Value of Net Number of Unrealized
Assets Shares Appreciation/ Net Assets
Acquiring Fund Acquired Fund Acquired Issued (Depreciation) After Acquisition
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Balanced Fund Evergreen $181,168,894 12,904,381 $11,611,734 $458,004,263
Capital Income
and Growth Fund
Capital Balanced Fund Mentor Strategy Portfolio 222,601,303 15,799,409 14,394,626 255,551,169
</TABLE>

6. 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 Class Y. Transactions in shares of
the Funds were as follows:

Capital Balanced Fund

<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 2000 September 30, 1999
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 409,897 $ 6,141,562 9,086,010 $143,511,236
Shares issued in
reinvestment of
distributions............ 306,704 4,614,393 89,104 1,341,038
Shares redeemed........... (3,361,178) (49,876,508) (1,949,361) (30,839,772)
Shares issued in
acquisition of Evergreen
Capital Income and Growth
Fund..................... 5,585,907 78,496,578 0 0
Shares issued in
acquisition of Mentor
Strategy Portfolio....... 0 0 1,667,724 24,198,670
- ------------------------------------------------------------------------------
Net increase.............. 2,941,330 39,376,025 8,893,477 138,211,172
- ------------------------------------------------------------------------------
Class B (a) (b)
Shares sold............... 324,558 4,877,113
Shares issued in
reinvestment of
distributions............ 3,171 47,298
Shares redeemed........... (131,598) (1,991,031)
Shares issued in
acquisition of Mentor
Strategy Portfolio....... 0 0
- ------------------------------------------------------------------------------
Net increase.............. 196,131 2,933,380
- ------------------------------------------------------------------------------
Class C (a)
Shares sold............... 1,617,268 22,980,466 3,086,070 47,290,308
Shares issued in
reinvestment of
distributions............ 422,891 6,363,716 146,658 2,190,038
Shares redeemed........... (4,823,443) (70,257,541) (3,307,503) (49,837,695)
Shares issued in
acquisition of Evergreen
Capital Income and Growth
Fund..................... 7,318,397 102,671,239 14,131,685 198,402,633
- ------------------------------------------------------------------------------
Net increase.............. 4,535,113 61,757,880 14,056,910 198,045,284
- ------------------------------------------------------------------------------
Class Y
Shares sold............... 8 100 89 1,303
Shares issued in
reinvestment of
distributions............ 83 1,250 106 1,566
Shares redeemed........... 0 0 (264,603) (3,836,379)
Shares issued in
acquisition of Evergreen
Capital Income and Growth
Fund..................... 77 1,077 0 0
- ------------------------------------------------------------------------------
Net increase (decrease)... 168 2,427 (264,408) (3,833,510)
- ------------------------------------------------------------------------------
Net increase.............. $104,069,712 $332,422,946
- ------------------------------------------------------------------------------
</TABLE>
(a) Effective October 18, 1999, shareholders of Evergreen Capital Balanced Fund
Class B shares became owners of that number of full and fractional shares
of Class C shares of Evergreen Capital Balanced Fund.
(b) For the period from October 18, 1999 (commencement of class operations)
through March 31, 2000.

28
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

High Income Fund

<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 2000 September 30, 1999
------------------------ ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 1,409,549 $ 15,192,783 11,606,611 $127,776,306
Shares issued in
reinvestment of
distributions............ 382,952 3,896,011 523,286 5,731,421
Shares redeemed........... (4,181,953) (43,531,755) (2,587,728) (28,057,661)
- ------------------------------------------------------------------------------
Net increase (decrease)... (2,389,452) (24,442,961) 9,542,169 105,450,066
- ------------------------------------------------------------------------------
Class B (a) (b)
Shares sold............... 81,533 832,096
Shares issued in
reinvestment of
distributions............ 1,031 10,395
Shares redeemed........... (1,802) (18,376)
- ------------------------------------------------------------------------------
Net increase.............. 80,762 824,115
- ------------------------------------------------------------------------------
Class C (a)
Shares sold............... 2,616,403 26,511,203 5,534,821 60,817,115
Shares issued in
reinvestment of
distributions............ 258,749 2,631,871 393,141 4,298,751
Shares redeemed........... (4,225,296) (42,939,309) (1,241,203) (13,458,559)
- ------------------------------------------------------------------------------
Net increase (decrease)... (1,350,144) (13,796,235) 4,686,759 51,657,307
- ------------------------------------------------------------------------------
Class Y (b)
Shares sold............... 2,521 25,598
Shares issued in
reinvestment of
distributions............ 22 218
Shares redeemed........... (2,441) (24,554)
- ------------------------------------------------------------------------------
Net increase.............. 102 1,262
- ------------------------------------------------------------------------------
Net increase (decrease)... $(37,413,819) $157,107,373
- ------------------------------------------------------------------------------
</TABLE>
(a) Effective October 18, 1999, shareholders of Evergreen High Income Fund
Class B shares became owners of that number of full and fractional shares
of Class C shares of Evergreen High Income Fund, respectively.
(b) For the period from October 18, 1999 (commencement of class operations)
through March 31, 2000.

7. SECURITIES TRANSACTIONS

Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and mortgage dollar roll transactions) were as follows
for the six months ended March 31, 2000:

<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
-------------------------------------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
-------------------------------------------------
<S> <C> <C> <C> <C>
Capital Balanced
Fund........... $47,850,030 $383,227,519 $24,966,761 $267,626,386
High Income
Fund........... 0 113,725,133 0 143,188,757
</TABLE>

At March 31, 2000, the Capital Balanced Fund had open futures contracts out-
standing as follows:

<TABLE>
<CAPTION>
Initial
Contract Value at Unrealized
Expiration Contracts Amount March 31, 2000 Loss
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 2000 399 2 Yr. T-Note $78,663,500 $78,989,531 ($326,031)
</TABLE>

During the six months ended March 31, 2000, Capital Balanced Fund earned
$10,799 of income on mortgage dollar roll transactions. At March 31, 2000, the
Capital Balanced Fund had no mortgage dollar roll agreements outstanding.

The Capital Balanced Fund loaned securities during the six months ended March
31, 2000 to certain brokers who paid the Fund a negotiated lenders' fee. These
fees are included in interest income. At March 31, 2000, the value of securi-
ties on loan and the value of collateral (including accrued interest) amounted
to $60,238,980 and $61,711,916, respectively. During the six months ended March
31, 2000, the Capital Balanced Fund earned $17,089 in income from securities
lending.

As of September 30, 1999, the High Income Fund had capital loss carryovers for
federal income tax purposes of $1,128,619, all of which expires on September
30, 2007.

Capital losses incurred after October 31 within a Fund's fiscal year are deemed
to arise on the first business day of the Fund's following fiscal year. The
High Income Fund incurred and elected to defer post October losses of
$12,453,072.

29
<PAGE>

Combined Notes to Financial Statements (Unaudited) (continued)

8. EXPENSE REDUCTIONS

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 expense reductions re-
ceived by each Fund and the impact of the expense reductions on each Fund's
annualized expense ratio represented as a percentage of its average net assets
were as follows:

<TABLE>
<CAPTION>
% of
Expense Average
Reductions Net Assets
---------------------
<S> <C> <C>
Capital Balanced Fund..................... $ 7,604 0.00%
High Income Fund.......................... 11,780 0.01%
</TABLE>

9. DEFERRED TRUSTEES' FEES

Each Independent Trustee of each Fund may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts 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. At the election of the Trustees, the deferral account will be paid
either in one lump sum or in quarterly installments for up to ten years.

10. FINANCING AGREEMENT

On August 6, 1999, the Funds became party to a credit agreement between certain
Evergreen Funds and a group of banks (the "Lenders") entered into a credit
agreement. Under this agreement, effective for certain Evergreen Funds on July
27, 1999, the Lenders provide an unsecured revolving credit commitment in the
aggregate amount of $1.050 billion. The credit facility is allocated, under the
terms of the financing agreement, among the Lenders. The credit facility is ac-
cessed by the Funds for temporary or emergency purposes to fund the redemption
of their shares or for general working capital purposes as permitted by each
Fund's borrowing restrictions. Borrowings under this facility bear interest at
0.75% per annum above the Federal Funds rate (1.50% per annum above the Federal
Funds rate during the period from and including December 1, 1999 through and
including January 31, 2000). A commitment fee of 0.10% per annum is incurred on
the average daily unused portion of the revolving credit commitment. The com-
mitment fee is allocated to all participating funds. For its assistance in ar-
ranging this financing agreement, First Union Capital Markets Corp. was paid a
one-time arrangement fee of $250,000. State Street Bank and Trust Company
serves as paying agent for the funds and as paying agent is entitled to a fee
of $20,000 per annum which is allocated to all the funds.

The Funds did not borrow under this agreement during the six months ended March
31, 2000.

11. REORGANIZATIONS

At a regular meeting of the Board of Trustees on March 23, 2000, the Trustees
of Evergreen Capital Balanced Fund approved a Plan of Reorganization ("the
Plan"). Under the Plan, Evergreen Foundation Fund, a series of Evergreen Equity
Trust, will acquire all the assets and assume the identified liabilities of
Capital Balanced Fund. A special meeting of shareholders of Capital Balanced
Fund will be held on July 14, 2000 to consider and vote on the Plan. On or
about May 26, 2000, materials for this meeting will be mailed to shareholders
of record on April 28, 2000.

At a regular meeting of the Board of Trustees on March 23, 2000, the Trustees
of Evergreen High Income Fund approved a Plan of Reorganization ("the Plan").
Under the Plan, Evergreen High Yield Bond Fund, a series of Evergreen Fixed In-
come Trust, will acquire all the assets and assume the indentified liabilities
of High Income Fund. A special meeting of shareholders of High Income Fund will
be held on July 14, 2000 to consider and vote on the Plan. On or about May 26,
2000, materials for this meeting will be mailed to shareholders of record on
April 28, 2000.

30
<PAGE>

Evergreen Funds

Money Market

Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund

Tax Advantaged

Short Intermediate Municipal Bond Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Tax-Free High Income Fund

Income

Short-Duration Income Fund
Intermediate Term Bond Fund
U.S. Government Fund
Quality Income Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund

Balanced

Tax Strategic Foundation Fund
Foundation Fund
Balanced Fund

Growth & Income

Utility Fund
Income and Growth Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Select Equity Index Fund

Domestic Growth

Tax Strategic Equity Fund
Capital Growth Fund
Stock Selector Fund
Evergreen Fund
Strategic Growth Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Growth Fund
Aggressive Growth Fund
Select Special Equity Fund

Global International

Global Leaders Fund
Perpetual Global Fund
International Growth Fund
Perpetual International Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund

Express Line
800.346.3858

Investor Services
800.343.2898

www.evergreen-funds.com

38283 554579 5/2000

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[LOGO OF EVERGREEN FUNDS] PRSRT STD
U.S.
200 Berkeley Street POSTAGE
Boston,MA 02116 PAID
HUDSON, MA
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