1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN EQUITY TRUST
(Evergreen Capital Balanced Fund and Evergreen Foundation Fund)
[Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025 Connecticut Avenue,
N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 333-37453); accordingly, no fee is payable
herewith. Pursuant to Rule 429, this Registration Statement relates to the
aforementioned registration on Form N-1A. A Rule 24f-2 Notice for the
Registrant's fiscal year ended March 31, 1999 was filed with the Commission on
June 28, 1999.
It is proposed that this filing will become effective on May 4, 2000
pursuant to Rule 488 of the Securities Act of 1933.
EVERGREEN EQUITY TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/
Item of Part A of Form N-14 Proxy Statement
- --------------------------- -----------------------
1. Beginning of Registration Cross Reference Sheet;
Statement and Outside Cover Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Summary; Risks
Risk Factors
4. Information About the Cover Page; Summary; Merger
Transaction Information; Information on
Shareholders' Rights; Voting
Information Concerning the
Meeting; Exhibit A (Agreement
and Plan of Reorganization)
5. Information about the Cover Page; Summary;
Registrant Risks; Merger Information;
Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary;
Company Being Acquired Risks; Merger Information;
Information on
Shareholders' Rights;
Voting Information Concerning
the Meeting; Additional
Information
7. Voting Information Cover Page; Summary;
Information on Shareholders'
Rights; Voting Information
Concerning the Meeting;
Instructions for Voting and
Executing Proxy Cards
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Location in Statement of
Item of Part B of Form N-14 Additional Information
- --------------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. Additional Information Statement of Additional
About the Registrant Information of the
Evergreen Equity Trust, Balanced
Funds, dated August 1, 1999 as it
relates to Evergreen Foundation
Fund
13. Additional Information Statement of Additional
about the Company Being Information of Evergreen
Acquired Equity Trust, Equity and Fixed
Income Funds, dated February 1,
2000 as it relates to Evergreen
Capital Balanced Fund
14. Financial Statements Financial Statements
of Evergreen Foundation Fund
Dated March 31, 1999;
Financial Statements of
Evergreen Capital Balanced Fund
Dated September 30, 1999
Location in Prospectus/
Item of Part C of Form N-14 Proxy Statement
- --------------------------- -----------------------
15. Indemnification Incorporated by Reference
to Part A Caption -
Information on Shareholders'
Rights - "Liability and
Indemnification of
Trustees"
16. Exhibits Exhibits
17. Undertakings Undertakings
<PAGE>
EVERGREEN EQUITY TRUST
PART A
PROSPECTUS/PROXY STATEMENT
<PAGE>
[THIS IS THE FRONT COVER]
LOGO
EVERGREEN CAPITAL BALANCED FUND
200 BERKELEY STREET
BOSTON, MA 02116
May 26, 2000
Dear Shareholder,
As a shareholder of Evergreen Capital Balanced Fund ("Capital Balanced Fund"),
you are invited to vote on a proposal to merge Capital Balanced Fund into
Evergreen Foundation Fund ("Foundation Fund"), another mutual fund within the
Evergreen Family of Funds. THE BOARD OF TRUSTEES OF EVERGREEN EQUITY TRUST HAS
APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
If approved by shareholders, this is how the merger will work:
o Your Fund will transfer its assets and liabilities to Foundation Fund.
o Foundation Fund will issue new shares that will be distributed to you in an
amount equal to the value of your Capital Balanced Fund shares. You will
receive Class A, Class B, Class C or Class Y shares of Foundation Fund,
depending on the class of shares of Capital Balanced Fund you currently
hold. Although the NUMBER of shares you hold may change, the total VALUE of
your investment will not change as a result of the merger.
o You will not incur any sales loads or similar transaction charges as a
result of the merger.
The merger is intended to be tax free for federal income tax purposes. Details
about Foundation Fund's investment objective, portfolio management team,
performance, etc. along with additional information about the proposed merger,
are contained in the attached prospectus/proxy statement. Please take the time
to familiarize yourself with this information. Votes on the proposal will be
cast at a special meeting of Capital Balanced Fund's shareholders to be held on
July 14, 2000. Although you are welcome to attend the meeting in person, you do
not need to do so in order to vote your shares. If you do not expect to attend
the meeting, please complete, date, sign and return the enclosed proxy card in
the enclosed postage paid envelope, or vote via one of the other methods
mentioned below. Instructions on how to vote are included at the end of the
prospectus/proxy statement.
If you have any questions about the proposal or the proxy card, please call
Shareholder Communications Corporation, our proxy solicitor, at 800-645-8640.
You may record your vote by telephone by calling 800-645-8640. You may also FAX
your completed and signed proxy card (both front and back sides) or vote on the
Internet by following the voting instructions as outlined on your proxy card. If
the Fund does not receive a sufficient number of votes in favor of the merger,
you may receive a telephone call from Shareholder Communications Corporation
requesting your vote. The expenses of the merger, including the costs of
soliciting proxies, will be paid by First Union National Bank.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
[Signature]
William M. Ennis
PRESIDENT
Evergreen Funds
<PAGE>
EVERGREEN CAPITAL BALANCED FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 2000
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Evergreen Capital Balanced Fund ("Capital Balanced Fund"), a
series of Evergreen Equity Trust, will be held at the offices of the Evergreen
Funds, 26th Floor, 200 Berkeley Street, Boston, Massachusetts 02116, on July 14,
2000 at 2:00 p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of April 30, 2000, providing for the acquisition of
all the assets of Capital Balanced Fund by Evergreen Foundation Fund
("Foundation Fund"), a series of Evergreen Equity Trust, in exchange
for shares of Foundation Fund and the assumption by Foundation Fund of
the identified liabilities of Capital Balanced Fund. The Plan also
provides for distribution of these shares of Foundation Fund to
shareholders of Capital Balanced Fund in liquidation and subsequent
termination of Capital Balanced Fund. A vote in favor of the Plan is a
vote in favor of the liquidation and dissolution of Capital Balanced
Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of Capital Balanced Fund, the Trustees of Evergreen Equity
Trust have fixed the close of business on April 28, 2000 as the record date for
the determination of shareholders of the Fund entitled to notice of and to vote
at the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees
William M. Ennis
PRESIDENT
May 26, 2000
<PAGE>
INFORMATION RELATING TO THE PROPOSED MERGER
OF
EVERGREEN CAPITAL BALANCED FUND
INTO
EVERGREEN FOUNDATION FUND
This prospectus/proxy statement contains the information you should know before
voting on the proposed merger ("Merger") of your Fund into Evergreen Foundation
Fund ("Foundation Fund"). If approved, the Merger will result in your receiving
shares of Foundation Fund in exchange for your shares of Evergreen Capital
Balanced Fund ("Capital Balanced Fund"). The investment objectives of both Funds
are similar. The investment objective of Capital Balanced Fund is to seek
capital growth and current income. The investment objective of Foundation Fund
is to seek in order of priority: reasonable income, conservation of capital and
capital appreciation.
Please read this prospectus/proxy statement carefully and retain it for future
reference. Additional information concerning each Fund and the Merger is
contained in the documents described in the box below, all of which have been
filed with the Securities and Exchange Commission ("SEC").
<TABLE>
<CAPTION>
MORE INFORMATION ABOUT THE FUNDS IS AVAILABLE
- ----------------------------------------------------------------- ---------------------------------------------------------------
SEE: HOW TO GET THESE DOCUMENTS:
- ----------------------------------------------------------------- ---------------------------------------------------------------
- ----------------------------------------------------------------- ---------------------------------------------------------------
<S> <C>
Capital Balanced Fund's prospectus, dated February 1, 2000. The Funds make all of these documents available to you free
Foundation Fund's prospectus, dated August 1, 1999, with a of charge if you:
supplement dated February 1, 2000, WHICH ACCOMPANY THIS o Call 800-645-8640, or
PROSPECTUS/PROXY STATEMENT. o Write the Funds at 200 Berkeley Street, Boston,
Massachusetts 02116.
Capital Balanced Fund's statement of additional information,
dated February 1, 2000. You can also obtain any of these documents for a fee from the
Foundation Fund's statement of additional information, dated SEC if you:
August 1, 1999. o Call the SEC at 800-SEC-0330,
Or for free if you:
Capital Balanced Fund's annual report, dated September 30, o Go to the SEC website (http://www.sec.gov).
1999.
Foundation Fund's annual report, dated March 31,
1999.
To ask questions about this prospectus/proxy statement:
Foundation Fund's semi-annual report, dated September 30, 1999. o Call 800-645-8640, or
o Write to the Funds at 200 Berkeley Street, Boston,
Statement of additional information, dated May 26, 2000, which Massachusetts 02116.
relates to this prospectus/proxy statement and the Merger.
- ----------------------------------------------------------------- ---------------------------------------------------------------
</TABLE>
INFORMATION RELATING TO THE FUNDS CONTAINED IN CAPITAL BALANCED FUND'S
SEMI-ANNUAL REPORT, THE FUNDS' ANNUAL REPORTS, PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION, AS WELL AS THE STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THIS PROSPECTUS/PROXY STATEMENT, IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS/PROXY STATEMENT. THIS MEANS THAT SUCH INFORMATION IS LEGALLY
CONSIDERED TO BE PART OF THIS DOCUMENT.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED THAT THE INFORMATION
IN THIS PROSPECTUS/PROXY STATEMENT IS ACCURATE OR COMPLETE, NOR HAS IT
APPROVED OR DISAPPROVED THESE SECURITIES. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OF A
BANK, AND ARE NOT INSURED, ENDORSED OR GUARANTEED BY THE FDIC OR ANY
GOVERNMENT AGENCY AND INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF YOUR
ORIGINAL INVESTMENT.
The address of both Funds is 200 Berkeley Street, Boston, Massachusetts
02116 (Telephone: 800-343-2898).
PROSPECTUS/PROXY STATEMENT DATED MAY 26, 2000
TABLE OF CONTENTS
SUMMARY.......................................................................
What are the key features of the Merger?......................................
After the Merger, what class of shares of Foundation Fund will I own?.........
How do the Funds' investment objectives, principal investment strategies
and risks compare?.....................
How do the Funds' sales charges and expenses compare? Will I be able to buy,
sell and exchange shares the same way?.......................................
How do the Funds' performance records compare?...............................
Who will be the Investment Advisor and Portfolio Manager of my Fund after the
Merger? What will the advisory fee be after the Merger?.......................
What will be the primary federal tax consequences of the Merger?..............
RISKS.........................................................................
MERGER INFORMATION............................................................
Reasons for the Merger........................................................
Agreement and Plan of Reorganization..........................................
Federal Income Tax Consequences...............................................
Pro-forma Capitalization......................................................
Distribution of Shares........................................................
Purchase and Redemption Procedures............................................
Exchange Privileges...........................................................
Dividend Policy...............................................................
INFORMATION ON SHAREHOLDERS' RIGHTS...........................................
Form of Organization..........................................................
Capitalization................................................................
Shareholder Liability.........................................................
Shareholder Meetings and Voting Rights........................................
Liquidation...................................................................
Liability and Indemnification of Trustees.....................................
VOTING INFORMATION CONCERNING THE MEETING.....................................
Shareholder Information.......................................................
FINANCIAL STATEMENTS AND EXPERTS..............................................
LEGAL MATTERS.................................................................
ADDITIONAL INFORMATION........................................................
OTHER BUSINESS................................................................
INSTRUCTIONS FOR VOTING AND EXECUTING PROXY CARDS.............................
EXHIBIT A.....................................................................
EXHIBIT B.....................................................................
SUMMARY
This section summarizes the primary features and consequences of the Merger.
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this prospectus/proxy statement, each Fund's
prospectus and statement of additional information and in the Agreement and Plan
of Reorganization.
WHAT ARE THE KEY FEATURES OF THE MERGER?
The Agreement and Plan of Reorganization (the "Plan") sets forth the key
features of the Merger. For a complete description of the Merger, see the Plan,
attached as Exhibit A to this prospectus/proxy statement. The Plan generally
provides for the following:
o the transfer of all of the assets of Capital Balanced Fund in exchange
for shares of Foundation Fund.
o the assumption by Foundation Fund of the identified liabilities of Capital
Balanced Fund. (The identified liabilities consist only of those
liabilities reflected on Capital Balanced Fund's statement of assets and
liabilities determined immediately preceding the Merger.)
o the liquidation of Capital Balanced Fund by distributing shares of
Foundation Fund to Capital Balanced Fund's shareholders.
The Merger is scheduled to take place on or about July 24, 2000.
AFTER THE MERGER, WHAT CLASS OF SHARES OF FOUNDATION FUND WILL I OWN?
- ------------------------------------------ -----------------------------------
IF YOU OWN THIS CLASS OF SHARES OF YOU WILL GET THIS
CAPITAL BALANCED FUND: CLASS OF SHARES OF FOUNDATION FUND:
- -------------------------------------------- -----------------------------------
- -------------------------------------------- -----------------------------------
CLASS A CLASS A
- -------------------------------------------- -----------------------------------
- -------------------------------------------- -----------------------------------
CLASS B CLASS B
- -------------------------------------------- -----------------------------------
- -------------------------------------------- -----------------------------------
CLASS C CLASS C
- -------------------------------------------- -----------------------------------
- -------------------------------------------- -----------------------------------
CLASS Y CLASS Y
- -------------------------------------------- -----------------------------------
The new shares you receive will have the same total value as your Capital
Balanced Fund shares as of the close of business on the day immediately prior to
the Merger.
The Trustees of Evergreen Equity Trust, including the Trustees who are not
"interested persons" (the "Independent Trustees"), as such term is defined in
the Investment Company Act of 1940 (the "1940 Act"), have concluded that the
Merger would be in the best interest of Capital Balanced Fund's shareholders,
and that their interest will not be diluted as a result of the Merger.
Accordingly, the Trustees have submitted the Plan for the approval of Capital
Balanced Fund's shareholders. The Trustees of Evergreen Equity Trust have also
approved the Plan on behalf of Foundation Fund.
HOW DO THE FUNDS' INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND
RISKS COMPARE?
The following table highlights the comparison between the Funds with respect to
their investment objectives and principal investment strategies as set forth in
each Fund's prospectus and statement of additional information:
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
<S> <C> <C>
INVESTMENT OBJECTIVE To seek capital growth and current income. To seek in order of priority: reasonable income,
conservation of capital and capital appreciation.
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
PRINCIPAL INVESTMENT o Normally, at least 25% of assets are o Normally, at least 25% of assets are
STRATEGIES invested in fixed income securities and invested in fixed income securities and the
25% in equity securities. remainder in equity securities.
o Growth in value, current income, and o Current income from dividends and
stability of principal are factors potential for capital appreciation are
considered when choosing securities. factors considered when choosing securities.
o The fixed income portion will o The fixed income portion will be
primarily be invested in investment primarily invested in investment grade
grade debt securities (Baa3 or better by corporate debt securities (rated A or better
Moody's Investors Service, Inc. by a nationally recognized statistical
("Moody's"), BBB- or better by Standard ratings organization or unrated securities
& Poor's Ratings Services ("S&P") or of comparable quality), securities issued by
unrated securities of comparable the U.S. Treasury or by an agency or
quality) and preferred stocks. instrumentality of the U.S. government, bank
o Normally, the fixed income portion obligations, and high quality commercial
will be invested in securities with a paper.
dollar-weighted average rating of A or o The fixed income portion is not managed
better and an average duration of four for any targeted duration.
to six years. o The equity portion will be primarily
o The equity portion will be primarily invested in securities of large U.S.
invested in securities of large U.S. companies.
companies. o Growth of earnings as well as value
o Growth of earnings as well as value characteristics such as price-to-earnings
characteristics such as ratios are considered in selecting
price-to-earnings ratios are considered securities.
in selecting securities.
- ----------------------------- ----------------------------------------------- ---------------------------------------------------
</TABLE>
Each Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with each Fund's principal investment
strategy and investment goal and if employed, could result in a lower return and
loss of market opportunity.
The Funds have other investment policies, practices and restrictions which,
together with their related risks, are also set forth in each Fund's prospectus
and statement of additional information.
A portion of the securities held by Capital Balanced Fund may be disposed of in
connection with the Merger, which could result in additional portfolio
transaction costs to the Funds and capital gains to shareholders.
A principal risk of investing in both Funds is stock market risk (when economic
growth slows, or interest or inflation rates increase, equity securities held by
the Funds tend to decline in value and may cause a decrease in dividends paid).
Both Funds are also subject to interest rate risk (when interest rates rise, the
value of debt securities and certain dividend paying stocks held by the Funds
tends to decline). Both Funds are also subject to credit risk (the issuers of
the securities in which the Funds invest will be unable to repay principal and
pay interest on the securities held by a Fund either at all or on time). Both
Funds are subject to market capitalization risk (investments primarily in one
category may decline in value if that category falls out of favor). Both Funds
also are subject to investment style risk (certain styles such as growth or
value also may fall out of favor causing securities held by the Funds to
decline). For a detailed comparison of the Funds' risks, see the section
entitled "Risks" below.
HOW DO THE FUNDS' SALES CHARGES AND EXPENSES COMPARE? WILL I BE ABLE TO BUY,
SELL AND EXCHANGE SHARES THE SAME WAY?
The sales charges for the comparable classes of both Funds are the same. Both
Funds offer four classes of shares. You will not pay a sales charge in
connection with the Merger. The procedures for buying, selling and exchanging
shares of the Funds are identical. For more information, see "Purchase and
Redemption Procedures" and "Exchange Privileges" below.
The following tables allow you to compare the sales charges and expenses of the
two Funds. The table entitled "Foundation Fund Pro Forma" also shows you what
the sales charges and expenses are estimated to be assuming the Merger takes
place.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ------------------------------------------------------------ ---- --------------------------------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- ------------------------------------------------------------ ---- --------------------------------------------------------------
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER CLASS A CLASS B CLASS C CLASS Y SHAREHOLDER CLASS A CLASS B CLASS C CLASS Y
TRANSACTION TRANSACTION
EXPENSES EXPENSES
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
Maximum sales 4.75% None None None Maximum sales 4.75% None None None
charge imposed on charge imposed on
purchases (as a % purchases (as a %
of offering price) of offering price)
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
Maximum deferred None* 5.00% 2.00%** None Maximum deferred None* 5.00% 2.00%** None
sales charge (as sales charge (as a
a % of either the % of either the
redemption amount redemption amount
or initial or initial
investment investment
whichever is whichever is lower)
lower)
- ------------------- --------- ---------- --------- --------- ---- -------------------- --------- ---------- --------- ----------
</TABLE>
- ----------------------------------------------------------------
FOUNDATION FUND
PRO FORMA
- ----------------------------------------------------------------
- ------------------------ --------- --------- --------- ---------
SHAREHOLDER CLASS A CLASS B CLASS C CLASS Y
TRANSACTION EXPENSES
- ------------------------ --------- --------- --------- ---------
- ------------------------ --------- --------- --------- ---------
Maximum sales charge 4.75% None None None
imposed on purchases
(as a % of offering
price)
- ------------------------ --------- --------- --------- ---------
- ------------------------ --------- --------- --------- ---------
Maximum deferred sales None* 5.00% 2.00%** None
charge (as a % of
either the redemption
amount or initial
investment whichever
is lower)
- ------------------------ --------- --------- --------- ---------
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge ("CDSC")
of 1.00% upon redemption within one year after the month of purchase.
** Class C Shares purchased prior to February 1, 2000 are subject to the CDSC
schedule in place at that time, which included a maximum CDSC of 1.00%.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------- --- ------------------------------------------------------
CAPITAL BALANCED FUND (based on restated expenses for FOUNDATION FUND (based on expenses which have been
the fiscal year ended September 30, 1999)* restated to reflect current contractual rates as of
January 2000)
- --------------------------------------------------------- --- ------------------------------------------------------
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
MANAGEMENT 12B-1 OTHER TOTAL FUND MANAGEMENT 12B-1 OTHER TOTAL FUND
FEES FEES EXPENSES OPERATING FEES FEES EXPENSES OPERATING
EXPENSES EXPENSES
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A 0.75% 0.25% 0.48% 1.48% CLASS 0.65% 0.25% 0.36% 1.26%
A
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
CLASS B 0.75% 1.00% 0.48% 2.23% ** CLASS 0.65% 1.00% 0.36% 2.01%
B
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
CLASS C 0.75% 1.00% 0.48% 2.23% CLASS 0.65% 1.00% 0.36% 2.01%
C
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
CLASS Y 0.75% 0.00% 0.48% 1.23% CLASS 0.65% 0.00% 0.36% 1.01%
Y
- ---------- ------------- ------ --------- --------------- --- ------- ------------ ------- -------- ----------------
* Restated for the fiscal year ended 9/30/1999 to reflect current fees.
** Estimated for the fiscal year ending 9/30/2000.
</TABLE>
- ---------------------------------------------------------------------------
FOUNDATION FUND
PRO FORMA*
(based on what the estimated combined expenses of Foundation Fund would have
been for the 12 months ended September 30, 1999)
- ---------------------------------------------------------------------------
- ----------- ------------- --------- -------------- ------------------------
MANAGEMENT 12B-1 OTHER TOTAL FUND OPERATING
FEES FEES EXPENSES EXPENSES
- ----------- ------------- --------- -------------- ------------------------
- ----------- ------------- --------- -------------- ------------------------
CLASS A 0.64% 0.25% 0.33% 1.22%
- ----------- ------------- --------- -------------- ------------------------
- ----------- ------------- --------- -------------- ------------------------
CLASS B 0.64% 1.00% 0.33% 1.97%
- ----------- ------------- --------- -------------- ------------------------
- ----------- ------------- --------- -------------- ------------------------
CLASS C 0.64% 1.00% 0.33% 1.97%
- ----------- ------------- --------- -------------- ------------------------
- ----------- ------------- --------- -------------- ------------------------
CLASS Y 0.64% 0.00% 0.33% 0.97%
- ----------- ------------- --------- -------------- ------------------------
*The expenses above reflect contractual rate changes made on January 3, 2000. At
that time the Fund's advisory fee was lowered to 0.775% of the first $750
million of the Fund's average daily net assets, plus 0.650% of the next $250
million in assets, plus 0.600% of the amounts over $1 billion in order to
reflect an increase in the Fund's administrative services fees to 0.10%.
The table below shows examples of the total expenses you would pay on a $10,000
investment over one-, three-, five- and ten-year periods. The example is
intended to help you compare the cost of investing in Capital Balanced Fund
versus Foundation Fund and for Foundation Fund pro forma, assuming the Merger
takes place, and is for illustration only. The example assumes a 5% average
annual return, the imposition of the maximum sales charge (if any) and that you
reinvest all of your dividends. Your actual costs may be higher or lower. For
Class C shares of Foundation Fund pro forma, the maximum 2% CDSC has been
applied rather than the maximum 1% CDSC which will be applicable with regard to
Class C shares of Capital Balanced Fund purchased before February 1, 2000 and
exchanged for Class C shares of Foundation Fund.
<TABLE>
<CAPTION>
EXAMPLE OF FUND EXPENSES
- -------------------------------------------------------- --- -------------------------------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- -------------------------------------------------------- --- -------------------------------------------------------------
- ---------------------------------------- --------------- --- ---------------------------------------- --------------------
ASSUMING REDEMPTION AT END OF PERIOD ASSUMING NO ASSUMING REDEMPTION AT END OF PERIOD ASSUMING NO
REDEMPTION REDEMPTION
- ---------------------------------------- --------------- --- ---------------------------------------- --------------------
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS B CLASS C CLASS CLASS B CLASS C
A B C Y B C A Y
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFTER 1 $618 $726 $426 $125 $226 $226 AFTER $597 $704 $404 $103 $204 $204
YEAR 1 YEAR
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
AFTER 3 $921 $997 $697 $390 $697 $697 AFTER $856 $931 $631 $322 $631 $631
YEARS 3 YEARS
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
AFTER 5 $1,245 $1,395 $1,195 $676 $1,195 $1,195 AFTER $1,134 $1,283 $1,083 $558 $1,083 $1,083
YEARS 5 YEARS
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
AFTER $2,159 $2,287 $2,565 $1,489 2,287 $2,565 AFTER $1,925 $2,054 $2,338 $1,236 $2,054 $2,338
10 YEARS 10 YEARS
- --------- ------- ------- ------ ------- ------- ------- --- ------- ------- -------- -------- ------ ---------- ---------
</TABLE>
- -------------------------------------------------------------------------------
FOUNDATION FUND
PRO FORMA
- -------------------------------------------------------------------------------
- ----------------------------------------------------------- ------------------
ASSUMING REDEMPTION AT END OF PERIOD ASSUMING NO
REDEMPTION
- ----------------------------------------------------------- -------------------
- --------------- ---------- ----------- ---------- --------- ---------- --------
CLASS A CLASS B CLASS C CLASS Y CLASS B CLASS C
- --------------- ---------- ----------- ---------- --------- ---------- --------
- --------------- ---------- ----------- ---------- --------- ---------- --------
AFTER 1 YEAR $593 $700 $400 $99 $200 $200
- --------------- ---------- ----------- ---------- --------- ---------- --------
- --------------- ---------- ----------- ---------- --------- ---------- --------
AFTER 3 YEARS $844 $918 $618 $309 $618 $618
- --------------- ---------- ----------- ---------- --------- ---------- --------
- --------------- ---------- ----------- ---------- --------- ---------- --------
AFTER 5 YEARS $1,113 $1,262 $1,062 $536 $1,062 $1,062
- --------------- ---------- ----------- ---------- --------- ---------- --------
- --------------- ---------- ----------- ---------- --------- ---------- --------
AFTER 10 YEARS $1,882 $2,011 $2,296 $1,190 $2,011 $2,296
- --------------- ---------- ----------- ---------- --------- ---------- --------
HOW DO THE FUNDS' PERFORMANCE RECORDS COMPARE?
The following charts show how each Fund has performed in the past. PAST
PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
YEAR-BY-YEAR TOTAL RETURN (%)
The chart below shows the percentage gain or loss for the oldest class of shares
of each Fund in each of the past calendar years since its inception. For Capital
Balanced Fund the class shown is Class C since its inception on June 21, 1994
and for Foundation Fund the class shown is Class Y since its inception on
January 2, 1990. The chart should give you a general idea of the risks of
investing in each Fund by showing how each Fund's return has varied from
year-to-year. The expenses of Capital Balanced Fund's Class C shares are higher
than the expenses of Foundation Fund's Class Y shares due to the payment of a
Rule 12b-1 fee of 1.00% by the Class C shares. Class Y shares do not pay a Rule
12b-1 fee. If the performance of Foundation Fund's Class C shares was shown on
the chart for the same periods as that for the Fund's Class Y shares,
performance would have been lower. This chart includes the effects of Fund
expenses, but not sales charges. Returns would be lower if sales charges were
included.
<TABLE>
<CAPTION>
- ---------------------------------------- --------------------------------------------------------------
CAPITAL BALANCED FUND (CLASS C) FOUNDATION FUND (CLASS Y)
- ---------------------------------------- --------------------------------------------------------------
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
`95 `96 `97 `98 `99 `91 `92 `93 `94 `95 `96 `97 `98 `99
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
20% 24.52 25.43 20.16 20% 36.36 29.70 25.66
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
15% 18.96 15% 19.99 15.71
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
10% 10% 11.50
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
5% 2.63 5%
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
0 0 13.69
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -5% -5% -1.10
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
- -10% -10% -12.21
- -------- ----- ------ ----- ----- ------ ----- ----- ------ ----- ------ ----- ----- ------ ----- -----
BEST QUARTER: 4TH QUARTER 1998 +11.78% BEST QUARTER: 4TH QUARTER 1999 +11.74%
WORST QUARTER: 3RD QUARTER 1999 -4.63% WORST QUARTER: 3RD QUARTER 1998 -6.16%
Year to date total return through 3/31/2000 is 0.01% Year to date total return through 3/31/2000 is 3.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIOD ENDED 12/31/1999)
The next table lists each Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999), including
applicable sales charges, if any. This table is intended to provide you with
some indication of the risks of investing in each Fund. At the bottom of the
table you can compare Capital Balanced Fund's performance with the S&P 500 Index
("S&P 500") and the Lehman Brothers Aggregate Bond Index ("LBABI") and
Foundation Fund's performance with the S&P 500 and Lehman Brothers
Government/Corporate Bond Index ("LBGCBI"). The S&P 500 is a broad-based index
of 500 publicly traded U.S. stocks and is often used as an indication of
performance of the overall stock market. The LBABI is a fixed income index
covering the U.S. investment grade fixed-income bond market, including U.S.
government and U.S. government agency securities, corporate securities, and
asset-backed securities. The LBGCBI is a fixed income index that includes
investment grade, fixed rate U.S. government, U.S. government agency, and
corporate securities. Each is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any mutual
fund expenses. It is not possible to invest directly in an index.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ --- -----------------------------------------------------------
CAPITAL BALANCED FUND* FOUNDATION FUND**
- ------------------------------------------------------------------ --- -----------------------------------------------------------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception 1 year 5 year 10 Performance Inception 1 year 5 year 10 Performance
Date of year Since Date year Since
Class 6/21/1994 of 1/2/1990
Class
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
Class A 9/16/1998 -1.49% 17.11% N/A 15.58% Class A 1/3/1995 7.94% 16.89% N/A 15.86%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
Class B 10/18/1999 -2.39% 17.81% N/A 16.30% Class B 1/3/1995 7.54% 16.92% N/A 15.98%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
Class C 6/21/1994 1.64% 18.04% N/A 16.40% Class C 1/3/1995 11.49% 17.10% N/A 15.96%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
Class Y 9/16/1998 3.43% 18.30% N/A 16.64% Class Y 1/2/1990 13.69% 18.32% N/A 16.57%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
S&P 500 21.04% 28.56% N/A 26.74% S&P 500 21.04% 28.56% N/A 19.21%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
LBABI -0.82% 7.73% N/A 7.20% LBGCBI -0.15% 7.61% N/A 7.87%
- ------------ ------------ -------- ---------- ------ ------------- --- ---------- -------- ---------- --------- ------ -----------
</TABLE>
* 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. The 12b-1 fee for Class A is 0.25%, for Class
B is 1.00% and for Class C is 1.00%. 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. **
Historical performance shown for Classes A, B, and C prior to their inception is
based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B, and C have not been adjusted to reflect the
effect of each class' 12b-1 fee. The 12b-1 fee for Class A is 0.25%, for Class B
is 1.00%, and for Class C is 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower.
For a detailed discussion of the manner of calculating total return, please see
each Fund's statement of additional information. Generally, the calculations of
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment date.
Important information about Foundation Fund is also contained in management's
discussion of Foundation Fund's performance, attached as Exhibit B to this
prospectus/proxy statement. This information also appears in Foundation Fund's
most recent annual report.
WHO WILL BE THE INVESTMENT ADVISOR AND PORTFOLIO MANAGER OF MY FUND AFTER THE
MERGER? WHAT WILL THE ADVISORY FEE BE AFTER THE MERGER?
MANAGEMENT OF THE FUNDS
The overall management of Foundation Fund and Capital Balanced Fund is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Equity Trust.
<TABLE>
<CAPTION>
INVESTMENT ADVISOR Evergreen Asset Management Corp. ("EAMC") is the investment advisor to Foundation Fund.
<S> <C>
Facts about EAMC:
o Is a subsidiary of First Union National Bank
("FUNB"), which is a subsidiary of First Union
Corporation ("First Union"), the 6th largest
bank holding company in the United States based
on total assets as of March 31, 2000.
o Has served as investment advisor, along with its predecessors, since 1971.
o Manages over $[23] billion in assets for 22 of the Evergreen Funds.
o Manages with its affiliates the Evergreen family of mutual funds with assets of
approximately $82.7 billion as of March 31, 2000.
o Is located at 1311 Mamaroneck Avenue, White Plains, New York 10605.
INVESTMENT SUB-ADVISOR Lieber & Company ("Lieber") is the investment sub-advisor to Foundation Fund.
Facts about Lieber:
o Has provided investment research and other investment services since 1971.
o Is located at 1311 Mamaroneck Avenue, White Plains, New York 10605.
PORTFOLIO MANAGEMENT The day-to-day management of Foundation Fund is handled by Jean Ledford, CFA, and Richard Welsh.
Jean Ledford, CFA, co-manager of Foundation Fund, is
also President and Chief Executive Officer of EAMC
and has been the Fund's portfolio manager since
August 1999. Prior to joining EAMC, Ms. Ledford was a
portfolio manager at American Century Investments
("American Century"). From 1980 until she joined
American Century in 1997, Ms. Ledford was an
investment director at the State of Wisconsin
Investment Board.
Richard Welsh joined EAMC as Senior Vice President
and portfolio manager in August 1999. Prior to
joining EAMC, Mr. Welsh worked at American Century,
starting as a research analyst in August 1994 and
becoming portfolio manager in January 1997.
ADVISORY FEES For its management and supervision of the daily business affairs of Foundation Fund, EAMC is entitled
to receive an annual fee equal to:
0.775% of the first $750 million of the Fund's average daily net assets, plus
0.650% of the next $250 million in assets, plus
0.600% of the amounts over $1 billion.
SUB-ADVISORY FEES Under the terms of the sub-advisory agreement, Lieber is entitled to be reimbursed by EAMC for the
cost of providing sub-advisory services. The Fund does not pay a fee to Lieber.
</TABLE>
WHAT WILL BE THE PRIMARY FEDERAL TAX CONSEQUENCES OF THE MERGER?
Prior to or at the completion of the Merger, Capital Balanced Fund will have
received an opinion from Sullivan & Worcester LLP that the Merger has been
structured so that no gain or loss will be realized by the Fund or its
shareholders for federal income tax purposes as a result of receiving Foundation
Fund shares in connection with the Merger. The holding period and aggregate tax
basis of shares of Foundation Fund that are received by Capital Balanced Fund's
shareholders will be the same as the holding period and aggregate tax basis of
shares of the Fund previously held by such shareholders, provided that shares of
the Fund are held as capital assets. In addition, the holding period and tax
basis of the assets of Capital Balanced Fund in the hands of Foundation Fund as
a result of the Merger will be the same as in the hands of the Fund immediately
prior to the Merger, and no gain or loss will be recognized by Foundation Fund
upon the receipt of the assets of the Fund in exchange for shares of Foundation
Fund and the assumption by Foundation Fund of Capital Balanced Fund's identified
liabilities.
RISKS
WHAT ARE THE PRIMARY RISKS OF INVESTING IN EACH FUND?
An investment in each Fund is subject to certain risks. There is no assurance
that investment performance of either Fund will be positive and that the Funds
will meet their investment objectives. The following tables and discussions
highlight the primary risks associated with investment in each of the Funds.
- -------------------------------------- ----------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- -------------------------------------- ----------------------------------------
- -------------------------------------------------------------------------------
Both Funds are subject to STOCK MARKET RISK. Both Funds may invest a
significant portion of their assets in equity securities.
- -------------------------------------------------------------------------------
The Funds' value will be affected by general economic conditions such as
prevailing economic growth, inflation and interest rates. When economic growth
slows, or interest or inflation rates increase, equity securities tend to
decline in value. Such events could also cause companies to decrease the
dividends they pay. If these events were to occur, the value of and dividend
yield and total return earned on a shareholder's investment in a Fund would
likely decline. Even if general economic conditions do not change, a
shareholder's investment in a Fund may decline in value if the particular
sectors, industries or issuers in which the Fund invests do not perform well.
- ----------------------------------------- --------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- ----------------------------------------- --------------------------------------
- --------------------------------------------------------------------------------
Both Funds are subject to INTEREST RATE RISK. Both Funds invest at least
25% of their assets in debt securities.
- --------------------------------------------------------------------------------
Interest rate risk is triggered by the tendency for the value of debt securities
and certain dividend paying stocks to fall when interest rates go up. Since both
Funds invest a significant portion of their portfolios in debt securities, if
interest rates rise, then the value of the Funds' securities may decline. The
longer the term of a bond or fixed income instrument, the more sensitive it will
be to fluctuations in value from interest rate changes. When interest rates go
down, interest earned by the Funds on their investments may also decline, which
could cause the Funds to reduce the dividend they pay. As of March 31, 2000 the
average duration of debt securities held by Capital Balanced Fund was 5 years
and Foundation Fund was 6.1 years
- -------------------------------------- -----------------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- -------------------------------------- -----------------------------------------
- --------------------------------------------------------------------------------
Both Funds are subject to CREDIT RISK. Both Funds invest at least 25% of
their assets in debt securities.
- --------------------------------------------------------------------------------
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. Since the Funds invest a significant
portion of their portfolios in debt securities, the value of and total return
earned on a shareholder's investment in a Fund may decline if an issuer fails to
pay an obligation on a timely basis. Furthermore, Foundation Fund may be subject
to slightly less credit risk since the investment grade debt securities in which
it invests are rated in the top three categories of a nationally recognized
statistical ratings organization. In contrast, although Capital Balanced Fund
seeks to maintain a dollar-weighted average rating of A, the Fund invests in
investment grade debt securities rated in a lower categories (e.g. Baa3 or
better by Moody's, BBB- or better by S&P). Such securities have certain
speculative characteristics.
- ------------------------------------------------- ------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- ------------------------------------------------- ------------------------------
- --------------------------------------------------------------------------------
Both Funds are subject to MARKET CAPITALIZATION RISK. Both Funds invest the
equity portion of their portfolios primarily in large capitalization companies.
- --------------------------------------------------------------------------------
Stocks fall into three broad market capitalization categories --- large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
Fund that invests in these companies to increase in value more rapidly than a
Fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. As a result, stocks of small and medium capitalization
companies may decline significantly in market downturns.
- -------------------------------------------- -----------------------------------
CAPITAL BALANCED FUND FOUNDATION FUND
- -------------------------------------------- -----------------------------------
- --------------------------------------------------------------------------------
Both Funds are subject to INVESTMENT STYLE RISK. Both Funds use a blended
growth and value investment style.
- --------------------------------------------------------------------------------
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform or underperform other funds that employ a different style. A
Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they are
more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when value
investing is in favor. Value stocks are those which are undervalued in
comparison to their peers due to adverse business developments or other factors.
Value oriented funds will typically underperform when growth investing is in
favor.
ARE THERE ANY OTHER RISKS OF INVESTING IN EACH FUND?
Although not a principal investment strategy, both Funds may invest in foreign
securities, which may include foreign currency transactions. Investments in
foreign securities require consideration of certain factors not normally
associated with investments in securities of U.S. issuers. For example, a change
in the value of any foreign currency relative to the U.S. dollar will result in
a corresponding change in the U.S. dollar value of securities denominated in
that currency. Securities markets of foreign countries generally are not subject
to the same degree of regulation as the U.S. markets and may be more volatile
and less liquid. Lack of liquidity may affect a Fund's ability to purchase or
sell large blocks of securities and thus obtain the best price. In addition, a
Fund may incur costs associated with currency hedging and the conversion of
foreign currency into U.S. dollars and may be adversely affected by restrictions
on the conversion or transfer of foreign currency. Other considerations include
political and social instability, expropriation, the lack of available
information, higher transaction costs (including brokerage charges), increased
custodian charges associated with holding foreign securities and different
securities settlement practices. When a Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and a Fund temporarily may
hold funds in foreign currencies. Thus, the value of a Fund's shares will be
affected by changes in exchange rates. To manage this risk, a Fund may enter
into currency futures contracts and forward currency exchange contracts.
Although a Fund uses these contracts to hedge the U.S. dollar value of a
security it already owns, the Fund could lose money if it fails to predict
accurately the future exchange rates. A Fund may engage in hedging and cross
hedging with respect to foreign currencies to protect itself against a possible
decline in the value of another foreign currency in which certain of the Fund's
investments are denominated. A cross hedge cannot protect against exchange rate
risks perfectly, and if a Fund is incorrect in its judgement of future exchange
rate relationships, the Fund could be in a less advantageous position than if
such a hedge had not been established.
Both Funds may invest in futures and options. Such practices are used to hedge a
Fund's portfolio to protect against changes in interest rates, to adjust a
portfolio's duration, to maintain a Fund's exposure to its market, to manage
cash or to attempt to increase income. Although this is intended to increase
returns, these practices may actually reduce returns or increase volatility.
Both Funds may also borrow money, an investment practice typically used only for
temporary or emergency purposes, such as meeting redemptions. Although not a
principal investment practice, Capital Balanced Fund may also use borrowing to
purchase additional securities. Borrowing is a form of leverage that may magnify
a Fund's gain or loss. When a Fund has borrowed money for leverage and its
investments increase or decrease in value, its net asset value will normally
increase or decrease more than if it had not borrowed money for this purpose.
The interest that a Fund must pay on borrowed money will reduce its net
investment income, and may also either offset any potential capital gains or
increase losses. Capital Balanced Fund currently intends to use leverage in
order to adjust the dollar-weighted average duration of the portfolio.
The portfolio turnover rate for Capital Balanced Fund has been higher than that
for Foundation Fund due to the portfolio manager's active portfolio management
style. High portfolio turnover may cause a Fund to realize capital gains which,
if distributed by the Fund, may be taxable to shareholders as ordinary income.
High portfolio turnover may also result in correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund and its shareholders.
MERGER INFORMATION
REASONS FOR THE MERGER
At a regular meeting held on March 23-24, 2000, all of the Trustees of Evergreen
Equity Trust, including the Independent Trustees, considered and approved the
Merger; they determined that it was in the best interests of shareholders of
Capital Balanced Fund and that the interests of existing shareholders of Capital
Balanced Fund will not be diluted as a result of the transactions contemplated
by the Merger.
Before approving the Plan, the Trustees reviewed various factors about the Funds
and the proposed Merger. The Trustees considered among other things:
o the terms and conditions of the Merger;
o whether the Merger would result in the dilution of shareholders'
interests;
o expense ratios, fees and expenses of Foundation Fund and Capital
Balanced Fund;
o the comparative performance records of each Fund;
o compatibility of the Funds' investment objectives and principal
investment strategies;
o the fact that FUNB will bear the expenses incurred by Capital Balanced
Fund and Foundation Fund in connection with the Merger;
o the fact that Foundation Fund will assume the identified liabilities of
Capital Balanced Fund;
o the fact that the Merger is expected to be tax-free for federal income
tax purposes; and
o alternatives available to shareholders of Capital Balanced Fund,
including the ability to redeem their shares.
During their consideration of the Merger, the Trustees met with Fund counsel and
counsel to the Independent Trustees regarding the legal issues involved.
In approving the Merger, the Trustees considered the fact that both Funds have
similar investment objectives, policies and strategies, as well as similar
portfolio characteristics. The Trustees also considered the relative size of
Capital Balanced Fund as well as investment style. The Trustees evaluated the
potential economies of scale associated with larger mutual funds and concluded
that operational efficiencies may be achieved by combining Capital Balanced Fund
with Foundation Fund. As of March 31, 2000, Foundation Fund's total assets were
approximately $3.4 billion and Capital Balanced Fund's total assets were
approximately $471million.
The Trustees also considered the relative performance of each Fund. The past
one-year and three-years' performance for the periods ended December 31, 1999
has been higher for Foundation Fund than for Capital Balanced Fund.
The Trustees also considered the relative expenses of the Funds. Currently, the
expense ratio of Capital Balanced Fund is higher than that of Foundation Fund.
The lower management and administration fees as well as the efficiencies
achieved in operating a larger mutual fund should cause the combined fund to
have lower expenses than those of Capital Balanced Fund.
In addition, assuming that an alternative to the Merger would be for Capital
Balanced Fund to maintain its separate existence, it is believed that the
prospect of dividing resources of the Evergreen Fund family between two similar
funds could result in each Fund being disadvantaged due to an inability to
achieve optimum size, performance levels and greater economies of scale.
Accordingly, for the reasons noted above and recognizing that there can be no
assurance that any economies of scale or other benefits will be realized, the
Trustees believe that the proposed Merger would be in the best interests of each
Fund and its shareholders.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that Foundation Fund will acquire all of the assets of Capital
Balanced Fund in exchange for shares of Foundation Fund and the assumption by
Foundation Fund of the identified liabilities of Capital Balanced Fund on or
about July 24, 2000 or such other date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, Capital Balanced Fund will endeavor
to discharge all of its known liabilities and obligations. Foundation Fund will
not assume any liabilities or obligations of Capital Balanced Fund other than
those reflected in an unaudited statement of assets and liabilities of Capital
Balanced Fund prepared as of the close of regular trading on the New York Stock
Exchange ("NYSE"), normally 4:00 p.m. Eastern Time, on the business day
immediately prior to the Closing Date (the "Valuation Time"). The number of full
and fractional shares of each class of Foundation Fund to be received by the
shareholders of Capital Balanced Fund will be determined by multiplying the
number of full and fractional shares of the corresponding class of Capital
Balanced Fund by a factor which shall be computed by dividing the net asset
value per share of the respective class of shares of Capital Balanced Fund by
the net asset value per share of the respective class of shares of Foundation
Fund. Such computations will take place as of the Valuation Time. The net asset
value per share of each class will be determined by dividing assets, less
liabilities, in each case attributable to the respective class, by the total
number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will compute
the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
prospectus and statement of additional information of Foundation Fund, Rule
22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, Capital Balanced Fund will have declared a
dividend and distribution which, together with all previous dividends and
distributions, shall have the effect of distributing to the Fund's shareholders
(in shares of the Fund, or in cash, as the shareholder has previously elected)
all of the Fund's net investment company taxable income for the taxable period
ending on the Closing Date (computed without regard to any deduction for
dividends paid), all of the Fund's net tax exempt income and all of its net
capital gains realized in all taxable periods ending on the Closing Date (after
the reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, Capital Balanced
Fund will liquidate and distribute pro rata to shareholders of record as of the
close of business on the Closing Date the full and fractional shares of
Foundation Fund received by Capital Balanced Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of Capital Balanced Fund's shareholders on Foundation Fund's share records of
its transfer agent. Each account will represent the respective pro rata number
of full and fractional shares of Foundation Fund due to the Fund's shareholders.
All issued and outstanding shares of Capital Balanced Fund, including those
represented by certificates, will be canceled. The shares of Foundation Fund to
be issued will have no preemptive or conversion rights. After these
distributions and the winding up of its affairs, Capital Balanced Fund will be
terminated.
The consummation of the Merger is subject to the conditions set forth in the
Plan, including approval by Capital Balanced Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of Capital Balanced Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of Capital
Balanced Fund and Foundation Fund; or (b) at or prior to the Closing Date by
either party (i) because of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date if not cured within 30 days, or (ii) because a condition to the
obligation of the terminating party has not been met and it reasonably appears
that it cannot be met.
Whether or not the Merger is consummated, FUNB will pay the expenses incurred by
Capital Balanced Fund and Foundation Fund in connection with the Merger
(including the cost of any proxy-soliciting agent). No portion of the expenses
will be borne directly or indirectly by Capital Balanced Fund, Foundation Fund
or their shareholders.
If Capital Balanced Fund's shareholders do not approve the Merger, the Trustees
will consider other possible courses of action which may be in the best
interests of shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). As a condition to the closing of the Merger, Capital
Balanced Fund will receive an opinion from Sullivan & Worcester LLP to the
effect that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for federal income tax purposes, upon consummation of the
Merger:
(1) The transfer of all of the assets of Capital Balanced Fund solely in
exchange for shares of Foundation Fund and the assumption by Foundation
Fund of the identified liabilities, followed by the distribution of
Foundation Fund's shares by Capital Balanced Fund in dissolution and
liquidation of Capital Balanced Fund, will constitute a
"reorganization" within the meaning of section 368(a)(1)(D) of the
Code, and Foundation Fund and Capital Balanced Fund will each be a
"party to a reorganization" within the meaning of section 368(b) of the
Code;
(2) No gain or loss will be recognized by Capital Balanced Fund on the
transfer of all of its assets to Foundation Fund solely in exchange for
Foundation Fund's shares and the assumption by Foundation Fund of the
identified liabilities of Capital Balanced Fund or upon the
distribution of Foundation Fund's shares to Capital Balanced Fund's
shareholders in exchange for their shares of Capital Balanced Fund;
(3) The tax basis of the assets transferred will be the same to Foundation
Fund as the tax basis of such assets to Capital Balanced Fund
immediately prior to the Merger, and the holding period of such assets
in the hands of Foundation Fund will include the period during which
the assets were held by Capital Balanced Fund;
(4) No gain or loss will be recognized by Foundation Fund upon the receipt
of the assets from Capital Balanced Fund solely in exchange for the
shares of Foundation Fund and the assumption by Foundation Fund of the
identified liabilities of Capital Balanced Fund;
(5) No gain or loss will be recognized by Capital Balanced Fund's
shareholders upon the issuance of the shares of Foundation Fund to
them, provided they receive solely such shares (including fractional
shares) in exchange for their shares of Capital Balanced Fund; and
(6) The aggregate tax basis of the shares of Foundation Fund, including any
fractional shares, received by each of the shareholders of Capital
Balanced Fund pursuant to the Merger will be the same as the aggregate
tax basis of the shares of Capital Balanced Fund held by such
shareholder immediately prior to the Merger, and the holding period of
the shares of Foundation Fund, including fractional shares, received by
each such shareholder will include the period during which the shares
of Capital Balanced Fund exchanged therefor were held by such
shareholder (provided that the shares of Capital Balanced Fund were
held as a capital asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or the
courts. If the Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of Capital Balanced Fund would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Foundation Fund
shares he or she received. Shareholders of Capital Balanced Fund should consult
their tax advisors regarding the effect, if any, of the proposed Merger in light
of their individual circumstances. Since the foregoing discussion relates only
to the federal income tax consequences of the Merger, shareholders of Capital
Balanced Fund should also consult their tax advisors as to the state and local
tax consequences, if any, of the Merger.
Any capital loss carryforwards of Capital Balanced Fund will be available to
Foundation Fund to offset capital gains recognized after the Merger subject to
limitations imposed by the Code. These limitations provide generally that the
amount of loss carryforward may be used in any year following the Closing Date
in an amount equal to the value of all of the outstanding stock of Capital
Balanced Fund immediately prior to the Merger, multiplied by a long-term
tax-exempt bond rate determined monthly by the Internal Revenue Service. A
capital loss carryforward may generally be used without any limit to offset
gains recognized during the five-year period beginning on the date of the Merger
on the sale of assets transferred by Capital Balanced Fund to Foundation Fund
pursuant to the Merger, to the extent of the excess of the value of any such
asset on the Closing Date over its tax basis.
PRO-FORMA CAPITALIZATION
The following table sets forth the capitalizations of Capital Balanced Fund and
Foundation Fund as of September 30, 1999 and the capitalization of Foundation
Fund on a pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value and the acquisition of approximately
$181 million of assets of Evergreen Capital Income and Growth Fund by the
Capital Balanced Fund on March 13, 2000. The pro forma data reflects an exchange
ratio of approximately 0.722, 0.724, 0.725 and 0.721 Class A, Class B, Class C
and Class Y shares, respectively, of Foundation Fund issued for each Class A,
Class B, Class C and Class Y share, respectively, of Capital Balanced Fund.
<TABLE>
<CAPTION>
CAPITALIZATION OF CAPITAL BALANCED FUND, FOUNDATION FUND AND FOUNDATION FUND (PRO FORMA)
CAPITAL BALANCED FUND FOUNDATION FUND FOUNDATION FUND (AFTER MERGER)
Net Assets
<S> <C> <C> <C>
Class A $217,183,047 $416,795,978 $633,979,025
Class B $218,816,199 $1,475,686,368 $1,694,502,567
Class C $102,671,239 $67,946,045 $170,617,284
Class Y $26,821 $1,185,441,377 $1,185,468,198
---------------- -------------- --------------
Total Net Assets $538,697,306 $3,145,869,768 $3,684,567,074
------------ -------------- --------------
Net Asset Value Per Share
Class A $15.15 $20.98 $20.98
Class B $15.12 $20.87 $20.87
Class C $15.12 $20.87 $20.87
Class Y $15.12 $20.98 $20.98
Shares Outstanding
Class A 14,331,636 19,870,139 30,224,015
Class B 14,469,291 70,700,136 81,183,601
Class C 6,789,169 3,225,896 8,175,789
Class Y 1,774 56,503,666 56,504,944
---------- ------------ -----------
All Classes 35,591,870 150,329,837 176,088,349
---------- ----------- -----------
</TABLE>
The table set forth above should not be relied upon to reflect the number of
shares to be received in the Merger; the actual number of shares to be received
will depend upon the net asset value and number of shares outstanding of each
Fund at the time of the Merger.
DISTRIBUTION OF SHARES
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services, acts
as underwriter of shares of Foundation Fund and Capital Balanced Fund. EDI
distributes each Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Each Fund offers four
classes of shares: Class A, Class B, Class C and Class Y. Each class has a
separate distribution arrangement and bears its own distribution expenses. (See
"Distribution-Related and Shareholder Servicing-Related Expenses" below).
In the proposed Merger, Capital Balanced Fund shareholders will receive shares
of Foundation Fund having the same class designation, and the same arrangements
with respect to the imposition of Rule 12b-1 distribution and service fees, as
the shares they currently hold. Because the Merger will be effected at net asset
value without the imposition of a sales charge, Capital Balanced Fund
shareholders will receive Foundation Fund shares without paying any initial
sales charge or CDSC as a result of the Merger. Foundation Fund Class B and
Class C shares received by Capital Balanced Fund shareholders as a result of the
Merger will continue to be subject to a CDSC upon subsequent redemption, but the
CDSC will be based on the date of the original purchase of Capital Balanced Fund
shares and will be subject to the CDSC schedule applicable to the shares on the
date of the original purchase of Capital Balanced Fund shares.
The following is a summary description of charges and fees for the Class A,
Class B, Class C and Class Y shares of Foundation Fund which will be received by
Capital Balanced Fund's shareholders in the Merger. More detailed descriptions
of the distribution arrangements applicable to the classes of shares are
contained in the Foundation Fund and Capital Balanced Fund prospectuses and in
the Funds' statements of additional information.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial sales
charge of up to 4.75% of the offering price and, as indicated below, are subject
to distribution-related fees. For a description of the initial sales charge
applicable to purchase of Class A shares see "How to Choose the Share Class that
Best Suits You" in the prospectus of Foundation Fund. No initial sales charge
will be imposed on Class A shares of Foundation Fund received by Capital
Balanced Fund's shareholders as a result of the Merger.
CLASS B SHARES. Class B shares are sold without an initial sales charge but are
subject to a CDSC, which ranges from 5% to 1% if shares are redeemed during the
first six years after the month of purchase. In addition, Class B shares are
subject to distribution related fees and shareholder servicing-related fees as
described below. Class B shares convert to Class A shares after seven years
following the month in which they were purchased. For purposes of determining
when Class B shares issued in the Merger to shareholders of Capital Balanced
Fund will convert to Class A shares, such shares will be deemed to have been
purchased as of the date the Class B shares of Capital Balanced Fund were
originally purchased.
Class B shares are subject to higher distribution-related and shareholder
servicing-related fees than the corresponding Class A shares on which a
front-end sales charge is imposed (until they convert to Class A shares). The
higher fees mean a higher expense ratio, so Class B shares pay correspondingly
lower dividends and may have a lower net asset value than Class A shares of the
Fund.
CLASS C SHARES. Class C shares are sold without initial sales charges, but, as
indicated below, are subject to distribution-related and shareholder
servicing-related fees. Class C shares issued in connection with the Merger are
subject to the CDSC schedule in place at the time of their original purchase.
Class C shares purchased before February 1, 2000 are subject to a 1.00% CDSC if
such shares are redeemed within 13 months of purchase. No CDSC is imposed on
amounts redeemed thereafter. Class C shares purchased after February 1, 2000 are
subject to a 2.00% CDSC if such shares are redeemed within 13 months of
purchase, and a 1.00% CDSC if redeemed within 12 months thereafter. No CDSC is
imposed on amounts redeemed after 25 months. Certain shareholders of Capital
Balanced may be subject to a different CDSC schedule that was in effect at the
time their shares were purchased. Class C shares incur higher
distribution-related and shareholder servicing-related fees than Class A shares,
but unlike Class B shares, do not convert to any other class of shares.
CLASS Y SHARES. Class Y shares are sold at net asset value without any initial
or deferred sales charges and are not subject to distribution-related or
shareholder servicing-related fees. Class Y shares are only available to certain
classes of investors as is more fully described in the prospectus for Foundation
Fund.
Additional information regarding the classes of shares of each Fund is included
in its prospectus and statement of additional information.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES. Each Fund has
adopted a Rule 12b-1 plan with respect to its Class A shares under which the
class may pay for distribution-related expenses at an annual rate which may not
exceed 0.75% of average daily net assets attributable to the class. Payments
with respect to Class A shares are currently limited to 0.25% of average daily
net assets attributable to the class. This amount may be increased to the full
plan rate for each Fund by the Trustees without shareholder approval.
Each Fund has also adopted a Rule 12b-1 plan with respect to its Class B and
Class C shares under which the class may pay for distribution-related expenses
at an annual rate which may not exceed 1.00%. Of the total 1.00% Rule 12b-1
fees, up to 0.25% may be for payment in respect of "shareholder services."
Consistent with the requirements of Rule 12b-1 and the applicable rules of the
National Association of Securities Dealers, Inc., following the Merger,
Foundation Fund may make distribution-related and shareholder servicing-related
payments with respect to Capital Balanced Fund shares sold prior to the Merger.
Additional information regarding the Rule 12b-1 plans adopted by each Fund is
included in its prospectus and statement of additional information.
No Rule 12b-1 plan has been adopted for the Class Y shares of either Fund.
PURCHASE AND REDEMPTION PROCEDURES
Information concerning applicable sales charges and distribution-related and
shareholder servicing-related fees is provided above. Investments in the Funds
are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of either Fund.
For more information, see "How to Buy Shares - Minimum Investments" in each
Fund's prospectus. Each Fund provides for telephone, mail or wire redemption of
shares at net asset value, less any CDSC, as next determined after receipt of a
redemption request on each day the NYSE is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in the Funds' prospectuses.
Each Fund may involuntarily redeem shareholders' accounts that have less than
$1,000 of invested funds. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
EXCHANGE PRIVILEGES
Holders of shares of a class of each Fund may exchange their shares for shares
of the same class of any other Evergreen fund. Each Fund limits exchanges to
five per calendar year and three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in each Fund's prospectus and statement of additional information.
DIVIDEND POLICY
Each Fund distributes its investment company taxable income quarterly and its
net realized gains at least annually to shareholders of record on the dividend
record date. Dividends and distributions are reinvested in additional shares of
the same class of the respective Fund, or paid in cash, as a shareholder has
elected. See each Fund's prospectus for further information concerning dividends
and distributions.
After the Merger, shareholders of Capital Balanced Fund who have elected to have
their dividends and/or distributions reinvested will have dividends and/or
distributions received from Foundation Fund reinvested in shares of Foundation
Fund. Shareholders of Capital Balanced Fund who have elected to receive
dividends and/or distributions in cash will receive dividends and/or
distributions from Foundation Fund in cash after the Merger, although they may,
after the Merger, elect to have such dividends and/or distributions reinvested
in additional shares of Foundation Fund.
Both Foundation Fund and Capital Balanced Fund have qualified and intend to
continue to qualify to be treated as regulated investment companies under the
Code. To remain qualified as a regulated investment company, a Fund must
distribute 90% of its taxable and tax-exempt income. While so qualified, so long
as each Fund distributes all of its net investment company taxable and
tax-exempt income and any net realized gains to shareholders, it is expected
that a Fund will not be required to pay any federal income taxes on the amounts
so distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
Evergreen Equity Trust is an open-end management investment company registered
with the SEC under the 1940 Act, which continuously offers shares to the public.
Evergreen Equity Trust is organized as a Delaware business trust and is governed
by its Declaration of Trust, By-Laws, a Board of Trustees and by applicable
Delaware and federal law. Foundation Fund and Capital Balanced Fund are series
of Evergreen Equity Trust.
CAPITALIZATION
The beneficial interests in Foundation Fund and Capital Balanced Fund are
represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Equity Trust's Declaration of
Trust permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Fund. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by Fund as
to matters, such as approval of or amendments to investment advisory agreements
or proposed mergers, that affect only their particular Fund.
SHAREHOLDER LIABILITY
Under Delaware law, shareholders of a Delaware business trust are entitled to
the same limitation of personal liability extended to stockholders of Delaware
corporations. Other than in a limited number of states, no similar statutory or
other authority limiting business trust shareholder liability exists in any
other state. As a result, to the extent that Evergreen Equity Trust or a
shareholder is subject to the jurisdiction of courts in those states, it is
possible that a court may not apply Delaware law, and may thereby subject
shareholders of Evergreen Equity Trust to liability. To guard against this risk,
the Declaration of Trust of Evergreen Equity Trust (a) provides that any written
obligation of the Trust may contain a statement that such obligation may only be
enforced against the assets of the Trust or the particular series in question
and the obligation is not binding upon the shareholders of the Trust; however,
the omission of such a disclaimer will not operate to create personal liability
for any shareholder; and (b) provides for indemnification out of Trust property
of any shareholder held personally liable for the obligations of the Trust.
Accordingly, the risk of a shareholder of Evergreen Equity Trust incurring
financial loss beyond that shareholder's investment because of shareholder
liability is limited to circumstances in which: (i) the court refuses to apply
Delaware law; (ii) no contractual limitation of liability was in effect; and
(iii) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the risk
of personal liability to a shareholder of Evergreen Equity Trust is remote.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Evergreen Equity Trust on behalf of Foundation Fund and Capital Balanced Fund is
not required to hold annual meetings of shareholders. However, a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
must be called when requested in writing by the holders of at least 10% of the
outstanding shares of Evergreen Equity Trust. In addition, Evergreen Equity
Trust is required to call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office were elected by shareholders. Evergreen Equity Trust does not currently
intend to hold regular shareholder meetings. Cumulative voting is not permitted.
Except when a larger quorum is required by applicable law, with respect to both
Funds, 25% of the outstanding shares entitled to vote constitutes a quorum for
consideration of a matter. For each Fund, a majority (greater than 50%) of the
votes cast and entitled to vote is sufficient to act on a matter (unless
otherwise specifically required by the applicable governing documents or other
law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Equity Trust, each share of
Foundation Fund and Capital Balanced Fund will be entitled to one vote for each
dollar of net asset value applicable to such share.
LIQUIDATION
In the event of the liquidation of Foundation Fund or Capital Balanced Fund, the
shareholders are entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to such Fund or attributable to the class over
the liabilities belonging to the Fund or attributable to the class. In either
case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
Under the Declaration of Trust of Evergreen Equity Trust, a Trustee is liable to
the Trust and its shareholders only for such Trustee's own willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the office of Trustee or the discharge of such Trustee's functions.
As provided in the Declaration of Trust, each Trustee of the Trust is entitled
to be indemnified against all liabilities against him or her, including the
costs of litigation, unless it is determined that the Trustee (i) did not act in
good faith in the reasonable belief that such Trustee's action was in or not
opposed to the best interests of the Trust; (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of such Trustee's
duties; and (iii) in a criminal proceeding, had reasonable cause to believe that
such Trustee's conduct was unlawful (collectively, "disabling conduct"). A
determination that the Trustee did not engage in disabling conduct and is,
therefore, entitled to indemnification may be based upon the outcome of a court
action or administrative proceeding or by (a) a vote of a majority of those
Trustees who are neither "interested persons" within the meaning of the 1940 Act
nor parties to the proceeding or (b) an independent legal counsel in a written
opinion. The Trust may also advance money for such litigation expenses provided
that the Trustee undertakes to repay the Trust if his or her conduct is later
determined to preclude indemnification and certain other conditions are met.
The foregoing is only a summary of certain characteristics of the operations of
the Declaration of Trust of Evergreen Equity Trust, its By-Laws and Delaware law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declaration of Trust, By-Laws and Delaware law
directly for more complete information.
VOTING INFORMATION CONCERNING THE MEETING
This prospectus/proxy statement is being sent to shareholders of Capital
Balanced Fund in connection with a solicitation of proxies by the Trustees of
Evergreen Equity Trust, to be used at the Special Meeting of Shareholders
("Meeting") to be held at 2:00 p.m., July 14, 2000, at the offices of the
Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and at any adjournments thereof. This prospectus/proxy statement, along with a
Notice of the Meeting and a proxy card, is first being mailed to shareholders of
Capital Balanced Fund on or about May 26, 2000. Only shareholders of record as
of the close of business on April 28, 2000 (the "Record Date") will be entitled
to notice of, and to vote at, the Meeting or any adjournment thereof.
If the enclosed form of proxy is properly executed and returned in time to be
voted at the Meeting, the proxies named therein will vote the shares represented
by the proxy in accordance with the instructions marked thereon. Unmarked
proxies will be voted FOR the proposed Merger and FOR any other matters deemed
appropriate. Proxies that reflect abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not have the effect
of being counted as votes against the Plan, which must be approved by a majority
of the votes cast and entitled to vote. A proxy may be revoked at any time on or
before the Meeting by written notice to the Secretary of Evergreen Equity Trust
at the address set forth on the cover of this prospectus/proxy statement. Unless
revoked, all valid proxies will be voted in accordance with the specifications
thereon or, in the absence of such specifications, FOR approval of the Plan and
the Merger contemplated thereby.
Approval of the Merger will require the affirmative vote of a majority (greater
than 50%) of Capital Balanced Fund's shares voted and entitled to vote at the
Meeting, assuming a quorum (at least 25% of the Fund's outstanding shares
entitled to vote) is present.
In voting for the Merger, all classes of Capital Balanced Fund will vote
together as if they were a single class, and each share will be entitled to one
vote for each dollar of net asset value applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy solicitations may
also be made by telephone, through the Internet or personal solicitations
conducted by officers and employees of FUNB, its affiliates or other
representatives of Capital Balanced Fund (who will not be paid for their
soliciting activities). In addition, proxy solicitations may be made by
Shareholder Communications Corporation, the Fund's proxy solicitor. If you wish
to participate in the Meeting, you may submit the proxy card included with this
prospectus/proxy statement, vote by telephone, fax or by the Internet or attend
in person. (See the back of this prospectus/proxy statement for voting
instructions.) Any proxy given by you is revocable.
If Capital Balanced Fund shareholders do not vote to approve the Merger, the
Trustees will consider other possible courses of action in the best interests of
shareholders. In the event that sufficient votes to approve the Merger are not
received before the Meeting, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy at the Meeting. The persons
named as proxies will vote upon such adjournment after consideration of all
circumstances which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Merger will not be entitled under
either Delaware law or the Declaration of Trust of Evergreen Equity Trust to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Merger as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Merger is consummated, shareholders will be free to redeem the
shares of Foundation Fund which they receive in the transaction at their
then-current net asset value. Shares of Capital Balanced Fund may be redeemed at
any time prior to the consummation of the Merger. Shareholders of Capital
Balanced Fund may wish to consult their tax advisors as to any differing
consequences of redeeming Fund shares prior to the Merger or exchanging such
shares in the Merger.
Capital Balanced Fund does not hold annual shareholder meetings. If the Merger
is not approved, shareholders wishing to submit proposals to be considered for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of Evergreen Equity Trust at the
address set forth on the cover of this prospectus/proxy statement so that they
will be received by the Fund in a reasonable period of time prior to the
meeting.
The votes of the shareholders of Foundation Fund are not being solicited by this
prospectus/proxy statement and are not required to carry out the Merger.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES. Please
advise Capital Balanced Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this prospectus/proxy statement needed to supply copies to the beneficial owners
of the respective shares.
SHAREHOLDER INFORMATION
As of the Record Date, the following number of each class of shares of
beneficial interest of Capital Balanced Fund was outstanding:
CLASS OF SHARES
Class A ____________
Class B _____________
Class C _____________
Class Y _____________
All Classes _____________
As of the Record Date, the officers and Trustees of Evergreen Equity Trust
beneficially owned as a group less than 1% of the outstanding shares of Capital
Balanced Fund and Foundation Fund. To Evergreen Equity Trust's knowledge, the
following persons owned beneficially or of record more than 5% of Capital
Balanced Fund's total outstanding shares as of the Record Date:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME AND ADDRESS CLASS NO. OF SHARES PERCENTAGE OF SHARES OF PERCENTAGE OF SHARES OF
CLASS BEFORE MERGER CLASS AFTER MERGER
- ---------------- ----- ------------- ------------------------ -----------------------
</TABLE>
To Evergreen Equity Trust's knowledge, the following persons owned beneficially
or of record more than 5% of Foundation Fund's total outstanding shares as of
the Record Date:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NAME AND ADDRESS CLASS NO. OF SHARES PERCENTAGE OF SHARES OF PERCENTAGE OF SHARES OF
CLASS BEFORE MERGER CLASS AFTER MERGER
- ---------------- ----- ------------- ------------------------ -----------------------
</TABLE>
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Foundation Fund as of March 31, 1999, and the financial
statements and financial highlights for the periods indicated therein, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The Annual Report of Capital Balanced Fund as of September 30, 1999, and the
financial highlights and financial statements for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Foundation Fund will
be passed upon by Sullivan & Worcester LLP, Washington, D.C.
ADDITIONAL INFORMATION
Capital Balanced Fund and Foundation Fund are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information including proxy
material, and charter documents with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
OTHER BUSINESS
The Trustees of Evergreen Equity Trust do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgement.
THE TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMEND APPROVAL OF THE PLAN AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN.
May 26, 2000
<PAGE>
INSTRUCTIONS FOR VOTING AND EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to you
and may help to avoid the time and expense involved in validating your vote if
you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the Registration on the proxy
card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of Registration. For
example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
After completing your proxy card, return it in the enclosed postage paid
envelope.
OTHER WAYS TO VOTE YOUR PROXY
<TABLE>
<CAPTION>
<S> <C>
VOTE BY TELEPHONE: VOTE BY INTERNET:
1. Read the PROSPECTUS/PROXY STATEMENT and have your 1. Read the PROSPECTUS/PROXY STATEMENT and have your
PROXY CARD at hand. PROXY CARD at hand.
2. Call toll-free 800-645-8640. 2. Go to the website indicated on your PROXY CARD and
3. Enter the 12-digit CONTROL NUMBER found on your PROXY follow the voting instructions.
CARD.
4. Follow the simple recorded instructions.
VOTE BY FAX:
1. Read the PROSPECTUS/PROXY STATEMENT and have your PROXY CARD at hand.
2. Fax BOTH FRONT and BACK SIDES of your PROXY CARD by calling the number indicated on your PROXY CARD
and following the voting instructions.
</TABLE>
The above methods of voting are generally available 24 hours a day. Do not mail
the proxy card if you are voting by telephone, fax or the internet.
If you have any questions about the proxy card, please call Shareholder
Communications Corporation, our proxy solicitor, at 800-645-8640.
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 30th day of April, 2000, by and between Evergreen Equity Trust, a
Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
Foundation Fund series (the "Acquiring Fund"), and the Trust, with respect to
its Evergreen Capital Balanced Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B, Class C
and Class Y shares of beneficial interest, $.001 par value per share, of the
Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of the identified liabilities of the Selling Fund; and (iii) the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Selling Fund in liquidation of the
Selling Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of the identified liabilities of the Selling Fund by the Acquiring
Fund on the terms and conditions hereinafter set forth are in the best interests
of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling
Fund should exchange all of its assets and the identified liabilities for
Acquiring Fund Shares and that the interests of the existing shareholders of the
Selling Fund will not be diluted as a result of the transactions contemplated
herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, computed in the manner and as of the
time and date set forth in paragraphs 2.2 and 2.3; and (ii) to assume the
identified liabilities of the Selling Fund, as set forth in paragraph 1.3. Such
transactions shall take place on the Closing Date provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the Prospectus/Proxy
Statement on Form N-14 which has been distributed to shareholders of the Selling
Fund as described in paragraph 4.1(o).
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of Class A,
Class B, Class C and Class Y shares of the Selling Fund will receive Class A,
Class B, Class C and Class Y shares, respectively, of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The closing of the Reorganization (the "Closing")
shall take place on or about July 24, 2000 or such other date as the parties may
agree to in writing (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously immediately prior to the opening of
business on the Closing Date unless otherwise provided. The Closing shall be
held as of 9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.3 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund, shall deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Selling Fund Shareholders and the number and percentage
ownership of outstanding shares owned by each such shareholder immediately prior
to the Closing. The Acquiring Fund shall issue and deliver or cause Evergreen
Service Company, its transfer agent, to issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the Trust or provide evidence satisfactory to the Selling Fund that
such Acquiring Fund Shares have been credited to the Selling Fund's account on
the books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts and other documents as such other party or its counsel may reasonably
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents
and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
Delaware business trust duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of the Trust's Declaration of Trust or By-Laws or
of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The unaudited semi-annual financial statements of the
Selling Fund at September 30, 1999 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of which
have been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Selling Fund as of such date, and there are no known contingent
liabilities of the Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1999 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.3. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund=s shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations thereunder applicable thereto.
(o) The Selling Fund has provided the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus, which
included the proxy statement of the Selling Fund (the "Prospectus/Proxy
Statement"), all of which was included in a Registration Statement on Form N-14
of the Acquiring Fund (the "Registration Statement"), in compliance with the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the 1940 Act in connection with the meeting of the shareholders of the Selling
Fund to approve this Agreement and the transactions contemplated hereby. The
Prospectus/Proxy Statement included in the Registration Statement (other than
information therein that relates to the Acquiring Fund) does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund
represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The unaudited semi-annual financial statements of the
Acquiring Fund at September 30, 1999 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of which
have been furnished to the Selling Fund) fairly reflect the financial condition
of the Acquiring Fund as of such date, and there are no known contingent
liabilities of the Acquiring Fund as of such date not disclosed therein.
(g) Since September 30, 1999 there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
(n) The Prospectus/Proxy Statement included in the
Registration Statement (only insofar as it relates to the Acquiring Fund) does
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.3 APPROVAL BY SHAREHOLDERS. The Trust will call a meeting of the
shareholders of the Selling Fund to act upon this Agreement and to take all
other action necessary to obtain approval of the transactions contemplated
herein.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG LLP and
certified by the Trust's President and Treasurer.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by a duly authorized officer of the
Trust, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus/Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by a duly authorized
officer of the Trust, in form and substance satisfactory to the Acquiring Fund
and dated as of the Closing Date, to such effect and as to such other matters as
the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Valuation Date,
certified by the Treasurer or Assistant Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision of
any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus/Proxy Statement of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present the
information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquired Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus/Proxy Statement.
(i) Assuming that a consideration therefor of not less than
the net asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Selling Fund are legally issued and fully
paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Trust=s Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund or the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 No stop orders suspending the effectiveness of the Registration
Statement shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the shareholders of the Selling Fund all of the Selling Fund's net investment
company taxable or tax-exempt income for all taxable periods ending on or prior
to the Closing Date (computed without regard to any deduction for dividends
paid) and all of its net capital gains realized in all taxable periods ending on
or prior to the Closing Date (after reduction for any capital loss
carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of the
Acquiring Fund Shares to the Selling Fund Shareholders in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and the
Selling Fund will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG LLP a letter
addressed to the Acquiring Fund, in form and substance satisfactory to the
Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus/Proxy Statement has been
obtained from and is consistent with the accounting records of the Selling Fund;
and
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the pro forma expense ratios appearing in the Registration
Statement and Prospectus/Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by the Selling Fund's
management and were found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund
shall have received from KPMG LLP a letter addressed to the Acquiring Fund dated
on the Closing Date, in form and substance satisfactory to the Acquiring Fund,
to the effect that on the basis of limited procedures agreed upon by the
Acquiring Fund (but not an examination in accordance with generally accepted
auditing standards), the net asset value per share of the Selling Fund as of the
Valuation Date was computed and the valuation of the portfolio was consistent
with the valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG LLP a letter
addressed to the Selling Fund, in form and substance satisfactory to the Selling
Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus/Proxy Statement has been obtained
from and is consistent with the accounting records of the Acquiring Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the pro forma
expense ratios appearing in the Registration Statement and Prospectus/Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund, whether incurred before or after the date of this Agreement,
will be borne by First Union National Bank. Such expenses include, without
limitation, (a) expenses incurred in connection with the entering into and the
carrying out of the provisions of this Agreement; (b) expenses associated with
the preparation and filing of the Registration Statement under the 1933 Act
covering the Acquiring Fund Shares to be issued pursuant to the provisions of
this Agreement; (c) registration or qualification fees and expenses of preparing
and filing such forms as are necessary under applicable state securities laws to
qualify the Acquiring Fund Shares to be issued in connection herewith in each
state in which the Selling Fund Shareholders are resident as of the date of the
mailing of the Prospectus/Proxy Statement to such shareholders; (d) postage; (e)
printing; (f) accounting fees; (g) legal fees; and (h) solicitation costs of the
transaction. Notwithstanding the foregoing, the Acquiring Fund shall pay its own
federal and state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, its Trustees or officers, to the
other party, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that no such
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Selling Fund
Shareholders under this Agreement to the detriment of such Shareholders without
their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
and the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
EVERGREEN EQUITY TRUST
ON BEHALF OF EVERGREEN
FOUNDATION FUND
By:
Name:
Title:
EVERGREEN EQUITY TRUST
ON BEHALF OF EVERGREEN CAPITAL
BALANCED FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
EVERGREEN
Foundation Fund
Fund at a Glance as of September 30, 1999
"We believe that by increasing the overall diversification of the portfolio, we
have given the Fund the ability to get through market volatility more smoothly
than it has in the past."
Portfolio
Management
--------------------
[PHOTO] [PHOTO]
Jean C.Ledford,CFA Richard S.Welsh
Tenure: August 1999 Tenure: August 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC] Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings
and price-to-book ratio relative to the S&P 500, as well as the size
of the companies in which it invests, or median market
capitalization.
[GRAPHIC] 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: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost.
Historical performance shown for Classes A, B and C prior to their inception is
based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B, and C have not been adjusted to reflect the
effect of each class' 12b-1 fees. These fees for Class A are 0.25%, for Class B
are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date 1/2/1990 Class A Class B Class C Class Y
Class Inception Date 1/3/1995 1/3/1995 1/3/1995 1/2/1990
Average Annual Returns*
6 months with sales charge -3.81% -4.44% -0.39% n/a
6 months w/o sales charge 1.00% 0.56% 0.61% 1.08%
1 year with sales charge 7.16% 6.62% 10.62% n/a
1 year w/o sales charge 12.53% 11.62% 11.62% 12.76%
3 years 13.51% 13.72% 14.50% 15.62%
5 years 14.37% 14.41% 14.61% 15.74%
Since Portfolio Inception 15.00% 15.14% 15.12% 15.70%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 1.61% 0.94% 0.94% 1.94%
6-month income dividends
per share $0.21 $0.13 $0.13 $0.24
*Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH]
CPI LBGCBI S&P 500 Class A
9/30/89 10,000 10,000 10,000 10,000
9/30/90 10,616 10,675 9,060 9,477
9/30/91 10,976 12,368 11,879 11,581
9/30/92 11,304 14,005 13,188 12,468
9/30/93 11,608 15,608 14,897 13,894
9/30/94 11,952 14,961 15,447 13,589
9/30/95 12,256 17,109 20,038 16,039
9/30/96 12,624 17,879 24,115 18,584
9/30/97 12,896 19,593 33,861 22,994
9/30/98 13,088 22,115 36,888 24,309
9/30/99 13,400 21,752 46,652 26,658
Comparison of a $10,000 investment in Evergreen Foundation Fund,Class A
shares/2/,versus a similar investment in the Standard & Poor's 500 Index (S&P
500), the Lehman Brothers Government/Corporate Bond Index (LBGCBI) and the
Consumer Price Index (CPI).
The S&P 500 and the LBGCBI are unmanaged market indices and do not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
7
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Evergreen Foundation Fund perform?
- --------------------------------------------------------------------------------
For the six-month period ended September 30, 1999, the Foundation Fund performed
somewhat better than the average balanced fund. During the period, the Fund's
Class A shares had a total return of 1.00% compared to a 0.36% return by the S&P
500 and -0.56% by Lehman Brothers Government/Corporate Bond Index. During the
same period, the average return of balanced funds was -0.15%, according to
Lipper Inc., an independent monitor of mutual fund performance. These returns
were realized during a difficult period in the financial markets, as rising
interest rates undermined the value of bonds and concerns about the possibility
of increasing inflation held back the performance of many stocks. Fund
performance is before deduction of any applicable sales charges.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $3,145,869,768
Number of Holdings 177
Beta 0.63
P/E Ratio 53.6x
Tell us about the new portfolio management team that took responsibility for the
Foundation Fund in August.
We have a five member team with a depth of investment experience--almost 50
years total. The lead manager is Jean Ledford, an investment professional with
more than 19 years of experience. For the previous 21/2 years, she was the lead
manager of American Century Select Fund, cited by the Wall Street Journal
(January 7, 1999) as one of the top-performing mutual funds in 1998. Before
joining American Century Investments, she was investment director of the State
of Wisconsin Investment Board. Three of the remaining four members of the team
also came from American Century Investments. They include Richard Welsh,
co-portfolio manager, and analysts Rick Petran and John Anthony. The fifth
member of the team is Caroline Yu, an analyst who had been at Evergreen Asset
Management Corp.
Jean Ledford also is President and Chief Executive Officer of Evergreen Asset
Management Corp. She was appointed to that position following the retirement of
Stephen A. Lieber in August.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of 9/30/1999 net assets)
[PIE CHART] Common Stock -- 63.5%
U.S. Treasury Bonds & Notes -- 25.1%
Cash Short-Term -- 9.0%
Corporate Bonds & Notes -- 1.6%
Government Agency Bonds & Notes -- 0.6%
Convertibles -- 0.2%
- --------------------------------------------------------------------------------
How would you describe your investment style?
- --------------------------------------------------------------------------------
We build portfolios from the bottom up, emphasizing the selection of individual
stocks of attractive companies with opportunities to improve their earnings. Our
style allows us to find securities in a wide variety of industries. The primary
characteristic of our portfolios is that they are well diversified. We are not
traditional growth or core buyers in the sense that we are not looking for any
absolute figures in terms of earnings growth rates or price-to-growth rates.
While we buy companies with good growth prospects, we are interested in buying
these stocks at reasonable prices.
One consequence of this broader diversification is that we expect the
volatility--or variability--of
8
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
performance will be reduced when compared to the S&P 500. One of our team goals
is to produce very attractive Sharpe Ratios, which measure the amount of risk
taken for the returns obtained. We try to apply this to the Fund by seeking
strong performance while minimizing risk.
We pick stocks one at a time, and our concentrations in industries and sectors
will result from that stock-picking discipline. We are bottom-up stock pickers,
not top-down investors. The key to our style is the search for changes on the
margin that can increase a company's earnings growth rate. We look for factors
such as a new management team, a restructuring, a new product or geographical
expansion. As we construct a portfolio from our stock picks, we are careful to
determine how much risk we are taking.
Our sell discipline is just the reverse of our buy discipline. When a stock
stops exhibiting an upward drift or momentum in earnings, we begin the process
of lightening our position. We look not just at absolute earnings trends, but
also at events on the margin that could affect earnings trends, such as the loss
of a key executive, the failure of a new product or a botched restructuring.
Top 5 Industries
Equity
------
(as a percentage of 9/30/1999 net assets)
---------
Information Services & Technology 13.7%
Finance & Insurance 7.6%
Healthcare Products & Services 6.8%
Utilities-Telephone 4.1%
Communication Systems & Services 3.5%
Top 10
Equity Holdings
---------------
(as a percentage of 9/30/1999 net assets)
---------
Intel Corp. 3.8%
Microsoft Corp. 2.8%
General Electric Co. 2.3%
International Business Machines Corp. 1.9%
Cisco Systems, Inc. 1.8%
Federal National Mortgage Assoc. 1.4%
Lucent Technologies, Inc. 1.3%
Sun Microsystems, Inc. 1.3%
Sprint Corp. 1.2%
Wal-Mart Stores, Inc. 1.2%
What are some of the changes you are making as you implement your strategy in
the Foundation Fund?
On the equity side of the portfolio, we have reduced the total number of company
names from approximately 180 to about 130 and added to the Fund's
diversification. As we have done this, we have increased the weighting in the
technology industry, while decreasing the emphasis on financial service
companies. Newer, technology-related investments in the Fund include Cisco
Systems, Lucent Technologies and Sun Microsystems. Another prominent name that
we have added is Wal-Mart. These four companies now are among the Fund's top-ten
equity holdings, supplanting the prominent positions held by Merrill Lynch,
American International Group, DuPont and Hewlett-Packard, although the latter
four remain Fund holdings.
In the fixed-income portion of the portfolio, we have reduced substantially the
Fund's volatility, or interest rate sensitivity, by shortening duration of the
bonds from about 11 years to about 6 years. In addition to shortening duration,
we recently have added some very high quality corporate bonds to the portfolio
with securities issued by Daimler-Chrysler and Wal-Mart. The Fund's historical
emphasis on very high quality securities remains intact, however. We believe the
fixed-income portfolio should be a stabilizing influence on the overall Fund, as
well as a source of dividend income. We therefore do not try to anticipate or
"bet on" changes in the direction of interest rate movements. Our goal is to
have a fixed income portion that reflects most of the characteristics of a
stable, intermediate-term government bond index, with modest investments in high
quality corporate securities.
9
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
Top 4 Industries
Bonds
-----
(as a percentage of 9/30/1999 net assets)
---------
Treasury Bonds & Notes 25.1%
Automotive Equipment & Manufacturing 0.8%
Retailing & Wholesale 0.8%
U.S. Government Agency Obligations 0.6%
Top 5 Bond Holdings
-------------------
(as a percentage of 9/30/1999 net assets)
---------
Coupon Maturity
------ --------
U.S. Treasury Notes 5.25% 8/15/2003 3.9%
U.S. Treasury Notes 6.50% 8/31/2001 3.2%
U.S. Treasury Notes 5.88% 9/30/2002 2.4%
U.S. Treasury Notes 6.13% 8/15/2007 2.4%
U.S. Treasury Notes 8.13% 8/15/2009 1.9%
What is your outlook?
We believe that by increasing the overall diversification of the portfolio, we
have given the Fund the ability to get through market volatility more smoothly
than it has in the past.
At this point, most investors are wrestling with the question of whether we are
witnessing the start of a strong upturn in inflation, or whether the economy can
sustain the relatively low pace of inflation of the past several years. When
inflationary pressures start to emerge, stocks in industries such as basic
materials, energy and technology start to outperform stocks in other industries.
When there is very little inflation, we see relatively stronger performance in
the traditional areas such as healthcare and the financials.
<PAGE>
EVERGREEN EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN CAPITAL BALANCED FUND
a Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN FOUNDATION FUND
a Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen Capital Balanced
Fund ("Capital Balanced Fund"), a series of Evergreen Equity Trust, to Evergreen
Foundation Fund ("Foundation Fund"), also a series of Evergreen Equity Trust, in
exchange for Class A, Class B, Class C and Class Y shares (to be issued to
holders of Class A, Class B, Class C and Class Y shares, respectively, of
Capital Balanced Fund,) of beneficial interest, $.001 par value per share, of
Foundation Fund, consists of this cover page and the following described
documents, each of which is attached hereto and incorporated by reference
herein:
(1) The Statement of Additional Information of Foundation Fund dated
August 1, 1999;
(2) The Statement of Additional Information of Capital Balanced Fund dated
February 1, 2000;
(3) Annual Report of Foundation Fund for the year ended March 31, 1999;
(4) Semi-Annual Report of Foundation Fund for the six-month period
ended September 30, 1999;
(5) Annual Report of Capital Balanced Fund for the year ended September
30, 1999; and
(6) Pro Forma Financial Statements for September 30, 1999.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Capital Balanced Fund and Foundation Fund dated May 26, 2000. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Equity Trust at the telephone numbers or addresses set
forth above.
The date of this Statement of Additional Information is May 26, 2000.
<PAGE>
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
EVERGREEN BALANCED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
Evergreen Balanced Fund ("Balanced Fund")
Evergreen Foundation Fund ("Foundation Fund")
Evergreen Tax Strategic Foundation Fund ("Tax Strategic Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end
management investment company
known as Evergreen Equity Trust
(the "Trust")
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but should
be read in conjunction with the prospectus dated August 1, 1999 for the Fund in
which you are making or contemplating an investment. The Funds are offered
through one prospectus offering Class A, Class B, Class C and Class Y shares of
each Fund. You may obtain this prospectus without charge by calling (800)
343-2898.
Certain information may be incorporated by reference to the Funds'
Annual Report dated March 31, 1999. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY................................................................1-1
INVESTMENT POLICIES..........................................................1-1
OTHER SECURITIES AND PRACTICES...............................................1-3
PRINCIPAL HOLDERS OF FUND SHARES.............................................1-3
EXPENSES.....................................................................1-6
PERFORMANCE.................................................................1-11
COMPUTATION OF CLASS A OFFERING PRICE ..................................... 1-12
SERVICE PROVIDERS...........................................................1-12
FINANCIAL STATEMENTS........................................................1-14
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES................2-1
PURCHASE, REDEMPTION AND PRICING OF SHARES..................................2-13
SALES CHARGE WAIVERS AND REDUCTIONS.........................................2-15
PERFORMANCE CALCULATIONS....................................................2-19
PRINCIPAL UNDERWRITER.......................................................2-20
DISTRIBUTION EXPENSES UNDER RULE 12b-1......................................2-21
TAX INFORMATION.............................................................2-24
BROKERAGE...................................................................2-27
ORGANIZATION................................................................2-28
INVESTMENT ADVISORY AGREEMENT...............................................2-29
MANAGEMENT OF THE TRUST.....................................................2-31
CORPORATE AND MUNICIPAL BOND RATINGS........................................2-33
ADDITIONAL INFORMATION......................................................2-44
<PAGE>
PART 1
TRUST HISTORY
The Evergreen Equity Trust is an open-end management investment
company, which was organized as a Delaware business trust on September 18, 1997.
Each Fund is a diversified series of Evergreen Equity Trust. A copy of the
Declaration of Trust is on file as an exhibit to the Trust's Registration
Statement, of which this SAI is a part. The foregoing is qualified in its
entirety by reference to the Declaration of Trust.
INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the"1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
Further Explanation of Non-Diversified Funds:
A non-diversified management investment company may have no more than
25% of its total assets invested in the securities (other than U.S. government
securities or the shares of other regulated investment companies) of any one
issuer and must invest 50% of its total assets under the 5% of its assets and
10% of outstanding voting securities test applicable to diversified funds.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
<PAGE>
Further Explanation of Concentration Policy:.
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
<PAGE>
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections under
"Additional Information on Securities and Investment Practices" in Part 2 of
this SAI:
Listed below are securities and investment practices the funds may use
in addition to those discussed in the prospectus. See Additional Information on
Securities and Investment Practices in Part 2 of this SAI for further
information. The information applies below to all Funds unless otherwise noted.
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Options (Balanced Fund)
Futures Transactions (Balanced Fund)
Foreign Securities (Balanced Fund)
Foreign Currency Transactions (Balanced Fund)
High Yield, High Risk Bonds
Illiquid and Restricted Securities
Investment in Other Investment Companies
Municipal Bonds
Obligations of Foreign Branches of United States Banks
Obligations of United States Branches of Foreign Banks
Mortgage-Backed or Asset-Backed Securities (Balanced Fund)
PRINCIPAL HOLDERS OF FUND SHARES
As of May 1, 1999, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of April 30, 1999.
Balanced Fund Class A
None
Balanced Fund Class B
None
Balanced Fund Class C
Douglas M. Ellingson 13.59%
1833 East Carver Street
Tempe, AZ 85284-2509
MLPF&S For Sole Benefit of Its Customers 9.58%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Violet M. Riggs 5.67%
Tod Terri Payne Traci Kirby
Gary Homme
815 So. A Street
Grangeville, ID 83530
Balanced Fund Class Y
First Union National Bank 64.64%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28202-1910
First Union National Bank 30.39%
Trust Accounts
Attn: Ginny Batten, 11th Floor
301 S. Tryon Street, CMG-1151
Charlotte, NC 28202-1910
Foundation Fund Class A
None
Foundation Fund Class B
None
Foundation Fund Class C
MLPF&S For the Sole Benefit of Its Customers 24.83%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Foundation Fund Class Y
First Union National Bank/EB/INT 42.76%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT 10.69%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor CMG-1151
Charlotte, NC 28202-1911
MAC & CO 10.03%
AETNA Retirement Services
Central Valuation Services
Attn: Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
Charles Schwab & Co. Inc. 5.28%
Special Custody Account
Exclusive Account Attn: Mutual Fund
101 Montgomery Street
San Francisco, CA 94104-4122
AETNA Life Insurance Life & Annuity 5.18%
Central Valuation Unit
Attn: Jackie Johnson-Conveyor
151 Farmington Avenue
Hartford, CT 06156-0001
Tax Strategic Foundation Fund Class A
None
Tax Strategic Fund Class B
MLPF&S For the Sole Benefit of its Customers 10.71%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Tax Strategic Fund Class C
MLPF&S For the Sole Benefit of Its Customers 28.56%
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Tax Strategic Fund Class Y
Stephen A. Lieber 37.92%
1210 Greacen Point Road
Mamaroneck, NY 10543-4613
First Union National Bank/EB/INT 17.07%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
Nola Maddox Falcone 7.47%
70 Drake Road
Scarsdale, NY 10583-6447
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC"), 2500 Westchester Avenue,
Purchase, New York 10577, is the investment advisor to Foundation Fund and Tax
Strategic Fund. Lieber & Company acts as sub-advisor to these Funds and
provides investment research, information, investment recommendation, advice and
assistance to EAMC, and is reimbursed by EAMC for the costs of providing sub-
advisory services. EAMC is entitled to receive from Foundation Fund and Tax
Strategic Fund an annual fee based on the Fund's average daily net assets, as
follows:
Average Daily Net Assets Fee
First $750 million 0.875%
Next $250 million 0.750%
Over $100 million 0.700%
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Balanced Fund. EIMC
is entitled to receive from Balanced Fund an annual fee based on the Fund's
average daily net assets, as follows:
1.5% of Gross Dividend and Interest Income Management Fee
plus, Average Daily Net Assets
first $100 million 0.60%
next $100 million 0.55%
next $100 million 0.50%
next $100 million 0.45%
next $100 million 0.40%
next $100 million 0.35%
next $100 million 0.30%
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
Fund/Fiscal Year or Period Advisory Fee
Balanced Fund $ 7,603,851
Foundation Fund $ 21,613,189
Tax Strategic Fund $ 3,269,877
Balanced Fund (b) $ 5,534,574
Foundation Fund $ 16,156,433
Tax Strategic Fund $ 1,451,786
Balanced Fund $ 1,170,691
Foundation Fund (a) $ 3,246,270
Tax Strategic Fund (a) $ 143,945
(a) Foundation Fund and Tax Strategic Fund changed their fiscal year end from
December 31 to March 31, effective March 31, 1997. The expenses at March
31, 1997 reflect a 3 month period.
(b) Balanced Fund changed its fiscal year end from June 30 to March 31,
effective March 31, 1998. The expenses at March 31, 1998
reflect a nine month period.
Brokerage Commissions
Below are the total amounts paid by each Fund in brokerage commissions
and brokerage commissions paid by each Fund to Lieber & Company for the last
three fiscal periods. For more information regarding brokerage commissions, see
"Brokerage" in Part 2 of this SAI.
Fiscal Year ended March 31, 1999 Total Paid to Total Paid to Lieber
All Brokers
Balanced Fund $1,982,668 $0
Foundation Fund $ 724,013 $ 719,827
Tax Strategic Fund $ 318,323 $ 300,137
Year or Period Ended March 31, 1998
Balanced Fund $533,529 $0
Foundation Fund $486,478 $ 483,014
Tax Strategic Fund $116,583 $ 113,411
Year or Period Ended March 31, 1997
Balanced Fund $256,092 $0
Foundation Fund $ 83,153 $81,365
Tax Strategic Fund $ 11,342 $10,758
Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year ended March 31, 1999, (1)
the percentage of aggregate brokerage commissions paid by Foundation Fund and
Tax Strategic Fund to Lieber & Company; and (2) the percentage of the applicable
Fund's aggregate dollar amount of commissionable transactions effected through
Lieber & Company. For more information, see "Selection of Brokers" under
"Brokerage" in Part 2 of this SAI.
Fund Percentage of Commissions Percentage of
to Lieber & Company Commissionable
Transactions through
Lieber & Company
Foundation Fund 99.4% 37.1%
Tax Strategic Fund 94.3% 93.2%
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last two fiscal periods.
For more information, see "Principal Underwriter" in Part 2 of this SAI.
Fund/Fiscal Year or Period Total Underwriting Underwriting
Commissions Commissions
Retained
Year Ended March 31, 1999
Balanced Fund $2,269,221 $0
Foundation Fund $17,682,606 $90,889
Tax Strategic Fund $4,610,482 $21,255
Year or Period Ended March 31, 1998
Foundation Fund $10,039,997 $506,565
Tax Strategic Fund $3,971,612 $62,120
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year ended
March 31, 1999. For more information, see "Distribution Expenses Under Rule
12b-1" in Part 2 of this SAI.
<TABLE>
<CAPTION>
Class A Class B Class C
Fund
Distribution Service Fees Distribution Service Fees Distribution Service Fees
Fees Fees Fees
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $0 $3,008,956 $3,968,746 $1,322,916 $11,028 $3,676
Foundation Fund $0 $892,137 $9,541,940 $3,180,647 $447,095 $149,032
Tax Strategic Fund $0 $206,189 $1,618,325 $671,999 $298,816 $99,605
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust
individually and by the Trust and the eight other trusts in the Evergreen Fund
complex for the twelve months ended March 31, 1999. The Trustees do not receive
pension or retirement benefits from the Funds. For more information, see
"Management of the Trust" in Part 2 of this SAI.
<TABLE>
<CAPTION>
Trustee Aggregate Compensation from Total Compensation from
Trust Trust and Fund Complex Paid
to Trustees*
<S> <C> <C>
Laurence B. Ashkin $22,911 $75,000
Charles A. Austin, III $22,911 $75,000
K. Dun Gifford $22,141 $72,500
James S. Howell $29,532 $97,500
Leroy Keith Jr. $22,141 $72,500
Gerald M. McDonnell $22,911 $75,000
Thomas L. McVerry $26,295 $86,000
William Walt Pettit $22,141 $72,500
David M. Richardson $22,928 $71,875
Russell A. Salton, III $23,378 $77,500
Michael S. Scofield $23,378 $77,500
Richard J. Shima $22,141 $72,500
</TABLE>
*Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended March 31, 1999. The amounts listed
below will be payable in later years to the respective Trustees:
Austin $ 11,250.00
Howell $ 77,600.00
McDonnell $ 75,000.00
McVerry $ 86,000.00
Pettit $ 72,500.00
Salton $ 77,000.00
Scofield $ 11,250.00
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of March 31, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
Fund/Class One Year Five Years Ten Years or Since Inception Date of
Inception Class
<S> <C> <C> <C> <C>
Balanced Fund (a)
Class A 2.43% 14.51% 12.07% 1/20/98
Class B 2.32% 14.58% 11.74% 9/11/35
Class C 5.91% 14.78% 11.70% 1/22/98
Class Y 7.79% 15.91% 12.89% 1/26/98
Foundation Fund (b)
Class A 0.56% 14.72% 15.75% 1/3/95
Class B -0.19% 14.87% 15.95% 1/3/95
Class C 3.76% 15.05% 15.93% 1/3/95
Class Y 5.84% 16.07% 16.49% 1/2/90
Tax Strategic Fund (b)
Class A -3.70% 13.44% 12.57% 1/17/95
Class B -4.53% 13.67% 12.88% 1/6/95
Class C -0.58% 13.89% 12.97% 3/3/95
Class Y 1.38% 14.85% 13.85% 11/2/93
</TABLE>
(a)Historical performance shown for Classes A, C, and Y prior to their inception
is based on the performance of Class B, the original class offered. These
historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fees for Class
A are: 0.25%, for Class B are 1.00%, and for Class C are 1.00%. Class Y does not
pay a 12b-1 fee. If these fees had not been eliminated, returns would have been
lower.
(b)Historical performance shown for Classes A, B, and C prior to their inception
is based on performance of Class Y, the original class offered. These historical
returns for Classes A, B, and C have not been adjusted to reflect the effect of
each class' 12b-1 fees. These fees for Class A are 0.25%, for Class B are 1.00%,
and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these fees had
been reflected, returns would have been lower.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase of Class A shares of each Fund aggregating
less than $100,000 based upon the NAV of each Fund's Class A shares at the end
of March 31, 1999. For more information, see "Purchase, Redemption and Pricing
of Shares."
Fund Net Asset Value Sales Charge Offering Price
Per Share Per Share
Balanced Fund $11.28 4.75% $11.84
Foundation Fund $20.98 4.75% $22.03
Tax Strategic Fund $16.17 4.75% $16.98
SERVICE PROVIDERS
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Fund's transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Fund pays ESC annual fees as follows:
Fund Type Annual Fee Annual Fee
Per Open Per Closed
Account* Account**
Monthly Dividend Funds $25.50 $9.00
Quarterly Dividend Funds $24.50 $9.00
Semiannual Dividend Funds $23.50 $9.00
Annual Dividend Funds $23.50 $9.00
Money Market Funds $25.50 $9.00
*For shareholder accounts only. The Fund pays ESC cost plus 15% for broker
accounts.
**Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Distributor
Evergreen Distributor, Inc. (the "Distributor") markets the Funds
through broker-dealers and other financial representatives. Its address is
125 W. 55th Street, New York, NY 10019.
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of the Funds.
Custodian
State Street Bank and Trust Company keeps custody of each Fund's
securities and cash and performs other related duties. The custodian's address
is 225 Franklin Street, Boston, Massachusetts 02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the independent auditors' report
thereon are hereby incorporated by reference to the Funds' Annual Report, a copy
of which may be obtained without charge from ESC, P.O. Box 2121, Boston,
Massachusetts 02106-2121.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund in which you are interested.
See the list under Other Securities and Practices in Part 1 of this SAI to
determine which of the sections below are applicable.
Defensive Investments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the advisor, market conditions warrant a temporary defensive
investment strategy. Evergreen Fund for Total Return may also invest in debt
securities and high grade preferred stocks for defensive purposes when its
investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farm Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA").The
Fund may invest in securities issued by the GNMA, a corporation wholly-owned by
the U.S. Government. GNMA securities or "certificates" represent ownership in a
pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options
An option is a right to buy or sell a security for a specified price
within a limited time period. The option buyer pays the option seller (known as
the "writer") for the right to buy, which is a "call" option, or the right to
sell, which is a "put" option. Unless the option is terminated, the option
seller must then buy or sell the security at the agreed-upon price when asked to
do so by the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If the Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised resulting in a
potential loss of value to the Fund.
Futures Transactions
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the Fund, the value of the contract will tend to rise when
the value of the underlying securities declines and to fall when the value of
such securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures contract
is purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions. Unlike the purchase or sale of a security, the
Fund does not pay or receive money upon the purchase or sale of a futures
contract. Rather the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Inc. ("Fitch") or below Baa by Moody's Investors Service, Inc. ("Moody's"),
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments.
Investors should be aware of the following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determine the liquidity of Rule 144A securities, the Trustees will consider: (1)
the frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower it value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the Virgin
Islands, Guam and Puerto Rico to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which the Fund is
named. The Fund does not presently intend to invest more than (a) 10% of its net
assets in the obligations of each of the Virgin Islands and Guam or (b) 25% of
its net assets in the obligations of Puerto Rico. Accordingly, the Fund may be
adversely affected by local political and economic conditions and developments
within the Virgin Islands, Guam and Puerto Rico affecting the issuers of such
obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e. rated A-1 by S&P, Prime-1 by
Moody's or F-1 by Fitch.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructurings under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities
related to such series. Principal zero coupon bonds mature on the date
specified therein, which is the final maturity date of the related securities.
Each zero coupon bond entitles the holder to receive a single payment at
maturity. There are no periodic interest payments on a zero coupon bond. Zero
coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
services were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate -of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
PURCHASE, REDEMPTION AND PRICING OF SHARES
You may buy shares of the Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. The Fund may offer up to four different classes of
shares that differ primarily with respect to sales charges and distribution
fees. Depending upon the class of shares, you will pay an initial sales charge
when you buy the Fund's shares, a contingent deferred sales charge (a "CDSC")
when you redeem the Fund's shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of First Union National Bank ("FUNB") and its affiliates, EDI and any
broker-dealer with whom EDI has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees; and (g) upon the
initial purchase of an Evergreen fund by investors reinvesting the proceeds from
a redemption within the preceding 30 days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC.
Class B Shares
The Fund offers Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Fund will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase. ..........................5.00%
Second 12-month period following the month of purchase............4.00%
Third 12-month period following the month of purchase.............3.00%
Fourth 12-month period following the month of purchase............3.00%
Fifth 12-month period following the month of purchase.............2.00%
Sixth 12-month period following the month of purchase.............1.00%
Thereafter........................................................0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Fund
offers Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Fund will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisory's affiliates. Class Y
shares are offered at net asset value without a front-end or back-end sales
charge and do not bear any Rule 12b-1 distribution expenses.
INSTITUTIONAL SHARES, INSTITUTIONAL SERVICE SHARES AND CHARITABLE SHARES
Each institutional class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. The minimum initial investment in any institutional class
of shares is $1 million, which may be waived in certain circumstances. There is
no minimum amount required for subsequent purchases.
Contingent Deferred Sales Charge
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Expenses Under Rule 12b-1,"
below). Institutional, Institutional Service and Charitable shares do not charge
a CDSC. If imposed, the Fund deducts the CDSC from the redemption proceeds you
would otherwise receive. The CDSC is a percentage of the lesser of (1) the net
asset value of the shares at the time of redemption or (2) the shareholder's
original net cost for such shares. Upon request for redemption, to keep the CDSC
a shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc. ("NASD"), paid to the Distributor or its
predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional,
Institutional Service and Charitable shares.
If you making a large purchase, there are several ways you can combine
multiple purchases of Class A shares in Evergreen Funds and take advantage of
lower sales charges. These are described below.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen Funds. For example, if you invested $75,000 in each
of two different Evergreen Funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen Funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen Fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1
tax-sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisors;
4. investment advisors, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisors or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor, has entered into an
agreement to sell shares of the Fund, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as Trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCS
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions
or excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen fund which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded or
on the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in the investment advisor's opinion, the last sales price does not
reflect an accurate current market value; and other assets are valued
at prices deemed in good faith to be fair under procedures established
by the Board of Trustees.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods. The following
is the formula used to calculate average annual total return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average total return N = number of
years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may
quote its 7-day current yield or effective yield in advertisements or in reports
or other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's
yield that is not tax exempt. Depending on the Fund's objective, the income tax
rate used in the formula above may be federal or a combination of federal and
state.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of shares of the Fund. The Trust has entered into a
Principal Underwriting Agreement ("Underwriting Agreement") with the Distributor
with respect to each class of the Fund. The Distributor is a subsidiary of The
BISYS Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Fund and the Fund reserves
the right, in its sole discretion, to reject any order received. Under the
Underwriting Agreement, the Fund is not liable to anyone for failure to accept
any order.
The Distributor has agreed that it will, in all respects, duly conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (I) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These "12b-1 fees" or "distribution fees" are indirectly paid
by the shareholder, as shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its, Class A, Class B, Class C and Institutional
Service shares, as applicable, the Fund may incur expenses for distribution
costs up to a maximum annual percentage of the average daily net assets
attributable to a class, as follows:
Class A 0.75%*
Class B 1.00%
Class C 1.00%
Institutional Service 0.35%*
*Currently limited to 0.25% or less. See the expense table in the prospectus
of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above.
Amounts paid under the Plans are used to compensate the Distributor
pursuant to Distribution Agreements (each an "Agreement," together, the
"Agreements") that the Fund has entered into with respect to its Class A, Class
B, Class C and Institutional Service shares, as applicable. The compensation is
based on a maximum annual percentage of the average daily net assets
attributable to a class, as follows:
Class A 0.25%*
Class B 1.00%
Class C 1.00%
Institutional Service 0.25%*
*May be lower. See the expense table in the prospectus of the Fund in
which you are interested.
The Agreements provide that the Distributor will use the distribution
fees received from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that the Distributor may use distribution
fees to make interest and principal payments in respect of amounts that have
been financed to pay broker-dealers or other persons for distributing Fund
shares. The Distributor may assign its rights to receive compensation under the
Plans to secure such financings. FUNB or its affiliates may finance payments
made by the Distributor to compensate broker-dealers or other persons for
distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to the Distributor under the Agreements may be paid by the
Fund's Distributor to the acquired fund's distributor or its predecessor.
Since the Distributor's compensation under the Agreements is not
directly tied to the expenses incurred by the Distributor, the compensation
received by it under the Agreements during any fiscal year may be more or less
than its actual expenses and may result in a profit to the Distributor.
Distribution expenses incurred by the Distributor in one fiscal year that exceed
the compensation paid to the Distributor for that year may be paid from
distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least monthly on Class
A, Class B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the Securities and Exchange
Commission ("SEC") make payments for distribution services to the Distributor;
the latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C and
Institutional Service shares. The Plans are designed to (i) stimulate brokers to
provide distribution and administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares and (ii) stimulate
administrators to render administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B, Class C and Institutional Service shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for its Class A, Class B,
Class C and Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to that class or classes, and
(ii) the Fund would not be obligated to pay the Distributor for any amounts
expended under the Distribution Agreement not previously recovered by the
Distributor from distribution services fees in respect of shares of such class
or classes through deferred sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (I) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by the
Distributor. To terminate any Distribution Agreement, any party must give the
other parties 60 days' written notice; to terminate a Plan only, the Fund need
give no notice to the Distributor. Any Distribution Agreement will terminate
automatically in the event of its assignment. For more information about 12b-1
fees, see "Expenses" in the prospectus and "12b-1 Fees" under "Expenses" in Part
1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, the Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, the Fund is not subject to federal income tax if
it timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond fund, distributions will be taxable
to shareholders whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond fund or U.S. Treasury
money market fund, it anticipates that all or a portion of the ordinary
dividends which it pays will qualify for the 70% dividends-received deduction
for corporations. The Fund will inform shareholders of the amounts that so
qualify. If the Fund is a municipal bond fund or U.S. Treasury money market
fund, none of its income will consist of corporate dividends; therefore, none of
its distributions will qualify for the 70% dividends-received deduction for
corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Municipal Bond Fund Shareholders
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code) of a facility financed with an issue of tax-exempt obligations or a
"related person" to such a user should consult his tax advisor concerning his
qualification to receive exempt interest dividends should the Fund hold
obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund. Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a
tax treaty) on amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by EAMC, Lieber & Company, an affiliate of EAMC
and a member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions effected on
those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters Fund ) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are, EAMC MFS Institutional Advisors, Inc.
("MFS"), OppenheimerFunds, Inc. ("Oppenheimer") and Putnam Investment
Management, Inc. ("Putnam").
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services.
See "Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, and Messrs. Scofield and Salton, each of whom is an
Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/2/28) President of Centrum Equities and Centrum Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; former
(DOB: 10/23/34) Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice);
Director, The Andover Companies (Insurance); and Trustee,
Arthritis Foundation of New England
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President, Oldways
Preservation and Exchange Trust (education); former Chairman
of the Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford Gifts
of Fine Foods; former Chairman, Gifford, Drescher & Associates
(environmental consulting)
James S. Howell Chairman of the Board Former Chairman of the Distribution Foundation for the
(DOB: 8/13/24) of Trustees Carolinas; and former Vice President of Lance Inc. (food
manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund; and
former President, Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc. (steel
(DOB: 7/14/39) producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR
(DOB: 9/14/41) International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc., and J&M
Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Vice Chairman of the Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) Board of Trustees
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant, Drake Beam Morin, Inc.
(executive outplacement); Director of Connecticut Natural Gas
Corporation, Hartford Hospital, Old State House Association,
Middlesex Mutual Assurance Company, and Enhance Financial
Services, Inc.; Chairman, Board of Trustees, Hartford Graduate
Center; Trustee, Greater Hartford YMCA; former Director, Vice
Chairman and Chief Investment Officer, The Travelers Corporation;
former Trustee, Kingswood-Oxford School; and former Managing
Director and Consultant, Russell Miller, Inc.
<PAGE>
Anthony J. Fischer* President and Treasurer Vice President/Client Services, BISYS Fund Services.
(DOB: 2/10/59)
Nimish S. Bhatt** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union Bank; former Senior Tax
Consulting/Acting Manager, Investment Companies Group,
PricewaterhouseCoopers LLP, New York.
Bryan Haft** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
</TABLE>
*Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016
**Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<TABLE>
<CAPTION>
COMPARISON OF LONG-TERM BOND RATINGS
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
Aaa AAA AAA Excellent Quality (lowest risk)
Aa AA AA Almost Excellent Quality (very low risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some risk)
Ba BB BB Questionable Quality (definite risk)
B B B Low Quality (high risk)
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
D DDD/DD/D In Default
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and
are extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN EQUITY AND FIXED INCOME FUNDS
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
Evergreen Capital Balanced Fund ("Capital Balanced Fund")
Evergreen High Income Fund ("High Income Fund")
Evergreen Quality Income Fund ("Quality Income Fund")
Evergreen Perpetual Global Fund ("Perpetual Global Fund")
(Each a "Fund," together, the "Funds")
Each Fund is a series of an open-end management investment company known as
either Evergreen Equity Trust, Evergreen Fixed Income Trust or Evergreen
International Trust (each a "Trust" or together the "Trusts")
This Statement of Additional Information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but should
be read in conjunction with the prospectus dated February 1, 2000 for the Fund
in which you are interested. The Funds are offered through a single prospectus
offering Class A, Class B, Class C and Class Y shares. You may obtain a copy of
the prospectus without charge by calling (800) 343-2898 or downloading it off
our website at www.evergreen-funds.com. The information in Part 1 of this SAI is
specific information about the Funds described in the prospectus. The
information in Part 2 of this SAI contains more general information that may or
may not apply to the Fund or Class of shares in which you are interested.
Certain information may be incorporated by reference to the Funds'
Annual Report dated September 30, 1999. You may obtain a copy of the Annual
Report without charge by calling (800) 343-2898 or downloading it off our
website at www.evergreen-funds.com.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY...........................................................1-1
INVESTMENT POLICIES.....................................................1-1
OTHER SECURITIES AND PRACTICES..........................................1-3
PRINCIPAL HOLDERS OF FUND SHARES........................................1-3
EXPENSES................................................................1-6
PERFORMANCE.............................................................1-9
COMPUTATION OF CLASS A OFFERING PRICE .................................1-11
SERVICE PROVIDERS......................................................1-11
FINANCIAL STATEMENTS...................................................1-13
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES......2-1
PURCHASE AND REDEMPTION OF SHARES.................................2-14
SALES CHARGE WAIVERS AND REDUCTIONS...............................2-16
PRICING OF SHARES.................................................2-17
PERFORMANCE CALCULATIONS..........................................2-19
PRINCIPAL UNDERWRITER.............................................2-21
DISTRIBUTION EXPENSES UNDER RULE 12b-1............................2-22
TAX INFORMATION...................................................2-25
BROKERAGE.........................................................2-28
ORGANIZATION......................................................2-29
INVESTMENT ADVISORY AGREEMENT.....................................2-30
MANAGEMENT OF THE TRUSTS..........................................2-32
CORPORATE AND MUNICIPAL BOND RATINGS..............................2-34
ADDITIONAL INFORMATION............................................2-46
<PAGE>
PART 1
TRUST HISTORY
Each Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. Each Fund is a
diversified series of a Trust. A copy of the Declaration of Trust is on file as
an exhibit to each Trust's Registration Statement, of which this SAI is a part.
On October 18, 1999, Evergreen Capital Balanced Fund (formerly known as
Mentor Balanced Portfolio), Evergreen High Income Fund (formerly known as Mentor
High Income Portfolio), Evergreen Quality Income Fund (formerly known as Mentor
Quality Income Portfolio), and Evergreen Perpetual Global Fund (formerly known
as Mentor Perpetual Global Portfolio) were reorganized into a separate
diversified series of an Evergreen Trust. In connection with this
reorganization, the shares which were designated "Class B" under the separate
Mentor portfolios were redesignated "Class C" under an Evergreen Trust,
effective October 18, 1999. In addition, on this same day each Fund added a new
class of shares designated Class B.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the"1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversified Funds:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect 75% of its total
assets, a diversified investment company may not invest more that 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more that 10% of the
outstanding voting securities securities of any one issuer, determined at the
time of purchase. These limitations do not apply to investments in securities
issued or guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
<PAGE>
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
<PAGE>
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding securities the Funds may purchase and
investment practices the Funds may use, see the following sections in Part 2 of
this SAI under "Additional Information on Securities and Investment Practices."
Information provided in the sections listed below expands upon and supplements
information provided in the Funds' prospectus. The list below applies to all
Funds unless otherwise noted.
Money Market Instruments
When-Issued, Delayed-Delivery and Forward Commitment Transactions Repurchase
Agreements Reverse Repurchase Agreements Dollar Roll Transactions Swaps, Caps,
Floors and Collars Indexed Securities (applicable only to Perpetual Global Fund)
Options Futures Transactions Foreign Securities Foreign Currency Transactions
Premium Securities High Yield, High Risk Bonds (not applicable to Capital
Balanced Fund) Illiquid and Restricted Securities (applicable only to High
Income Fund) Zero Coupon "Stripped" Bonds Mortgage-Backed or
Asset-Backed Securities (not applicable to Perpetual Global Fund)
<PAGE>
PRINCIPAL HOLDERS OF FUND SHARES
As of January 1, 2000, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each Fund. [To be
confirmed in January.]
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of January 1, 2000.
------------------------------------------------------
Capital Balanced Fund Class A
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Capital Balanced Fund Class B
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Capital Balanced Fund Class C
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Capital Balanced Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
First Clearing Corp.
Gerald William Gaffney
1314 Upper Brandon Pl.
Norfolk, VA 23508-1135 93.65%
----------------------------------------- ------------
----------------------------------------- ------------
Daniel J. Ludeman
5105 Stratford Crescent
Richmond, VA 23226-1615 6.36%
----------------------------------------- ------------
------------------------------------------------------
High Income Fund Class A
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
High Income Fund Class B
------------------------------------------------------
----------------------------------------- ------------
First Union Securities, Inc.
William P. Ahl & Marsha T. Ahl
111 East Kilbourn Ave.
Milwaukee, CA 93722-9227 22.55%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
FBO S. Gary Garabedian
111 East Kilbourn Ave.
Milwaukee, CA 93710-3704 14.97%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
Elisabeth More
111 East Kilbourn Ave.
Milwaukee, MA 02040-0146 9.03%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
Rev. Inter Vivos Trust
111 East Kilbourn Ave.
Milwaukee, IL 61747-9663 8.90%
----------------------------------------- ------------
----------------------------------------- ------------
First Clearing Corp.
FBO Thomas R. Roberts
1 Everett St.
Rye, NY 10580 6.95%
----------------------------------------- ------------
----------------------------------------- ------------
First Clearing Corp.
Muriel H. Potter
972 Lindsley Dr.
Virginia Beach, VA 23454-3114 6.26%
----------------------------------------- ------------
------------------------------------------------------
High Income Fund Class C
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
High Income Fund Class Y
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Quality Income Fund Class A
------------------------------------------------------
----------------------------------------- ------------
First Union Securities, Inc.
Health Plan of San Mateo
111 East Kilbourn Ave.
Milwaukee, CA 94080-7000 14.08%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
Southern CA Schools
Relief JPA (C/O Arcadia USD)
111 East Kilbourn Ave.
Milwaukee, CA 91007-6999 5.02%
----------------------------------------- ------------
------------------------------------------------------
Quality Income Fund Class B
------------------------------------------------------
----------------------------------------- ------------
First Union Securities, Inc.
Stella L.. McKinney
111 East Kilbourn Ave.
Milwaukee, TX 79912-1605 33.24%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
FBO Richard E. Peterson
111 East Kilbourn Ave.
Milwaukee, PA 16335 22.15%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
FBO Nelse S. Beattie IRA
111 East Kilbourn Ave.
Milwaukee, MI 49442-2767 18.26%
----------------------------------------- ------------
----------------------------------------- ------------
First Union Securities, Inc.
Iowa Signal & Electric Co.
111 East Kilbourn Ave.
Milwaukee, IA 50325-1251 13.95%
----------------------------------------- ------------
----------------------------------------- ------------
First Clearing Corp.
William P. Ellison - IRA
FCC AS Custodian
2144 Congo St.
Akron, OH 44305-3769 7.23%
----------------------------------------- ------------
------------------------------------------------------
Quality Income Fund Class C
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Quality Income Fund Class Y
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Perpetual Global Fund Class A
------------------------------------------------------
----------------------------------------- ------------
First Clearing Corp.
MCV Phys. Global Acct.
Carl Gattuso Ex. Dir.
1001 E. Broad St.
Richmond, VA 23219-1990 6.09%
----------------------------------------- ------------
------------------------------------------------------
Perpetual Global Fund Class B
------------------------------------------------------
----------------------------------------- ------------
Stiffel Nicolaus & Co. Inc.
John Ashauer IRA
501 North Broadway
St. Louis, MO 63102,
WI 54130-3642 13.96%
----------------------------------------- ------------
------------------------------------------------------
Perpetual Global Fund Class C
------------------------------------------------------
------------------------------------------------------
None
------------------------------------------------------
------------------------------------------------------
Perpetual Global Fund Class Y
------------------------------------------------------
----------------------------------------- ------------
Terry A. Prince
John H. Prince, Jr. Jt. Ten
6708 Hollow Oak Dr.
Mint Hill, NC 28227 57.32%
----------------------------------------- ------------
----------------------------------------- ------------
Daniel J. Ludeman
5105 Stratford Crescent
Richmond, VA23226-1615 42.68%
----------------------------------------- ------------
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment
advisor to Capital Balanced Fund, High Income Fund and Quality Income Fund. The
Funds have agreed to pay Mentor Advisors an annual fee for its services,
expressed as a percentage of average daily net assets, as set forth below:
Fund Fee
Capital Balanced 0.75%
High Income 0.70%
Quality Income 0.60%
Mentor Perpetual Advisors, LLC ("Mentor Perpetual") is the investment
advisor to Perpetual Global Fund. Mentor Perpetual is entitled to receive a fee
from the Fund at the following annual rate of the Fund's average daily net
assets:
1.10% on assets up to $75 million
1.00% on assets over $75 million
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
years or periods.
---------------------------------- ------------------- =====================
Fund/Fiscal Year or Period Advisory Fee Paid Advisory Fees Waived
---------------------------------- ------------------- =====================
============================================================================
Year Ended September 30, 1999
============================================================================
---------------------------------- ------------------- =====================
Capital Balanced Fund $2,216,232 $0
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
High Income Fund $1,635,473 $269,733
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
Quality Income Fund $1,258,891 $312,164
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
Perpetual Global Fund $2,082,585 $0
---------------------------------- ------------------- =====================
============================================================================
Year or Period Ended September 30, 1998
============================================================================
---------------------------------- ------------------- =====================
Capital Balanced Fund $31,721 $20,856
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
High Income Fund(a) $175,891 $175,891
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
Quality Income Fund $1,025,941 $204,530
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
Perpetual Global Fund $1,612,495 $0
---------------------------------- ------------------- =====================
============================================================================
Year Ended September 30, 1997
============================================================================
---------------------------------- ------------------- =====================
Capital Balanced Fund $28,926 $20,072
---------------------------------- ------------------- =====================
---------------------------------- ------------------- =====================
High Income Fund N/A N/A
---------------------------------- ------------------- =====================
Quality Income Fund $572,539 $123,214
---------------------------------- ------------------- =====================
Perpetual Global Fund $998,592 $0
---------------------------------- ------------------- =====================
(a) For the period from 6/23/1998 (commencement of operations) through
9/30/1998.
Brokerage Commissions
Below are the total amounts paid by each Fund in brokerage commissions
for the last three fiscal years or periods. For more information regarding
brokerage commissions, see "Brokerage" in Part II of the SAI.
============================================
September 30
========================= ============================================
Fund 1999 1998 1997
- ------------------------- ------------- --------------- ==============
Capital Balanced Fund $133,824 $12,356 $4,752
- ------------------------- ------------- --------------- ==============
- ------------------------- ------------- --------------- ==============
High Income Fund $0 $0(a) N/A
- ------------------------- ------------- --------------- ==============
Quality Income Fund $0 $0 $900
- ------------------------- ------------- --------------- ==============
Perpetual Global Fund $1,367,379 $1,272,077 $838,045
- ------------------------- ------------- --------------- ==============
(a) For the period from 6/23/1998 (commencement of operations) through
9/30/1998.
For the fiscal year ended September 30, 1999, Capital Balanced Fund
paid First Union Securities, Inc. (formerly known as Wheat First Union)
brokerage commissions totaling $28,367.
Percentage of Brokerage Commissions Paid to First Union Securities, Inc.
The table below shows, for the fiscal year ended September 30, 1999,
(1) the percentage of aggregate brokerage commissions paid by Capital Balanced
Fund to First Union Securities, Inc.; and (2) the percentage of the Fund's
aggregate dollar amount of commissionable transactions effected through First
Union Securities, Inc. For more information, see "Selection of Brokers" under
"Brokerage" in Part 2 of this SAI.
- --------------------- ----------------------------- ==========================
Percentage of
Commissionable
Percentage of Commissions to Transactions through First
Fund First Union Securities, Inc. Union Securities, Inc.
- --------------------- ----------------------------- ==========================
- --------------------- ----------------------------- ==========================
Capital Balanced Fund 21.2% 2.6%
- ------------------ ----------------------------- ==========================
Portfolio Turnover
The Funds, generally do not take portfolio turnover into account in
making investment decisions. This means the Funds could experience a high rate
of portfolio turnover (100% or more) in any given fiscal year, resulting in
greater brokerage and other transaction costs which are borne by the Funds and
their shareholders. It may also result in the Funds realizing greater net
short-term capital gains, distributions from which are taxable to shareholders
as ordinary income.
<PAGE>
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the
amounts retained by the principal underwriter for the last three fiscal years or
periods. For more information, see "Principal Underwriter" in Part 2 of this
SAI.
- -------------------------------- ==========================================
Total Underwriting Commissions
Fund/Fiscal Year or Period Paid and Retained
===========================================================================
Year or Period Ended 1999
===========================================================================
Capital Balanced Fund $48,765
- -------------------------------- ==========================================
- -------------------------------- ==========================================
High Income Fund $14,687
- -------------------------------- ==========================================
- -------------------------------- ==========================================
Quality Income Fund $15,390
- -------------------------------- ==========================================
Perpetual Global Fund $25,596
- -------------------------------- ==========================================
===========================================================================
Year or Period Ended 1998
===========================================================================
Capital Balanced Fund N/A
- -------------------------------- ==========================================
- -------------------------------- ==========================================
High Income Fund (a) $56,138
- -------------------------------- ==========================================
- -------------------------------- ==========================================
Quality Income Fund $104,891
- -------------------------------- ==========================================
Perpetual Global Fund $113,331
- -------------------------------- ==========================================
===========================================================================
Year or Period Ended 1997
===========================================================================
Capital Balanced Fund N/A
- -------------------------------- ==========================================
- -------------------------------- ==========================================
High Income Fund N/A
- -------------------------------- ==========================================
Quality Income Fund $37,516
- -------------------------------- ==========================================
Perpetual Global Fund $66,416
- -------------------------------- ==========================================
(a) For the period from 6/23/1998 (commencement of operations) through
9/30/1998.
12b-1 Fees
Below are the 12b-1 fees paid by each Fund with respect to the Class A
and Class C shares of the Funds for the fiscal year ended September 30, 1999.
For more information, see "Distribution Expenses Under Rule 12b-1" in Part 2 of
this SAI.
- ---------------------- ================ ==================================
Class A Class C
================ ==================================
---------------- ------------------ ===============
Fund Service Fees Distribution Fees Service Fees
- ---------------------- ---------------- ------------------ ===============
- ---------------------- ---------------- ------------------ ===============
Capital Balanced Fund $240,418 $1,486,146 $495,382
- ---------------------- ---------------- ------------------ ===============
- ---------------------- ---------------- ------------------ ===============
High Income Fund $340,268 $494,725 $243,829
- ---------------------- ---------------- ------------------ ===============
Quality Income Fund $257,763 $533,574 $266,787
- ---------------------- ---------------- ------------------ ===============
Perpetual Global Fund $203,547 $894,651 $298,217
- ---------------------- ---------------- ------------------ ===============
Trustee Compensation
Listed below is the Trustee compensation paid by each Trust
individually for the Trust's fiscal year end and by the Trust and the eleven
other trusts in the Evergreen Fund Complex for the calendar year ended December
31, 1999. The Trustees do not receive pension or retirement benefits from the
Funds. For more information, see "Management of the Trust" in Part 2 of this
SAI.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------- ------------------------------------- ======================================
Aggregate Compensation from Fixed Total Compensation from the
Income Trust for the fiscal year Evergreen Fund Complex Paid to
ended 4/30/1999 Trustees for the calendar year ended
Trustee 12/31/1999***
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Laurence B. Ashkin $2,414 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Charles A. Austin, III $2,414 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Arnold H. Dreyfuss* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
K. Dun Gifford $2,345 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
James S. Howell** $3,040 $97,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Leroy Keith Jr. $2,345 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Gerald M. McDonnell $2,414 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Thomas L. McVerry $2,758 $85,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Louis W. Moelchert, Jr.* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
William Walt Pettit $2,523 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
David M. Richardson $2,150 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Russell A. Salton, III $2,414 $77,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Michael S. Scofield** $2,500 $102,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Richard J. Shima $2,345 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Richard K. Wagoner* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Total Compensation from Evergreen
Aggregate Compensation from Equity Fund Complex Paid to Trustees for
Trust for the fiscal year ended the calendar year ended 12/31/1999***
Trustee 3/31/1999
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Laurence B. Ashkin $22,911 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Charles A. Austin, III $22,911 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Arnold H. Dreyfuss* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
K. Dun Gifford $22,141 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
James S. Howell** $29,532 $97,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Leroy Keith Jr. $22,141 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Gerald M. McDonnell $22,911 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Thomas L. McVerry $26,295 $85,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Louis W. Moelchert, Jr.* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
William Walt Pettit $22,141 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
David M. Richardson $22,928 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Russell A. Salton, III $23,378 $77,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Michael S. Scofield** $23,378 $102,000
- ------------------------- ------------------------------------- ======================================
Richard J. Shima $22,141 $75,000
- ------------------------- ------------------------------------- ======================================
Richard K. Wagoner* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Aggregate Compensation from Total Compensation from the
International Trust for the fiscal Evergreen Fund Complex Paid to
year ended 10/31/1999 Trustees for the calendar year ended
Trustee 12/31/1999***
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Laurence B. Ashkin $2,284 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Charles A. Austin, III $2,200 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Arnold H. Dreyfuss* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
K. Dun Gifford $2,140 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
James S. Howell** $2,984 $97,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Leroy Keith Jr. $2,140 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Gerald M. McDonnell $2,454 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Thomas L. McVerry $2,728 $85,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Louis W. Moelchert, Jr.* N/A N/A
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
William Walt Pettit $2,292 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
David M. Richardson $2,122 $75,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Russell A. Salton, III $2,465 $77,000
- ------------------------- ------------------------------------- ======================================
- ------------------------- ------------------------------------- ======================================
Michael S. Scofield** $2,465 $102,000
- ------------------------- ------------------------------------- ======================================
Richard J. Shima $2,258 $75,000
- ------------------------- ------------------------------------- ======================================
Richard K. Wagoner* N/A N/A
- ------------------------- ------------------------------------- ======================================
</TABLE>
* Arnold H. Dreyfuss, Louis W. Moelchert, Jr. and Richard K. Wagoner were
elected to the Boards of Trustees on December 16, 1999.
** On January 1, 2000, Michael S. Scofield became Chairman of the Boards and
James S. Howell became Trustee Emeritus.
*** Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended December 31, 1999. The
amounts listed below will be payable in later years to the respective
Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,000
McVerry $85,000
Pettit $75,000
Salton $75,000
Scofield $61,200
<PAGE>
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the
Funds (including applicable sales charges) as of September 30, 1999. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------- -------------------- --------------------- -------------------- =====================
Ten Years or Since
Inception Date of Inception Date
Fund/Class One Year Five Years Class of Class
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Capital Balanced Fund (a)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 7.34% 16.27% 15.79% 09/16/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 6.87% 17.04% 16.58% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 9.87% 17.25% 16.70% 06/21/1994
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 12.91% 16.93% 16.90% 09/16/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
High Income Fund (b)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A -0.80% N/A -5.99% 06/23/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B -0.61% N/A -5.07% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 1.75% N/A -2.82% 06/23/1998
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 4.10% N/A -2.31% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Quality Income Fund (b)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A -7.51% 5.40% 4.34% 04/29/1992
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B -7.46% 6.12% 5.03% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C -5.15% 5.93% 4.52% 04/29/1992
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y -2.64% 6.45% 5.04% 11/19/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
Perpetual Global Fund (b)
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 26.16% 14.00% 12.70% 03/29/1994
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 27.42% 14.89% 13.60% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 29.62% 14.28% 12.84% 03/29/1994
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 32.94% 15.23% 13.81% 11/19/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
</TABLE>
(a) 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 for
Class A are 0.25%, for Class B are 1.00% and for Class C are 1.00%. Class Y
does not pay 12b-1 fees. If these fees had been reflected, returns for
Classes A and Y would have been higher.
(b) 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
for Class A are 0.25%, for Class B are 1.00% and for Class C are 1.00%.
Class Y does not pay 12b-1 fees. If these fees had been reflected, returns
for Class B would have been lower while returns for Class Y would have been
higher.
<PAGE>
Below are the annual total returns for each Class of shares of the
Perpetual Global Fund as of October 31, 1999. Perpetual Global changed its
fiscal year end from September 30 to October 31 on October 15, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------- -------------------- --------------------- -------------------- =====================
Ten Years or Since Inception Date of
Fund/Class One Year Five Years Inception Class
- ----------------------- -------------------- --------------------- -------------------- =====================
=============================================================================================================
Perpetual Global Fund
=============================================================================================================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class A 19.00% 14.39% 13.16% 03/29/1994
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class B 19.97% 15.29% 14.06% 10/18/1999
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class C 23.10% 14.68% 13.28% 03/29/1994
- ----------------------- -------------------- --------------------- -------------------- =====================
- ----------------------- -------------------- --------------------- -------------------- =====================
Class Y 25.34% 15.62% 14.26% 11/19/1997
- ----------------------- -------------------- --------------------- -------------------- =====================
</TABLE>
Yields
Below are the current yields of the Funds for the 30-day period ended
September 30, 1999. For more information, see "30-Day Yield" under "Performance
Calculations" in Part 2 of this SAI.
====================== ======================================================
30-Day Yield
====================== ======================================================
- ---------------------- ------------ ------------ -------------- =============
Fund Class A Class B Class C Class Y
- ---------------------- ------------ ------------ -------------- =============
- ---------------------- ------------ ------------ -------------- =============
Capital Balanced Fund 1.72% N/A 1.08% 1.94%
- ---------------------- ------------ ------------ -------------- =============
- ---------------------- ------------ ------------ -------------- =============
High Income Fund 8.02% N/A 7.91% N/A
- ---------------------- ------------ ------------ -------------- =============
Quality Income Fund 5.52% N/A 5.30% 6.11%
- ---------------------- ------------ ------------ -------------- =============
Perpetual Global Fund N/A N/A N/A N/A
- ---------------------- ------------ ------------ -------------- =============
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the net asset value plus a sales charge.
Below is an example of the method of computing the offering price of Class A
shares of each Fund. The example assumes a purchase of Class A shares of each
Fund aggregating less than $100,000 based upon the net asset value of each
Fund's Class A shares at September 30, 1999. For more information, see "Pricing
of Shares" in Part 2 of this SAI.
- ----------------------- --------------------- ---------------- ==============
Net Asset Value Per Offering Price
Fund Share Sales Charge Per Share
- ----------------------- --------------------- ---------------- ==============
- ----------------------- --------------------- ---------------- ==============
Capital Balanced Fund $15.15 4.75% $15.91
- ----------------------- --------------------- ---------------- ==============
- ----------------------- --------------------- ---------------- ==============
High Income Fund $10.29 4.75% $10.80
- ----------------------- --------------------- ---------------- ==============
Quality Income Fund $12.43 4.75% $13.05
- ----------------------- --------------------- ---------------- ==============
Perpetual Global Fund $23.09 4.75% $24.24
- ----------------------- --------------------- ---------------- ==============
Purchases of Class A shares of Perpetual Global aggregating less than
$100,000 based upon the net asset value of Perpetual Global's Class A shares at
October 31, 1999.
- ------------------------ --------------------- --------------- ===============
Net Asset Value Per Offering Price
Fund Share Sales Charge Per Share
- ------------------------ --------------------- --------------- ===============
Perpetual Global Fund $23.86 4.75% $25.05
- ------------------------ --------------------- --------------- ===============
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") 200 Berkeley Street,
Boston, Massachusetts 02106, serves as administrator to the Funds, subject to
the supervision and control of the Trusts' Boards of Trustees. EIS provides the
Fund with facilities, equipment and personnel and is entitled to receive a fee
from each Fund at the annual rate of 0.10% for of the Fund's average daily net
assets.
Below are the administrative fees paid by each Fund (under a prior fee
arrangement) for the last three fiscal years or periods.
-------------------------------- -------------------- =====================
Fund/Fiscal Year or Period Administrative Fee Administrative Fee
Paid Waived
-------------------------------- -------------------- =====================
===========================================================================
Year Ended September 30, 1999
===========================================================================
-------------------------------- -------------------- =====================
Capital Balanced Fund $363,370 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
High Income Fund $222,888 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
Quality Income Fund $208,815 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
Perpetual Global Fund $255,756 $0
-------------------------------- -------------------- =====================
===========================================================================
Year or Period Ended September 30, 1998
===========================================================================
-------------------------------- -------------------- =====================
Capital Balanced Fund $4,219 $4,219
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
High Income Fund(a) $24,979 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
Quality Income Fund $174,343 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
Perpetual Global Fund $153,750 $0
-------------------------------- -------------------- =====================
===========================================================================
Year Ended September 30, 1997
===========================================================================
-------------------------------- -------------------- =====================
Capital Balanced Fund $0 $0
-------------------------------- -------------------- =====================
-------------------------------- -------------------- =====================
High Income Fund N/A N/A
-------------------------------- -------------------- =====================
Quality Income Fund $95,423 $0
-------------------------------- -------------------- =====================
Perpetual Global Fund $92,753 $0
-------------------------------- -------------------- =====================
(a) For the period from 6/23/1998 (commencement of operations) through
9/30/1998.
<PAGE>
Transfer Agent
Evergreen Service Company ("ESC"), P.O. Box 2121, Boston, Massachusetts
02106-2121, a subsidiary of First Union Corporation, is the Funds' transfer
agent. ESC issues and redeems shares, pays dividends and performs other duties
in connection with the maintenance of shareholder accounts. The Fund pays ESC
annual fees as follows:
----------------------------- --------------- ==============
Fund Type Annual Fee Annual Fee
Per Open Per Closed
Account* Account**
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Monthly Dividend Funds $25.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Quarterly Dividend Funds $24.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Semiannual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Annual Dividend Funds $23.50 $9.00
----------------------------- --------------- ==============
----------------------------- --------------- ==============
Money Market Funds $25.50 $9.00
----------------------------- --------------- ==============
*For shareholder accounts only. The Fund pays ESC cost plus 15% for broker
accounts.
**Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Distributor
Evergreen Distributor, Inc. ("EDI"), 90 Park Avenue, New York, New York
10016, markets the Funds through broker-dealers and other financial
representatives.
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of each Fund.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, keeps custody of each Fund's securities and cash and
performs other related duties.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Funds.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121, or by calling (800) 343-2898, or by downloading it off
our website at www.evergreen-funds.com.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund or the Class in which you are
interested. See the list under Other Securities and Practices in Part 1 of this
SAI to determine which of the sections below are applicable.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy. Evergreen Equity Income Fund may also invest in
debt securities and high grade preferred stocks for defensive purposes when its
investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and Student Loan Marketing
Association.
Securities Issued by the Government National Mortgage Association ("GNMA").
The Fund may invest in securities issued by the GNMA, a corporation wholly-owned
by the U.S. Government. GNMA securities or "certificates" represent ownership in
a pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the security
which is the subject of the agreement. In addition to the general risks involved
in leveraging, dollar rolls are subject to the same risks as repurchase and
reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, bonds
with warrants attached or bonds with a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allow convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. As a result, the
swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options
An option is a right to buy or sell a security for a specified price
within a limited time period. The option buyer pays the option seller (known as
the "writer") for the right to buy, which is a "call" option, or the right to
sell, which is a "put" option. Unless the option is terminated, the option
seller must then buy or sell the security at the agreed-upon price when asked to
do so by the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If the Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised, resulting in a
potential loss of value to the Fund.
Futures Transactions
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the Fund, the value of the contract will tend to rise when
the value of the underlying securities declines and to fall when the value of
such securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures contract
is purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions. Unlike the purchase or sale of a security, the
Fund does not pay or receive money upon the purchase or sale of a futures
contract. Rather the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments.
Investors should be aware of the following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond, and
(c) the Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
U.S. Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the U.S.
Virgin Islands, Guam and Puerto Rico to the extent such obligations are exempt
from the income or intangibles taxes, as applicable, of the state for which the
Fund is named. The Fund does not presently intend to invest more than (a) 10% of
its net assets in the obligations of each of the U.S. Virgin Islands and Guam or
(b) 25% of its net assets in the obligations of Puerto Rico. Accordingly, the
Fund may be adversely affected by local political and economic conditions and
developments within the U.S. Virgin Islands, Guam and Puerto Rico affecting the
issuers of such obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructurings under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Code and to maintain exemption from the 1940
Act. In the event an issuer of debt securities collateralized by real estate
defaults, it is conceivable that the REITs could end up holding the underlying
real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Internal
Revenue Code of 1986, as amended (the "Code"), each item of income, gain, loss,
deduction, and credit is not taxed at the partnership level but flows through to
the holder of the partnership unit. This allows the partnership to avoid double
taxation and to pass through income to the holder of the partnership unit at
lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of First Union National Bank ("FUNB") and its affiliates, EDI and any
broker-dealer with whom EDI has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees; and (g) upon the
initial purchase of an Evergreen Fund by investors reinvesting the proceeds from
a redemption within the preceding 30 days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC. These provisions are generally intended to provide additional
job-related incentives to persons who serve the funds or work for companies
associated with the Funds and selected dealers and agents of the Funds. Since
these persons are in a position to have a basic understanding of the nature of
an investment company as well as a general familiarity with the Fund, sales to
these persons, as compared to sales in the normal channels of distribution,
require substantially less sales effort. Similarily, these provisions extend the
privilege of purchasing shares at net asset value to certain classes of
institutional investors who, because of their investment sophistication, can be
expected to require significantly less than normal sales effort on the part of
the Funds and the Distributor. In addition, the provisions allow the Funds to be
competitive in the mutual fund industry, where similar allowances are common.
Class B Shares
The Fund offers Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Fund will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase.................. 5.00%
Second 12-month period following the month of purchase.. 4.00%
Third 12-month period following the month of purchase... 3.00%
Fourth 12-month period following the month of purchase.. 3.00%
Fifth 12-month period following the month of purchase... 2.00%
Sixth 12-month period following the month of purchase... 1.00%
Thereafter.............................................. 0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EDI. The Fund offers Class C
shares at net asset value without an initial sales charge. With certain
exceptions, however, the Fund will charge a CDSC of 2.00% on shares you redeem
within 24 months after the month of your purchase, in accordance with the
following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase..................... 2.00%
Second 12-month period following the month of purchase..... 1.00%
Thereafter................................................. 0.00%
See "Contingent Deferred Sales Charge" below.
Class C shares purchased through an onmibus account with Merrill Lynch
will be charged a 1.00% CDSC if redeemed within 12 months after the month of
purchase. Redemptions made thereafter will not be charged a CDSC.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisor's affiliates. Class Y
shares are offered at net asset value without a front-end or back-end sales
charge and do not bear any Rule 12b-1 distribution expenses.
Institutional Shares, Institutional Service Shares
Each institutional class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. The minimum initial investment in any institutional class
of shares is $1 million, which may be waived in certain circumstances. There is
no minimum amount required for subsequent purchases.
Contingent Deferred Sales Charge
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Expenses Under Rule 12b-1,"
below). Institutional and Institutional Service shares do not charge a CDSC. If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional and
Institutional Service shares.
If you making a large purchase, there are several ways you can combine
multiple purchases of Class A shares in Evergreen Funds and take advantage of
lower sales charges. These are described below.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen Funds. For example, if you invested $75,000 in each
of two different Evergreen Funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen Funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen Fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1
tax-sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisors;
4. investment advisors, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisors or financial planners who
place trades for their own accounts if the accounts are linked
to a master account of such investment advisors or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used
to fund these plans, which place trades through an omnibus
account maintained with the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, EDI, any broker-dealer
with whom EDI has entered into an agreement to sell shares of
the Fund, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single
account in the name of such bank or trust company if the
initial investment in any of the Evergreen Funds made pursuant
to this waiver is at least $500,000 and any commission paid at
the time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission
on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has
died or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a
shareholder who is at least 59 years old;
6. shares in an account that we have closed because the
account has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Income Plan of
up to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement
plan participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions
or excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying
Plan that purchased Class C shares (this waiver is not
available in the event a Qualifying Plan, as a whole, redeems
substantially all of its assets).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen Fund which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen Fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily (or twice
daily, for Money Market Funds) on Monday through Friday, as described in the
prospectus. The Fund will not compute its NAV on the days the New York Stock
Exchange is closed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities
exchange or the over-the-counter National Market System
("NMS") are valued on the basis of the last sales price on the
exchange where primarily traded or on the NMS prior to the
time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or
in the over-the-counter market for which there has been no
sale and other securities traded in the over-the-counter
market are valued at the mean of the bid and asked prices at
the time of valuation.
(3) Short-term investments maturing in more than 60 days, for
which market quotations are readily available, are valued at
current market value.
(4) Short-term investments maturing in sixty days or less are
valued at amortized cost, which approximates market.
(5) Securities, including restricted securities, for which
market quotations are not readily available; listed securities
or those on NMS if, in the investment advisor's opinion, the
last sales price does not reflect an accurate current market
value; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of
Trustees.
(6) Municipal bonds are valued by an independent pricing
service at fair value using a variety of factors which may
include yield, liquidity, interest rate risk, credit quality,
coupon, maturity and type of issue.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that EDI will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it.
All subscriptions and sales of shares by EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust and each person who has been,
is, or may be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim, action, suit, or
proceeding to which any of them may be a party that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of EDI or any other person for whose acts EDI is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C and Institutional
Service shares, as applicable, the Fund may incur expenses for 12b-1 fees up to
a maximum annual percentage of the average daily net assets attributable to a
class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
* Currently limited to 0.25% or less to be used exclusively as
a shareholder service fee. See the expense table in the
prospectus of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above.
Amounts paid under the Plans are used to compensate EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C and
Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- -------------
Class A 0.25%*
----------------------------- -------------
----------------------------- -------------
Class B 1.00%
----------------------------- -------------
----------------------------- -------------
Class C 1.00%
----------------------------- -------------
----------------------------- -------------
Institutional Service 0.25%*
----------------------------- -------------
*May be lower. See the expense table in the prospectus of the
Fund in which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by the Fund's
Distributor to the acquired fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting EDI to
compensate broker-dealers in connection with the sale of such shares.
Service fees are accrued daily and paid at least annually on Class A,
Class B, Class C, and Institutional Service shares and are charged as class
expenses, as accrued.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the SEC make payments for
distribution services to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C and
Institutional Service shares. The Plans are designed to (i) stimulate brokers to
provide distribution and administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares and (ii) stimulate
administrators to render administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B, Class C and Institutional Service shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests for its Class A, Class B,
Class C and Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by the EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond fund, distributions will be taxable
to shareholders whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond fund or U.S. Treasury or
U.S. Government money market fund, it anticipates that all or a portion of the
ordinary dividends which it pays will qualify for the 70% dividends-received
deduction for corporations. The Fund will inform shareholders of the amounts
that so qualify. If the Fund is a municipal bond fund or U.S. Treasury or U.S.
Government money market fund, none of its income will consist of corporate
dividends; therefore, none of its distributions will qualify for the 70%
dividends-received deduction for corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Shareholders of Municipal Bond Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code, as amended.) of a facility financed with an issue of tax-exempt
obligations or a "related person" to such a user should consult his tax advisor
concerning his qualification to receive exempt interest dividends should the
Fund hold obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund. Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a
tax treaty) on amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by Evergreen Asset Management Company ("EAMC"),
Lieber & Company, an affiliate of EAMC and a member of the New York and American
Stock Exchanges, will, to the extent practicable, effect substantially all of
the portfolio transactions effected on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The foregoing is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered, open-end investment companies such as the Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters Fund) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, and K. Dun Gifford and Russell Salton, each of
whom is an Independent Trustee. The Executive Committee recommends Trustees to
fill vacancies, prepares the agenda for Board Meetings and acts on routine
matters between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/2/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corporation; Trustee, Mentor Funds,
(DOB: 9/2/28) Mentor Variable Investment Portfolios, Mentor Institutional
Trust, and Cash Resource Trust; Director, America's
Utility Fund, Inc.; Formerly, Chairman and Chief
Executive Officer, Hamilton Beach/Proctor-Silex, Inc.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/12/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President,
Oldways Preservation and Exchange Trust (education);
former Chairman of the Board, Director, and Executive
Vice President, The London Harness Company (leather
goods purveyor); former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford
Gifts of Fine Foods; former Chairman, Gifford, Drescher
& Associates (environmental consulting).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
Louis W. Moelchert, Jr. (DOB: Trustee President, Private Advisors, LLC; Vice President for
12/20/41) Investments, University of Richmond; Director, America's
Utility Fund, Inc.; Trustee, The Common Fund, Mentor
Variable Investment Portfolios, Mentor Funds, Mentor In
stitutional Trust, and Cash Resource Trust.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Richardson & Runden & Company (executive search
(DOB: 9/14/41) and advisory services); former Vice Chairman, DHR
International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, First Union
Corporation; former consultant to the Board of Trustees
of the Evergreen Funds; former member, New York Stock
Exchange; member, North Carolina Securities Traders
Association; member, Financial Analysts Society.
Anthony J. Fischer* President and Vice President/Client Services, BISYS Fund Services.
(DOB: 2/10/59) Treasurer
Nimish S. Bhatt** Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union National Bank; former
Senior Tax Consulting/Acting Manager, Investment Companies
Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft** Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and Assistant General Counsel, First
Michael H. Koonce Secretary Union Corporation; former Senior Vice President and General
(DOB: 4/20/60) Counsel, Colonial Management Associates, Inc.
* Address: BISYS Fund Services, 90 Park Avenue, New York, New York 10016
** Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
</TABLE>
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<TABLE>
<CAPTION>
COMPARISON OF LONG-TERM BOND RATINGS
----------------- ---------------- --------------- =================================================
<S> <C> <C> <C>
MOODY'S S&P FITCH Credit Quality
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aaa AAA AAA Excellent Quality (lowest risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aa AA AA Almost Excellent Quality (very low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
A A A Good Quality (low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Baa BBB BBB Satisfactory Quality (some risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Ba BB BB Questionable Quality (definite risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
B B B Low Quality (high risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
D DDD/DD/D In Default
----------------- ---------------- --------------- =================================================
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
- - On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be
maintained; or
- - Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
- - On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
- - Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
Annual Report
as of March 31, 1999
Evergreen
Balanced Funds
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
<PAGE>
- - ------------------------------------------------------------------------------
Table of Contents
- - ------------------------------------------------------------------------------
Letter to Shareholders ................................................... 1
Evergreen American Retirement Fund
Fund at a Glance ...................................................... 2
Portfolio Manager Interview ........................................... 3
Evergreen Balanced Fund
Fund at a Glance ...................................................... 7
Portfolio Manager Interview ........................................... 8
Evergreen Foundation Fund
Fund at a Glance ...................................................... 12
Portfolio Manager Interview ........................................... 13
Evergreen Tax Strategic Foundation Fund
Fund at a Glance ...................................................... 18
Portfolio Manager Interview ........................................... 19
Financial Highlights
Evergreen American Retirement Fund..................................... 23
Evergreen Balanced Fund................................................ 25
Evergreen Foundation Fund.............................................. 27
Evergreen Tax Strategic Foundation Fund................................ 29
Schedule of Investments
Evergreen American Retirement Fund..................................... 31
Evergreen Balanced Fund................................................ 34
Evergreen Foundation Fund.............................................. 40
Evergreen Tax Strategic Foundation Fund................................ 46
Statements of Assets and Liabilities...................................... 52
Statements of Operations ................................................. 53
Statements of Changes in Net Assets....................................... 54
Combined Notes to Financial
Statements ............................................................... 57
- - ------------------------------------------------------------------------------
Evergreen Funds
- - ------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy.
Look to the Evergreen Funds to provide a distinctive level of service and
excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
-----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
May 1998
---
[PHOTO OF WILLIAM M. ENNIS APPEARS HERE]
William M. Ennis
Managing Director
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Balanced Funds annual report, which
covers the twelve-month period ended March 31, 1999.
Continued Strength in the Domestic Economy
The twelve-month period was a volatile time in the stock market. The first
quarter of the period, which was the second quarter of 1998, saw a rising stock
market and relatively stable interest rates. Stock markets around the world,
including the United States, declined dramatically last summer and into the
early fall. The Federal Reserve's actions to lower interest rates in late 1998
helped restore investor confidence and the U.S. stock market rallied strongly
during the final quarter of 1998 and into the first quarter of 1999.
Throughout the period, the strong performance of large capitalization growth
stocks continued. Investors who focused on this small group of stocks,
particularly technology stocks, fared well. Currently, the stock market is
responding positively to the combination of low inflation, low interest rates
and low unemployment. The economy appears strong and investor confidence seems
high. We remain cautiously optimistic about the stock market.
Shift in the Interest Rate Environment
Healthy economic growth and low inflation kept interest rates low throughout the
first half of the period and pushed bond prices higher. In the latter half of
the period, lingering concerns about inflation affected the fixed-income markets
and produced a shift in the interest-rate environment. Fears about the robust
U.S. economy and high levels of consumer spending drove interest rates steadily
upward during the second half of the period, despite three separate cuts in the
Fed Funds rate by the Federal Reserve in the final months of 1998. As a result,
bond prices fell in response to the rising interest rates. In the near future,
we believe interest rates will remain in their current trading range; the
underlying fundamentals in the fixed income markets support continued low rates
and minimal inflation.
Year 2000 Preparation1
At Evergreen, we continue to prepare ourselves to provide uninterrupted service
and communication with all our shareholders throughout the end of 1999 and right
through the date change into the Year 2000 and beyond. As of the end of April,
when this report was finalized, we have completed 75% of the testing of internal
systems and are rapidly moving through the remaining systems. In March, we
successfully participated in industry-wide testing with the Securities Industry
Association. We are confident our efforts will enable our shareholders to
receive the same Evergreen products and services we deliver today.
As always, we encourage all shareholders to diversify their mutual fund
portfolios and we suggest you consult with your financial advisor for an
allocation strategy that helps you meet your investment goals and objectives.
Evergreen Funds offers a wide range of funds that includes multiple investment
styles to help you find one that is appropriate in your portfolio.
Thank you for your continued investment in Evergreen Funds.
Sincerely,
/s/ William M. Ennis
----------------
William M. Ennis
Managing Director
Evergreen Funds
1 The information above constitutes Year 2000 readiness disclosure.
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
American Retirement Fund
- - ------------------------------------------------------------------------------
Fund at a Glance as of March 31, 1999
We continue to believe that value stocks offer excellent price appreciation
potential, although it is taking longer than we expected for that potential to
be realized.
Portfolio
Management
- - ------------------------------------------------------------------------------
[PHOTO OF IRENE D. O'NEILL [PHOTO OF NATALIE KUCHARSKI
APPEARS HERE] APPEARS HERE]
Irene D. O'Neill, Natalie Kucharski
CFA Tenure: July 1991
Tenure: March 1988
- - ------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- - ------------------------------------------------------------------------------
[STYLE BOX Morningstar's Style Box is based on a portfolio date as of
APPEARS HERE] 3/31/99.
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.
[STYLE BOX The Fixed-Income Style Box placement is based on a fund's
APPEARS HERE] average effective maturity or duration and the average credit
rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. 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. Historical performance shown for Classes A, B and C prior to
their inception is based on the performance of Class Y, the original class
offered. These historical returns for Classes A, B and C have not been adjusted
to reflect the effect of each class' 12b-1 fees. These fees for Classes A, B and
C are .25%, 1.00%, and 1.00%, respectively. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns would have been lower.
- - ------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- - ------------------------------------------------------------------------------
Class A Class B Class C Class Y
Portfolio Inception Date 3/14/88
...............................................................................
Class Inception Date 1/3/95 1/3/95 1/3/95 3/14/88
...............................................................................
Average Annual Returns*
1 year with sales charge -12.00% -12.72% -9.22% N/A
...............................................................................
1 year w/o sales charge -7.63% -8.29% -8.34% -7.38%
...............................................................................
3 years 7.06% 7.11% 7.98% 9.05%
...............................................................................
5 years 9.74% 9.83% 10.11% 11.00%
...............................................................................
10 years 9.72% 9.90% 9.90% 10.35%
...............................................................................
Since Portfolio Inception 9.69% 9.86% 9.86% 10.26%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% N/A
Front End CDSC CDSC
...............................................................................
30-day SEC yield 2.76% 2.14% 2.14% 3.16%
...............................................................................
12-month dividends
per share $0.55 $0.42 $0.42 $0.59
...............................................................................
12-month capital gain
distributions per share $0.13 $0.13 $0.13 $0.13
...............................................................................
* Adjusted for maximum sales charge.
- - ------------------------------------------------------------------------------
LONG TERM GROWTH
- - ------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Comparison of a $10,000 investment in Evergreen American Retirement Fund, Class
A shares/2/, versus a similar investment in the Wilshire 5000 Index, the Lehman
Brothers Government/Corporate Bond Index (LBGCBI), and the Consumer Price Index
(CPI).
The Wilshire 5000 Index and the Lehman Brothers Government/ Corporate Bond Index
are unmanaged indices. These indices do not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index 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>
- - ------------------------------------------------------------------------------
E V E R G R E E N
American Retirement Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the year?
The Evergreen American Retirement Fund's investment strategy fell out of favor
during the 12 months ended March 31, 1999. For the fiscal year, the Fund's Class
A shares had a total return of -7.63%. Class B and C shares had returns of
- - -8.29% and -8.34%, respectively, while Class Y shares had a total return of
- - -7.38%. These returns are before deduction of any applicable sales charges.
During the same 12-month period, the average balanced fund had a total return of
4.71%, as measured by Lipper Inc., an independent monitor of mutual fund
performance.
Portfolio
Characteristics
---------------
Total Net Assets $204,760,589
...............................................................................
Number of Holdings 125
...............................................................................
Beta 0.50
...............................................................................
P/E Ratio 16.2x
...............................................................................
- - ------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- - ------------------------------------------------------------------------------
(based on portfolio assets)
---------------------------
[PIE CHART APPEARS HERE]
Common Stock 49.1%
Government Agency
Notes/Bonds 26.8%
Convertible Preferred
Stock 10.7%
Convertible Debentures 7.0%
Treasury Notes/Bonds 3.9%
Corporate Notes/Bonds 1.5%
Cash and equivalents 1.0%
How did the investment environment affect performance?
The Fund's equity strategy was not rewarded during this period, despite the
strategy's long-term success. The fixed-income strategy, emphasizing government
agency securities, continued to work well and generated a positive return within
the Fund.
In equities, the American Retirement Fund has consistently applied a value
strategy, buying and owning stocks of companies that are believed to be
undervalued, based on their relatively low price/earnings ratios or underlying
asset values, and that provide above-average dividend yields. We have also
focused on mid-sized companies that often are overlooked by Wall Street analysts
despite offering what we believe to be good growth potential. This has worked
well in the long run. In the 12-month period, however, investors favored
large-company growth stocks, with little or no yield, and very high
price/earnings ratios. This was especially true during the final six months when
large, technology and Internet companies were the market leaders as the stock
market staged a strong comeback. The Fund's emphasis on income-producing
equities limited its ability to invest in technology companies unless they had
issued convertible securities. The lack of earnings and cash flow -- not to
mention the absence of dividends -- for the Internet group has kept the Fund
from participating in this speculative sector.
Overall, investors were clearly chasing a very narrow group of aggressive growth
stocks, to the detriment of the value universe. As a result, it was not a year
that rewarded value-driven, yield-oriented strategies.
Top 5 Industries --
Equity
------
(based on net assets)
Banks 7.7%
...............................................................................
Retailing & Wholesale 5.6%
...............................................................................
Healthcare Products & Services 5.4%
...............................................................................
Consumer Products & Services 5.1%
...............................................................................
Electrical Equipment & Services 4.5%
...............................................................................
3
<PAGE>
- - ------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
What have been your primary investment strategies?
As the year progressed, we increased our allocation to equities as we found what
we believe are attractive values among companies that are restructuring or are
in the midst of earnings turn-arounds that should provide accelerating earnings
growth. To accomplish this, we have re-deployed assets from convertible
securities.
We have kept the Fund's fixed-income allocation at about 30% of net assets, and
we continue to invest primarily in U.S. government agency securities, which tend
to offer a yield advantage over Treasury securities and yet still provide
extremely high credit quality.
In the final six months of the year, we have taken advantage of the increase in
interest rates by lengthening the average maturity of our fixed-income holdings,
both to increase income and to offer the opportunity for future price
appreciation should rates start to decline. The average weighted maturity of the
Fund's fixed-income portfolio increased from 4.6 years to 10.3 years in the
final six months of the year. Average credit quality remained the highest, AAA.
Top 10
Equity Holdings
---------------
(based on net assets)
Houston Industries, Inc. ACES 1.6%
...............................................................................
Eagle Hardware & Garden, Inc. 1.6%
...............................................................................
Shared Medical Systems Corp. 1.4%
...............................................................................
Merrill Lynch & Co., Inc. STRYPES 1.3%
...............................................................................
Lancaster Colony Corp. 1.3%
...............................................................................
Newell Rubbermaid, Inc. 1.3%
...............................................................................
AMP, Inc. 1.2%
...............................................................................
Williams Companies, Inc. 1.2%
...............................................................................
Baxter International, Inc. 1.1%
...............................................................................
Hubbell, Inc. Cl. B 1.1%
...............................................................................
What themes have you emphasized in managing the equity portion of the portfolio?
We have emphasized consumer-related industries, healthcare, airlines, and have
added to our technology holdings, especially in the final six months of the
fiscal year.
A healthy domestic economy, with high employment and low inflation, has given
confidence to the American consumer. We have tried to take advantage of this by
investing in consumer-related companies, including manufacturers, service
providers and retailers. We have looked for companies that we believe are
undervalued in relation to the overall market and have the potential to improve
their profitability because of restructuring or turn-around situations.
In the consumer sector, we have invested in several significant opportunities,
including:
. Newell, a consumer products company, whose stock fell out of favor because
of market uneasiness over its acquisition of Rubbermaid. We believe Newell,
which has had a record of consistent earnings growth, has the potential to
effect cost-savings from its acquisition and improve earnings.
. Mattel, the toy manufacturer, saw its stock slump as the influential
retailer Toys `R' Us reduced its inventories. We believe Mattel can bring
its earnings back and take advantage of its pending acquisition of The
Learning Co., a children's software firm.
. Talbot's, a women's clothing retailer, is attracting its core customers
back with better merchandising. We believe this will lead to better revenue
and earnings growth.
4
<PAGE>
- - ------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
In healthcare, we have invested in and increased our holdings in a number of
value opportunities, including: American Home Products, a pharmaceutical
company; Baxter International, a diversified medical products and services
company; and Shared Medical Systems, which provides management information
systems to hospitals and other healthcare providers. We also have purchased
convertible securities in Elan Corporation, a pharmaceutical company, and
CareMatrix, which operates assisted-living centers.
We invested in airlines as the stock prices of this group became depressed
because of fears of an impending recession early in 1999. That recession has not
materialized, however, and airline passenger traffic and ticket prices have
increased, improving the earnings prospects for the industry. Fund holdings
include Delta, United and Continental Airlines convertibles.
We have tended to be under-weighted in technology companies because of high
prices in relation to earnings and unimpressive, if any, dividend yields on
their common stock. We have found some opportunities, however, by investing in
convertible securities of companies such as: Loral Space, a satellite company;
Network Associates, a software firm; and Solectron, which assembles PCs and
other devices for the technology industry.
Top 5 Industries --
Bonds
-----
(based on net assets)
Government Agency Obligations 26.8%
...............................................................................
Treasury Obligations 3.8%
...............................................................................
Banks 0.5%
...............................................................................
Finance & Insurance 0.5%
...............................................................................
Telecommunication Services & Equipment 0.5%
...............................................................................
What areas have you de-emphasized?
Earlier in the fiscal year, when investors were concerned about the potential of
a domestic economic slowdown, we increased the Fund's emphasis on utility
companies because of their traditional defensive characteristics. Their earnings
have tended to hold up well in times of economic downturns. As it became evident
we were not heading into a recession, the utility holdings were reduced during
the second half of the fiscal year. A changing regulatory environment also had
an adverse affect on utility stock prices, because consolidation has slowed and
investors have become less certain about utility stock values.
We also have reduced our exposures to smaller industrial companies and to food
companies. A slowdown in industrial production has affected the earnings growth
of some industrial companies, while consolidation of supermarket chains has led
to more price competition and less pricing power for the food processors.
In general, we have tried to move away from slow-growing companies into value
stocks with better earnings growth prospects.
What types of investments have supported Fund performance?
Telecommunications, broadcasting and entertainment and building products
companies all have helped the Fund. In addition, consistent with the Fund's
long-term value approach, performance has been aided as industries have
consolidated and Fund holdings have been acquired by larger companies. For
example, among the integrated oil companies, BP Amoco made a takeover offer for
Atlantic Richfield at the end of the period.
The Fund also benefited from several takeovers in the communications sector.
Frontier Corporation, a provider of telephone, wireless and Internet services,
is to be acquired by Global Crossing. In addition,
5
<PAGE>
- - ------------------------------------------------------------------------------
EVERGREEN
American Retirement Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
AirTouch Communications received a buyout offer from UK-based Vodaphone. The
explosive growth in telecommunications traffic and the desire of industry
participants to grow quickly and to capture market share is driving the high
level of acquisition activity. In addition, performance was helped by AT&T's
acquisition of Telecommunications Inc. The Fund had owned Telecommunication's
convertible preferred stock, and performance was lifted both by the appreciation
of this security's price and by the performance of AT&T after the acquisition.
Time-Warner, a diversified company involved in entertainment, publishing and
telecommunications, also was a major contributor to performance. Management's
restructuring efforts to improve the balance sheet and generate earnings from
Time-Warner's rich asset base have boosted the company's cash flow and market
valuation. At the close of the fiscal year, Time-Warner was the Fund's largest
position.
The performance of the building and construction sector was helped by the Fund's
earlier investment in Eagle Hardware. Lowes Companies, a major hardware
retailer, acquired Eagle as part of its strategy to broaden its regional reach
into the West Coast.
Top 5 Bond
Holdings
--------
(based on net assets)
U.S. Treasury Bonds 6.00% 2/15/2026 3.0%
...............................................................................
FNMA 6.42% 2/12/2008 2.4%
...............................................................................
FNMA 5.65% 2/22/2028 2.2%
...............................................................................
FNMA 6.52% 3/5/2008 2.0%
...............................................................................
FNMA 6.08% 9/1/2028 1.9%
...............................................................................
What is your outlook?
We think the domestic economy will continue to grow, at least for the balance of
1999, and interest rates should be stable. A major factor that will affect the
markets will be whether overseas economies, including Japan and Brazil, start to
rebound in response to declining interest rates. The Japanese and Brazilian
stock markets, which rallied in the first quarter of 1999, could be signaling a
pick-up in global growth later this year.
We continue to believe that value stocks offer excellent price appreciation
potential, although it is taking longer than we expected for that potential to
be realized. Stock market performance during the past year has been driven
principally by a very narrow group of large-company growth stocks, and at some
time we expect performance to broaden to include a much larger group of stocks.
At the start of a new fiscal year, the value sector of the market looks
extremely undervalued and attractive. The start of a global economic recovery
could have a major impact on value stocks in cyclical and industrial businesses.
6
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Balanced Fund
- - ------------------------------------------------------------------------------
Fund at a Glance as of March 31, 1999
The Evergreen Balanced Fund had strong, competitive returns during a year of
contrasting crosscurrents and periodic volatility.
Portfolio
Management
- - ------------------------------------------------------------------------------
[PHOTO OF CHRIS CONKEY APPEARS HERE] [PHOTO OF JUDITH WARNERS APPEARS HERE]
Chris Conkey Judith Warners
Tenure: August 1998 Tenure: August 1998
- - ------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- - ------------------------------------------------------------------------------
Morningstar's Style Box is based on a portfolio date as of
[GRAPHIC 3/31/99.
APPEARS HERE]
The Equity Style Box placement is based on a fund's
price-to-earnings and price-to-book ratio relative to the S&P
500, as well as the size of the companies in which it invests,
or median market capitalization.
[GRAPHIC The Fixed-Income Style Box placement is based on a fund's
APPEARS HERE] average effective maturity or duration and the average credit
rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/ Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. 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. Historical performance shown for Classes A, C, and Y prior
to their inception is based on the performance of Class B, the original class
offered. These historical returns for Classes A and Y have been adjusted to
eliminate the effect of the higher 12b-1 fees applicable to Class B. The 12b-1
fees for Classes A, B and C are 0.25%, 1.00%, and 1.00%, respectively. Class Y
does not pay a 12b-1 fee. If these fees had not been eliminated, returns would
have been lower.
- - ------------------------------------------------------------------------------
Performance and Returns/2/
- - ------------------------------------------------------------------------------
Class A Class B Class C Class Y
Portfolio Inception Date 9/11/35
...............................................................................
Class Inception Date 1/20/98 9/11/35 1/22/98 1/26/98
...............................................................................
Average Annual Returns*
...............................................................................
1 year with sales charge 2.43% 2.32% 5.91% N/A
...............................................................................
1 year w/o sales charge 7.52% 6.71% 6.79% 7.79%
...............................................................................
3 years 14.03% 14.35% 15.07% 16.18%
...............................................................................
5 years 14.51% 14.58% 14.78% 15.91%
...............................................................................
10 years 12.07% 11.74% 11.70% 12.89%
...............................................................................
Since Portfolio Inception 8.63% 8.53% 8.49% 8.79%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% N/A
Front End CDSC CDSC
...............................................................................
30-day SEC yield 2.23% 1.60% 1.60% 2.59%
...............................................................................
12-month income dividends
per share $0.41 $0.32 $0.32 $0.44
...............................................................................
12-month capital gain distributions
per share $2.03 $2.03 $2.03 $2.03
...............................................................................
* Adjusted for maximum sales charge.
- - ------------------------------------------------------------------------------
LONG TERM GROWTH
- - ------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Comparison of a $10,000 investment in Evergreen Balanced Fund, Class B
shares/2/, versus a similar investment in the S&P 500 Index, the Lehman Brothers
Government/Corporate Bond Index (LBGCBI), and the Consumer Price Index (CPI).
The S&P 500 Index and the Lehman Brothers Government/Corporate Bond Index are
unmanaged indices. These indices do not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index is a commonly used measure of inflation and does not represent an
investment return. It is not possible to invest directly in an index.
7
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Balanced Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Balanced Fund had strong, competitive returns during a year of
contrasting crosscurrents and periodic volatility. Positive performance in the
final six months overcame the effects of a plunging stock market in the late
summer and early fall of 1998. For the 12-month period ending March 31, 1999,
the Fund's Class A shares had a total return of 7.52%. Class B and Class C
shares had returns of 6.71% and 6.79%, respectively, and Class Y shares had a
total return of 7.79%. These returns are before deduction of any applicable
sales charges. During the same 12-month period, the average balanced fund had a
return of 4.71%, as measured by Lipper Inc., an independent monitor of mutual
fund performance.
Portfolio
Characteristics
---------------
Total Net Assets $1,711,012,868
...............................................................................
Number of Holdings 237
...............................................................................
Beta 0.55
...............................................................................
P/E Ratio 24.1x
...............................................................................
What was the investment environment like during the period?
It was a year of change, beginning with a period of calm in the spring of 1998,
characterized by a rising stock market and relatively stable interest rates. At
that time, the primary fear in the markets was that strong economic growth would
stimulate inflation pressures and lead to interest rate increases. This period
of calm came to a dramatic halt in July and August when the Russian government
defaulted on part of its external debt and devalued the ruble.
This climactic event coming in the wake of the Asian financial crisis caught the
financial markets by surprise. In fact, it came when many financial institutions
were highly leveraged, meaning they had been investing with borrowed money. The
near-collapse of one highly leveraged hedge fund, Long-Term Capital Corp., added
to the uncertainty and volatility in the markets. Stock markets around the
world, including in the United States, plunged, as did the markets for bonds
carrying credit risk, including corporate bonds.
During this highly volatile time, investors fled to the highest quality
instruments, especially U.S. Treasury securities. The low point for the domestic
stock market came at about the mid-point of the fiscal year, the beginning of
October 1998. As one might expect, this was also the peak of the rally in U.S.
Treasury securities, as rates dropped and prices rose. The yield on the 10-year
U.S. Treasury hit a low of 4.16% on October 5, 1998, about the same time as the
S&P 500 Index hit its low for the year, on October 8.
A primary factor helping turn the markets around in early October was the U.S.
Federal Reserve. Not only did the Federal Reserve engineer a bailout of
Long-Term Capital, but it started lowering short-term interest rates to restore
confidence to the markets. Rates were lowered three successive times in the fall
of 1998, by a total of 0.75%.
- - ------------------------------------------------------------------------------
Portfolio Composition
- - ------------------------------------------------------------------------------
(based on portfolio assets)
---------------------------
[PIE CHART APPEARS HERE]
Common Stock 60.6%
Corporate Notes/Bonds 18.6%
Mortgage-Backed
Securities 8.4%
Asset-Backed Securities 4.7%
Foreign Bonds 3.2%
Treasury Notes/Bonds 2.1%
Cash & Equivalents 1.2%
Convertible Preferred
Stock 0.7%
Convertible Debentures 0.5%
8
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Balanced Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
The stock market rallied strongly in the fourth calendar quarter of 1998 and the
first quarter of 1999, led by large-company stocks, especially in technology and
consumer-related industries. The financial service industries, which had been
especially hard hit during the period of global economic uncertainty, also
staged a comeback, although not as strong or as lasting as the rally in
technology stocks.
In the bond market, interest rates on high quality bonds started to rise again,
with the value of U.S. Treasuries slumping. High quality corporate bonds also
fell in value, although not as much as U.S. Treasuries. During the final six
months of the year, the total returns of A-rated, 10-year corporate bonds were
slightly positive, in contrast to the negative returns of 10-year Treasuries.
Top 5 Industries --
Equity
------
(based on net assets)
Healthcare Products & Services 9.3%
...............................................................................
Information Services & Technology 6.5%
...............................................................................
Finance & Insurance 5.5%
...............................................................................
Oil/Energy 4.3%
...............................................................................
Retailing & Wholesale 4.3%
...............................................................................
What was your overall strategy in blending stocks and bonds during the fiscal
year?
We began the year with 60% of net assets in equities and 40% in bonds. As
concerns grew in the late summer about a global economic slowdown, we shifted
the allocation in favor of high quality bonds. At the mid-point of the year, the
target allocation was 52% stocks and 48% bonds, which was a very defensive
positioning for the Fund. This decision helped protect the Fund during a time of
uncertainty. We took the Federal Reserve Board's decision to lower short-term
interest rates as a positive signal for the stock market, and the outlook
appeared much more favorable for equities than for higher quality bonds. As a
result, during the second half of the year, we shifted the allocation in favor
of stocks, ending the period with a 63% in stocks and 37% in fixed income. This
also worked in favor of the Fund, because we were able to increase our
weightings in the stock market during the strong rally.
What strategies did you use in managing the equity portion of the portfolio?
We had been emphasizing financial services, energy and healthcare during the
first part of the year. As we went into the summer and uncertainty grew about
the possibility of a global economic slowdown, we began reducing our holdings in
finance and energy. We retained the Fund's emphasis on pharmaceuticals where we
saw opportunities for continued earnings growth, and concentrated on the large
pharmaceutical companies such as Pfizer, Warner-Lambert, American Home Products
and Merck & Co.
During the same summer period, we started increasing our holdings in technology,
which had been de-emphasized during the first part of the year. We either
established or added to our positions in market-leading companies such as
Microsoft, Sun Microsystems, Cisco Systems, and Solectron, which assembles
technology products, including PCs, for other companies.
We also added MCI Worldcom, although it is not a pure technology company.
9
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Balanced Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
We also emphasized consumer-oriented stocks to take advantage of the strong
domestic economy and consumer optimism, with positions in companies such as
Wal-Mart and Time Warner.
Our decision to reduce our holdings in finance and energy helped performance
during the worst of the market correction in the fall, although we did not fully
participate in the financial sector's comeback during the fourth calendar
quarter of 1998. Our increased emphasis on technology did help performance,
however, as that sector soared in the fourth quarter of 1998 and the first
quarter of 1999.
Late in the year, we selectively added back to our positions in finance, because
of the improving prospects, and in energy to take advantage of consolidation in
the industry and the apparent bottoming of oil prices. These were two sectors
that we traded in and out of during the full, 12-month period as the investment
environment changed.
Top 10
Equity Holdings
---------------
(based on net assets)
General Electric Co. 2.7%
...............................................................................
Microsoft Corp. 2.4%
...............................................................................
Wal-Mart Stores, Inc. 1.2%
...............................................................................
Merck & Co., Inc. 1.1%
...............................................................................
Pharmacia & Upjohn, Inc. 1.0%
...............................................................................
Staples, Inc. 1.0%
...............................................................................
Intel Corp. 1.0%
...............................................................................
American International Group, Inc. 1.0%
...............................................................................
Morton International, Inc. 1.0%
...............................................................................
Pfizer, Inc. 1.0%
...............................................................................
What were some of the individual companies that helped performance?
General Electric, the Fund's largest holding, and EMC, a leader in data storage,
were big contributors. The Fund owned both these companies for the entire
12-month period. Other significant contributors included Microsoft, Sun
Microsystems and MCI Worldcom. The pharmaceutical companies, as a group,
continued to help performance, supported by companies such as Merck, Pfizer and
Bristol-Myers Squibb.
Top 5 Industries --
Bonds
-----
(based on net assets)
Finance & Insurance 6.8%
...............................................................................
Asset-Backed Securities 4.7%
...............................................................................
Commercialized Mortgage-Backed Securities 3.1%
...............................................................................
Mortgage Pass Through Securities 2.9%
...............................................................................
Collateralized Mortgage Obligations 2.4%
...............................................................................
10
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Balanced Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
What strategies have you used in managing the fixed income portion of the
portfolio?
Aside from lowering the overall bond allocation, we have taken advantage of the
yield spreads -- or yield advantages -- of corporate bonds and mortgage-related
securities over Treasuries. Since the semiannual report of September 30, 1998,
we have lowered the Treasury allocation within the bond portion of the portfolio
from 10% to 7% of fixed income assets, while increasing industrial bonds from
26% to 29%, and banking and finance bonds from 19% to 22%. Mortgage-backed
securities have been increased from 13% to 15% of fixed income assets.
We emphasized the corporate sector because we thought, especially after the
volatility of the summer and early fall, that corporate bonds were very
attractively priced, particularly when compared with Treasuries.
We have maintained an average maturity slightly longer than the average bond
fund. Average weighted maturity on March 31, 1999, stood at 11.2 years, very
close to the 11 years on September 30, 1998. Average credit quality in the fixed
income portion of the portfolio was AA- on March 31, compared to AA, on
September 30, 1998. The fund continues to emphasize very solid credit quality.
Top 5 Bond
Holdings
--------
(based on net assets)
FNMA 5.50% 7/1/2009 0.9%
...............................................................................
Realkredit Danmark 5.00%, 10/1/2029 0.8%
...............................................................................
Sun Life Canada Capital Trust 8.53% 5/29/2049 0.7%
...............................................................................
U.S. Treasury Bonds 7.875% 2/15/2021 0.7%
...............................................................................
Nomura Depositor Trust, Ser 1998-STI, CI A1
144A 5.22% 1/15/2003 0.7%
...............................................................................
What is your outlook?
The worries about foreign economic problems eating into corporate profits and
crippling the domestic economy have receded. We believe we have seen the passing
of the worst fears.
Domestically, the economy appears strong. The interest rate reductions of the
Federal Reserve have boosted equity valuations and given the U.S. consumer more
confidence to spend. At the same time, the domestic job market continues to be
very strong, which is another factor helping consumer confidence. The Federal
Reserve continues to be wary that overseas economic problems could worsen;
therefore, we believe it is unlikely to raise short-term interest rates in the
near term, especially with no evidence of increased inflation. Given this
outlook, we anticipate relative stability in interest rates.
In the bond market, this relatively stable interest rate environment should
benefit corporate bonds and mortgage-backed securities, which offer a yield
advantage over Treasuries, and we expect to continue to emphasize these sectors.
In the stock market, we are cautiously optimistic. Corporate earnings continue
to rise, and American industry continues to find ways to consolidate, reduce
costs and increase profits. We probably will continue to see different sectors
take turns in leading performance in the stock market, and we expect to continue
to rotate among the sectors as conditions and opportunities change.
11
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Fund at a Glance as of March 31, 1999
Merger and acquisition offers made for underlying companies of the Fund's
holdings continued to provide a significant benefit to the portfolio,
demonstrating that we had purchased issues which were considered undervalued
opportunities.
Portfolio
Management
--------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: January 1990
- - ------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- - ------------------------------------------------------------------------------
[STYLE BOX Morningstar's Style Box is based on a portfolio date as of
APPEARS HERE] 3/31/99.
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.
[STYLE BOX The Fixed-Income Style Box placement is based on a fund's
APPEARS HERE] average effective maturity or duration and the average credit
rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. 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. Historical performance shown for Classes A, B and C prior to
their inception is based on the performance of Class Y, the original class
offered. These historical returns for Classes A, B and C have not been adjusted
to reflect the effect of each class' 12b-1 fees. These fees for Classes A, B and
C are .25%, 1.00%, and 1.00%, respectively. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns would have been lower.
- - ------------------------------------------------------------------------------
Performance and Returns/2/
- - ------------------------------------------------------------------------------
Class A Class B Class C Class Y
Portfolio Inception Date 1/2/90
...............................................................................
Class Inception Date 1/3/95 1/3/95 1/3/95 1/2/90
...............................................................................
Average Annual Returns*
...............................................................................
1 year with sales charge 0.56% -0.19% 3.76% N/A
...............................................................................
1 year w/o sales charge 5.58% 4.81% 4.76% 5.84%
...............................................................................
3 years 14.95% 15.21% 15.94% 17.13%
...............................................................................
5 years 14.72% 14.87% 15.05% 16.07%
...............................................................................
Since Portfolio Inception 15.75% 15.95% 15.93% 16.49%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% N/A
Front End CDSC CDSC
...............................................................................
30-day SEC Yield 1.90% 1.24% 1.25% 2.24%
...............................................................................
12-month dividends per share $0.43 $0.27 $0.27 $0.48
...............................................................................
12-month capital gain distributions
per share $0.15 $0.15 $0.15 $0.15
...............................................................................
*Adjusted for maximum sales charge.
- - ------------------------------------------------------------------------------
LONG TERM GROWTH
- - ------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Comparison of a $10,000 investment in Evergreen Foundation Fund, Class A
shares/2/, versus a similar investment in the S&P 500 Index and the Consumer
Price Index (CPI).
The S&P 500 Index is an unmanaged index. It does not include transaction costs
associated with buying and selling securities nor any management fees. The
Consumer Price Index is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
12
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform for the year?
The Evergreen Foundation Fund's fiscal year ended March 31, 1999, with a gain of
5.84%, providing a relative performance which is an exception to the Fund's
strong comparative annual returns since its inception. It ranks #1 among all
balanced funds since its inception with a 16.5% annualized return as measured by
Lipper Analytical Services, Inc., an independent monitor of mutual funds. These
returns are for the original Class Y shares, while Class A shares provided
5.58%, and Class B and C shares provided 4.81% and 4.76%, respectively,
unadjusted for any sales charges.
Portfolio
Characteristics
---------------
Total Net Assets $3,117,058,240
...............................................................................
Number of Holdings 336
...............................................................................
Beta 0.62
...............................................................................
P/E Ratio 21.8x
...............................................................................
How would you describe the basic investment strategy of the Foundation Fund?
While the equity portion of the Fund's portfolio has historically enjoyed strong
returns, this latest 12-month period was an exception; in contrast with the
48.4% return on equities in the prior fiscal year, the Fund's stock positions
provided only a 6.0% return. This was the first year since the inception of the
Fund in January 1990 that the equity performance of the portfolio did not
surpass the return of the S&P 500. These were unusual and, we believe, temporary
circumstances. The major reason for this underperformance was the severe decline
of financial company shares in the late summer and fall of 1998.
Performance of the fixed income portion of the portfolio also fell behind the
prior year, generating a return of 5.7%, as compared with the 19.9% return for
the twelve months ended March 31, 1998. While we continued, and even increased,
the emphasis on longer maturity U.S. Treasury bonds, the benefits of this
strategy which had been so apparent through the third quarter of the Fund's
fiscal year, were reversed in this latest quarter. Fears of renewed inflation
through sustained economic growth and the risks of high oil prices once again
drove bond prices down, notwithstanding their historically high real rate of
return above the current, still low rate of inflation.
The Foundation Fund is intended to provide both investment risk reduction and
the opportunity for capital appreciation, which together make for the foundation
of an investment portfolio. Assets are allocated among fixed income, equities,
and cash equivalents in varying amounts, intending to provide both opportunities
for gain and risk avoidance. The fixed income portion of the portfolio is
invested exclusively in United States government obligations with the goal of
achieving both consistent and secure returns, as well as capital appreciation
from the appropriate positioning in interest rate cycles. Stocks are bought for
the Fund with the intention of achieving capital growth through the careful
purchase and holding of securities believed to be undervalued, as compared with
our analysis of their potential and the general level of the market. With a risk
avoidance focus, the Fund's equity securities are principally held in companies
with larger market capitalizations and high liquidity.
13
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
How do you manage the asset allocation between stocks and bonds?
In the effort to achieve maximum opportunity and reduced risk, a principal
approach is asset allocation--having the Fund's portfolio concentrate in the
right areas at the right time. Asset allocation is not static; it reflects a
constant evaluation of the economic outlook in an effort to have the Fund
benefit from anticipated trends. For example, the cash reserve position, which
had been held as a considerable allocation of resources prior to the stock
market decline last fall, was reduced through consistent buying largely of
common stocks during the sell-off. We met our goal of taking advantage of the
volatility in the market and purchased many issues, which we believed were
severely undervalued.
- - ------------------------------------------------------------------------------
Portfolio Composition
- - ------------------------------------------------------------------------------
(based on portfolio assets)
[PIE CHART APPEARS HERE]
Common Stock 65.6%
Treasury Notes/Bonds 27.6%
Cash & Equivalents 5.3%
Government Agency/
Notes/Bonds 0.7%
Convertible Preferred 0.6%
Convertible Debentures 0.2%
Corporate Notes/Bonds 0.0%
*less than one tenth of one percent.
What were some of the top-performing investments of the year?
Twenty-two of the Fund's present portfolio holdings provided returns of better
than 50% during the fiscal year. The top performers were Sun Microsystems Inc.,
with a gain of 199.2%; followed by Nielsen Media Research, Inc., with a gain of
153.0%; Cisco Systems, Inc., with a gain of 143.4%; and Tricon Global
Restaurants, Inc., with a gain of 133.2%. In addition to these issues, among the
top ten performers were Microsoft Corp., up 99.5%; AirTouch Communications,
Inc., up 97.5%; Time Warner, Inc., up 91.5%; QUALCOMM Financial Trust 1, 5 3/4%
Convertible Preferred., up 89.9%; Home Depot, Inc., up 85.1%; and Texas
Instruments, Inc., up 83.3%.
14
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
Did corporate consolidations continue to be a theme?
Merger and acquisition offers made for underlying companies of the Fund's
holdings continued to provide a significant benefit to the portfolio,
demonstrating that we had purchased issues which were considered undervalued
opportunities. A record number of 38 of our holdings either received or
completed merger and acquisition transactions during the year, with an average
gain on completed acquisitions of 78.7%. Banks and thrifts continued to be an
important contributor to these gains, led by First of America Bank Corp., with a
217.7% appreciation; Crestar Financial Corp., with a 170.2% appreciation; and
Beneficial Corp., with a 151.1% appreciation. Among those whose merger and
acquisition transactions have not been completed, the outstanding gain is in
AirTouch Communications, Inc., with a 273.4% increase since purchase in August,
1996; followed by BankBoston Corp., with a 196.0% increase since purchase in
September, 1992. The range of transactions, in industry terms, was
extraordinary, including electric utilities (Long Island Lighting Co., Eastern
Utilities Associates, and Orange and Rockland Utilities, Inc.); telephone
utilities (360 (Degrees) Communications Co., AirTouch Communications, Inc., and
Frontier Corp.); insurance companies (American Bankers Insurance Group, Inc. and
Nac Re Corp.); oil companies (Amoco Corp. and Mobil Corp.); real estate
companies (Interstate Hotels Co., Oasis Residential, Inc., and Continental Homes
Holding Corp.); and specialties such as Chrysler Corp., Pioneer Hi-Bred
International, Inc.; and the brokerage firm, Interstate/Johnson Lane, Inc. In
each case, our effort in selecting the investment had been focused on finding a
uniquely valuable business franchise. The acquisition bids or the merger offers
made for these companies confirmed our choice.
Top 5 Industries --
Equity
------
(based on net assets)
Finance & Insurance 11.5%
...............................................................................
Information Services & Technology 9.0%
...............................................................................
Healthcare Products & Services 7.3%
...............................................................................
Banks 6.5%
...............................................................................
Utilities-Telephone 3.9%
...............................................................................
Top 10
Equity Holdings
---------------
(based on net assets)
Intel Corp. 3.1%
...............................................................................
Microsoft Corp. 2.1%
...............................................................................
General Electric Co. 2.0%
...............................................................................
Federal National Mortgage Association 1.6%
...............................................................................
International Business Machines Corp. 1.3%
...............................................................................
Merrill Lynch & Co., Inc. 1.1%
...............................................................................
American International Group, Inc. 1.1%
...............................................................................
Hewlett-Packard Co. 1.1%
...............................................................................
Du Pont (E.I.) De Nemours & Co. 1.1%
...............................................................................
Sprint Corp. 1.1%
...............................................................................
15
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
What significant recent acquisitions has the fund made?
The Fund was an active buyer of equities during the period of stock market
weakness subsequent to the Russian default in August last year. With financial
institutions being especially hard hit, they were given particular weight in our
purchasing decisions, although the range of purchasing of issues was quite wide.
Most notable were the gains on holdings purchased from the beginning of
September to the end of October. These were led by a 107.9% gain in the shares
of Costco Companies Inc.; 101.2% gain in the shares of Lowe's Companies, Inc.;
90.8% gain in the shares of Home Depot, Inc.; 88.2% gain in the shares of
Frontier Corp.; and 70.9% gain in the shares of Southwest Airlines Co. The
largest single equity purchase made during this period was in shares of American
Express Co., which appreciated 48.6% to the end of the fiscal year, and as of
April 14, has over a 70% gain. Other sizable purchases included shares of
Citigroup, Inc., which gained 62.6% by March 31; American International Group,
Inc., up 54.5%; and Household International, Inc., up 60.1%. This was a period
of exceptional activity for the Fund, with 46 equity issues either initiated or
increased during this period; and with many of these stocks being bought on a
scale-down as prices declined sharply. We acted quickly when we saw the market
over-emphasizing the negative and ignoring significant growth potentials. We
were able to exercise our long-term investment strategy of trying to buy the
best long-range growth opportunities on an undervalued basis.
In the fixed income side of the portfolio, we also took advantage of market
uncertainties which emphasized shorter-term negatives rather than fundamentals.
Thus, in June, during a period of Treasury bond market weakness, we purchased
$90 million of 28-year U.S. Treasury bonds on a yield of just under 6%. Again,
in March of 1999, we added significantly to our position in U.S. Treasury bonds,
7 1/4% due 2022, at a yield of almost 6%. In contrast, when we thought interest
rates had fallen below an appropriate level in October, we sold U.S. Treasury,
6% due 2026, on a yield basis of 5.06%, realizing a 17.3% gain from purchase one
year before. These transactions reflect our commitment to a strategy of active
bond management, utilizing exclusively U.S. Government & Agency securities with
the aim of achieving capital appreciation, as well as yield and protection of
principal.
A similar policy of active management has been followed with equities where we
want to take advantage of volatility. Illustratively, the Fund purchased 20,000
shares of Home Depot, Inc. (adding to our position) on October 8, 1998, and a
portion of the total position (including this purchase) was sold January 27,
1999, with a gain of 150.6%. A similar strategy was followed with regard to a
position in Household International, Inc., where a block of shares was sold in
July, with a 161.3% gain to the portfolio, and repurchased more than 30% lower
in October. Merger and acquisition gains also provided a substantial flow of
cash to permit new purchases, with the largest being from the cash acquisition
of Mercantile Stores Co., Inc. by Dillard's, Inc., which had provided a 74.4%
gain over an almost four-year holding period. Similarly, shares of Wachovia
Corp. were sold, with a 156.1% gain, as a result of that bank's purchase of our
holding, Central Fidelity Banks, Inc.
Top 4 Industries --
Bonds
-----
(based on net assets)
U.S. Treasury Obligations 27.6%
...............................................................................
Government Agency Obligations 0.7%
...............................................................................
Finance & Insurance 0.0%*
...............................................................................
Chemical & Agricultural Products 0.0%*
...............................................................................
*less than one tenth of one percent.
16
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Bond
Holdings
--------
(based on net assets)
U.S. Treasury Bonds 6.00% 2/15/2026 6.8%
...............................................................................
U.S. Treasury Bonds 6.25% 8/15/2023 6.4%
...............................................................................
U.S. Treasury Bonds 7.125% 2/15/2023 4.6%
...............................................................................
U.S. Treasury Bonds 8.125% 8/15/2019 2.0%
...............................................................................
U.S. Treasury Bonds 7.25% 5/15/2016 1.8%
...............................................................................
What is your outlook?
As observed in last year's annual report, we stated: "At the beginning of the
new fiscal year, the Fund is positioned for an outlook of sustained growth in
the United States, with still minimal inflation." This remains the case. This is
an extraordinary period in American economic history, where sizable growth is
being achieved with minimal inflation. Three major factors seem to be at work:
the evidence of a sustained rise in productivity in major sectors of our
economy; the declines in economic activity and slowing trends in other major
trading countries, leading to continual price pressure for commodities and
broadly available manufactured goods; and a growing availability of financial
liquidity as the United States expands, Europe improves the flow of funds with
the new Eurocurrency, and Asia slowly begins its recovery. We expect a
continuing environment supporting a strong bond market, particularly as the real
interest rate remains at historically high levels, and the perception remains
that the U.S. Federal Reserve will be watchful over the need to act in a
restricted fashion if the economy accelerates too rapidly, or prices suggest new
inflation. Once again, we anticipate that equity markets will find support from
increased savings. The goal of our investment management will again be to
concentrate on the search for investments in corporations with exceptional
profits growth, purchased with reasonable valuation. Bond selections will focus
on prudent positioning in U.S. Government securities, based on constantly
revalued economic expectations.
17
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Tax Strategic Foundation Fund
- - ------------------------------------------------------------------------------
Fund at a Glance as of March 31, 1999
The stock portfolio's performance was not strong enough to sustain the Fund's
historical returns, largely because its sizable interest-sensitive components
were severely depressed during the fall and did not fully recover by fiscal
year-end.
Portfolio
Management
[PHOTO OF STEPHEN A. LIEBER [PHOTO OF JAMES T. COLBY, III
APPEARS HERE] APPEARS HERE]
Stephen A. Lieber James T. Colby III
Tenure: November 1993 Tenure: November 1993
- - ------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- - ------------------------------------------------------------------------------
[STYLE BOX Morningstar's Style Box is based on a portfolio date as of
APPEARS HERE] 3/31/99.
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.
[STYLE BOX The Fixed-Income Style Box placement is based on a fund's
APPEARS HERE] average effective maturity or duration and the average credit
rating of the bond portfolio.
/1/Source: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loans and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. Historical performance shown for Classes A, B and C prior to
their inception is based on the performance of Class Y, the original class
offered. These historical returns for Classes A, B and C have not been adjusted
to reflect the effect of each class' 12b-1 fees. These fees for Classes A, B and
C are .25%, 1.00%, and 1.00%, respectively. Class Y does not pay a 12b-1 fee. If
these fees had been reflected, returns would have been lower.
- - ------------------------------------------------------------------------------
Performance and Returns/2/
- - ------------------------------------------------------------------------------
Class A Class B Class C Class Y
Portfolio Inception Date 11/2/93
...............................................................................
Class Inception Date 1/17/95 1/6/95 3/3/95 11/2/93
...............................................................................
Average Annual Returns*
...............................................................................
1 year with sales charge -3.70% -4.53% -0.58% N/A
...............................................................................
1 year w/o sales charge 1.12% 0.41% 0.41% 1.38%
...............................................................................
3 years 11.52% 11.75% 12.50% 13.67%
...............................................................................
5 years 13.44% 13.67% 13.89% 14.85%
...............................................................................
Since Portfolio Inception 12.57% 12.88% 12.97% 13.85%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% N/A
Front End CDSC CDSC
...............................................................................
30-day SEC Yield 1.89% 1.23% 1.23% 2.23%
...............................................................................
12-month dividends
per share $0.34 $0.23 $0.23 $0.38
...............................................................................
12-month capital gain distributions
per share $0.03 $0.03 $0.03 $0.03
...............................................................................
*Adjusted for maximum sales charge.
- - ------------------------------------------------------------------------------
LONG TERM GROWTH
- - ------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Comparison of a $10,000 investment in Evergreen Tax Strategic Foundation Fund,
Class A shares,/2/ versus a similar investment in the S&P 500 Index, the Lehman
Brothers Municipal Bond Index (LBMBI), and the Consumer Price Index (CPI).
The S&P 500 Index and the Lehman Brothers Municipal Bond Index are unmanaged
indices. These indices do not include transaction costs associated with buying
and selling securities nor any management fees. The Consumer Price Index is a
commonly used measure of inflation and does not represent an investment return.
It is not possible to invest directly in an index.
18
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Tax Strategic Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the fiscal year?
The Fund's performance, while positive -- up 1.38% during the fiscal year --
marked its first adverse year since inception and compares to a return of 24.7%
for the prior fiscal year, and a compound annualized return of 13.9% since
inception on November 2, 1993. For the first time since 1994, the Fund's equity
portfolio had a negative return, which was offset by a positive return on the
fixed income portfolio. These returns are for the original Class Y shares, while
Class A shares provided 1.12%, and Class B and C shares both provided 0.41%,
unadjusted for any sales charges.
Portfolio
Characteristics
---------------
Total Net Assets $394,983,297
...............................................................................
Number of Holdings 250
...............................................................................
Beta 0.45
...............................................................................
P/E Ratio 16.9x
...............................................................................
The Evergreen Tax Strategic Foundation Fund has a very distinct objective and
strategy. How do you describe it?
The Fund is an outgrowth of the Evergreen Foundation Fund. We came to realize
that many investors in the Foundation Fund were tax-averse, and yet were in a
Fund which was producing sizable taxable income and taxable gains. We decided we
could meet the needs of these investors by developing a Fund that would seek to
produce the combination of defensive and growth characteristics of the Evergreen
Foundation Fund in a tax-efficient manner; using tax-exempt bonds and equities
in the tax-efficient portfolio strategy. Up until the Tax Strategic Foundation
Fund's founding in 1993, there were no balanced funds using tax-exempt bonds,
and there were virtually no equity funds with a tax-efficient management
strategy.
We developed this Fund with the goal of providing tax-exempt income and aiming
for long-term capital appreciation, while managing the portfolio to reduce
current taxable income and capital gains. We use a variety of selection
techniques, especially including investment in companies whose policy is to use
retained earnings to buy back stock in preference to paying out taxable
dividends.
The overall stock selection criteria are similar to those of the Foundation Fund
- - -- the search for growth opportunities, which are comparatively undervalued.
In the Fund's fixed income portion, we emphasize the highest quality bonds,
aiming to avoid credit risk and to focus on achieving the best combination of
income and capital appreciation by correct positioning within the interest rate
cycles. The entire fixed income portion of the portfolio is of the highest
grade, either insured or AAA rated. During the fiscal year, the Fund's fixed
income portion had a return of 6.3%.
We also manage the Fund with a strategy aimed at minimizing taxable income
through appropriate transactions. For example, in 1994, when there were
substantial losses in the bond market, and substantial gains by the Fund in the
stock market, we followed a policy of realizing bond losses and repurchasing
different issues or maturities of the same quality to offset the gains the Fund
earned in the stock market.
19
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Tax Strategic Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
- - ------------------------------------------------------------------------------
Portfolio Composition
- - ------------------------------------------------------------------------------
(based on portfolio assets)
---------------------------
[PIE CHART APPEARS HERE]
Municipal Bonds 53.6%
Common Stock 45.9%
Cash & Equivalents 0.5%
What contributed to the less than typical performance during the past fiscal
year?
The stock portfolio's performance was not strong enough to sustain the Fund's
historical returns, largely because its sizable interest-sensitive components
were severely depressed during the fall and did not fully recover by fiscal
year-end. With over 20% of the portfolio in interest-sensitive sectors, this
negative impact was not overcome, particularly as long-term bond rates rose to
almost 6% at the end of the quarter. The tax-exempt bond portfolio, in contrast,
outperformed the Lipper Insured Municipal Bond Index by nearly 100 basis points.
Notwithstanding the negative pressures on the sizable portion of the portfolio,
the Fund had many examples of excellent investment results offsetting the
negatives and, in our opinion, setting the stage for further gains. In contrast
with the previous year where eight of the top fifteen performers were involved
in financial services, only one of this year's top performers was in that
industry. The top fifteen had gains of 34% or more: led by Sun Microsystems,
Inc., whose shares rose 199.2%; International Business Machines Corp., up 75.7%;
Sonic Automotive, Inc., up 73.3%; Lowe's Companies, Inc., up 72.4%; BP Amoco
P.L.C., up 72.3%; Gucci Group N.V., up 69.6%; Frontier Corp., up 68.2%; Intel
Corp., up 50.8%; Sprint Corp. (PCS Group), up 47.4%; American International
Group, Inc., up 44.9%; Medtronic, Inc., up 44.4%; General Electric Co., up
41.5%; AMP, Inc., up 36.7%; American Home Products Corp., up 36.6%; and
Perkin-Elmer Corp., up 34.1%. These gains demonstrated the diversity of the
portfolio, its focus on growth opportunities, and the development of special
situations.
Top 5 Industries --
Equity
------
(based on net assets)
Finance & Insurance 10.7%
...............................................................................
Banks 7.8%
...............................................................................
Healthcare Products & Services 4.3%
...............................................................................
Information Services & Technology 3.4%
...............................................................................
Retailing & Wholesale 2.6%
...............................................................................
20
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Tax Strategic Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
Did mergers and acquisitions again contribute to the Fund's strong performance?
The Fund benefited from 17 merger and acquisition transactions involving
portfolio securities. The average return to date on the 17 transactions
completed and pending was 73.2%. The largest single percentage increase was in
the Fund's holding of BankBoston Corp., which had been bought in November, 1993,
at $13.68 per share, and which has received an acquisition bid from Fleet
Financial Group, Inc. The gain on this holding through March 31, 1999 is 216.8%.
The second largest gain was from the completion of the transaction of First of
America Bank Corp., with its merger into National City Corp., yielding a 224.9%
gain since purchase in July, 1995. The financials in the group of companies
acquired included: Beverly Bancorporation, Inc., Crestar Financial Corp.,
Interstate/Johnson Lane, Inc., Nac Re Corp., and American Bankers Insurance
Group, Inc. Only one merger and acquisition transaction will have a negative
result for the Fund, with a projected loss of 19.1% for St. John Knits, Inc.,
which has had a buyout offer from its management. The mergers and acquisitions
with the largest financial impact for the Fund are AMP, Inc. by Tyco
International Ltd., and Frontier Corp. proposed by Global Crossing Ltd. We
purchased both of these holdings as strong undervalued business franchises, and
each was subsequently sought after by higher-growth-rate, acquisition-oriented
companies.
Top 10
Equity Holdings
---------------
(based on net assets)
Merrill Lynch & Co., Inc. 1.5%
...............................................................................
Perkin Elmer Corp. 1.3%
...............................................................................
Citigroup, Inc. 1.1%
...............................................................................
International Business Machines Corp. 1.1%
...............................................................................
Frontier Corp. 1.1%
...............................................................................
Paine Webber Group, Inc. 1.1%
...............................................................................
Lehman Brothers Holding, Inc. 1.0%
...............................................................................
Intel Corp. 1.0%
...............................................................................
Suntrust Banks, Inc. 0.9%
...............................................................................
Legg Mason, Inc. 0.9%
...............................................................................
What significant recent purchases has the Fund made?
Throughout the fiscal year, the focus of the Fund in its equity purchases has
been the search for undervalued growth opportunities, with minimal or no taxable
income. The outstanding purchases during the period were those which provided
increases of 50% or more during the fiscal year. They were: AFLAC, Inc., up
103.0%; Park Electrochemical Corp., up 94.1%; Frontier Corp., up 102.1%; Chase
Manhattan Corp., up 70.1%; Merrill Lynch & Co., Inc., up 71.4%; and BankAmerica
Corp., up 56.4%. While several of these holdings were purchased earlier in the
fiscal year, most of the major gains from new purchases were among issues bought
during the stock market weakness in the fall. We viewed the decline, which was
led by apprehensions over the health of financial institutions, as an important
opportunity to buy outstanding issues in this field notwithstanding our overall
sizable positions. Thus, new positions were accumulated in shares of major
financial institutions, which have already enjoyed sizable increases from their
highly depressed fall levels, led by Chase Manhattan Corp., which rose 70.1%
through March 31, 1999, and had doubled from the late
21
<PAGE>
- - ------------------------------------------------------------------------------
E V E R G R E E N
Tax Strategic Foundation Fund
- - ------------------------------------------------------------------------------
Portfolio Manager Interview
September purchases through April 14, 1999. Issues purchased during the fall
sell-off which have already received merger and acquisition offers are Atlantic
Richfield Co. and American Bankers Insurance Group, Inc. Additional purchases
during the year were in the shares of MGIC Investment Corp., Newell Rubbermaid
Inc., and International Business Machines Corp.
Top 5 Industries --
Bonds
-----
(based on net assets)
Housing 8.4%
...............................................................................
Water & Sewer 7.0%
...............................................................................
General Obligations-Local Government 5.6%
...............................................................................
Higher Education 5.2%
...............................................................................
Hospital 5.1%
...............................................................................
Top 5 Bond
Holdings
--------
(based on net assets)
District of Columbia Arpt. Auth. RB 5.50%
10/1/2002 1.4%
...............................................................................
Chicago, IL Skyway Toll Bridge 5.50%
1/1/2023 1.4%
...............................................................................
Clark Cnty., NV 6.00% 7/1/2022 1.4%
...............................................................................
New York St. Urban Dev. Corp. 5.50%
7/1/2016 1.3%
...............................................................................
Jefferson Cnty., AL Swr. RB 5.38% 2/1/2036 1.3%
...............................................................................
What is your outlook?
As observed in last year's annual report, we stated: "At the beginning of the
new fiscal year, the Fund is positioned for an outlook of sustained growth in
the United States, with still minimal inflation." This remains the case in 1999.
This is an extraordinary period in American economic history, where sizable
growth is being achieved with minimal inflation. Three major factors seem to be
at work: the evidence of a sustained rise in productivity in major sectors of
our economy; the declines in economic activity and slowing trends in other major
trading countries, leading to continual price pressure for commodities and
broadly available manufactured goods; and a growing availability of financial
liquidity as the United States expands, Europe improves the flow of funds with
the new Eurocurrency, and Asia slowly begins its recovery. We expect a
continuing environment supporting a strong bond market, particularly as the real
interest rate remains at historically high levels, and the perception remains
that the U.S. Federal Reserve will be watchful over the need to act in a
restricted fashion if the economy accelerates too rapidly, or prices suggest new
inflation. Once again, we anticipate that equity markets will find support from
increased savings. The goal of our investment management will again be to
concentrate on the search for investments in corporations with exceptional
profits growth, purchased with reasonable valuation. Bond selections will focus
on prudent positioning in highest quality tax-exempt bonds, based on constantly
revalued economic expectations.
22
<PAGE>
[LOGO OF EVERGREEN AMERICAN RETIREMENT FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
--------------------------- -----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value, beginning of
period $ 16.70 $ 13.74 $ 13.86 $ 12.82 $10.65
------- ------- ------- ------- ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.53 0.49 0.11 0.45 0.41
.........................................................................
Net realized and unrealized
gains or losses on
securities and foreign
currency related
transactions (1.79) 3.29 (0.12) 1.12 2.22
------- ------- ------- ------- ------
Total from investment
operations (1.26) 3.78 (0.01) 1.57 2.63
------- ------- ------- ------- ------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (0.34) 0 (0.11) 0
------- ------- ------- ------- ------
.........................................................................
Net investment income (0.55) (0.48) (0.11) (0.42) (0.46)
.........................................................................
Total distributions to
shareholders (0.68) (0.82) (0.11) (0.53) (0.46)
------- ------- ------- ------- ------
.........................................................................
Net asset value, end of
period $ 14.76 $ 16.70 $ 13.74 $ 13.86 $12.82
------- ------- ------- ------- ------
.........................................................................
.........................................................................
Total return* (7.63%) 28.02% (0.10%) 12.50% 24.90%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(thousands) $25,451 $29,005 $14,590 $11,116 $1,335
.........................................................................
Ratios to average net assets
Expenses 1.31% 1.40% 1.37%+ 1.30% 1.37%+
.........................................................................
Net investment income 3.37% 3.21% 3.43%+ 3.53% 3.73%+
.........................................................................
Portfolio turnover rate 56% 34% 9% 16% 49%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
----------------------------- -----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value, beginning
of period $ 16.61 $ 13.67 $ 13.80 $ 12.80 $10.65
-------- -------- ------- ------- ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.41 0.38 0.09 0.36 0.35
.........................................................................
Net realized and unrealized
gains or losses on
securities and foreign
currency related
transactions (1.78) 3.26 (0.13) 1.09 2.20
-------- -------- ------- ------- ------
Total from investment
operations (1.37) 3.64 (0.04) 1.45 2.55
-------- -------- ------- ------- ------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (0.34) 0 (0.11) 0
-------- -------- ------- ------- ------
.........................................................................
Net investment income (0.42) (0.36) (0.09) (0.34) (0.40)
.........................................................................
Total distributions to
shareholders (0.55) (0.70) (0.09) (0.45) (0.40)
-------- -------- ------- ------- ------
.........................................................................
Net asset value, end of
period $ 14.69 $ 16.61 $ 13.67 $ 13.80 $12.80
-------- -------- ------- ------- ------
.........................................................................
.........................................................................
Total return* (8.29%) 27.06% (0.30%) 11.50% 24.10%
.........................................................................
Ratios and supplemental
data
.........................................................................
Net assets, end of period
(thousands) $146,946 $158,252 $76,791 $57,622 $4,839
.........................................................................
Ratios to average net
assets
Expenses 2.06% 2.15% 2.11%+ 2.06% 2.12%+
.........................................................................
Net investment income 2.63% 2.46% 2.68%+ 2.79% 2.97%+
.........................................................................
Portfolio turnover rate 56% 34% 9% 16% 49%
.........................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
23
<PAGE>
[LOGO OF EVERGREEN AMERICAN RETIREMENT FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
------------------------- ----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value, beginning of
period $16.65 $13.70 $13.83 $12.81 $10.65
------ ------ ------ ------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.43 0.38 0.09 0.36 0.36
.........................................................................
Net realized and unrealized gains
or losses on securities and
foreign currency related
transactions (1.81) 3.27 (0.13) 1.11 2.19
------ ------ ------ ------ ------
.........................................................................
Total from investment operations (1.38) 3.65 (0.04) 1.47 2.55
------ ------ ------ ------ ------
.........................................................................
Less distributions to
shareholders from
.........................................................................
Net investment income (0.42) (0.36) (0.09) (0.34) (0.39)
Net realized gains (0.13) (0.34) 0 (0.11) 0
------ ------ ------ ------ ------
.........................................................................
Total distributions to
shareholders (0.55) (0.70) (0.09) (0.45) (0.39)
------ ------ ------ ------ ------
.........................................................................
Net asset value, end of period $14.72 $16.65 $13.70 $13.83 $12.81
------ ------ ------ ------ ------
.........................................................................
.........................................................................
Total return* (8.34%) 27.08% (0.30%) 11.60% 24.00%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(thousands) $1,860 $2,777 $1,769 $1,487 $ 110
.........................................................................
Ratios to average net assets
Expenses 2.06% 2.15% 2.12%+ 2.05% 2.10%+
.........................................................................
Net investment income 2.59% 2.46% 2.65%+ 2.80% 2.96%+
.........................................................................
Portfolio turnover rate 56% 34% 9% 16% 49%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
--------------------------- -------------------------
1999 1998 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 16.70 $ 13.74 $ 13.86 $ 12.83 $ 10.67 $ 11.60
------- ------- ------- ------- ------- -------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.61 0.55 0.14 0.48 0.47 0.60
.........................................................................
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (1.83) 3.27 (0.14) 1.10 2.16 (0.93)
------- ------- ------- ------- ------- -------
Total from investment
operations (1.22) 3.82 0.00 1.58 2.63 (0.33)
------- ------- ------- ------- ------- -------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.13) (0.34) 0 (0.11) 0 0
------- ------- ------- ------- ------- -------
.........................................................................
Net investment income (0.59) (0.52) (0.12) (0.44) (0.47) (0.60)
.........................................................................
Total distributions to
shareholders (0.72) (0.86) (0.12) (0.55) (0.47) (0.60)
------- ------- ------- ------- ------- -------
.........................................................................
Net asset value, end of
period $ 14.76 $ 16.70 $ 13.74 $ 13.86 $ 12.83 $ 10.67
------- ------- ------- ------- ------- -------
.........................................................................
.........................................................................
Total return (7.38%) 28.34% 0.00% 12.60% 25.10% (2.90%)
.........................................................................
Ratios and supplemental
data
.........................................................................
Net assets, end of
period (thousands) $30,503 $43,786 $37,237 $41,243 $39,327 $37,176
.........................................................................
Ratios to average net
assets
Expenses 1.06% 1.14% 1.11%+ 1.05% 1.26% 1.28%
.........................................................................
Net investment income 3.59% 3.45% 3.56%+ 3.65% 3.96% 5.40%
.........................................................................
Portfolio turnover rate 56% 34% 9% 16% 49% 136%
.........................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
See Combined Notes to Financial Statements.
24
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
March 31,
-----------------
1999 1998 #(a)
<S> <C> <C>
CLASS A SHARES
Net asset value, beginning of period $12.87 $12.36
------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.37 0.08
.........................................................................
Net realized and unrealized gains or losses on securities,
futures contracts and foreign currency related transactions 0.48 0.81
------ ------
.........................................................................
Total from investment operations 0.85 0.89
------ ------
.........................................................................
Less distributions to shareholders from
.........................................................................
Net investment income (0.41) (0.12)
.........................................................................
Net realized gains (2.03) (0.26)
------ ------
.........................................................................
Total distributions to shareholders (2.44) (0.38)
------ ------
.........................................................................
Net asset value, end of period $11.28 $12.87
------ ------
.........................................................................
Total return* 7.52% 7.38%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period (millions) $1,241 $1,277
.........................................................................
Ratios to average net assets
Expenses 0.96% 0.99%+
.........................................................................
Net investment income 2.97% 3.25%+
.........................................................................
Portfolio turnover rate 102% 76%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended June 30,
------------------------ ------------------------------
1999 1998 #(b) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value
beginning of period $ 12.88 $ 12.95 $11.33 $10.09 $ 9.26 $10.10
---------- ---------- ------ ------ ------ ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.28 0.26 0.30 0.29 0.31 0.28
.........................................................................
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions 0.48 1.53 2.07 1.42 0.96 (0.37)
---------- ---------- ------ ------ ------ ------
Total from investment
operations 0.76 1.79 2.37 1.71 1.27 (0.09)
---------- ---------- ------ ------ ------ ------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Tax basis return of
capital 0 0 0 0 0 (0.02)
---------- ---------- ------ ------ ------ ------
.........................................................................
Net investment income (0.32) (0.27) (0.30) (0.27) (0.33) (0.35)
.........................................................................
Net realized gains (2.03) (1.59) (0.45) (0.20) (0.11) (0.38)
Total distributions to
shareholders (2.35) (1.86) (0.75) (0.47) (0.44) (0.75)
---------- ---------- ------ ------ ------ ------
.........................................................................
Net asset value, end of
period $ 11.29 $ 12.88 $12.95 $11.33 $10.09 $ 9.26
---------- ---------- ------ ------ ------ ------
.........................................................................
.........................................................................
.........................................................................
Total return* 6.71% 14.89% 21.95% 17.35% 14.20% (1.16%)
.........................................................................
Ratios and supplemental
data
.........................................................................
Net assets, end of
period (millions) $ 434 $ 580 $1,625 $1,481 $1,345 $1,390
.........................................................................
Ratios to average net
assets:
Expenses 1.71% 1.35%+ 1.70% 1.72% 1.77% 1.71%
.........................................................................
Net investment income 2.23% 2.66%+ 2.50% 2.71% 3.33% 2.81%
.........................................................................
Portfolio turnover rate 102% 76% 89% 96% 88% 88%
.........................................................................
</TABLE>
(a) For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the nine-month period ended March 31, 1998. The Fund changed its fiscal
year end from June 30 to March 31, effective March 31, 1998.
* Excluding sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding during the pe-
riod.
See Combined Notes to Financial Statements.
25
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------
1999 1998 #(a)
<S> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $12.88 $12.43
------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.26 0.05
.........................................................................
Net realized and unrealized gains or losses
on securities, futures contracts and
foreign currency related transactions 0.51 0.75
------ ------
.........................................................................
Total from investment operations 0.77 0.80
------ ------
.........................................................................
Less distributions to shareholders from
.........................................................................
Net investment income (0.32) (0.09)
.........................................................................
Net realized gains (2.03) (0.26)
------ ------
.........................................................................
Total distributions to shareholders (2.35) (0.35)
------ ------
.........................................................................
Net asset value, end of period $11.30 $12.88
------ ------
.........................................................................
Total return* 6.79% 6.58%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period (millions) $ 2 $ 1
.........................................................................
Ratios to average net assets:
Expenses 1.71% 1.76%+
.........................................................................
Net investment income 2.21% 2.41%+
.........................................................................
Portfolio turnover rate 102% 76%
.........................................................................
<CAPTION>
Year Ended Period Ended
March 31, 1999 March 31, 1998 #(b)
<S> <C> <C>
CLASS Y SHARES
Net asset value, beginning of period $12.86 $12.01
------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.39 0.08
.........................................................................
Net realized and unrealized gains or losses
on securities, futures contracts and
foreign currency related transactions 0.49 0.86
------ ------
.........................................................................
Total from investment operations 0.88 0.94
------ ------
.........................................................................
Less distributions to shareholders from
.........................................................................
Net investment income (0.44) (0.09)
.........................................................................
Net realized gains (2.03) 0
------ ------
.........................................................................
Total distributions to shareholders (2.47) (0.09)
------ ------
.........................................................................
Net asset value, end of period $11.27 $12.86
------ ------
.........................................................................
Total return 7.79% 7.79%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period (millions) $ 34 $ 39
.........................................................................
Ratios to average net assets
Expenses 0.71% 0.75%+
.........................................................................
Net investment income 3.22% 3.47%+
.........................................................................
Portfolio turnover rate 102% 76%
.........................................................................
</TABLE>
(a) For the period from January 22, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
+ Excluding sales charges.
* Annualized.
# Net investment income is based on average shares outstanding during the pe-
riod.
See Combined Notes to Financial Statements.
26
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
------------------------ ----------------
1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value, beginning of
period $20.44 $16.00 $16.13 $15.12 $12.24
------ ------ ------ ------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.44 0.44 0.12 0.50 0.44
.........................................................................
Net realized and unrealized gains
or losses on securities and
foreign currency related
transactions 0.68 4.87 (0.13) 1.16 3.14
------ ------ ------ ------ ------
.........................................................................
Total from investment operations 1.12 5.31 (0.01) 1.66 3.58
------ ------ ------ ------ ------
.........................................................................
Less distributions to shareholders
from
.........................................................................
Net investment income (0.43) (0.44) (0.12) (0.50) (0.47)
Net realized gains (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------
.........................................................................
Total distributions to
shareholders (0.58) (0.87) (0.12) (0.65) (0.70)
------ ------ ------ ------ ------
.........................................................................
Net asset value, end of period $20.98 $20.44 $16.00 $16.13 $15.12
------ ------ ------ ------ ------
.........................................................................
.........................................................................
Total return* 5.58% 33.88% (0.20%) 11.30% 29.70%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(millions) $ 380 $ 350 $ 220 $ 206 $ 107
.........................................................................
Ratios to average net assets
Expenses 1.26% 1.28% 1.25%+ 1.24% 1.33%+
.........................................................................
Net investment income 2.18% 2.39% 2.83%+ 3.39% 3.73%+
.........................................................................
Portfolio turnover rate 10% 9% 2% 10% 28%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
------------------------ ----------------
1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value, beginning of
period $20.34 $15.94 $16.07 $15.07 $12.24
------ ------ ------ ------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.29 0.30 0.09 0.40 0.36
.........................................................................
Net realized and unrealized gains
or losses on securities and
foreign currency related
transactions 0.67 4.84 (0.13) 1.15 3.09
------ ------ ------ ------ ------
.........................................................................
Total from investment operations 0.96 5.14 (0.04) 1.55 3.45
------ ------ ------ ------ ------
.........................................................................
Less distributions to shareholders
from
.........................................................................
Net investment income (0.27) (0.31) (0.09) (0.40) (0.39)
Net realized gains (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------
.........................................................................
Total distributions to
shareholders (0.42) (0.74) (0.09) (0.55) (0.62)
------ ------ ------ ------ ------
.........................................................................
Net asset value, end of period $20.88 $20.34 $15.94 $16.07 $15.07
------ ------ ------ ------ ------
.........................................................................
.........................................................................
Total return* 4.81% 32.81% (0.30%) 10.50% 28.70%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(millions) $1,432 $1,124 $ 606 $ 570 $ 296
.........................................................................
Ratios to average net assets
Expenses 2.01% 2.04% 2.00%+ 1.99% 2.07%+
.........................................................................
Net investment income 1.43% 1.63% 2.07%+ 2.64% 2.99%+
.........................................................................
Portfolio turnover rate 10% 9% 2% 10% 28%
.........................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding during the pe-
riod.
See Combined Notes to Financial Statements.
27
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
------------------------ ----------------
1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset value, beginning of
period $20.34 $15.94 $16.06 $15.07 $12.24
------ ------ ------ ------ ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.29 0.30 0.09 0.40 0.34
.........................................................................
Net realized and unrealized gains
or losses on securities and
foreign currency related
transactions 0.66 4.84 (0.13) 1.14 3.09
------ ------ ------ ------ ------
.........................................................................
Total from investment operations 0.95 5.14 (0.04) 1.54 3.43
------ ------ ------ ------ ------
.........................................................................
Less distributions to shareholders
from
.........................................................................
Net investment income (0.27) (0.31) (0.08) (0.40) (0.37)
Net realized gains (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------
.........................................................................
Total distributions to
shareholders (0.42) (0.74) (0.08) (0.55) (0.60)
------ ------ ------ ------ ------
.........................................................................
Net asset value, end of period $20.87 $20.34 $15.94 $16.06 $15.07
------ ------ ------ ------ ------
.........................................................................
.........................................................................
Total return* 4.76% 32.81% (0.30%) 10.40% 28.50%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(millions) $ 68 $ 50 $ 28 $ 27 $ 11
.........................................................................
Ratios to average net assets
Expenses 2.01% 2.04% 2.00%+ 1.99% 2.23%+
.........................................................................
Net investment income 1.43% 1.63% 2.07%+ 2.64% 2.83%+
.........................................................................
Portfolio turnover rate 10% 9% 2% 10% 28%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended December
Year Ended March 31, 31,
------------------------ ----------------------
1999 1998 # 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning
of period $20.45 $16.02 $16.14 $15.13 $12.27 $13.12
------ ------ ------ ------ ------ ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.49 0.49 0.13 0.54 0.51 0.42
.........................................................................
Net realized and unrealized
gains or losses on
securities and foreign
currency related
transactions 0.68 4.86 (0.13) 1.16 3.07 (0.57)
------ ------ ------ ------ ------ ------
Total from investment
operations 1.17 5.35 0.00 1.70 3.58 (0.15)
------ ------ ------ ------ ------ ------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.15) (0.43) 0 (0.15) (0.23) (0.28)
------ ------ ------ ------ ------ ------
.........................................................................
Net investment income (0.48) (0.49) (0.12) (0.54) (0.49) (0.42)
.........................................................................
Total distributions (0.63) (0.92) (0.12) (0.69) (0.72) (0.70)
------ ------ ------ ------ ------ ------
.........................................................................
Net asset value, end of
period $20.99 $20.45 $16.02 $16.14 $15.13 $12.27
------ ------ ------ ------ ------ ------
.........................................................................
.........................................................................
Total return 5.84% 34.12% 0.00% 11.50% 29.70% (1.10%)
.........................................................................
Ratios and supplemental
data
.........................................................................
Net assets, end of period
(millions) $1,238 $1,117 $ 802 $ 809 $ 623 $ 332
.........................................................................
Ratios to average net
assets
Expenses 1.01% 1.03% 1.00%+ 0.99% 1.07% 1.14%
.........................................................................
Net investment income 2.43% 2.65% 3.07%+ 3.64% 3.89% 3.51%
.........................................................................
Portfolio turnover rate 10% 9% 2% 10% 28% 33%
.........................................................................
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
# Net investment income is based on average shares outstanding during the pe-
riod.
See Combined Notes to Financial Statements.
28
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------- -----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value, beginning of
period $ 16.36 $ 13.57 $ 13.50 $ 12.20 $10.44
------- ------- ------- ------- ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.34 0.31 0.07 0.27 0.29
.........................................................................
Net realized and unrealized
gains or losses on securities (0.16) 2.96 0.06# 1.59 2.24
------- ------- ------- ------- ------
.........................................................................
Total from investment
operations 0.18 3.27 0.13 1.86 2.53
------- ------- ------- ------- ------
.........................................................................
Less distributions to
shareholders from
.........................................................................
Net realized gains (0.03) (0.18) 0 (0.28) (0.46)
------- ------- ------- ------- ------
Net investment income (0.34) (0.30) (0.06) (0.28) (0.31)
.........................................................................
Total distributions to
shareholders (0.37) (0.48) (0.06) (0.56) (0.77)
------- ------- ------- ------- ------
.........................................................................
Net asset value, end of period $ 16.17 $ 16.36 $ 13.57 $ 13.50 $12.20
------- ------- ------- ------- ------
.........................................................................
.........................................................................
Total return* 1.12% 24.40% 1.00% 15.40% 24.80%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(thousands) $81,566 $69,879 $15,039 $11,166 $2,702
.........................................................................
Ratios to average net assets:
Expenses 1.33% 1.42% 1.38%+ 1.52% 1.75%+
.........................................................................
Net investment income 2.18% 2.21% 2.30%+ 2.39% 2.79%+
.........................................................................
Portfolio turnover rate 64% 50% 29% 88% 110%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
---------------------------- -----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value, beginning
of period $ 16.33 $ 13.56 $ 13.49 $ 12.19 $10.31
-------- -------- ------- ------- ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.22 0.21 0.05 0.19 0.22
.........................................................................
Net realized and unrealized
gains or losses on
securities (0.15) 2.94 0.06# 1.59 2.37
-------- -------- ------- ------- ------
Total from investment
operations 0.07 3.15 0.11 1.78 2.59
-------- -------- ------- ------- ------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.03) (0.18) 0 (0.28) (0.46)
-------- -------- ------- ------- ------
.........................................................................
Net investment income (0.23) (0.20) (0.04) (0.20) (0.25)
.........................................................................
Total distributions to
shareholders (0.26) (0.38) (0.04) (0.48) (0.71)
-------- -------- ------- ------- ------
.........................................................................
Net asset value, end of
period $ 16.14 $ 16.33 $ 13.56 $ 13.49 $12.19
-------- -------- ------- ------- ------
.........................................................................
.........................................................................
Total return* 0.41% 23.44% 0.08% 14.70% 25.60%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(thousands) $244,486 $185,042 $38,838 $28,007 $6,559
.........................................................................
Ratios to average net
assets:
Expenses 2.08% 2.18% 2.14%+ 2.27% 2.50%+
.........................................................................
Net investment income 1.42% 1.46% 1.55%+ 1.64% 2.03%+
.........................................................................
Portfolio turnover rate 64% 50% 29% 2% 110%
.........................................................................
</TABLE>
(a) For the period from January 17, 1995 and January 6, 1995 (commencement of
class A and class B operations, respectively) to December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund shares
and the amount of per share realized and unrealized gains or losses at such
time.
See Combined Notes to Financial Statements.
29
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Year Ended March 31, December 31,
-------------------------- ----------------
1999 1998 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
Net asset, value beginning of
period $ 16.30 $ 13.53 $13.47 $12.19 $10.69
------- ------- ------ ------ ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.22 0.21 0.06 0.18 0.22
.........................................................................
Net realized and unrealized
gains or losses on securities (0.15) 2.94 0.05# 1.58 1.99
------- ------- ------ ------ ------
.........................................................................
Total from investment operations 0.07 3.15 0.11 1.76 2.21
------- ------- ------ ------ ------
.........................................................................
Less distributions to
shareholders from
.........................................................................
Net investment income (0.23) (0.20) (0.05) (0.20) (0.25)
Net realized gains (0.03) (0.18) 0 (0.28) (0.46)
------- ------- ------ ------ ------
.........................................................................
Total distributions to
shareholders (0.26) (0.38) (0.05) (0.48) (0.71)
------- ------- ------ ------ ------
.........................................................................
Net asset value, end of period $ 16.11 $ 16.30 $13.53 $13.47 $12.19
------- ------- ------ ------ ------
.........................................................................
.........................................................................
Total return* 0.41% 23.49% 0.08% 14.50% 21.20%
.........................................................................
Ratios and supplemental data
.........................................................................
Net assets, end of period
(thousands) $45,035 $27,699 $5,086 $4,108 $ 496
.........................................................................
Ratios to average net assets
Expenses 2.08% 2.18% 2.13%+ 2.25% 2.50%+
.........................................................................
Net investment income 1.42% 1.46% 1.55%+ 1.64% 2.07%+
.........................................................................
Portfolio turnover rate 64% 50% 29% 88% 110%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Year Ended December 31,
-------------------------- -------------------------
1999 1998 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value,
beginning of period $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27 $ 10.31
------- ------- ------- ------- ------- -------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.37 0.37 0.09 0.34 0.35 0.27
.........................................................................
Net realized and
unrealized gains or
losses on securities (0.15) 2.95 0.05# 1.56 2.39 0.08
------- ------- ------- ------- ------- -------
Total from investment
operations 0.22 3.32 0.14 1.90 2.74 0.35
------- ------- ------- ------- ------- -------
.........................................................................
.........................................................................
Less distributions to
shareholders from
Net realized gains (0.03) (0.18) 0 (0.28) (0.46) (0.12)
------- ------- ------- ------- ------- -------
.........................................................................
Net investment income (0.38) (0.36) (0.07) (0.30) (0.33) (0.27)
.........................................................................
Total distributions to
shareholders (0.41) (0.54) (0.07) (0.58) (0.79) (0.39)
------- ------- ------- ------- ------- -------
.........................................................................
Net asset value, end of
period $ 16.20 $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27
------- ------- ------- ------- ------- -------
.........................................................................
.........................................................................
Total return 1.38% 24.73% 1.00% 15.80% 27.30% 3.40%
.........................................................................
Ratios and supplemental
data
.........................................................................
Net assets, end of
period (thousands) $23,895 $19,881 $15,311 $15,002 $13,485 $10,575
.........................................................................
Ratios to average net
assets
Expenses 1.08% 1.15% 1.13%+ 1.30% 1.50% 1.49%
.........................................................................
Net investment income 2.42% 2.48% 2.54%+ 2.63% 3.06% 2.87%
.........................................................................
Portfolio turnover rate 64% 50% 29% 88% 110% 245%
.........................................................................
</TABLE>
(a) For the period from March 3, 1995 (commencement of class C operations) to
December 31, 1995.
(b) For the three-month period ended March 31, 1997. The Fund changed its fis-
cal year end from December 31 to March 31, effective March 31, 1997.
* Excluding sales charges.
+ Annualized.
# The per share amount is not in accord with the net realized and unrealized
gains or losses for the period due to the timing of the sales of Fund shares
and the amount of per share realized and unrealized gains or losses at such
time.
See Combined Notes to Financial Statements.
30
<PAGE>
[LOGO OF EVERGREEN AMERICAN RETIREMENT FUND APPEARS HERE]
Schedule of Investments
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 49.1%
Automotive Equipment & Manufacturing - 2.9%
29,000 Arvin Industries, Inc................................. $ 976,938
24,940 Daimler Chrysler AG................................... 2,140,164
30,000 Dana Corp. ........................................... 1,140,000
170,100 Simpson Industries, Inc. ............................. 1,637,212
------------
5,894,314
------------
Banks - 6.9%
40,000 BancorpSouth, Inc. ................................... 640,000
40,000 Bank of New York Co., Inc. ........................... 1,437,500
32,312 Bank One Corp......................................... 1,779,179
60,873 BB & T Corp. ......................................... 2,202,842
19,500 Comerica, Inc. ....................................... 1,217,531
47,761 First State Bancorp................................... 913,429
8,000 First Union Corp. **.................................. 427,500
53,000 Hibernia Corp. Cl. A.................................. 695,625
30,000 Huntington Bancshares, Inc............................ 928,125
188,730 Republic Security Financial Corp...................... 1,745,753
24,048 Suntrust Banks, Inc. ................................. 1,496,988
36,000 Susquehanna Bancshares, Inc........................... 661,500
------------
14,145,972
------------
Building, Construction &
Furnishings - 2.4%
10,000 Armstrong World Industries, Inc....................... 451,875
83,333 Eagle Hardware & Garden, Inc. ........................ 3,182,279
22,530 Southdown, Inc. ...................................... 1,209,579
------------
4,843,733
------------
Business Equipment &
Services - 0.4%
25,000 Dun & Bradstreet Corp................................. 890,625
------------
Consumer Products & Services - 4.3%
48,300 CPI Corp.............................................. 1,080,713
100,000 Lancaster Colony Corp. ............................... 2,662,500
20,000 Liz Claiborne, Inc. .................................. 652,500
40,000 Mattel, Inc. ......................................... 995,000
54,415 Newell Rubbermaid, Inc. .............................. 2,584,712
60,000 Service Corp. International........................... 855,000
------------
8,830,425
------------
Diversified Companies - 1.5%
10,000 Harris Corp........................................... 286,250
80,000 Ruddick Corp.......................................... 1,560,000
80,000 Tomkins Plc, ADR...................................... 1,190,000
------------
3,036,250
------------
Electrical Equipment &
Services - 2.6%
22,000 Emerson Electric Co. ................................. 1,164,625
56,656 Hubbell, Inc. Cl. B................................... 2,266,240
53,000 Thomas & Betts Corp. ................................. 1,990,813
------------
5,421,678
------------
Electronic Equipment &
Services - 1.2%
45,529 AMP, Inc. ............................................ 2,444,338
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Finance & Insurance - 2.2%
30,000 Dain Rauscher Corp.................................... $ 1,020,000
20,000 Hartford Financial Services Group, Inc................ 1,136,250
15,000 Lincoln National Corp................................. 1,483,125
20,000 Paine Webber Group, Inc............................... 797,500
------------
4,436,875
------------
Food & Beverage Products - 1.3%
70,900 Flowers Industries, Inc. ............................. 1,745,913
18,000 H.J. Heinz Co. ....................................... 852,750
------------
2,598,663
------------
Healthcare Products & Services - 4.0%
20,000 American Home Products Corp........................... 1,305,000
35,000 Baxter International, Inc............................. 2,310,000
28,000 Bristol-Myers Squibb Co............................... 1,800,750
50,100 Shared Medical System Corp. .......................... 2,789,944
------------
8,205,694
------------
Industrial Specialty Products & Services - 1.7%
80,000 Federal Signal Corp. ................................. 1,670,000
10,000 Honeywell, Inc. ...................................... 758,125
30,000 Leggett & Platt, Inc. ................................ 600,000
42,000 Lindberg Corp......................................... 370,125
------------
3,398,250
------------
Machinery - Diversified - 0.6%
82,650 Hardinge, Inc......................................... 1,167,431
------------
Metal Products & Services - 0.1%
50,000 Titanium Metals Corp. ................................ 287,500
------------
Oil/Energy - 2.6%
23,000 Atlantic Richfield Co................................. 1,679,000
10,586 BP Amoco Plc.......................................... 1,068,524
15,400 Exxon Corp. .......................................... 1,086,663
10,000 Mobil Corp............................................ 880,000
12,000 Texaco, Inc. ......................................... 681,000
------------
5,395,187
------------
Printing, Publishing, Broadcasting &
Entertainment - 1.3%
51,900 Bowne & Co., Inc. .................................... 606,581
40,000 New York Times Co. ................................... 1,140,000
11,600 Time Warner, Inc. .................................... 824,325
------------
2,570,906
------------
Retailing & Wholesale - 3.0%
43,000 J. C. Penney Co., Inc................................. 1,741,500
30,000 Longs Drug Stores Corp................................ 913,125
70,260 * Saks, Inc. ......................................... 1,826,760
70,600 Talbots Inc........................................... 1,720,875
------------
6,202,260
------------
Transportation - 2.1%
20,000 Delta Air Lines, Inc.................................. 1,390,000
20,000 * UAL Corp. .......................................... 1,555,000
27,000 Union Pacific Corp. .................................. 1,442,813
------------
4,387,813
------------
</TABLE>
31
<PAGE>
[LOGO OF EVERGREEN AMERICAN RETIREMENT FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Electric - 2.7%
40,000 Public Service Co. of New Mexico..................... $ 680,000
80,000 Reliant Energy, Inc.................................. 2,085,000
93,000 Sempra Energy........................................ 1,784,437
35,000 TNP Enterprises, Inc. ............................... 1,006,250
------------
5,555,687
------------
Utilities - Gas - 2.7%
54,000 Keyspan Energy....................................... 1,356,750
55,000 Peoples Energy Corp.................................. 1,777,187
60,000 Williams Companies, Inc.............................. 2,370,000
------------
5,503,937
------------
Utilities - Telephone - 2.6%
16,437 AT&T Corp............................................ 1,311,878
35,000 Frontier Corp........................................ 1,815,625
40,000 U.S. West, Inc....................................... 2,202,500
------------
5,330,003
------------
Total Common Stocks (cost $81,440,553)............... 100,547,541
------------
CONVERTIBLE PREFERRED - 10.7%
Aerospace & Defense - 0.8%
36,000 Loral Space & Communications
6.00%............................................... 1,602,000
------------
Banks - 0.7%
50,000 National Australia Bank, Ltd.
7.875%, Series Unit................................. 1,565,625
------------
Communication Systems &
Services - 0.6%
15,000 AirTouch Communications, Inc.
6.00%, Series B..................................... 1,181,250
------------
Electrical Equipment &
Services - 0.9%
50,000 Pioneer Standard Financial Trust 6.75%............... 1,775,000
------------
Finance & Insurance - 1.3%
20,000 American General Corp.
$3.00, Series A, MIPS............................... 1,790,000
13,000 American Heritage Life Investment Corp. 8.50%,
PRIDES.............................................. 825,500
------------
2,615,500
------------
Metal Products & Services - 0.2%
20,000 Timet Capital Trust I
6.625%.............................................. 387,500
------------
Printing, Publishing, Broadcasting &
Entertainment - 2.2%
27,000 Houston Industries, Inc.
7.00%, ACES (exchangeable for Time Warner, Inc.
common stock)....................................... 3,253,500
20,000 Merrill Lynch & Co., Inc.
6.00%, STRYPES (exchangeable for Cox Communications,
Inc. common stock).................................. 1,232,500
------------
4,486,000
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - continued
Retailing & Wholesale - 1.6%
7,500 CVS
6.00%, TRACES...................................... $ 641,250
65,000 Merrill Lynch & Co., Inc.
(exchangeable for Dollar
General Corp. common stock)
8.50%, STRYPES..................................... 2,742,188
------------
3,383,438
------------
Transportation - 1.0%
20,000 CNF Trust I
5.00%, Ser. A, TECONS (exchangeable for CNF
Transportation, Inc. common stock)................. 1,110,000
20,000 Union Pacific Capital Trust
6.25%, TIDES, 144A................................. 1,002,500
------------
2,112,500
------------
Utilities - Electric - 1.4%
45,000 Bndes Participacoes S.A............................. 742,500
40,000 Texas Utilities Co.
9.25%, PRIDES...................................... 2,132,500
------------
2,875,000
------------
Total Convertible Preferred (cost $19,930,152)...... 21,983,813
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 7.0%
Business Equipment &
Services - 0.1%
$ 250,000 Interim Services, Inc.
4.50%, 6/1/05...................................... 191,875
------------
Consumer Products & Services - 0.8%
2,000,000 Action Performance Companies, Inc. 4.75%, 4/1/05,
144A............................................... 1,745,000
------------
Electrical Equipment &
Services - 1.0%
4,000,000 Solectron Corp.
0.00%, 1/27/19, 144A............................... 1,980,000
------------
Healthcare Products & Services - 1.4%
2,000,000 Carematrix
6.25%, 8/15/04..................................... 1,720,000
2,000,000 Elan Finance Corporation Limited 0.00%, 12/14/18.... 1,150,000
------------
2,870,000
------------
Information Services &
Technology - 1.1%
6,000,000 Network Assocs. Inc.
0.00%, 2/13/18..................................... 2,190,000
------------
Oil Field Services - 1.1%
2,000,000 Nabors Industries, Inc.
5.00%, 5/15/06..................................... 2,257,500
------------
Retailing & Wholesale - 0.9%
Central Garden & Pet Co.
500,000 6.00%, 11/15/03, 144A............................... 451,250
1,600,000 6.00%, 11/15/03..................................... 1,444,000
------------
1,895,250
------------
</TABLE>
32
<PAGE>
[LOGO OF EVERGREEN AMERICAN RETIREMENT FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - continued
Transportation - 0.6%
$1,000,000 Continental Airlines Inc. 6.75%, 4/15/06............. $ 1,295,000
------------
Total Convertible Debentures (cost $15,377,420)...... 14,424,625
------------
CORPORATE BONDS - 1.5%
Banks - 0.5%
1,000,000 NationsBank Corp.
6.50%, 8/15/03...................................... 1,024,682
------------
Finance & Insurance - 0.5%
1,000,000 American General Finance Corp. 7.125%, 12/1/99....... 1,011,153
------------
Telecommunication Services &
Equipment - 0.5%
1,000,000 GTE Southwest, Inc. 5.82%, 12/1/99, Ser. A........... 1,003,455
------------
Total Corporate Bonds (cost $3,011,568).............. 3,039,290
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 30.7%
Government Agency Notes &
Bonds - 26.8%
2,000,000 Federal Farm Credit Bank Consolidated MTN
5.75%, 12/7/28...................................... 1,842,680
Federal Home Loan Bank
2,000,000 5.375%, 10/6/03...................................... 1,969,346
3,000,000 5.50%, 12/11/13...................................... 2,873,466
2,000,000 6.532%, 12/28/07..................................... 2,000,992
Federal Home Loan Mortgage Corp.
2,000,000 6.54%, 12/10/07...................................... 2,023,770
2,000,000 6.542%, 3/19/08...................................... 2,001,102
2,000,000 7.585%, 9/19/06...................................... 2,088,544
2,000,000 7.865%, 8/8/11....................................... 2,085,456
Federal National Mortgage Association
5,000,000 5.65%, 2/22/28....................................... 4,548,465
1,850,000 6.00%, 1/14/05....................................... 1,846,786
2,215,000 6.10%, 1/26/05....................................... 2,208,116
3,000,000 6.16%, 1/23/08....................................... 2,985,066
2,000,000 6.24%, 1/14/08....................................... 1,994,368
3,000,000 6.32%, 3/3/08........................................ 3,005,790
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - continued
Government Agency Notes &
Bonds - continued
Federal National Mortgage
Association - continued
$1,000,000 6.41%, 3/8/06........................................ $ 1,034,284
5,000,000 6.42%, 2/12/08....................................... 4,980,775
2,000,000 6.46%, 1/1/08........................................ 2,013,880
4,000,000 6.52%, 3/5/08........................................ 3,992,740
3,000,000 7.28%, 5/23/07....................................... 3,106,023
Federal National Mortgage
Association MTN
4,000,000 6.08%, 9/1/28........................................ 3,865,348
2,355,000 6.875%, 9/24/12...................................... 2,451,725
------------
54,918,722
------------
U.S. Treasury Notes & Bonds - 3.9%
U.S. Treasury Bonds
6,000,000 6.00%, 2/15/26....................................... 6,106,877
1,500,000 7.125%, 2/15/23...................................... 1,732,500
------------
7,839,377
------------
Total U.S. Government & Agency
Obligations (cost $63,341,840)...................... 62,758,099
------------
SHORT-TERM INVESTMENTS - 0.5%
U.S. Government Agency
Obligations - 0.5%
420,000 Federal Home Loan Bank
Discount Notes
4.76%, 4/23/99...................................... 418,778
305,000 Federal Home Loan Mortgage
Discount Notes
4.75%, 4/8/99....................................... 304,718
250,000 Federal National Mortgage
Association Discount Notes
4.76%, 4/6/99....................................... 249,835
------------
Total Short-Term Investments
(cost $973,331)..................................... 973,331
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $184,074,864).......................... 99.5% 203,726,699
Other Assets and
Liabilities - net............................ 0.5 1,033,890
----- ------------
Net Assets.................................... 100.0% $204,760,589
===== ============
</TABLE>
* Non-income producing securities.
** At March 31, 1999, the Fund owned 8,000 shares of common stock of
First Union Corp. at a cost of $106,108. During the year ended March
31, 1999, the Fund earned $13,440 in dividend income from this
investment. These shares were purchased by the Fund prior to the
acquisition of the investment advisor and Lieber & Company by First
Union.
144A Securities that may be resold to "qualified institutional buyers"
under rule 144A of the Securities Act of 1933. These securities have
been determined to be liquid under the guidelines established by the
Board of Trustees.
Summary of Abbreviations:
ACES Automatically Convertible Equity Securities
ADR American Depository Receipts
MIPS Monthly Income Preferred Shares
MTN Medium Term Note
PRIDES Preferred Redeemable Increased Dividend Equity Security
STRYPES Structured Yield Product Exchangeable for Stock
TECONS Term Convertible Securities
TIDES Term Income Deferrable Equitable Securities
TRACES Trust Automatic Common Exchangeable Securities
See Combined Notes to Financial Statements.
33
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 60.6%
Aerospace & Defense - 0.6%
80,000 United Technologies Corp........................ $ 10,835,000
--------------
Automotive Equipment &
Manufacturing - 1.9%
84,850 Daimler Chrysler AG............................. 7,281,191
400,000 *Delphi Automotive Systems Corp................. 7,100,000
138,200 Ford Motor Co................................... 7,842,850
118,000 General Motors Corp............................. 10,251,250
--------------
32,475,291
--------------
Banks - 2.9%
131,300 Bank One Corp................................... 7,229,706
150,000 BankAmerica Corp................................ 10,593,750
150,000 Dime Bancorp, Inc............................... 3,478,125
200,000 Fleet Financial Group, Inc...................... 7,525,000
135,000 Mellon Bank Corp................................ 9,500,625
300,000 Wells Fargo Co.................................. 10,518,750
--------------
48,845,956
--------------
Business Equipment & Services - 1.2%
240,000 Automatic Data Processing, Inc.................. 9,930,000
190,000 Xerox Corp...................................... 10,141,250
--------------
20,071,250
--------------
Capital Goods - 0.7%
325,000 Deere & Co...................................... 12,553,125
--------------
Chemical & Agricultural
Products - 2.3%
210,000 Du Pont (E. I.) De Nemours & Co................. 12,193,125
200,000 Monsanto Co..................................... 9,187,500
470,000 Morton International, Inc....................... 17,272,500
--------------
38,653,125
--------------
Communication Systems &
Services - 2.7%
155,000 *Cisco Systems, Inc............................. 16,987,031
185,000 *MCI WorldCom, Inc.............................. 16,378,281
135,000 *Tellabs, Inc................................... 13,196,250
--------------
46,561,562
--------------
Consumer Products & Services - 1.4%
80,000 Gillette Co..................................... 4,755,000
115,000 Newell Rubbermaid, Inc.+........................ 5,462,500
140,000 Procter & Gamble Co............................. 13,711,250
--------------
23,928,750
--------------
Diversified Companies - 1.9%
226,600 AlliedSignal, Inc............................... 11,145,888
400,000 Raychem Corp.................................... 9,025,000
173,900 Tyco International Ltd.......................... 12,477,325
--------------
32,648,213
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Electrical Equipment & Services - 3.4%
410,000 General Electric Co............................. $ 45,356,250
125,000 Motorola, Inc................................... 9,156,250
64,600 *Solectron Corp.+............................... 3,137,137
--------------
57,649,637
--------------
Environmental Services - 0.4%
150,000 Waste Management, Inc........................... 6,656,250
--------------
Finance & Insurance - 5.5%
145,000 American International Group, Inc............... 17,490,625
198,706 Associates First Capital Corp. Cl. A............ 8,941,770
230,000 Citigroup, Inc.................................. 14,691,250
217,170 Conseco, Inc.................................... 6,705,124
100,000 Federal Home Loan Mortgage Corp................. 5,712,500
120,000 Federal National Mortgage Assoc................. 8,310,000
90,000 Hartford Financial Services Group, Inc.......... 5,113,125
150,000 Lehman Brothers Holdings, Inc................... 8,962,500
135,000 Merrill Lynch & Co., Inc........................ 11,939,063
140,000 Nationwide Financial Services, Inc. Cl. A....... 5,880,000
--------------
93,745,957
--------------
Food & Beverage Products - 3.0%
93,600 Bestfoods....................................... 4,399,200
29,100 Coca Cola Co.................................... 1,786,013
212,400 Flowers Industries, Inc......................... 5,230,350
79,200 H.J. Heinz Co................................... 3,752,100
260,000 McDonald's Corp................................. 11,781,250
105,000 Pepsi Bottling Group, Inc....................... 2,277,187
200,000 Pepsico, Inc.................................... 7,837,500
200,900 *Safeway, Inc................................... 10,308,681
172,000 Sara Lee Corp................................... 4,257,000
--------------
51,629,281
--------------
Healthcare Products & Services - 8.8%
245,000 American Home Products Corp..................... 15,986,250
185,800 Bristol-Myers Squibb Co......................... 11,949,262
95,000 Cardinal Health, Inc............................ 6,270,000
180,000 Johnson & Johnson............................... 16,863,750
140,000 Lilly (Eli) & Co................................ 11,882,500
179,100 Medtronic, Inc.................................. 12,850,425
240,000 Merck & Co., Inc................................ 19,245,000
123,000 Pfizer, Inc..................................... 17,066,250
285,000 Pharmacia & Upjohn, Inc......................... 17,776,875
209,600 Schering-Plough Corp............................ 11,593,500
142,000 Warner-Lambert Co............................... 9,398,625
--------------
150,882,437
--------------
</TABLE>
34
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Industrial Specialty Products &
Services - 1.1%
225,000 Ecolab, Inc..................................... $ 7,987,500
150,000 Honeywell, Inc.................................. 11,371,875
--------------
19,359,375
--------------
Information Services &
Technology - 6.5%
108,800 *EMC Corp....................................... 13,899,200
190,000 Hewlett-Packard Co.............................. 12,884,375
148,000 Intel Corp...................................... 17,593,500
93,700 International Business Machines Corp............ 16,608,325
464,400 *Microsoft Corp................................. 41,607,337
63,800 *Sun Microsystems, Inc.......................... 7,976,994
--------------
110,569,731
--------------
Oil/Energy - 4.3%
70,600 Chevron Corp.................................... 6,243,687
142,900 Exxon Corp...................................... 10,083,381
108,900 Mobil Corp...................................... 9,583,200
200,000 Reliant Energy, Inc............................. 5,212,500
230,400 Royal Dutch Petroleum Co........................ 11,980,800
300,000 Texaco, Inc..................................... 17,025,000
387,500 Unocal Corp..................................... 14,264,844
--------------
74,393,412
--------------
Oil Field Services - 0.3%
48,434 BP Amoco Plc.................................... 4,888,807
--------------
Printing, Publishing, Broadcasting & Entertainment - 2.3%
370,000 CBS Corp.+...................................... 15,146,875
250,000 Disney (Walt) Co................................ 7,781,250
99,400 Gannett Co., Inc................................ 6,262,200
140,000 Time Warner, Inc................................ 9,948,750
--------------
39,139,075
--------------
Real Estate - 1.0%
175,000 Boston Properties, Inc. REIT+................... 5,534,375
475,000 Equity Office Properties Trust REIT............. 12,082,813
--------------
17,617,188
--------------
Retailing & Wholesale - 3.6%
232,500 CVS Corp........................................ 11,043,750
150,000 *Federated Department Stores, Inc............... 6,018,750
536,809 *Staples, Inc................................... 17,647,596
90,000 Tandy Corp...................................... 5,743,125
230,000 Wal-Mart Stores, Inc............................ 21,203,125
--------------
61,656,346
--------------
Transportation - 0.3%
125,000 CNF Transportation, Inc......................... 4,726,563
--------------
Utilities - Electric - 1.3%
195,000 Dominion Resources, Inc......................... 7,202,813
150,000 Duke Power Co................................... 8,193,750
165,000 Florida Progress Corp........................... 6,228,750
--------------
21,625,313
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Telephone - 3.2%
192,800 Ameritech Corp................................. $ 11,158,300
181,000 AT&T Corp...................................... 14,446,062
206,202 Bell Atlantic Corp............................. 10,658,066
112,000 GTE Corp....................................... 6,776,000
75,480 Sprint Corp.................................... 7,406,475
93,900 U.S. West, Inc................................. 5,170,369
--------------
55,615,272
--------------
Total Common Stocks
(cost $703,061,486)........................... 1,036,726,916
--------------
CONVERTIBLE PREFERRED - 0.7%
Retailing & Wholesale - 0.7%
200,000 Kmart Financing I 7.75% (cost $10,894,754)..... 12,100,000
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.5%
Healthcare Products & Services - 0.5%
$ 10,000,000 HEALTHSOUTH Corp.
3.25%, 4/1/03, 144A
(cost $10,000,000)............................ 8,150,000
--------------
ASSET-BACKED SECURITIES - 4.7%
958,590 Americredit Automobile Recreation Trust, Series
1997-B Class A 2
6.36%, 9/12/00................................ 961,183
3,500,000 Carco Auto Loan Master Trust, Series 1997-1,
Class A,
6.689%, 8/15/04............................... 3,528,280
2,750,000 Contimortgage Home Equity Loan, Series 1997-4,
Class A7 6.63%, 9/15/16....................... 2,726,790
4,000,000 Contimortgage Home Equity Loan Trust, Series
1998-1, Class A6,
6.58%, 12/15/18............................... 4,008,760
6,150,000 Corestates Home Equity Loan Trust, Series 1996-
1, Class A4,
7.00%, 6/15/12................................ 6,325,490
Green Tree Financial Corp.
3,126,369 Series 1993-4, Class A3, 6.25%,1/15/19......... 3,135,154
6,000,000 Series 1997-3, Class A5, 7.14%,7/15/28......... 6,181,860
Merrill Lynch Mortgage
Investors, Inc.
3,073,621 Series 1992-D, Class B,
8.50%, 6/15/17................................ 3,281,213
4,986,676 Series 1991-D, Class B,
9.85%, 7/15/11................................ 5,019,389
399,734 Money Store Auto Trust, Series 1997-2 Class A1
6.17%, 3/20/01**.............................. 401,313
8,000,000 Olympic Automobile Receivables Trust, Series
1997-A,
Class A5
6.80%, 2/15/05................................ 8,202,840
</TABLE>
See Combined Notes to Financial Statements.
35
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - continued
$ 10,000,000 Premier Auto Trust, Series 1997 2, Class B,
6.53%, 12/6/03................................ $ 10,118,700
2,500,000 Railcar Leasing LLC, Class A 2 7.125%, 1/15/13,
144A.......................................... 2,642,175
7,500,000 Southern Pacific Secured Assets Corp., Series
1996-3, Class A4
7.60%, 10/25/27............................... 7,797,532
388,223 Union Acceptance Corp., Series 1995-C, Class A,
6.40%, 10/10/02............................... 387,978
545,000 University Support Services, Inc.,
Series 1992-CD, Class D 9.00%, 11/1/07........ 543,297
6,900,000 WFS Financial Owner Trust, Series 1997-C, Class
CTFS 6.30%, 3/20/05........................... 6,856,875
8,591,010 World Omni Automobile Lease,
Series 1997-A, Class A4,
6.90%, 6/25/03................................ 8,711,799
--------------
Total Asset-Backed Securities
(cost $79,412,066)............................ 80,830,628
--------------
CORPORATE BONDS - 18.6%
Aerospace & Defense - 1.3%
5,000,000 Boeing Co.
6.625%, 2/15/38+.............................. 4,762,500
8,300,000 Lockheed Martin Corp.
7.45%, 6/15/04................................ 8,781,815
5,500,000 Northrop Grumman Corp.
7.00%, 3/1/06................................. 5,603,840
Raytheon Co.
2,000,000 6.40%, 12/15/18................................ 1,912,800
2,000,000 6.75%, 8/15/07................................. 2,050,460
--------------
23,111,415
--------------
Banks - 0.6%
3,465,000 Amsouth Bancorp
6.75%, 11/1/25................................ 3,533,884
5,000,000 Barnett Capital I
8.06%, 12/1/26................................ 5,260,850
698,000 Boatmen's Bancshares, Inc.
6.75%, 3/15/03................................ 721,481
--------------
9,516,215
--------------
Cable/Other Video Distribution - 0.6%
5,000,000 CSC Holdings Inc.
7.625%, 7/15/18............................... 5,037,500
4,000,000 TCI Communications Inc.
8.00%, 8/1/05................................. 4,420,000
--------------
9,457,500
--------------
Consumer Products & Services - 0.2%
3,000,000 American Greetings Corp.
6.10%, 8/1/28................................. 2,948,700
1,001,000 Stanley Works
7.375%, 12/15/02.............................. 1,032,572
--------------
3,981,272
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Diversified Companies - 0.3%
$ 5,000,000 Grand Metropolitan Investment Corp.
7.45%, 4/15/35................................ $ 5,490,550
--------------
Environmental Services - 0.2%
3,000,000 Allied Waste North America,Inc.
7.375%, 1/1/04................................ 2,932,500
--------------
Finance & Insurance - 6.8%
8,000,000 AMBAC, Inc.
9.375%, 8/1/11................................ 9,893,680
6,550,000 Associates Corp. North America
8.625%, 11/15/04.............................. 7,349,231
3,000,000 Bear Stearns Cos., Inc.
6.875%, 10/1/05............................... 3,062,040
5,800,000 Beneficial Corp.
6.25%, 2/18/13................................ 5,840,948
4,500,000 CIT Group Holdings, Inc.
9.25%, 3/15/01................................ 4,789,215
6,400,000 Commercial Credit Group, Inc.
10.00%, 5/15/09............................... 8,126,144
1,280,000 Dean Witter, Discover & Co.
6.75%, 10/15/13............................... 1,310,707
4,900,000 Ford Motor Credit Company
5.80%, 1/12/09................................ 4,707,038
General Electric Capital Corp.
1,300,000 8.75%, 3/14/03................................. 1,441,817
2,470,000 8.75%, 5/21/07................................. 2,902,991
5,600,000 General Motors Acceptance Corp.
8.50%, 1/1/03................................. 6,085,464
7,500,000 GS Escrow Corp.
6.75%, 8/1/01................................. 7,524,315
1,750,000 International Lease Finance Corp.
5.75%, 1/15/03................................ 1,741,127
4,975,000 John Hancock Mutual Life Insurance Co.
7.375%, 2/15/24, 144A......................... 5,192,955
5,000,000 Lehman Brothers Holdings Incorporated
6.625%, 4/1/04................................ 4,989,250
5,725,000 Massachusetts Mutual Life Insurance Co.,
7.625%, 11/15/23, 144A........................ 6,226,968
6,000,000 Nationwide CSN Trust,
9.875%, 2/15/25, 144A ........................ 6,836,040
Paine Webber Group, Inc.
5,460,000 6.45%, 12/1/03................................. 5,457,871
4,705,000 8.25%, 5/1/02.................................. 4,948,154
6,200,000 Prudential Insurance Co.
7.125%, 7/1/07................................ 6,444,652
11,700,000 Sun Life Canada Capital Trust
8.526%, 5/29/49............................... 11,975,886
--------------
116,846,493
--------------
Food & Beverage Products - 0.2%
4,000,000 Pepsi Bottling Group, Inc.
7.00%, 3/1/29................................. 4,014,068
--------------
</TABLE>
36
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Healthcare Products & Services - 0.5%
$ 5,000,000 Johnson & Johnson
8.72%, 11/1/24........................... $ 5,815,300
3,000,000 Merck & Co., Inc.
6.40%, 3/1/28............................ 2,960,850
--------------
8,776,150
--------------
Industrial Specialty Products &
Services - 0.1%
1,126,000 Waste Management, Inc.
8.75%, 5/1/18............................ 1,210,900
--------------
Information Services & Technology - 0.4%
6,500,000 Comdisco Inc.
6.125%, 1/15/03.......................... 6,483,100
--------------
Machinery - Diversified - 0.1%
2,000,000 Caterpillar, Inc.
9.375%, 7/15/01+......................... 2,155,300
--------------
Oil/Energy - 0.9%
931,000 Atlantic Richfield Co.
9.00%, 4/1/21............................ 1,167,409
4,000,000 CMS Panhandle Holding Co.
6.50%, 7/15/09........................... 3,998,696
5,000,000 K N Energy Inc.
7.35%, 8/1/26............................ 5,304,500
5,000,000 Petroleum Geo-Services
7.50%, 3/31/07........................... 5,157,650
--------------
15,628,255
--------------
Paper & Packaging - 0.3%
5,000,000 James River Corp.
6.75%, 10/1/99........................... 5,025,600
--------------
Real Estate - 0.6%
EOP Operating, Ltd.
3,050,000 6.375%, 2/15/03........................... 3,027,857
3,950,000 6.625%, 2/15/05........................... 3,900,467
4,000,000 Glenborough Pptys LP
7.625%, 3/15/05.......................... 3,875,920
--------------
10,804,244
--------------
Retailing & Wholesale - 1.0%
3,000,000 CVS Corp.
5.50%, 2/15/04........................... 2,958,279
8,000,000 Fred Meyer Inc.
7.15%, 3/1/03............................ 8,225,840
4,300,000 Sears Roebuck & Co.
10.00%, 2/3/12........................... 5,607,458
--------------
16,791,577
--------------
Telecommunication Services & Equipment -
0.4%
6,750,000 Bellsouth Capital Funding Corp.
7.12%, 7/15/97........................... 6,927,593
--------------
Transportation - 1.8%
5,000,000 American Airline
8.39%, 1/2/17............................ 5,073,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Transportation - continued
$ 5,000,000 Continental Airlines Inc.
6.795%, 2/2/20................... $ 4,975,625
5,881,288 FDX Corp.
6.845%, 1/15/19.................. 5,984,828
7,600,000 Golden St. Pete Trans Corp.
8.04%, 2/1/19.................... 7,448,000
6,250,000 Norfolk Southern Corp.
7.05%, 5/1/37.................... 6,481,250
--------------
29,962,703
--------------
Utilities - Electric - 0.7%
6,500,000 National Rural Utilities
Cooperative Finance
5.00%, 10/1/02................... 6,351,215
4,000,000 Soyland Power Cooperative Inc.
8.67%, 9/15/18................... 4,526,080
838,000 Union Electric Co.
8.00%, 12/15/22.................. 902,618
--------------
11,779,913
--------------
Utilities - Telephone - 1.6%
5,000,000 AT&T Corp.
6.50%, 3/15/29................... 4,887,800
2,000,000 MCI Communications Corp. 6.125%,
4/15/02.......................... 2,018,240
5,640,000 MCI Worldcom Inc. 7.75%, 4/1/07... 6,179,015
Sprint Capital Corp.
3,500,000 6.125%, 11/15/08.................. 3,440,745
10,260,000 6.875%, 11/15/28.................. 10,130,724
--------------
26,656,524
--------------
Total Corporate Bonds
(cost $319,871,543).............. 317,551,872
--------------
FOREIGN BONDS (U.S. DOLLARS) - 1.2%
640,000 International Bank For
Reconstruction & Development Co.
COLTS 7.95%, 5/15/16............. 763,424
4,000,000 National Westminster Bancorp
9.375%, 11/15/03................. 4,543,320
30,000,000 Skandinaviska Enskilda
0.00%, 5/26/33................... 2,553,000
4,500,000 Sumitomo Bank Corp.
9.40%, 12/29/49, 144A............ 4,418,010
8,000,000 YPF Sociedad Anonima
7.25%, 3/15/03................... 7,839,360
--------------
Total Foreign Bonds (U.S. Dollars)
(cost $20,314,026)............... 20,117,114
--------------
FOREIGN BONDS (NON U.S. DOLLARS) - 2.0%
GRD
1,750,000,000 Greece Rep Of
8.60%, 3/26/08................... 6,790,369
</TABLE>
37
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
FOREIGN BONDS (NON U.S. DOLLARS) - continued
DKK Nykredit
2,226,000 6.00%, 10/1/26................................ $ 324,316
DKK
53,000,000 6.00%, 10/1/29................................ 7,540,713
DKK Realkredit Danmark
101,410,000 5.00%, 10/1/29................................ 13,666,035
DKK
151,000 6.00%, 10/1/26................................ 21,945
DKK
44,250,000 6.00%, 10/1/29................................ 6,260,396
--------------
Total Foreign Bonds (Non U.S. Dollars) (cost
$36,088,807)................................. 34,603,774
--------------
MORTGAGE-BACKED SECURITIES - 8.4%
Mortgage Pass-Through Certificates - 2.9%
Federal Home Loan Mortgage Corp.
$ 8,600,000 5.00%, 1/15/04................................ 8,395,750
2,449,137 7.32%, 4/1/22................................. 2,520,701
Federal National Mortgage Association
15,334,857 5.50%, 7/1/09................................. 15,036,441
5,400,000 6.50%, 10/1/28................................ 5,374,674
669,470 6.80%, 5/1/22................................. 687,466
1,301,429 6.97%, 2/1/27................................. 1,326,442
2,997,435 7.00%, 5/1/24................................. 3,038,649
1,864,088 7.07%, 1/1/31................................. 1,919,433
9,187,027 7.08%, 9/1/21................................. 9,462,638
Government National Mortgage Association
348,176 8.50%, 5/15/21................................ 370,480
175,933 8.50%, 7/15/21................................ 186,213
439,586 8.50%, 6/15/22................................ 464,999
243,472 9.00%, 9/15/21................................ 261,350
300,598 9.00%, 10/15/21............................... 322,671
207,892 9.50%, 2/15/21................................ 223,353
--------------
49,591,260
--------------
Collateralized Mortgage Obligations - 5.5%
10,000,000 Bear Stearns Commercial Mortgage Securities
Inc., Series 1998-C1, Class C
6.75%, 6/16/30............................... 9,954,687
2,000,000 Chase Commercial Mortgage Securities Corp.
Series 1997-2, Class B, 6.60%,11/19/07........ 2,020,130
2,200,000 Chase Commercial Mortgage Securities Corp.
Series 1997-1, Class B,
7.37%, 4/19/07................................ 2,322,287
2,500,000 CNL Funding, Series 98-1, LP, Class B-1
6.60%, 4/18/11............................... 2,302,734
2,400,000 Commercial Mortgage Acceptance Corp.,
Series 1997-ML1, Class B, 6.65%, 12/15/07.... 2,410,404
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - continued
Collateralized Mortgage Obligations -
continued
$ 6,114,301 Criimi Mae Financial Corp., Series 1, Class A,
7.00%, 1/1/33................................ $ 6,156,337
4,000,000 Crimi Mae Commercial Mortgage Trust, Series
1998 C1,
Class A, 7.00%, 3/2/11 144A.................. 3,650,000
1,250,000 Federal National Mortgage Association
Series 1993-248, Class SA, 4.61%, 8/25/23..... 1,126,413
5,000,000 Federal National Mortgage Association
Series 1997-M6, Class C, 6.85%, 5/17/20....... 5,162,425
1,250,000 FFCA Secured Lending Corp., Series 1997-1,
Class B1, 7.74%, 6/18/13..................... 1,187,695
5,460,063 Financial Asset Securitization, Series 1997-
NAM 1, Class FXA2, 7.75%, 4/25/27............ 5,624,939
3,745,000 G E Capital Mortgage Services Inc., Series
1994-27, Class A6, 6.50%, 7/25/24............ 3,567,113
7,740,555 Independent National Mortgage Corp., Series
1997-A, Class A,
7.82%, 12/26/26 144A......................... 7,387,392
265,445 KS Mortgage Capital, L. P. Series 1995-1,
Class A1, 7.25%, 4/20/02 144A,............... 265,432
6,452,828 Mellon Residential Funding Corporation, Series
1999-TBC1, Class A3
6.11%, 1/25/29............................... 6,462,911
1,683,319 Mid State Trust, Series 6, Class A3,
7.54%, 7/1/35................................ 1,682,259
2,550,000 Morgan Stanley Capital I Inc., Series 1998-
HF2, Class B 6.30%, 11/15/30................. 2,613,839
3,825,000 Nationslink Funding Corp., Series 1998-2,
Class B
6.65%, 7/20/08............................... 3,900,902
11,419,239 Nomura Depositor Trust, Series 1998-ST1,
Class A1, 5.22%, 2/15/34 144A................ 11,172,983
2,460,111 PNC Mortgage Securities Corp.
Series 1997-4, Class 2PP3, 7.25%, 7/25/27..... 2,502,133
4,672,922 PNC Mortgage Securities Corp.
Series 1997-4, Class 2PP1, 7.50%, 7/25/27..... 4,739,365
85,021 Prudential Home Mortgage Securities Co.,
Series 1990-12, Class A1
7.88%, 10/1/20............................... 84,752
4,131,817 Residential Funding Mortgage Securities I
Inc.,
Series 1999-S2 Class M1
6.50%, 1/25/29............................... 3,986,398
</TABLE>
38
<PAGE>
[LOGO OF EVERGREEN BALANCED FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MORTGAGE-BACKED SECURITIES - continued
Collateralized Mortgage Obligations -
continued
$ 3,407,028 Shearson Lehman CMO Inc., Series V, Class 5
7.50%, 5/1/19................................ $ 3,456,907
--------------
93,740,437
--------------
Total Mortgage-Backed Securities (cost
$143,350,205)................................ 143,331,697
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 2.1%
U.S. Treasury Notes & Bonds - 2.1%
U.S. Treasury Bonds
10,750,000 5.25%, 11/15/28............................... 10,026,095
8,220,000 5.50%, 8/15/28................................ 7,866,787
9,200,000 7.875%, 2/15/21............................... 11,389,324
6,905,000 U.S. Treasury Notes 6.125%, 8/15/07........... 7,228,636
--------------
Total U.S. Government & Agency Obligations
(cost $36,861,900)........................... 36,510,842
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 0.9%
Money Market Shares - 0.5%
$ 9,459,928 Navigator Prime Portfolio(b).................. $ 9,459,928
--------------
Repurchase Agreement - 0.4%
7,144,000 Evergreen Joint Repurchase Agreement.
Investments in repurchase agreements, in a
joint trading account, purchased 3/31/99,
5.00% maturing 4/1/99, maturity value
$7,144,992 (cost $7,144,000)(a).............. 7,144,000
--------------
Total Short Term Investments
(cost $16,603,928)........................... 16,603,928
--------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $1,376,458,715).................. 99.7% 1,706,526,771
Other Assets and
Liabilities - net...................... 0.3 4,486,097
----- --------------
Net Assets.............................. 100.0% $1,711,012,868
===== ==============
</TABLE>
* Non-income producing securities
** At March 31, 1999, the Fund owned a principal amount of $399,734 of Money
Store Auto Trust at a cost of $400,657. During the year ended March 31,
1999, the Fund earned $20,026 in interest income from this investment. This
security was purchased by the Fund prior to the acquisition of The Money
Store by First Union.
+ A portion of these securities are on loan (see Note 8).
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
March 31, 1999.
(b) Represents investment of cash collateral received for securities on loan.
144A Securities that may be resold to "qualified institutional buyers" under
rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under the guidelines established by the Board of Trust-
ees.
Summary of Abbreviations:
CMO Collateralized Mortgage Obligations
COLTS Continously Offered Longer Term Securities
REIT Real Estate Investment Trust
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Exchange U.S. Value at In Exchange Appreciation
Date Contracts to Receive March 31, 1999 for U.S. $ (Depreciation)
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/19/99 81,577,000 Danish Krone $11,871,554 $12,836,462 $964,908
6/15/99 105,017,000 Danish Krone 15,323,511 15,607,092 283,581
6/30/99 6,400,000 Euro 6,955,516 6,920,960 (34,556)
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 65.6%
Aerospace & Defense - 0.4%
287,600 Boeing Co. ........................................ $ 9,814,350
35,000 Sundstrand Corp. .................................. 2,432,500
1,000 United Technologies Corp. ......................... 135,438
--------------
12,382,288
--------------
Automotive Equipment & Manufacturing - 1.9%
155,970 Autoliv, Inc. ..................................... 5,858,623
354,066 Daimler Chrysler AG................................ 30,383,289
150,000 General Motors Corp. .............................. 13,031,250
30,000 Genuine Parts Co. ................................. 864,375
208,800 Goodyear Tire & Rubber Co. ........................ 10,400,850
4,000 *Strattec Security Corp. .......................... 112,500
--------------
60,650,887
--------------
Banks - 6.5%
50,000 Bancfirst Corp. ................................... 1,743,750
127,923 Bank One Corp. .................................... 7,043,760
183,539 BankAmerica Corp. ................................. 12,962,442
788,600 BankBoston Corp. .................................. 34,156,237
83,000 Bankers Trust Corp. ............................... 7,324,750
140,062 BSB Bancorp, Inc. ................................. 3,411,823
27,000 CB Bancshares, Inc. ............................... 718,875
164,000 CCBT Bancorp, Inc. ................................ 2,644,500
301,950 Dime Bancorp, Inc. ................................ 7,001,466
16,875 First Security Corp. .............................. 325,898
117,000 First Union Corp.**................................ 6,252,187
91,200 Firstar Corp. ..................................... 8,162,400
126,000 Fleet Financial Group, Inc. ....................... 4,740,750
43,400 Hancock Holding Co. ............................... 1,996,400
70,801 Hibernia Corp. Cl. A............................... 929,263
281,400 KeyCorp ........................................... 8,529,937
3,800 M&T Bank Corp. .................................... 1,820,200
95,000 Mellon Bank Corp. ................................. 6,685,625
40,000 Mercantile Bancorp, Inc. .......................... 1,900,000
50,000 Mississippi Valley Bancshares, Inc. ............... 1,606,250
349,080 National City Corp. ............................... 23,170,185
280,500 Pacific Century Financial Corp. ................... 5,855,438
132,300 Peoples Heritage Financial Group .................. 2,381,400
102,000 Seacoast Banking Corp. of Florida
Cl. A ............................................ 2,728,500
90,000 SouthTrust Corp. .................................. 3,358,125
260,280 SunTrust Banks, Inc. .............................. 16,202,430
65,000 U.S. Trust Corp. .................................. 4,822,188
160,000 Webster Financial Corp. ........................... 4,620,000
175,000 Wells Fargo Co. ................................... 6,135,938
238,300 Wilmington Trust Corp. ............................ 13,612,887
--------------
202,843,604
--------------
Building, Construction &
Furnishings - 1.2%
397,100 Armstrong World Industries, Inc. .................. 17,943,956
80,800 Centex Corp. ...................................... 2,696,700
414,225 D.R. Horton, Inc. ................................. 6,938,269
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Building, Construction &
Furnishings - continued
17,857 Engle Homes, Inc. .................................. $ 187,498
366,122 Lennar Corp. ....................................... 8,191,980
-------------
35,958,403
-------------
Business Equipment &
Services - 0.4%
28,000 Automatic Data Processing, Inc. .................... 1,158,500
82,000 *Computer Sciences Corp. ........................... 4,525,375
120,000 *Convergys Corp. ................................... 2,055,000
45,500 *Crescent Operating, Inc. .......................... 164,938
603 Momentum Business Applications...................... 5,389
40,636 Paychex, Inc. ...................................... 1,927,670
30,000 Pittston Brink's Group.............................. 705,000
20,000 *Policy Management Systems Corp. ................... 612,500
20,000 Xerox Corp. ........................................ 1,067,500
-------------
12,221,872
-------------
Capital Goods - 0.7%
185,000 Caterpillar, Inc. .................................. 8,498,438
321,700 Deere & Co. ........................................ 12,425,662
-------------
20,924,100
-------------
Chemical & Agricultural
Products - 2.4%
80,000 Air Products & Chemicals, Inc. ..................... 2,740,000
595,400 Du Pont (E. I.) De Nemours & Co. ................... 34,570,412
42,000 H.B. Fuller Co. .................................... 2,475,375
260,800 Monsanto Co. ....................................... 11,980,500
120,000 Morton International, Inc. ......................... 4,410,000
55,000 Nalco Chemical Co. ................................. 1,460,938
174,000 Pioneer Hi-Bred International, Inc. ................ 6,546,750
120,800 PPG Industries, Inc. ............................... 6,191,000
40,000 Praxair, Inc. ...................................... 1,442,500
115,000 Schulman (A.), Inc. ................................ 1,566,875
100,560 Solutia, Inc. ...................................... 1,747,230
-------------
75,131,580
-------------
Communication Systems & Services - 1.2%
30,000 *AirTouch Communications, Inc. ..................... 2,898,750
49,800 *Ascend Communications, Inc. ....................... 4,167,637
179,100 *Cisco Systems, Inc. ............................... 19,622,644
70,000 Lucent Technologies, Inc. .......................... 7,542,500
39,900 *MCI WorldCom, Inc. ................................ 3,533,644
6,666 Nielsen Media Research, Inc. ....................... 164,567
-------------
37,929,742
-------------
Consumer Products &
Services - 1.3%
35,000 Black & Decker Corp. ............................... 1,940,313
208,150 Cendant Corp. ...................................... 3,278,362
40,065 *Consolidated Products, Inc. ....................... 703,642
10,000 Harman International Industries, Inc. .............. 367,500
69,300 International Flavors & Fragrances, Inc. ........... 2,603,081
</TABLE>
40
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Consumer Products &
Services - continued
130,100 *Nautica Enterprises, Inc. ........................ $ 1,471,756
224,600 Newell Rubbermaid, Inc. ........................... 10,668,500
20,000 Premark International, Inc. ....................... 658,750
100,451 Procter & Gamble Co. .............................. 9,837,920
221,100 Stanley Works...................................... 5,665,687
108,500 Tupperware Corp. .................................. 1,953,000
--------------
39,148,511
--------------
Diversified Companies - 0.2%
167,100 GATX Corp. ........................................ 5,503,856
2,800 Tyco International Ltd. ........................... 200,900
--------------
5,704,756
--------------
Electrical Equipment &
Services - 2.5%
130,000 Applied Power, Inc. Cl. A.......................... 3,542,500
254,300 Emerson Electric Co. .............................. 13,462,006
562,400 General Electric Co. .............................. 62,215,500
--------------
79,220,006
--------------
Electronic Equipment &
Services - 0.6%
226,667 AMP, Inc. ......................................... 12,169,185
162,566 *Analog Devices, Inc. ............................. 4,836,338
2,000 Texas Instruments, Inc. ........................... 198,500
--------------
17,204,023
--------------
Finance & Insurance - 11.5%
100,000 AFLAC, Inc. ....................................... 5,443,750
294,000 Allstate Corp. .................................... 10,896,375
110,600 AMBAC Financial Group, Inc. ....................... 5,972,400
15,000 American Bankers Insurance Group, Inc. ............ 780,000
263,000 American Express Co. .............................. 30,902,500
294,090 American International Group, Inc. ................ 35,474,606
61,800 Chubb Corp. ....................................... 3,619,163
301,750 Citigroup, Inc. ................................... 19,274,281
158,350 Countrywide Credit Industries, Inc. ............... 5,938,125
40,000 FBL Financial Group, Inc. Cl. A.................... 710,000
84,000 Federal Home Loan Mortgage Corp. .................. 4,798,500
718,000 Federal National Mortgage Assoc. .................. 49,721,500
126,500 Frontier Insurance Group, Inc. .................... 1,502,188
497,055 Household International, Inc. ..................... 22,678,134
32,700 Interstate/Johnson Lane, Inc. ..................... 1,023,919
50,900 J.P. Morgan & Co., Inc. ........................... 6,279,788
155,200 John Nuveen Co. Cl. A.............................. 6,499,000
177,600 Lehman Brothers Holdings, Inc. .................... 10,611,600
93,000 Lincoln National Corp. ............................ 9,195,375
419,100 Marsh & McLennan Co., Inc. ........................ 31,091,981
85,000 MBIA, Inc. ........................................ 4,930,000
402,400 Merrill Lynch & Co., Inc. ......................... 35,587,250
343,800 MGIC Investment Corp. ............................. 12,054,487
155,000 NAC RE Corp. ...................................... 8,321,562
110,000 Nationwide Financial Services, Inc. Cl. A.......... 4,620,000
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Finance & Insurance - continued
15,000 Ohio Casualty Corp. ................................ $ 585,000
201,100 Paine Webber Group, Inc. ........................... 8,018,862
39,200 Progressive Corp. Ohio.............................. 5,625,200
312,975 Raymond James Financial, Inc. ...................... 6,181,256
20,250 Reinsurance Group Of America........................ 685,969
3,500 SLM Holding Corp. .................................. 146,125
20,000 Torchmark Corp. .................................... 632,500
147,000 UNUM Corp. ......................................... 6,991,688
40,860 Xl Capital Ltd. .................................... 2,482,245
-------------
359,275,329
-------------
Food & Beverage Products - 0.5%
100,000 American Stores Co. ................................ 3,300,000
240,000 Bestfoods........................................... 11,280,000
30,000 *Corn Products International, Inc. ................. 718,125
23,027 Hershey Foods Corp. ................................ 1,289,512
3,000 *Tricon Global Restaurants, Inc. ................... 210,750
-------------
16,798,387
-------------
Forest Products - 0.1%
800 Union Camp Corp. ................................... 53,700
90,000 Willamette Industries, Inc. ........................ 3,397,500
-------------
3,451,200
-------------
Healthcare Products &
Services - 7.3%
431,400 Abbott Laboratories................................. 20,194,912
427,600 American Home Products Corp. ....................... 27,900,900
70,000 Baxter International, Inc. ......................... 4,620,000
87,600 Beckman Coulter, Inc. .............................. 3,854,400
202,400 Bristol-Myers Squibb Co. ........................... 13,016,850
100,000 Columbia/HCA Healthcare Corp. ...................... 1,893,750
23,000 *Covance, Inc. ..................................... 576,438
152,000 *First Health Group Corp. .......................... 2,441,500
29,400 Glaxo Wellcome Plc, ADR............................. 1,967,963
137,100 Guidant Corp. ...................................... 8,294,550
88,500 *Health Management Associates, Inc. Cl. A........... 1,078,594
40,000 IMS Health, Inc. ................................... 1,325,000
111,500 Johnson & Johnson................................... 10,446,156
312,524 Lilly (Eli) & Co. .................................. 26,525,474
130,000 *Lincare Holdings, Inc. ............................ 3,656,250
81,666 *Maxxim Medical, Inc. .............................. 1,541,446
183,680 McKesson HBOC, Inc. ................................ 12,122,880
96,600 Medtronic, Inc. .................................... 6,931,050
335,516 Merck & Co., Inc. .................................. 26,904,189
162,000 Perkin Elmer Corp. ................................. 15,724,125
89,500 Pfizer, Inc. ....................................... 12,418,125
314,000 Schering-Plough Corp. .............................. 17,368,125
9,200 Shared Medical System Corp. ........................ 512,325
34,900 Superior Uniform Group, Inc. ....................... 436,250
81,400 Warner-Lambert Co. ................................. 5,387,662
-------------
227,138,914
-------------
</TABLE>
41
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Industrial Specialty Products & Services - 1.0%
100,000 Corning, Inc. ..................................... $ 6,000,000
58,800 *Halter Marine Group, Inc. ........................ 341,775
127,000 Honeywell, Inc. ................................... 9,628,188
190,000 Snap-on, Inc. ..................................... 5,510,000
378,000 Timken Co. ........................................ 6,142,500
50,000 Trinity Industries, Inc. .......................... 1,468,750
38,000 *Unova, Inc. ...................................... 501,125
--------------
29,592,338
--------------
Information Services & Technology - 9.0%
38,000 *BMC Software, Inc. ............................... 1,408,375
154,133 Compaq Computer Corp. ............................. 4,884,089
37,500 Computer Associates International, Inc. ........... 1,333,594
60,000 *Dell Computer Corp. .............................. 2,452,500
40,000 *EMC Corp. ........................................ 5,110,000
514,800 Hewlett-Packard Co. ............................... 34,909,875
809,600 Intel Corp. ....................................... 96,241,200
230,000 International Business Machines Corp. ............. 40,767,500
740,000 *Microsoft Corp. .................................. 66,322,500
224,000 *Sun Microsystems, Inc. ........................... 28,014,000
--------------
281,443,633
--------------
Leisure & Tourism - 0.3%
292,750 Starwood Hotels & Resorts.......................... 8,361,672
--------------
Oil/Energy - 2.0%
100,000 Atlantic Richfield Co. ............................ 7,300,000
105,054 BP Amoco Plc....................................... 10,603,888
153,000 Chevron Corp. ..................................... 13,530,938
66,000 Consolidated Natural Gas Co. ...................... 3,213,375
289,000 Equitable Resources, Inc. ......................... 7,532,063
86,400 Exxon Corp. ....................................... 6,096,600
71,800 Mobil Corp. ....................................... 6,318,400
86,206 *Seitel, Inc. ..................................... 1,201,496
1,200 Sonat, Inc. ....................................... 36,000
120,000 Texaco, Inc. ...................................... 6,810,000
33,877 Union Pacific Resource Group, Inc. ................ 402,289
--------------
63,045,049
--------------
Oil Field Services - 0.5%
83,430 Baker Hughes, Inc. ................................ 2,028,392
23,600 Halliburton Co. ................................... 908,600
187,800 Schlumberger Ltd. ................................. 11,303,212
--------------
14,240,204
--------------
Paper & Packaging - 0.2%
60,000 Kimberly-Clark Corp. .............................. 2,876,250
37,520 *Sealed Air Corp. ................................. 1,845,515
--------------
4,721,765
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Printing, Publishing, Broadcasting &
Entertainment - 1.0%
80,000 Belo (A.H.) Corp. Ser. A.......................... $ 1,460,000
128,620 *CBS Corp. ....................................... 5,265,381
20,000 *Cox Communications, Inc. Cl. A................... 1,512,500
107,479 Disney (Walt) Co. ................................ 3,345,284
40,000 New York Times Co. ............................... 1,140,000
243,800 Time Warner, Inc. ................................ 17,325,038
3,000 Washington Post Co., Cl. B........................ 1,564,500
--------------
31,612,703
--------------
Real Estate - 3.7%
38,000 *Alexander's, Inc. REIT........................... 2,574,500
111,992 Archstone Communities Trust....................... 2,253,839
24,100 Arden Realty Group, Inc. REIT..................... 536,225
50,000 Avalonbay Communities, Inc. REIT.................. 1,581,250
73,100 Berkshire Realty Co., Inc. REIT................... 817,806
150,000 Boston Properties, Inc. REIT...................... 4,743,750
50,009 Bradley Real Estate, Inc. REIT.................... 906,413
140,000 Brandywine Realty Trust REIT...................... 2,275,000
28,917 Camden Property Trust REIT........................ 715,696
800,000 Canadian Hotel Properties REIT.................... 4,239,815
260,400 Capstead Mortgage Corp. REIT...................... 1,399,650
171,900 CarrAmerica Realty Corp. REIT..................... 3,792,544
130,000 Chelsea GCA Realty, Inc. REIT..................... 3,623,750
376,700 Crescent Real Estate Equities, Inc. REIT.......... 8,099,050
305,300 Crown American Realty Trust REIT.................. 1,984,450
200,000 Entertainment Properties Trust REIT............... 3,450,000
42,500 Equity Residential Properties Trust REIT.......... 1,753,125
105,200 Essex Property Trust, Inc. REIT................... 2,748,350
115,000 FelCor Lodging Trust Inc. REIT.................... 2,666,562
10,700 Gables Residential Trust REIT..................... 236,069
174,000 Glimcher Realty Trust REIT........................ 2,501,250
28,000 Highwoods Properties, Inc. REIT................... 659,750
72,419 *Homestead Village Properties, Inc................ 176,521
16,068 *Horizon Group Properties, Inc. REIT.............. 70,298
50,300 Indymac Mortgage Holdings, Inc. REIT.............. 547,013
140,000 Innkeepers USA Trust REIT......................... 1,303,750
111,500 Kilroy Realty Corp. REIT.......................... 2,285,750
132,000 Kranzco Realty Trust REIT......................... 1,559,250
45,000 Liberty Property Trust REIT....................... 933,750
175,000 Mack-Cali Realty Corp. REIT....................... 5,140,625
235,000 Marriott International, Inc. Cl. A................ 7,901,875
370,000 Meditrust Co. REIT................................ 4,601,875
180,086 Patriot American Hospitality, Inc. REIT........... 922,941
200,000 Philips International Realty Corp. REIT........... 2,837,500
278,713 Post Property, Inc. REIT.......................... 10,033,668
</TABLE>
42
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - continued
166,500 Prentiss Properties Trust REIT..................... $ 3,101,062
220,686 Prime Retail, Inc. REIT............................ 1,931,002
76,817 Prologis Trust REIT................................ 1,574,748
90,000 Public Storage, Inc. .............................. 2,250,000
31,250 *Sodexho Marriott Services, Inc. .................. 689,453
100,000 Sovran Self Storage, Inc. REIT..................... 2,331,250
70,000 Spieker Properties, Inc. REIT...................... 2,467,500
14,000 Storage USA, Inc. REIT............................. 397,250
223,200 Sunstone Hotel Investors, Inc. REIT................ 1,604,250
32,300 Tanger Factory Outlet Centers, Inc. REIT........... 617,738
135,000 Trizec Hahn Corp. ................................. 2,480,625
3,785 *Vornado Operating Co. ............................ 22,710
75,705 Vornado Realty Trust REIT.......................... 2,611,822
30,000 Western Investment Real Estate Trust REIT.......... 311,250
--------------
114,264,320
--------------
Retailing & Wholesale - 1.8%
130,000 *Autozone, Inc. ................................... 3,948,750
256,511 Avnet, Inc. ....................................... 9,394,715
45,000 *Costco Companies, Inc. ........................... 4,120,312
46,400 Dayton Hudson Corp. ............................... 3,091,400
54,833 Dollar General Corp. .............................. 1,864,322
77,186 Family Dollar Stores, Inc. ........................ 1,775,278
31,500 Gap, Inc. ......................................... 2,120,344
140,000 Home Depot, Inc. .................................. 8,715,000
139,700 J. C. Penney Co., Inc. ............................ 5,657,850
216,000 Lowe's Companies, Inc.............................. 13,068,000
89,900 W.W. Grainger, Inc. ............................... 3,871,319
--------------
57,627,290
--------------
Telecommunication Services & Equipment - 0.3%
55,000 *ICG Communications, Inc. ......................... 1,100,000
36,000 *Intermedia Communications, Inc. .................. 958,500
60,000 *Qwest Communications International, Inc. ......... 4,325,625
106,000 *Telephone Save Holdings, Inc. .................... 1,106,375
33,165 *Univision Communications, Inc. Cl. A.............. 1,658,250
--------------
9,148,750
--------------
Thrift Institutions - 0.5%
165,800 Golden West Financial Corp. ....................... 15,833,900
--------------
Transportation - 1.4%
92,200 AMR Corp. ......................................... 5,399,462
75,000 Burlington Northern Santa Fe Corp. ................ 2,465,625
113,410 Southwest Airlines Co. ............................ 3,430,653
52,000 *UAL Corp. ........................................ 4,043,000
524,000 Union Pacific Corp. ............................... 28,001,250
35,000 *US Airways Group, Inc. ........................... 1,708,438
--------------
45,048,428
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Electric - 1.1%
439,500 Central Hudson Gas & Electric Corp. .............. $ 15,739,594
104,300 Eastern Utilities Associates...................... 2,952,994
138,400 Energy East Corp. ................................ 7,274,650
33,300 Orange & Rockland Utilities, Inc. ................ 1,912,669
200,000 PacifiCorp ....................................... 3,450,000
40,000 PP&L Resources, Inc. ............................. 990,000
49,500 Public Service Enterprise Group, Inc. ............ 1,890,281
26,800 TNP Enterprises, Inc. ............................ 770,500
--------------
34,980,688
--------------
Utilities - Gas - 0.2%
276,636 Keyspan Energy.................................... 6,950,480
--------------
Utilities - Telephone - 3.9%
72,766 ALLTEL Corp. ..................................... 4,538,779
20,000 AT&T Corp. ....................................... 1,596,250
348,080 Bell Atlantic Corp. .............................. 17,991,385
135,000 Cincinnati Bell, Inc. ............................ 3,029,063
65,500 Compania de Telecom de Chile SA, ADR.............. 1,543,344
612,300 Frontier Corp. ................................... 31,763,062
311,400 GTE Corp. ........................................ 18,839,700
34,000 *McLeod USA, Inc., Cl. A.......................... 1,428,000
351,000 Sprint Corp. ..................................... 34,441,875
175,500 *Sprint Corp. (PCS Group)......................... 7,776,844
--------------
122,948,302
--------------
Total Common Stocks (cost $1,295,899,169)......... 2,045,803,124
--------------
CONVERTIBLE PREFERRED - 0.6%
Consumer Products &
Services - 0.1%
70,000 Cendant Corp.
7.50%............................................ 2,016,875
--------------
Metal Products & Services - 0.1%
100,000 Timet Capital Trust I 6.625%, BUCS, 144A.......... 1,937,500
--------------
Paper & Packaging - 0.0%
33,250 *Sealed Air Corp.
$2.00, Ser A..................................... 1,645,875
--------------
Real Estate - 0.1%
95,000 First Union Real Estate Equity 8.40%, Ser. A...... 1,983,125
76,863 Prime Retail, Inc., Series B
8.50%............................................ 1,229,808
--------------
3,212,933
--------------
Retailing & Wholesale - 0.2%
160,000 Merrill Lynch & Co., Inc. (exchangeable for Dollar
General Corp. common stock) 8.50% ............... 6,750,000
--------------
</TABLE>
43
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - continued
Telecommunication Services & Equipment - 0.1%
40,000 Qualcomm Financial Trust I
5.75%............................................ $ 3,611,200
--------------
Total Convertible Preferred (cost $22,244,306).... 19,174,383
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.2%
Business Equipment &
Services - 0.0%
$ 800,000 Personnel Group Of America, Inc. 5.75%, 7/1/04.... 595,000
--------------
Environmental Services - 0.0%
100,000 Waste Management, Inc. 4.00%, 2/1/02.............. 117,875
--------------
Industrial Specialty Products & Services - 0.1%
2,100,000 Robbins & Myers, Inc. 6.50%, 9/1/03............... 1,890,000
750,000 Simula, Inc.
8.00%, 5/1/04.................................... 770,625
--------------
2,660,625
--------------
Retailing & Wholesale - 0.1%
500,000 Home Depot, Inc.
3.25%, 10/1/01................................... 1,388,750
--------------
Total Convertible Debentures (cost $4,280,000).... 4,762,250
--------------
CORPORATE BONDS - 0.0%
Chemical & Agricultural
Products - 0.0%
210,000 Arco Chemical Co.
10.25%, 11/1/10.................................. 224,947
--------------
Finance & Insurance - 0.0%
500,000 Chrysler Financial Corp.
6.95%, 3/25/02................................... 517,040
--------------
Total Corporate Bonds
(cost $765,299).................................. 741,987
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 28.3%
U.S. Treasury Notes & Bonds - 27.6%
U.S. Treasury Bonds
208,000,000 6.00%, 2/15/26.................................... 211,705,104
190,000,000 6.25%, 8/15/23.................................... 198,965,720
36,340,000 6.75%, 8/15/26.................................... 40,575,899
125,000,000 7.125%, 2/15/23................................... 144,375,000
49,500,000 7.25%, 5/15/16.................................... 56,816,744
23,000,000 7.25%, 8/15/22.................................... 26,852,500
7,000,000 7.625%, 11/15/22.................................. 8,518,125
10,000,000 8.00%, 11/15/21................................... 12,578,130
50,000,000 8.125%, 8/15/19................................... 62,968,750
25,000,000 8.125%, 5/15/21................................... 31,765,625
30,000,000 8.375%, 8/15/08................................... 33,431,250
10,000,000 8.50%, 2/15/20.................................... 13,084,380
665,000 8.75%, 5/15/17.................................... 875,514
1,000,000 10.625%, 8/15/15.................................. 1,500,625
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - continued
U.S. Treasury Notes & Bonds - continued
U.S. Treasury Notes
$ 2,000,000 5.875%, 11/15/99................................ $ 2,013,126
350,000 5.875%, 2/15/00................................. 352,953
2,000,000 6.00%, 6/30/99.................................. 2,006,250
1,500,000 6.00%, 8/15/99.................................. 1,507,500
500,000 6.00%, 10/15/99................................. 503,437
1,000,000 6.125%, 9/30/00................................. 1,015,938
500,000 6.375%, 1/15/00................................. 505,782
900,000 6.50%, 5/31/01.................................. 926,437
1,130,000 6.50%, 8/15/05.................................. 1,199,919
1,000,000 6.625%, 3/31/02................................. 1,040,625
500,000 6.875%, 5/15/06................................. 542,813
3,235,000 7.50%, 11/15/01................................. 3,422,025
600,000 7.50%, 2/15/05.................................. 665,438
700,000 7.75%, 11/30/99................................. 713,562
--------------
860,429,171
--------------
U.S. Government Agency Obligations - 0.7%
500,000 Federal Home Loan Mortgage Corp.
6.44%, 1/28/00................................. 505,273
Federal National Mortgage Association
500,000 5.94%, 12/12/05................................. 503,749
1,250,000 6.21%, 8/6/38................................... 1,227,549
Tennessee Valley Authority
8,000,000 7.25%, 7/15/43.................................. 8,212,928
10,000,000 7.85%, 6/15/44, Ser. A.......................... 10,409,520
--------------
20,859,019
--------------
Total U.S. Government & Agency Obligations
(cost $842,635,275)............................ 881,288,190
--------------
SHORT-TERM INVESTMENTS - 5.0%
Commercial Paper - 3.4%
6,750,000 Bank Austria Inc.
4.82%, 4/29/99................................. 6,724,695
34,250,000 Four Winds Funding Corp.
4.86%, 4/28/99................................. 34,125,159
8,000,000 Goldman Sachs Group
4.86%, 4/5/99.................................. 7,995,680
19,000,000 Procter & Gamble Co.
4.81%, 4/1/99.................................. 19,000,000
Sigma Finance Inc.
4,400,000 4.86%, 4/22/99.................................. 4,387,526
18,500,000 4.86%, 4/30/99.................................. 18,427,572
15,200,000 4.87%, 4/30/99.................................. 15,140,370
--------------
105,801,002
--------------
U.S. Government Agency Obligations - 1.6%
Federal Home Loan Bank Discount Notes
1,600,000 4.72%, 4/16/99.................................. 1,596,853
17,360,000 4.73%, 4/21/99.................................. 17,314,382
900,000 4.74%, 4/9/99................................... 899,051
2,500,000 4.74%, 4/14/99.................................. 2,495,721
</TABLE>
44
<PAGE>
[LOGO OF EVERGREEN FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
U.S. Government Agency Obligations - continued
$24,900,000 Federal Home Loan Mortgage Discount Notes
4.75%, 4/14/99.................................. $ 24,857,290
2,300,000 Federal National Mortgage Association Discount
Notes 4.76%, 4/6/99............................. 2,298,479
--------------
49,461,776
--------------
Total Short-Term Investments
(cost $155,262,778)............................. 155,262,778
--------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $2,321,086,827)..................... 99.7% 3,107,032,712
Other Assets and
Liabilities - net......................... 0.3 10,025,528
----- --------------
Net Assets................................. 100.0% $3,117,058,240
===== ==============
</TABLE>
* Non-income producing securities
** At March 31, 1999, the Fund owned 117,000 shares of common stock of
First Union Corp. at a cost of $2,358,440. During the year ended March
31, 1999, the Fund earned $196,560 in dividend income from this in-
vestment. These shares were purchased by the Fund prior to the acqui-
sition of the investment advisor and Lieber & Company by First Union.
144A Securities that may be resold to "qualified institutional buyers"
under rule 144A of the Securities Act of 1933. These securities have
been determined to be liquid under the guidelines established by the
Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipts
BUCS Beneficial Unsecured Convertible Securities
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
45
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 45.9%
Automotive Equipment & Manufacturing - 0.8%
39,151 Autoliv, Inc......................................... $ 1,470,609
18,705 Daimler Chrysler AG.................................. 1,605,123
------------
3,075,732
------------
Banks - 7.8%
39,200 BancorpSouth, Inc. .................................. 627,200
26,875 BankAmerica Corp. ................................... 1,898,047
39,000 BankBoston Corp. .................................... 1,689,187
50,000 CCBT Bancorp, Inc. .................................. 806,250
35,000 Chase Manhattan Corp. ............................... 2,845,937
30,000 *Civic Bancorp....................................... 375,000
7,500 Comerica, Inc. ...................................... 468,281
3,000 First Union Corp. **................................. 160,313
11,500 Fleet Financial Group, Inc. ......................... 432,688
62,000 Huntington Bancshares, Inc. ......................... 1,918,125
17,325 Interchange Financial Services Corp. ................ 268,538
41,000 KeyCorp.............................................. 1,242,813
4,000 M&T Bank Corp. ...................................... 1,916,000
19,800 National City Corp. ................................. 1,314,225
10,000 Northern Trust Corp. ................................ 888,125
15,750 One Valley Bancorp of West Virginia, Inc. ........... 549,281
45,000 Republic New York Corp. ............................. 2,075,625
15,000 Seacoast Banking Corp. of Florida Cl. A.............. 401,250
77,255 SouthTrust Corp. .................................... 2,882,577
58,880 Suntrust Banks, Inc. ................................ 3,665,280
65,000 Westamerica Bancorp.................................. 2,055,625
40,000 Wilmington Trust Corp. .............................. 2,285,000
------------
30,765,367
------------
Building, Construction & Furnishings - 2.6%
46,000 Carlisle Companies, Inc.............................. 2,150,500
68,750 Clayton Homes, Inc................................... 760,547
75,650 D.R. Horton, Inc. ................................... 1,267,138
47,100 La-Z-Boy Chair Co. .................................. 894,900
65,900 *Royal Group Technologies Ltd. ...................... 1,626,906
50,000 Ryland Group, Inc. .................................. 1,265,625
39,100 Shelby Williams Industries, Inc. .................... 373,894
40,000 Standard Pacific Corp. .............................. 515,000
83,500 *Toll Brothers, Inc. ................................ 1,513,437
------------
10,367,947
------------
Business Equipment &
Services - 0.7%
40,000 *Computer Sciences Corp. ............................ 2,207,500
15,000 *Convergys Corp. .................................... 256,875
17,500 *Crescent Operating, Inc. ........................... 63,437
------------
2,527,812
------------
Capital Goods - 0.5%
44,600 Caterpillar, Inc..................................... 2,048,812
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Chemicals & Agricultural Products - 1.2%
20,000 Du Pont (E. I.) De Nemours & Co...................... $ 1,161,250
35,000 Monsanto Co. ........................................ 1,607,812
20,000 Schulman (A.), Inc. ................................. 272,500
56,100 Sigma-Aldrich Corp. ................................. 1,640,925
------------
4,682,487
------------
Communication Systems & Services - 0.3%
38,000 *Orbital Sciences Corp. ............................. 1,075,875
------------
Consumer Products & Services - 1.3%
10,000 Adidas AG ADS, 144A.................................. 446,139
12,000 Gucci Group.......................................... 966,000
60,340 Newell Rubbermaid, Inc............................... 2,866,150
34,500 St. John Knits, Inc. ................................ 909,937
------------
5,188,226
------------
Electrical Equipment & Services - 0.5%
6,600 Applied Power, Inc., Cl. A........................... 179,850
15,000 Emerson Electric Co. ................................ 794,063
4,000 General Electric Co. ................................ 442,500
18,500 Thomas & Betts Corp. ................................ 694,906
------------
2,111,319
------------
Electronic Equipment & Services - 0.8%
57,566 AMP, Inc. ........................................... 3,090,575
------------
Finance & Insurance - 10.7%
4,400 AFLAC, Inc. ......................................... 239,525
45,700 American Bankers Insurance Group, Inc. .............. 2,376,400
17,000 American International Group, Inc. .................. 2,050,625
15,000 *Capital Trust Maryland.............................. 73,125
70,250 Citigroup, Inc....................................... 4,487,219
20,000 Countrywide Credit Industries, Inc................... 750,000
6,000 Enhance Financial Services Group, Inc................ 136,500
20,000 FBL Financial Group, Inc., Cl. A..................... 355,000
21,000 Federal National Mortgage Assoc. .................... 1,454,250
20,000 *FPIC Insurance Group, Inc. ......................... 830,000
52,000 Horace Mann Educators Corp. ......................... 1,205,750
105,866 Legg Mason, Inc. .................................... 3,566,361
68,000 Lehman Brothers Holdings, Inc. ...................... 4,063,000
13,500 Lincoln National Corp. .............................. 1,334,812
68,500 Merrill Lynch & Co., Inc. ........................... 6,057,968
72,700 MGIC Investment Corp. ............................... 2,549,044
35,000 Mony Group, Inc. .................................... 870,625
118,700 Morgan Keegan, Inc. ................................. 1,965,969
30,500 NAC RE Corp. ........................................ 1,637,469
28,000 Nationwide Financial Services, Inc. Cl. A............ 1,176,000
103,800 Paine Webber Group, Inc.............................. 4,139,025
6,500 Progressive Corp. Ohio............................... 932,750
------------
42,251,417
------------
</TABLE>
46
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Food & Beverage
Products - 0.2%
40,000 Coca-Cola Co. Femsa SA, ADR........................ $ 652,500
-------------
Healthcare Products & Services - 4.3%
39,000 Abbott Laboratories................................ 1,825,687
39,000 *Alza Corp. ....................................... 1,491,750
40,000 American Home Products Corp........................ 2,610,000
70,700 Beckman Coulter, Inc............................... 3,110,800
18,000 Medtronic, Inc. ................................... 1,291,500
10,000 Merck & Co., Inc. ................................. 801,875
54,700 Perkin Elmer Corp.................................. 5,309,319
10,000 Warner-Lambert Co. ................................ 661,875
-------------
17,102,806
-------------
Industrial Specialty Products & Services - 0.3%
24,000 Furon Co. ......................................... 303,000
25,000 *Meade Instruments Corp. .......................... 265,625
17,700 Park Electrochemical Corp. ........................ 415,950
-------------
984,575
-------------
Information Services & Technology - 3.4%
14,000 Hewlett-Packard Co. ............................... 949,375
34,000 Intel Corp. ....................................... 4,041,750
25,000 International Business Machines Corp. ............. 4,431,250
4,000 *Network Associates, Inc. ......................... 122,750
89,000 *SCI Systems, Inc.................................. 2,636,625
10,000 *Sun Microsystems, Inc............................. 1,250,625
-------------
13,432,375
-------------
Leisure & Travel - 0.3%
45,000 Starwood Hotels & Resorts.......................... 1,285,313
-------------
Oil/Energy - 0.5%
15,000 Atlantic Richfield Co.............................. 1,095,000
6,616 BP Amoco Plc....................................... 667,803
-------------
1,762,803
-------------
Oil Field Services - 0.6%
43,000 Diamond Offshore Drilling, Inc..................... 1,359,875
15,000 Schlumberger Ltd................................... 902,812
-------------
2,262,687
-------------
Printing, Publishing, Broadcasting &
Entertainment - 0.1%
46,900 Bowne & Co., Inc................................... 548,144
-------------
Real Estate - 2.2%
19,300 *Alexander's, Inc. REIT............................ 1,307,575
3,485 Archstone Communities Trust........................ 70,136
39,000 Boston Properties, Inc. REIT....................... 1,233,375
20,000 Brandywine Realty Trust REIT....................... 325,000
60,000 Del Webb Corp...................................... 1,301,250
45,831 *Homestead Village Properties, Inc................. 111,713
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - continued
1,480 Horizon Group Properties, Inc. REIT................. $ 6,475
80,000 Indymac Mortgage Holdings, Inc. REIT................ 870,000
66,500 Kilroy Realty Corp. REIT............................ 1,363,250
30,000 Newhall Land & Farming Co........................... 716,250
75,554 Patriot American Hospitality, Inc. REIT............. 387,214
9,900 Prentiss Properties Trust REIT...................... 184,388
33 Prime Retail, Inc................................... 289
115,000 Sunstone Hotel Investors, Inc. REIT................. 826,562
-------------
8,703,477
-------------
Retailing & Wholesale - 2.6%
8,000 Avnet, Inc. ........................................ 293,000
10,000 *Barnes & Noble, Inc. .............................. 321,250
74,700 Ethan Allen Interiors, Inc. ........................ 3,104,719
32,000 Lowe's Companies, Inc. ............................. 1,936,000
83,000 *Saks, Inc. ........................................ 2,158,000
130,000 *Sonic Automotive, Inc. ............................ 2,015,000
20,000 *Williams Sonoma, Inc. ............................. 565,000
-------------
10,392,969
-------------
Thrift Institutions - 0.6%
18,000 Bank United Corp. .................................. 735,750
15,000 BankUnited Financial Corp. ......................... 106,875
30,000 Mech Financial, Inc. ............................... 948,750
29,298 St. Paul Bancorp, Inc. ............................. 634,485
-------------
2,425,860
-------------
Transportation - 1.2%
13,000 *Airnet Systems, Inc. .............................. 91,000
42,850 *Midwest Express Holdings, Inc. .................... 1,258,719
65,000 Union Pacific Corp. ................................ 3,473,437
-------------
4,823,156
-------------
Utilities - Gas - 0.7%
70,000 Williams Companies, Inc............................. 2,765,000
-------------
Utilities - Telephone - 1.7%
15,000 Cincinnati Bell, Inc................................ 336,563
81,000 Frontier Corp. ..................................... 4,201,875
18,000 Sprint Corp. ....................................... 1,766,250
9,000 *Sprint Corp. (PCS Group)........................... 398,812
-------------
6,703,500
-------------
Total Common Stocks
(cost $152,049,647)................................ 181,030,734
-------------
CONVERTIBLE PREFERRED STOCKS - 0.0%
Real Estate - 0.0%
7,080 Prime Retail, Inc. Series B
8.50%
(cost $181,427).................................... 113,280
-------------
</TABLE>
47
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CONVERTIBLE DEBENTURES - 0.0%
Business Equipment &
Services - 0.0%
$ 150,000 Personnel Group Of America, Inc. 5.75%, 7/1/04 144A
(cost $150,000)................................... $ 111,563
-------------
LONG TERM MUNICIPAL OBLIGATIONS - 53.6%
Alabama - 3.8%
3,000,000 Alabama Wtr. Poll. Ctrl. Auth.
5.50%, 8/15/16.................................... 3,117,600
4,000,000 Jefferson Cnty. Swr. Rev. Wts
Series D
5.75%, 2/1/22 (FGIC).............................. 4,270,800
5,000,000 Jefferson Cnty. Swr. Rev.
5.38%, 2/1/36..................................... 5,088,000
2,500,000 Montgomery Special Care Facilities 5.00%,
11/15/29.......................................... 2,401,475
-------------
14,877,875
-------------
Alaska - 0.7%
800,000 Alaska Hsg. Fin. Corp. Mtge. RB,
1996 Ser. A
6.05%, 12/1/17 (MBIA)............................. 850,216
2,000,000 Alaska Hsg. Fin. Corp. RB
Mtge. Ser. A-1
5.30%, 12/1/12 (MBIA)............................. 2,057,320
-------------
2,907,536
-------------
Arizona - 0.1%
500,000 City of Tucson GO RB, Ser. 1995 5.70%, 7/1/08
(FGIC)............................................ 541,520
-------------
California - 3.2%
2,500,000 California Hlth. Facs. Fin.
5.13%, 8/15/22.................................... 2,508,825
1,000,000 California Hsg. Fin. Agcy. RB
5.30%, 8/1/28..................................... 1,008,410
700,000 California Hsg. Fin. Agcy. RB Ser. I 5.75%, 2/1/29
(MBIA)............................................ 729,855
500,000 California Hsg. Fin. Agcy. RB Home Mtge. Ser. L
5.35%, 8/1/17..................................... 514,045
1,000,000 California St. Pub. Wks. Bd.
5.25%, 12/1/13.................................... 1,051,040
1,000,000 San Francisco Bay Trans. Tax
5.25%, 7/1/18..................................... 1,029,040
2,000,000 San Francisco City & Cnty. Int'l. Aprt. RB Ser.
Issue 10-A,
5.70%, 5/1/26 (AMT) (MBIA)........................ 2,123,600
3,150,000 San Francisco Int'l. Arpt. RB 5.25%, 5/1/13........ 3,278,867
500,000 Simi Valley Unified Sch. Dist. Refunding Capital
Improvement Proj. COP
5.25%, 8/1/22..................................... 519,175
-------------
12,762,857
-------------
Colorado - 0.6%
1,000,000 Denver City & Cnty. Arpt. RB Ser. D 5.50%, 11/15/25
(MBIA)............................................ 1,036,210
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
Colorado - continued
$1,500,000 Jefferson Cnty. Sch. Dst.
R001 (FGIC)
5.00%, 12/15/17.................................... $ 1,498,080
------------
2,534,290
------------
Delaware - 0.3%
1,000,000 Delaware Econ. Dev. Auth. RB (The Osteopathic Hosp.
Assoc. of Delaware/Riverside Hosp.), Ser. A 6.50%,
1/1/08............................................. 1,120,210
------------
District Of Columbia - 1.9%
1,900,000 District Columbia Rev. Carnegie Endowment
5.75%, 11/15/26.................................... 1,974,176
5,500,000 District of Columbia Arpt. Auth. RB
Ser. B
5.50%, 10/1/23 (AMT)............................... 5,601,035
------------
7,575,211
------------
Florida - 2.8%
1,250,000 Florida Hsg. Fin. Corp. RB.
5.35%, 1/1/21...................................... 1,261,613
2,000,000 Florida St. Brd. of Ed. Cap. Outlay 5.50%, 6/1/15... 2,091,300
2,500,000 Gainesville Util. Sys. Rev.
5.50%, 10/1/13..................................... 2,655,450
2,500,000 Sunrise Florida Util. Sys. RB
5.00%, 10/1/28..................................... 2,484,725
2,500,000 Volusia Cnty. Sales Tax
5.00%, 10/1/16..................................... 2,518,300
------------
11,011,388
------------
Illinois - 4.1%
5,315,000 Chicago Skyway Toll Bridge
5.50%, 1/1/23...................................... 5,501,078
2,965,000 Chicago Board of Education Chicago School Reform
Series A
5.25%, 12/1/18 (AMBAC)............................. 3,008,348
1,000,000 Chicago Board of Ed. GO (School Reform Proj.)
6.75%, 12/1/09 (AMBAC)............................. 1,188,870
1,600,000 Cook Cnty., GO
5.63%, 11/15/22.................................... 1,675,120
2,300,000 Illinois Dev. Fin. Auth.
5.00%, 1/1/17...................................... 2,305,198
3,855,000 Illinois Dev. Fin. Auth. Rev.
0.00%, 12/1/13..................................... 1,865,666
450,000 Illinois Sales Tax RB Ser. V
6.38%, 6/15/17..................................... 507,524
------------
16,051,804
------------
Indiana - 1.3%
2,000,000 Indiana Hsg. Fin. Single Family Mtge. RB Ser. A-2
5.15%, 7/1/17 (FNMA/GNMA).......................... 2,022,900
3,000,000 Marion Cnty. Cnvtn. & Rect'l.
5.00%, 6/1/27...................................... 2,894,400
------------
4,917,300
------------
</TABLE>
48
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
Maine - 0.4%
$1,000,000 Maine Hlth. & High Edl. Facs. Auth RB Ser. B
5.75%, 7/1/26 (AMBAC)............................. $ 1,056,430
500,000 Maine Hsg. Auth. Mtge. Purchase RB Ser. F-1
5.50%, 11/15/29................................... 508,415
-------------
1,564,845
-------------
Massachusetts - 3.4%
250,000 Mass. Bay Trans. Auth. General Trans. Sys. Bonds,
Ser. 1994A
7.00%, 3/1/08..................................... 297,300
1,000,000 Mass. Bay Trans. Auth. (Refunding Gen. Trans. Sys.
A)
7.00%, 3/1/14..................................... 1,237,240
1,000,000 Mass. Hsg. Fin. Auth. RB (AMT) Single Family Ser.
59
5.40%, 6/1/20 (MBIA).............................. 1,024,370
4,750,000 Mass. St. Indstl. Fin. Agcy.
5.25%, 7/1/27..................................... 4,805,955
2,500,000 Mass. St. Indstl. Fin. Agcy.
5.00%, 9/1/23..................................... 2,444,725
250,000 Mass. Hsg. Fin. Agcy. Hsg. Proj. RRB, 1993 Ser. A
5.95%, 10/1/08 (AMBAC)............................ 266,468
1,195,000 Mass. Tpke. Auth. RB (Western Tpke.) Ser. A
5.55%, 1/1/17 (MBIA).............................. 1,209,937
2,000,000 Mass. Tpke. Auth. RB Senior Ser. A
5.13%, 1/1/23 (MBIA).............................. 1,990,320
-------------
13,276,315
-------------
Michigan - 1.6%
1,030,000 Detroit Wtr. Supply Sys. RB Sr. Lien Ser. A
5.75%, 7/1/11 (MBIA).............................. 1,138,881
2,500,000 Detroit Wtr. Supply Sys. Rev.
5.75%, 7/1/12..................................... 2,769,550
300,000 Michigan Muni. Bond Auth. RB (Local Govt. Loan
Proj.), Ser 1994G
6.55%, 11/1/08 (AMBAC)............................ 340,473
2,000,000 Michigan St. Hosp. Fin. Auth. RB (FGIC)
5.63%, 11/1/18.................................... 2,076,100
-------------
6,325,004
-------------
Minnesota - 0.5%
2,000,000 Southern Minnesota Muni. Pwr. Agcy. (MBIA)
5.75%, 1/1/18..................................... 2,116,380
-------------
Missouri - 2.2%
410,000 Missouri Hsg. Dev. Commission Single Family Mtge.
RB (Homeownership Loan Proj.), 1996 Ser. D
6.00%, 9/1/17 (Collateralized by GNMA or FNMA
Certificates AMT)................................. 431,275
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
Missouri - continued
$ 855,000 Missouri Hsg. Dev. Commission Single Family Mtge. RB
(Homeownership Loan Proj.), 1996 Ser. B
6.25%, 9/1/15 (Collaterialized by GNMA or FNMA
Certificates)...................................... $ 908,044
955,000 Missouri St. Hsg. Dev. Comm. Mtge. 5.55%, 3/1/29.... 986,056
490,000 Missouri St. Hsg. Dev. Comm. Mtge. 5.50%, 3/1/25.... 494,822
500,000 St. Louis Muni. Fin. Corp. Leasehold Rev. Imp. Bonds
(City Justice Ctr.), Ser. 1996A
5.95%, 2/15/16 (AMBAC)............................. 542,780
1,000,000 St. Louis Regl. Convention & Sports Complex Auth. RB
Facs. C
5.30%, 8/15/17 (AMBAC)............................. 1,023,140
4,000,000 University Missouri Univ. Rev.
5.50%, 11/1/21..................................... 4,153,720
------------
8,539,837
------------
Nebraska - 0.2%
785,000 Nebraska Inv. Fin. Auth. SFHRB
5.60%, 9/1/20...................................... 792,693
------------
Nevada - 2.7%
5,000,000 Clark County GO 5.00%, 11/1/14...................... 5,065,450
5,000,000 Clark County, GO 1992 Series A
6.00%, 7/1/22 (AMBAC).............................. 5,434,350
------------
10,499,800
------------
New Jersey - 1.1%
2,500,000 New Jersey Econ. Dev. Pollution (MBIA)
6.40%, 5/1/32...................................... 2,770,325
1,400,000 New Jersey Tpke. Auth. RB Ser. C 6.50%, 1/1/16
(MBIA)............................................. 1,659,322
------------
4,429,647
------------
New York - 6.9%
2,250,000 Long Island Pwr. Auth., Series A 5.50%, 12/1/29..... 2,311,695
2,000,000 Long Island Pwr. Auth.
5.00%, 4/1/13...................................... 2,033,880
2,500,000 Metro Trans. Auth. Commuter
Facs. RB Ser. C-2
5.38%, 7/1/27 (FGIC)............................... 2,578,325
250,000 New York St. Mtge. Agcy. Homeowner Mtge. RB,
Ser. 44 (AMT)
6.60%, 4/1/03...................................... 263,213
920,000 New York St. Mtge. Agcy. Homeowner
Mtge. RB,
Ser. 56 (AMT)
5.88%, 10/1/19..................................... 957,858
2,500,000 New York St. Dorm. Auth. RB (AMBAC)
5.20%, 2/15/14..................................... 2,566,300
1,700,000 New York St. Local Govt. Assist. 5.38%, 4/1/14...... 1,756,525
3,000,000 New York St. Local Govt. Assist. 5.00%, 4/1/16...... 3,007,560
210,000 New York St. Med. Care Facs. Fin. 6.25%, 8/15/10.... 228,144
</TABLE>
49
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
New York - continued
$ 35,000 New York St. Med. Care Facs. Fin. 6.25%, 8/15/10.... $ 37,660
2,000,000 New York St. Med. Care Facs. Fin. Refunding Hosp.
Insured Mtge. A 5.38%, 2/15/25 (MBIA).............. 2,039,540
500,000 New York St. Mtge. Agcy. RB (Homeowner Mtge.) Ser.
63, 5.60%, 4/1/10 (AMT)............................ 523,225
1,000,000 New York St. Thruway Auth. RB Ser. B 5.00%, 1/1/20
(MBIA)............................................. 984,690
2,500,000 New York St. Thruway Auth. Svc. Contract
5.00%, 4/1/18...................................... 2,484,850
5,000,000 New York St. Urban Dev. Corp.
5.50%, 7/1/16...................................... 5,243,350
250,000 Port Auth. of NY & NJ Consolidated Bonds, 97th Ser.
2nd Installment 7.00%, 7/15/05 (AMT) (FGIC)........ 287,585
------------
27,304,400
------------
North Carolina - 0.1%
500,000 North Carolina Hsg. Fin. Agcy. Single Family Ser.
00,
5.80%, 9/1/12 (FHA)................................ 530,150
------------
North Dakota - 0.5%
1,000,000 Mercer Cnty. Poll. Ctrl. RRB (Basin Elec. Pwr.
Cooperative-Antelope Valley Unit 1 & Common Facs.),
Second 1995 Ser.
6.05%, 1/1/19 (AMBAC).............................. 1,078,870
1,000,000 North Dakota St. Hsg. Fin. Agcy. 5.55%, 7/1/29...... 1,011,590
------------
2,090,460
------------
Ohio - 0.4%
500,000 Akron Econ. Dev. RB 6.00%, 12/1/12 (MBIA)........... 568,220
1,000,000 Jefferson Cnty. GO Refunding Improvement (FSA)
5.70%, 12/1/13..................................... 1,117,240
------------
1,685,460
------------
Pennsylvania - 1.7%
500,000 Pennsylvania Convention Ctr. Auth. RB Ser. A, 1989
Ser. A
6.70%, 9/1/16 (FGIC)............................... 600,675
2,000,000 Pennsylvania St. Higher Edl. Facs. (MBIA)
5.75%, 5/1/22...................................... 2,134,220
3,000,000 Trinity Area Sch. Dist. Pennsylvania 5.00%,
11/1/13............................................ 3,020,310
1,000,000 York Cnty. Solid Waste & Refuse Auth. Solid Waste
Sys. RB
5.50%, 12/1/11 (FGIC).............................. 1,083,600
------------
6,838,805
------------
South Carolina - 0.7%
2,540,000 Charleston Cnty. RB
5.13%, 8/15/14..................................... 2,594,762
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
South Dakota - 0.9%
$1,455,000 Brookings COP
5.10%, 12/1/18..................................... $ 1,445,965
1,000,000 South Dakota Conserv. Dist. (AMBAC) 5.00%, 8/1/19... 983,640
1,235,000 South Dakota Hsg. Dev. Auth. Homeownership B
5.25%, 5/1/17...................................... 1,253,611
------------
3,683,216
------------
Tennessee - 0.1%
300,000 Bristol Hlth. & Edl. Facs. Board RRB (Bristol Mem.
Hosp.), Ser. 1993 6.75%, 9/1/07 (FGIC)............. 349,359
------------
Texas - 2.9%
2,500,000 Colorado River Texas Municipal Water District
5.13%, 1/1/16...................................... 2,527,850
2,625,000 Dallas GO
5.25%, 8/15/16..................................... 2,699,602
1,000,000 Harris Cnty. Hlth. Facs. Hosp. RB (Memorial Hermann
Hosp. Sys. Proj.) (FSA)
5.50%, 6/1/10...................................... 1,069,720
500,000 Houston Wtr. Conveyance Sys. Contract COP, Ser.
1993H 7.50%, 12/15/10 (AMBAC)...................... 627,990
1,500,000 Irving Independent Sch. Dist. GO 5.13%, 2/15/18..... 1,509,180
460,000 Lubbock Elec. Light & Pwr. Sys. RB 4.25%, 4/15/17
(AMBAC)............................................ 418,793
950,000 San Antonio Elec. & Gas RB 5.25%, 2/1/10............ 1,001,956
50,000 San Antonio Elec. & Gas Prerefunded RB
5.25%, 2/1/10...................................... 53,693
1,500,000 Texas St. Dept. Hsg. & Comm. Affairs Series A
5.25%, 7/1/18 (AMT)................................ 1,501,170
------------
11,409,954
------------
Utah - 3.9%
5,000,000 Intermountain Pwr. Agcy. Utah Rev. 5.00%, 7/1/20.... 4,878,150
500,000 Salt Lake City Hosp. RB (IHC Hosp., Inc.)
6.30%, 2/15/15..................................... 577,170
470,000 Utah Hsg. Fin. Agcy. RB (Single Family Mtge.) Ser. B
6.00%, 7/1/16 (FHA)................................ 500,648
5,000,000 Utah St. Brd. Regents RB 5.00%, 4/1/20.............. 4,879,350
2,825,000 Utah St. Hsg. Fin. Agcy.
5.35%, 7/1/18...................................... 2,845,425
1,500,000 Utah St. Hsg. Fin. Agcy.
5.38%, 7/1/18...................................... 1,511,205
------------
15,191,948
------------
Virginia - 0.7%
2,805,000 Medical College VA Hosp. Auth. 5.13%, 7/1/18........ 2,796,276
------------
</TABLE>
50
<PAGE>
[LOGO OF EVERGREEN TAX STRATEGIC FOUNDATION FUND APPEARS HERE]
Schedule of Investments (continued)
March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
Washington - 1.8%
$3,000,000 Port Seattle Passenger Facs. 5.00%, 12/1/23......... $ 2,925,060
3,500,000 Seattle Wtr. Sys. RB
5.50%, 6/1/18...................................... 3,587,885
500,000 Snohomish Cnty. Sch. Dist. GO 5.70%, 12/1/15
(FGIC)............................................. 533,755
------------
7,046,700
------------
West Virginia - 0.5%
1,000,000 West Virginia St. Ser. A
5.75%, 11/1/21 (FGIC).............................. 1,068,440
1,000,000 West Virginia St. Hsg. Dev. Fund RB Ser. A
6.05%, 5/1/27...................................... 1,065,020
------------
2,133,460
------------
Wisconsin - 1.0%
1,000,000 Wisconsin Clean Wtr. RB Ser. 1 6.88%, 6/1/11........ 1,211,130
500,000 Wisconsin Hsg. & Econ. Dev. Auth. Home Ownership RB
Ser. E 6.00%, 9/1/28 (AMT)......................... 524,535
2,000,000 Wisconsin Hsg. Econ. Dev. Auth. 5.60%, 3/1/28....... 2,037,080
------------
3,772,745
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
LONG TERM MUNICIPAL OBLIGATIONS - continued
Wyoming - 0.5%
$2,000,000 Wyoming Cmnty. Dev. Auth. 5.45%, 12/1/29............ $ 2,018,160
------------
Puerto Rico - 0.1%
385,000 Puerto Rico Hsg. Bank & Fin. Agcy. RB (Single Family
Affordable Hsg. Mtge. Subsidy Prog.) Portfolio I
5.85%, 4/1/09 (AMT)................................ 406,152
------------
Total Municipal Obligations (cost $208,928,650)..... 211,696,519
------------
SHORT-TERM INVESTMENTS - 0.1%
Mutual Fund Shares - 0.1%
382,567 Federated Tax Free Obligations Fund (at net asset
value) (cost $382,567)............................. 382,567
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $361,692,291).......................... 99.6% 393,334,663
Other Assets and
Liabilities - net............................ 0.4 1,648,634
----- ------------
Net Assets.................................... 100.0% $394,983,297
===== ============
</TABLE>
* Non-income producing securities
** At March 31, 1999, the Fund owned 3,000 shares of common stock of First
Union Corp. at a cost of $57,890. During the year ended March 31, 1999, the
Fund earned $5,040 in dividend income from this investment. These shares
were purchased by the Fund prior to the acquisition of the investment advi-
sor and Lieber & Company by First Union.
(a) Less than one-tenth of one percent.
144A Securities that may be resold to "qualified institutional buyers" under
rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under the guidelines established by the Board of Trust-
ees.
Summary of Abbreviations:
ADR American Depository Receipts
ADS American Depository Shares
AMT Subject to the Alternative Minimum Tax
COP Certificates of Participation
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Assocociation
GNMA Government National Mortgage Association
GO General Obligations
RB Revenue Bonds
REIT Real Estate Investment Trust
RRB Refunding Revenue Bonds
SA Sociedad Anonyme (Spanish Corporation)
SFHRB Single Family Housing Revenue Bonds
VRDN Variable Rate Demand Notes are payable on demand at par on no more
than seven calendar days' notice given by the Fund to the issuer or
other parties not affiliated with the issuer. These notes normally
incorporate an irrevocable letter of credit or line of credit from a
major bank. Interest rates presented for these securities are those
in effect as of March 31, 1999.
Municipal bond insurance companies:
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guarantee Insurance Corp.
MBIA Municipal Bond Insurance Association
See Combined Notes to Financial Statements.
51
<PAGE>
[LOGO OF EVERGREEN BALANCED FUNDS APPEARS HERE]
Statements of Assets and Liabilities
March 31, 1999
<TABLE>
<CAPTION>
American Tax Strategic
Retirement Balanced Foundation Foundation
Fund Fund Fund Fund
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $184,074,864 $1,376,458,715 $2,321,086,827 $361,692,291
Net unrealized gains on
securities............. 19,651,835 330,068,056 785,945,885 31,642,372
- - -------------------------------------------------------------------------------------
Market value of
securities............. 203,726,699 1,706,526,771 3,107,032,712 393,334,663
Cash.................... 174,159 266,702 354,062 0
Receivable for
securities sold........ 2,892,335 13,212,747 6,123,728 3,888,175
Receivable for Fund
shares sold............ 145,307 831,288 8,095,704 1,046,864
Dividends and interest
receivable............. 1,052,144 9,398,452 11,983,534 3,599,710
Unrealized gains on
forward foreign
currency exchange
contracts.............. 0 1,248,489 0 0
Prepaid expenses and
other assets........... 20,673 181,606 70,380 29,669
- - -------------------------------------------------------------------------------------
Total assets.......... 208,011,317 1,731,666,055 3,133,660,120 401,899,081
- - -------------------------------------------------------------------------------------
Liabilities
Payable for securities
purchased.............. 2,196,871 7,447,139 4,699,104 5,507,700
Payable for Fund shares
redeemed............... 790,315 2,472,228 9,091,315 883,525
Payable for securities
on loan................ 0 9,459,928 0 0
Unrealized losses on
forward foreign
currency exchange
contracts.............. 0 34,556 0 0
Advisory fee payable.... 134,066 631,337 1,968,976 295,781
Distribution Plan
expenses payable....... 41,945 252,070 471,741 113,826
Accrued expenses and
other liabilities...... 87,531 355,929 370,744 114,952
- - -------------------------------------------------------------------------------------
Total liabilities..... 3,250,728 20,653,187 16,601,880 6,915,784
- - -------------------------------------------------------------------------------------
Net assets.............. $204,760,589 $1,711,012,868 $3,117,058,240 $394,983,297
- - -------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $189,056,455 $1,281,084,990 $2,311,236,804 $363,744,940
Undistributed
(overdistributed) net
investment income...... (18,461) 410,783 (67,644) (11,170)
Accumulated net
realized gains or
losses on securities,
futures contracts, and
foreign currency
related transactions... (3,929,240) 98,245,545 19,942,810 (392,845)
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 19,651,835 331,271,550 785,946,270 31,642,372
- - -------------------------------------------------------------------------------------
Total net assets...... $204,760,589 $1,711,012,868 $3,117,058,240 $394,983,297
- - -------------------------------------------------------------------------------------
Net assets consists of
Class A................. $ 25,451,460 $1,240,844,016 $ 380,003,120 $ 81,566,499
Class B................. 146,945,834 433,898,024 1,431,732,453 244,486,245
Class C................. 1,860,042 2,400,277 67,642,126 45,035,406
Class Y................. 30,503,253 33,870,551 1,237,680,541 23,895,147
- - -------------------------------------------------------------------------------------
Total net assets........ $204,760,589 $1,711,012,868 $3,117,058,240 $394,983,297
- - -------------------------------------------------------------------------------------
Shares outstanding
Class A................. 1,724,033 110,041,473 18,110,070 5,044,566
Class B................. 10,003,131 38,429,428 68,578,217 15,149,753
Class C................. 126,324 212,499 3,240,528 2,795,177
Class Y................. 2,066,314 3,005,438 58,968,095 1,474,733
- - -------------------------------------------------------------------------------------
Net asset value per
share
Class A................. $ 14.76 $ 11.28 $ 20.98 $ 16.17
- - -------------------------------------------------------------------------------------
Class A--Offering price
(based on sales charge
of 4.75%).............. $ 15.50 $ 11.84 $ 22.03 $ 16.98
- - -------------------------------------------------------------------------------------
Class B................. $ 14.69 $ 11.29 $ 20.88 $ 16.14
- - -------------------------------------------------------------------------------------
Class C................. $ 14.72 $ 11.30 $ 20.87 $ 16.11
- - -------------------------------------------------------------------------------------
Class Y................. $ 14.76 $ 11.27 $ 20.99 $ 16.20
- - -------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
52
<PAGE>
[LOGO OF EVERGREEN BALANCED FUNDS APPEARS HERE]
Statements of Operations
Year Ended March 31, 1999
<TABLE>
<CAPTION>
American Tax Strategic
Retirement Balanced Foundation Foundation
Fund Fund Fund Fund
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $3,336,
$52,629, $56,105, and
$2,328,
respectively).......... $ 5,352,041 $ 18,745,415 $ 35,862,193 $ 2,967,348
Interest................ 5,300,851 50,856,296 63,053,333 10,124,790
- - -----------------------------------------------------------------------------------
Total investment
income............... 10,652,892 69,601,711 98,915,526 13,092,138
Expenses
Advisory fee............ 1,707,228 7,603,851 21,613,189 3,269,877
Distribution Plan
expenses............... 1,684,418 8,315,322 14,210,851 2,894,934
Transfer agent fee...... 496,868 3,294,647 5,763,098 425,857
Administrative services
fees................... 0 264,350 0 0
Trustees' fees and
expenses............... 4,980 26,974 53,099 7,026
Organization expenses... 0 0 0 4,862
Other................... 211,747 1,450,487 1,571,179 338,399
- - -----------------------------------------------------------------------------------
Total expenses......... 4,105,241 20,955,631 43,211,416 6,940,955
Less: Fee credits....... (7,514) (60,734) (90,680) (16,192)
- - -----------------------------------------------------------------------------------
Net expenses........... 4,097,727 20,894,897 43,120,736 6,924,763
- - -----------------------------------------------------------------------------------
Net investment income... 6,555,165 48,706,814 55,794,790 6,167,375
- - -----------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions
Net realized gains or
losses on:
Securities............. (3,871,180) 350,239,600 34,893,505 (145,766)
Futures contracts...... 0 8,277,408 0 0
Foreign currency
related
transactions.......... 0 193,880 (4,613) 0
- - -----------------------------------------------------------------------------------
Net realized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (3,871,180) 358,710,888 34,888,892 (145,766)
- - -----------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (22,833,253) (286,664,700) 65,223,251 (2,886,895)
- - -----------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (26,704,433) 72,046,188 100,112,143 (3,032,661)
- - -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............. $(20,149,268) $ 120,753,002 $155,906,933 $ 3,134,714
- - -----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
53
<PAGE>
[LOGO OF EVERGREEN BALANCED FUNDS APPEARS HERE]
Statements of Changes in Net Assets
Year Ended March 31, 1999
<TABLE>
<CAPTION>
American Tax Strategic
Retirement Balanced Foundation Foundation
Fund Fund Fund Fund
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 6,555,165 $ 48,706,814 $ 55,794,790 $ 6,167,375
Net realized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (3,871,180) 358,710,888 34,888,892 (145,766)
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions........... (22,833,253) (286,664,700) 65,223,251 (2,886,895)
- - ---------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (20,149,268) 120,753,002 155,906,933 3,134,714
- - ---------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A................ (1,002,690) (40,794,518) (7,549,144) (1,787,162)
Class B................ (4,353,747) (14,038,816) (17,590,016) (3,343,831)
Class C................ (64,114) (42,716) (829,474) (594,293)
Class Y................ (1,371,469) (1,284,883) (28,290,021) (541,359)
Net realized gains
Class A................ (236,492) (184,104,811) (2,672,130) (131,728)
Class B................ (1,333,852) (86,113,414) (9,707,057) (378,359)
Class C................ (19,045) (276,654) (461,341) (68,239)
Class Y................ (302,263) (5,578,251) (9,222,962) (36,526)
- - ---------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (8,683,672) (332,234,063) (76,322,145) (6,881,497)
- - ---------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 43,457,864 223,177,562 728,373,282 166,239,896
Payment for shares
redeemed............... (51,886,973) (493,032,834) (542,736,621) (76,065,961)
Net asset value of
shares issued in
reinvestment of
distributions.......... 8,203,296 295,195,460 70,776,628 6,054,905
Net asset value of
shares issued in
acquisition of
CoreFund, Inc. Balanced
Fund................... 0 0 139,832,551 0
- - ---------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... (225,813) 25,340,188 396,245,840 96,228,840
- - ---------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (29,058,753) (186,140,873) 475,830,628 92,482,057
Net assets
Beginning of period..... 233,819,342 1,897,153,741 2,641,227,612 302,501,240
- - ---------------------------------------------------------------------------------------
End of period........... $204,760,589 $1,711,012,868 $3,117,058,240 $394,983,297
- - ---------------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income...... $ (18,461) $ 410,783 $ (67,644) $ (11,170)
- - ---------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
54
<PAGE>
[LOGO OF EVERGREEN BALANCED FUNDS APPEARS HERE]
Statements of Changes in Net Assets
Year Ended March 31, 1998
<TABLE>
<CAPTION>
American Tax Strategic
Retirement Balanced Foundation Foundation
Fund Fund (a) Fund Fund
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 4,985,814 $ 35,345,751 $ 46,106,604 $ 2,888,518
Net realized gains on
securities and foreign
currency related
transactions........... 5,840,219 127,001,668 37,733,396 1,331,487
Net change in
unrealized gains on
securities and foreign
currency related
transactions........... 31,534,034 84,015,495 507,820,113 28,378,750
- - --------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 42,360,067 246,362,914 591,660,113 32,598,755
- - --------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A................ (695,207) (12,029,418) (6,778,425) (845,312)
Class B................ (2,792,552) (25,630,818) (14,304,998) (1,429,127)
Class C................ (49,486) (2,502) (632,325) (189,734)
Class Y................ (1,312,760) (263,102) (25,594,285) (422,361)
Net realized gains
Class A................ (514,560) (25,111,250) (6,367,014) (424,397)
Class B................ (2,734,907) (168,719,950) (19,081,303) (1,129,269)
Class C................ (50,154) (135) (836,192) (141,334)
Class Y................ (874,184) 0 (22,106,374) (207,645)
- - --------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (9,023,810) (231,757,175) (95,700,916) (4,789,179)
- - --------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 86,591,263 121,903,416 691,840,878 212,133,212
Payment for shares
redeemed............... (24,953,880) (278,715,460) (299,555,598) (15,800,328)
Net asset value of
shares issued in
reinvestment of
distributions.......... 8,459,313 199,041,548 89,801,360 4,084,131
Net asset value of
shares issued in
acquisition of:
Evergreen Balanced
II.................... 0 214,923,155 0 0
Keystone Balanced II... 0 0 8,490,928 0
- - --------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 70,096,696 257,152,659 490,577,568 200,417,015
- - --------------------------------------------------------------------------------------
Total increase in net
assets............... 103,432,953 271,758,398 986,536,765 228,226,591
Net assets
Beginning of period..... 130,386,389 1,625,395,343 1,654,690,847 74,274,649
- - --------------------------------------------------------------------------------------
End of period........... $233,819,342 $1,897,153,741 $2,641,227,612 $302,501,240
- - --------------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income...... $ 235,752 $ 2,779,889 $ (35,481) $ 17,451
- - --------------------------------------------------------------------------------------
</TABLE>
(a) For the nine months ended March 31, 1998. Balanced Fund changed its fiscal
year end from June 30 to March 31, effective March 31, 1998.
See Combined Notes to Financial Statements.
55
<PAGE>
[LOGO OF EVERGREEN BALANCED FUNDS APPEARS HERE]
Statement of Changes in Net Assets
Year Ended June 30, 1997
<TABLE>
<CAPTION>
Balanced
Fund
- - --------------------------------------------------------------------------------
<S> <C>
Operations
Net investment income......................................... $ 38,677,977
Net realized gains on securities and foreign currency related
transactions................................................. 120,987,282
Net change in unrealized gains on securities and foreign
currency related transactions................................ 146,568,036
- - --------------------------------------------------------------------------------
Net increase in net assets resulting from operations......... 306,233,295
- - --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income
Class B...................................................... (38,660,044)
Net realized gains
Class B...................................................... (57,571,132)
- - --------------------------------------------------------------------------------
Total distributions to shareholders.......................... (96,231,176)
- - --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold..................................... 200,987,044
Payment for shares redeemed................................... (351,020,484)
Net asset value of shares issued in reinvestment of
distributions................................................ 84,249,628
- - --------------------------------------------------------------------------------
Net decrease in net assets resulting from capital share
transactions................................................ (65,783,812)
- - --------------------------------------------------------------------------------
Total increase in net assets................................ 144,218,307
Net assets
Beginning of period........................................... 1,481,177,036
- - --------------------------------------------------------------------------------
End of period................................................. $1,625,395,343
- - --------------------------------------------------------------------------------
Undistributed net investment income........................... $ 3,239,562
- - --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
56
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Balanced Funds consist of Evergreen American Retirement Fund
("American Retirement Fund"), Evergreen Balanced Fund ("Balanced Fund"), Ever-
green Foundation Fund ("Foundation Fund"), and Evergreen Tax Strategic Founda-
tion Fund ("Tax Strategic Fund"), (collectively, the "Funds"). Each Fund is a
diversified series of Evergreen Equity Trust (the "Trust"), a Delaware business
trust organized on September 18, 1997. The Trust is an open-end management in-
vestment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
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 retain their existing conversion
rights. Class C shares are sold subject to a contingent deferred sales charge
payable on shares redeemed within one year after the month of purchase. Class Y
shares are sold only to investment advisory 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.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
Securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") and other securities traded in the over-the-
counter market are valued at the last reported sales price on the exchange
where primarily traded. Securities traded on an exchange or NMS for which there
has been no sale and other securities traded in the over-the-counter market are
valued at the mean between the last reported bid and asked price.
Corporate bonds, Municipal 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 institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which valuations are not available from an inde-
pendent pricing service may be valued by brokers which use prices provided by
market makers or estimates of market value obtained from yield data relating to
investments or securities with similar characteristics.
An independent pricing service values each Fund's municipal bonds at fair value
using a variety of factors which may include yield, liquidity, interest rate
risk, credit quality, coupon, maturity and type of issue. Securities for which
valuations are not available from an independent pricing service may be valued
by brokers which use prices provided by market makers or estimates of market
value obtained from yield data relating to investments or securities with simi-
lar characteristics.
Securities for which valuations are not available from an independent pricing
service (including restricted securities) are valued at fair value as deter-
mined in good faith according to procedures established by the Board of Trust-
ees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
57
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held in a segregated account by the custodian on
the Fund's behalf. Each Fund monitors the adequacy of the collateral daily and
will require the seller to provide additional collateral in the event the mar-
ket value of the securities pledged falls below the carrying value of the re-
purchase agreement, including accrued interest. Each Fund will only enter into
repurchase agreements with banks and other financial institutions, which are
deemed by the investment advisor to be creditworthy pursuant to guidelines es-
tablished by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Balanced Fund, along with certain other funds managed by Evergreen In-
vestment Management Company ("EIMC"), a subsidiary of First Union, may transfer
uninvested cash balances into a joint trading account. These balances are in-
vested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or federal agency obligations.
C. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; 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 gain (loss) resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized gain or loss on
foreign currency related transactions includes foreign currency gains and
losses between trade date and settlement date on investment securities transac-
tions, gains and losses on foreign currency related transactions and the dif-
ference 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 of investments denominated
in foreign currencies is included in realized gain or loss on securities.
D. 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 statement of
assets and liabilities.
E. Forward Foreign Currency Exchange Contracts
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized 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 con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
58
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
F. 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.
G. Securities Lending
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment adviser will monitor the creditworthiness of such borrowers.
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 borrower 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 securities
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 ob-
tain 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 connec-
tion with such loans.
H. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes, which are accrued as applicable. Capital
gains realized on some foreign securities are subject to foreign taxes, which
are accrued as applicable.
I. 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, net tax-exempt income and net capital gains, if any, to their sharehold-
ers. The Funds also intend to avoid any excise tax liability by making the re-
quired distributions under 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.
J. Distributions
Distributions from net investment income for the Funds are declared and paid
quarterly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for certain
distributions received from investments in real estate investment trusts, gains
and losses from foreign currency related transactions and for the Balanced
Fund, distributions made in connection with shareholder redemptions.
Certain distributions paid during previous years have been reclassified to con-
form to current year presentation.
59
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
K. 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.
L. Organization Expenses
Organization expenses for Tax Strategic 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 Fund are redeemed by any holder during the five-year amortization
period, redemption proceeds will be reduced by any unamortized organization ex-
penses in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of the redemp-
tion.
3. REORGANIZATION OF EVERGREEN BALANCED FUND
On January 23, 1998, the Balanced Fund was formed for the purpose of combining
the net assets of the Evergreen Balanced Fund II (the "Evergreen Fund"), and
the net assets of the Keystone Balanced Fund (the "Keystone Fund").
On January 21, 1998, prior to the Balanced Fund's acquisition of the Evergreen
Fund's net assets, the Evergreen Fund transferred substantially all of its net
assets related to its Class Y shares to an Evergreen Select Balanced Fund, an
institutional balanced fund, through a redemption-in-kind in the amount of ap-
proximately $737 million.
The Fund acquired all of the remaining assets and identified liabilities of the
Evergreen Fund in exchange for Class A, Class B, Class C and Class Y shares of
the Fund. Also, the Balanced Fund acquired all of the assets and certain lia-
bilities of the Keystone Fund in exchange for Class A, Class B and Class C
shares of the Fund. These acquisitions were accomplished through tax-free ex-
changes of the respective shares of the Funds. The value of net assets ac-
quired, number of shares issued and unrealized appreciation acquired were as
follows:
<TABLE>
<CAPTION>
Value of Net Number of
Assets Shares Unrealized
Acquired Fund Acquired Issued Appreciation
---------------------------------------------------------------
<S> <C> <C> <C>
Evergreen Fund........ $ 214,923,155 17,901,009 $ 17,787,797
Keystone Fund......... 1,616,348,537 134,623,096 494,838,638
</TABLE>
The net assets of the Fund immediately after the acquisition was
$1,831,271,692.
Prior to the acquisition, the Keystone Fund added three classes of shares des-
ignated as Class A, Class C and Class Y designated its existing class of shares
as Class B. Shareholders of the Keystone Fund who, on January 16, 1998, held
Class B shares purchased before January 1, 1995 and certain other non-
commissionable Class B shares had such shares converted to Class A shares hav-
ing an aggregate value equal to that of the shareholder's Class B shares prior
to the conversion.
At the conclusion of the Balanced Fund's acquisition of the net assets of the
Evergreen Fund and Keystone Fund, the surviving records of the Fund for ac-
counting and performance purposes is the Keystone Fund and for taxation pur-
poses is the Evergreen Fund.
4. ACQUISITIONS
Effective at the close of business on July 24, 1998, Foundation Fund acquired
the net assets of CoreFunds, Inc. Balanced Fund, an open-end management invest-
ment company registered under the 1940 Act in an exchange of shares. The net
assets were exchanged through a non-taxable exchange for 321,554 Class A,
49,982 Class B and 6,470,202 Class Y shares, of Foundation Fund. The acquired
net assets consisted primarily of portfolio securities with unrealized appreci-
ation of $29,739,766. The net assets of Foundation Fund and CoreFunds Inc. Bal-
anced Fund prior to the acquisition were $2,784,240,332 and $139,832,551, re-
spectively. The aggregate net assets of Foundation Fund immediately after the
acquisition were $2,924,072,883.
Effective at the close of business on July 17, 1997, Foundation Fund acquired
the net assets of Keystone Balanced Fund II, an open-end management investment
company registered under the 1940 Act in an exchange of shares. The net assets
were exchanged through a non-taxable exchange for 111,203 Class A,
60
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
316,984 Class B and 36,146 Class C shares, of Foundation Fund. The acquired net
assets consisted primarily of portfolio securities with unrealized appreciation
of $1,216,239. The aggregate net assets of Foundation Fund immediately after
the acquisition were $1,993,257,978.
5. INVESTMENT ADVISORY AGREEMENTS AND OTHER AFFILIATED TRANSACTIONS
Evergreen Asset Management Corp. ("EAMC"), a wholly-owned subsidiary of First
Union, serves as the investment advisor to the American Retirement Fund, Foun-
dation Fund, and Tax Strategic Fund and is paid an advisory fee that is com-
puted daily and paid monthly based on each Fund's average daily net assets, in
accordance with the following schedules:
<TABLE>
<CAPTION>
Foundation Fund and American
Tax Strategic Fund Retirement Fund
--------------------------------------------------------------------
<S> <C> <C> <C>
First $750 million............. 0.875% First $750 million...... 0.75%
Next $250 million.............. 0.750% Over $750 million....... 0.70%
Over $1 billion................ 0.700%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment sub-advisor to
American Retirement Fund, Foundation Fund, and Tax Strategic Fund and also pro-
vides brokerage services with respect to substantially all security transac-
tions of the Funds effected on the New York or American Stock Exchanges. For
the year ended March 31, 1999, American Retirement Fund, Foundation Fund, and
Tax Strategic Fund incurred brokerage commissions of $182,233, $719,827 and
$300,137 with Lieber & Company. Lieber & Company is reimbursed by EAMC for pro-
viding investment sub-advisory services at no additional expense to the Funds.
EIMC is the investment advisor for Balanced Fund. In return for providing in-
vestment advisory and administrative services the Balanced Fund pays EIMC an
advisory fee that is calculated daily and paid monthly. The advisory fee is
computed at an annual rate of 1.50% of Balanced Fund's gross investment income
plus an amount determined by applying percentage rates starting at 0.60% and
declining to 0.30% per annum, as net assets increase, to the daily net assets
of the Balanced Fund.
Evergreen Investment Services ("EIS"), an indirectly wholly-owned subsidiary of
First Union, serves as the administrator and The BISYS Group, Inc. ("BISYS")
serves as the sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS provides the officers of the Funds. Officers of the Funds and af-
filiated Trustees receive no compensation directly from the Funds.
The administrator and sub-administrator for the Funds are entitled to an annual
fee based on the average daily net assets of the Funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the invest-
ment advisors. The administration fee is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets in-
crease, to the average daily net assets of the Fund. The sub-administration fee
is calculated by applying percentage rates, which start at 0.01% and decline to
0.004% per annum as net assets increase, to the average daily net asset value
of the Fund. For American Retirement Fund, Foundation Fund, and Tax Strategic
Fund the administration and sub-administration fee is paid by their investment
advisor and is not a fund expense.
For the year ended March 31, 1999, Balanced Fund reimbursed EIMC $264,350 for
providing certain administrative and accounting services.
Evergreen Service Company ("ESC"), an indirectly, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds.
61
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of BISYS, serves
as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940
Act, for each class of shares, except Class Y. Distribution plans permit a Fund
to compensate its principal underwriter for costs related to selling shares of
the Fund and for various other services. These costs, which consist primarily
of commissions and service fees to broker-dealers who sell shares of the Fund,
are paid by the Fund through "Distribution Plan expenses". Each class, except
Class Y, currently pays a service fee equal to 0.25% of the average daily net
asset of the class. Class B and Class C also pay distribution fees equal to
0.75% of the average daily net assets of the class. Distribution Plan expenses
are calculated daily and paid at least quarterly.
During the year ended December 31, 1998, amounts paid or accrued to EDI pursu-
ant to each Fund's Class A, Class B, and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
Class A Class B Class C
-------------------------------
<S> <C> <C> <C>
American Retirement Fund....... $ 71,913 $ 1,587,473 $ 25,032
Balanced Fund.................. 3,008,956 5,291,662 14,704
Foundation Fund................ 892,137 12,722,587 596,127
Tax Strategic Fund............. 206,189 2,290,324 398,421
</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.
7. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C and Class Y. Transactions in shares of
the Funds were as follows:
American Retirement Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1999 March 31, 1998
------------------------ -----------------------
Shares Amount Shares Amount
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................. 408,785 $ 6,573,365 776,394 $ 11,977,023
Shares redeemed............. (499,948) (7,611,947) (175,621) (2,728,081)
Shares issued in
reinvestment of
distributions.............. 78,418 1,194,727 73,985 1,168,200
- - -------------------------------------------------------------------------------
Net increase (decrease)..... (12,745) 156,145 674,758 10,417,142
- - -------------------------------------------------------------------------------
Class B
Shares sold................. 2,093,094 33,230,901 4,220,724 64,924,905
Shares redeemed............. (1,977,267) (30,034,353) (651,898) (10,105,217)
Shares issued in
reinvestment of
distributions.............. 360,496 5,461,155 340,081 5,338,212
- - -------------------------------------------------------------------------------
Net increase................ 476,323 8,657,703 3,908,907 60,157,900
- - -------------------------------------------------------------------------------
Class C
Shares sold................. 62,778 1,016,060 80,905 1,241,277
Shares redeemed............. (108,490) (1,678,195) (49,433) (711,589)
Shares issued in
reinvestment of
distributions.............. 5,226 79,493 6,217 97,713
- - -------------------------------------------------------------------------------
Net increase (decrease)..... (40,486) (582,642) 37,689 627,401
- - -------------------------------------------------------------------------------
Class Y
Shares sold................. 167,223 2,637,538 542,883 8,448,058
Shares redeemed............. (818,632) (12,562,478) (749,260) (11,408,993)
Shares issued in
reinvestment of
distributions.............. 96,218 1,467,921 117,732 1,855,188
- - -------------------------------------------------------------------------------
Net decrease................ (551,191) (8,457,019) (88,645) (1,105,747)
- - -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
capital share
transactions............... $ (225,813) $ 70,096,696
</TABLE>
- - ------------------------------------------------------------------------------
62
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
Balanced Fund
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
March 31, 1999 March 31, 1998 (a) June 30, 1997
-------------------------- --------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Shares sold............. 12,998,481 $ 147,893,792 740,667 $ 9,401,463 0 $ 0
Shares redeemed......... (20,007,662) (241,408,480) (4,919,924) (61,467,813) 0 0
Shares issued in
reinvestment of
distributions.......... 17,759,884 197,162,184 2,175,164 26,275,982 0 0
Automatic conversion of
Class B shares to Class
A shares............... 0 0 97,487,277 1,205,409,703 0 0
Shares issued in
acquisition of
Evergreen Balanced Fund
II..................... 0 0 3,807,586 45,716,406 0 0
- - --------------------------------------------------------------------------------------------------------------
Net increase............ 10,750,703 103,647,496 99,290,770 1,225,335,741 0 0
- - --------------------------------------------------------------------------------------------------------------
Class B
Shares sold............. 5,776,852 70,031,992 8,761,830 111,415,080 16,959,452 200,987,044
Shares redeemed......... (20,690,767) (241,461,335) (15,656,468) (202,986,801) (29,517,723) (351,020,484)
Shares issued in
reinvestment of
distributions.......... 8,339,827 92,447,046 13,954,804 172,765,442 7,405,182 84,249,628
Automatic conversion of
Class B shares to Class
A shares............... 0 0 (97,487,277) (1,205,409,703) 0 0
Shares issued in
acquisition of
Evergreen Balanced Fund
II..................... 0 0 9,896,507 118,815,736 0 0
- - --------------------------------------------------------------------------------------------------------------
Net decrease............ (6,574,088) (78,982,297) (80,530,604) (1,005,400,246) (5,153,089) (65,783,812)
- - --------------------------------------------------------------------------------------------------------------
Class C
Shares sold............. 169,732 2,053,953 21,656 270,797 0 0
Shares redeemed......... (49,785) (594,203) (1,672) (21,003) 0 0
Shares issued in
reinvestment of
distributions.......... 28,180 311,824 10 124 0 0
Shares issued in
acquisition of
Evergreen Balanced Fund
II..................... 0 0 44,378 532,825 0 0
- - --------------------------------------------------------------------------------------------------------------
Net increase............ 148,127 1,771,574 64,372 782,743 0 0
- - --------------------------------------------------------------------------------------------------------------
Class Y
Shares sold............. 261,048 3,197,825 65,370 816,075 0 0
Shares redeemed......... (784,486) (9,568,816) (1,167,179) (14,239,843) 0 0
Shares issued in
reinvestment of
distributions.......... 478,147 5,274,406 0 0 0 0
Shares issued in
acquisition of
Evergreen Balanced Fund
II..................... 0 0 4,152,538 49,858,189 0 0
- - --------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (45,291) (1,096,585) 3,050,729 36,434,421 0 0
- - --------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions........... $ 25,340,188 $ 257,152,659 $ (65,783,812)
</TABLE>
- - ------------------------------------------------------------------------------
(a) For the nine months ended March 31, 1998. The Fund changed its fiscal year
end from June 30 to March 31, effective March 31, 1998.
63
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
Foundation Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1999 March 31, 1998
-------------------------- -------------------------
Shares Amount Shares Amount
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 5,707,085 $ 116,332,291 5,521,670 $ 103,759,687
Shares redeemed......... (5,528,399) (112,531,601) (2,914,232) (53,799,294)
Shares issued in
reinvestment of
distributions.......... 480,589 9,839,057 689,871 12,869,510
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 321,554 6,566,886 0 0
Shares issued in
acquisition of Keystone
Balanced Fund II....... 0 0 111,203 2,040,162
- - --------------------------------------------------------------------------------
Net increase............ 980,829 20,206,633 3,408,512 64,870,065
- - --------------------------------------------------------------------------------
Class B
Shares sold............. 20,450,695 415,256,001 19,625,977 367,905,222
Shares redeemed......... (8,458,046) (170,363,447) (4,438,949) (81,802,033)
Shares issued in
reinvestment of
distributions.......... 1,292,568 26,379,301 1,744,118 32,347,483
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 49,982 1,015,265 0 0
Shares issued in
acquisition of Keystone
Balanced Fund II....... 0 0 316,984 5,790,704
- - --------------------------------------------------------------------------------
Net increase............ 13,335,199 272,287,120 17,248,130 324,241,376
- - --------------------------------------------------------------------------------
Class C
Shares sold............. 1,358,670 27,583,261 1,016,989 19,227,162
Shares redeemed......... (646,190) (13,071,227) (405,258) (7,403,302)
Shares issued in
reinvestment of
distributions.......... 59,528 1,214,951 74,186 1,375,625
Shares issued in
acquisition of Keystone
Balanced Fund II....... 0 0 36,146 660,062
- - --------------------------------------------------------------------------------
Net increase............ 772,008 15,726,985 722,063 13,859,547
- - --------------------------------------------------------------------------------
Class Y
Shares sold............. 8,320,162 169,201,729 10,695,459 200,948,807
Shares redeemed......... (12,069,787) (246,770,346) (8,434,531) (156,550,969)
Shares issued in
reinvestment of
distributions.......... 1,628,347 33,343,319 2,313,662 43,208,742
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 6,470,202 132,250,400 0 0
- - --------------------------------------------------------------------------------
Net increase............ 4,348,924 88,025,102 4,574,590 87,606,580
- - --------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... $ 396,245,840 $ 490,577,568
</TABLE>
- - ------------------------------------------------------------------------------
Tax Strategic Fund
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1999 March 31, 1998
------------------------ -----------------------
Shares Amount Shares Amount
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................ 2,373,800 $ 38,260,527 3,458,299 $ 53,040,118
Shares redeemed............ (1,712,788) (27,167,670) (371,701) (5,726,480)
Shares issued in
reinvestment of
distributions............. 110,933 1,765,631 77,658 1,200,787
- - ------------------------------------------------------------------------------
Net increase............... 771,945 12,858,488 3,164,256 48,514,425
- - ------------------------------------------------------------------------------
Class B
Shares sold................ 5,907,847 94,740,617 8,736,220 134,105,426
Shares redeemed............ (2,307,135) (36,564,880) (423,863) (6,502,615)
Shares issued in
reinvestment of
distributions............. 217,074 3,451,970 154,897 2,385,102
- - ------------------------------------------------------------------------------
Net increase............... 3,817,786 61,627,707 8,467,254 129,987,913
- - ------------------------------------------------------------------------------
Class C
Shares sold................ 1,684,267 26,890,534 1,515,720 23,364,146
Shares redeemed............ (625,888) (9,938,022) (212,250) (3,128,629)
Shares issued in
reinvestment of
distributions............. 37,777 599,814 19,807 305,243
- - ------------------------------------------------------------------------------
Net increase............... 1,096,156 17,552,326 1,323,277 20,540,760
- - ------------------------------------------------------------------------------
Class Y
Shares sold................ 395,815 6,348,218 105,640 1,623,522
Shares redeemed............ (149,296) (2,395,389) (29,733) (442,604)
Shares issued in
reinvestment of
distributions............. 14,888 237,490 12,558 192,999
- - ------------------------------------------------------------------------------
Net increase............... 261,407 4,190,319 88,465 1,373,917
- - ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ $ 96,228,840 $200,417,015
</TABLE>
- - ------------------------------------------------------------------------------
64
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
8. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended March 31, 1999:
<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>
American
Retirement
Fund.......... $ 37,032,389 $ 32,768,436 $ 87,494,393 $ 92,171,898
Balanced Fund.. 321,112,321 1,447,836,648 219,667,233 1,771,974,147
Foundation
Fund.......... 268,425,494 492,658,362 0 267,146,924
Tax Strategic
Fund.......... 0 351,226,897 0 237,022,731
</TABLE>
The Balanced Fund loaned securities during the year ended March 31, 1999 to
certain brokers who paid the Fund a negotiated lenders' fee. These fees are in-
cluded in interest income. At March 31, 1999, the value of securities on loan
and the value of collateral amounted to $9,186,293 and $9,459,928, respective-
ly. During the year ended March 31, 1999, Balanced Fund earned $66,125 in in-
come from securities lending.
On March 31, 1999, the composition of unrealized appreciation and depreciation
on securities based on the aggregate cost of securities for federal income tax
purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Tax Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
----------------------------------------------------
<S> <C> <C> <C> <C>
American
Retirement
Fund.......... $ 184,137,658 $ 29,613,003 $10,023,962 $ 19,589,041
Balanced Fund.. 1,378,817,665 346,464,046 18,754,940 327,709,106
Foundation
Fund.......... 2,318,644,782 876,911,976 88,524,046 788,387,930
Tax Strategic
Fund.......... 361,764,774 41,958,753 10,388,864 31,569,889
</TABLE>
As of March 31, 1999, the American Retirement Fund had capital loss carryovers
for federal income tax purposes of $13,000 expiring 2007.
In addition to capital loss carryovers, capital and currency losses incurred
after October 31 within a Fund's fiscal year-end are deemed to arise on the
first business day of the Fund's following fiscal year. For the fiscal year
ended March 31, 1999, American Retirement Fund and Tax Strategic Fund have in-
curred and elected to defer $3,853,673 and $320,362 of capital loss, respec-
tively, Foundation Fund has incurred and elected to defer $3,471 of currency
loss.
9. EXPENSE OFFSET ARRANGEMENTS
The Funds have entered into expense offset arrangements with ESC and their cus-
todian whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of each Fund's related expenses. The assets deposited
with ESC and the custodian under these expense offset arrangements could have
been invested in income-producing assets. The amount of fee credits received by
each Fund and the impact on each Fund's expense ratio represented as a percent-
age of its average net assets were as follows:
<TABLE>
<CAPTION>
Total
Fee Credits % of Average
Received Net Assets
--------------------------
<S> <C> <C>
American Retirement Fund............... $ 7,514 0.00%
Balanced Fund.......................... 60,734 0.00%
Foundation Fund........................ 90,680 0.00%
Tax Strategic Fund..................... 16,192 0.00%
</TABLE>
65
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Combined Notes to Financial Statements (continued)
10. 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. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
11. FINANCING AGREEMENTS
Certain Evergreen Funds and State Street Bank and Trust Company ("State
Street") and a group of banks (collectively, the "Banks") entered into a fi-
nancing agreement dated December 22, 1997, as amended on November 20, 1998. Un-
der this agreement, the Banks provided an unsecured credit facility in the ag-
gregate amount of $400 million ($275 million committed and $125 million uncom-
mitted). The credit facility was allocated, under the terms of the financing
agreement, among the Banks. The credit facility was accessed by the Funds for
temporary or emergency purposes only and was subject to each Fund's borrowing
restrictions. Borrowings under this facility bear interest at 0.50% per annum
above the Federal Funds rate. A commitment fee of 0.065% per annum will be in-
curred on the unused portion of the committed facility, which was allocated to
all funds. For its assistance in arranging this financing agreement, the Capi-
tal Market Group of First Union was paid a one-time arrangement fee of $27,500.
State Street serves as administrative agent for the Banks, and as administra-
tive agent is entitled to a fee of $20,000 per annum which is allocated to all
of the Evergreen Funds.
This agreement was amended and renewed on December 22, 1998. The amended fi-
nancing agreement became effective on December 22, 1998 among all of the Ever-
green Funds, State Street and The Bank of New York ("BONY"). Under this agree-
ment, State Street and BONY provide an additional unsecured credit facility in
the aggregate amount of $150 million ($125 million committed and $25 million
uncommitted). The remaining terms and conditions of the agreement are unaffect-
ed.
The Funds did not borrow under these agreements during the year ended March 31,
1999.
12. SUBSEQUENT EVENTS
On May 13, 1999, American Retirement Fund filed an Agreement and Plan of Reor-
ganization with the Securities and Exchange Commission which provides for the
acquisition of all the assets of the Fund and the assumption of identified lia-
bilities by Evergreen Income and Growth Fund, a series of the Evergreen Equity
Trust. A special meeting of shareholders to vote on the above proposal is
scheduled for July 23, 1999. Materials for this meeting will be mailed, to
shareholders of record on May 5, 1999, on or about June 2, 1999.
66
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Independent Auditors' Report
The Board of Trustees and Shareholders
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments of the Evergreen American Retirement Fund, Ev-
ergreen Balanced Fund, Evergreen Foundation Fund and Evergreen Tax Strategic
Foundation Fund, portfolios of Evergreen Equity Trust, as of March 31, 1999,
and the related statements of operations for the year then ended, statements of
changes in net assets for each of the years or periods in the two year period
then ended and for the year ended June 30, 1997 for the Evergreen Balanced Fund
and financial highlights for each of the years or periods as indicated on pages
23 to 30. These financial statements and financial highlights are the responsi-
bility of the Funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green American Retirement Fund, Evergreen Balanced Fund, Evergreen Foundation
Fund and Evergreen Tax Strategic Foundation Fund as of March 31, 1999, the re-
sults of their operations, changes in their net assets and financial highlights
for each of the years or periods described above in conformity with generally
accepted accounting principles.
KPMG LLP
Boston, Massachusetts
April 30, 1999
67
<PAGE>
[EVERGREEN LOGO APPEARS HERE]
Additional Information (Unaudited)
FEDERAL TAX STATUS OF DIVIDENDS (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Funds have designated
the following amounts as long-term 20% capital gains for the fiscal year ended
March 31, 1999:
<TABLE>
<CAPTION>
Aggregate Per Share
----------- ---------
<S> <C> <C>
American Retirement Fund.................. 1,873,983 0.135
Balanced Fund............................. 274,987,297 2.026
Foundation Fund........................... 20,471,594 0.140
Tax Strategic Fund........................ 445,856 0.018
</TABLE>
For corporate shareholders, the following percentages of ordinary income divi-
dends paid during the fiscal year ended March 31, 1999 qualified for the divi-
dends received deduction:
<TABLE>
<S> <C>
American Retirement Fund................................. 78.14%
Balanced Fund............................................ 28.94%
Foundation Fund.......................................... 42.86%
Tax Strategic Fund....................................... 100.00%
</TABLE>
For the fiscal year ended March 31, 1999, the percentage representing the por-
tion of dividends exempt from federal income tax, other than alternative mini-
mum tax for Tax Strategic Fund is 75.39%.
YEAR 2000 (Unaudited)
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
68
<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 Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California 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
Massachusetts Municipal Bond Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
67432 543690 05/99
[LOGO OF EVERGREEN BULK RATE
FUNDS/SM/ APPEARS HERE] U.S. POSTAGE
PAID
200 Berkeley Street PERMIT NO. 19
Boston, MA 02116 HUDSON, MA
<PAGE>
Semiannual Report
as of September 30, 1999
Evergreen
Balanced Funds
[LOGO OF EVERGREEN FUNDS/SM/]
SINCE 1932
<PAGE>
Table of Contents
Letter to Shareholders .................................................... 1
Evergreen Balanced Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Foundation Fund
Fund at a Glance ....................................................... 7
Portfolio Manager Interview ............................................ 8
Evergreen Tax Strategic Foundation Fund
Fund at a Glance ....................................................... 11
Portfolio Manager Interview ............................................ 12
Financial Highlights
Evergreen Balanced Fund ................................................ 16
Evergreen Foundation Fund .............................................. 18
Evergreen Tax Strategic Foundation Fund ................................ 20
Schedule of Investments
Evergreen Balanced Fund ................................................ 22
Evergreen Foundation Fund .............................................. 28
Evergreen Tax Strategic Foundation Fund ................................ 32
Statements of Assets and Liabilities ...................................... 39
Statements of Operations .................................................. 40
Statements of Changes in Net Assets ....................................... 41
Combined Notes to Financial
Statements ................................................................ 43
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $70 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.
EvergreenSM is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
November 1999
[PHOTO]
William M. Ennis President
and CEO
Dear Shareholders,
We are pleased to provide the Evergreen Balanced Funds semiannual report, which
covers the six-month period ended September 30, 1999.
Uncertainty over Interest Rates Influences the Markets
Although the U.S. economy is in the ninth year of economic expansion, many
believe that valuation levels in some sectors of the stock market are just not
sustainable. The S&P 500 continued to advance in the first half of 1999,
dominated by the performance of a very small group of large-cap stocks. By the
3rd quarter of 1999, rising interest rates dampened performance of stocks across
the board. Investors' inflation fears and continued doubts about the ability of
U.S. companies to sustain significant growth in earnings prompted an October
sell-off.
The Federal Reserve Bank's "tightening bias" leads many to anticipate further
interest rate increases in order to stem even the slightest inflationary
pressure. Additional interest rate hikes would likely have a negative effect on
stock prices, which could restrain consumer spending; however, many investors
are waiting for just such a scenario to take place, so they can take advantage
of lower stock prices as a buying opportunity. Bonds appear relatively
attractive over the long term compared to other asset classes, particularly
because "real" interest rates are high by historical standards.
We believe that the economy is still fundamentally strong, and that inflation
will stay contained, producing only moderate upward pressure on interest rates.
We remain cautiously optimistic about the prospects for continued growth in the
markets.
Evergreen Funds is Ready for the Year 2000/1/
We have been addressing the Year 2000 challenge since February of 1996 and have
committed the time, resources and people necessary to prepare for any
ramifications from the millennium bug. Today, we are confident that our
preparations will enable us to continue to deliver the high-quality Evergreen
products and services on which our shareholders rely. In addition, Evergreen
portfolio managers have placed great emphasis on monitoring portfolios for Y2K
readiness.
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 make it simple for you to choose the most
appropriate for your portfolio.
We would like to thank you for your continued investment in Evergreen Funds.
Sincerely,
/s/
--------------------------
William M. Ennis
President and CEO
Evergreen Investment Company
/1/ The information above constitutes Year 2000 readiness disclosure.
1
<PAGE>
EVERGREEN
Balanced Fund
Fund at a Glance as of September 30, 1999
"The Fund performed in line with the markets during a period of rising interest
rates and uncertainty about the pace of economic growth."
Portfolio
Management
--------------------
[PHOTO] [PHOTO]
Gary E.Pzegeo Judith A.Warners
Tenure: January 1999 Tenure: August 1998
CURRENT INVESTMENT STYLE/1/
[GRAPHIC] Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings
and price-to-book ratio relative to the S&P 500, as well as the size
of the companies in which it invests, or median market
capitalization.
[GRAPHIC] 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: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost.
Historical performance shown for Classes A, C and Y prior to their inception is
based on the performance of Class B, the original class offered. These
historical returns for Classes A and Y have been adjusted to eliminate the
effect of the higher 12b-1 fees applicable to Class B. The 12b-1 fees for Class
A are 0.25%, for Class B are 1.00% and for Class C are 1.00%. Class Y does not
pay a 12b-1 fee. If these fees had not been eliminated, returns would have been
lower.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date 9/11/1935 Class A Class B Class C Class Y
Class Inception Date 1/20/1998 9/11/1935 1/22/1998 1/26/1998
Average Annual Returns*
6 months with sales charge -4.93% -5.43% -1.57% n/a
6 months w/o sales charge -0.21% -0.50% -0.59% 0.00%
1 year with sales charge 5.28% 5.14% 8.74% n/a
1 year w/o sales charge 10.50% 9.66% 9.65% 10.79%
3 years 11.70% 12.02% 12.70% 13.83%
5 years 14.12% 14.19% 14.38% 15.53%
10 years 10.62% 10.30% 10.26% 11.43%
Since Portfolio Inception 8.56% 8.45% 8.41% 8.72%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC yield 2.48% 1.84% 1.84% 2.88%
6-month income dividends
per share $0.15 $0.11 $0.11 $0.16
* Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
CPI LBGCBI S&P 500 Class B
9/30/89 10,000 10,000 10,000 10,000
9/30/90 10,616 10,675 9,060 9,477
9/30/91 10,976 12,368 11,879 11,581
9/30/92 11,304 14,005 13,188 12,468
9/30/93 11,608 15,608 14,897 13,894
9/30/94 11,952 14,961 15,447 13,589
9/30/95 12,256 17,109 20,038 16,039
9/30/96 12,624 17,879 24,115 18,584
9/30/97 12,896 19,593 33,861 22,994
9/30/98 13,088 22,115 36,888 24,309
9/30/99 13,400 21,752 46,652 26,658
Comparison of a $10,000 investment in Evergreen Balanced Fund Class B shares/2/,
versus a similar investment in the Standard & Poor's 500 Index (S&P 500), the
Lehman Brothers Government/Corporate Bond Index (LBGCBI) and the Consumer Price
Index (CPI).
The S&P 500 and the LBGCBI are unmanaged indices and do not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
2
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Balanced Fund performed in line with the markets during a period
of rising interest rates and uncertainty about the pace of economic growth. For
the six-month period ended September 30, 1999, the Balanced Fund's Class A
shares had a total return of -0.21% compared to -0.56% return for the Lehman
Brothers. Government/Corporate Bond Index and 0.36% for the S&P 500 Index..
During the same six-month period, the average balanced fund had a return of -
0.15%, according to Lipper Inc., an independent monitor of mutual fund
performance. Fund performance is before the deduction of any applicable sales
charges.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $1,557,683,144
Number of Holdings 222
Beta 0.56
P/E Ratio 28.7x
What was the investment environment like during the six months that ended
September 30?
It was a time of worry and rising interest rates. Very strong economic growth in
the final quarter of 1998 and first quarter of 1999 led to concern that the U.S.
economy might be overheating and that long-dormant inflationary pressures might
begin to rise. In both June and August, the U.S. Federal Reserve Board responded
to strong growth in the Gross Domestic Product and heavy consumer spending by
raising short-term interest rates as a pre-emptive strike against inflation.
During the six-month period, the yields of the 30-year Treasury rose from 5.62%
to 6.05%, while yields on the 10-year Treasury rose from 5.23% to 5.88%. While
there was not evidence of a strong pickup in inflation, there were pockets of
rising prices, most notably in energy. During the six months, the price of a
barrel of crude oil rose by 50%.
This created uncertainty in the bond market, which was concerned about how far
the Federal Reserve might go to raise interest rates. Corporate bonds,
especially higher-grade securities, were hurt both by this uncertainty and by an
unusually heavy supply of new bonds in the market. During the six months,
Treasuries outperformed both high grade and high yield corporate bonds. However,
high-grade bonds tended to underperform high yield bonds, which were helped by
their yield premiums. Mortgage-backed securities, which tend to have shorter
duration and therefore are less sensitive to interest rate increases,
outperformed both corporate and government bonds.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of 9/30/1999 net assets)
[PIE CHART] Common Stock -- 60.7%
Corporate Bonds & Notes -- 14.5%
Collateralized Mortgage Obligations -- 5.7%
Treasury Bonds & Notes -- 4.8%
Asset-Backed Securities -- 4.5%
Foreign Bonds (U.S. and Non-U.S. Dollars) -- 3.4%
Mortgage-Backed Securities -- 3.0%
Cash and Short-Term Investments -- 2.3%
Convertible Securities -- 1.1%
3
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
The stock market, after a period of exceptionally strong results in the previous
six months, experienced both short-term rallies and declines as well as changes
in performance-leading sectors. At the start of the period, in April, we saw a
rally in the stocks of companies in basic materials industries and of cyclical
companies, whose fortunes are closely linked to the rises and declines in
economic growth. However, the overall market corrected down in May, July and
September. Over the full six-month period, companies in the technology
industries tended to outperform the overall market and a relatively small group
of large-cap companies turned in relatively stronger performance than the
market. This group included industry-leading technology companies as well as
large-cap, stable growth companies such as General Electric and Wal-Mart.
Top 5 Industries
Equity
------
(as a percentage of 9/30/1999 net assets)
Information Services & Technology 10.9%
Oil/Energy 6.4%
Healthcare Products & Services 5.9%
Communication Systems & Services 4.2%
Retailing & Wholesale 4.2%
What was your overall strategy with respect to allocating assets between stocks
and bonds?
We remained fairly consistent throughout the six-month period. We started the
new fiscal year in April with a target allocation of 63% stocks and 37% bonds.
By the end of the fiscal period on September 30, 1999, the relative weightings
were approximately 62% in stocks and 38% in fixed income.
What were your principal fixed income strategies?
Given the uncertainty about the direction of interest rates and potential
problems created by the "Year 2000 question," we took a lower risk profile in
managing the fixed income portfolio. This meant we shortened the portfolio's
sensitivity to interest rate changes and upgraded the overall credit quality of
the portfolio. During the six months, the portfolio's duration was shortened
from 6 years to 5.75 years, while average maturity declined from 11.2 years to
10.1 years. Average credit quality increased from AA- to AA, as we added 13% to
the weighting of government and AAA-rated securities, and reduced BBB-rated and
high yield securities by 3% each.
This overall strategy helped performance, because the bond market tended to
reward investments in higher quality, more liquid securities.
Top 5 Industries
Bonds
-----
(as a percentage of 9/30/1999 net assets)
Finance & Insurance 6.0%
Collateralized Mortgage Obligations 5.7%
Treasury Bonds & Notes 4.8%
Asset-Backed Securities 4.5%
Mortgage-Backed Securities 3.1%
4
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
What were your principal equity strategies during the period, Judith?
We continued to focus on large company stocks, but we built up our technology
weighting over the period to be slightly over our S&P 500 benchmark, at 24.4% of
equity assets. In technology, we have focused on communication as well as on
companies providing the hardware and software that make up the backbone of the
internet. In communication, we have had major investments in equipment companies
such as Tellabs and Cisco Systems, as well as MCI Worldcom in communications
systems. Our other holdings include market leaders such as IBM, Intel, Sun
Microsystems, EMC and, more recently, Oracle and Veritas Software.
As world economic growth has picked up, we also have made energy an important
theme in our investment strategy. Our investments include a number of
internationally focused energy companies, including Texaco, Royal Dutch
Petroleum, ARCO, BP-Amoco and Apache, which is involved in natural gas
exploration and production.
We have de-emphasized two industries that had been leadership areas for the Fund
in recent years: finance and healthcare. We thought all the favorable factors
that had helped propel both sectors had peaked out. Even though we were
under-weighted in finance, relative to our benchmarks, the remaining financial
stocks still were disappointing to us. Only late in the period has finance shown
improved performance, although we continue to be under-weighted in the group.
While we brought our healthcare weighting down during the six-month period, it
is not significantly under-weighted.
Top 10
Equity Holdings
---------------
(as a percentage of 9/30/1999 net assets)
Microsoft Corp. 2.7%
General Electric Co. 2.4%
Intel Corp. 1.6%
Tyco International Ltd. 1.3%
Cisco Systems, Inc. 1.2%
Texaco, Inc. 1.2%
Wal-Mart Stores, Inc. 1.2%
International Business Machines Corp. 1.2%
CBS Corp. 1.1%
Sun Microsystems, Inc. 1.1%
What were some of the stocks that contributed to performance?
A number of our technology holdings did very well during the period, including
Sun Microsystems, IBM, Honeywell, Veritas Software and Solectron.
Tyco International, a diversified industrial company that we have owned for
several years, turned in very fine performance, as did Tandy Corp., the operator
of the Radio Shack chain.
Our pharmaceutical holdings had disappointing performance. After several years
of strong performance, this industry's high stock valuations began to look less
attractive as the global economy showed signs of revival and more cyclical
stocks started to show improved prospects. In addition, the sector's performance
also was hurt by uncertainty over future government policy on Medicare
reimbursement and the introduction of relatively few new drugs during 1999.
In finance, we sold our positions in Merrill Lynch and Bank America after
disappointing performance.
5
<PAGE>
EVERGREEN
Balanced Fund
Portfolio Manager Interview
Top 5 Bond Holdings
-------------------
(as a percentage of 9/30/1999 net assets)
Coupon Maturity
------ --------
U.S. Treasury Notes 7.25% 5/15/2004 1.6%
U.S. Treasury Bonds 5.25% 2/15/2009 1.1%
Federal Home Loan
Mortgage Corp. 6.63% 9/15/2009 0.9%
Denmark (Kingdom of) 8.00% 5/15/2003 0.9%
FNMA 5.50% 7/1/2009 0.9%
What is your outlook?
In our bond portfolio, we expect to maintain our present strategy with respect
to interest-rate sensitivity, because we think it is possible that the Federal
Reserve may raise short-term rates further to achieve its goal of moderate
growth and low inflation. Over the longer term, however we may increase our
weightings in corporate and mortgage securities. Corporate bond prices, in
relation to Treasury prices, offer an outstanding value.
In equities, we think the leadership companies that dominate our stock portfolio
have favorable prospects in the coming year, although we must get through some
short-term uncertainty first. The market is watching the Federal Reserve Board
very carefully to see if it will raise short-term interest rates and tighten the
money supply further to head off accelerating growth and potential inflationary
pressures. Moreover, the "Year 2000 question" continues to hang over stock
investors, who worry about the ability of computer systems to deal with calendar
dates after December 31, 1999. We believe these short-term issues are
surmountable, and the leading S&P 500 companies in which we invest will continue
to have good earnings growth in the year 2000. These companies are benefiting
from the productivity enhancements made possible by technology, while the
competitive thrust created by the internet and the telecommunications revolution
is creating new earnings opportunities. While inflation is a matter of
short-term concern, we believe consolidation in industries and productivity
enhancements will dampen the effects of rising commodity prices and keep
inflation under control. Although some challenges are present, we believe the
stocks we own will survive and thrive.
6
<PAGE>
EVERGREEN
Foundation Fund
Fund at a Glance as of September 30, 1999
"We believe that by increasing the overall diversification of the portfolio, we
have given the Fund the ability to get through market volatility more smoothly
than it has in the past."
Portfolio
Management
--------------------
[PHOTO] [PHOTO]
Jean C.Ledford,CFA Richard S.Welsh
Tenure: August 1999 Tenure: August 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC] Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings
and price-to-book ratio relative to the S&P 500, as well as the size
of the companies in which it invests, or median market
capitalization.
[GRAPHIC] 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: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost.
Historical performance shown for Classes A, B and C prior to their inception is
based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B, and C have not been adjusted to reflect the
effect of each class' 12b-1 fees. These fees for Class A are 0.25%, for Class B
are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date 1/2/1990 Class A Class B Class C Class Y
Class Inception Date 1/3/1995 1/3/1995 1/3/1995 1/2/1990
Average Annual Returns*
6 months with sales charge -3.81% -4.44% -0.39% n/a
6 months w/o sales charge 1.00% 0.56% 0.61% 1.08%
1 year with sales charge 7.16% 6.62% 10.62% n/a
1 year w/o sales charge 12.53% 11.62% 11.62% 12.76%
3 years 13.51% 13.72% 14.50% 15.62%
5 years 14.37% 14.41% 14.61% 15.74%
Since Portfolio Inception 15.00% 15.14% 15.12% 15.70%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 1.61% 0.94% 0.94% 1.94%
6-month income dividends
per share $0.21 $0.13 $0.13 $0.24
*Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH]
CPI LBGCBI S&P 500 Class A
9/30/89 10,000 10,000 10,000 10,000
9/30/90 10,616 10,675 9,060 9,477
9/30/91 10,976 12,368 11,879 11,581
9/30/92 11,304 14,005 13,188 12,468
9/30/93 11,608 15,608 14,897 13,894
9/30/94 11,952 14,961 15,447 13,589
9/30/95 12,256 17,109 20,038 16,039
9/30/96 12,624 17,879 24,115 18,584
9/30/97 12,896 19,593 33,861 22,994
9/30/98 13,088 22,115 36,888 24,309
9/30/99 13,400 21,752 46,652 26,658
Comparison of a $10,000 investment in Evergreen Foundation Fund,Class A
shares/2/,versus a similar investment in the Standard & Poor's 500 Index (S&P
500), the Lehman Brothers Government/Corporate Bond Index (LBGCBI) and the
Consumer Price Index (CPI).
The S&P 500 and the LBGCBI are unmanaged market indices and do not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
7
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Evergreen Foundation Fund perform?
- --------------------------------------------------------------------------------
For the six-month period ended September 30, 1999, the Foundation Fund performed
somewhat better than the average balanced fund. During the period, the Fund's
Class A shares had a total return of 1.00% compared to a 0.36% return by the S&P
500 and -0.56% by Lehman Brothers Government/Corporate Bond Index. During the
same period, the average return of balanced funds was -0.15%, according to
Lipper Inc., an independent monitor of mutual fund performance. These returns
were realized during a difficult period in the financial markets, as rising
interest rates undermined the value of bonds and concerns about the possibility
of increasing inflation held back the performance of many stocks. Fund
performance is before deduction of any applicable sales charges.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $3,145,869,768
Number of Holdings 177
Beta 0.63
P/E Ratio 53.6x
Tell us about the new portfolio management team that took responsibility for the
Foundation Fund in August.
We have a five member team with a depth of investment experience--almost 50
years total. The lead manager is Jean Ledford, an investment professional with
more than 19 years of experience. For the previous 21/2 years, she was the lead
manager of American Century Select Fund, cited by the Wall Street Journal
(January 7, 1999) as one of the top-performing mutual funds in 1998. Before
joining American Century Investments, she was investment director of the State
of Wisconsin Investment Board. Three of the remaining four members of the team
also came from American Century Investments. They include Richard Welsh,
co-portfolio manager, and analysts Rick Petran and John Anthony. The fifth
member of the team is Caroline Yu, an analyst who had been at Evergreen Asset
Management Corp.
Jean Ledford also is President and Chief Executive Officer of Evergreen Asset
Management Corp. She was appointed to that position following the retirement of
Stephen A. Lieber in August.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of 9/30/1999 net assets)
[PIE CHART] Common Stock -- 63.5%
U.S. Treasury Bonds & Notes -- 25.1%
Cash Short-Term -- 9.0%
Corporate Bonds & Notes -- 1.6%
Government Agency Bonds & Notes -- 0.6%
Convertibles -- 0.2%
- --------------------------------------------------------------------------------
How would you describe your investment style?
- --------------------------------------------------------------------------------
We build portfolios from the bottom up, emphasizing the selection of individual
stocks of attractive companies with opportunities to improve their earnings. Our
style allows us to find securities in a wide variety of industries. The primary
characteristic of our portfolios is that they are well diversified. We are not
traditional growth or core buyers in the sense that we are not looking for any
absolute figures in terms of earnings growth rates or price-to-growth rates.
While we buy companies with good growth prospects, we are interested in buying
these stocks at reasonable prices.
One consequence of this broader diversification is that we expect the
volatility--or variability--of
8
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
performance will be reduced when compared to the S&P 500. One of our team goals
is to produce very attractive Sharpe Ratios, which measure the amount of risk
taken for the returns obtained. We try to apply this to the Fund by seeking
strong performance while minimizing risk.
We pick stocks one at a time, and our concentrations in industries and sectors
will result from that stock-picking discipline. We are bottom-up stock pickers,
not top-down investors. The key to our style is the search for changes on the
margin that can increase a company's earnings growth rate. We look for factors
such as a new management team, a restructuring, a new product or geographical
expansion. As we construct a portfolio from our stock picks, we are careful to
determine how much risk we are taking.
Our sell discipline is just the reverse of our buy discipline. When a stock
stops exhibiting an upward drift or momentum in earnings, we begin the process
of lightening our position. We look not just at absolute earnings trends, but
also at events on the margin that could affect earnings trends, such as the loss
of a key executive, the failure of a new product or a botched restructuring.
Top 5 Industries
Equity
------
(as a percentage of 9/30/1999 net assets)
---------
Information Services & Technology 13.7%
Finance & Insurance 7.6%
Healthcare Products & Services 6.8%
Utilities-Telephone 4.1%
Communication Systems & Services 3.5%
Top 10
Equity Holdings
---------------
(as a percentage of 9/30/1999 net assets)
---------
Intel Corp. 3.8%
Microsoft Corp. 2.8%
General Electric Co. 2.3%
International Business Machines Corp. 1.9%
Cisco Systems, Inc. 1.8%
Federal National Mortgage Assoc. 1.4%
Lucent Technologies, Inc. 1.3%
Sun Microsystems, Inc. 1.3%
Sprint Corp. 1.2%
Wal-Mart Stores, Inc. 1.2%
What are some of the changes you are making as you implement your strategy in
the Foundation Fund?
On the equity side of the portfolio, we have reduced the total number of company
names from approximately 180 to about 130 and added to the Fund's
diversification. As we have done this, we have increased the weighting in the
technology industry, while decreasing the emphasis on financial service
companies. Newer, technology-related investments in the Fund include Cisco
Systems, Lucent Technologies and Sun Microsystems. Another prominent name that
we have added is Wal-Mart. These four companies now are among the Fund's top-ten
equity holdings, supplanting the prominent positions held by Merrill Lynch,
American International Group, DuPont and Hewlett-Packard, although the latter
four remain Fund holdings.
In the fixed-income portion of the portfolio, we have reduced substantially the
Fund's volatility, or interest rate sensitivity, by shortening duration of the
bonds from about 11 years to about 6 years. In addition to shortening duration,
we recently have added some very high quality corporate bonds to the portfolio
with securities issued by Daimler-Chrysler and Wal-Mart. The Fund's historical
emphasis on very high quality securities remains intact, however. We believe the
fixed-income portfolio should be a stabilizing influence on the overall Fund, as
well as a source of dividend income. We therefore do not try to anticipate or
"bet on" changes in the direction of interest rate movements. Our goal is to
have a fixed income portion that reflects most of the characteristics of a
stable, intermediate-term government bond index, with modest investments in high
quality corporate securities.
9
<PAGE>
EVERGREEN
Foundation Fund
Portfolio Manager Interview
Top 4 Industries
Bonds
-----
(as a percentage of 9/30/1999 net assets)
---------
Treasury Bonds & Notes 25.1%
Automotive Equipment & Manufacturing 0.8%
Retailing & Wholesale 0.8%
U.S. Government Agency Obligations 0.6%
Top 5 Bond Holdings
-------------------
(as a percentage of 9/30/1999 net assets)
---------
Coupon Maturity
------ --------
U.S. Treasury Notes 5.25% 8/15/2003 3.9%
U.S. Treasury Notes 6.50% 8/31/2001 3.2%
U.S. Treasury Notes 5.88% 9/30/2002 2.4%
U.S. Treasury Notes 6.13% 8/15/2007 2.4%
U.S. Treasury Notes 8.13% 8/15/2009 1.9%
What is your outlook?
We believe that by increasing the overall diversification of the portfolio, we
have given the Fund the ability to get through market volatility more smoothly
than it has in the past.
At this point, most investors are wrestling with the question of whether we are
witnessing the start of a strong upturn in inflation, or whether the economy can
sustain the relatively low pace of inflation of the past several years. When
inflationary pressures start to emerge, stocks in industries such as basic
materials, energy and technology start to outperform stocks in other industries.
When there is very little inflation, we see relatively stronger performance in
the traditional areas such as healthcare and the financials.
10
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Fund at a Glance as of September 30, 1999
"The key to our style is the search for changes on the margin that can increase
a company's earnings growth rate."
Portfolio
Management
--------------------
[PHOTO] [PHOTO]
Jean C.Ledford,CFA James T.Colby III
Tenure: August 1999 Tenure: November 1999
[PHOTO]
Richard S.Welsh
Tenure: August 1999
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC] Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings
and price-to-book ratio relative to the S&P 500, as well as the size
of the companies in which it invests, or median market
capitalization.
[GRAPHIC] 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: 1999 Morningstar, Inc.
/2/Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost.
Historical performance shown for Classes A, B and C prior to their inception is
based on the performance of Class Y, the original class offered. These
historical returns for Classes A, B and C have not been adjusted to reflect the
effect of each class' 12b-1 fees. These fees for Class A are 0.25%, for Class B
are 1.00% and for Class C are 1.00%. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS/2/
- --------------------------------------------------------------------------------
Portfolio Inception Date 11/2/1993 Class A Class B Class C Class Y
Class Inception Date 1/17/1995 1/6/1995 3/3/1995 11/2/1993
Average Annual Returns*
6 months with sales charge -5.99% -6.55% -2.64% n/a
6 months w/o sales charge -1.29% -1.66% -1.67% -1.16%
1 year with sales charge 1.85% 1.13% 5.14% n/a
1 year w/o sales charge 6.91% 6.13% 6.14% 7.16%
3 years 8.39% 8.53% 9.37% 10.47%
5 years 12.11% 12.23% 12.46% 13.52%
Since Portfolio Inception 11.20% 11.41% 11.49% 12.38%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
30-day SEC Yield 2.41% 1.77% 1.77% 2.78%
6-month income dividends
per share $0.18 $0.11 $0.11 $0.20
*Adjusted for maximum applicable sales charge unless noted.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH]
CPI LBMBI S&P 500 Class A
11/30/93 10,000 10,000 10,000 9,527
9/30/94 10,247 9,824 10,260 10,003
9/30/95 10,508 10,923 13,309 12,243
9/30/96 10,823 11,582 16,017 13,910
9/30/97 11,056 12,627 22,491 17,351
9/30/98 11,221 13,727 24,501 17,400
9/30/99 11,488 13,632 30,986 18,601
Comparison of a $10,000 investment in Evergreen Tax Strategic Foundation
Fund,Class A shares/2/, versus a similar investment in the Standard & Poor's 500
Index (S&P 500), the Lehman Brothers Municipal Bond Index (LBMBI)and
the Consumer Price Index (CPI).
The S&P 500 and the LBMBI are unmanaged market indices which do not include
transaction costs associated with buying or selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
11
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
- --------------------------------------------------------------------------------
How did the Evergreen Tax Strategic Foundation Fund perform?
- --------------------------------------------------------------------------------
The Tax Strategic Foundation Fund's Class A shares had a total return of -1.29%
for the six-month period ended September 30, 1999, compared to a 0.36% return
for the S&P 500 and -2.16% for Lehman Brothers Municipal Bond Index. During the
same period, the average return of balanced funds was -0.15%, according to
Lipper Inc., an independent monitor of mutual fund performance. Fund performance
is before deduction of any applicable sales charge.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $375,100,564
Number of Holdings 211
Beta 0.46
P/E Ratio 39.7x
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
(as a percentage of 9/30/1999 net assets)
[PIE CHART] Tax-Free Municipal Bonds -- 63.0%
Common Stock -- 36.1%
Short-Term Investments -- 0.9%
- --------------------------------------------------------------------------------
Tell us about the new management team that took responsibility for the equity
portion of the Tax Strategic Foundation Fund in August.
- --------------------------------------------------------------------------------
We have a five-member team with a depth of investment experience--almost 50
years total. The lead equity manager is Jean Ledford, an investment professional
with more than 19 years' experience. For the previous 2 1/2 years, she was the
lead manager of American Century Select Fund, cited by the Wall Street Journal
(January 7, 1999) as one of the top-performing mutual funds in 1998. Before
joining American Century Investments, she was investment director of the State
of Wisconsin Investment Board. Three of the remaining four members of the team
also came from American Century Investments. They include Richard Welsh,
co-portfolio manager, and analysts Rick Petran and John Anthony. The fifth
member of the team is Caroline Yu, an analyst who had been at Evergreen Asset
Management Corp.
Jean Ledford also is President and Chief Executive Officer of
Evergreen Asset Management Corp. She was appointed to that
position following the retirement of Stephen A. Lieber in
August.
Top 5 Industries
Equity
------
(as a percentage of 9/30/1999 net assets)
Healthcare Products & Services 5.8%
Finance & Insurance 5.6%
Banks 4.7%
Information Services & Technology 4.4%
Retailing & Wholesale 2.4%
12
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
How would you describe your equity investment style?
We build portfolios from the bottom up, emphasizing the selection of individual
stocks of attractive companies with opportunities to improve their earnings. Our
style allows us to find securities in a wide variety of industries. The primary
characteristic of our portfolios is that they are well diversified. We are not
traditional growth or core buyers in the sense that we are not looking for any
absolute figures in terms of earnings growth rates or price-to-growth rates.
While we buy companies with good growth prospects, we are interested in buying
these stocks at reasonable prices.
One consequence of this broader diversification is that we expect the
volatility--or variability--of performance will be reduced when compared to the
S&P 500. One of our team goals is to produce very attractive Sharpe Ratios,
which measure the amount of risk taken for the returns obtained. We try to apply
this to the Fund by seeking strong performance while minimizing risk.
We pick stocks one at a time, and our concentrations in industries and sectors
will result from that stock-picking discipline. We are bottom-up stock pickers,
not top-down investors. The key to our style is the search for changes on the
margin that can increase a company's earnings growth rate. We look for factors
such as a new management team, a restructuring, a new product or geographical
expansion. As we construct a portfolio from our stock picks, we are careful to
determine how much risk we are taking.
Our sell discipline is just the reverse of our buy discipline. When a stock
stops exhibiting an upward drift or momentum in earnings, we begin the process
of lightening our position. We look not just at absolute earnings trends, but
also at events on the margin that could affect earnings trends, such as the loss
of a key executive, the failure of a new product or a botched restructuring.
Top 10
Equity Holdings
---------------
(as a percentage of 9/30/1999 net assets)
PE Corp.-PE Biosystems Group 2.1%
International Business Machines Corp. 1.6%
Intel Corp. 1.4%
Global Crossing Ltd. 1.2%
Merrill Lynch & Co., Inc. 1.1%
Ethan Allen Interiors, Inc. 1.1%
Suntrust Banks, Inc. 1.0%
Citigroup, Inc. 0.9%
Computer Sciences Corp. 0.8%
Union Pacific Corp. 0.8%
13
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
What are some of the changes you have been making as you implement your strategy
in the equity portfolio of the Tax Strategic Foundation Fund?
We are proceeding very cautiously, consistent with the Fund's objective of
limiting the tax consequences of investment decisions. We expect the Fund will
continue to emphasize large company holdings. We expect to increase the number
of technology-related companies and reduce the number of finance-related
companies, and provide greater overall diversification among industries and
sectors.
While there may be a gradual migration in the portfolio, we stress that we will
be very conscious of the capital gains implications in the sales of any
securities. We want to avoid creating unnecessary capital gains tax obligations
for shareholders.
What were the principal strategies for the fixed-income portfolio during the
past six months?
Jim Colby manages the municipal bond portfolio with three primary objectives in
mind:
1. To generate a high degree of tax-exempt income.
2. To maintain as much price stability as possible to keep the overall
volatility of the Fund low.
3. When appropriate, to take some limited tax losses on the sale of some
securities to enable the Fund to absorb capital gains from the equity
portion of the portfolio and thereby limit the tax consequences to
shareholders.
Given the fact that the six-month period brought a bear market for bonds,
including municipal bonds, we have tried to reduce the interest sensitivity--or
vulnerability to rising interest rates--by keeping the portfolio's duration as
close to nine years as possible. We have done this primarily through swaps that
had the added benefit of creating tax losses to cushion the impact of gains from
the equity portfolio. During the past six months, interest rates rose sharply
across the entire fixed-income spectrum, and bond prices tended to decline.
On September 30, municipal bonds accounted for 63% of the Fund's net assets. The
average maturity of municipal bonds was 16.3 years, the duration was 9.1 years,
and the average credit quality remained AAA.
One of the reasons the Fund slightly underperformed the Lipper balanced fund
group is that the Tax Strategic Foundation Fund has a very unusual investment
charter which requires it to keep more than half of Fund assets invested in
municipal securities. Lipper total return comparisons do not account for the
"taxable equivalent" valuations of the tax-free income earned by this Fund
which, if properly computed, would significantly raise its relative ranking.
More conventional balanced funds usually have most of their assets invested in
equities.
Top 5 Industries
Bonds
-----
(as a percentage of 9/30/1999 net assets)
General Obligation - Local 12.6%
Housing 8.2%
Prerefunded Securities 7.3%
Transportation 6.1%
Water & Sewer 5.8%
14
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Portfolio Manager Interview
What is the overall outlook for the municipal bond market?
We believe that this bear market for bonds has created extraordinary value in
municipal securities. Yields on AAA-rated municipal bonds now are better than
90% of the yields on Treasuries, which means that for most investors municipal
bonds offer greater after-tax income.
While the "Y2K" computer issue does hang over the financial markets, we believe
that after we enter a new calendar year a significant cause of uncertainty will
evaporate and investors should begin to recognize the values offered by
municipal securities. The municipal market has an excellent opportunity to
outperform the Treasury market in the next year, while offering relatively
generous tax-exempt income.
Top 5 Bond Holdings
-------------------
(as a percentage of 9/30/1999 net assets)
Coupon Maturity
------ --------
Nebraska Pub. Pwr.
Dist. RB 5.25% 1/1/2028 4.0%
South Carolina St. Pub.
Service Auth. 6.50% 7/1/2024 2.9%
Long Island Pwr. Auth.
New York Elec. 5.50% 12/1/2011 1.4%
Edinburg, TX, Cons.
Independent Sch. Dist. 5.00% 8/15/2019 1.3%
New York St. Urban
Dev. Corp. 5.50% 7/1/2016 1.3%
Jean Ledford, what is your outlook on the equity side?
We believe that by increasing the overall diversification of the portfolio, we
have given the Fund the ability to get through short-term market volatility more
smoothly than it has in the past.
At this point, most investors are wrestling with the question of whether we are
witnessing the start of a strong upturn in inflation, or whether the economy can
sustain the relatively low pace of inflation of the past several years. When
inflationary pressures start to emerge, stocks in industries such as basic
materials, energy and technology start to outperform stocks in other industries.
When there is very little inflation, we see relatively stronger performance in
the traditional areas such as healthcare and the financials.
15
<PAGE>
EVERGREEN
Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1999 Year Ended March 31,
---------------------
(Unaudited) 1999 1998 # (a)
<S> <C> <C> <C>
CLASS A SHARES
- - ----------------------------------------------------------------------------------------------
Net asset value, beginning Of
period $11.28 $12.87 $12.36
------ ------ ------
- - ----------------------------------------------------------------------------------------------
Income from Investment operations
- - ----------------------------------------------------------------------------------------------
Net investment income 0.14 0.37 0.08
- - ----------------------------------------------------------------------------------------------
Net realized and unrealized gains
or losses on securities, futures
contracts and foreign currency (0.16) 0.48 0.81
related transactions ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total from investment operations (0.02) 0.85 0.89
------ ------ ------
- - ----------------------------------------------------------------------------------------------
Distributions to shareholders from
- - ----------------------------------------------------------------------------------------------
Net investment income (0.15) (0.41) (0.12)
- - ----------------------------------------------------------------------------------------------
Net realized gains 0 (2.03) (0.26)
------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.15) (2.44) (0.38)
------ ------ ------
- - ----------------------------------------------------------------------------------------------
Net asset value, end of period $11.11 $11.28 $12.87
------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total return * (0.21%) 7.52% 7.38%
- - ----------------------------------------------------------------------------------------------
Ratios and supplemental data
- - ----------------------------------------------------------------------------------------------
Net assets, end of period (millions) $1,122 $1,241 $1,277
- - ----------------------------------------------------------------------------------------------
Ratios to average net assets:
- - ----------------------------------------------------------------------------------------------
Expenses ** 0.91%+ 0.96% 0.99%+
- - ----------------------------------------------------------------------------------------------
Net investment income 2.47%+ 2.97% 3.25%+
- - ----------------------------------------------------------------------------------------------
Portfolio turnover rate 43% 102% 76%
- - ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1999 Year Ended March 31, Year Ended June 30,
--------------------- ---------------------------
(Unaudited) 1999 1998 # (b) 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
- - ----------------------------------------------------------------------------------------------
Net asset value,
beginning of period $11.29 $12.88 $12.95 $11.33 $10.09 $ 9.26
------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Income from investment
operations
- - ----------------------------------------------------------------------------------------------
Net investment income 0.11 0.28 0.26 0.30 0.29 0.31
- - ----------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency (0.16) 0.48 1.53 2.07 1.42 0.96
related transactions ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total from investment
operations (0.05) 0.76 1.79 2.37 1.71 1.27
------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Distributions to
shareholders from
- - ----------------------------------------------------------------------------------------------
Net investment income (0.11) (0.32) (0.27) (0.30) (0.27) (0.33)
- - ----------------------------------------------------------------------------------------------
Net realized gains 0 (2.03) (1.59) (0.45) (0.20) (0.11)
------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.11) (2.35) (1.86) (0.75) (0.47) (0.44)
------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Net asset value, end
of period $11.13 $11.29 $12.88 $12.95 $11.33 $10.09
------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------
Total return * (0.50%) 6.71% 14.89% 21.95% 17.35% 14.20%
- - ----------------------------------------------------------------------------------------------
Ratios and
supplemental data
- - ----------------------------------------------------------------------------------------------
Net assets, end of $ 404 $ 434 $ 580 $1,625 $1,481 $1,345
period (millions)
- - ----------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - ----------------------------------------------------------------------------------------------
Expenses ** 1.66%+ 1.71% 1.35%+ 1.70% 1.72% 1.77%
- - ----------------------------------------------------------------------------------------------
Net investment income 1.72%+ 2.23% 2.66%+ 2.50% 2.71% 3.33%
- - ----------------------------------------------------------------------------------------------
Portfolio turnover 43% 102% 76% 89% 96% 88%
rate
- - ----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the nine months ended March 31, 1998. The Fund changed its fiscal year
end from June 30 to March 31, effective March 31, 1998.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
16
<PAGE>
EVERGREEN
Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31,
September 30, 1999 ---------------------
(Unaudited) 1999 1998 # (a)
<S> <C> <C> <C>
CLASS C SHARES
Net asset value, beginning of
period $11.30 $12.88 $12.43
------ ------ ------
Income from investment operations
Net investment income 0.10 0.26 0.05
Net realized and unrealized losses
on securities, futures contracts
and foreign currency related
transactions (0.16) 0.50 0.75
------ ------ ------
Total from investment operations (0.06) 0.76 0.80
------ ------ ------
Distributions to shareholders from
Net investment income (0.11) (0.32) (0.09)
Net realized gains 0 (2.03) (0.26)
------ ------ ------
Total distributions to
shareholders (0.11) (2.35) (0.35)
------ ------ ------
Net asset value, end of period $11.13 $11.30 $12.88
------ ------ ------
Total return* (0.59%) 6.79% 6.58%
Ratios and supplemental data
Net assets, end of period
(millions) $ 2 $ 2 $ 1
Ratios to average net assets:
Expenses** 1.65%+ 1.71% 1.76%+
Net investment income 1.73%+ 2.21% 2.41%+
Portfolio turnover rate 43% 102% 76%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31,
September 30, 1999 ---------------------
(Unaudited) 1999 1998 # (b)
<S> <C> <C> <C>
CLASS Y SHARES
Net asset value, beginning of
period $11.27 $12.86 $12.01
------ ------ ------
Income from investment operations
Net investment income 0.16 0.39 0.08
Net realized and unrealized gains
or losses on securities, futures
contracts and foreign currency
related transactions (0.16) 0.49 0.86
------ ------ ------
Total from investment operations 0.00 0.88 0.94
------ ------ ------
Distributions to shareholders from
Net investment income (0.16) (0.44) (0.09)
Net realized gains 0 (2.03) 0
------ ------ ------
Total distributions to
shareholders (0.16) (2.47) (0.09)
------ ------ ------
Net asset value, end of period $11.11 $11.27 $12.86
------ ------ ------
Total return 0.00% 7.79% 7.79%
Ratios and supplemental data
Net assets, end of period $ 29 $ 34 $ 39
(millions)
Ratios to average net assets:
Expenses** 0.66%+ 0.71% 0.75%+
Net investment income 2.72%+ 3.22% 3.47%+
Portfolio turnover rate 43% 102% 76%
</TABLE>
(a) For the period from January 22, 1998 (commencement of class operations) to
March 31, 1998.
(b) For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
17
<PAGE>
EVERGREEN
Foundation Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 -------------------------- ------------------------
(Unaudited) 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value,
beginning of period $20.98 $20.44 $16.00 $16.13 $15.12 $12.24
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.21 0.44 0.44 0.12 0.50 0.44
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions 0 0.68 4.87 (0.13) 1.16 3.14
------ ------ ------ ------ ------ ------
Total from investment
operations 0.21 1.12 5.31 (0.01) 1.66 3.58
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.21) (0.43) (0.44) (0.12) (0.50) (0.47)
Net realized gains 0 (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions to
shareholders (0.21) (0.58) (0.87) (0.12) (0.65) (0.70)
------ ------ ------ ------ ------ ------
Net asset value, end
of period $20.98 $20.98 $20.44 $16.00 $16.13 $15.12
------ ------ ------ ------ ------ ------
Total return* 1.00% 5.58% 33.88% (0.20%) 11.30% 29.70%
Ratios and supplemental
data
Net assets, end of
period (millions) $ 417 $ 380 $ 350 $ 220 $ 206 $ 107
Ratios to average net
assets:
Expenses ** 1.22%+ 1.26% 1.28% 1.25%+ 1.24% 1.33%+
Net investment income 1.97%+ 2.18% 2.39% 2.83%+ 3.39% 3.73%+
Portfolio turnover rate 36% 10% 9% 2% 10% 28%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 -------------------------- ------------------------
(Unaudited) 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value,
beginning of period $20.88 $20.34 $15.94 $16.07 $15.07 $12.24
------ ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.13 0.29 0.30 0.09 0.40 0.36
Net realized and
unrealized gains or
losses on securities
and foreign currency
related transactions (0.01) 0.67 4.84 (0.13) 1.15 3.09
------ ------ ------ ------ ------ ------
Total from investment
operations 0.12 0.96 5.14 (0.04) 1.55 3.45
------ ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.13) (0.27) (0.31) (0.09) (0.40) (0.39)
Net realized gains 0 (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
Total distributions to
shareholders (0.13) (0.42) (0.74) (0.09) (0.55) (0.62)
------ ------ ------ ------ ------ ------
Net asset value, end
of period $20.87 $20.88 $20.34 $15.94 $16.07 $15.07
------ ------ ------ ------ ------ ------
Total return* 0.56% 4.81% 32.81% (0.30%) 10.50% 28.70%
Ratios and supplemental
data
Net assets, end of
period (millions) $1,476 $1,432 $1,124 $ 606 $ 570 $ 296
Ratios to average net
assets:
Expenses ** 1.97%+ 2.01% 2.04% 2.00%+ 1.99% 2.07%+
Net investment income 1.22%+ 1.43% 1.63% 2.07%+ 2.64% 2.99%+
Portfolio turnover rate 36% 10% 9% 2% 10% 28%
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
18
<PAGE>
EVERGREEN
Foundation Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1999 Year Ended March 31, Year Ended December 31,
-------------------------- ------------------------
(Unaudited) 1999 1998 # 1997 (b) 1996 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
- - ---------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.87 $20.34 $15.94 $16.06 $15.07 $12.24
------ ------ ------ ------ ------ ------
- - ---------------------------------------------------------------------------------------------------
Income from investment
operations
- - ---------------------------------------------------------------------------------------------------
Net investment income 0.13 0.29 0.30 0.09 0.40 0.34
- - ---------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency 0 0.66 4.84 (0.13) 1.14 3.09
related transactions ------ ------ ------ ------ ------ ------
- - ---------------------------------------------------------------------------------------------------
Total from investment
operations 0.13 0.95 5.14 (0.04) 1.54 3.43
------ ------ ------ ------ ---- ------
- - ---------------------------------------------------------------------------------------------------
Distributions to
shareholders from
- - ---------------------------------------------------------------------------------------------------
Net investment income (0.13) (0.27) (0.31) (0.08) (0.40) (0.37)
- - ---------------------------------------------------------------------------------------------------
Net realized gains 0 (0.15) (0.43) 0 (0.15) (0.23)
------ ------ ------ ------ ------ ------
- - ---------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.13) (0.42) (0.74) (0.08) (0.55) (0.60)
------ ------ ------ ------ ------ ------
- - ---------------------------------------------------------------------------------------------------
Net asset value, end
of period $20.87 $20.87 $20.34 $15.94 $16.06 $15.07
------ ------ ------ ------ ------ ------
- - ---------------------------------------------------------------------------------------------------
Total return * 0.61% 4.76% 32.81% (0.30%) 10.40% 28.50%
- - ---------------------------------------------------------------------------------------------------
Ratios and
supplemental data
- - ---------------------------------------------------------------------------------------------------
Net assets, end of $ 68 $ 68 $ 50 $ 28 $ 27 $ 11
period (millions)
- - ---------------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - ---------------------------------------------------------------------------------------------------
Expenses ** 1.97%+ 2.01% 2.04% 2.00%+ 1.99% 2.23%+
- - ---------------------------------------------------------------------------------------------------
Net investment income 1.22%+ 1.43% 1.63% 2.07%+ 2.64% 2.83%+
- - ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 36% 10% 9% 2% 10% 28%
- - ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1999 Year Ended March 31, Year Ended December 31,
-------------------------- ------------------------
(Unaudited) 1999 1998 # 1997 (b) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
- - ----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $20.99 $20.45 $16.02 $16.14 $15.13 $12.27 $13.12
------ ------ ------ ------ ------ ------ ------
----------------------------------------------------------------------------------------------------
Income from investment
operations
- - ----------------------------------------------------------------------------------------------------
Net investment income 0.24 0.49 0.49 0.13 0.54 0.51 0.42
- - ----------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and foreign currency (0.01) 0.68 4.86 (0.13) 1.16 3.07 (0.57)
related transactions ------ ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Total from investment
operations 0.23 1.17 5.35 0.00 1.70 3.58 (0.15)
------ ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Distributions to
shareholders from
- - ----------------------------------------------------------------------------------------------------
Net investment income (0.24) (0.48) (0.49) (0.12) (0.54) (0.49) (0.42)
- - ----------------------------------------------------------------------------------------------------
Net realized gains 0 (0.15) (0.43) 0 (0.15) (0.23) (0.28)
------ ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.24) (0.63) (0.92) (0.12) (0.69) (0.72) (0.70)
------ ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Net asset value, end
of period $20.98 $20.99 $20.45 $16.02 $16.14 $15.13 $12.27
------ ------ ------ ------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Total return 1.08% 5.84% 34.12% 0.00% 11.50% 29.70% (1.10%)
- - ----------------------------------------------------------------------------------------------------
Ratios and
supplemental data
- - ----------------------------------------------------------------------------------------------------
Net assets, end of $1,185 $1,238 $1,117 $ 802 $ 809 $ 623 $ 332
period (millions)
- - ----------------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - ----------------------------------------------------------------------------------------------------
Expenses ** 0.97%+ 1.01% 1.03% 1.00%+ 0.99% 1.07% 1.14%
- - ----------------------------------------------------------------------------------------------------
Net investment income 2.22%+ 2.43% 2.65% 3.07%+ 3.64% 3.89% 3.51%
- - ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 36% 10% 9% 2% 10% 28% 33%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from January 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
19
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 ---------------------------- ------------------------
(Unaudited) 1999 1998 1997 (b) 1996 1995 (a)
CLASS A SHARES
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.17 $ 16.36 $ 13.57 $ 13.50 $ 12.20 $10.44
------- ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- - -----------------------------------------------------------------------------------------------------
Net investment income 0.18 0.34 0.31 0.07 0.27 0.29
- - -----------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or (0.38) (0.16) 2.96 0.06++ 1.59 2.24
losses on securities ------- ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
Total from investment
operations (0.20) 0.18 3.27 0.13 1.86 2.53
------- ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
- - -----------------------------------------------------------------------------------------------------
Net investment income (0.18) (0.34) (0.30) (0.06) (0.28) (0.31)
- - -----------------------------------------------------------------------------------------------------
Net realized gains 0 (0.03) (0.18) 0 (0.28) (0.46)
------- ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.18) (0.37) (0.48) (0.06) (0.56) (0.77)
------ ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 15.79 $ 16.17 $ 16.36 $ 13.57 $ 13.50 $12.20
------- ------- ------- ------- ------- ------
- - -----------------------------------------------------------------------------------------------------
TOTAL RETURN * (1.29%) 1.12% 24.40% 1.00% 15.40% 24.80%
- - -----------------------------------------------------------------------------------------------------
RATIOS AND
SUPPLEMENTAL DATA
- - -----------------------------------------------------------------------------------------------------
Net assets, end of
period (thousands) $83,814 $81,566 $69,879 $15,039 $11,166 $2,702
- - -----------------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - -----------------------------------------------------------------------------------------------------
Expenses ** 1.28%+ 1.33% 1.42% 1.38%+ 1.52% 1.75%+
- - -----------------------------------------------------------------------------------------------------
Net investment income 2.14%+ 2.18% 2.21% 2.30%+ 2.39% 2.79%+
- - -----------------------------------------------------------------------------------------------------
Portfolio turnover
rate 55% 64% 50% 29% 88% 110%
- - -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 ------------------------------ ------------------------
(Unaudited) 1999 1998 1997 (b) 1996 1995 (c)
- - -------------------------------------------------------------------------------------------------------
CLASS B SHARES
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.14 $ 16.33 $ 13.56 $ 13.49 $ 12.19 $10.31
-------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- - -------------------------------------------------------------------------------------------------------
Net investment income 0.11 0.22 0.21 0.05 0.19 0.22
- - -------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or (0.38) (0.15) 2.94 0.06++ 1.59 2.37
losses on securities -------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
Total from investment
operations (0.27) 0.07 3.15 0.11 1.78 2.59
-------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
- - -------------------------------------------------------------------------------------------------------
Net investment income (0.11) (0.23) (0.20) (0.04) (0.20) (0.25)
- - -------------------------------------------------------------------------------------------------------
Net realized gains 0 (0.03) (0.18) 0 (0.28) (0.46)
-------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.11) (0.26) (0.38) (0.04) (0.48) (0.71)
-------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 15.76 $ 16.14 $ 16.33 $ 13.56 $ 13.49 $12.19
-------- -------- -------- ------- ------- ------
- - -------------------------------------------------------------------------------------------------------
TOTAL RETURN * (1.66%) 0.41% 23.44% 0.08% 14.70% 25.60%
- - -------------------------------------------------------------------------------------------------------
RATIOS AND
SUPPLEMENTAL DATA
- - -------------------------------------------------------------------------------------------------------
Net assets, end of
period (thousands) $229,406 $244,486 $185,042 $38,838 $28,007 $6,559
- - -------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - -------------------------------------------------------------------------------------------------------
Expenses ** 2.03%+ 2.08% 2.18% 2.14%+ 2.27% 2.50%+
- - -------------------------------------------------------------------------------------------------------
Net investment income 1.38%+ 1.42% 1.46% 1.55%+ 1.64% 2.03%+
- - -------------------------------------------------------------------------------------------------------
Portfolio turnover
rate 55% 64% 50% 29% 2% 110%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from January 17, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
(c) For the period from January 6, 1995 (commencement of class operations) to
December 31, 1995.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
++ The per share amount may not agree with the net realized and unrealized
gains or losses for the period due to the timing of sales and repurchases of
Fund shares in relation to fluctuating market values for the portfolio.
See Combined Notes to Financial Statements.
20
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 ---------------------------- ------------------------
(Unaudited) 1999 1998 1997 (b) 1996 1995 (a)
- - -----------------------------------------------------------------------------------------------------
CLASS C SHARES
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.11 $ 16.30 $ 13.53 $13.47 $12.19 $10.69
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- - -----------------------------------------------------------------------------------------------------
Net investment income 0.11 0.22 0.21 0.06 0.18 0.22
- - -----------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities (0.38) (0.15) 2.94 0.05++ 1.58 1.99
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
Total from investment
operations (0.27) 0.07 3.15 0.11 1.76 2.21
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
- - -----------------------------------------------------------------------------------------------------
Net investment income (0.11) (0.23) (0.20) (0.05) (0.20) (0.25)
- - -----------------------------------------------------------------------------------------------------
Net realized gains 0 (0.03) (0.18) 0 (0.28) (0.46)
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.11) (0.26) (0.38) (0.05) (0.48) (0.71)
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 15.73 $ 16.11 $ 16.30 $13.53 $13.47 $12.19
------- ------- ------- ------ ------ ------
- - -----------------------------------------------------------------------------------------------------
TOTAL RETURN * (1.67%) 0.41% 23.49% 0.08% 14.50% 21.20%
- - -----------------------------------------------------------------------------------------------------
RATIOS AND
SUPPLEMENTAL DATA
- - -----------------------------------------------------------------------------------------------------
Net assets, end of
period (thousands) $40,737 $45,035 $27,699 $5,086 $4,108 $ 496
- - -----------------------------------------------------------------------------------------------------
Ratios to average net
assets:
- - -----------------------------------------------------------------------------------------------------
Expenses ** 2.02%+ 2.08% 2.18% 2.13%+ 2.25% 2.50%+
- - -----------------------------------------------------------------------------------------------------
Net investment income 1.38%+ 1.42% 1.46% 1.55%+ 1.64% 2.07%+
- - -----------------------------------------------------------------------------------------------------
Portfolio turnover
rate 55% 64% 50% 29% 88% 110%
- - -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended March 31, Year Ended December 31,
September 30, 1999 ---------------------------- ---------------------------
(Unaudited) 1999 1998 1997 (b) 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.20 $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27 $ 10.31
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.21 0.37 0.37 0.09 0.34 0.35 0.27
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on
securities (0.39) (0.15) 2.95 0.05++ 1.56 2.39 0.08
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.18) 0.22 3.32 0.14 1.90 2.74 0.35
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (0.20) (0.38) (0.36) (0.07) (0.30) (0.33) (0.27)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net realized gains 0 (0.03) (0.18) 0 (0.28) (0.46) (0.12)
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.20) (0.41) (0.54) (0.07) (0.58) (0.79) (0.39)
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.82 $ 16.20 $ 16.39 $ 13.61 $ 13.54 $ 12.22 $ 10.27
------- ------- ------- ------- ------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (1.16%) 1.38% 24.73% 1.00% 15.80% 27.30% 3.40%
- - ----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- - ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $21,144 $23,895 $19,881 $15,311 $15,002 $13,485 $10,575
- - ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- - ----------------------------------------------------------------------------------------------------------------------------------
Expenses ** 1.02%+ 1.08% 1.15% 1.13%+ 1.30% 1.50% 1.49%
- - ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.38%+ 2.42% 2.48% 2.54%+ 2.63% 3.06% 2.87%
- - ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55% 64% 50% 29% 88% 110% 245%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from March 3, 1995 (commencement of class operations) to
December 31, 1995.
(b) For the three months ended March 31, 1997. The Fund changed its fiscal year
end from December 31 to March 31, effective March 31, 1997.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
++ The per share amount may not agree with the net realized and unrealized
gains or losses for the period due to the timing of sales and repurchases of
Fund shares in relation to fluctuating market values for the portfolio.
See Combined Notes to Financial Statements.
21
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - 60.7%
AEROSPACE & DEFENSE - 0.8%
Loral Space &
Communications * +.............. 200,000 $ 3,437,500
United Technologies Corp......... 160,000 9,490,000
---------------
12,927,500
---------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.9%
Ford Motor Co.................... 138,200 6,935,913
General Motors Corp.............. 118,000 7,426,625
---------------
14,362,538
---------------
BANKS - 1.9%
Fleet Boston Corp................ 250,000 9,156,250
Mellon Bank Corp................. 350,000 11,812,500
Wells Fargo Co................... 200,000 7,925,000
---------------
28,893,750
---------------
BUILDING, CONSTRUCTION & FURNISHINGS - 0.7%
Home Depot, Inc.................. 150,000 10,293,750
---------------
BUSINESS EQUIPMENT & SERVICES - 0.7%
Automatic Data Processing, Inc... 240,000 10,710,000
---------------
CAPITAL GOODS - 0.6%
Deere & Co....................... 250,000 9,671,875
---------------
CHEMICAL & AGRICULTURAL PRODUCTS - 0.5%
Monsanto Co...................... 200,000 7,137,500
---------------
COMMUNICATION SYSTEMS & SERVICES - 4.2%
Allegiance Telecom, Inc. *....... 95,000 4,999,375
Cisco Systems, Inc. *............ 280,000 19,197,500
MCI WorldCom, Inc. *............. 185,000 13,296,875
McLeod USA, Inc., Cl. A * +...... 160,000 6,810,000
Newbridge Networks Corp.......... 400,000 10,425,000
Tellabs, Inc. *.................. 75,000 4,270,312
Winstar Communications, Inc. *... 180,000 7,031,250
---------------
66,030,312
---------------
CONSUMER PRODUCTS & SERVICES - 1.0%
Procter & Gamble Co.............. 160,000 15,000,000
---------------
DIVERSIFIED COMPANIES - 1.8%
Allied Signal, Inc............... 142,600 8,547,088
Tyco International Ltd........... 191,260 19,747,595
---------------
28,294,683
---------------
ELECTRICAL EQUIPMENT & SERVICES - 3.3%
General Electric Co.............. 315,000 37,347,187
Microchip Technology, Inc. *..... 120,000 6,165,000
Solectron Corp. *................ 113,000 8,114,813
---------------
51,627,000
---------------
COMMON STOCKS - CONTINUED
FINANCE & INSURANCE - 3.8%
American International
Group, Inc...................... 181,250 15,757,422
Associates First Capital
Corp., Cl. A.................... 198,706 7,153,416
Citigroup, Inc................... 316,400 13,921,600
Federal Home Loan
Mortgage Corp................... 100,000 5,200,000
Lehman Brothers
Holdings, Inc................... 210,000 12,245,625
Nationwide Financial
Services, Inc., Cl. A........... 140,000 4,952,500
---------------
59,230,563
---------------
FOOD & BEVERAGE PRODUCTS - 2.6%
Anheuser Busch
Companies, Inc.................. 210,000 14,713,125
Coca Cola Co..................... 79,100 3,801,744
McDonald's Corp.................. 280,000 12,040,000
Pepsi Bottling Group, Inc........ 245,000 4,180,312
Pepsico, Inc..................... 200,000 6,050,000
---------------
40,785,181
---------------
GOLD MINING - 0.1%
Homestake Mining Co.............. 197,200 1,811,775
---------------
HEALTHCARE PRODUCTS & SERVICES - 5.9%
American Home
Products Corp................... 145,000 6,017,500
Bristol-Myers Squibb Co.......... 185,800 12,541,500
Johnson & Johnson................ 130,000 11,943,750
Lilly (Eli) & Co................. 100,000 6,400,000
Medtronic, Inc................... 358,200 12,716,100
Merck & Co., Inc................. 200,000 12,962,500
Pfizer, Inc...................... 249,000 8,948,437
Pharmacia & Upjohn, Inc.......... 200,000 9,925,000
Schering-Plough Corp............. 124,600 5,435,675
Warner-Lambert Co................ 72,000 4,779,000
---------------
91,669,462
---------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 1.0%
Ecolab, Inc...................... 153,400 5,234,775
Honeywell, Inc................... 90,000 10,018,125
---------------
15,252,900
---------------
INFORMATION SERVICES & TECHNOLOGY - 10.9%
American Power
Conversion Corp. *.............. 265,000 5,035,000
Applied Materials, Inc. *........ 122,100 9,508,538
CMG Information
Services, Inc. * +.............. 133,400 13,673,500
EMC Corp. *...................... 217,600 15,544,800
Hewlett-Packard Co............... 100,000 9,200,000
22
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - CONTINUED
INFORMATION SERVICES &
TECHNOLOGY - CONTINUED
Intel Corp....................... 331,000 $ 24,597,437
International Business
Machines Corp................... 152,400 18,497,550
Microsoft Corp. *................ 464,400 42,057,225
Oracle Systems Corp. *........... 175,000 7,962,500
Sun Microsystems, Inc. *......... 177,600 16,516,800
Veritas Software Corp............ 100,000 7,593,750
---------------
170,187,100
---------------
METALS & MINING - 0.1%
Newmont Mining Corp.............. 70,000 1,811,250
---------------
OIL & ENERGY - 6.4%
Apache Corp...................... 162,400 7,013,650
Atlantic Richfield Co............ 60,000 5,317,500
BP Amoco Plc..................... 48,434 5,367,092
Chevron Corp..................... 70,600 6,265,750
Conoco, Inc. Cl. B............... 85,989 2,353,949
Devon Energy Corp. *............. 100,000 4,143,750
Exxon Corp....................... 142,900 10,851,469
Mobil Corp....................... 108,900 10,971,675
Royal Dutch Petroleum Co......... 230,400 13,608,000
Texaco, Inc...................... 300,000 18,937,500
Unocal Corp...................... 387,500 14,361,719
---------------
99,192,054
---------------
PAPER & PACKAGING - 0.6%
Bowater, Inc..................... 170,000 8,925,000
---------------
PRINTING, PUBLISHING,
BROADCASTING & ENTERTAINMENT - 2.9%
CBS Corp. *...................... 370,000 17,112,500
Clear Channel
Communications, Inc. *.......... 111,000 8,866,125
Disney (Walt) Co. *.............. 250,000 6,468,750
Time Warner, Inc................. 140,000 8,505,000
Viacom, Inc., Cl. B *............ 120,000 5,070,000
---------------
46,022,375
---------------
RETAILING & WHOLESALE - 3.6%
Federated Department
Stores, Inc. *.................. 225,000 9,829,687
Safeway, Inc. *.................. 200,000 7,612,500
Staples, Inc. *.................. 200,000 4,362,500
Tandy Corp....................... 300,000 15,506,250
Wal-Mart Stores, Inc............. 390,000 18,549,375
---------------
55,860,312
---------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 2.4%
ADC Telecommunications, Inc. *... 108,400 4,546,025
Ciena Corp. *.................... 100,000 3,650,000
Global Crossing Ltd. * +......... 230,000 6,095,000
Intermedia Communications,
Inc. * +........................ 76,000 1,653,000
Motorola, Inc.................... 125,000 11,000,000
Nokia Corp., ADR *............... 111,500 10,014,094
---------------
36,958,119
---------------
UTILITIES - ELECTRIC - 0.9%
Dominion Resources, Inc.......... 195,000 8,799,375
Reliant Energy, Inc.............. 200,000 5,412,500
---------------
14,211,875
---------------
UTILITIES - TELEPHONE - 3.1%
AT&T Corp........................ 222,750 9,689,625
Bell Atlantic Corp. *............ 226,202 15,226,222
BellSouth Corp. *................ 150,000 6,750,000
GTE Corp......................... 112,000 8,610,000
Sprint Corp...................... 150,960 8,189,580
---------------
48,465,427
---------------
Total Common Stocks
(Cost $683,114,880)............. 945,332,301
---------------
CONVERTIBLE PREFERRED - 0.6%
RETAILING & WHOLESALE - 0.6%
Kmart Financing I, 7.75%
(Cost $10,894,754).............. 200,000 9,525,000
---------------
Principal
Amount Value
CONVERTIBLE DEBENTURES - 0.5%
HEALTHCARE PRODUCTS & SERVICES -.0.5%
HEALTHSOUTH Corp., 144A
3.25%, 04/01/2003
(Cost $10,000,000).............. $10,000,000 7,725,000
---------------
CORPORATE BONDS & NOTES - 14.5%
AEROSPACE & DEFENSE - 0.9%
Boeing Co.
6.63%, 02/15/2038............... 5,000,000 4,382,300
Lockheed Martin Corp.
7.45%, 06/15/2004............... 8,300,000 8,373,289
Raytheon Co.
6.75%, 08/15/2007............... 2,000,000 1,927,760
---------------
14,683,349
---------------
BANKS - 0.6%
Amsouth Bancorp.
6.75%, 11/01/2025............... 3,465,000 3,362,401
23
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
CORPORATE BONDS & NOTES - CONTINUED
BANKS - CONTINUED
Barnett Capital I
8.06%, 12/01/2026............... $ 5,000,000 $ 4,881,900
Boatmen's Bancshares, Inc.
6.75%, 03/15/2003............... 698,000 695,362
---------------
8,939,663
---------------
CHEMICAL & AGRICULTURAL PRODUCTS.- 0.1%
Rohm & Haas Co.
7.40%, 07/15/2009............... 1,500,000 1,520,105
---------------
COMMUNICATION SYSTEMS & SERVICES.- 0.2%
Comcast Cable Communications I
6.20%, 11/15/2008............... 4,000,000 3,673,200
---------------
CONSUMER PRODUCTS & SERVICES - 0.4%
Mattel, Inc.
6.13%, 07/15/2005............... 5,000,000 4,659,600
Stanley Works
7.38%, 12/15/2002............... 1,001,000 1,020,449
---------------
5,680,049
---------------
ENVIRONMENTAL SERVICES - 0.4%
Allied Waste North America, Inc.
10.00%, 08/01/2009.............. 1,500,000 1,368,750
Republic Services, Inc.
6.63%, 05/15/2004............... 4,000,000 3,810,520
Waste Management, Inc.
8.75%, 05/01/2018............... 1,126,000 1,087,851
---------------
6,267,121
---------------
FINANCE & INSURANCE - 6.0%
AMBAC, Inc.
9.38%, 08/01/2011............... 5,500,000 6,299,260
Associates Corp. North America
8.63%, 11/15/2004............... 6,550,000 7,016,425
Comdisco, Inc.
6.13%, 01/15/2003............... 4,500,000 4,333,230
Commercial Credit Group, Inc.
10.00%, 05/15/2009.............. 6,400,000 7,617,600
Dean Witter, Discover & Co.
6.75%, 10/15/2013............... 1,280,000 1,200,550
FMR Corp.
7.57%, 06/15/2029............... 4,000,000 3,924,200
Ford Motor Credit Co.
5.75%, 02/23/2004............... 4,000,000 3,840,400
5.80%, 01/12/2009............... 4,900,000 4,462,804
General Electric Capital Corp.
8.75%, 03/14/2003............... 1,300,000 1,387,256
GS Escrow Corp.
6.75%, 08/01/2001............... 5,500,000 5,384,830
Principal
Amount Value
CORPORATE BONDS & NOTES - CONTINUED
FINANCE & INSURANCE - CONTINUED
Household Finance Corp.
7.20%, 07/15/2006............... $ 5,800,000 $ 5,798,260
International Lease Finance Corp.
5.75%, 01/15/2003............... 1,750,000 1,705,935
John Hancock Mutual Life Insurance Co.
7.38%, 02/15/2024............... 4,975,000 4,930,076
Lehman Brothers Holdings, Inc.
6.63%, 04/01/2004............... 5,000,000 4,831,500
Massachusetts Mutual Life Insurance
Co., 144A
7.63%, 11/15/2023............... 5,725,000 5,792,498
Nationwide CSN Trust, 144A
9.88%, 02/15/2025............... 6,000,000 6,508,440
Paine Webber Group, Inc.
6.38%, 05/15/2004............... 2,500,000 2,412,683
6.45%, 12/01/2003............... 5,460,000 5,322,572
Sun Life Canada Capital Trust
8.53%, 05/29/2049............... 11,700,000 11,175,138
---------------
93,943,657
---------------
FOOD & BEVERAGE PRODUCTS - 0.2%
Pepsi Bottling Group, Inc.
7.00%, 03/01/2029............... 4,000,000 3,696,284
---------------
HEALTHCARE PRODUCTS & SERVICES - 0.5%
Johnson & Johnson
8.72%, 11/01/2024............... 5,000,000 5,453,600
Merck & Co., Inc.
6.40%, 03/01/2028............... 3,000,000 2,733,810
---------------
8,187,410
---------------
MACHINERY - DIVERSIFIED - 0.1%
Caterpillar, Inc.
9.38%, 07/15/2001............... 2,000,000 2,097,240
---------------
OIL & ENERGY - 0.5%
Atlantic Richfield Co.
9.00%, 04/01/2021............... 931,000 1,097,658
El Paso Energy Corp.
6.75%, 05/15/2009............... 2,000,000 1,892,640
Petroleum Geo-Services
7.50%, 03/31/2007............... 5,000,000 4,937,900
---------------
7,928,198
---------------
PAPER & PACKAGING - 0.3%
Fort James Corp.
6.75%, 10/01/1999............... 5,000,000 5,000,000
---------------
REAL ESTATE - 0.6%
EOP Operating, Ltd.
6.38%, 02/15/2003............... 3,050,000 2,955,084
24
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
CORPORATE BONDS & NOTES - CONTINUED
REAL ESTATE - CONTINUED
Prudential Insurance Co.
7.13%, 07/01/2007............... $ 6,200,000 $ 6,066,638
---------------
9,021,722
---------------
RETAILING & WHOLESALE - 0.2%
CVS Corp.
5.50%, 02/15/2004............... 3,000,000 2,881,170
---------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.2%
LCI International, Inc.
7.25%, 06/15/2007............... 2,500,000 2,457,675
---------------
TRANSPORTATION - 1.2%
American Airline
8.39%, 01/02/2017............... 5,000,000 4,931,000
Burlington Northern Santa Fe Corp.
6.13%, 03/15/2009............... 3,120,000 2,884,783
Continental Airlines, Inc.
6.80%, 02/02/2020............... 5,000,000 4,682,425
FDX Corp.
6.85%, 01/15/2019............... 5,811,309 5,547,738
---------------
18,045,946
---------------
UTILITIES - ELECTRIC - 1.1%
Edison Mission Holdings Co.
8.14%, 10/01/2019............... 2,750,000 2,644,326
LSP Energy LP
7.16%, 06/30/2013............... 3,500,000 3,387,776
National Rural Utilities
Cooperative Finance
5.00%, 10/01/2002............... 6,500,000 6,228,625
8.67%, 09/15/2018............... 4,000,000 4,399,400
Union Electric Co.
8.00%, 12/15/2022............... 838,000 883,252
---------------
17,543,379
---------------
UTILITIES - TELEPHONE - 1.0%
AT&T Corp.
6.50%, 03/15/2029............... 5,000,000 4,425,500
Bellsouth Capital Funding Corp.
7.12%, 07/15/2097............... 3,750,000 3,491,400
MCI Communications Corp.
6.13%, 04/15/2002............... 2,000,000 1,983,820
Sprint Capital Corp.
6.90%, 05/01/2019............... 5,260,000 4,871,549
---------------
14,772,269
---------------
Total Corporate Bonds & Notes
(Cost $238,660,596)............. 226,338,437
---------------
ASSET-BACKED SECURITIES - 4.5%
Carco Automotive Loan Master Trust
Ser. 1997-1, Cl. A,
6.69%, 08/15/2004............... 2,548,260 2,557,255
Contimortgage Home Equity Loan Trust
Ser. 1997-4, Cl. A7,
6.63%, 09/15/2016............... 2,750,000 2,615,058
Ser. 1998-1, Cl. A6,
6.58%, 12/15/2018............... 4,000,000 3,928,900
Corestates Home Equity Loan Trust
Ser. 1996-1, Cl. A4,
7.00%, 06/15/2012............... 6,150,000 6,172,724
Delta Funding Home Equity Loan Trust
Ser. 1997-1, Cl. A5,
7.74%, 04/25/2029............... 4,500,000 4,550,783
Green Tree Financial Corp.
Ser. 1993-4, Cl. A3,
6.25%, 01/15/2019............... 1,037,335 1,037,656
Ser. 1997-3, Cl. A5,
7.14%, 07/15/2028............... 6,000,000 5,977,500
Merrill Lynch Mortgage Investors, Inc.
Ser. 1991-D, Cl. B,
9.85%, 07/15/2011............... 4,247,995 4,249,312
Ser. 1992-D, Cl. B,
8.50%, 06/15/2017............... 2,853,491 2,964,822
Olympic Automobile Receivables Trust
Ser. 1997-A, Cl. A5,
6.80%, 02/15/2005............... 8,000,000 8,065,080
Premier Automotive Trust
Ser. 1997-2, Cl. B,
6.53%, 12/06/2003............... 10,000,000 9,987,500
Railcar Leasing LLC
Cl. A-2, 144A
7.13%, 01/15/2013............... 2,500,000 2,526,118
Southern Pacific Secured Assets.Corp.
Ser. 1996-3, Cl. A4,
7.60%, 10/25/2027............... 7,500,000 7,591,387
Union Acceptance Corp.
Ser. 1995-C, Cl. A,
6.40%, 10/10/2002............... 269,108 268,436
University Support Services, Inc.
Ser. 1992-CD, Cl. D,
8.91%, 11/01/2007............... 395,000 394,408
WFS Financial Owner Trust
Ser. 1997-C,
6.30%, 03/20/2005............... 6,900,000 6,697,312
---------------
Total Asset-Backed Securities
(Cost $69,667,183).............. 69,584,251
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 5.7%
Bear Stearns Commercial Mortgage
Securities, Inc.
Ser. 1998-C1, Cl. C,
6.75%, 01/16/2013............... 10,000,000 9,275,000
25
<PAGE>
EVERGREEN
Balanced Funds
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
Chase Commercial Mortgage Securities Corp.
Ser. 1997-1, Cl. B,
7.37%, 04/19/2007............... $ 2,200,000 $ 2,212,067
Ser. 1997-2, Cl. B,
6.60%, 11/19/2007............... 2,000,000 1,921,410
CNL Funding
Ser. 1998-1LP, Cl. B-1,
6.60%, 04/18/2011............... 2,500,000 2,237,891
Commercial Mortgage Acceptance Corp.
Ser. 1997-ML1, Cl. B,
6.64%, 12/15/2007............... 2,400,000 2,327,940
Criimi Mae Commercial Mortgage Trust
Ser. 1998-C1, Cl. A, 144A,
7.00%, 03/02/2011............... 4,000,000 3,393,750
Criimi Mae Financial Corp.
Ser. 1, Cl. A,
7.00%, 01/01/2033............... 5,242,686 4,936,316
DLJ Commercial Mortgage Corp.
Ser. 1999-CG2, Cl. A2,
7.45%, 06/10/2009............... 3,000,000 3,012,188
Federal National Mortgage Association
Ser. 1993-248, Cl. SA, REMIC,
3.84%, 08/25/2023............... 1,250,000 1,073,700
Ser. 1997-M6, Cl. C,
6.85%, 05/17/2020............... 5,000,000 4,969,625
FFCA Secured Lending Corp.
Ser. 1997-1, Cl. B1,
7.74%, 06/18/2013............... 1,250,000 1,193,750
Financial Asset Securitization
Ser. 1997-NAM 1, Cl. FXA2,
7.75%, 04/25/2027............... 5,433,467 5,474,353
GE Capital Mortgage Services, Inc.
Ser. 1994-27, Cl. A6,
6.50%, 07/25/2024............... 3,745,000 3,372,822
Ser. 1999-15, Cl. A5,
6.75%, 08/25/2029............... 5,000,000 4,820,575
Independent National Mortgage Corp.,
Ser. 1997-A, Cl. A, 144A
7.81%, 12/26/2026............... 7,629,038 6,928,120
Mellon Residential Funding Corp.
Ser. 1999-TBC1, Cl. A3,
6.11%, 01/25/2029............... 6,452,828 6,226,979
Mid State Trust
Ser. 6, Cl. A3,
7.54%, 07/01/2035............... 1,581,122 1,493,164
Morgan Stanley Capital I, Inc.
Ser. 1998-HF2, Cl. B,
6.92%, 11/15/2030............... 2,550,000 2,516,659
Ser. 1999-LIFE, Cl. A2,
7.11%, 07/15/2009............... 2,000,000 1,995,990
Nomura Depositor Trust, 144A
Ser. 1998-ST1, Cl. A1,
5.54%, 01/15/2003............... 9,650,817 9,525,984
PNC Mortgage Securities Corp.
Ser. 1997-4, Cl. 2PP3,
7.25%, 07/25/2027............... 2,443,124 2,356,967
Ser. 1997-4, Cl. 2PP1,
7.50%, 07/25/2027............... 3,790,001 3,812,456
Residental Funding Mortgage Securities I, Inc.
Ser. 1999-S2, Cl. M1,
6.50%, 01/25/2029............... 4,111,011 3,765,501
---------------
Total Collateralized Mortgage Obligations
(Cost $92,798,853).............. 88,843,207
---------------
MORTGAGE-BACKED SECURITIES - 3.0%
Federal Home Loan Mortgage Corp.
6.25%, 07/15/2004............... 8,525,000 8,475,401
6.63%, 09/15/2009............... 14,000,000 13,954,080
Federal National Mortgage Association
5.50%, 07/01/2009............... 13,956,340 13,391,666
6.50%, 10/01/2028............... 5,185,290 4,971,397
6.78%, 09/01/2021............... 2,828,444 2,912,845
7.00%, 05/01/2024............... 2,695,251 2,659,027
Government National Mortgage Association
8.50%, 05/15/2021............... 305,013 319,214
8.50%, 07/15/2021............... 144,938 150,961
8.50%, 06/15/2022............... 370,392 385,786
9.00%, 10/15/2021............... 237,809 249,996
9.50%, 02/15/2021............... 140,881 149,685
---------------
Total Mortgage-Backed Securities
(Cost $47,451,079).............. 47,620,058
---------------
FOREIGN BONDS (U.S. DOLLARS) - 1.8%
BANKS - 0.2%
International Bank For Reconstruction & Development Co.
COLTS
7.95%, 05/15/2016............... 640,000 763,424
Skandinaviska Enskilda
(eff. yield 7.94%) (c)
0.00%, 05/26/2033............... 30,000,000 2,346,000
---------------
3,109,424
---------------
ENVIRONMENTAL SERVICES - 0.2%
Oslo Seismic Services, Inc.
8.28%, 06/01/2011............... 2,441,512 2,533,068
---------------
FINANCE & INSURANCE - 0.3%
TXU Eastern Funding Co.
6.75%, 05/15/2009............... 5,000,000 4,644,145
---------------
GOVERNMENT AGENCY - 0.2%
Quebec (Province of)
7.50%, 09/15/2029............... 2,500,000 2,503,100
---------------
OIL FIELD SERVICES - 0.5%
YPF SA
7.25%, 03/15/2003............... 8,000,000 7,800,879
---------------
26
<PAGE>
EVERGREEN
Balanced Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
FOREIGN BONDS (U.S. DOLLARS) - CONTINUED
TRANSPORTATION - 0.4%
Golden State Petroleum Transport Corp.
8.04%, 02/01/2019...............
$ 7,600,000 $ 7,116,382
----------------
Total Foreign Bonds (U.S. Dollars)
(Cost $29,259,754).............. 27,706,998
----------------
FOREIGN BONDS (NON-U.S. DOLLARS) - 1.6%
BANKS - 0.7%
Nykredit
6.00%, 10/01/2029............... 40,913,000 5,336,045
DKK
Realkredit Danmark
6.00%, 10/01/2029............... 44,076,000 5,758,043
DKK
----------------
11,094,088
----------------
GOVERNMENT AGENCY - 0.9%
Denmark (Kingdom of)
8.00%, 05/15/2003............... 86,510,000 13,696,890
----------------
DKK
Total Foreign Bonds (Non-U.S. Dollars)
(Cost $25,772,224).............. 24,790,978
----------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 4.8%
U.S. TREASURY OBLIGATIONS - 4.8%
U.S. Treasury Bonds
5.25%, 02/15/2029............... 20,255,000 17,726,367
7.88%, 02/15/2021............... 9,200,000 10,699,324
U.S. Treasury Notes
4.75%, 11/15/2008............... 250,000 227,577
5.25%, 05/15/2004............... 5,000,000 4,886,700
5.75%, 06/30/2001............... 11,000,000 11,015,510
6.00%, 08/15/2004............... 4,830,000 4,876,803
7.25%, 05/15/2004............... 23,690,000 24,978,025
Total U.S. Government & Agency Obligations
(Cost $75,153,330).............. 74,410,306
----------------
SHORT-TERM INVESTMENTS - 4.8%
MONEY MARKET PORTFOLIO - 2.3%
Navigator Prime Portfolio (a)
(cost $36,285,571).............. 36,285,571 36,285,571
----------------
REPURCHASE AGREEMENTS - 2.5%
Evergreen Joint Repurchase Agreement
Investments in repurchase agreements,
in a joint trading account, purchased
9/30/1999, 5.30%, maturing 10/1/1999,
maturity value $38,686,695)
(Cost $38,681,000) (b).......... 38,681,000 38,681,000
----------------
Total Short-Term Investments
(Cost $74,966,571).............. 74,966,571
----------------
TOTAL INVESTMENTS-
(COST $1,357,739,224)........... 102.5% 1,596,843,107
OTHER ASSETS AND
LIABILITIES - NET............... (2.5 ) (39,159,963)
----------- ----------------
NET ASSETS -.................... 100.0% $1,557,683,144
=========== ================
(a) Represents investment of cash collateral received for securities on loan.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligaitons based on market prices plus accrued interest at
September 30, 1999.
(c) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
* Non-income producing security.
+ All or a portion of this security is on loan (see Note 7).
144A Security that may be resold to "qualified institutional buyers" under Rule
144A of the Securities Act of 1933. This security has been determined to be
liquid under guidelines establised by the Board of Trustees.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
COLTS Continuously Offered Longer Term Securities
DKK Danish Krone
REMIC Real Estate Mortgage Investment Conduit
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts to sell:
EXCHANGE U.S. VALUE AT IN EXCHANGE UNREALIZED
DATE CONTRACTS TO DELIVER SEPTEMBER 30, 1999 FOR U.S. $ LOSS
---- -------------------- ------------------ ----------- ----
10/20/1999 19,000,000 Euro $20,248,416 $19,498,750 ($749,666)
See Combined Notes to Financial Statements.
27
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - 63.5%
AEROSPACE & DEFENSE - 0.5%
Boeing Co. *............................. 247,600 $ 10,553,950
United Technologies Corp................. 92,530 5,488,186
---------------
16,042,136
---------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.0%
Daimler Chrysler AG...................... 344,066 23,891,083
Delphi Automotive
Systems Corp............................ 90,860 1,459,439
General Motors Corp...................... 110,000 6,923,125
---------------
32,273,647
---------------
BANKS - 2.1%
Bank One Corp............................ 117,923 4,105,194
BankAmerica Corp......................... 179,539 9,998,078
BankBoston Corp.......................... 668,600 29,000,525
National City Corp....................... 366,160 9,771,895
Seacoast Banking Corp. of Florida,
Cl. A................................... 70,000 2,060,625
SunTrust Banks, Inc...................... 184,280 12,116,410
---------------
67,052,727
---------------
BUSINESS EQUIPMENT & SERVICES - 0.5%
Automatic Data Processing, Inc........... 98,000 4,373,250
Computer Sciences Corp. *................ 106,200 7,467,188
Xerox Corp............................... 120,000 5,032,500
---------------
16,872,938
---------------
CAPITAL GOODS - 0.3%
Caterpillar, Inc......................... 156,000 8,550,750
---------------
CHEMICAL & AGRICULTURAL PRODUCTS - 2.0%
Air Products & Chemicals, Inc............ 40,000 1,162,500
Du Pont (E.I.) De
Nemours & Co............................ 575,400 35,027,475
Monsanto Co.............................. 280,800 10,021,050
Nalco Chemical Co........................ 45,000 2,272,500
Pioneer Hi-Bred International, Inc....... 174,000 6,927,375
PPG Industries, Inc...................... 105,800 6,348,000
Praxair, Inc............................. 40,000 1,840,000
---------------
63,598,900
---------------
COMMUNICATION SYSTEMS & SERVICES - 3.5%
Cisco Systems, Inc. *.................... 816,200 55,960,712
Lucent Technologies, Inc................. 643,870 41,771,066
MCI WorldCom, Inc. *..................... 170,900 12,283,438
---------------
110,015,216
---------------
CONSUMER PRODUCTS & SERVICES - 1.0%
Gillette Co.............................. 218,000 7,398,375
Procter & Gamble Co...................... 251,451 23,573,531
---------------
30,971,906
---------------
DIVERSIFIED COMPANIES - 1.1%
Tyco International Ltd................... 334,586 34,546,004
---------------
ELECTRICAL EQUIPMENT & SERVICES - 3.3%
Applied Power, Inc., Cl. A............... 130,000 3,948,750
Emerson Electric Co...................... 254,300 16,068,581
General Electric Co...................... 612,400 72,607,675
Motorola, Inc............................ 127,500 11,220,000
---------------
103,845,006
---------------
FINANCE & INSURANCE - 7.6%
AFLAC, Inc............................... 100,000 4,187,500
Allstate Corp............................ 144,000 3,591,000
American Express Co...................... 263,000 35,406,375
American International Group, Inc........ 367,612 31,959,268
Berkshire Hathaway Inc. *................ 4,600 8,537,600
Citigroup, Inc........................... 437,625 19,255,500
Countrywide Credit Industries, Inc....... 158,350 5,106,788
Federal Home Loan Mortgage Corp.......... 84,000 4,368,000
Federal National Mortgage Assoc.......... 718,000 45,009,625
Household International, Inc............. 370,055 14,848,457
Marsh & McLennan Co., Inc................ 354,100 24,255,850
Merrill Lynch & Co., Inc................. 407,400 27,372,187
MGIC Investment Corp..................... 169,800 8,107,950
Raymond James Financial, Inc............. 312,975 6,239,939
---------------
238,246,039
---------------
FOOD & BEVERAGE PRODUCTS - 2.6%
Anheuser Busch Companies, Inc............ 182,000 12,751,375
Bestfoods................................ 240,000 11,640,000
Campbell Soup Co......................... 111,000 4,342,875
Coca Cola Co............................. 439,400 21,118,662
Conagra, Inc............................. 206,900 4,668,181
McDonald's Corp.......................... 242,000 10,406,000
Pepsico, Inc............................. 250,000 7,562,500
Philip Morris Companies, Inc............. 274,000 9,367,375
Tricon Global
Restaurants, Inc. *..................... 3,000 122,813
---------------
81,979,781
---------------
28
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - CONTINUED
FOREST PRODUCTS - 0.1%
Willamette Industries, Inc.............. 90,000 $ 3,881,250
---------------
HEALTHCARE PRODUCTS & SERVICES - 6.8%
Abbott Laboratories..................... 431,400 15,853,950
American Home
Products Corp.......................... 243,600 10,109,400
Baxter International, Inc............... 70,000 4,217,500
Bristol-Myers Squibb Co................. 350,400 23,652,000
Glaxo Wellcome Plc, ADR................. 29,400 1,528,800
Guidant Corp. *......................... 137,100 7,351,988
IMS Health, Inc......................... 40,000 912,500
Johnson & Johnson....................... 205,500 18,880,312
Lilly (Eli) & Co........................ 312,524 20,001,536
McKesson HBOC, Inc...................... 198,680 5,761,720
Medtronic, Inc.......................... 297,200 10,550,600
Merck & Co., Inc........................ 538,516 34,902,568
PE Corp-PE
Biosystems Group *..................... 324,000 23,409,000
Pfizer, Inc............................. 253,500 9,110,156
Schering-Plough Corp.................... 314,000 13,698,250
Warner-Lambert Co....................... 227,400 15,093,675
---------------
215,033,955
---------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 0.8%
Corning, Inc............................ 143,000 9,804,438
Honeywell, Inc.......................... 108,000 12,021,750
Illinois Tool Works, Inc................ 63,700 4,749,631
---------------
26,575,819
---------------
INFORMATION SERVICES & TECHNOLOGY - 13.7%
America Online, Inc. *.................. 161,000 16,744,000
Analog Devices, Inc. *.................. 162,566 8,331,507
BMC Software, Inc. *.................... 100,000 7,156,250
Compaq Computer Corp.................... 520,133 11,930,551
Computer Associates International,
Inc.................................... 106,000 6,492,500
Dell Computer Corp. *................... 600,000 25,087,500
EMC Corp. *............................. 216,000 15,430,500
Hewlett-Packard Co...................... 342,800 31,537,600
Intel Corp.............................. 1,619,200 120,326,800
International Business Machines Corp.... 480,000 58,260,000
Microsoft Corp. *....................... 980,000 88,751,250
Sun Microsystems, Inc. *................ 428,000 39,804,000
---------------
429,852,458
---------------
OIL & ENERGY - 2.9%
Atlantic Richfield Co................... 100,000 8,862,500
BP Amoco Plc............................ 105,054 11,641,296
Chevron Corp............................ 153,000 13,578,750
Consolidated Natural
Gas Co................................. 66,000 4,116,750
COMMON STOCKS - CONTINUED
OIL & ENERGY - CONTINUED
Equitable Resources, Inc................ 289,000 10,927,813
Exxon Corp.............................. 246,400 18,711,000
Mobil Corp.............................. 141,800 14,286,350
Texaco, Inc............................. 125,000 7,890,625
---------------
90,015,084
---------------
OIL FIELD SERVICES - 0.7%
Baker Hughes, Inc....................... 83,430 2,419,470
Halliburton Co.......................... 167,600 6,871,600
Schlumberger Ltd........................ 187,800 11,702,288
---------------
20,993,358
---------------
PAPER & PACKAGING - 0.2%
Kimberly-Clark Corp..................... 93,000 4,882,500
---------------
PRINTING, PUBLISHING, BROADCASTING
& ENTERTAINMENT - 1.2%
CBS Corp. *............................. 128,620 5,948,675
Cox Communications, Inc., Cl. A *....... 154,500 6,450,375
Disney (Walt) Co. *..................... 387,479 10,026,019
New York Times Co., Cl. A............... 40,000 1,500,000
Time Warner, Inc........................ 243,800 14,810,850
---------------
38,735,919
---------------
REAL ESTATE - 0.3%
Marriott International, Inc., Cl. A..... 235,000 7,681,563
Sunstone Hotel Investors, Inc. REIT..... 186,700 1,633,625
---------------
9,315,188
---------------
RETAILING & WHOLESALE - 3.3%
Bed Bath & Beyond, Inc. *............... 255,000 8,909,063
Costco Wholesale Corp. *................ 91,000 6,552,000
Dayton Hudson Corp...................... 82,400 4,949,150
Home Depot, Inc......................... 399,000 27,381,375
Lowe's Companies, Inc................... 216,000 10,530,000
Safeway, Inc. *......................... 95,000 3,615,938
W.W. Grainger, Inc...................... 110,100 5,291,681
Wal-Mart Stores, Inc.................... 779,000 37,051,187
---------------
104,280,394
---------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.6%
Global Crossing Ltd. *.................. 1,255,215 33,263,197
Qwest Communications International,
Inc. *................................. 253,000 7,479,313
Univision Communications, Inc., Cl. A
*...................................... 33,165 2,698,802
Vodafone Airtouch Public Ltd., ADR...... 34,000 8,083,500
---------------
51,524,812
---------------
29
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - CONTINUED
TRANSPORTATION - 0.9%
Burlington Northern Santa Fe Corp..... 75,000 $ 2,062,500
Union Pacific Corp.................... 524,000 25,184,750
---------------
27,247,250
---------------
UTILITIES - ELECTRIC - 1.1%
Central Hudson Gas & Electric Corp.... 360,100 14,178,937
Eastern Utilities Associates.......... 104,300 3,115,962
Energy East Corp...................... 276,800 6,574,000
PacifiCorp............................ 200,000 4,025,000
Public Service Enterprise Group, Inc.. 47,500 1,834,688
Southern Co........................... 154,000 3,965,500
---------------
33,694,087
---------------
UTILITIES - GAS - 0.3%
Keyspan Corp.......................... 276,636 7,918,706
---------------
UTILITIES - TELEPHONE - 4.1%
ALLTEL Corp........................... 72,766 5,120,907
AT&T Corp............................. 580,000 25,230,000
Bell Atlantic Corp. *................. 348,080 23,430,135
GTE Corp.............................. 311,400 23,938,875
Sprint Corp........................... 702,000 38,083,500
Sprint Corp. (PCS Group) *............ 175,500 13,085,719
---------------
128,889,136
---------------
Total Common Stocks
(Cost $1,249,337,837)................ 1,996,834,966
---------------
RIGHTS - 0.0%
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.0%
TALK.com, Inc. *(Cost $0)............. 5,300 0
---------------
Principal
Amount Value
CONVERTIBLE DEBENTURES - 0.2%
BUSINESS EQUIPMENT & SERVICES - 0.0%
Personnel Group of America, Inc.
5.75%, 07/01/2004.................... $ 800,000 596,000
---------------
ENVIRONMENTAL SERVICES - 0.0%
Waste Management, Inc.
4.00%, 02/12/2002.................... 100,000 89,500
---------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 0.1%
Robbins & Myers, Inc.
6.50%, 09/01/2003.................... 2,100,000 1,756,125
Simula, Inc.
8.00%, 05/01/2004.................... 750,000 548,438
---------------
2,304,563
---------------
CONVERTIBLE DEBENTURES - CONTINUED
RETAILING & WHOLESALE - 0.1%
Home Depot, Inc.
3.25%, 10/01/2001.................... $ 500,000 $ 1,483,125
Total Convertible Debentures
(Cost $4,280,000).................... 4,473,188
---------------
CORPORATE BONDS & NOTES - 1.6%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.8%
Daimler Chrysler AG
6.90%, 09/01/2004.................... 25,000,000 25,118,575
---------------
CHEMICAL & AGRICULTURAL PRODUCTS - 0.0%
Arco Chemical Co.
10.25%, 11/01/2010................... 210,000 216,441
---------------
FINANCE & INSURANCE - 0.0%
Chrysler Financial Corp.
6.95%, 03/25/2002.................... 500,000 507,876
---------------
RETAILING & WHOLESALE - 0.8%
Wal-Mart Stores, Inc.
6.88%, 08/10/2009.................... 25,000,000 25,087,025
Total Corporate Bonds & Notes
(Cost $50,792,178)................... 50,929,917
---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 25.7%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.6%
Federal Home Loan Mortgage Corp.
6.44%, 01/28/2000.................... 500,000 501,361
Federal National Mortgage Assoc.
5.94%, 12/12/2005.................... 500,000 479,991
6.21%, 08/06/2038.................... 1,250,000 1,137,689
Tennessee Valley Authority
7.25%, 07/15/2043.................... 8,000,000 7,801,728
7.85%, 06/15/2044.................... 10,000,000 9,994,500
---------------
19,915,269
---------------
U.S. TREASURY OBLIGATIONS - 25.1%
U.S. Treasury Bonds
6.00%, 02/15/2026.................... 38,000,000 36,242,500
6.25%, 08/15/2023.................... 40,000,000 39,362,520
7.13%, 02/15/2023.................... 25,000,000 27,140,625
7.25%, 05/15/2016.................... 49,500,000 53,521,875
7.25%, 08/15/2022.................... 23,000,000 25,264,074
8.00%, 11/15/2021.................... 10,000,000 11,818,750
8.13%, 08/15/2019.................... 50,000,000 59,218,750
8.13%, 05/15/2021.................... 25,000,000 29,828,125
8.38%, 08/15/2008.................... 30,000,000 32,353,140
8.50%, 02/15/2020.................... 10,000,000 12,284,380
10.63%, 08/15/2015................... 1,000,000 1,410,625
30
<PAGE>
EVERGREEN
Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
U.S. GOVERNMENT & AGENCY OBLIGATIONS - CONTINUED
U.S. TREASURY OBLIGATIONS - CONTINUED
U.S. Treasury Notes
5.25%, 08/15/2003.................... $ 125,000,000 $ 122,578,125
5.50%, 05/15/2009.................... 25,000,000 24,179,700
5.88%, 11/15/1999.................... 2,000,000 2,003,126
5.88%, 02/15/2000.................... 350,000 351,094
5.88%, 09/30/2002.................... 75,000,000 75,304,725
5.88%, 11/15/2005.................... 50,000,000 49,687,500
6.00%, 10/15/1999.................... 500,000 500,469
6.13%, 09/30/2000.................... 1,000,000 1,006,563
6.13%, 08/15/2007.................... 75,000,000 75,117,225
6.38%, 01/15/2000.................... 500,000 501,875
6.50%, 05/31/2001.................... 900,000 912,094
6.50%, 08/31/2001.................... 100,000,000 101,531,300
6.50%, 08/15/2005.................... 1,130,000 1,156,485
6.63%, 03/31/2002.................... 1,000,000 1,021,250
6.88%, 05/15/2006.................... 500,000 521,875
7.50%, 11/15/2001.................... 3,235,000 3,353,281
7.50%, 02/15/2005.................... 600,000 641,438
7.75%, 11/30/1999.................... 700,000 703,719
---------------
789,517,208
---------------
Total U.S. Government & Agency
Obligations
(Cost $803,803,537).................. 809,432,477
---------------
SHORT-TERM INVESTMENTS - 8.6%
REPURCHASE AGREEMENTS - 8.6%
State Street Bank & Trust Co.,
purchased 9/30/1999, 5.22%,
maturing 10/1/1999, maturity
value $271,374,344
(cost $271,335,000)(a)............... 271,335,000 271,335,000
---------------
TOTAL INVESTMENTS-
(COST $2,379,548,552)................ 99.6% 3,133,005,548
OTHER ASSETS AND
LIABILITIES - NET.................... 0.4% 12,864,220
------------- --------------
NET ASSETS -......................... 100.0% $3,145,869,768
------------- --------------
a) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices plus accrued interest at September
30, 1999.
* Non-income producing security.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
31
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments
September 30, 1999 (Unaudited)
Shares Value
COMMON STOCKS - 36.1%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.7%
Autoliv, Inc.......................... 39,151 $ 1,473,056
Daimler Chrysler AG ................. 18,705 1,298,829
-------------
2,771,885
-------------
BANKS - 4.7%
BankAmerica Corp...................... 5,875 327,164
BankBoston Corp....................... 39,000 1,691,625
Chase Manhattan Corp.................. 25,000 1,884,375
Comerica, Inc......................... 7,500 379,688
First Union Corp. ** ................. 3,000 106,688
Fleet Boston Corp..................... 11,500 421,188
Huntington Bancshares, Inc. ......... 68,200 1,811,562
M&T Bank Corp......................... 4,000 1,836,000
National City Corp. ................. 39,600 1,056,825
Northern Trust Corp................... 10,000 835,000
One Valley Bancorp, Inc............... 15,750 543,375
Republic New York Corp. ............. 41,000 2,518,937
Seacoast Banking Corp. of
Florida, Cl. A ..................... 15,000 441,562
SunTrust Banks, Inc................... 58,880 3,871,360
-------------
17,725,349
-------------
BUILDING, CONSTRUCTION & FURNISHINGS.- 1.3%
Carlisle Companies, Inc............... 46,000 1,817,000
D.R. Horton, Inc...................... 78,950 1,021,415
La-Z-Boy Chair Co..................... 47,100 897,844
Ryland Group, Inc..................... 50,000 1,137,500
-------------
4,873,759
-------------
BUSINESS EQUIPMENT & SERVICES - 0.9%
Computer Sciences Corp. *............. 45,000 3,164,062
Convergys Corp. *..................... 15,000 297,188
-------------
3,461,250
-------------
CHEMICAL & AGRICULTURAL PRODUCTS - 1.0%
Du Pont (E.I.) De
Nemours & Co......................... 20,000 1,217,500
Monsanto Co........................... 25,000 892,187
Sigma-Aldrich Corp. ................. 56,100 1,781,175
-------------
3,890,862
-------------
CONSUMER PRODUCTS & SERVICES - 0.4%
Adidas AG ADS, 144A ................. 10,000 427,059
Gucci Group ......................... 12,000 1,002,000
-------------
1,429,059
-------------
DIVERSIFIED COMPANIES - 0.4%
Tyco International Ltd. ............. 15,710 1,622,058
-------------
ELECTRICAL EQUIPMENT & SERVICES - 0.9%
Emerson Electric Co................... 15,000 947,812
Motorola, Inc......................... 8,100 712,800
Park Electrochemical Corp............. 17,700 581,888
Thomas & Betts Corp................... 18,500 943,500
-------------
3,186,000
-------------
FINANCE & INSURANCE - 5.6%
AFLAC, Inc. ......................... 4,400 184,250
American International
Group, Inc........................... 21,250 1,847,422
Citigroup, Inc. ..................... 75,375 3,316,500
Countrywide Credit
Industries, Inc...................... 20,000 645,000
Enhance Financial Services
Group, Inc........................... 6,000 106,125
FBL Financial Group, Inc.............. 20,000 412,500
Federal National
Mortgage Assoc....................... 21,000 1,316,437
FPIC Insurance Group, Inc. * ......... 20,000 301,250
Horace Mann Educators Corp. ......... 52,000 1,342,250
Legg Mason, Inc....................... 80,866 3,098,179
Lincoln National Corp................. 27,000 1,014,188
Merrill Lynch & Co., Inc.............. 63,500 4,266,406
Mony Group, Inc....................... 35,000 1,010,625
Nationwide Financial Services,
Inc., Cl. A ......................... 28,000 990,500
Paine Webber Group, Inc............... 35,800 1,297,750
-------------
21,149,382
-------------
FOOD & BEVERAGE PRODUCTS - 0.2%
Coca Cola Co. Femsa SA, ADR ......... 40,000 552,500
-------------
HEALTHCARE PRODUCTS & SERVICES - 5.8%
Abbott Laboratories ................. 39,000 1,433,250
Alza Corp. * ......................... 39,000 1,669,687
American Home Products Corp........... 40,000 1,660,000
Celera Genomics Group................. 27,350 1,100,838
Dendrite International, Inc. *........ 30,000 1,417,500
McKesson HBOC, Inc. ................. 66,000 1,914,000
Medtronic, Inc. ..................... 36,000 1,278,000
Merck & Co., Inc...................... 33,800 2,190,662
PE Corp-PE
Biosystems Group * ................. 109,400 7,904,150
Warner-Lambert Co..................... 15,000 995,625
-------------
21,563,712
-------------
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES - 0.4%
Furon Co.............................. 24,000 598,500
Meade Instruments Corp. *............. 37,000 890,313
-------------
1,488,813
-------------
INFORMATION SERVICES & TECHNOLOGY - 4.4%
Hewlett-Packard Co. ................. 4,000 368,000
Intel Corp. ......................... 72,000 5,350,500
International Business
Machines Corp. ..................... 50,000 6,068,750
32
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (unaudited)
Shares Value
COMMON STOCKS - CONTINUED
INFORMATION SERVICES &
TECHNOLOGY - CONTINUED
SCI Systems, Inc. * ................. 60,000 $ 2,666,250
Sun Microsystems, Inc. * ............. 20,000 1,860,000
-------------
16,313,500
-------------
LEISURE & TOURISM - 0.3%
Starwood Hotels & Resorts............. 45,000 1,004,063
-------------
OIL & ENERGY - 0.4%
Atlantic Richfield Co................. 15,000 1,329,375
-------------
OIL FIELD SERVICES - 0.6%
Diamond Offshore Drilling, Inc. ..... 43,000 1,435,125
Schlumberger Ltd...................... 15,000 934,687
-------------
2,369,812
-------------
REAL ESTATE - 1.4%
Alexander's, Inc. REIT * ............. 19,300 1,395,631
Archstone Communities Trust ......... 3,485 67,304
Boston Properties, Inc. REIT ......... 39,000 1,196,813
Brandywine Realty Trust REIT ......... 20,000 325,000
Horizon Group Properties,
Inc. REIT * ......................... 1,480 5,180
Indymac Mortgage Holdings,
Inc. REIT............................ 70,000 1,050,000
Prentiss Properties Trust REIT........ 9,900 219,656
Sunstone Hotel Investors,
Inc. REIT............................ 115,000 1,006,250
-------------
5,265,834
-------------
RETAILING & WHOLESALE - 2.4%
Ethan Allen Interiors, Inc. ......... 127,050 4,041,778
Lowe's Companies, Inc................. 32,000 1,560,000
Sonic Automotive, Inc. * ............. 130,000 1,690,000
W.W. Grainger, Inc. ................. 17,000 817,063
Williams Sonoma, Inc. * ............. 20,000 971,250
-------------
9,080,091
-------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 1.2%
Global Crossing Ltd. *................ 166,050 4,400,325
-------------
THRIFT INSTITUTIONS - 0.6%
Bank United Corp. * ................. 18,000 582,750
BankUnited Financial Corp............. 15,000 119,062
Mech Financial, Inc................... 30,000 990,000
St. Paul Bancorp, Inc................. 29,298 670,192
-------------
2,362,004
-------------
TRANSPORTATION - 1.1%
Midwest Express
Holdings, Inc. *..................... 42,850 1,122,134
Union Pacific Corp. ................. 65,000 3,124,063
-------------
4,246,197
-------------
UTILITIES - GAS - 0.7%
Williams Companies, Inc............... 70,000 2,620,625
-------------
UTILITIES - TELEPHONE - 0.7%
Sprint Corp........................... 36,000 1,953,000
Sprint Corp. (PCS Group) *............ 9,000 671,062
2,624,062
-------------
Total Common Stocks
(Cost $95,977,432) ................. 135,330,517
-------------
Principal
Amount Value
CONVERTIBLE DEBENTURES - 0.0%
BUSINESS EQUIPMENT & SERVICES - 0.0%
Personnel Group of America, Inc.
5.80%, 07/01/2004
(Cost $150,000) ..................... $ 150,000 111,750
-------------
MUNICIPAL OBLIGATIONS - 61.0%
ALABAMA - 2.1%
Alabama HFA SFHRB Home Mtge.,
Ser. B-1, (GNMA),
5.30%, 10/01/2016.................... 5,120,000 4,831,846
Alabama Wtr. Poll. Ctl. Auth. Revolving
Fund Loan,
Ser. B, (AMBAC),
5.50%, 08/15/2016.................... 3,000,000 2,951,250
-------------
7,783,096
-------------
ALASKA - 0.7%
Alaska Hsg. Fin. Corp. Mtge. RB:
Ser. A, (MBIA),
6.05%, 12/01/2017.................... 750,000 760,013
Ser. A-1, (MBIA),
5.30%, 12/01/2012.................... 2,000,000 1,926,080
-------------
2,686,093
-------------
CALIFORNIA - 1.4%
California HFA RB: MFHRB III,
Ser. C, (MBIA),
5.30%, 08/01/2028.................... 1,000,000 910,810
Ser. I, (MBIA),
5.75%, 02/01/2029.................... 700,000 681,471
Campbell, CA Unified Sch. Dist. GO
(FGIC),
5.00%, 08/01/2017.................... 2,500,000 2,340,000
San Francisco, CA Bay Area Rapid Trans. Dist.
Sales Tax RB
5.25%, 07/01/2018.................... 1,000,000 961,840
33
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
MUNICIPAL OBLIGATIONS - CONTINUED
CALIFORNIA - CONTINUED
Simi Valley, CA Unified Sch. Dist. COP Ref. &
Cap. Impt. Proj.
(AMBAC),
5.25%, 08/01/2002.................... $ 500,000 $ 473,865
-------------
5,367,986
-------------
COLORADO - 0.6%
Denver, CO City & Cnty. Arpt. RB,
Ser. D, (MBIA),
5.50%, 11/15/2025.................... 1,000,000 958,520
Jefferson Cnty., CO Sch. Dist. No.
001 GO, Ser. A,
5.00%, 12/15/2017.................... 1,500,000 1,373,910
-------------
2,332,430
-------------
DELAWARE - 0.3%
Delaware EDA RB Osteopathic Hosp.
Assoc. of DE/Riverside Hosp.
Ser. A,
6.50%, 01/01/2008.................... 1,000,000 1,079,280
-------------
DISTRICT OF COLUMBIA - 1.1%
District of Columbia RB Carnegie
Endowment for Int'l. Peace
5.75%, 11/15/2026.................... 1,900,000 1,827,762
District of Columbia,
Ser. B, (FSA),
5.25%, 06/01/2026.................... 2,500,000 2,261,075
-------------
4,088,837
-------------
FLORIDA - 1.5%
Florida Brd. of Ed. Cap. Outlay GO
Ser. C,
5.50%, 06/01/2015.................... 2,000,000 1,995,680
Florida Hsg. Fin. Corp. RB
Homeowner Mtge., AMT
Ser. 2,
5.35%, 01/01/2021.................... 1,215,000 1,115,273
Gainesville, FL Util. Sys. RB,
Ser. B,
5.50%, 10/01/2013.................... 2,500,000 2,515,200
-------------
5,626,153
-------------
ILLINOIS - 7.0%
Chicago, IL Board of Ed. GO Chicago
Sch. Reform:
(AMBAC),
6.75%, 12/01/2009.................... 1,000,000 1,123,650
Chicago, IL Midway Arpt. RB,
Ser. A, (MBIA),
5.63%, 01/01/2022.................... 5,000,000 4,848,400
Chicago, IL Skyway Toll Bridge RB
(MBIA),
5.38%, 01/01/2011.................... 2,500,000 2,513,350
Cook Cnty., IL GO Capital Impt.,:
Ser. A, (FGIC),
5.00%, 11/15/2028.................... 5,000,000 4,315,250
Ser. A, (FGIC),
5.25%, 11/15/2017.................... 3,000,000 2,806,650
Ser. A, (MBIA),
5.63%, 11/15/2022.................... 3,600,000 3,488,904
Illinois GO:
(FSA),
5.13%, 04/01/2023.................... 3,440,000 3,075,257
(FGIC),
5.38%, 02/01/2016.................... 3,400,000 3,286,780
Will Cnty., IL Community Sch. Dist.
No. 161, Summit Hill GO Cap. Apprec.
(Eff. Yield 5.50%) (b) (FGIC),
0.00%, 01/01/2016.................... 2,000,000 778,560
-------------
26,236,801
-------------
INDIANA - 0.5%
Indiana HFA SFHRB,
Ser. A-2, (FNMA/GNMA),
5.15%, 07/01/2017.................... 2,000,000 1,856,900
-------------
MAINE - 0.4%
Maine Hlth. & Higher Edl. Facs.
Auth..RB, Ser. B, (AMBAC),
5.75%, 07/01/2026.................... 1,000,000 971,980
Maine Hsg. Auth. Mtge. RB,
Ser. F-1, (HUD),
5.50%, 11/15/2029.................... 500,000 468,610
-------------
1,440,590
-------------
MASSACHUSETTS - 4.2%
Massachusetts Bay Trans. Auth. RB
General Trans. Sys.,
Ser. A
7.00%, 03/01/2008.................... 250,000 284,188
(FGIC),
7.00%, 03/01/2014.................... 1,000,000 1,155,540
Massachusetts HFA Hsg. Proj. RB,
Ser. A, (AMBAC),
5.95%, 10/01/2008.................... 250,000 258,995
Massachusetts Hlth. & Edl. Facs.
Auth. RB: Cooley Dickinson Hosp.
Proj., Issue B, (AMBAC),
5.50%, 11/15/2018.................... 2,500,000 2,422,250
Ser. A, (FSA),
5.00%, 07/01/2027.................... 2,220,000 1,921,521
34
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
MUNICIPAL OBLIGATIONS - CONTINUED
MASSACHUSETTS - CONTINUED
Massachusetts Tpke. Auth. Met. Hwy. Sys. RB,
Ser. A, (MBIA),
5.00%, 01/01/2027.................... $2,500,000 $ 2,190,500
Massachusetts Tpke. Auth. Western
Tpke. RB, Ser. A, (MBIA),
5.55%, 01/01/2017.................... 1,195,000 1,197,987
Massachusetts Wtr. Resources Auth. RB,
Ser. D, (MBIA),
5.00%, 08/01/2024.................... 2,500,000 2,208,425
Worcester, MA GO Muni. Purpose Loan,
Ser. A, (FSA),
5.50%, 04/01/2019.................... 4,000,000 3,892,800
-------------
15,532,206
-------------
MICHIGAN - 2.4%
Detroit, MI City Sch. Dist.
Ser. B, (FGIC),
5.00%, 05/01/2021.................... 5,000,000 4,471,250
Farmington Hills, MI Fin. Hosp. RB
Ser. B, (MBIA),
4.00%, 02/15/2016.................... 1,900,000 1,900,000
Michigan Muni. Bond Auth. RB Local
Govt. Loan Prog.,
Ser. G, (AMBAC),
6.55%, 11/01/2008.................... 300,000 328,998
Southgate, MI Community Sch. Dist. GO
(FGIC),
5.00%, 05/01/2019.................... 2,500,000 2,248,650
-------------
8,948,898
-------------
MINNESOTA - 0.5%
Southern MN Muni. Pwr. Agcy. Pwr.
Supply Sys RB Unref. Bal.,
Ser. A, (MBIA)
5.75%, 01/01/2018.................... 2,000,000 2,004,280
-------------
MISSOURI - 0.9%
Missouri Hsg. Dev. Commission Mtge.
SFHRB: Ser. B, (GMNA/FNMA),
6.25%, 09/01/2015.................... 795,000 808,523
Ser. C-1,
5.50%, 03/01/2029.................... 735,000 698,353
Ser. D, (GNMA/FNMA),
6.00%, 09/01/2017.................... 365,000 367,533
St. Louis, MO Muni. Fin. Corp.
Leasehold RB City Justice Ctr.,
Ser. A, (AMBAC),
5.95%, 02/15/2016.................... 500,000 510,930
St. Louis, MO Regl. Convention
& Sports Complex Auth. RB Convention &
Sports.Fac., Ser. C, (AMBAC),
5.30%, 08/15/2017.................... 1,000,000 953,080
-------------
3,338,419
-------------
NEBRASKA - 4.0%
Nebraska Pub. Pwr. Dist. RB, Elec.
Sys., Ser. A, (MBIA),
5.25%, 01/01/2028.................... 14,300,000 14,840,969
-------------
NEVADA - 1.1%
Nevada CO River Comm. Pwr. Delivery,
Ser. A, (FGIC),
5.63%, 09/15/2024.................... 4,010,000 3,912,758
-------------
NEW HAMPSHIRE - 0.6%
Manchester, NH General Arpt. RB,
Ser. A, (MBIA),
4.50%, 01/01/2028.................... 2,800,000 2,162,664
-------------
NEW JERSEY - 1.1%
New Jersey EDA PCRB Pub. Svc. Elec. &
Gas Co.,
Ser. A, (MBIA),
6.40%, 05/01/2032.................... 2,500,000 2,653,000
New Jersey Tpke. Auth. RB,
Ser. C, (MBIA),
6.50%, 01/01/2016.................... 1,400,000 1,556,604
-------------
4,209,604
-------------
NEW YORK - 9.4%
Long Island Pwr. Auth. NY Elec. Sys..RB:
(MBIA),
5.00%, 04/01/2013.................... 4,395,000 4,195,555
Ser. A, (AMBAC),
5.50%, 12/01/2011.................... 5,000,000 5,129,100
New York Dorm. Auth. RB: City Univ.
Sys. Cons., (FSA),
5.63%, 07/01/2019.................... 2,500,000 2,448,700
Ser. 2, (AMBAC),
5.25%, 07/01/2015.................... 5,000,000 4,772,650
Ser. E, (AMBAC),
5.20%, 02/15/2014.................... 2,500,000 2,384,900
New York Local Govt. Assistance
Corp..RB, Ser. D,
5.38%, 04/01/2014.................... 1,700,000 1,662,345
New York Med. Care Facs. Fin.
Agcy. RB Prerefunded - Mental Hlth.
Ser. B, (AMBAC),
6.25%, 08/15/2010.................... 210,000 223,157
35
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
MUNICIPAL OBLIGATIONS - CONTINUED
NEW YORK - CONTINUED
New York Med. Care Facs. Fin. Agcy. RB
Unrefunded Bal. - Mental Hlth.
Ser. B, (AMBAC),
6.25%, 08/15/2010.................... $ 35,000 $ 36,936
New York Mtge. Agcy. RB AMT
Homeowner Mtge.:
Ser. 44,
6.60%, 04/01/2003.................... 250,000 257,435
Ser. 56,
5.88%, 10/01/2019.................... 835,000 839,167
Ser. 63,
5.60%, 04/01/2010.................... 500,000 504,250
New York Thruway Auth. RB,
Ser. B, (MBIA),
5.00%, 01/01/2020.................... 1,000,000 902,000
New York Urban Dev. Corp. Sr. Lien
Corp. Purpose
(HUD),
5.50%, 07/01/2016.................... 5,000,000 4,934,950
New York, NY GO:
Ser. D, (MBIA),
5.25%, 08/01/2021.................... 2,250,000 2,100,307
Ser. J, (MBIA),
5.30%, 08/01/2024.................... 2,250,000 2,100,487
New York, NY Trans. Auth. Metro. Trans.
Auth. Triborough,
Ser. A, (AMBAC),
5.40%, 01/01/2019.................... 2,500,000 2,387,475
Port Auth. of NY & NJ RB Cons.,
Ser. 97, (FGIC),
7.00%, 07/15/2005.................... 250,000 277,477
-------------
35,156,891
-------------
NORTH CAROLINA - 0.1%
North Carolina HFA SFHRB
Ser. OO, (FHA),
5.80%, 09/01/2012.................... 500,000 509,045
-------------
NORTH DAKOTA - 0.5%
Mercer Cnty., ND PCRB Basin Elec. Pwr., Coop.-Antelope
Valley
Ser. 2, (AMBAC),
6.05%, 01/01/2019.................... 1,000,000 1,014,520
North Dakota HFA RB Hsg. Fin. Prog.,
Ser. C,
5.55%, 07/01/2029.................... 995,000 918,912
-------------
1,933,432
-------------
OHIO - 0.4%
Akron, OH EDA RB,
(MBIA),
6.00%, 12/01/2012.................... 500,000 533,815
Jefferson Cnty., OH GO Refunding & Impt.
(FSA),
5.70%, 12/01/2013.................... 1,000,000 1,039,420
-------------
1,573,235
-------------
PENNSYLVANIA - 1.6%
Pennsylvania Convention Ctr. Auth. RB,
Ser. A, (FGIC),
6.70%, 09/01/2016.................... 500,000 564,050
Pennsylvania Higher Edl. Facs. Auth..College &
Univ. RB Drexel Univ.
(MBIA),
5.75%, 05/01/2022.................... 2,000,000 1,977,460
Philadelphia, PA Wtr. & Wstwtr. RB,
Ser. 1999, (AMBAC),
5.00%, 12/15/2005.................... 2,500,000 2,537,125
York Cnty., PA Solid Waste & Refuse Auth. Solid
Waste Sys. RB,
(FGIC),
5.50%, 12/01/2011.................... 1,000,000 1,024,910
-------------
6,103,545
-------------
PUERTO RICO - 0.1%
Puerto Rico Hsg. Bank & Fin. Agcy. SFHRB
Affordable Hsg., Portfolio I, AMT,
(GNMA/FNMA/FHLMC),
5.85%, 04/01/2009.................... 385,000 398,063
-------------
SOUTH CAROLINA - 4.1%
South Carolina Pub. Svc. Auth. RB
Ser. D, (AMBAC),
6.50%, 07/01/2024.................... 10,000,000 10,747,900
South Carolina Trans. Infrastructure.Bk. RB,
Ser. A, (AMBAC),
5.38%, 10/01/2024.................... 5,000,000 4,727,600
-------------
15,475,500
-------------
SOUTH DAKOTA - 0.9%
Brookings, SD COP Lease Purchase,
(AMBAC),
5.10%, 12/01/2018.................... 1,455,000 1,312,730
South Dakota Conservancy Dist. RB Drinking Wtr. State
Revolving Fund,
(AMBAC),
5.00%, 08/01/2019.................... 1,000,000 892,290
South Dakota Hsg. Dev. Auth. RB
Homeownership,
Ser. B,
5.25%, 05/01/2017.................... 1,235,000 1,158,084
-------------
3,363,104
-------------
36
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
MUNICIPAL OBLIGATIONS - CONTINUED
TENNESSEE - 0.1%
Bristol, TN Hlth. & Edl. Facs. Board RB, Bristol
Mem. Hosp.
(FGIC),
6.75%, 09/01/2007.................... $ 300,000 $ 333,555
-------------
TEXAS - 4.6%
Dallas, TX RB Spl. Tax,
Ser. A, (AMBAC),
5.25%, 08/15/2016.................... 2,625,000 2,500,601
Edinburg, TX Cons. Ind. Sch. Dist. Pub. Facilities
Corp. Lease RB,
(AMBAC),
5.00%, 08/15/2019.................... 5,500,000 4,936,635
Harris Cnty., TX Hlth. Facs. Dev. Corp. Hosp. RB
Mem. Hermann Hosp. Sys. Proj.,
(FSA),
5.50%, 06/01/2010.................... 1,000,000 1,016,060
Houston, TX Wtr. & Swr. Sys RB
Ser. A, (FSA),
5.00%, 12/01/2028.................... 3,000,000 2,599,950
Houston, TX Wtr. Conveyance Sys. Contract COP
Ser. H, (AMBAC),
7.50%, 12/15/2010.................... 500,000 593,180
Lubbock, TX Elec. Light & Pwr. Sys. RB
(AMBAC),
4.25%, 04/15/2017.................... 460,000 375,553
San Antonio,TX Elec. & Gas RB Prerefunded
5.25%, 02/01/2010.................... 50,000 51,633
San Antonio,TX Elec. & Gas RB Unrefunded Bal.
5.25%, 02/01/2010.................... 950,000 955,501
Texas Dept. of Hsg. & Community Affairs
Residential Mtge. RB,
Ser. A, (GNMA/FNMA),
5.25%, 07/01/2018.................... 1,500,000 1,375,020
Texas Tpke. Auth. Dallas North Thwy. RB,
(FGIC),
5.50%, 01/01/2015.................... 3,000,000 2,969,220
-------------
17,373,353
-------------
UTAH - 1.0%
Salt Lake City, UT Hosp. RB IHC Hosp., Inc.
6.30%, 02/15/2015.................... 500,000 536,795
Utah HFA SFHRB
Ser. B-1, Cl. 1, (FHA/VA),
6.00%, 07/01/2016.................... 440,000 447,762
Ser. D-2, (FHA/VA),
5.35%, 07/01/2018.................... 2,825,000 2,623,577
-------------
3,608,134
-------------
VIRGINIA - 1.6%
Northern VA Trans. Dist. Comm. Commuter Rail
RB, VA Railway Exp. Proj.,
(FSA),
5.38%, 07/01/2014.................... 3,400,000 3,353,760
Prince William Cnty., VA Wtr. & Swr. Sys. RB,
(FGIC),
5.60%, 07/01/2024.................... 2,500,000 2,457,050
-------------
5,810,810
-------------
WASHINGTON - 4.3%
Clark Cnty., WA Sch. Dist. No. 117
(FSA),
5.50%, 12/01/2016.................... 3,500,000 3,427,410
(FSA),
5.50%, 12/01/2017.................... 2,000,000 1,943,920
Seattle, WA Wtr. Sys. RB:
(FGIC),
5.25%, 03/01/2017.................... 3,000,000 2,836,170
5.50%, 06/01/2018.................... 3,500,000 3,390,205
Snohomish Cnty., WA Sch. Dist. No. 015
Edmonds GO:
(FGIC),
5.25%, 12/01/2015.................... 2,000,000 1,909,640
(FGIC),
5.70%, 12/01/2015.................... 500,000 501,250
Washington Hlth. Care Facs. Auth. RB Swedish
Hlth. Sys.
(AMBAC),
5.13%, 11/15/2018.................... 2,500,000 2,263,475
-------------
16,272,070
-------------
WEST VIRGINIA - 0.5%
West Virginia GO,
Ser. A, (FGIC),
5.75%, 11/01/2021.................... 1,000,000 990,080
West Virginia Hsg. Dev. Fund RB Hsg. Fin.,
Ser. A,
6.05%, 05/01/2027.................... 1,000,000 1,018,110
-------------
2,008,190
-------------
WISCONSIN - 0.9%
Wisconsin Clean Wtr. RB,
Ser. 1,
6.88%, 06/01/2011.................... 1,000,000 1,142,710
Wisconsin Hsg. & EDA Home Ownership
RB AMT:
Ser. B,
5.60%, 03/01/2028.................... 2,000,000 1,860,580
Ser. E,
6.00%, 09/01/2028.................... 500,000 500,310
-------------
3,503,600
-------------
37
<PAGE>
EVERGREEN
Tax Strategic Foundation Fund
Schedule of Investments (continued)
September 30, 1999 (Unaudited)
Principal
Amount Value
MUNICIPAL OBLIGATIONS - CONTINUED
WYOMING - 0.5%
Wyoming CDA Hsg. RB,
Ser. 1,
5.45%, 12/01/2029.................... $ 2,000,000 $ 1,860,420
--------------
Total Municipal Obligations
(Cost $235,522,127).................. 228,730,911
--------------
SHORT-TERM MUNICIPAL OBLIGATIONS - 2.0%
IOWA - 0.6%
Iowa Fin. Auth. RB, Burlington Med. Ctr.,
(FSA),
3.80%, 06/01/2027 (a)................ 2,400,000 2,400,000
--------------
NEW YORK - 1.1%
Long Island Pwr. Auth. NY Elec. Sys. RB:
Ser. 5,
3.15%, 05/01/2033 (a)................ 1,200,000 1,200,000
Port Auth. of NY & NJ Spl. Oblig. RB
3.85%, 05/01/2019 (a)................ 3,000,000 3,000,000
--------------
4,200,000
--------------
TENNESSEE - 0.3%
Wilson Cnty., TN Ind. Dev. Brd. IDRB
Briskin Mfg. Co. Proj.,
3.90%, 07/01/2029 (a)................ 1,000,000 1,000,000
--------------
Total Short-Term Municipal Obligations
(Cost $7,600,000).................... 7,600,000
--------------
Shares Value
MUTUAL FUND SHARES - 0.0%
Federated Tax Free Obligations Fund... 42,387 42,387
(Cost $42,387) --------------
TOTAL INVESTMENTS-
(COST $339,291,946).................. 99.1% 371,815,565
OTHER ASSETS AND
LIABILITIES - NET.................... 0.9 3,284,999
----------- --------------
NET ASSETS -......................... 100.0% $375,100,564
=========== ==============
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
* Non-income producing security.
** At September 30, 1999, the Fund owned 3,000 shares of common stock of First
Union Corp. at a cost of $57,890. During the six months ended September 30,
1999 the Fund earned $2,820 in dividend income from this investment. These
shares were purchased by the Fund prior to the acquisition of the investment
advisor by First Union. 144A Security that may be resold to "qualified
institutional buyers" under rule 144A of the Securities Act of 1933. This
security has been determined to be liquid under guidelines established by
the Board of Trustees.
+ Effective Yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
ADS American Depository Shares
AMT Subject to Alternative Minimum Tax
COP Certificate of Participation
CDA Community Development Authority
EDA Economic Development Authority
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
GO General Obligations
HFA Housing Finance Authority
HUD Housing and Urban Development
IDRB Industrial Development Revenue Bond
MFHRB Multi Family Housing Revenue Bond
PCRB Pollution Control Revenue Bond
RB Revenue Bonds
REIT Real Estate Investment Trust
SFHRB Single Family Housing Revenue Bond
MUNICIPAL BOND INSURANCE COMPANIES:
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Administration
FSA Financial Security Assurance Company
MBIA Municipal Bond Insurance Association
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Balanced Funds
Statements of Assets and Liabilities
September 30, 1999 (Unaudited)
TAX STRATEGIC
BALANCED FOUNDATION FOUNDATION
FUND FUND FUND
- - -----------------------------------------------------------------------------
ASSETS
Identified cost of
securities................. $1,357,739,224 $2,379,548,552 $339,291,946
Net unrealized gain on
securities................. 239,103,883 753,456,996 32,523,619
- - -----------------------------------------------------------------------------
Market value of securities.. 1,596,843,107 3,133,005,548 371,815,565
Receivable for securities
sold....................... 5,140,223 3,380,663 9,095,797
Receivable for Fund shares
sold....................... 334,972 3,240,685 603,611
Dividends and interest
receivable................. 8,641,069 10,862,920 3,715,759
Prepaid expenses and other
assets..................... 176,406 62,482 42,548
- - -----------------------------------------------------------------------------
Total assets.............. 1,611,135,777 3,150,552,298 385,273,280
- - -----------------------------------------------------------------------------
LIABILITIES
Payable for securities
purchased.................. 14,134,313 0 9,301,860
Payable for Fund shares
redeemed................... 1,238,706 1,783,726 448,451
Payable for securities on
loan....................... 36,285,571 0 0
Unrealized loss on forward
foreign currency exchange
contracts.................. 749,666 0 0
Due to custodian bank....... 1,304 142,031 0
Advisory fee payable........ 548,835 1,954,077 273,914
Distribution Plan expenses
payable.................... 186,931 352,848 91,263
Accrued expenses and other
liabilities................ 307,307 449,848 57,228
- - -----------------------------------------------------------------------------
Total liabilities......... 53,452,633 4,682,530 10,172,716
- - -----------------------------------------------------------------------------
NET ASSETS................... $1,557,683,144 $3,145,869,768 $375,100,564
- - -----------------------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital............. $1,148,643,823 $2,343,245,133 $352,968,028
Undistributed
(overdistributed) net
investment income.......... (158,629) 90,566 7,081
Accumulated net realized
gains or losses on
securities and foreign
currency related
transactions............... 170,838,217 49,077,073 (10,398,164
Net unrealized gains on
securities and foreign
currency related
transactions............... 238,359,733 753,456,996 32,523,619
- - -----------------------------------------------------------------------------
TOTAL NET ASSETS............. $1,557,683,144 $3,145,869,768 $375,100,564
- - -----------------------------------------------------------------------------
NET ASSETS CONSIST OF
Class A..................... $1,122,298,278 $ 416,795,978 $ 83,813,565
Class B..................... 404,080,471 1,475,686,368 229,406,341
Class C..................... 2,493,044 67,946,045 40,736,657
Class Y..................... 28,811,351 1,185,441,377 21,144,001
- - -----------------------------------------------------------------------------
TOTAL NET ASSETS............. $1,557,683,144 $3,145,869,768 $375,100,564
- - -----------------------------------------------------------------------------
SHARES OUTSTANDING
Class A..................... 100,976,887 19,870,139 5,308,127
Class B..................... 36,309,093 70,700,136 14,556,422
Class C..................... 223,910 3,255,896 2,589,164
Class Y..................... 2,593,612 56,503,666 1,336,284
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A..................... $ 11.11 $ 20.98 $ 15.79
- - -----------------------------------------------------------------------------
Class A - Offering price
(based on sales charge of
4.75%).................... $ 11.66 $ 22.03 $ 16.58
- - -----------------------------------------------------------------------------
Class B..................... $ 11.13 $ 20.87 $ 15.76
- - -----------------------------------------------------------------------------
Class C..................... $ 11.13 $ 20.87 $ 15.73
- - -----------------------------------------------------------------------------
Class Y..................... $ 11.11 $ 20.98 $ 15.82
- - -----------------------------------------------------------------------------
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Balanced Funds
Statements of Operations
Six Months Ended September 30, 1999 (Unaudited)
TAX STRATEGIC
BALANCED FOUNDATION FOUNDATION
FUND FUND FUND
- - ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of $83,435,
$109,060, and $7,056,
respectively)................ $ 6,704,210 $ 18,381,731 $ 1,225,613
Interest...................... 21,335,304 32,973,179 5,495,217
- - ------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME....... 28,039,514 51,354,910 6,720,830
- - ------------------------------------------------------------------------------
EXPENSES
Advisory fee.................. 3,540,554 11,999,750 1,728,523
Distribution Plan expenses.... 3,649,270 8,402,074 1,550,379
Transfer agent fee............ 1,366,115 2,812,928 179,794
Administrative services fees.. 98,006 0 0
Trustees' fees and expenses .. 33,345 64,377 7,953
Printing and postage expenses. 69,597 129,965 15,870
Custodian fee................. 261,624 490,201 49,241
Registration and filing fees.. 36,017 37,329 24,532
Professional fees............. 14,538 17,958 12,912
Other......................... 34,234 103,746 5,967
- - ------------------------------------------------------------------------------
Total expenses .............. 9,103,300 24,058,328 3,575,171
- - ------------------------------------------------------------------------------
Less: Fee credits............ (40,550) (68,053) (9,285)
Net expenses ................ 9,062,750 23,990,275 3,565,886
- - ------------------------------------------------------------------------------
NET INVESTMENT INCOME ........ 18,976,764 27,364,635 3,154,944
- - ------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAINS OR LOSSES ON SECURITIES
AND FOREIGN CURRENCY RELATED
TRANSACTIONS
Net realized gains or losses
on:
Securities ................... 71,373,738 29,138,585 (10,005,319)
Foreign currency related 1,218,934 (4,322) 0
transactions.................
- - ------------------------------------------------------------------------------
Net realized gains or losses
on securities and foreign
currency related
transactions.................. 72,592,672 29,134,263 (10,005,319)
Net change in unrealized gains
or losses on securities and
foreign currency related (92,911,817) (32,489,274) 881,247
transactions..................
- - ------------------------------------------------------------------------------
Net realized and unrealized
losses on securities and
foreign currency related
transactions.................. (20,319,145) (3,355,011) (9,124,072)
- - ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................... $ (1,342,381) $ 24,009,624 $ (5,969,128)
- - ------------------------------------------------------------------------------
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Balanced Funds
Statements of Changes in Net Assets
Six Months Ended September 30, 1999 (Unaudited)
TAX STRATEGIC
BALANCED FOUNDATION FOUNDATION
FUND FUND FUND
- -------------------------------------------------------------------------------
OPERATIONS
Net investment income ..... $ 18,976,764 $ 27,364,635 $ 3,154,944
Net realized gains or
losses on securities and
foreign currency related
transactions.............. 72,592,672 29,134,263 (10,005,319)
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions.............. (92,911,817) (32,489,274) 881,247
- -------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ......... (1,342,381) 24,009,624 (5,969,128)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A................... (15,228,710) (4,017,373) (888,798)
Class B................... (3,854,785) (9,101,076) (1,682,915)
Class C................... (23,301) (415,380) (300,570)
Class Y................... (439,380) (13,672,596) (264,410)
- -------------------------------------------------------------------------------
Total distributions to
shareholders............. (19,546,176) (27,206,425) (3,136,693)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 32,452,550 384,623,696 38,087,096
Payment for shares redeemed (181,026,256) (377,467,085) (51,572,247)
Net asset value of shares
issued in reinvestment of
distributions............. 16,132,539 24,851,718 2,708,239
Net increase (decrease) in
net assets resulting from
capital share
transactions............. (132,441,167) 32,008,329 (10,776,912)
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets........... (153,329,724) 28,811,528 (19,882,733)
NET ASSETS
Beginning of period........ 1,711,012,868 3,117,058,240 394,983,297
- -------------------------------------------------------------------------------
End of period ............. $1,557,683,144 $3,145,869,768 $375,100,564
- -------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income......... $ (158,629) $ 90,566 $ 7,081
- -------------------------------------------------------------------------------
See Combined Notes to Financial Statements.
41
<PAGE>
EVERGREEN
Balanced Funds
Statements of Changes in Net Assets
Year Ended March 31, 1999
TAX STRATEGIC
BALANCED FOUNDATION FOUNDATION
FUND FUND FUND
- -------------------------------------------------------------------------------
OPERATIONS
Net investment income....... $ 48,706,814 $ 55,794,790 $ 6,167,375
Net realized gains or
losses on securities,
futures contracts and
foreign currency
related transactions....... 358,710,888 34,888,892 (145,766)
Net change in unrealized
gains or losses on
securities, futures
contracts and foreign
currency related
transactions............... (286,664,700) 65,223,251 (2,886,895)
- -------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations................ 120,753,002 155,906,933 3,134,714
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income
Class A.................... (40,794,518) (7,549,144) (1,787,162)
Class B.................... (14,038,816) (17,590,016) (3,343,831)
Class C.................... (42,716) (829,474) (594,293)
Class Y.................... (1,284,883) (28,290,021) (541,359)
Net realized gains
Class A.................... (184,104,811) (2,672,130) (131,728)
Class B.................... (86,113,414) (9,707,057) (378,359)
Class C.................... (276,654) (461,341) (68,239)
Class Y.................... (5,578,251) (9,222,962) (36,526)
- -------------------------------------------------------------------------------
Total distributions to
shareholders.............. (332,234,063) (76,322,145) (6,881,497)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold... 223,177,562 728,373,282 166,239,896
Payment for shares redeemed. (493,032,834) (542,736,621) (76,065,961)
Net asset value of shares
issued in reinvestment of
distributions.............. 295,195,460 70,776,628 6,054,905
Net asset value of shares
issued in acquisition of
investment companies....... 0 139,832,551 0
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ 25,340,188 396,245,840 96,228,840
- -------------------------------------------------------------------------------
Total increase (decrease)
in net assets............ (186,140,873) 475,830,628 92,482,057
NET ASSETS
Beginning of period......... 1,897,153,741 2,641,227,612 302,501,240
- -------------------------------------------------------------------------------
End of period............... $1,711,012,868 $3,117,058,240 $394,983,297
- -------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income.......... $ 410,783 $ (67,644) $ (11,170)
- -------------------------------------------------------------------------------
See Combined Notes to Financial Statements.
42
<PAGE>
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Balanced Funds consist of Evergreen Balanced Fund ("Balanced
Fund"), Evergreen Foundation Fund ("Foundation Fund") and Evergreen Tax Strate-
gic Foundation Fund ("Tax Strategic Foundation Fund"), (collectively, the
"Funds"). Each Fund is a diversified series of Evergreen Equity Trust (the
"Trust"), a Delaware business trust organized on September 18, 1997. The Trust
is an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
The Funds offer Class A, Class B, Class C and 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 contingent
deferred sales charge payable on shares redeemed within one year after the
month of purchase. Class Y shares are sold only to investment advisory clients
of First Union Corporation ("First Union") and its affiliates, certain institu-
tional investors or Class Y shareholders of record of certain other Funds man-
aged by First Union and its affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
Securities traded on a national securities exchange or included on the Nasdaq
National Market System ("NMS") and other securities traded in the over-the-
counter market are valued at the last reported sales price on the exchange
where primarily traded. Securities traded on an exchange or NMS and other secu-
rities 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, municipal 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 institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities, which are generally recognized by insti-
tutional traders. In evaluating the fair value of a Fund's municipal bonds an
independent pricing service uses a variety of factors which may include yield,
liquidity, interest rate risk, credit quality, coupon, maturity and type of is-
sue.
Securities for which valuations are not available from an independent pricing
service, including restricted securities, may be valued by brokers which use
prices provided by market makers or estimates of market value obtained from
yield data relating to investments or securities with similar characteristics.
Otherwise, securities are valued at fair value as determined in good faith ac-
cording to procedures established by the Board of Trustees.
Mutual fund shares held as short-term investments are valued at net asset val-
ue. 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. The custodian holds securities
pledged as collateral for repurchase agreements in a segregated account 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 collateral
daily and will require the seller to pro-
43
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
vide 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 ad-
visor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Balanced Fund, along with certain other Funds managed by Evergreen In-
vestment Management Company ("EIMC"), a subsidiary of First Union, may transfer
uninvested cash balances into a joint trading account. These balances are in-
vested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or federal agency obligations.
C. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange, 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 gain or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized gain or loss on
foreign currency related transactions includes foreign currency gains and
losses between trade date and settlement date on investment securities transac-
tions, gains and losses on foreign currency related transactions and the dif-
ference 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 of investments denominated
in foreign currencies is included in realized gain or loss on securities.
D. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts. The initial margin deposited with a
broker when entering into a futures transaction is subsequently adjusted by
daily payments or receipts ("variation margin") 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 statement of
assets and liabilities.
E. Forward Foreign Currency Exchange Contracts
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized 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 con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
F. When-issued and Delayed Delivery Transactions
The Funds record when-issued or delayed delivery transactions no later than one
business day after the trade date and will segregate with the custodian quali-
fying assets having a value sufficient to make payment for the securities pur-
chased. 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 se-
curities or if the counterparty does not perform under the contract.
44
<PAGE>
Combined Notes to Financial Statements(Unaudited) (continued)
G. Securities Lending
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment advisers will monitor the creditworthiness of such borrowers.
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 borrower 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 securities
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 ob-
tain 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 connec-
tion with such loans.
H. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income and capital
gains realized on some foreign securities may be subject to foreign taxes,
which are accrued as applicable.
I. 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 liability since they
are expected to distribute all of their net investment company taxable income,
net tax-exempt income and net capital gains, if any, to their shareholders. The
Funds also intend to avoid any excise tax liability by making the required dis-
tributions under the Code. Accordingly, no provision for federal taxes is re-
quired. 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.
J. Distributions
Distributions from net investment income for the Funds are declared and paid
quarterly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles.
K. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are pro-rated 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.
3. ACQUISITIONS
Effective at the close of business on July 24, 1998, Foundation Fund acquired
the net assets of CoreFunds, Inc. Balanced Fund, an open-end management invest-
ment company registered under the 1940 Act in an exchange of shares. The net
assets were exchanged through a non-taxable exchange for 321,554 Class A,
49,982 Class B and 6,470,202 Class Y shares of Foundation Fund. The acquired
net assets consisted primarily of portfolio securities with unrealized appreci-
ation of $29,739,766. The net assets of Foundation Fund and CoreFunds, Inc.
Balanced Fund prior to the acquisition were $2,784,240,332 and $139,832,551,
respectively. The aggregate net assets of Foundation Fund immediately after the
acquisition were $2,924,072,883.
45
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
4. INVESTMENT ADVISORY AGREEMENTS AND OTHER AFFILIATED TRANSACTIONS
Evergreen Asset Management Corp. ("EAMC"), a wholly-owned subsidiary of First
Union, serves as the investment advisor to the Foundation Fund and Tax Strate-
gic Fund and is paid an advisory fee that is computed daily and paid monthly
based on each Fund's average daily net assets, in accordance with the following
schedule:
<TABLE>
<CAPTION>
Advisory annual rate
--------------------
<S> <C>
First $750 million.......................... 0.875%
Next $250 million........................... 0.750%
Over $1 billion............................. 0.700%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment sub-advisor to
Foundation Fund and Tax Strategic Foundation Fund and also provides brokerage
services with respect to substantially all security transactions of the Funds
effected on the New York or American Stock Exchanges. For the six months ended
September 30, 1999, Foundation Fund and Tax Strategic Fund incurred brokerage
commissions of $506,197 and $55,460, respectively, with Lieber & Company.
Lieber & Company is reimbursed by EAMC for providing investment sub-advisory
services at no additional expense to the Funds.
EIMC is the investment advisor for Balanced Fund. In return for providing in-
vestment advisory and administrative services, the Balanced Fund pays EIMC an
advisory fee that is calculated daily and paid monthly. The advisory fee is
computed at an annual rate of 1.50% of Balanced Fund's gross investment income
plus an amount determined by applying percentage rates starting at 0.60% and
declining to 0.30% per annum, as net assets increase, to the average daily net
assets of the Fund.
Evergreen Investment Services ("EIS"), an indirect, wholly owned subsidiary of
First Union, serves as the administrator and The BISYS Group, Inc. ("BISYS")
serves as the sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS provides the officers of the Funds. Officers of the Funds and af-
filiated Trustees receive no compensation directly from the Funds. The Funds'
administration and sub-administration fee is paid by their investment advisor
and is not a fund expense.
During the six months ended September 30, 1999, the Balanced Fund reimbursed
EIMC $98,006 for providing certain administration and accounting expenses.
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of BISYS, serves
as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans, as allowed by Rule 12b-1 of the 1940
Act, for each class of shares, except Class Y. Distribution plans permit a Fund
to compensate its principal underwriter for costs related to selling shares of
the Fund and for various other services. These costs, which consist primarily
of commissions and 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 shares pay distribution fees equal to 0.25% of average net
assets of the class, all of which is used to by the shareholder services fees.
Class B and Class C shares pay distribution fees equal to 1.00% of the average
net assets of the class, of which 0.25% is used to pay for shareholder services
fees and 0.75% is to pay for distribution related expenses. Distribution Plan
expenses are calculated daily and paid at least quarterly.
During the six months ended September 30, 1999, amounts paid or accrued to EDI
pursuant to each Fund's Class A, Class B, and Class C Distribution Plans were
as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
-----------------------------
<S> <C> <C> <C>
Balanced Fund.................... $1,502,065 $2,134,639 $12,566
Foundation Fund.................. 506,781 7,548,156 347,137
Tax Strategic Foundation Fund.... 104,054 1,226,716 219,609
</TABLE>
46
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
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.
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:
Balanced Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1999 March 31, 1999
-------------------------- -------------------------
Shares Amount Shares Amount
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 741,046 $ 8,504,926 12,998,481 $147,893,792
Shares redeemed......... (10,901,347) (124,565,700) (20,007,662) (241,408,480)
Shares issued in
reinvestment of
distributions.......... 1,095,715 12,386,270 17,759,884 197,162,184
- - --------------------------------------------------------------------------------
Net increase
(decrease)............. (9,064,586) (103,674,504) 10,750,703 103,647,496
- - --------------------------------------------------------------------------------
Class B
Shares sold............. 2,002,621 22,929,265 5,776,852 70,031,992
Shares redeemed......... (4,438,801) (50,696,542) (20,690,767) (241,461,335)
Shares issued in
reinvestment of
distributions.......... 315,845 3,574,930 8,339,827 92,447,046
- - --------------------------------------------------------------------------------
Net decrease............ (2,120,335) (24,192,347) (6,574,088) (78,982,297)
- - --------------------------------------------------------------------------------
Class C
Shares sold............. 37,557 430,648 169,732 2,053,953
Shares redeemed......... (28,065) (321,442) (49,785) (594,203)
Shares issued in
reinvestment of
distributions.......... 1,919 21,737 28,180 311,824
- - --------------------------------------------------------------------------------
Net increase............ 11,411 130,943 148,127 1,771,574
- - --------------------------------------------------------------------------------
Class Y
Shares sold............. 51,062 587,711 261,048 3,197,825
Shares redeemed......... (476,122) (5,442,572) (784,486) (9,568,816)
Shares issued in
reinvestment of
distributions.......... 13,234 149,602 478,147 5,274,406
- - --------------------------------------------------------------------------------
Net decrease............ (411,826) (4,705,259) (45,291) (1,096,585)
- - --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions........... $(132,441,167) $ 25,340,188
</TABLE>
- --------------------------------------------------------------------------------
47
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Foundation Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1999 March 31, 1999
------------------------- --------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 4,935,139 $ 108,177,893 5,707,085 $ 116,332,291
Shares redeemed......... (3,356,899) (72,584,690) (5,528,399) (112,531,601)
Shares issued in
reinvestment of
distributions.......... 181,829 3,879,476 480,589 9,839,057
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 0 0 321,554 6,566,886
- - -------------------------------------------------------------------------------
Net increase............ 1,760,069 39,472,679 980,829 20,206,633
- - -------------------------------------------------------------------------------
Class B
Shares sold............. 7,054,157 151,754,125 20,450,695 415,256,001
Shares redeemed......... (5,345,096) (114,950,075) (8,458,046) (170,363,447)
Shares issued in
reinvestment of
distributions.......... 412,858 8,769,070 1,292,568 26,379,301
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 0 0 49,982 1,015,265
- - -------------------------------------------------------------------------------
Net increase............ 2,121,919 45,573,120 13,335,199 272,287,120
- - -------------------------------------------------------------------------------
Class C
Shares sold............. 466,044 9,988,599 1,358,670 27,583,261
Shares redeemed......... (469,113) (10,084,515) (646,190) (13,071,227)
Shares issued in
reinvestment of
distributions.......... 18,437 391,491 59,528 1,214,951
- - -------------------------------------------------------------------------------
Net increase............ 15,368 295,575 772,008 15,726,985
- - -------------------------------------------------------------------------------
Class Y
Shares sold............. 5,292,986 114,703,079 8,320,162 169,201,729
Shares redeemed......... (8,310,820) (179,847,805) (12,069,787) (246,770,346)
Shares issued in
reinvestment of
distributions.......... 553,405 11,811,681 1,628,347 33,343,319
Shares issued in
acquisition of
CoreFunds, Inc.
Balanced Fund.......... 0 0 6,470,202 132,250,400
- - -------------------------------------------------------------------------------
Net increase
(decrease)............. (2,464,429) (53,333,045) 4,348,924 88,025,102
- - -------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... $ 32,008,329 $ 396,245,840
</TABLE>
- --------------------------------------------------------------------------------
Tax Strategic Foundation Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1999 March 31, 1999
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................ 1,072,936 $ 17,996,750 2,373,800 $ 38,260,527
Shares redeemed............ (859,307) (14,178,976) (1,712,788) (27,167,670)
Shares issued in
reinvestment of
distributions............. 49,932 807,453 110,933 1,765,631
- -------------------------------------------------------------------------------
Net increase............... 263,561 4,625,227 771,945 12,858,488
- -------------------------------------------------------------------------------
Class B
Shares sold................ 907,116 14,970,572 5,907,847 94,740,617
Shares redeemed............ (1,594,661) (26,251,615) (2,307,135) (36,564,880)
Shares issued in
reinvestment of
distributions............. 94,214 1,522,454 217,074 3,451,970
- - -------------------------------------------------------------------------------
Net increase (decrease).... (593,331) (9,758,589) 3,817,786 61,627,707
- - -------------------------------------------------------------------------------
Class C
Shares sold................ 290,174 4,783,179 1,684,267 26,890,534
Shares redeemed............ (513,154) (8,427,170) (625,888) (9,938,022)
Shares issued in
reinvestment of
distributions............. 16,967 273,540 37,777 599,814
- - -------------------------------------------------------------------------------
Net increase (decrease).... (206,013) (3,370,451) 1,096,156 17,552,326
- - -------------------------------------------------------------------------------
Class Y
Shares sold................ 20,061 336,595 395,815 6,348,218
Shares redeemed............ (164,970) (2,714,486) (149,296) (2,395,389)
Shares issued in
reinvestment of
distributions............. 6,460 104,792 14,888 237,490
- - -------------------------------------------------------------------------------
Net increase (decrease).... (138,449) (2,273,099) 261,407 4,190,319
- - -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
capital shares
transactions.............. (10,776,912) $ 96,228,840
</TABLE>
- --------------------------------------------------------------------------------
48
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
7. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended September 30,
1999:
<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>
Balanced Fund... $235,028,506 $469,930,416 $192,209,648 $646,343,092
Foundation
Fund........... 448,066,407 636,754,688 498,600,095 675,127,792
Tax Strategic
Foundation
Fund........... 0 215,450,759 0 236,955,712
</TABLE>
During the six months ended September 30, 1999, the Balanced Fund entered into
reverse repurchase agreements. The average daily balance outstanding was
$12,052,676, the weighted average interest rate was 3.44% and the maximum
amount outstanding under these agreements was $14,335,076. The maximum amount
outstanding under reverse repurchase agreements includes accrued interest.
The Balanced Fund loaned securities during the six months ended September 30,
1999 to certain brokers who paid the Fund a negotiated lenders' fee. These fees
are included in interest income. At September 30, 1999, the value of securities
on loan and the value of collateral amounted to $36,203,607 and $36,285,571,
respectively. During the six months ended September 30, 1999, Balanced Fund
earned $17,418 in income from securities lending.
Capital and currency losses incurred after October 31 within a Fund's fiscal
year-end are deemed to arise on the first business day of the Fund's following
fiscal year. For the fiscal year ended March 31, 1999, Tax Strategic Foundation
Fund incurred and elected to defer $320,362 of capital loss, and Foundation
Fund incurred and elected to defer $3,471 of currency loss.
8. EXPENSE OFFSET ARRANGEMENTS
The Funds have entered into expense offset arrangements with ESC and their cus-
todian whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of each Fund's related expenses. The assets deposited
with ESC and the custodian under these expense offset arrangements could have
been invested in income-producing assets. The amount of fee credits received by
each Fund and the impact on each Fund's expense ratio represented as a percent-
age of its average net assets were as follows:
<TABLE>
<CAPTION>
Total
Fee Credits % of Average
Received Net Assets
---------------------------
<S> <C> <C>
Balanced Fund.......................... $40,550 0.01%
Foundation Fund........................ 68,053 0.00%
Tax Strategic Foundation Fund.......... 9,285 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 is based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
10. FINANCING AGREEMENTS
Certain Evergreen Funds, State Street Bank and Trust Company ("State Street")
and a group of banks (collectively, the "Banks") entered into a financing
agreement dated December 22, 1997, as amended on November 20, 1998. Under this
agreement, the Banks provided an unsecured credit facility in the aggregate
amount of $400 million ($275 million committed and $125 million uncommitted).
The credit facility was allocated, under
49
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
the terms of the financing agreement, among the Banks. The credit facility was
accessed by the Funds for temporary or emergency purposes only and was subject
to each Fund's borrowing restrictions. Borrowings under this facility were as-
sessed interest at 0.50% per annum above the Federal Funds rate. A commitment
fee of 0.065% per annum was incurred on the unused portion of the committed fa-
cility, which was allocated to all Funds. For its assistance in arranging this
financing agreement, the Capital Market Group of First Union was paid a one-
time arrangement fee of $27,500. State Street served as administrative agent
for the Banks, and as administrative agent was entitled to a fee of $20,000 per
annum which was allocated to all of the Evergreen Funds.
This agreement was amended and renewed on December 22, 1998. The amended fi-
nancing agreement became effective on December 22, 1998 among all of the Ever-
green Funds, State Street and The Bank of New York ("BONY"). Under this agree-
ment, State Street and BONY provided an additional unsecured credit facility in
the aggregate amount of $150 million ($125 million committed and $25 million
uncommitted). The remaining terms and conditions of the agreement were unaf-
fected. This agreement was terminated on July 27, 1999.
On July 27, 1999, all of the Evergreen Funds and a group of banks (the "Lend-
ers") entered into a credit agreement. Under this agreement, the Lenders pro-
vide 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 accessed by the Funds for
temporary or emergency purposes to fund the redemption of their shares or as
general working capital as permitted by each Fund's borrowing restrictions.
Borrowings under this facility are assessed 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 un-
used portion of the revolving credit commitment. The commitment fee is allo-
cated to all Funds. For its assistance in arranging this financing agreement,
First Union Capital Markets Corp. was paid a one-time arrangement fee of
$250,000. State Street 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 of
the Funds.
During the six months ended September 30, 1999, the Funds had no borrowings un-
der these agreements.
11. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisers and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisers are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
50
<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 Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
Municipal Income 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
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Quality Income Fund
Short-Duration Income Fund
High Income Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Capital Balanced Fund
Capital Income and Growth Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Select Equity Index Fund
Domestic Growth Tax
Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Growth Fund
Capital Growth Fund
Select Special Equity Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
28573 540980 11/99
[LOGO OF EVERGREEN FUNDS] BULK RATE
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PAID
200 Berkeley Street PERMIT NO. 19
Boston, MA 02116 HUDSON, MA
<PAGE>
Annual Report
as of September 30, 1999
Evergreen
Equity and Fixed Income Funds
[LOGO]
<PAGE>
Table of Contents
Letter to Shareholders ..................................... 1
Evergreen Capital Balanced Fund
(formerly Mentor Balanced Portfolio)
Fund at a Glance ......................................... 2
Portfolio Manager Interview .............................. 3
Evergreen Capital Growth Fund
(formerly Mentor Capital Growth Portfolio)
Fund at a Glance ......................................... 7
Portfolio Manager Interview .............................. 8
Evergreen Capital Income and Growth Fund
(formerly Mentor Income and Growth Portfolio)
Fund at a Glance ......................................... 11
Portfolio Manager Interview .............................. 12
Evergreen Growth Fund
(formerly Mentor Growth Portfolio)
Fund at a Glance ......................................... 16
Portfolio Manager Interview .............................. 17
Evergreen High Income Fund
(formerly Mentor High Income Portfolio)
Fund at a Glance ......................................... 20
Portfolio Manager Interview .............................. 21
Evergreen Municipal Income Fund
(formerly Mentor Municipal Income Portfolio)
Fund at a Glance ......................................... 24
Portfolio Manager Interview .............................. 25
Evergreen Quality Income Fund
(formerly Mentor Quality Income Portfolio)
Fund at a Glance ......................................... 27
Portfolio Manager Interview .............................. 28
Evergreen Short-Duration Income Fund
(formerly Mentor Short-Duration Income Portfolio)
Fund at a Glance ......................................... 30
Portfolio Manager Interview .............................. 31
Financial Highlights
Evergreen Capital Balanced Fund .......................... 24
Evergreen Capital Growth Fund ............................ 36
Evergreen Capital Income and
Growth Fund .............................................. 38
Evergreen Growth Fund .................................... 40
Evergreen High Income Fund ............................... 42
Evergreen Municipal Income Fund .......................... 43
Evergreen Quality Income Fund ............................ 45
Evergreen Short-Duration Income Fund ..................... 47
Schedule of Investments
Evergreen Capital Balanced Fund .......................... 49
Evergreen Capital Growth Fund ............................ 52
Evergreen Capital Income and
Growth Fund .............................................. 53
Evergreen Growth Fund .................................... 55
Evergreen High Income Fund ............................... 57
Evergreen Municipal Income Fund .......................... 62
Evergreen Quality Income Fund ............................ 66
Evergreen Short-Duration Income Fund ..................... 69
Statements of Assets and Liabilities ....................... 72
Statements of Operations ................................... 74
Statements of Changes in Net Assets ........................ 76
Combined Notes to Financial
Statements ................................................. 80
Independent Auditors' Report ............................... 93
Additional Information ..................................... 94
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies with
over $70 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 annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
Mutual Funds: 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
----------------------
November 1999
[PHOTO]
William M. Ennis
President and CEO
Dear Evergreen Shareholders,
We are pleased to provide the Evergreen Equity and Fixed Income Funds annual
report, which covers the twelve-month period ended September 30, 1999.
Uncertainty over Interest Rates Influences the Markets
Although the U.S. economy is in the ninth year of economic expansion, many
believe that valuation levels in some sectors of the stock market are just not
sustainable. The S&P 500 continued to advance in the first half of 1999,
dominated by the performance of a very small group of large-cap stocks. By the
3rd quarter of 1999, rising interest rates dampened performance of stocks across
the board. Investors' inflation fears and continued doubts about the ability of
U.S. companies to sustain significant growth in earnings prompted an October
sell-off.
The Federal Reserve Bank's "tightening bias" leads many to anticipate further
interest rate increases in order to stem even the slightest inflationary
pressure. Additional interest rate hikes would likely have a negative effect on
stock prices, which could restrain consumer spending; however, many investors
are waiting for just such a scenario to take place, so they can take advantage
of lower stock prices as a buying opportunity. Bonds appear relatively
attractive over the long term compared to other asset classes, particularly
because "real" interest rates are high by historical standards.
We believe that the economy is still fundamentally strong, and that inflation
will stay contained, producing only moderate upward pressure on interest rates.
We remain cautiously optimistic about the prospects for continued growth in the
markets.
Evergreen Funds is Ready for the Year 2000/1/
We have been addressing the Year 2000 challenge since February of 1996 and have
committed the time, resources and people necessary to prepare for any
ramifications from the millennium bug. Today, we are confident that our
preparations will enable us to continue to deliver the high-quality Evergreen
products and services on which our shareholders rely. In addition, Evergreen
portfolio managers have placed great emphasis on monitoring portfolios for Y2K
readiness.
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 make it simple for you to choose the most
appropriate for your portfolio.
We would like to thank you for your continued investment in Evergreen Funds.
Sincerely,
William M. Ennis
President and CEO
Evergreen Investment Company, Inc.
/1/ The information above constitutes Year 2000 readiness disclosure.
1
<PAGE>
EVERGREEN (formerly Mentor
Capital Balanced Fund Balanced Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John P.Michael
Davenport Jones
Tenure: June 1994 Tenure: June 1994
CURRENT INVESTMENT STYLE/1/
[GRAPHICS]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
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: 1999 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 and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Balanced
Portfolio Class A, Class B and Class Y became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of the
Evergreen Capital Balanced Fund. In addition, the Evergreen Fund added a new
class of shares designated as Class B shares. Class A shares of the Fund are
currently 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 are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within six
years and one year of their purchase, respectively. Class A, Class B and Class C
shares are also assessed a distribution fee at an annual rate of 0.25%, 1.00%
and 1.00%, respectively, of the average daily net assets of each Class. Class Y
shares are sold at net asset value and are not subject to CDSC or ongoing
distribution fees.
Historical performance shown for Classes A and Y prior to their inception is
based on the performance of Class B, 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 for Class A are 0.25% and for Class
B are 1.00%. 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.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 6/21/1994 Class A Class B Class Y
Class Inception Date 9/16/1998 6/21/1994 9/16/1998
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge 6.19% 7.87% n/a
-------------------------------------------------------------------------------
1 year w/o sales charge 12.67% 11.87% 12.91%
-------------------------------------------------------------------------------
3 years 14.56% 16.11% 16.93%
-------------------------------------------------------------------------------
5 years 16.03% 17.25% 17.47%
-------------------------------------------------------------------------------
Since Portfolio Inception 15.53% 16.68% 16.88%
-------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
-------------------------------------------------------------------------------
12-month income dividends per share $0.22 $0.14 $0.28
-------------------------------------------------------------------------------
12-month capital gain distributions per share $0.05 $0.05 $0.05
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
<TABLE>
<S> <C> <C> <C>
Consumer Price Index - US S & P 500 Lehman Brothers Aggregate Bond Index Class B
10,000 10,000 10,000 9,427
10,095 10,487 10,061 9,733
10,351 13,604 11,476 11,540
10,662 16,372 12,038 13,617
10,892 22,989 13,211 17,235
11,054 25,044 14,727 19,279
11,318 31,673 14,674 21,722
</TABLE>
Comparison of a $10,000 investment in the Evergreen Capital Balanced Fund Class
B/2/ shares, versus a similar investment in the Lehman Brothers Aggregate Bond
Index (LBABI), the Standard & Poor's 500 Stock 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
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
2
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
How did the Fund perform?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Balanced Fund's return for the Fund's Class B shares was 11.87%, compared with
returns for the fund's benchmarks, the S&P 500 and Lehman Brothers Aggregate
Bond Index, of 27.80% and -0.37%, respectively. During this same twelve-month
period, the average balanced fund had a return of 12.56% as measured by Lipper
Inc., an independent monitor of mutual fund performance. These returns are
before the deduction of any applicable sales charges.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $357,528,412
-------------------------------------------------------------------------------
Number of Holdings 86
-------------------------------------------------------------------------------
P/E Ratio 22.0x
-------------------------------------------------------------------------------
Beta 0.56
-------------------------------------------------------------------------------
What was the investment environment like over the past year?
Even though the U.S. economy has enjoyed its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record valuation levels. This was the case during the fourth
quarter of 1998 when the S&P 500 Index returned 21.30%, the highest return of
any single quarter since first quarter of 1987.
As the year progressed, it became apparent that companies are finding it more
difficult to sustain significant growth in earnings and support their valuation
levels. After advancing in the first and second quarters of 1999, the S&P's
total return was negative in the third quarter when it lost 6.24%. The backdrop
of the Federal Reserve Board's increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the Federal
Reserve's actions are not over and any additional increases will make it even
more difficult for companies to grow their earnings.
The past twelve months have been extremely difficult for managers of
fixed-income portfolios. Inflation fears have caused interest rates to increase
by 1.00% to 1.50% across all maturities, which puts 1999 on track to be the
second worst year for the fixed-income markets in credit market history. Rates
had moved lower in the fall of 1998 in the wake of the Russian debt crisis and
the problems sustained by leveraged hedge funds. Investors demanded securities
of the highest quality and liquidity and many turned to U.S. Treasuries as a
result. To help re-stabilize global economies and financial markets, the world's
central bankers flooded their economies with liquidity in the fourth quarter of
1998, pushing interest rates to historically low levels.
In early 1999, many investors expected fragile international economies to limit
U.S. economic growth. However, due to aggressive easing by the Federal Reserve
and other central banks, the U.S. economy remained robust and growth in many
global economies was faster and more durable than anticipated. Market sentiment
shifted from concerns that weak international growth would dampen the U.S.
economy, to concerns
3
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
that an overheated economy would accelerate inflation and prompt the need for a
more restrictive monetary policy. By September 30, 1999, the Federal Reserve
Board had raised interest rates twice.
In the equity markets, recent months have brought an increasingly narrow market
focus on industry sectors experiencing positive price movement. Early this year,
the primary focus was on shares of technology and several of the mega-cap
companies. In the early spring, the attention switched to value and cyclical
issues. Recently, the focus has swung back to technology companies, quite often
at the expense of other sectors. Of the eleven major S&P industry sectors, only
five have posted positive returns so far in calendar 1999. Technology has been
by far the best performing industry sector, with its 1999 calendar year-to-date
return of 24.5%, as measured by S&P. Other sectors with positive returns include
energy, capital goods, communication services, and basic materials. Of these
five sectors, only technology and communication services are traditionally
characterized as growth industries.
Top 5 Industries - Equity
-------------------------
(as a percentage of net assets)
Business Equipment & Services 7.9%
-------------------------------------------------------------------------------
Healthcare Products & Services 5.9%
-------------------------------------------------------------------------------
Information Services & Technology 4.7%
-------------------------------------------------------------------------------
Banks 4.3%
-------------------------------------------------------------------------------
Finance & Insurance 4.1%
-------------------------------------------------------------------------------
How did you manage the asset allocation between stocks and bonds?
In view of an anticipated decline in the growth rate of corporate earnings, we
have lowered the Fund's equity allocation over the past twelve months from a
high of 63% to a low of 46%. This defensive posture helps to protect the value
of Fund assets in a time of uncertainty about domestic economic growth,
earnings, and interest rate levels.
Top 10 Equity Holdings
----------------------
(as a percentage of net assets)
Computer Sciences Corp. 2.5%
-------------------------------------------------------------------------------
Tyco International Ltd.. 2.5%
-------------------------------------------------------------------------------
Sun Microsystems, Inc. 2.4%
-------------------------------------------------------------------------------
Sysco Corp. 2.4%
-------------------------------------------------------------------------------
Intel Corp. 2.2%
-------------------------------------------------------------------------------
Automatic Data Processing, Inc. 2.2%
-------------------------------------------------------------------------------
Johnson & Johnson 2.1%
-------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 2.1%
-------------------------------------------------------------------------------
Interpublic Group of Companies, Inc. 2.0%
-------------------------------------------------------------------------------
First Data Corp. 2.0%
-------------------------------------------------------------------------------
What were some of the strategies that were used in managing the fixed-income
portion of the Fund's portfolio?
For the Fund's fixed-income investments, our fund management team's objective is
to seek a high level of long-term total return consistent with the preservation
of capital. The managers make investments in a well-diversified portfolio of
mainly U.S. government and agency securities, corporate securities,
mortgage-backed securities, asset-backed securities and cash instruments.
4
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
Aside from increasing the overall fixed-income allocation to the current 42%
level, we have employed two major portfolio management strategies to enhance the
Fund's performance over the past twelve months.
The first strategy was to move some of the fixed-income assets into high yield
securities. These purchases were concentrated in solid cable and
telecommunication issues. These securities fell to distressed levels during the
market turmoil that characterized the fall of 1998. The Fund had virtually no
exposure to this area going into last fall and quickly built a position of
approximately 2% of the entire portfolio. As credit markets recovered somewhat
in 1999, these sectors were among the first to see the benefits.
The second strategic move was to build liquidity throughout the second quarter
of 1999. The Fund's position in 30-year U.S. Treasuries and cash was increased
substantially during this period. This barbell positioning was designed to
benefit from a flattening yield curve. In addition, by adding cash and Treasury
securities, the fixed-income portion of the Fund was positioned to benefit
should Y2K-related bond supply pressures cause spread products, e.g., high yield
corporate securities, mortgage-backed and asset-backed securities, to
underperform. Both aspects of this position paid off during the summer when the
yield curve flattened by about 25 basis points and yield spreads on investment
grade corporate bonds and mortgage-backed securities approached all time highs.
These trades were reversed during August and as a result the Fund benefited from
the spread tightening witnessed in investment grade issues and mortgage-backed
securities throughout September.
Top 5 Industries - Bonds
------------------------
(as a percentage of net assets)
U.S. Government Agency Obligations 24.4%
-----------------------------------------------------
Asset-Backed Securities 5.0%
-----------------------------------------------------
Finance & Insurance 2.9%
-----------------------------------------------------
Telecommunication Services & Equipment 1.4%
-----------------------------------------------------
Utilities--Electric 1.2%
-----------------------------------------------------
Top 5 Bond Holdings
-------------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.5% 9/1/2029 7.0%
----------------------------------------------------------
FNMA 7.0% 9/1/2014 4.6%
----------------------------------------------------------
FNMA 7.0% 8/1/2029 4.2%
----------------------------------------------------------
FNMA 6.5% 4/1/2014 2.9%
----------------------------------------------------------
U.S. Treasury Bonds 6.5% 11/15/2026 2.7%
----------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-over-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
5
<PAGE>
EVERGREEN
Capital Balanced Fund
Portfolio Manager Interview
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuation levels to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's equity investment style of investing in high quality companies with
strong growth levels at reasonable prices should perform well on a relative
basis in this environment. Our growth at a reasonable-price philosophy should
tend to outperform the S&P 500 when the fundamental strengths of the companies
in the Fund's portfolio rise above general market emotion and sentiment.
We believe fixed-income investments currently provide very attractive relative
valuation and offer the potential for solid long-term returns. "Real" interest
rates (the rate earned by investors in excess of inflation) are high by
historical standards. Value is further enhanced by current yield advantages
provided by mortgage-backed securities and corporate issues. We also continue to
look for other opportunities in high yield securities for the fixed-income
portion of the Fund's portfolio.
6
<PAGE>
EVERGREEN (formerly Mentor Capital
Capital Growth Fund Growth Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John Davenport Steve Certo
Tenure:December 1992 Tenure:June 1997
[PHOTO] [PHOTO]
E.Craig Dauer John Jordan,III
Tenure:June 1999 Tenure:June 1999
[PHOTO]
Richard Skeppstrom
Tenure:December 1992
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/ Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1992 11/19/1997
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge 13.29% 15.08% n/a
-------------------------------------------------------------------------------
1 year w/o sales charge 20.21% 19.08% 20.57%
-------------------------------------------------------------------------------
3 years 19.13% 20.08% n/a
-------------------------------------------------------------------------------
5 years 20.42% 20.80% n/a
-------------------------------------------------------------------------------
Since Class Inception 14.44% 14.52% 16.60%
-------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
-------------------------------------------------------------------------------
12-month capital gain distributions per share $2.55 $2.55 $2.55
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
[GRAPH]
Consumer Price Index - US S & P 500 Class A
10,000 10,000 9,422
10,129 10,193 9,496
10,401 11,514 10,275
10,710 11,939 10,135
10,982 15,488 12,180
11,312 18,639 15,180
11,556 26,172 20,460
11,728 28,512 22,653
12,007 36,059 27,230
Comparison of a $10,000 investment in Evergreen Capital Growth Fund's Class A2
shares, versus a similar investment in the Standard and Poor's 500 Index (S&P
500), and the Consumer Price Index (CPI).
The S&P 500 is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/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 and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 25, 1999, shareholders of
Mentor Capital Growth Portfolio Class A, Class B and Class Y became owners of
that number of full and fractional shares of Class A, Class C and Class Y
shares, respectively, of the Evergreen Capital Growth Fund. In addition, the
Evergreen Fund added a new class of shares designated as Class B shares. Class A
shares of the Fund are currently 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
are subject to a contingent deferred sales charge ("CDSC"), when shares are
redeemed within six years and one year of their purchase, respectively. Class A,
Class B and Class C shares are also assessed a distribution fee at an annual
rate of 0.25%, 1.00% and 1.00%, respectively, of the average daily net assets of
each Class. Class Y shares are sold at net asset value and are not subject to
CDSC or ongoing distribution fees.
7
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
How did the Fund perform?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Growth Fund had good returns in the face of an increasingly difficult equity
market environment for active fund managers. The total return for the Fund's
Class A shares was 20.21% for this period compared to a return of 27.80% for the
Fund's benchmark, the S&P 500. These returns are before deduction of any
applicable sales charges.
During this same twelve-month period, however, the average multi-cap core fund
had a return of 25.29% as measured by Lipper, Inc., an independent monitor of
mutual fund performance. The long-term historical performance of the Fund has
been strong. Over the 3-year and 5-year periods ended September 30, 1999, the
total returns of the Fund's Class A shares, were 19.13% and 20.42%,
respectively. This compares favorably to the Lipper average returns of 17.78%
and 19.03% for the same periods.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $538,972,618
--------------------------------------------------------
Number of Holdings 25
--------------------------------------------------------
P/E Ratio 21.9x
--------------------------------------------------------
Beta 0.91
--------------------------------------------------------
How would you describe the basic investment strategy of the Capital Growth Fund?
Our strategy is to invest in a "core" group of high quality companies that have
earnings growth rates that exceed the average of the S&P 500. The primary
criteria for this strategy are: (1) established businesses with proven
management, (2) predictable and sustainable above-average earnings growth rates
of about 15% per annum, (3) attractive relative valuation, and (4) adequate
industry diversification. This "core" strategy avoids market valuation extremes
that may include on one hand high price/earnings ratio, high momentum, and
high-risk companies, and also the stocks of lower quality, cyclical, and
unpredictable companies (often called "value stocks"). The Fund's management
team seeks to produce superior, risk-adjusted, long-term returns by focusing on
the fundamental strengths of the specific companies the Fund owns, rather than
on momentum, technical, or emotional factors which can be attributed to the
general market.
At any given time, the Fund's portfolio tends to hold 25 to 30 stocks with an
average risk profile that is lower than the S&P 500, as measured by beta.
What was the investment environment like over the past year?
Even though the U.S. economy is enjoying its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record price and valuation levels.
8
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
This was the case during the fourth quarter of 1998, during which the S&P 500
returned 21.30%, the highest return of any single quarter since first quarter of
1987.
As the year progressed, it became apparent that many companies were finding it
more difficult to sustain significant growth in earnings to support their
valuation levels. After advancing in the first and second quarters of 1999, the
S&P's total return was negative in the third quarter when it lost 6.24%. The
backdrop of the Federal Reserve Board increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the actions of the
Federal Reserve are not over and any additional increases will make it even more
difficult for companies to grow their earnings.
Recent months have brought an increasingly narrow market focus on industry
sectors experiencing positive price movement. Early this year, the primary
interest was on technology and several of the mega-cap companies. In the spring,
the attention switched to value and cyclical stocks. Recently, the focus has
swung back to technology companies, quite often at the expense of other sectors.
Of the eleven major S&P industry sectors, only five have posted positive returns
so far in 1999. Technology has been by far the best performing industry sector,
as its 1999 calendar year-to-date return has been 24.5% as measured by S&P.
Other sectors with positive returns include energy, capital goods, communication
services, and basic materials. Of these five sectors, only technology and
communication services are traditionally characterized as growth industries.
Top 10 Holdings
---------------
(as a percentage of net assets)
Sysco Corp. 4.9%
------------------------------------------------------
Computer Sciences Corp. 4.9%
------------------------------------------------------
Tyco International Ltd.. 4.6%
------------------------------------------------------
Interpublic Group of Companies, Inc. 4.4%
------------------------------------------------------
AMFM, Inc. 4.3%
------------------------------------------------------
Automatic Data Processing, Inc. 4.3%
------------------------------------------------------
Intel Corp. 4.1%
------------------------------------------------------
Sun Microsystems, Inc. 3.9%
------------------------------------------------------
Illinois Tool Works, Inc. 3.9%
------------------------------------------------------
American Express Co. 3.9%
------------------------------------------------------
What were some of the individual companies that contributed to the Fund's
performance for the year?
Six of the Fund's present twenty-five holdings have provided returns of greater
than 50% during the past twelve months. The top performers were Sun Microsystems
Inc. with a gain of 273.4%, Tyco International with a gain of 86.9%, First Data
Corp. with a gain of 86.7%, AMFM Inc. with a gain of 82.0%, American Express Co.
with a gain of 73.9%, and Interpublic Group Co. with a gain of 52.5%. Also,
several of the sales from the Fund's portfolio during the year were significant
positive contributors. These include Computer Associates Intl., Clear Channel
Communications, WW Grainger Inc., Royal Caribbean Cruises Ltd., and Bank of
America. As a group, the Fund's technology and financial services holdings
provided good returns.
9
<PAGE>
EVERGREEN
Capital Growth Fund
Portfolio Manager Interview
In September we experienced some disappointments primarily from companies that
have been unable to efficiently manage and integrate significant acquisitions.
The Fund moved to quickly sell these stocks which included Waste Management,
Newell Rubbermaid, and UNUM Provident Corp., all at losses. Two other recent
disappointments we sold are American Home Products and Xerox Corp. Some recent
purchases we expect to be strong future contributors are Intel Corp.,
Kimberly-Clark, and Albertsons Inc.
Top 5 Industries
----------------
(as a percentage of net assets)
Business Equipment & Services 16.3%
------------------------------------------------------
Healthcare Products & Services 11.3%
------------------------------------------------------
Finance & Insurance 10.1%
------------------------------------------------------
Information Services & Technology 8.1%
------------------------------------------------------
Banks 7.2%
------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-to-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuations to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's style of investing in high quality companies with strong growth
levels at reasonable prices should perform well on a relative basis in this
environment. We believe our growth at a reasonable price philosophy should
outperform the S&P 500 when the fundamental strengths of the companies in the
Fund's portfolio rise above general market emotion and sentiment.
10
<PAGE>
EVERGREEN (formerly Mentor Income
Capital Income and Growth Fund and Growth Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio
Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
John P. Michael
Davenport Jones
Tenure: July 1999 Tenure: July 1999
-------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
-------------------------------------------------------------------------------
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/Source: 1999 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 and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 25, 1999, shareholders of
Mentor Income and Growth Portfolio Class A, Class B and Class Y became owners of
that number of full and fractional shares of Class A, Class C and Class Y
shares, respectively, of the Evergreen Capital Income and Growth Fund. Class A
shares of the Fund are currently sold with a maximum front-end sales charge of
4.75%. Class C shares are sold without a front-end sales charge, but are subject
to a contingent deferred sales charge ("CDSC"), when shares are redeemed within
one year of their purchase. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 5/24/1993 Class A Class B Class Y
Class Inception Date 5/24/1993 5/24/1993 11/19/1997
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge 1.65% 3.06% n/a
-------------------------------------------------------------------------------
1 year w/o sales charge 7.85% 7.06% 8.21%
-------------------------------------------------------------------------------
3 years 9.51% 10.06% n/a
-------------------------------------------------------------------------------
5 years 12.90% 13.28% n/a
-------------------------------------------------------------------------------
Since Class Inception 12.04% 12.28% 8.33%
-------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
-------------------------------------------------------------------------------
12-month income dividends per share $0.51 $0.38 $0.17
-------------------------------------------------------------------------------
12-month capital gain distributions per share $0.98 $0.98 $0.98
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consumer Price Index - US S & P 500 Lehman Brothers Aggregate Bond Index Class A
10,000 10,000 10,000 9,424
10,062 10,288 10,447 9,901
10,361 10,668 10,110 10,549
10,624 13,839 11,532 12,368
10,943 16,654 12,097 14,733
11,179 23,385 13,275 17,992
11,345 25,476 14,799 19,037
11,616 32,219 14,745 20,532
</TABLE>
Comparison of a $10,000 investment in Evergreen Capital Income and Growth Fund
Class A/2/ shares, versus a similar investment in the Standard & Poor's 500
Stock Index (S&P 500), the Lehman Brothers Aggregate Bond Index (LBABI), and the
Consumer Price Index (CPI).
The LBABI and the S&P 500 are unmanaged market indices which do not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
11
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
How did the Portfolio perform for the year?
For the twelve-month period ended September 30, 1999, the Evergreen Capital
Income and Growth Fund's Class A shares returned 7.85% in the face of rising
interest rates and an increasingly difficult equity market environment for
active fund managers. During the same period the fund's benchmarks, the S&P 500
and Lehman Brothers Aggregate Bond Index, returned 27.80% and -0.37%,
respectively. These returns are before deduction of any applicable sales
charges.
During this same twelve-month period, the average balanced fund had a return of
12.56% as measured by Lipper Inc., an independent monitor of mutual fund
performance.
Prior to July 1, 1999, the Fund was sub-advised and managed by Wellington
Management Company, LLP. Since July 1, 1999, the Fund has been managed by Mentor
Investment Advisors, LLC.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $245,409,849
--------------------------------------------------------
Number of Holdings 95
--------------------------------------------------------
P/E Ratio 21.7x
--------------------------------------------------------
Beta 0.49
--------------------------------------------------------
What was the investment environment like over the past year?
Even though the U.S. economy has enjoyed its ninth year of economic expansion,
there are signs that many equity market sectors have reached relatively high
valuation levels. Early in the year, it was relatively easy for many companies
to show significant growth in year-over-year earnings and the market rewarded
this news with record price and valuation levels. This was particularly the case
during the fourth quarter of 1998 when the S&P 500 Index returned 21.30%, the
highest return of any single quarter since first quarter of 1987.
As the year progressed, it became apparent that companies are finding it more
difficult to sustain significant growth in earnings and support their valuation
levels. After advancing in the first and second quarters of 1999, the S&P's
total return was negative in the third quarter when it lost 6.24%. The backdrop
of the Federal Reserve Board increasing interest rates by 0.50% in an
ever-vigilant stance against inflation has put pressure on corporate earnings
that will continue into the next year. Also, it appears that the Federal Reserve
Bank's actions are not over and any additional increases will make it even more
difficult for companies to grow their earnings.
The past twelve months have been extremely difficult for managers of
fixed-income portfolios. Inflation fears have caused interest rates to increase
by 1.00% to 1.50% across all maturities, which puts 1999 on track to be the
second worst year for the fixed-income markets in credit market history. Rates
had moved lower in the fall of 1998 in the wake of the Russian debt crisis and
the problems sustained by leveraged hedge funds. Investors demanded securities
of the highest quality and liquidity and many turned to U.S.
12
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
Treasuries as a result. To help re-stabilize global economies and financial
markets, the world's central bankers flooded their economies with liquidity in
the fourth quarter of 1998, pushing interest rates to historically low levels.
In early 1999, many investors expected fragile international economies to limit
U.S. economic growth. However, due to aggressive easing by the Federal Reserve
and other central banks, the U.S. economy remained robust and growth of many
global economies was faster and more durable than anticipated. Market sentiment
shifted from concerns that weak international growth would dampen the U.S.
economy, to concerns that an overheated economy would accelerate inflation and
prompt the need for a more restrictive monetary policy. By September 30, 1999,
the Federal Reserve Board had raised interest rates twice.
In the equity markets, recent months have brought an increasingly narrow market
focus on industry sectors experiencing positive price movement. Early this year,
the primary focus was on shares of technology and several of the mega-cap
companies. In the early spring, the attention switched to value and cyclical
issues. Recently, the focus has swung back to technology companies, quite often
at the expense of other sectors. Of the eleven major S&P industry sectors, only
five have posted positive returns so far in calendar 1999. Technology has been
by far the best performing industry sector with a 1999 calendar year-to-date
return at 24.5%, as measured by S&P. Other sectors with positive returns include
energy, capital goods, communication services, and basic materials. Of these
five sectors, only technology and communication services are traditionally
characterized as growth industries.
How did you manage the asset allocation between stocks and bonds?
In view of an anticipated decline in the growth rate of corporate earnings, we
have lowered the Fund's equity allocation over the past twelve months from a
high of 63% to a low of 50%. This defensive posture helps to protect the value
of Fund assets in a time of uncertainty about domestic economic growth,
earnings, and interest rate levels.
Top 5 Bond Holdings
-------------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.5% 9/1/2029 7.0%
--------------------------------------------------------
FNMA 7.0% 9/1/2014 3.8%
--------------------------------------------------------
FNMA 6.5% 4/1/2014 2.4%
--------------------------------------------------------
U.S. Treasury Bonds 5.25% 11/15/2028 2.0%
--------------------------------------------------------
GNMA 6.0% 12/15/2028 1.9%
--------------------------------------------------------
Top 5 Industries - Bonds
------------------------
(as a percentage of net assets)
U.S. Government Agency Obligations 24.0%
----------------------------------------------------
Finance & Insurance 2.4%
----------------------------------------------------
Asset-Backed Securities 2.2%
----------------------------------------------------
Sovereign Government 2.0%
----------------------------------------------------
Treasury Notes &Bonds 2.0%
----------------------------------------------------
13
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
What were some of the strategies that were used in managing the fixed-income
portion of the portfolio?
Aside from increasing the overall fixed-income allocation to the current 41%
level, we have employed two major portfolio management strategies to enhance the
Fund's performance over the past twelve months.
The first strategy was to move some of the fixed-income assets into high yield
securities. These purchases were concentrated in solid cable and
telecommunication issues. These securities fell to distressed levels during the
market turmoil that characterized the fall of 1998. The Fund had virtually no
exposure to this area going into last fall and quickly built a position of
approximately 2% of the entire Fund's portfolio. As credit markets recovered
somewhat in 1999, these sectors were among the first to see the benefits.
The second strategic move was to build liquidity throughout the second quarter
of 1999. The Fund's position in 30-year U.S. Treasuries and cash was increased
substantially during this period. This barbell positioning was designed to
benefit from a flattening yield curve. In addition, by adding cash and Treasury
securities, the fixed-income portion of the Fund's portfolio was positioned to
benefit should Y2K related bond supply pressures cause spread products, e.g.,
high yield corporate securities, mortgage-backed and asset-backed securities, to
underperform. Both aspects of this position paid off during the summer when the
yield curve flattened by about 25 basis points and yield spreads on investment
grade corporate bonds and mortgage-backed securities approached all time highs.
These trades were reversed during August and as a result the Fund benefited from
the spread tightening witnessed in investment grade issues and mortgage-backed
securities throughout September.
Top 10 Equity Holdings
-------------------------------
(as a percentage of net assets)
Sun Microsystems, Inc. 2.3%
-------------------------------------------------------------------------------
Tyco International Ltd. 2.2%
-------------------------------------------------------------------------------
Sysco Corp. 2.1%
-------------------------------------------------------------------------------
Computer Sciences Corp. 2.0%
-------------------------------------------------------------------------------
Automatic Data Processing, Inc. 2.0%
-------------------------------------------------------------------------------
Federal National Mortgage Assoc. 2.0%
-------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 1.8%
-------------------------------------------------------------------------------
Interpublic Group of Companies, Inc. 1.7%
-------------------------------------------------------------------------------
AMFM, Inc. 1.7%
-------------------------------------------------------------------------------
Intel Corp. 1.7%
-------------------------------------------------------------------------------
Top 5 Industries - Equity
-------------------------------
(as a percentage of net assets)
Business Equipment & Services 7.0%
-------------------------------------------------------------------------------
Healthcare Products & Services 6.2%
-------------------------------------------------------------------------------
Finance & Insurance 6.2%
-------------------------------------------------------------------------------
Information Services & Technology 5.5%
-------------------------------------------------------------------------------
Banks 4.6%
-------------------------------------------------------------------------------
What is your outlook?
Even though the domestic economy continues to be strong, it appears that U.S.
corporations are beginning to enter into a period where it will be much more
difficult to show significant sustained growth in revenues and earnings on a
year-over-year basis. In general, corporate operating and net margins have
expanded to historically high levels and it will be difficult to generate
significant additional efficiencies or economies. As we move into the year 2000,
we believe the earnings growth rates of S&P companies will begin to decline to
the single digits.
Also, the Federal Reserve Board's recent moves increasing interest rates to stem
inflationary pressures do not appear to be over and we anticipate additional
14
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Portfolio Manager Interview
increases in coming weeks. Federal Reserve Board chairman, Alan Greenspan, has
made it clear that he views current equity asset valuation levels to be at risky
levels and would like to see the market refrain from any additional substantial
upside movement in the near term. We believe the Federal Reserve Board will move
decisively to stem unabated positive equity market momentum and to squelch any
perceived inflationary conditions.
The Fund's equity investment style of investing in high quality companies with
strong growth levels at reasonable prices should perform well on a relative
basis in this environment. Our growth at a reasonable price philosophy should
tend to outperform the S&P 500 when the fundamental strengths of the companies
in the Fund's portfolio rise above general market emotion and sentiment.
We believe fixed-income investments currently provide very attractive relative
valuation and offer the potential for solid long-term returns. "Real" interest
rates (the rate earned by investors in excess of inflation) are high by
historical standards. Value is further enhanced by current yield advantages
provided by mortgage-backed securities and corporate issues. We also continue to
look for other opportunities in high yield securities for the fixed-income
portion of the Fund's portfolio.
15
<PAGE>
EVERGREEN
Growth Fund (formerly Mentor Growth Portfolio)
Fund at a Glanceas of September 30 , 1999
Portfolio Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
Theodore Price Jeffrey
Tenure: April 1985 Drummond Tenure: May 1993
[PHOTO]
Linda Ziglar
Tenure: September 1991
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
The Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratio relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization.
/1/Source: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/15/1985 Class A Class B Class Y
Class Inception Date 6/5/1995 4/15/1985 11/19/1997
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge 7.35% 9.01% n/a
-------------------------------------------------------------------------------
1 year w/o sales charge 13.90% 13.01% 14.08%
-------------------------------------------------------------------------------
3 years 1.72% 2.38% n/a
-------------------------------------------------------------------------------
5 years n/a 12.27% n/a
-------------------------------------------------------------------------------
10 years n/a 11.07% n/a
-------------------------------------------------------------------------------
Since Class Inception 12.03% 11.88% -3.74%
-------------------------------------------------------------------------------
Maximum Sales Charge 5.75% 4.00% n/a
Front End CDSC
-------------------------------------------------------------------------------
12-month capital gain distributions per share $0.56 $0.56 $0.56
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price
Index - US Russell 2000 Class B
9/30/89 10,000 10,000 10,000
9/30/90 10,616 7,285 7,258
9/30/91 10,976 10,569 11,326
9/30/92 11,304 11,532 12,397
9/30/93 11,608 15,356 15,691
9/30/94 11,952 15,767 15,927
9/30/95 12,256 19,450 20,447
9/30/96 12,624 22,005 26,209
9/30/97 12,896 29,308 32,671
9/30/98 13,088 23,733 25,280
9/30/99 13,400 28,259 28,568
Comparison of a $10,000 investment in Evergreen Growth Fund Class B/2/
shares, versus a similar investment in the Russell 2000 Index (Russell 2000) and
the Consumer Price Index (CPI).
The Russell 2000 is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/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 and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Growth Portfolio
Class A, Class B and Class Y became owners of that number of full and fractional
shares of Class A, Class C and Class Y shares, respectively, of the Evergreen
Growth Fund. In addition, the Evergreen Fund added a new class of shares
designated as Class B shares. Class A shares of the Fund are currently 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 are subject to a contingent deferred sales
charge ("CDSC"), when shares are redeemed within six years and one year of their
purchase, respectively. Class A, Class B and Class C shares are also assessed a
distribution fee at an annual rate of 0.25%, 1.00% and 1.00%, respectively, of
the average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
16
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
How did the Fund perform?
The Evergreen Growth Fund's Class B shares returned 13.01% for the twelve-month
period ended September 30, 1999. This compares to a 19.07% return for the
Russell 2000. The Fund outperformed the benchmark during the fourth quarter of
1998 and the third quarter of 1999; however, during the intervening six-month
period from January through June of this year the Fund trailed the index. When
viewed within the context of a longer-term investment horizon the Fund has
outperformed the Russell 2000 for both the five- and ten-year periods, 12.27%
and 11.07% versus 12.16% and 9.89% respectively, ended September 30, 1999.
Portfolio
Characteristics
-----------------
(as of 9/30/1999)
Total Net Assets $462,139,723
-------------------------------------------------------------------------------
Number of Holdings 120
-------------------------------------------------------------------------------
P/E Ratio 22.6x
-------------------------------------------------------------------------------
Beta 1.06
-------------------------------------------------------------------------------
How would you describe the basic investment strategy of the Fund?
The Evergreen Growth Fund's management team seeks to identify fast-growing,
smaller companies, with strong and consistent earnings growth, whose growth has
not been fully recognized in their stock price. Purchase criteria used in
picking individual stocks for inclusion in the fund include superior earnings,
revenue growth, no negative revisions in quarterly earnings estimates, positive
price momentum, and strong underlying financial fundamentals.
Disciplines used to establish when equities should be sold include a
deterioration in earnings growth, a negative fundamental change in the outlook
for the company or its industry, and significant deterioration in the price
momentum of the stock. Additionally, appreciation of individual holdings to an
over-weighted position (greater than 2% of the portfolio) will cause a partial
reduction in position size in order to re-establish standard portfolio weighting
norms. The portfolio will normally consist of between 125 and 135 securities,
typically with significant weighting in the consumer cyclical, healthcare, and
technology sectors of the market.
Can you review the primary factors impacting your past year's relative
performance?
After a strong fourth quarter of 1998, the Fund encountered a period of
lackluster performance for most of the first half of 1999. Factors primarily
responsible for these below average results were a lack of exposure to internet
stocks and the poor performance of our healthcare holdings. Internet stocks were
up approximately 100% during the first half of 1999 despite their lack of
earnings and few fundamentals upon which to determine proper valuations. Before
the removal of the largest internet companies from the Russell 2000, due to
their size in the annual re-balancing of that index at mid-year, internet stocks
had come to represent almost 10% of the index. Our requirement of established
earnings streams in the companies that we purchase precluded us from investing
in this hot sector of the market.
Our exposure to healthcare stocks also created a performance drag during the
1999 portion of the twelve-month period. Despite continued strong earnings,
potential healthcare legislation created sufficient worries regarding Medicare
reimbursement
17
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
to severely depress this market sector. By late summer we had reduced our
healthcare weighting in half, to approximately 10% of the portfolio.
On a positive note, earnings reports for both the first and second quarters of
1999 have shown fewer negative earnings surprises than at any other time during
the last three years. This continues to emphasize to us the strong, underlying,
fundamental characteristics of the Fund's holdings.
Top 5 Industries
-------------------------------
(as a percentage of net assets)
Electrical Equipment & Services 11.6%
-------------------------------------------------------------------------------
Information Services & Technology 10.4%
-------------------------------------------------------------------------------
Business Equipment & Services 9.6%
-------------------------------------------------------------------------------
Healthcare Products & Services 8.7%
-------------------------------------------------------------------------------
Retail & Wholesale 6.7%
-------------------------------------------------------------------------------
How is the portfolio currently positioned?
The Fund's current industry breakdown is weighted toward what we believe are the
outstanding growth sectors of the economy. Technology is our heaviest weighting,
with our most significant exposure within that sector to semiconductor and
semiconductor equipment names. We are also maintaining a significant exposure to
specialty retail, broadcast, and food company names, making the consumer sector
our second largest portfolio weighting. We believe that the engine for continued
moderate growth in the domestic economy will be the bargain-conscious consumer.
The rapidly growing telecommunications group and energy companies are additional
areas of current emphasis.
An additional item worth noting is that in reviewing the companies within our
portfolio, we have discovered that the vast majority of spending needed to
upgrade systems for Y2K compliance is already in place at these companies.
Top 10 Holdings
-------------------------------
(as a percentage of net assets)
Benchmark Electronics, Inc. 1.7%
-------------------------------------------------------------------------------
Emmis Broadcasting Corp., Cl. A 1.7%
-------------------------------------------------------------------------------
ITC DeltaCom, Inc. 1.6%
-------------------------------------------------------------------------------
Papa Johns International, Inc. 1.5%
-------------------------------------------------------------------------------
Kemet Corp. 1.5%
-------------------------------------------------------------------------------
Cox Radio, Inc., Cl. A 1.5%
-------------------------------------------------------------------------------
Markel Corp. 1.4%
-------------------------------------------------------------------------------
Atmel Corp. 1.4%
-------------------------------------------------------------------------------
National Commerce Bancorp 1.4%
-------------------------------------------------------------------------------
Family Dollar Stores, Inc. 1.3%
-------------------------------------------------------------------------------
What is your outlook?
We believe that the recent failure of our companies to experience price
appreciation in line with their earnings per share growth rates has created a
tremendous valuation opportunity. At the end of the period the price-earnings on
the stocks in the Fund were 22.6 times 2000 earnings estimates. This compares
favorably with the historical and projected earnings growth rate of over 30% for
the stocks within the portfolio. The comparison is particularly striking versus
slower-growing, higher price-to-earning, large cap names that have continued to
benefit in this increasingly narrowly focused market environment.
18
<PAGE>
EVERGREEN
Growth Fund
Portfolio Manager Interview
The Federal Reserve's two recent moves raising short-term interest rates are, in
our opinion, likely to be followed by additional modest rate hikes between now
and year-end. These moves are largely unwinding the looser monetary policy
instituted at the time of the Asian and a major U.S. Hedge Fund crises last
fall. Despite an increasingly tight labor market and higher energy and gold
prices, we believe that inflation pressures will continue to remain modest.
Our growth-at-a-reasonable-price methodology, focusing on companies with
established earnings histories that trade at attractive valuations versus their
rates of growth, should continue to serve us well under a variety of potential
market outcomes.
19
<PAGE>
EVERGREEN
(formerly Mentor
High Income Fund High Income Portfolio)
Fund at a Glance as of September 30, 1999
Portfolio Management
[PHOTO] [PHOTO]
Timothy P. Michael
Anderson Jones
Tenure: June 1999 Tenure: June 1999
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
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: 1999 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 and fees paid by the shareholders investing in
each class. Returns reflect expense limits previously in effect, without which
returns would have been lower. Effective October 18, 1999, shareholders of
Mentor High Income Portfolio Class A and Class B became owners of that number of
full and fractional shares of Class A and Class C shares, respectively, of the
Evergreen High Income Fund. In addition, the Evergreen Fund added new classes of
shares designated as Class B and Class Y shares. Class A shares of the Fund are
currently 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 are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within six
years and one year of their purchase, respectively. Class A, Class B and Class C
shares are also assessed a distribution fee at an annual rate of 0.25%, 1.00%
and 1.00%, respectively, of the average daily net assets of each Class. Class Y
shares are sold at net asset value and are not subject to CDSC or ongoing
distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 6/23/1998 Class A Class B
Class Inception Date 6/23/1998 6/23/1998
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge -0.80% -0.26%
-------------------------------------------------------------------------------
1 year w/o sales charge 4.07% 3.64%
-------------------------------------------------------------------------------
Since Class Inception -5.99% -5.63%
-------------------------------------------------------------------------------
Maximum Sales Charge 4.75% 4.00%
Front End CDSC
-------------------------------------------------------------------------------
12-month income dividends per share $1.09 $1.02
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price ML High Yield Master II
Date Index - US Bond Index Class A
---- ---------- ----------------------- -------
6/30/98 10,000 10,000 9,524
9/30/98 10,037 9,581 8,874
12/31/98 10,055 9,845 9,209
3/31/99 10,123 10,025 9,493
6/30/99 10,196 10,090 9,443
9/30/99 10,276 9,956 9,156
Comparison of a $10,000 investment in the Evergreen High Income Fund Class A/2/
shares, 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 management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
20
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
How did the Fund Perform?
Evergreen High Income Fund Class A shares produced a total return of 4.07% for
the twelve-month period ended September 30, 1999, before deduction of any
applicable sales charge. This compared to the Merrill Lynch High Yield Master II
Bond Index, which returned 3.92% for the same period. The average return of the
Lipper High Current Yield peer group stood at 4.84% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $253,743,746
----------------------------------------------------------------------
Number of Holdings 154
----------------------------------------------------------------------
Average Duration 4.3 years
----------------------------------------------------------------------
Effective Maturity 6.5 years
----------------------------------------------------------------------
The past twelve months were difficult for bond investors. Interest rates rose
1.00% to 1.50% in all maturities, putting 1999 on track to be the second worst
year for bonds in the history of the credit markets. The Fund's fiscal year
began with interest rates moving lower, however. In the fourth quarter of 1998,
the Federal Reserve Board and many foreign bankers pumped liquidity into the
world's economies and global financial markets to stabilize them after a
turbulent summer. Russia effectively defaulted on its debt in the summer of
1998, setting off a global crisis in the credit markets. Many Wall Street firms,
including one of the largest hedge funds in the U.S., had engaged in highly
leveraged transactions that were linked to Russia. As their trades were unwound,
bond prices spiraled lower. Hedge funds are private investment companies which
typically engage in highly complex, leveraged transactions. They are not subject
to the same regulations as mutual funds. Investors sought only the safest and
most liquid securities, primarily U.S. Treasuries. U.S. Treasury prices
soared--driving their prices higher--and demand for riskier securities waned, in
a classic "flight-to-quality". As a result, the yield premium of riskier
securities versus U.S. Treasuries rose dramatically. The markets stabilized in
the final months of 1998, with many investors anticipating weak economic growth
heading into the new year.
The U.S. economy remained robust in 1999, however, and many foreign economies
experienced faster and more durable growth than investors had expected. Market
sentiment reversed course. Thoughts of an overheated U.S. economy, inflationary
pressures and tighter monetary policies replaced beliefs that fragile world
economies would dampen U.S. economic growth. Domestic investors pushed interest
rates higher; a move that was echoed by foreign investors who both shared
inflationary concerns and sought to attract international cash flows. Official
tightening moves followed, with the Federal Reserve Board raising interest rates
twice in the summer of 1999.
Despite having limited absolute returns, high yield bonds turned in a strong
relative performance compared to other fixed-income sectors. Yield premiums to
U.S. Treasuries had increased substantially during the "flight-to-quality", with
the yield advantages increasing with credit risk.
The situation enabled high yield bonds to outperform higher-quality counterparts
when the markets stabilized and yield relationships tightened somewhat. As the
Fund's fiscal year came to a close, however, a rising default rate and concerns
about Y2K caused high yield bonds to give back some of their gains. Yield
spreads at fiscal year end between high yield debt and Treasury bonds remained
at extremely high levels by historical standards.
Top 5 Industries
----------------
(as a percentage of net assets)
Communication Systems & Services 16.5%
--------------------------------------------------------------------------
Telecommunication Services & Equipment 11.3%
--------------------------------------------------------------------------
Consumer Products & Services 7.7%
--------------------------------------------------------------------------
Gaming 5.9%
--------------------------------------------------------------------------
Oil/Energy 4.9%
--------------------------------------------------------------------------
21
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
How would you describe the investment strategy for the High Income Fund?
The Fund's performance was influenced by two key strategies: its substantial
cash position during the decline of the high yield market and a shift in focus
from yield to liquidity. The Fund held 20% of net assets in cash as the high
yield market collapsed in the fall of last year, which enhanced price stability
and left the Fund well positioned to reinvest at attractive yields. At the same
time, however, a large percentage of the Fund was invested in securities that
had provided higher yields, but limited liquidity. Although global markets
recovered somewhat from the turmoil of last fall, many Wall Street firms hurt by
last year's use of extensive leverage became unusually cautious about adding to
their security inventories. This reluctance on the part of dealers to make
markets in many types of securities limited the potential price appreciation for
bonds, particularly those considered to be less liquid. Liquidity is a measure
of how easily a particular security can be bought and sold, and how high the
transaction costs associated with such purchases and sales will be. In light of
reduced overall liquidity in the market, the liquidity of individual securities
became a top priority for investors. Securities deemed to be relatively
illiquid, including many owned by the Fund, incurred greater relative price
losses when investors began to put increasing importance on liquidity.
As market conditions improved, we began to reduce the Fund's positions in
securities with limited liquidity, replacing them with bonds that enhanced
overall portfolio liquidity. This strategy included selling holdings in emerging
markets and limiting international exposure to positions in the so-called "G-7"
countries, particularly Canada and Great Britain. In addition to raising
liquidity standards, we also have focused on bonds that we believe offer the
potential for price appreciation due to credit improvement, primarily in
securities rated "B". Many companies in the telecommunications and cable
industries offer considerable opportunities for credit improvement due to merger
and acquisition activity and an increasing number of private equity infusions.
This global activity is being driven by the increasing penetration of wireless
communications and the exponential growth in demand for bandwidth due to the
internet. As a result, portfolio weightings were tilted toward issuers in these
sectors of the market.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
King Pharmaceuticals, Inc. 10.75% 2/15/2009 1.2%
--------------------------------------------------------------------------
Intermedia Comm.,
Step Bond 0% 5/15/2006 1.1%
--------------------------------------------------------------------------
Triton PCS, Inc.,
Step Bond 0% 5/1/2008 1.1%
--------------------------------------------------------------------------
Biovail Corp. Intl. 10.88% 11/15/2005 1.1%
--------------------------------------------------------------------------
Tekni Plex, Inc. 11.25% 4/1/2007 1.0%
--------------------------------------------------------------------------
Swift Energy Co. 10.25% 8/1/2009 1.0%
--------------------------------------------------------------------------
Pantry, Inc. 10.25% 10/15/2007 1.0%
--------------------------------------------------------------------------
Oxford Hlth. Plans, Inc. 11.00% 5/15/2005 1.0%
--------------------------------------------------------------------------
Argosy Gaming Co. 10.75% 6/1/2009 1.0%
--------------------------------------------------------------------------
Centennial Cellular
Oper. Co. 10.75% 12/15/2008 1.0%
--------------------------------------------------------------------------
What is your outlook?
We are cautious about high yield bonds over the near term, yet extremely
optimistic longer term. We expect a period of stagnation over the next few
months, with investors wary of putting money into the market in advance of Y2K.
Further, the high yield default rate has been rising. To some extent, the rising
default rate is a natural consequence of the record supply witnessed in recent
years; as securities age they are more prone to default. Other culprits leading
to rising defaults include the emerging market crisis and
22
<PAGE>
EVERGREEN
High Income Fund
Portfolio Manager Interview
depressed commodity prices. Although rising defaults should have been expected,
the increase has hurt bond prices. We believe that problems associated with Y2K
will be limited and that defaults will remain confined to marginal deals put
together in the aggressive environment of recent years. However, we expect
liquidity to remain a prime consideration for investors in the foreseeable
future.
In our opinion, high yield bonds offer very attractive relative value and
tremendous opportunity for price appreciation over the longer term. "Real"
interest rates--the rate earned by the investor in excess of inflation--is high
by historical standards. This rate is enhanced further by the yield advantages
provided by high yield bonds versus U.S. Treasuries, again high by historical
standards. Some high yield bonds offer nearly double the yield of Treasuries
with comparable maturities.
We are also optimistic about credit opportunities in high yield bonds,
particularly in telecommunications and cable industries. Other areas of emphasis
include technology manufacturers and paper producers. These industries are
benefiting from improved pricing power as world economies recover from the
financial shocks of recent years, and deflationary pressures are eased.
With its emphasis on liquidity and credit opportunity, we believe the Fund is
well-positioned for solid returns. We look forward to continued opportunity in
high yield bonds, as yield relationships return to more historical standards.
23
<PAGE>
EVERGREEN
(formerly Mentor Municipal
Municipal Income Fund Income Portfolio)
Fund at a Glance as of September 30 , 1999
Portfolio Management
[PHOTO] [PHOTO]
George James
Kimball Colby III
Tenure: June 1999 Tenure: June 1999
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
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: 1999 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 and fees paid by the shareholders investing in
each class. Effective October 18, 1999, shareholders of Mentor Municipal Income
Portfolio Class A, Class B and Class Y became owners of that number of full and
fractional shares of Class A, Class C and Class Y shares, respectively, of the
Evergreen Municipal Income Fund. Returns reflect expense limits previously in
effect, without which returns would have been lower. Class A shares of the Fund
are currently sold with a maximum front-end sales charge of 4.75%. Class C
shares are sold without a front-end sales charge, but are subject to a
contingent deferred sales charge ("CDSC"), when shares are redeemed within one
year of their purchase. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1991 1/19/1997
-------------------------------------------------------------------------------
Average Annual Returns*
-------------------------------------------------------------------------------
1 year with sales charge -8.18% -7.62% n/a
-------------------------------------------------------------------------------
1 year w/o sales charge -3.60% -3.93% -3.36%
-------------------------------------------------------------------------------
3 years 2.67% 3.27% n/a
-------------------------------------------------------------------------------
5 years 4.75% 5.12% n/a
-------------------------------------------------------------------------------
Since Class Inception 5.32% 5.51% 2.08%
-------------------------------------------------------------------------------
Maximum Sales Charge 4.75% 4.00% n/a
Front End CDSC
-------------------------------------------------------------------------------
12-month income dividends per share $0.69 $0.60 $0.22
-------------------------------------------------------------------------------
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[GRAPH]
Consumer Price Lehman Brothers
Date Index - US Municipal Bond Index Class A
-------------- -------------------- -------
4/30/92 10,000 10,000 9,527
9/30/92 10,129 10,561 10,035
9/30/93 10,401 11,907 11,607
9/30/94 10,710 11,616 11,074
9/30/95 10,982 12,916 12,135
9/30/96 11,312 13,696 12,917
9/30/97 11,556 14,931 14,065
9/30/98 11,728 16,232 15,223
9/30/99 12,007 16,119 14,675
Comparison of a $10,000 investment in Evergreen Municipal Income Fund Class A/2/
shares, versus a similar investment in the Lehman Brothers Municipal Bond Index
(LBMBI), and the Consumer Price Index (CPI).
The LBMBI is an unmanaged market index which does not include transaction costs
associated with buying and selling securities nor any management fees. The CPI
is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
24
<PAGE>
EVERGREEN
Municipal Income Fund
Portfolio Manager Interview
How did the Fund Perform?
For the twelve-month period ended September 30, 1999, the Fund's Class A shares
returned -3.60%, before deduction of any applicable sales charges, trailing the
average return produced by the Lipper General Municipal Bond Funds, which was
3.07% for the same period. The Fund's benchmark, the Lehman Brothers Municipal
Bond Index, returned -0.70% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $108,603,285
-------------------------------------------------------------------------------
Number of Holdings 98
-------------------------------------------------------------------------------
Average Duration 9.4 Years
-------------------------------------------------------------------------------
Effective Maturity 15.6 Years
-------------------------------------------------------------------------------
What was the investment environment like over the past year?
Rising interest rates and dramatically changing market conditions presented a
challenging environment for bond investors over the past twelve months. As the
Fund's fiscal year opened, global interest rates fell in response to coordinated
easing moves by the world's central bankers. At that time, the credit markets
were recovering from a turbulent summer of 1998. Russia had effectively
defaulted on its debt, sending shock waves throughout the international credit
markets. The situation had particularly strong implications for the largest
hedge fund in the United States, which announced the need for financial
assistance to avoid bankruptcy. A hedge fund is a private investment account
that often engages in highly complex, leveraged trading techniques, and is not
subject to the same regulations as mutual funds. Investors became increasingly
concerned about the far-reaching global effects of unwinding the hedge fund's
trades, prompting unusually strong demand for only the safest and most liquid
securities--primarily U.S. Treasuries. This "flight-to-quality" drove Treasury
yields to extraordinarily low levels, and their prices correspondingly higher.
At the same time, investors penalized securities with risk, forcing the yield
advantages of other securities versus U.S. Treasuries to levels that were high
by historical standards.
Top 5 Industries
----------------
(as a percentage of net assets)
Industrial Development 24.1%
--------------------------------------------------------------------------
Housing - Single Family 16.1%
--------------------------------------------------------------------------
Hospital 12.2%
--------------------------------------------------------------------------
General Obligation - Local 9.4%
--------------------------------------------------------------------------
Water & Sewer 6.4%
--------------------------------------------------------------------------
Municipal bond prices rallied as interest rates fell, although a smaller
investor audience for tax-exempt securities relative to U.S. Treasuries limited
price appreciation. Also, the municipal bond market experienced record new
supply in 1998, which also put a lid on rising prices. By December 1998, the
combination gave municipal bonds increasing relative value versus U.S.
Treasuries, however, with tax-exempt yields rivaling those of their taxable
counterparts.
Many investors expected fragile international economies to weaken U.S. economic
growth in 1999. However, the U.S. economy continued to show strength, and many
foreign economies demonstrated faster and more durable recoveries than investors
expected. Market sentiment reversed course. Investors began to watch for signs
of excessive growth and inflationary pressures, pushing interest rates higher in
anticipation of a more restrictive monetary policy. Many foreign interest rates
followed suit, as international investors shared concerns about inflation and
also sought to attract global cash flows. In the summer of 1999, investor
expectations were realized when the Federal Reserve Board did, in fact, raise
interest rates.
25
<PAGE>
EVERGREEN
Municipal Income Fund
Portfolio Manager Interview
Municipal bonds outperformed U.S. Treasuries as interest rates rose. On an
annualized basis year-to-date, municipal bond supply fell by over 20% in 1999,
relieving pressure and allowing prices to improve. Further, while municipal
bonds were still attractively priced by historical standards, their yield
relationship to Treasuries began to return to more normal levels. This enabled
prices to rise further.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
Jefferson Cnty., CO RB 5.00% 11/1/2018 2.5%
--------------------------------------------------------
Wisconsin Hsg. & EDA RB 5.75% 4/1/2030 2.2%
--------------------------------------------------------
American Pub. Energy
Agcy. RB 4.38% 6/1/2010 2.2%
--------------------------------------------------------
Montana Hsg. Board SFHRB 5.65% 12/1/2020 2.1%
--------------------------------------------------------
Harrison Cnty., WV Solid
Wst. Disposal RB 6.75% 8/1/2024 2.0%
--------------------------------------------------------
Kane Cnty., IL Sch. Dist. GO 5.50% 2/1/2011 1.9%
--------------------------------------------------------
Alliance, TX Arpt. Auth.,
Inc., Spl. Facs. RB 6.38% 4/1/2021 1.9%
--------------------------------------------------------
New Orleans, LA GO 5.50% 12/1/2021 1.8%
--------------------------------------------------------
Idaho Hsg. & Fin. Assn.
SFHRB 5.70% 7/1/2019 1.8%
--------------------------------------------------------
Nassau Cnty., NY GO 5.25% 6/1/2015 1.8%
--------------------------------------------------------
How would you describe the investment strategy for the past year?
The Portfolio's investment strategy emphasized income and interest rate
sensitivity through the spring of 1999, by maintaining a long duration and
substantial positions in higher-yielding, lower-rated credits. This benefited
performance in the last quarter of 1998, when the credit markets stabilized and
many lower-rated bonds outperformed higher-rated counterparts. The Portfolio's
sensitivity to interest rate changes, as well as positions in higher-yielding
but less liquid securities, caused performance to lag by the middle of the
fiscal year when interest rates began to rise.
The Portfolio experienced considerable restructuring in the second half of the
period. We focused on building liquidity and improving credit quality by selling
less liquid, lower-rated bonds. We increased yield by selling bonds that had
been purchased at lower yields and replaced these with higher yielding bonds
when conditions permitted. We also shortened duration, which enhances price
stability when interest rates rise. As of September 30, 1999, the Fund's average
quality was "A", its duration was 9.4 years and its effective maturity stood at
15.6 years.
What is your outlook?
Near term, we think the bond market in general could be a little unsettled as
investors and issuers prepare for Y2K. While there may be some Y2K challenges
with smaller issuers we think, as a whole, municipalities are pretty well set.
Longer term, we believe municipal bonds offer very attractive relative value.
"Real" interest rates--or the rate earned by investors when inflation is
removed--are high by historical standards. Also, in our opinion, the tax-exempt
sector as an asset class offers attractive value, with "AAA"-rated bonds
providing 87%-90% of the yield of U.S. Treasuries with comparable maturities.
The combination bodes well for total return potential over the long term.
26
<PAGE>
EVERGREEN (formerly Mentor
Quality Income Fund Quality Income
Fund at a Glance as of September 30, 1999 Portfolio)
Portfolio Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
P. Michael Jones Timothy Anderson
Tenure: March 1995 Tenure: June 1998
[PHOTO] [PHOTO]
Jan Buskop Dennis Clary
Tenure: March 1999 Tenure: May 1998
[PHOTO]
Todd Kuimjian
Tenure: January 1997
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
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: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1992 Class A Class B Class Y
Class Inception Date 4/29/1992 4/29/1992 11/19/1997
Average Annual Returns*
1 year with sales charge -7.51% -7.00% n/a
1 year w/o sales charge -2.89% -3.34% -2.63%
3 years 3.77% 4.37% n/a
5 years 5.40% 5.77% n/a
Since Class Inception 4.33% 4.51% 3.21%
Maximum Sales Charge 4.75% 4.00% n/a
Front End CDSC
12-month income dividends per share $0.79 $0.73 $0.24
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[LINE GRAPH]
Merrill Lynch
5-7 Year
Class A CPI Treasury Index
4/30/92 9,527 10,000 10,000
9/30/92 9,848 10,129 11,020
9/30/93 10,341 10,401 12,185
9/30/94 10,002 10,710 11,691
9/30/95 11,185 10,982 13,294
9/30/96 11,649 11,312 13,859
9/30/97 12,798 11,556 15,110
9/30/98 14,072 11,728 17,272
9/30/99 13,596 12,007 16,936
Comparison of a $10,000 investment in the Evergreen Quality Income Fund
Class A/2/ shares, versus a similar investment in the Merrill Lynch 5-7 Year
Treasury Index (ML5-7YTI) and the Consumer Price Index (CPI).
The ML5-7YTI is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/ 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 and fees paid by the shareholders investing
in each class. The advisor is waiving a portion of its advisory fee. Had the fee
not been waived, returns would have been lower. Effective October 18, 1999,
shareholders of Mentor Quality Income Portfolio Class A, Class B and Class Y
became owners of that number of full and fractional shares of Class A, Class C
and Class Y shares, respectively, of the Evergreen Quality Income Fund. In
addition, the Evergreen Fund added a new class of shares designated as Class B
shares. Class A shares of the Fund are currently 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 are subject to a contingent deferred sales charge ("CDSC"),
when shares are redeemed within six years and one year of their purchase,
respectively. Class A, Class B and Class C shares are also assessed a
distribution fee at an annual rate of 0.25%, 1.00% and 1.00%, respectively, of
the average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
27
<PAGE>
EVERGREEN
Quality Income Fund
Portfolio Manager Interview
How did the Fund perform?
Evergreen Quality Income Fund Class A shares returned -2.89% for the
twelve-month period ended September 30, 1999, unadjusted for sales charges. The
Fund's benchmark, the Merrill Lynch 5-7 Year Treasury Index returned -1.94% for
the same period. The average return of the Lipper A-Rated Corporate Bond peer
group was -2.19% and the 7-year U.S. Treasury notes return was -3.53% in the
same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $201,197,816
-------------------------------------------------------------------------------
Number of Holdings 113
-------------------------------------------------------------------------------
Average Duration 5.3 Years
-------------------------------------------------------------------------------
Effective Maturity 6.2 Years
-------------------------------------------------------------------------------
What factors affected performance?
The past twelve months were extremely difficult for bond investors.
Stronger-than-expected economic growth drove interest rates 1.00% to 1.50%
higher across all maturities, putting 1999 on track to be the second worst year
for bonds in the history of the credit markets.
The fiscal year started with interest rates moving lower. The summer of 1998
left world economies and financial markets in a state of upheaval. Russia's
effective default on its debt revealed a strong connection between emerging
markets and Wall Street firms through extensive use of leveraged trading. The
situation pushed the largest hedge fund in the United States to the brink of
bankruptcy; and investors became increasingly concerned about the widespread
global effects of traders unwinding their positions. Hedge funds are private
investment accounts that often engage in highly leveraged, complex trading
activity, and are not subject to the same regulations as mutual funds. Corporate
bond and mortgage-backed security prices spiraled lower as selling continued
into a market with severely reduced liquidity. Investors sought only the highest
quality and most liquid securities. Demand for U.S. Treasuries soared, but faded
for bonds with even a hint of risk. To restabilize global economies and
financial markets, the world's central bankers flooded their economies with
liquidity in the fourth quarter of 1999, pushing interest rates to
extraordinarily low levels.
As we entered 1999, many investors expected fragile international economies to
limit U.S. economic growth. However, thanks to aggressive easing by the Federal
Reserve Board and other central banks across the world, the U.S. economy
remained robust, and growth in many global economies was faster and more durable
than many investors anticipated. Market sentiment shifted from concerns that
weak international growth would dampen the U.S. economy to concerns about an
overheated economy fostering inflation and prompting the need for a more
restrictive monetary policy. By the end of the Fund's fiscal year, the Federal
Reserve Board had raised interest rates twice. Many foreign interest rates
followed U.S. interest rates higher, as global investors shared concerns about
inflation and sought to attract international cash flows.
Top 5 Industries
----------------
(as a percentage of net assets)
U.S. Government & Agency Obligations 38.1%
-------------------------------------------------------------------------------
Collateralized Mortgaged Obligations 19.2%
-------------------------------------------------------------------------------
Asset-Backed Securities 13.9%
-------------------------------------------------------------------------------
Communication Systems & Services 8.2%
-------------------------------------------------------------------------------
Finance & Insurance 7.4%
-------------------------------------------------------------------------------
28
<PAGE>
EVERGREEN
Quality Income Fund
Portfolio Manager Interview
The market's volatility created longer-term opportunity, however, as changing
market conditions caused yield relationships between U.S. Treasuries and other
sectors to shift. Corporate bonds and mortgage-backed securities began to offer
yield advantages versus Treasuries that were extremely high by historical
standards. Market psychology also changed. Although global markets recovered
somewhat from the turmoil of last fall, many Wall Street firms--hurt by last
year's use of extensive leverage--became unusually cautious about adding to
their security inventories. This reluctance on the part of dealers to make
markets in many types of securities limited the potential price appreciation for
bonds, particularly those considered to be less liquid. Liquidity is a measure
of how easily a particular security can be bought or sold, and how high the
transaction costs associated with such purchases and sales will be. In light of
reduced overall liquidity in the market, the liquidity of individual securities
became a top priority for investors.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 7.0% 8/1/2029 10.7%
FNMA 7.5% 12/1/1999 4.5%
FNMA 7.0% 9/1/2014 4.0%
FHLMC 6.5% 7/25/2018 3.3%
CS First Boston Mtge.
Sec. Corp. 7.18% 2/25/2018 3.2%
FHLMC 6.0% 3/15/2009 3.0%
Norwest Asset Secs. Corp. 6.25% 9/25/2028 2.8%
FNMA 6.5% 4/1/2014 2.5%
GNMA 7.0% 12/15/2028 2.5%
General Elec. Capital
Mtge. Svcs., Inc. 6.27% 4/25/2029 2.2%
How would you describe the investment strategy over the past year?
Our management strategies focused on asset allocation and active management of
the Fund's duration. We entered the fiscal year with a heavy weighting in U.S.
Treasuries, a minimal position in investment grade corporate bonds and no high
yield bond holdings. The Fund also had a long duration. The Fund's asset
allocation and long duration enhanced total return when demand was unusually
strong for U.S. Treasuries and interest rates fell. We reduced holdings in U.S.
Treasuries toward the end of 1998, reinvesting assets in mortgage-backed
securities and investment grade corporate bonds. At that time, market conditions
had stabilized and yield advantages were at attractive levels. The new asset
allocation benefited performance when mortgage-backed securities and corporate
bonds outperformed U.S. Treasuries as yield relationships returned to more
normal historical standards. We then shortened the Fund's duration in May,
maintaining a defensive stance through the end of the fiscal period. A shorter
duration enhanced price stability as interest rates rose.
What is your outlook?
At current levels, we think bonds have very attractive relative value and offer
the potential for solid returns longer term. "Real" interest rates--the rate
earned by the investor in excess of inflation--is high by historical standards.
The value is enhanced further by current yield advantages provided by
mortgage-backed securities and corporate bonds.
Heavy new supply has weighed on the market, as issuers come to market prior to
Y2K. Further, we think the Federal Reserve Board may need to raise short-term
interest rates, to continue draining some of the liquidity it provided last
year. We would not be surprised to see short-term rates reach the 6% area. Much
of the economy's strength has come from consumer spending, which has been fueled
by the "wealth effect" of rising stock prices. In our opinion, stock prices
would respond negatively to such an increase in short-term interest rates,
dampening the "wealth effect" and curbing consumer spending. We think rates in
this range also would slow the housing market by reducing real estate activity.
A slower economy with continued low inflation should improve market sentiment
and combined with the market's attractive relative value give a substantial lift
to bond prices.
29
<PAGE>
EVERGREEN (formerly Mentor
Short-Duration Income Fund Short-Duration
Fund at a Glance as of September 30, 1999 Income Portfolio)
Portfolio
Management
-------------------------------------------------------------------------------
[PHOTO] [PHOTO]
P. Michael Jones Timothy Anderson
Tenure: April 1994 Tenure: June 1998
[PHOTO] [PHOTO]
Jan Buskop Dennis Clary
Tenure: March 1999 Tenure: May 1998
[PHOTO]
Todd Kuimjian
Tenure: January 1997
CURRENT INVESTMENT STYLE/1/
[GRAPHIC]
Morningstar's Style Box is based on a portfolio date as of 9/30/1999.
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: 1999 Morningstar, Inc.
PERFORMANCE AND RETURNS/2/
Portfolio Inception Date: 4/29/1994 Class A Class B Class Y
Class Inception Date 6/16/1995 4/29/1994 11/19/1997
Average Annual Returns*
1 year with sales charge 0.37% -2.84% n/a
1 year w/o sales charge 1.38% 0.99% 1.63%
3 years 4.84% 4.24% n/a
5 years n/a 5.50% n/a
Since Class Inception 4.86% 5.22% 4.41%
Maximum Sales Charge 1.00% 4.00% n/a
Front End CDSC
12-month income dividends per share $0.71 $0.66 $0.20
* Adjusted for maximum applicable sales charges unless noted.
LONG TERM GROWTH
[LINE GRAPH]
Merrill Lynch
1-3 Year Treasury
Class B CPI Index
4/30/94 10,000 10,000 10,000
9/30/94 10,084 10,136 10,143
9/30/95 11,022 10,394 10,982
9/30/96 11,519 10,706 11,599
9/30/97 12,321 10,936 12,398
9/30/98 13,145 11,099 13,387
9/30/99 13,217 11,364 13,819
Comparison of a $10,000 investment in the Evergreen Short-Duration Income
Fund, Class B/2/ shares, versus a similar investment in the Merrill Lynch 1-3 Yr
Treasury Index (ML1-3YTI) and the Consumer Price Index (CPI).
The ML1-3YTI is an unmanaged market index which does not include transaction
costs associated with buying and selling securities nor any management fees. The
CPI is a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
/2/ 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 and fees paid by the shareholders investing
in each class. The advisor is waiving a portion of its advisory fee and waiving
the Fund's administration fee. Had the fees not been waived, returns would have
been lower. Effective October 25, 1999, shareholders of Mentor Short-Duration
Income Portfolio Class A, Class B and Class Y became owners of that number of
full and fractional shares of Class A, Class C and Class Y shares, respectively,
of the Evergreen Short-Duration Income Fund. Class A shares of the Fund are
currently sold with a maximum front-end sales charge of 3.25% and Class C shares
are sold without a front-end sales charge, but are subject to a contingent
deferred sales charge ("CDSC"), when shares are redeemed within one year of
their purchase, respectively. Class A and Class C shares are also assessed a
distribution fee at an annual rate of 0.25% and 1.00%, respectively, of the
average daily net assets of each Class. Class Y shares are sold at net asset
value and are not subject to CDSC or ongoing distribution fees.
30
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
How did the Fund perform?
Evergreen Short-Duration Income Fund Class B shares produced returns of 0.99%
for the twelve-month period ended September 30, 1999, unadjusted for any
applicable sales charges. In comparison, the average return of the Lipper
Short-Intermediate Investment Grade peer group stood at 1.15% for the same
period while the fund's benchmark, the Merrill Lynch 1-3 Year Treasury Index,
returned 3.22% for the same period.
Portfolio
Characteristics
---------------
(as of 9/30/1999)
Total Net Assets $160,961,147
Number of Holdings 90
Average Duration 2.6 Years
Effective Maturity 3.7 Years
After declining in the early part of the period, interest rates closed the
fiscal year 1.00% to 1.50% higher than they were a year ago. Rising interest
rates and changing yield relationships have created difficult conditions for
bond investors and put 1999, year-to-date, on track to be the second worst year
in the history of the credit markets.
As we entered the final quarter of 1998, investors were recovering from a near
collapse of the global financial markets. Russia's effective default of its debt
and extensive use of leveraged trading by many U.S. institutions put bond prices
into a downward spiral. With liquidity severely restricted, the largest U.S.
hedge fund announced the need for financial assistance to remain solvent. A
hedge fund is a private investment account that often engages in highly complex,
leveraged trading techniques. Hedge funds are not subject to the same
regulations as mutual funds. Investors became increasingly concerned about the
global effects of unwinding these trades, and in seeking the safety and
liquidity of U.S. Treasuries, sparked a classic "flight-to-quality" which drove
Treasury yields to the lowest levels of the decade. To restore stability to
world economies and financial markets, the Federal Reserve Board and other
central bankers embarked on a coordinated round of interest rate cuts. Many
investors entered 1999 expecting weak international recoveries to slow U.S.
economic growth.
The U.S. economy remained strong, however; and international economies tended to
improve with faster and more sustainable growth than many investors anticipated.
Investors' focus turned to potentially excessive growth with rising inflation
prompting the need for a more restrictive monetary policy. Domestic interest
rates rose, pulling many foreign interest rates higher, as international
investors shared concerns about inflation and sought to attract global cash
flows. By mid-1999, the Federal Reserve Board and other central bankers began to
drain the liquidity they had provided earlier, raising interest rates as a
preemptive strike against inflation.
Market conditions reflected this challenging and shifting environment. Demand
for U.S. Treasuries was extraordinary during 1998's "flight-to-quality". While
investors emphasized quality and liquidity, however, they penalized risk by
demanding higher yield advantages relative to Treasuries. Yield advantages for
corporate bonds and mortgage-backed securities rose, with "spreads" increasing
as investors incurred greater risk. These sectors began to offer extremely
attractive relative value, however; and when the markets stabilized and later
showed improvement, yield relationships began to return to more historical
levels. As this occurred, lower-rated bonds outperformed their higher-rated
counterparts. Lower-rated bonds gave back some of their gains in the summer of
1999, however, as a rising default rate and heavy supply in anticipation of Y2K
caused yield advantages to once again begin to increase.
31
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
Liquidity remained a prime consideration for investors. Liquidity is a measure
of how easily a particular security can be bought and sold, and how high the
transaction costs associated with such purchases will be. Many trading desks had
sharply curtailed capital in the aftermath of last year's leverage fiasco, and
were considerably less aggressive in adding to their security inventories. This
cautiousness on the part of dealers to make markets in many types of
securities--particularly in advance of Y2K--limited the potential price
appreciation for bonds, particularly those considered to be less liquid. In
light of overall reduced liquidity in the market, the liquidity of individual
securities became a top priority for investors.
Top 5 Industries
----------------
(as a percentage of net assets)
U.S. Government Agency Obligations 40.5%
Collateralized Mortgage Obligations 20.0%
Asset-Backed Securities 19.5%
Finance & Insurance 6.3%
Retailing & Wholesale 3.2%
How would you describe the investment strategy over the past year?
The Fund's investment strategy was two-fold. We emphasized total return and
income by actively managing the Fund's duration, and by taking advantage of the
changing yield relationships provided by mortgage-backed and asset-backed
securities, investment grade corporate bonds and high yield bonds. The Fund had
a long duration when interest rates fell, increasing portfolio sensitivity to
interest rate changes and improving total return. We then shortened the Fund's
duration in May, maintaining a defensive stance through the end of the fiscal
period. A shorter duration enhanced price stability as interest rates rose.
We also took advantage of shifting yield relationships caused by the market's
changing conditions, which made a positive contribution to total return. We
reduced holdings in Treasuries toward the end of 1998, tilting the Fund's
positions toward mortgage-backed securities, investment grade corporate bonds
and high yield securities. At that time, market conditions had stabilized and
yield advantages were at attractive levels. The new asset allocation benefited
performance when these sectors outperformed U.S. Treasuries when yield
relationships returned to more normal historical standards. We found
particularly good relative value in "BB"-rated bonds. The yield advantage
increased dramatically for "BB"-rated bonds versus bonds rated "BBB" because
many investors are restricted to buying investment grade credits, reducing the
investment audience for "BB"-rated securities. The Fund's high yield holdings
are thoroughly analyzed and constantly monitored by our staff of investment
professionals.
Top 10 Holdings
---------------
(as a percentage of net assets)
Coupon Maturity
------ --------
FNMA 6.0% 4/1/2014 5.8%
FHLMC 6.0% 6/1/2006 5.7%
Citicorp Mtge. Secs. Inc. 6.52% 11/25/2022 4.0%
U.S. Treasury 5.25% 5/15/2004 3.5%
Notes
FNMA 6.0% 3/1/2014 2.9%
GNMA 6.38% 4/20/2022 2.8%
FNMA 7.0% 8/1/2029 2.7%
Perpetual Savings Bank
Collat. Strip Interest 6.97% 3/1/2020 2.7%
Glendale Federal
Savings Bank 6.49% 10/25/2009 2.7%
FHLMC 6.23% 5/1/2014 2.5%
32
<PAGE>
EVERGREEN
Short-Duration Income Fund
Portfolio Manager Interview
What is your outlook?
At current levels, we think bonds have very attractive relative value and offer
the potential for solid returns longer term. "Real" interest rates--the rate
earned by the investor in excess of inflation--is high by historical standards.
The value is enhanced further by current yield advantages provided by
mortgage-backed securities and corporate bonds.
Near term, however, we believe that interest rates could rise. Heavy new supply
has weighed on bond prices, as issuers come to market prior to Y2K. Further, we
think the Federal Reserve Board still could need to raise short-term interest
rates by draining some of the liquidity it provided last year. We would not be
surprised to see short-term rates reach the 6% area. In our opinion, such a move
would have a negative effect on stock prices and slow economic growth. Much of
the economy's strength has come from consumer spending, which has been fueled by
the "wealth effect" of rising stock prices. Historically, consumer spending
accounts for two-thirds of the economy's growth. In our opinion, a correction in
stock prices would dampen the "wealth effect" and curb consumer spending. We
think rates in this range also would slow the housing market by reducing
mortgage activity. A slower economy with continued low inflation should improve
market sentiment and, combined with the market's attractive relative value, give
a substantial lift to bond prices.
33
<PAGE>
EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS A
Net asset value, beginning of period $ 13.69 $ 13.69
------------- -----------
Income from investment operations
Net investment income 0.29 0
Net realized and unrealized gains or losses on
securities and futures contracts 1.44 0
------------- -----------
Total from investment operations 1.73 0
------------- -----------
Distributions to shareholders from
Net investment income (0.22) 0
Net realized gains (0.05) 0
------------- -----------
Total distributions to shareholders (0.27) 0
------------- -----------
Net asset value, end of period $ 15.15 $ 13.69
------------- -----------
Total return* 12.67% 0.00%
Ratios and supplemental data
Net assets, end of period (thousands) $ 138,686 $ 3,534
Ratios to average net assets
Expenses** 1.50% 1.35%+
Net investment income 1.83% 1.52%+
Portfolio turnover rate 140% 89%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------- Period Ended
1999 1998 (c) 1997 1996 1995 (d) December 31, 1994 (e)
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 13.69 $17.61 $16.28 $14.85 $12.44 $12.50
-------- ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.17 0.45 0.43 0.42 0.36 0.22
Net realized and
unrealized gains or
losses on securities
and futures contracts 1.45 1.43 3.35 2.09 2.08 (0.09)
-------- ------ ------ ------ ------ ------
Total from investment
operations 1.62 1.88 3.78 2.51 2.44 0.13
-------- ------ ------ ------ ------ ------
Distributions to
shareholders from
Net investment income (0.14) (0.71) (0.43) (0.48) (0.03) (0.19)
Net realized gains (0.05) (5.09) (2.02) (0.60) 0 0
-------- ------ ------ ------ ------ ------
Total distributions to
shareholders (0.19) (5.80) (2.45) (1.08) (0.03) (0.19)
-------- ------ ------ ------ ------ ------
Net asset value, end of
period $ 15.12 $13.69 $17.61 $16.28 $14.85 $12.44
-------- ------ ------ ------ ------ ------
Total return* 11.87% 11.86% 26.09% 18.00% 19.28% 1.00%
Ratios and supplemental
data
Net assets, end of
period (thousands) $218,816 $5,645 $4,102 $3,825 $3,210 $2,911
Ratios to average net
assets
Expenses** 2.23% 0.52% 0.50% 0.50% 0.50%+ 0.50%+
Net investment income 1.05% 2.63% 2.78% 2.83% 3.26%+ 3.32%+
Portfolio turnover rate 140% 89% 80% 103% 65% 71%
</TABLE>
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) 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
Evergreeen Capital Balanced Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Balanced Portfolio was
redesignated as that of Class C shares of Evergreen Capital Balanced Fund.
(c) Prior to September 16, 1998, all shareholders of the Balanced Fund were
Class B shareholders. On September 16, 1998 shares of Class B were con-
verted to Class Y shares.
(d) For the period from January 1, 1995 to September 30, 1995.
(e) For the period from June 21, 1994 (commencement of operations) to December
31,1994.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Capital Balanced Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1999 1998 (a) (b)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 13.69 $ 13.69
------------ ------------
Income from investment operations
Net investment income 0.19 0.01
Net realized and unrealized gains or losses on
securities and futures contracts 1.57 (0.01)
------------ ------------
Total from investment operations 1.76 0
------------ ------------
Distributions to shareholders from
Net investment income (0.28) 0
Net realized gains (0.05) 0
------------ ------------
Total distributions to shareholders (0.33) 0
------------ ------------
Net asset value, end of period $ 15.12 $ 13.69
------------ ------------
Total return 12.91% 0.00%
Ratios and supplemental data
Net assets, end of period (thousands) $ 26 $ 3,642
Ratios to average net assets
Expenses* 1.14% 1.10%+
Net investment income 1.59% 2.31%+
Portfolio turnover rate 140% 89%
</TABLE>
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) Prior to September 16, 1998, all shareholders of the Balanced Fund were
Class B shareholders. On September 16, 1998 shares of Class B were con-
verted to Class Y shares.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
35
<PAGE>
EVERGREEN
Capital Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 22.71 $ 22.42 $ 19.36 $ 16.02 $ 14.88
-------- -------- ------- ------- -------
Income from investment
operations
Net investment income (loss) (0.05) (0.10) (0.02) 0.11 0.02
Net realized and unrealized
gains or losses on securities
and futures contracts 4.27 2.34 5.87 3.73 2.91
-------- -------- ------- ------- -------
Total from investment
operations 4.22 2.24 5.85 3.84 2.93
-------- -------- ------- ------- -------
Distributions to shareholders
from
Net investment income 0 (0.01) 0 0 0
Net realized gains (2.55) (1.94) (2.79) (0.50) (1.79)
-------- -------- ------- ------- -------
Total distributions to
shareholders (2.55) (1.95) (2.79) (0.50) (1.79)
-------- -------- ------- ------- -------
Net asset value, end of period $ 24.38 $ 22.71 $ 22.42 $ 19.36 $ 16.02
-------- -------- ------- ------- -------
Total return* 20.21% 10.72% 34.78% 24.63% 20.18%
Ratios and supplemental data
Net assets, end of period
(thousands) $285,690 $145,117 $65,703 $31,889 $29,852
Ratios to average net assets
Expenses** 1.39% 1.34% 1.41% 1.43% 1.87%
Net investment income (0.21%) 0.06% 0.53% 0.51% 0.27%
Portfolio turnover rate 82% 104% 64% 98% 157%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value,
beginning of period $ 21.72 $ 21.68 $ 18.92 $ 15.79 $ 14.80
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income
(loss) (0.22) (0.08) 0 (0.04) 0.25
Net realized and
unrealized gains or
losses on securities
and futures contracts 4.02 2.07 5.55 3.67 2.53
-------- -------- -------- ------- -------
Total from investment
operations 3.80 1.99 5.55 3.63 2.78
-------- -------- -------- ------- -------
Distributions to
shareholders from
Net investment income 0 (0.01) 0 0 0
Net realized gains (2.55) (1.94) (2.79) (0.50) (1.79)
-------- -------- -------- ------- -------
Total distributions to
shareholders (2.55) (1.95) (2.79) (0.50) (1.79)
-------- -------- -------- ------- -------
Net asset value, end of
period $ 22.97 $ 21.72 $ 21.68 $ 18.92 $ 15.79
-------- -------- -------- ------- -------
Total return* 19.08% 9.86% 33.88% 23.64% 19.26%
Ratios and supplemental
data
Net assets, end of
period (thousands) $253,281 $196,751 $113,587 $68,213 $57,648
Ratios to average net
assets
Expenses** 2.14% 2.09% 2.16% 2.18% 2.56%
Net investment income (0.96%) (0.70%) (0.22%) (0.24%) (0.41%)
Portfolio turnover rate 82% 104% 64% 98% 157%
</TABLE>
(a) Effective October 25, 1999, shareholders of Mentor Capital Growth 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 Growth Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Capital Growth Portfolio was
redesignated as that of Class C shares of Evergreen Capital Growth Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Capital Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 22.74 $ 20.81
------------ ------------
Income from investment operations
Net investment income 0 0.02
Net realized and unrealized gains or losses on
securities and futures contracts 4.31 2.16
------------ ------------
Total from investment operations 4.31 2.18
------------ ------------
Distributions to shareholders from
Net realized gains (2.55) (0.25)
------------ ------------
Total distributions to shareholders (2.55) (0.25)
------------ ------------
Net asset value, end of period $ 24.50 $ 22.74
------------ ------------
Total return 20.57% 10.56%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 1.14% 1.09%+
Net investment income 0.08% 0.38%+
Portfolio turnover rate 82% 104%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 19.54 $ 20.60 $ 19.16 $ 17.13 $ 15.27
-------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.51 0.51 0.44 0.37 0.40
Net realized and unrealized
gains or losses on securities
and futures contracts 0.98 0.60 3.39 2.75 2.14
-------- ------- ------- ------- -------
Total from investment operations 1.49 1.11 3.83 3.12 2.54
-------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.51) (0.51) (0.47) (0.35) (0.43)
Net realized gains (0.98) (1.66) (1.92) (0.74) (0.25)
-------- ------- ------- ------- -------
Total distributions to
shareholders (1.49) (2.17) (2.39) (1.09) (0.68)
-------- ------- ------- ------- -------
Net asset value, end of period $ 19.54 $ 19.54 $ 20.60 $ 19.16 $ 17.13
-------- ------- ------- ------- -------
Total return* 7.85% 5.81% 22.11% 19.13% 17.24%
Ratios and supplemental data
Net assets, end of period
(thousands) $108,815 $98,794 $63,509 $24,210 $19,888
Ratios to average net assets
Expenses** 1.37% 1.32% 1.35% 1.36% 1.69%
Net investment income 2.59% 2.70% 2.63% 2.08% 2.53%
Portfolio turnover rate 126% 40% 75% 72% 62%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 19.53 $ 20.59 $ 19.18 $ 17.14 $ 15.28
-------- -------- -------- ------- -------
Income from investment
operations
Net investment income 0.37 0.37 0.34 0.23 0.28
Net realized and unrealized
gains or losses on securities
and futures contracts 0.98 0.59 3.35 2.76 2.14
-------- -------- -------- ------- -------
Total from investment
operations 1.35 0.96 3.69 2.99 2.42
-------- -------- -------- ------- -------
Distributions to shareholders
from
Net investment income (0.38) (0.36) (0.36) (0.21) (0.31)
Net realized gains (0.98) (1.66) (1.92) (0.74) (0.25)
-------- -------- -------- ------- -------
Total distributions to
shareholders (1.36) (2.02) (2.28) (0.95) (0.56)
-------- -------- -------- ------- -------
Net asset value, end of period $ 19.52 $ 19.53 $ 20.59 $ 19.18 $ 17.14
-------- -------- -------- ------- -------
Total return* 7.06% 5.01% 21.24% 18.26% 16.32%
Ratios and supplemental data
Net assets, end of period
(thousands) $136,593 $143,846 $107,816 $66,548 $46,678
Ratios to average net assets
Expenses** 2.11% 2.07% 2.10% 2.13% 2.43%
Net investment income 1.83% 1.95% 1.87% 1.32% 1.78%
Portfolio turnover rate 126% 40% 75% 72% 62%
</TABLE>
(a) Effective October 25, 1999, shareholders of Mentor Income and Growth Port-
folio 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, respec-
tively, of Evergreen Capital Income and Growth Fund. Additionally, the ac-
counting and performance history of Class B shares of Mentor Income and
Growth Portfolio was redesignated as that of Class C shares of Evergreen
Capital Income and Growth Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 19.54 $ 18.75
------------ ------------
Income from investment operations
Net investment income 0.59 0.54
Net realized and unrealized gains or losses on
securities and futures contracts 0.97 0.82
------------ ------------
Total from investment operations 1.56 1.36
------------ ------------
Distributions to shareholders from
Net investment income (0.17) (0.54)
Net realized gains (0.98) (0.03)
------------ ------------
Total distributions to shareholders (1.15) (0.57)
------------ ------------
Net asset value, end of period $ 19.95 $ 19.54
------------ ------------
Total return 8.21% 7.29%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 1.02% 1.07%+
Net investment income 2.93% 3.15%+
Portfolio turnover rate 126% 40%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1999 1998 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value,
beginning of period $ 14.60 $ 19.94 $ 18.47 $ 16.08 $ 13.37
------- ------- -------- ------- -------
Income from investment
operations
Net investment income
(loss) (0.12) (0.12) (0.17) (0.10) (0.01)
Net realized and
unrealized gains or
losses on securities
and futures contracts 2.07 (4.03) 4.19 4.23 2.72
------- ------- -------- ------- -------
Total from investment
operations 1.95 (4.15) 4.02 4.13 2.71
------- ------- -------- ------- -------
Distributions to
shareholders from
Net realized gains (0.56) (1.19) (2.55) (1.74) 0
------- ------- -------- ------- -------
Total distributions to
shareholders (0.56) (1.19) (2.55) (1.74) 0
------- ------- -------- ------- -------
Net asset value, end of
period $ 15.99 $ 14.60 $ 19.94 $ 18.47 $ 16.08
------- ------- -------- ------- -------
Total return* 13.90% (22.08%) 25.81% 29.15% 20.27%
Ratios and supplemental
data
Net assets, end of
period (thousands) $92,229 $77,720 $105,033 $40,272 $20,368
Ratios to average net
assets
Expenses** 1.30% 1.26% 1.28% 1.28% 1.36%+
Net investment income (0.71%) (0.56%) (0.67%) (0.39%) (0.65%)+
Portfolio turnover rate 108% 88% 77% 105% 70%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------- Year Ended
1999 1998 1997 1996 1995 (c) December 31, 1994
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 14.18 $ 19.53 $ 18.29 $ 16.05 $ 12.15 $ 13.78
-------- -------- -------- -------- -------- --------
Income from investment
operations
Net investment income
(loss) (0.25) (0.23) (0.22) (0.17) (0.13) (0.15)
Net realized and
unrealized gains or
losses on securities
and futures contracts 2.02 (3.93) 4.01 4.15 4.03 (0.47)
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.77 (4.16) 3.79 3.98 3.90 (0.62)
-------- -------- -------- -------- -------- --------
Distributions to
shareholders from
Net realized gains (0.56) (1.19) (2.55) (1.74) 0 (1.01)
-------- -------- -------- -------- -------- --------
Total distributions to
shareholders (0.56) (1.19) (2.55) (1.74) 0 (1.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 15.39 $ 14.18 $ 19.53 $ 18.29 $ 16.05 $ 12.15
-------- -------- -------- -------- -------- --------
Total return* 13.01% (22.62%) 24.66% 28.18% 32.10% (4.48%)
Ratios and supplemental
data
Net assets, end of
period (thousands) $334,484 $383,188 $506,230 $371,578 $246,326 $190,126
Ratios to average net
assets
Expenses** 2.05% 2.01% 2.03% 2.03% 2.08%+ 2.01%
Net investment income (1.45%) (1.30%) (1.42%) (1.13%) (1.20%)+ (1.20%)
Portfolio turnover rate 108% 88% 77% 105% 70% 77%
</TABLE>
(a) For the period from June 5, 1995 (commencement of class operations) to Sep-
tember 30, 1995.
(b) Effective October 18, 1999, shareholders of Mentor Growth 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 Growth Fund. Additionally, the accounting and performance history
of Class B shares of Mentor Growth Portfolio was redesignated as that of
Class C shares of Evergreen Growth Fund.
(c) For the nine months ended September 30, 1995. The Fund changed its fiscal
year end from December 30 to September 30, effective September 30, 1995.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 14.63 $ 18.12
------------ ------------
Income from investment operations
Net investment income (loss) (0.07) (0.02)
Net realized and unrealized gains or losses on
securities and futures contracts 2.05 (3.28)
------------ ------------
Total from investment operations 1.98 (3.30)
------------ ------------
Distributions to shareholders from
Net realized gains (0.56) (0.19)
------------ ------------
Total distributions to shareholders (0.56) (0.19)
------------ ------------
Net asset value, end of period $ 16.05 $ 14.63
------------ ------------
Total return 14.08% 18.36%
Ratios and supplemental data
Net assets, end of period (thousands) $ 35,427 $ 25,353
Ratios to average net assets
Expenses* 1.05% 1.01%+
Net investment income (0.47%) (0.04%)+
Portfolio turnover rate 108% 88%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
41
<PAGE>
EVERGREEN
High Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1999 1998 (a)
<S> <C> <C>
CLASS A
Net asset value, beginning of period $ 10.92 $ 12.00
------------ -----------
Income from investment operations
Net investment income 1.04 0.24
Net realized and unrealized gains or losses on
securities and futures contracts (0.58) (1.04)
------------ -----------
Total from investment operations 0.46 (0.80)
------------ -----------
Distributions to shareholders from
Net investment income (1.09) (0.28)
------------ -----------
Total distributions to shareholders (1.09) (0.28)
------------ -----------
Net asset value, end of period $ 10.29 $ 10.92
------------ -----------
Total return* 4.07% (6.75)%
Ratios and supplemental data
Net assets, end of period (thousands) $ 146,179 $ 50,887
Ratios to average net assets
Expenses** 1.11% 0.60%+
Net investment income 9.00% 7.36%+
Portfolio turnover rate 79% 27%
<CAPTION>
Year Ended September 30,
---------------------------
1999 1998 (a)
<S> <C> <C>
CLASS B (b)
Net asset value, beginning of period $ 10.91 $ 12.00
------------ -----------
Income from investment operations
Net investment income 0.97 0.22
Net realized and unrealized gains or losses on
securities and futures contracts (0.57) (1.05)
------------ -----------
Total from investment operations 0.40 (0.83)
------------ -----------
Distributions to shareholders from
Net investment income (1.02) (0.26)
------------ -----------
Total distributions to shareholders (1.02) (0.26)
------------ -----------
Net asset value, end of period $ 10.29 $ 10.91
------------ -----------
Total return* 3.64% (6.95)%
Ratios and supplemental data
Net assets, end of period (thousands) $ 107,565 $ 62,869
Ratios to average net assets
Expenses** 1.58% 1.10%+
Net investment income 8.53% 6.87%+
Portfolio turnover rate 79% 27%
</TABLE>
(a) For the period from June 23, 1998 (commencement of 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 that of
Class C shares of Evergreen High Income Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
42
<PAGE>
EVERGREEN
Muncipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 15.99 $ 15.50 $ 15.04 $ 14.92 $ 14.42
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.69 0.66 0.81 0.82 0.81
Net realized and unrealized
gains or losses on securities
and futures contracts (1.24) 0.59 0.49 0.12 0.51
------- ------- ------- ------- -------
Total from investment operations (0.55) 1.25 1.30 0.94 1.32
------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.69) (0.76) (0.81) (0.82) (0.82)
Net realized gains 0 0 (0.03) 0 0
------- ------- ------- ------- -------
Total distributions to
shareholders (0.69) (0.76) (0.84) (0.82) (0.82)
------- ------- ------- ------- -------
Net asset value, end of period $ 14.75 $ 15.99 $ 15.50 $ 15.04 $ 14.92
------- ------- ------- ------- -------
Total return* (3.60%) 8.24% 8.89% 6.46% 9.46%
Ratios and supplemental data
Net assets, end of period
(thousands) $57,456 $51,757 $29,394 $17,558 $20,460
Ratios to average net assets
Expenses** 1.16% 1.17% 1.22% 1.24% 1.43%
Net investment income 4.38% 4.63% 5.09% 5.47% 5.56%
Portfolio turnover rate 146% 62% 59% 46% 43%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 15.94 $ 15.49 $ 15.05 $ 14.95 $ 14.43
------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.60 1.30 0.71 0.75 0.74
Net realized and unrealized
gains or losses on securities
and futures contracts (1.21) (0.14) 0.52 0.11 0.52
------- ------- ------- ------- -------
Total from investment operations (0.61) 1.16 1.23 0.86 1.26
------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.60) (0.71) (0.71) (0.76) (0.74)
Net realized gains 0 0 (0.08) 0 0
------- ------- ------- ------- -------
Total distributions to
shareholders (0.60) (0.71) (0.79) (0.76) (0.74)
------- ------- ------- ------- -------
Net asset value, end of period $ 14.73 $ 15.94 $ 15.49 $ 15.05 $ 14.95
------- ------- ------- ------- -------
Total return* (3.93%) 7.70% 8.33% 5.87% 9.01%
Ratios and supplemental data
Net assets, end of period
(thousands) $51,146 $59,351 $44,272 $37,191 $39,493
Ratios to average net assets
Expenses** 1.66% 1.67% 1.72% 1.74% 1.92%
Net investment income 3.89% 4.13% 4.60% 4.95% 5.07%
Portfolio turnover rate 146% 62% 59% 46% 43%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Municipal Income Portfo-
lio 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, respec-
tively, of Evergreen Municipal Income Fund. Additionally, the accounting
and performance history of Class B shares of Mentor Municipal Income Port-
folio was redesignated as that of Class C shares of Evergreen Municipal In-
come Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
43
<PAGE>
EVERGREEN
Muncipal Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 16.00 $ 15.51
------------ ------------
Income from investment operations
Net investment income 0.83 1.39
Net realized and unrealized gains or losses on
securities and futures contracts (1.37) (0.23)
------------ ------------
Total from investment operations (0.54) 1.16
------------ ------------
Distributions to shareholders from
Net investment income (0.22) (0.67)
------------ ------------
Total distributions to shareholders (0.22) (0.67)
------------ ------------
Net asset value, end of period $ 15.24 $ 16.00
------------ ------------
Total return (3.36%) 7.51%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 0.89% 0.92%+
Net investment income 4.78% 5.66%+
Portfolio turnover rate 146% 62%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
44
<PAGE>
EVERGREEN
Quality Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 13.61 $ 13.18 $ 12.91 $ 13.29 $ 12.75
-------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.79 0.79 0.97 0.89 0.84
Net realized and unrealized
gains or losses on securities
and futures contracts (1.18) 0.47 0.26 (0.37) 0.61
-------- ------- ------- ------- -------
Total from investment operations (0.39) 1.26 1.23 0.52 1.45
-------- ------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.79) (0.83) (0.96) (0.90) (0.91)
-------- ------- ------- ------- -------
Total distributions to
shareholders (0.79) (0.83) (0.96) (0.90) (0.91)
-------- ------- ------- ------- -------
Net asset value, end of period $ 12.43 $ 13.61 $ 13.18 $ 12.91 $ 13.29
-------- ------- ------- ------- -------
Total return* (2.89%) 9.95% 9.86% 4.09% 11.82%
Ratios and supplemental data
Net assets, end of period
(thousands) $103,794 $94,279 $53,176 $21,092 $24,472
Ratios to average net assets
Expenses** 1.05% 1.05% 1.05% 1.05% 1.32%
Net investment income 6.08% 5.73% 7.01% 6.84% 6.73%
Portfolio turnover rate 171% 114% 100% 254% 368%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS B (a)
Net asset value, beginning of
period $ 13.61 $ 13.18 $ 12.93 $ 13.31 $ 12.76
------- -------- ------- ------- -------
Income from investment
operations
Net investment income 0.71 0.72 0.86 0.84 0.79
Net realized and unrealized
gains or losses on securities
and futures contracts (1.16) 0.48 0.30 (0.38) 0.61
------- -------- ------- ------- -------
Total from investment
operations (0.45) 1.20 1.16 0.46 1.40
------- -------- ------- ------- -------
Distributions to shareholders
from
Net investment income (0.73) (0.77) (0.91) (0.84) (0.85)
------- -------- ------- ------- -------
Total distributions to
shareholders (0.73) (0.77) (0.91) (0.84) (0.85)
------- -------- ------- ------- -------
Net asset value, end of period $ 12.43 $ 13.61 $ 13.18 $ 12.93 $ 13.31
------- -------- ------- ------- -------
Total return* (3.34%) 9.46% 9.29% 3.57% 11.33%
Ratios and supplemental data
Net assets, end of period
(thousands) $97,403 $112,901 $75,046 $58,239 $62,155
Ratios to average net assets
Expenses** 1.55% 1.55% 1.55% 1.55% 1.74%
Net investment income 5.57% 5.22% 6.51% 6.36% 6.24%
Portfolio turnover rate 171% 114% 100% 254% 368%
</TABLE>
(a) Effective October 18, 1999, shareholders of Mentor Quality Income 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 Quality Income Fund. Additionally, the accounting and perfor-
mance history of Class B shares of Mentor Quality Income Portfolio was
redesignated as that of Class C shares of Evergreen Quality Income Fund.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Quality Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1999 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 13.69 $ 13.20
------------ ------------
Income from investment operations
Net investment income 0.84 0.78
Net realized and unrealized gains or losses on
securities and futures contracts (1.20) 0.39
------------ ------------
Total from investment operations (0.36) 1.17
------------ ------------
Distributions to shareholders from
Net investment income (0.24) (0.68)
------------ ------------
Total distributions to shareholders (0.24) (0.68)
------------ ------------
Net asset value, end of period $ 13.09 $ 13.69
------------ ------------
Total return (2.63%) 8.94%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses* 0.80% 0.80%+
Net investment income 6.30% 7.09%+
Portfolio turnover rate 171% 114%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
46
<PAGE>
EVERGREEN
Short-Duration Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
1999 1998 1997 1996 1995 (a)
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of
period $ 12.74 $ 12.62 $ 12.50 $12.68 $12.74
-------- ------- ------- ------ ------
Income from investment
operations
Net investment income 0.68 0.70 0.77 0.82 0.22
Net realized and unrealized
gains or losses on securities
and futures contracts (0.51) 0.15 0.12 (0.23) (0.03)
-------- ------- ------- ------ ------
Total from investment operations 0.17 0.85 0.89 0.59 0.19
-------- ------- ------- ------ ------
Distributions to shareholders
from
Net investment income (0.71) (0.73) (0.77) (0.77) (0.25)
-------- ------- ------- ------ ------
Total distributions to
shareholders (0.71) (0.73) (0.77) (0.77) (0.25)
-------- ------- ------- ------ ------
Net asset value, end of period $ 12.20 $ 12.74 $ 12.62 $12.50 $12.68
-------- ------- ------- ------ ------
Total return* 1.38% 6.98% 7.33% 4.80% 1.51%
Ratios and supplemental data
Net assets, end of period
(thousands) $116,886 $93,135 $27,619 $7,450 $1,002
Ratios to average net assets
Expenses** 0.88% 0.86% 0.86% 0.86% 0.71%+
Net investment income 5.29% 5.24% 6.00% 5.90% 4.10%+
Portfolio turnover rate 218% 171% 75% 411% 126%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------- Year Ended
1999 1998 1997 1996 1995 (c) December 31, 1994 (d)
<S> <C> <C> <C> <C> <C> <C>
CLASS B (b)
Net asset value,
beginning of period $ 12.75 $ 12.62 $ 12.50 $ 12.67 $ 12.18 $ 12.50
------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income 0.62 0.66 0.73 0.73 0.59 0.41
Net realized and
unrealized gains or
losses on securities
and futures contracts (0.50) 0.16 0.12 (0.17) 0.52 (0.29)
------- ------- ------- ------- ------- -------
Total from investment
operations 0.12 0.82 0.85 0.56 1.11 0.12
------- ------- ------- ------- ------- -------
Distributions to
shareholders from
Net investment income (0.66) (0.69) (0.73) (0.73) (0.62) (0.44)
------- ------- ------- ------- ------- -------
Total distributions to
shareholders (0.66) (0.69) (0.73) (0.73) (0.62) (0.44)
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 12.21 $ 12.75 $ 12.62 $ 12.50 $ 12.67 $ 12.18
------- ------- ------- ------- ------- -------
Total return* 0.99% 6.68% 6.96% 4.53% 9.22% 0.95%
Ratios and supplemental
data
Net assets, end of
period (thousands) $44,074 $53,908 $27,089 $24,517 $19,871 $17,144
Ratios to average net
assets
Expenses** 1.19% 1.16% 1.16% 1.16% 1.20%+ 1.29%+
Net investment income 5.00% 4.94% 5.70% 5.60% 5.04%+ 4.90%+
Portfolio turnover rate 218% 171% 75% 411% 126% 166%
</TABLE>
(a) For the period from June 16, 1995 (commencement of class operations) to
September 30, 1995.
(b) Effective October 25, 1999, shareholders of Mentor Short-Duration Income
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, re-
spectively, of Evergreen Short-Duration Income Fund. Additionally, the ac-
counting and performance history of Class B shares of Mentor Short-Duration
Income Portfolio was redesignated as that of Class C shares of Evergreen
Short-Duration Income Fund.
(c) For the period from January 1, 1995 to September 30, 1995. The Fund changed
its fiscal year end from December 31 to September 30, effective September
30, 1996.
(d) For the period from April 29, 1994 (commencement of class operations) to
December 31, 1994.
* Excluding applicable sales charges.
** Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
See Combined Notes to Financial Statements.
47
<PAGE>
EVERGREEN
Short-Duration Income Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999++ 1998 (a)
<S> <C> <C>
CLASS Y
Net asset value, beginning of period $ 12.79 $ 12.57
------------ ------------
Income from investment operations
Net investment income 0.88 0.67
Net realized and unrealized gains or losses on
securities and futures contracts (0.67) 0.16
------------
Total from investment operations 0.21 0.83
------------ ------------
Distributions to shareholders from
Net investment income (0.20) (0.61)
------------ ------------
Total distributions to shareholders (0.20) (0.61)
------------ ------------
Net asset value, end of period $ 12.80 $ 12.79
------------ ------------
Total return 1.63% 6.64%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1 $ 1
Ratios to average net assets
Expenses * 0.62% 0.61%+
Net investment income 5.46% 6.10%+
Portfolio turnover rate 218% 171%
</TABLE>
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
* Ratio of expenses to average net assets includes fee waivers and excludes
fee credits.
+ Annualized.
++ Calulation based on average shares outstanding.
See Combined Notes to Financial Statements.
48
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 46.2%
Advertising & Related
Services - 2.0%
174,670 Interpublic Group of Companies, Inc. ............... $ 7,183,304
------------
Banks - 4.3%
102,766 Charter One Financial, Inc. (b)..................... 2,376,455
2,901 M&T Bank Corp. ..................................... 1,331,559
173,100 SouthTrust Corp. ................................... 6,209,962
140,495 Wells Fargo Co. (b)................................. 5,567,114
------------
15,485,090
------------
Building, Construction & Furnishings - 0.8%
134,985 Sherwin Williams Co. ............................... 2,826,248
------------
Business Equipment &
Services - 7.9%
174,800 Automatic Data Processing, Inc. .................... 7,800,450
128,645 * Computer Sciences Corp. .......................... 9,045,352
162,100 First Data Corp. ................................... 7,112,137
156,600 * SunGard Data Systems, Inc. (b).................... 4,120,538
------------
28,078,477
------------
Communication Systems & Services - 1.7%
84,585 * MCI WorldCom, Inc. ............................... 6,079,547
------------
Diversified Companies - 2.5%
86,645 Tyco International Ltd. (b)......................... 8,946,096
------------
Finance & Insurance - 4.1%
45,860 American Express Co. ............................... 6,173,903
103,910 Federal National Mortgage Assoc. (b)................ 6,513,858
70,880 Washington Mutual, Inc. ............................ 2,073,240
------------
14,761,001
------------
Food & Beverage Products - 3.0%
150,000 Albertsons, Inc. ................................... 5,934,375
145,000 Philip Morris Companies, Inc. ...................... 4,957,187
------------
10,891,562
------------
Healthcare Products &
Services - 5.9%
108,890 Bristol-Myers Squibb Co. ........................... 7,350,075
80,205 Johnson & Johnson................................... 7,368,834
367,970 * Tenet Healthcare Corp. ........................... 6,462,473
------------
21,181,382
------------
Industrial Specialty Products & Services - 2.0%
94,435 Illinois Tool Works, Inc............................ 7,041,310
------------
Information Services & Technology - 4.7%
108,000 Intel Corp. ........................................ 8,025,750
93,050 * Sun Microsystems, Inc. ........................... 8,653,650
------------
16,679,400
------------
Manufacturing - Distributing - 2.4%
245,935 Sysco Corp. ........................................ 8,623,096
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Paper & Packaging - 1.5%
104,600 Kimberly-Clark Corp. .............................. $ 5,491,500
------------
Printing, Publishing, Broadcasting &
Entertainment - 2.5%
113,600 * AMFM, Inc. (b)................................... 6,915,400
24,800 Omnicom Group, Inc. ............................... 1,963,850
------------
8,879,250
------------
Transportation - 0.9%
174,272 Werner Enterprises, Inc. .......................... 3,071,544
------------
Total Common Stocks (cost $143,773,335)............ 165,218,807
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 5.0%
$ 16,825 AFG Receivables Trust, Series 1997-A Cl. B
6.65%, 10/15/2002................................. 16,872
1,000,000 Capital Auto Receivables Asset, Series 1999-2 Cl.
A4
6.30%, 10/15/1999................................. 1,001,285
2,900,000 Capital One Master Trust, Series 1998-4 Cl. A
5.43%, 1/15/2007.................................. 2,792,917
1,691,872 Continental Airlines Trust, Series 1997-1A
7.461%, 4/1/2015.................................. 1,646,251
25,000 CS First Boston Mortgage Securities Corp., Series
1996-2 Cl. A6
7.18%, 2/25/2018.................................. 24,910
Discover Card Master Trust I:
1,125,000 Series 1998-7 Cl. A,
5.60%, 5/16/2006................................... 1,083,516
2,025,000 Series 1996-3 Cl. A,
6.05%, 8/18/2008................................... 1,957,658
2,500,000 EQCC Home Equity Loan Trust, Series 1999-2 Cl. A6F
6.685%, 2/25/2010................................. 2,434,137
1,200,000 Ford Credit Auto Owner Trust, Series 1999-C Cl. A4
6.08%, 9/16/2002.................................. 1,197,006
1,500,000 Key Auto Finance Trust, Series 1999-1 Cl. A3
5.63%, 7/15/2003.................................. 1,487,093
1,700,000 Northwest Airlines Trust, Series 1999-2 Cl. B
7.95%, 3/1/2015................................... 1,687,501
2,500,000 Saxon Asset Securities Trust, Series 1999-2 Cl. Af6
6.415%, 3/25/2014................................. 2,378,555
Union Acceptance Corp.:
250,000 Series 1998-D,
5.75%, 6/9/2003.................................... 248,791
45,000 Series 1997-A Cl. A3,
6.48%, 5/10/2004................................... 44,909
------------
Total Asset-Backed Securities (cost $18,524,831)... 18,001,401
------------
</TABLE>
49
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - 9.2%
Banks - 0.0%
$ 60,000 Norwest Corp.
6.80%, 5/15/2002.................................. $ 60,419
------------
Diversified Companies - 0.4%
1,500,000 Rothmans Nederland Holdings BV
6.875%, 5/6/2008.................................. 1,409,777
------------
Finance & Insurance - 1.6%
1,500,000 Associates Corp. of North America 6.25%,
11/1/2008......................................... 1,414,170
1,250,000 Ford Motor Credit Co.
5.80%, 1/12/2009.................................. 1,137,487
300,000 General Electric Capital Corp.
6.29%, 12/15/2007................................. 300,166
1,580,000 Goldman Sachs Group, Inc.
6.65%, 5/15/2009.................................. 1,505,024
1,450,000 Household Finance Corp.
6.40%, 6/17/2008.................................. 1,363,310
100,000 Toyota Motor Credit Corp.
5.625%, 11/13/2003................................ 96,452
------------
5,816,609
------------
Food & Beverage Products - 0.9%
1,500,000 Kroger Co.
7.25%, 6/1/2009................................... 1,467,561
1,800,000 Pepsi Bottling Holdings, Inc.
5.625%, 2/17/2009................................. 1,619,048
------------
3,086,609
------------
Healthcare Products &
Services - 0.1%
330,000 SmithKline Beecham Corp.
6.625%, 10/1/2001................................. 333,041
------------
Information Services & Technology - 1.0%
1,800,000 IBM Corp. (b)
6.50%, 1/15/2028.................................. 1,651,469
2,000,000 Sun Microsystems, Inc.
7.65%, 8/15/2009.................................. 2,030,640
------------
3,682,109
------------
Oil/Energy - 1.1%
1,400,000 Atlantic Richfield Co.
5.90%, 4/15/2009.................................. 1,302,323
1,800,000 Conoco, Inc.
6.35%, 4/15/2009.................................. 1,716,021
1,000,000 Enron Corp.
6.725%, 11/17/2008................................ 955,788
------------
3,974,132
------------
Retailing & Wholesale - 0.4%
1,500,000 Wal-Mart Stores, Inc. 6.875%, 8/10/2009............ 1,505,222
------------
Sovereign Government - 0.3%
1,150,000 Quebec Province Canada 7.50%, 9/15/2029............ 1,150,840
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Telecommunication Services & Equipment - 1.4%
$ 1,540,000 Cable & Wireless Communication 6.625%, 3/6/2005.... $ 1,554,214
1,500,000 Lucent Technologies, Inc. 6.45%, 3/15/2029......... 1,352,265
2,000,000 Tyco International Group SA 6.875%, 9/5/2002....... 2,005,108
------------
4,911,587
------------
Utilities - Electric - 1.2%
2,000,000 Alabama Power Co. 7.125%, 8/15/2004................ 2,016,272
Georgia Power Co.:
1,500,000 5.50%, 12/1/2005................................... 1,400,668
1,000,000 6.00%, 3/1/2000.................................... 1,000,833
------------
4,417,773
------------
Utilities - Telephone - 0.5%
1,850,000 Sprint Capital Corp. 6.90%, 5/1/2019............... 1,722,898
------------
Utilities - 0.3%
1,000,000 PSI Energy, Inc. 6.00%, 12/14/2001................. 977,601
------------
Total Corporate Bonds (cost $34,032,642)........... 33,048,617
------------
<CAPTION>
Shares Value
<C> <S> <C>
UNIT INVESTMENT TRUST - 1.3%
Finance & Insurance - 1.3%
36,000 S&P 500 Depositary Receipt (SPDR Trust)
(cost $4,605,660)................................. 4,635,000
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 28.0%
U.S. Treasury Notes & Bonds - 3.6%
U.S. Treasury Bonds:
$ 1,700,000 5.25%, 11/15/2028 (b).............................. 1,474,220
500,000 6.00%, 2/15/2026................................... 476,875
9,350,000 6.50%, 11/15/2026 (b)(c)........................... 9,501,937
1,250,000 U.S. Treasury Notes 6.00%, 8/15/2009............... 1,260,157
------------
12,713,189
------------
</TABLE>
50
<PAGE>
EVERGREEN
Capital Balanced Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - continued
U.S. Government Agency Obligations - 24.4%
$ 2,250,000 Federal Home Loan Bank 7.00%, 9/22/2004............. $ 2,242,062
Federal National Mortgage Assoc.:
3,687,244 6.00%, 8/1/2014..................................... 3,548,087
10,400,000 6.50%, 4/1/2014..................................... 10,227,673
4,750,000 6.625%, 9/15/2009................................... 4,733,693
31,336,000 7.00%, 9/1/2014 - 8/1/2029.......................... 31,113,297
25,000,000 7.50%, 9/1/2029..................................... 25,105,277
10,716,191 Government National Mortgage Assoc.
6.50%, 5/15/2009 - 4/15/2029........................ 10,321,154
------------
87,291,243
------------
Total U.S. Government & Agency Obligations
(cost $99,334,674)................................. 100,004,432
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 18.0%
Mutual Fund Shares - 6.4%
22,733,449 Navigator Prime Portfolio (d)....................... 22,733,449
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
Repurchase Agreement - 11.6%
$41,410,701 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$41,416,775 (cost $41,410,701) (a)................ $ 41,410,701
------------
Total Short-Term Investments (cost $64,144,150).... 64,144,150
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $364,415,292)...... 107.7% 385,052,407
Other Assets and Liabilities - net.......... (7.7) (27,523,995)
----- ------------
Net Assets.................................. 100.0% $357,528,412
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S.
government and/or agency obligations based on market prices plus
accrued interest at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) All or a portion of the principal amount of this security was pledged
to cover initial margin requirements for open future contracts.
(d) Represents investment in cash collateral received for securities on
loan.
* Non-income producing security.
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<CAPTION>
Number of Initial Contract Value at Net
Expiration Contracts Amount September 30, 1999 Unrealized Loss
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 87 5 Yr. T-Note $9,389,204 $9,436,786 ($47,582)
December
1999 43 2 Yr. T-Note 8,894,954 8,923,841 (28,887)
--------
($76,469)
========
</TABLE>
See Combined Notes to Financial Statements.
51
<PAGE>
EVERGREEN
Capital Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 92.3%
Advertising & Related
Services - 4.4%
575,600 Interpublic Group of Companies, Inc. ............... $ 23,671,550
------------
Banks - 7.2%
512,500 SouthTrust Corp. ................................... 18,385,938
519,800 Wells Fargo Co. .................................... 20,597,075
------------
38,983,013
------------
Building, Construction & Furnishings - 2.9%
754,600 Sherwin Williams Co. ............................... 15,799,438
------------
Business Equipment &
Services - 16.3%
515,000 Automatic Data Processing, Inc. .................... 22,981,875
376,150 * Computer Sciences Corp. .......................... 26,448,047
467,000 First Data Corp .................................... 20,489,625
675,000 * SunGard Data Systems, Inc. (b) ................... 17,760,937
------------
87,680,484
------------
Communication Systems & Services - 3.3%
245,750 * MCI WorldCom, Inc. ............................... 17,663,281
------------
Diversified Companies - 4.6%
241,600 Tyco International Ltd. ............................ 24,945,200
------------
Finance & Insurance - 10.1%
156,500 American Express Co. ............................... 21,068,812
304,600 Federal National Mortgage Assoc. ................... 19,094,613
483,640 Washington Mutual, Inc. ............................ 14,146,470
------------
54,309,895
------------
Food & Beverage Products - 6.4%
462,500 Albertsons, Inc. ................................... 18,297,656
470,000 Philip Morris Companies, Inc. ...................... 16,068,125
------------
34,365,781
------------
Healthcare Products &
Services - 11.3%
311,500 Bristol-Myers Squibb Co. ........................... 21,026,250
220,600 Johnson & Johnson................................... 20,267,625
1,131,000 * Tenet Healthcare Corp. (b)........................ 19,863,188
------------
61,157,063
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Industrial Specialty Products & Services - 3.9%
283,700 Illinois Tool Works, Inc. ......................... $ 21,153,381
------------
Information Services &
Technology - 8.1%
300,210 Intel Corp. ....................................... 22,309,356
227,700 * Sun Microsystems, Inc. .......................... 21,176,100
------------
43,485,456
------------
Manufacturing - Distributing - 4.9%
756,500 Sysco Corp. ....................................... 26,524,781
------------
Paper & Packaging - 3.1%
318,400 Kimberly-Clark Corp. .............................. 16,716,000
------------
Printing, Publishing, Broadcasting &
Entertainment - 4.3%
379,750 * AMFM, Inc. (b)................................... 23,117,281
------------
Transportation - 1.5%
446,312 Werner Enterprises, Inc. .......................... 7,866,249
------------
Total Common Stocks
(cost $427,362,541)............................... 497,438,853
------------
SHORT-TERM INVESTMENTS - 8.7%
Mutual Fund Shares - 0.7%
3,687,316 Navigator Prime Portfolio (c)...................... 3,687,316
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 8.0%
$43,350,457 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$43,356,815 (cost $43,350,457) (a)................ 43,350,457
------------
Total Short-Term Investments
(cost $47,037,773)................................ 47,037,773
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $474,400,314)........................ 101.0% 544,476,626
Other Assets and Liabilities - net.......... (1.0) (5,504,008)
----- ------------
Net Assets.................................. 100.0% $538,972,618
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest
at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
52
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 49.6%
Advertising & Related
Services - 1.7%
104,000 Interpublic Group of Companies, Inc. ................ $ 4,277,000
------------
Automotive Equipment & Manufacturing - 1.3%
62,200 Ford Motor Co........................................ 3,121,662
------------
Banks - 4.6%
73,500 SouthTrust Corp. .................................... 2,636,812
100,900 U.S. Bancorp......................................... 3,045,919
39,000 Wachovia Corp. (b)................................... 3,066,375
65,000 Wells Fargo Co. ..................................... 2,575,625
------------
11,324,731
------------
Building, Construction & Furnishings - 1.0%
113,400 Sherwin Williams Co. ................................ 2,374,313
------------
Business Equipment &
Services - 7.0%
110,000 Automatic Data Processing, Inc....................... 4,908,750
70,000 * Computer Sciences Corp. ........................... 4,921,875
91,000 First Data Corp. .................................... 3,992,625
130,000 * SunGard Data Systems, Inc. ........................ 3,420,625
------------
17,243,875
------------
Communication Systems & Services - 1.3%
43,000 * MCI WorldCom, Inc. ................................ 3,090,625
------------
Diversified Companies - 2.1%
51,000 Tyco International Ltd............................... 5,265,750
------------
Finance & Insurance - 6.2%
29,000 American Express Co. (b)............................. 3,904,125
92,550 Citigroup, Inc. ..................................... 4,072,200
77,600 Federal National Mortgage
Assoc. (b).......................................... 4,864,550
80,000 Washington Mutual, Inc. (b).......................... 2,340,000
------------
15,180,875
------------
Food & Beverage Products - 2.6%
92,900 Albertsons, Inc...................................... 3,675,356
77,000 Philip Morris Companies, Inc. ....................... 2,632,438
------------
6,307,794
------------
Healthcare Products &
Services - 6.2%
65,000 Bristol-Myers Squibb Co. ............................ 4,387,500
45,500 Johnson & Johnson.................................... 4,180,312
61,000 Pharmacia & Upjohn, Inc.............................. 3,027,125
207,000 * Tenet Healthcare Corp.............................. 3,635,438
------------
15,230,375
------------
Industrial Specialty Products & Services - 1.5%
50,000 Illinois Tool Works, Inc............................. 3,728,125
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services & Technology - 5.5%
57,000 Intel Corp. ......................................... $ 4,235,812
28,800 International Business Machines Corp. (b)............ 3,495,600
61,000 * Sun Microsystems, Inc. ............................ 5,673,000
------------
13,404,412
------------
Manufacturing - Distributing - 2.1%
143,600 Sysco Corp........................................... 5,034,975
------------
Oil Field Services - 1.4%
118,800 Baker Hughes, Inc. .................................. 3,445,200
------------
Paper & Packaging - 1.4%
66,000 Kimberly-Clark Corp. ................................ 3,465,000
------------
Printing, Publishing, Broadcasting &
Entertainment - 1.7%
70,000 * AMFM, Inc. (b)..................................... 4,261,250
------------
Transportation - 0.6%
85,000 Werner Enterprises, Inc. ............................ 1,498,125
------------
Utilities - Telephone - 1.4%
69,300 SBC Communications, Inc. ............................ 3,538,631
------------
Total Common Stocks
(cost $116,374,004)................................. 121,792,718
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 2.2%
$1,300,000 American Express Credit Account, Series 1999 2Nctf
Cl. A
5.95%, 12/15/2006.................................. 1,267,585
1,800,000 Capital Auto Receivables Asset, Series 1999-2 Cl. A4
6.30%, 5/15/2004................................... 1,802,313
1,250,000 Discover Card Master Trust I, Series 1998-7 Cl. A
5.60%, 5/16/2006................................... 1,203,906
1,000,000 Ford Credit Auto Owner Trust, Series 1999-C Cl. A4
6.08%, 9/16/2002................................... 997,505
------------
Total Asset-Backed Securities
(cost $5,258,396).................................. 5,271,309
------------
CORPORATE BONDS - 12.4%
Aerospace & Defense - 1.0%
2,500,000 Raytheon Co.
6.45%, 8/15/2002................................... 2,480,538
------------
Banks - 0.1%
250,000 Chase Manhattan Corp.
7.75%, 11/1/1999................................... 250,420
------------
Finance & Insurance - 2.4%
1,000,000 Allstate Corp. 6.75%, 5/15/2018..................... 909,455
2,500,000 Associates Corporation North America 5.75%,
11/1/2003.......................................... 2,407,677
</TABLE>
53
<PAGE>
EVERGREEN
Capital Income and Growth Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
$ 1,500,000 Household Finance Corp.
7.20%, 7/15/2006................................... $ 1,499,550
500,000 Security Benefit Life Co.
8.75%, 5/15/2016................................... 488,700
785,000 United States West Capital Funding, Inc.
6.875%, 7/15/2028.................................. 701,129
------------
6,006,511
------------
Food & Beverage Products - 1.0%
2,500,000 Kroger Co.
7.25%, 6/1/2009.................................... 2,445,935
------------
Information Services & Technology - 1.6%
2,500,000 International Business Machines
6.50%, 1/15/2028................................... 2,293,707
1,500,000 Sun Microsystems, Inc.
7.65%, 8/15/2009................................... 1,522,980
------------
3,816,687
------------
Oil/Energy - 1.0%
2,500,000 Atlantic Richfield Co.
5.90%, 4/15/2009................................... 2,325,577
250,000 Pacific Gas & Electric Co.
5.93%, 10/8/2003................................... 243,696
------------
2,569,273
------------
Retailing & Wholesale - 1.0%
1,000,000 Gap, Inc.
6.90%, 9/15/2007................................... 995,226
1,500,000 Wal-Mart Stores, Inc.
6.875%, 8/10/2009.................................. 1,505,221
------------
2,500,447
------------
Sovereign Government - 2.0%
2,500,000 Province of Ontario, Canada
7.75%, 6/4/2002.................................... 2,579,350
2,500,000 Quebec Province, Canada
5.75%, 2/15/2009................................... 2,282,950
------------
4,862,300
------------
Telecommunication Services & Equipment - 0.5%
1,250,000 Lucent Technologies, Inc.
6.45%, 3/15/2029................................... 1,126,888
------------
Thrift Institutions - 0.2%
250,000 Great Western Financial Corp.
6.375%, 7/1/2000................................... 250,688
250,000 Home Svgs America, Irwindale California
6.00%, 11/1/2000................................... 248,328
------------
499,016
------------
Utilities - Electric - 0.8%
1,000,000 Duke Energy Co.
6.00%, 12/1/2028................................... 814,466
250,000 Florida Power & Light Co.
5.375%, 4/1/2000................................... 249,622
250,000 Southwestern Public Service Co.
6.875%, 12/1/1999.................................. 250,451
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Utilities - Electric - continued
$ 500,000 System Energy Resources, Inc.
7.71%, 8/1/2001................................... $ 507,250
250,000 Union Electric Co.
6.75%, 10/15/1999................................. 250,088
------------
2,071,877
------------
Utilities - Telephone - 0.8%
2,000,000 Worldcom, Inc.
6.95%, 8/15/2028.................................. 1,866,392
------------
Total Corporate Bonds (cost $31,249,108)........... 30,496,284
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 26.0%
U.S. Treasury Bonds - 2.0%
5,600,000 U.S. Treasury Bonds
5.25%, 11/15/2028 (b)............................. 4,856,253
------------
U.S. Government Agency Obligations - 24.0%
Federal National Mortgage Assoc.
2,591,036 6.00%, 8/1/2014.................................... 2,493,250
5,950,000 6.50%, 4/1/2014.................................... 5,851,409
3,360,000 6.625%, 9/15/2009.................................. 3,348,465
13,695,703 7.00%, 9/1/2014 - 8/1/2029......................... 13,636,129
20,000,000 7.50%, 9/1/2029 - 10/1/2029........................ 20,084,200
Government National Mortgage Assoc.
4,997,101 6.00%, 12/15/2028.................................. 4,642,507
6,212,287 6.50%, 7/15/2014 - 6/15/2028....................... 5,983,442
2,925,433 7.00%, 1/15/2024 - 7/15/2024....................... 2,885,530
------------
58,924,932
------------
Total U.S. Government & Agency Obligations
(cost $63,843,424)................................ 63,781,185
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 15.1%
Mutual Fund Shares - 5.5%
13,385,847 Navigator Prime Portfolio (c)...................... 13,385,847
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 9.6%
$23,655,068 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$23,658,537
(cost $23,655,068) (a)............................ 23,655,068
------------
Total Short-Term Investments (cost $37,040,915).... 37,040,915
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $253,765,847)........................ 105.3% 258,382,411
Other Assets and Liabilities - net.......... (5.3) (12,972,562)
----- ------------
Net Assets.................................. 100.0% $245,409,849
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. govern-
ment and/or agency obligations based on market prices plus accrued
interest at September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on
loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
54
<PAGE>
EVERGREEN
Growth Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 91.1%
Advertising & Related Services - 1.7%
83,350 * Lamar Advertising Co. Cl. A (b)............... $ 4,125,825
106,289 * Outdoor Systems, Inc. ........................ 3,799,832
------------
7,925,657
------------
Banks - 2.9%
88,250 Commerce Bancorp, Inc. ......................... 3,662,375
285,784 National Commerce Bancorp....................... 6,278,317
40,950 U.S. Trust Corp. ............................... 3,291,356
------------
13,232,048
------------
Building, Construction & Furnishings - 0.3%
57,850 * Shaw Group, Inc. ............................. 1,298,009
------------
Business Equipment & Services - 9.6%
199,000 AHL Services, Inc. (b).......................... 5,186,437
175,925 Butler International, Inc. ..................... 1,539,344
119,450 C&D Technologies................................ 4,337,528
105,550 Circle International Group, Inc. ............... 2,157,178
232,374 Concord EFS, Inc. .............................. 4,792,714
51,200 Corporate Executive Board Co. .................. 2,086,400
83,500 * CSG System International, Inc. ............... 2,288,422
240,400 Heidrick & Struggles International, Inc. ....... 4,582,625
198,250 Imax Corp. (b).................................. 3,965,000
199,022 Nova Corp. (b).................................. 4,975,550
76,300 Polycom, Inc. .................................. 3,636,172
380,150 Sensormatic Electronics Corp. (b)............... 4,823,153
------------
44,370,523
------------
Communication Systems & Services - 6.7%
112,600 Exar Corp. ..................................... 4,215,463
41,000 Focal Communications Corp. ..................... 1,050,625
219,550 Kemet Corp. .................................... 7,018,739
65,050 Nielsen Media Research, Inc. ................... 2,419,047
201,750 * Pinnacle Holdings, Inc. ...................... 5,270,719
75,800 Powerwave Technologies, Inc. ................... 3,654,981
117,900 Westwood One, Inc. (b).......................... 5,320,237
47,150 * Winstar Communications, Inc. (b).............. 1,841,797
------------
30,791,608
------------
Consumer Products & Services - 3.5%
119,000 * Action Performance Companies, Inc. (b)........ 2,506,438
175,550 Chattem, Inc. .................................. 3,873,072
88,150 Jakks Pacific, Inc. ............................ 3,305,625
160,750 Rent-Way, Inc. (b).............................. 3,054,250
152,625 SCP Pool Corp. ................................. 3,586,687
------------
16,326,072
------------
Electrical Equipment & Services - 11.6%
134,700 Asyst Technologies, Inc. (b).................... 4,445,100
186,000 * Atmel Corp. (b)............................... 6,289,125
135,650 Atmi, Inc. (b).................................. 5,061,441
225,140 * Benchmark Electronics, Inc. (b)............... 7,950,256
59,750 * Black Box Corp. (b)........................... 3,136,875
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Electrical Equipment & Services - continued
280,650 Cypress Semiconductor Corp. ...................... $ 6,033,975
303,300 * Parlex Corp. ................................... 4,663,237
111,100 Photronic, Inc. .................................. 2,492,806
178,950 Power One, Inc. (b)............................... 4,563,225
91,000 * PRI Automation, Inc. (b)........................ 3,287,375
69,900 Radisys Corp. .................................... 2,743,575
201,000 * Sipex Corp. .................................... 2,876,813
------------
53,543,803
------------
Electronic Equipment & Services - 4.2%
67,450 Alpha Industries, Inc. ........................... 3,804,602
315,300 Cerprobe Corp. ................................... 1,497,675
51,500 CTS Corp. ........................................ 2,961,250
257,350 International Rectifier Corp. .................... 3,924,587
189,600 Memc Electronic Materials, Inc. (b)............... 2,607,000
104,300 Micrel, Inc. (b).................................. 4,524,012
------------
19,319,126
------------
Finance & Insurance - 1.4%
35,410 Markel Corp. ..................................... 6,446,833
------------
Food & Beverage Products - 1.9%
262,000 * United States Foodservice (b)................... 4,716,000
104,000 Wild Oats Markets, Inc. (b)....................... 4,108,000
------------
8,824,000
------------
Healthcare Products & Services - 8.7%
121,250 Bindley Western Industries, Inc. ................. 1,735,391
226,100 * Brookdale Living Communities, Inc. ............. 3,250,187
90,850 * Chirex, Inc. ................................... 2,345,066
54,550 * Dendrite International, Inc. (b)................ 2,577,488
124,300 Medicis Pharmaceutical Corp. ..................... 3,542,550
99,600 * MedQuist, Inc. ................................. 3,330,375
148,000 Molecular Devices Corp. .......................... 4,070,000
140,100 Pharmaceutical Product Development, Inc. (b)..... 1,900,106
42,100 Priority Healthcare Corp. Cl. A................... 1,299,837
142,150 Priority Healthcare Corp. Cl. B................... 4,388,881
353,300 Province Healthcare Co. .......................... 4,062,950
261,100 United Payors & United Providers.................. 4,601,887
94,750 * Wesley Jessen Visioncare, Inc. ................. 2,955,016
------------
40,059,734
------------
Industrial Specialty Products & Services - 0.5%
54,000 * Dionex Corp. ................................... 2,308,500
------------
Information Services & Technology - 10.4%
53,200 * Applied Micro Circuits Corp. ................... 3,032,400
106,900 Bea Systems, Inc. (b)............................. 3,774,906
206,450 Braun Consulting, Inc. (b)........................ 3,432,231
119,300 Burr-Brown Corp. ................................. 4,712,350
271,200 * Corsair Communications, Inc. ................... 1,915,350
106,350 Datastream Systems, Inc. ......................... 1,395,844
34,900 Factset Research Systems Inc. (b)................. 1,984,938
</TABLE>
55
<PAGE>
EVERGREEN
Growth Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services & Technology - continued
165,900 Galileo Technology Ltd. ........................... $ 4,147,500
220,400 * Mecon, Inc. ..................................... 1,405,050
39,750 * Network Appliance, Inc. ......................... 2,847,094
282,600 Newgen Results Corp. .............................. 3,073,275
278,350 Peerless Systems Corp. ............................ 3,688,137
109,700 Remedy Corp. ...................................... 3,112,738
17,250 * Sandisk Corp. ................................... 1,124,484
54,350 Verity, Inc. ...................................... 3,739,959
111,300 Visual Networks, Inc. ............................. 4,723,294
------------
48,109,550
------------
Oil/Energy - 1.7%
189,200 Basin Exploration, Inc. ........................... 4,540,800
19,050 Evergreen Resources ............................... 458,391
128,550 Precision Drilling Corp. (b)....................... 2,980,753
------------
7,979,944
------------
Oil Field Services - 5.6%
209,050 * Core Laboratories NV (b)......................... 3,932,753
110,450 Ensign Resource Group, Inc. ....................... 2,439,327
166,400 * Global Industries Ltd. .......................... 1,352,000
229,200 Gulf Islands Fabrication, Inc. .................... 3,022,575
181,350 Hanover Compressor Co. (b)......................... 5,769,197
132,250 National Oilwell, Inc. (b)......................... 2,173,859
402,700 Pride International, Inc. (b)...................... 5,713,306
177,400 Trico Marine Services, Inc. ....................... 1,474,638
------------
25,877,655
------------
Pharmaceuticals - 0.1%
14,350 King Pharmaceuticals, Inc. (b) .................... 502,250
------------
Printing, Publishing, Broadcasting &
Entertainment - 6.0%
121,050 Cadmus Communications Corp. ....................... 1,346,681
120,450 Citadel Communications Corp. ...................... 4,110,357
114,400 Cox Radio, Inc. Cl. A.............................. 6,806,800
69,350 Cumulus Media, Inc. ............................... 2,266,878
119,600 * Emmis Broadcasting Corp. Cl. A................... 7,901,075
89,150 * Entercom Communications Corp. (b)................ 3,209,400
199,550 Medialink Worldwide, Inc. ......................... 2,095,275
------------
27,736,466
------------
Retailing & Wholesale - 6.7%
258,500 Copart, Inc. ...................................... 4,766,094
53,395 Dollar General Corp. .............................. 1,648,570
126,725 Dollar Tree Stores, Inc. (b)....................... 5,061,080
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
291,150 Family Dollar Stores, Inc. ........................ $ 6,150,544
152,050 * Men's Wearhouse, Inc. ........................... 3,269,075
171,750 Papa John's International, Inc. (b)................ 7,084,687
160,450 Ruby Tuesday, Inc. ................................ 3,128,775
------------
31,108,825
------------
Telecommunication Services & Equipment - 4.8%
104,500 * Advanced Fibre Communications.................... 2,325,125
61,900 * CapRock Communications Corp. (b)................. 1,439,175
50,700 Commonwealth Telephone Enterprises................. 2,230,800
200,650 CTC Communications Corp. .......................... 3,298,184
249,400 Digital Microwave Corp. ........................... 3,912,462
262,500 * ITC DeltaCom, Inc. .............................. 7,218,750
165,050 Precision Response Corp. .......................... 2,021,863
------------
22,446,359
------------
Transportation - 2.8%
141,700 Carey International, Inc. ......................... 3,542,500
75,900 Expeditores International Washington, Inc. ........ 2,435,916
106,100 Forward Air Corp. ................................. 2,506,612
212,325 * Mesaba Holdings, Inc. ........................... 2,494,819
176,425 * MotivePower Industries, Inc. .................... 1,940,675
------------
12,920,522
------------
Total Common Stocks
(cost $353,956,917)............................... 421,127,484
------------
SHORT-TERM INVESTMENTS - 24.8%
Mutual Fund Shares - 16.0%
74,111,928 Navigator Prime Portfolio (c)... 74,111,928
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 8.8%
$40,429,320 State Street Bank & Trust Co., purchased 9/30/1999,
5.28%, maturing 10/1/1999, maturity value
$40,435,250
(cost $40,429,320) (a)............................ 40,429,320
------------
Total Short-Term Investments (cost $114,541,248)... 114,541,248
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $468,498,165)........................ 115.9% 535,668,732
Other Assets and
Liabilities - net.......................... (15.9) (73,529,009)
----- ------------
Net Assets.................................. 100.0% $462,139,723
===== ============
</TABLE>
(a) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on loan.
* Non-income producing security.
See Combined Notes to Financial Statements.
56
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - 85.9%
Advertising & Related Services - 0.8%
$ 2,000,000 Ackerley Group, Inc.,
Sr. Sub. Note,
9.00%, 1/15/2009................................... $ 1,927,500
------------
Aerospace & Defense - 2.5%
Atlas Air, Inc.,
Sr. Note:
1,250,000 9.375%, 11/15/2006.................................. 1,181,250
1,350,000 10.75%, 8/1/2005.................................... 1,356,750
2,250,000 Compass Aerospace Corp., Sr. Sub. Note,
10.125%, 4/15/2005 (a)............................. 1,971,563
2,000,000 K & F Inds., Inc.,
Sr. Sub. Note, Ser. B,
9.25%, 10/15/2007.................................. 1,950,000
------------
6,459,563
------------
Automotive Equipment & Manufacturing - 3.2%
2,000,000 Budget Group, Inc.,
Sr. Note,
9.125%, 4/1/2006................................... 1,770,000
2,000,000 Dura Operating Corp.,
Sr. Sub. Note,
9.00%, 5/1/2009 (a)................................ 1,860,000
1,500,000 Hayes Wheels Int'l., Inc.,
Sr. Sub. Note, Ser. B,
9.125%, 7/15/2007.................................. 1,417,500
2,000,000 Oxford Automotive, Inc., Sr. Sub. Note,
10.125%, 6/15/2007................................. 1,850,000
2,000,000 Universal Compression, Inc.,
Sr. Note,
9.875%, 2/15/2008.................................. 1,200,000
------------
8,097,500
------------
Building, Construction & Furnishings - 1.9%
1,000,000 Cathay Int'l. Ltd.,
Sr. Note,
13.00%, 4/15/2008 (a) ............................. 515,000
2,000,000 Del Webb Corp.,
Sr. Sub. Debs.,
10.25%, 2/15/2010.................................. 1,850,000
750,000 Schuler Homes, Inc.,
Sr. Note,
9.00%, 4/15/2008................................... 680,625
2,000,000 Splitrock Services, Inc.,
Sr. Note, Ser. B,
11.75%, 7/15/2008.................................. 1,810,000
------------
4,855,625
------------
Cable/Other Video Distribution - 0.4%
1,000,000 Classic Cable, Inc.,
Sr. Sub. Note,
9.375%, 8/1/2009 (a)............................... 970,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Chemical & Agricultural Products - 1.8%
$ 3,000,000 Agriculture Minerals & Chemicals, Sr. Note,
10.75%, 9/30/2003................................. $ 1,425,000
1,700,000 Huntsman ICI Chemicals, Inc., Sr. Sub. Note,
10.125%, 7/1/2009 (a)............................. 1,674,500
1,750,000 United Inds. Corp.,
Sr. Sub. Note,
9.875%, 4/1/2009 (a).............................. 1,513,750
------------
4,613,250
------------
Commercial Services - 2.5%
1,000,000 AEP Industries,
Sr. Sub. Note,
9.875%, 11/15/2007................................ 950,000
600,000 Anchor Lamina, Inc.,
Sr. Sub. Note,
9.875%, 2/1/2008.................................. 519,000
2,600,000 Biovail Corp. Int'l.,
Sr. Note,
10.875%, 11/15/2005............................... 2,697,500
1,000,000 Building One Services Corp.,
Sr. Sub. Note,
10.50%, 5/1/2009.................................. 927,500
1,250,000 Group Maintenance America Corp.,
Sr. Sub. Note,
9.75%, 1/15/2009.................................. 1,228,125
------------
6,322,125
------------
Communication Systems & Services - 15.0%
1,000,000 Airgate PCS, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.50%),
0.00%, 10/1/2009 (b).............................. 550,000
1,000,000 Cadmus Communications Corp., Sr. Sub. Note,
9.75%, 6/1/2009................................... 1,001,250
1,000,000 Capstar Broadcasting Partners, Sr. Disc. Note,
12.75%, 2/1/2009.................................. 845,000
4,000,000 Century Communications Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 8.85%),
0.00%, 1/15/2008 (b).............................. 1,740,000
1,500,000 Chancellor Media Corp.,
Sr. Sub. Note,
9.00%, 10/1/2008.................................. 1,526,250
Charter Communications Holdings, Sr. Note:
1,300,000 8.25%, 4/1/2007 (a)................................ 1,220,375
1,200,000 8.625%, 4/1/2009 (a)............................... 1,140,000
400,000 Citadel Broadcasting Co., Sr. Sub. Note,
9.25%, 11/15/2008................................. 394,000
1,500,000 Crown Castle Int'l. Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 10.74%),
0.00%, 11/15/2007 (b)............................. 1,050,000
</TABLE>
57
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Communication Systems & Services - continued
$ 1,500,000 Diamond Cable Communications, Sr. Disc. Note, Step
Bond, (Eff. Yield 10.29%),
0.00%, 12/15/2005 (b)............................... $ 1,342,500
1,175,000 Frontiervision Holdings LP, Sr. Disc. Note, Step
Bond, (Eff. Yield 9.98%),
0.00%, 9/15/2007 (b)................................ 998,750
3,500,000 Intermedia Communications, Inc., Sr. Disc. Note, Step
Bond, (Eff. Yield 11.08%),
0.00%, 5/15/2006 (b)................................ 2,800,000
Level 3 Communications, Inc.:
2,000,000 Sr. Disc. Note, Step Bond,
(Eff. Yield 10.58%),
0.00%, 12/1/2008 (b)................................. 1,132,500
1,000,000 Sr. Note,
9.125%, 5/1/2008..................................... 908,750
1,900,000 Metromedia Fiber Network, Inc., Sr. Note,
10.00%, 11/15/2008.................................. 1,843,000
1,500,000 Metronet Communications Corp., Sr. Disc. Note, Step
Bond, (Eff. Yield 9.87%),
0.00%, 6/15/2008 (b)................................ 1,170,000
2,000,000 Microcell Telecommunications, Inc., Sr. Disc. Note,
Step Bond, Ser. B, (Eff. Yield 11.42%),
0.00%, 6/1/2006 (b)................................. 1,680,000
Nextel Communications, Inc.:
2,000,000 Sr. Disc. Note,
9.75%, 8/15/2004..................................... 2,027,500
2,000,000 Sr. Disc. Note, Step Bond, (Eff. Yield 10.67%),
0.00%, 9/15/2007 (b)................................. 1,490,000
1,000,000 Sr. Secd. Note,
12.00%, 11/1/2008.................................... 1,120,000
1,950,000 Nextlink Communications, Inc., Sr. Note,
10.75%, 6/1/2009.................................... 1,964,625
700,000 Northland Cable Television, Inc., Sr. Sub. Note,
10.25%, 11/15/2007.................................. 701,750
2,000,000 NTL Communications Corp., Sr. Disc. Note, Step Bond,
(Eff. Yield 11.09%),
0.00%, 10/1/2008 (b)................................ 1,365,000
1,000,000 Paging Network, Inc.,
Sr. Sub. Note,
8.875%, 2/1/2006.................................... 285,000
2,000,000 Price Communications Wireless, Inc., Sr. Sub. Note,
11.75%, 7/15/2007................................... 2,195,000
2,000,000 Startec Global Communications Corp., Sr. Note,
12.00%, 5/15/2008................................... 1,820,000
3,000,000 United Int'l. Holdings, Inc.,
Sr. Secd. Note, Step Bond,
(Eff. Yield 10.39%)
0.00%, 2/15/2008.................................... 1,826,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Communication Systems & Services - continued
Worldwide Fiber, Inc.:
$ 1,000,000 Sr. Note,
12.50%, 12/15/2005................................. $ 1,017,500
1,000,000 Sr. Note,
12.00%, 8/1/2009 (a)............................... 985,000
------------
38,140,000
------------
Consumer Products & Services - 7.7%
2,100,000 Amazon.com, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.08%),
0.00%, 5/1/2008 (b)............................... 1,375,500
1,500,000 Decision One Holdings Corp.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.11%),
0.00%, 8/1/2008 (b)............................... 13,125
2,500,000 Musicland Group, Inc.,
Sr. Sub. Note,
9.875%, 3/15/2008................................. 2,312,500
2,000,000 Nationsrent, Inc.,
Sr. Sub. Note,
10.375%, 12/15/2008............................... 1,985,000
1,150,000 Outsourcing Services Group, Inc.,
Sr. Sub. Note, Ser. B, 10.875%, 3/1/2006.......... 1,063,750
2,500,000 Pantry, Inc.,
Gtd. Note,
10.25%, 10/15/2007................................ 2,506,250
2,000,000 Pinnacle Holdings, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.10%),
0.00%, 3/15/2008 (b).............................. 1,150,000
2,500,000 Premier Graphics, Inc.,
Sr. Gtd. Note,
11.50%, 12/1/2005................................. 2,325,000
2,000,000 Sleepmaster LLC,
Sr. Sub. Note,
11.00%, 5/15/2009 (a)............................. 2,005,000
Verio, Inc.,
Sr. Note:
1,500,000 10.375%, 4/1/2005.................................. 1,496,250
1,000,000 11.25%, 12/1/2008.................................. 1,027,500
2,400,000 Weight Watchers Int'l., Inc., Sr. Sub. Note,
13.00%, 10/1/2009 (a)............................. 2,400,000
------------
19,659,875
------------
Diversified Companies - 1.1%
1,000,000 Blount, Inc.,
Sr. Note,
13.00%, 8/1/2009 (a).............................. 1,036,250
2,450,000 Pioneer Amers Acquisition Corp., Sr. Secd. Note,
Ser. B, 9.25%, 6/15/2007.......................... 1,886,500
------------
2,922,750
------------
Education - 0.4%
1,250,000 La Petite Academy, Inc.,
Sr. Note, Ser. B,
10.00%, 5/15/2008................................. 1,056,250
------------
</TABLE>
58
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Electrical Equipment & Services - 0.2%
$ 500,000 Integrated Electrical Services, Sr. Sub. Note,
9.375%, 2/1/2009................................... $ 492,500
------------
Electronic Equipment & Services - 0.9%
2,000,000 CHS Electronics, Inc.,
Sr. Note,
9.875%, 4/15/2005.................................. 310,000
2,000,000 Fairchild Semiconductor Corp.,
Sr. Sub. Note,
10.375%, 10/1/2007 (a)............................. 1,995,000
------------
2,305,000
------------
Finance & Insurance - 0.7%
1,500,000 Aetna Inds., Inc.,
Sr. Note,
11.875%, 10/1/2006................................. 1,693,125
------------
Food & Beverage Products - 3.3%
2,500,000 Agrilink Foods, Inc.,
Sr. Sub. Note,
11.875%, 11/1/2008................................. 2,212,500
2,625,000 Del Monte Foods Co.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.51%),
0.00%, 12/15/2007 (b).............................. 1,995,000
2,500,000 Luiginos, Inc.,
Sr. Sub. Note,
10.00%, 2/1/2006................................... 2,350,000
2,000,000 Vlasic Foods Int'l., Inc.,
Sr. Sub. Note,
10.25%, 7/1/2009 (a)............................... 1,810,000
------------
8,367,500
------------
Gaming - 5.9%
2,375,000 Argosy Gaming Co.,
Sr. Sub. Note,
10.75%, 6/1/2009 (a)............................... 2,461,094
1,500,000 Coast Hotels & Casinos, Inc., Sr. Sub. Note,
9.50%, 4/1/2009.................................... 1,417,500
1,500,000 Hollywood Casino Corp., Sr. Secd. Note,
11.25%, 5/1/2007 (a)............................... 1,515,000
2,225,000 Hollywood Park, Inc.,
Sr. Sub. Note, Ser. B,
9.50%, 8/1/2007.................................... 2,180,500
1,000,000 Horseshoe Gaming LLC, Sr. Sub. Note,
8.625%, 5/15/2009 (a).............................. 955,000
2,125,000 Isle Capri Casinos, Inc.,
Sr. Sub. Note,
8.75%, 4/15/2009................................... 1,960,312
1,500,000 Majestic Star Casino LLC, Sr. Secd. Note,
10.875%, 7/1/2006 (a).............................. 1,477,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Gaming - continued
Premier Parks, Inc.,
$ 3,000,000 Sr. Disc. Note, Step Bond, (Eff. Yield 9.55%),
0.00%, 4/1/2008 (b)............................... $ 1,920,000
1,000,000 Sr. Note,
9.75%, 6/15/2007................................... 975,000
------------
14,861,906
------------
Hospitals/Nursing Homes/
Healthcare - 3.2%
1,400,000 Lifepoint Hospitals Holdings, Inc.,
Sr. Sub. Note,
10.75%, 5/15/2009 (a)............................. 1,393,000
2,500,000 Oxford Health Plans, Inc.,
Sr. Note,
11.00%, 5/15/2005 (a)............................. 2,493,750
2,500,000 Tenet Healthcare Corp.,
Sr. Sub. Note,
8.625%, 1/15/2007................................. 2,387,500
2,000,000 Triad Hospitals Holdings,
11.00%, 5/15/2009................................. 1,990,000
------------
8,264,250
------------
Industrial Specialty Products & Services - 1.9%
1,000,000 American Plumbing & Mechanical Co., Sr. Sub. Note,
11.625%, 10/15/2008 (a)........................... 895,000
1,000,000 Hydrochemical Industrial Services, Inc., Sr. Sub.
Note, Ser. B, 10.375%, 8/1/2007................... 875,000
1,000,000 Intersil Corp.,
Sr. Sub. Note,
13.25%, 8/15/2009................................. 1,042,500
2,000,000 Muzak LLC/Muzak Finance Corp., Sr. Sub. Note,
9.875%, 3/15/2009 (a)............................. 1,910,000
------------
4,722,500
------------
Iron & Steel - 0.6%
1,500,000 Ucar Global Enterprises, Inc., Sr. Sub. Note,
12.00%, 1/15/2005................................. 1,569,375
------------
Machinery - Diversified - 1.4%
2,000,000 Terex Corp.,
Sr. Sub. Note,
8.875%, 4/1/2008.................................. 1,890,000
2,000,000 W.R. Carpenter North America, Inc., Sr. Sub. Note,
10.625%, 6/15/2007................................ 1,680,000
------------
3,570,000
------------
Manufacturing - Distributing - 2.8%
2,000,000 Decora Inds., Inc.,
Sr. Secd. Note,
11.00%, 5/1/2005.................................. 1,820,000
1,500,000 Delta Mills, Inc.,
Sr. Note, Ser. B,
9.625%, 9/1/2007.................................. 1,177,500
</TABLE>
59
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Manufacturing -
Distributing - continued
$ 2,500,000 Tekni Plex, Inc.,
Sr. Sub. Note, Ser. B,
11.25%, 4/1/2007.................................. $ 2,625,000
1,475,000 Venture Holdings Trust,
Sr. Note,
11.00%, 6/1/2007 (a).............................. 1,452,875
------------
7,075,375
------------
Oil/Energy - 4.9%
1,000,000 Canadian Forest Oil Ltd., Sr. Sub. Note,
8.75%, 9/15/2007.................................. 967,500
Cross Timbers Oil Co.,
Sr. Sub. Note, Ser. B:
1,120,000 8.75%, 11/1/2009................................... 1,083,600
1,000,000 9.25%, 4/1/2007.................................... 992,500
1,200,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................. 1,212,000
1,500,000 Forest Oil Corp.,
Sub. Gtd. Note,
10.50%, 1/15/2006................................. 1,552,500
1,000,000 Houston Exploration Co., Sr. Sub. Note,
8.625%, 1/1/2008.................................. 975,000
2,000,000 Pride Petroleum Services, Inc., Sr. Note,
9.375%, 5/1/2007.................................. 2,020,000
2,600,000 Swift Energy Co.,
Sr. Sub. Note,
10.25%, 8/1/2009.................................. 2,613,000
1,000,000 Tesoro Petroleum Corp., Sr. Sub. Note, Ser. B,
9.00%, 7/1/2008................................... 985,000
------------
12,401,100
------------
Paper & Packaging - 2.3%
2,000,000 Pacific Papers, Inc.,
Sr. Note,
10.00%, 3/15/2009................................. 2,040,000
1,750,000 Packaging Corp. America, Sr. Sub. Note,
9.625%, 4/1/2009 (a).............................. 1,776,250
2,000,000 Repap New Brunswick, Inc., Sr. Secd. Note, 1st
Priority,
9.00%, 6/1/2004................................... 1,920,000
------------
5,736,250
------------
Pharmaceuticals - 1.4%
525,000 Express Scripts, Inc.,
Sr. Note,
9.625%, 6/15/2009................................. 535,500
3,000,000 King Pharmaceuticals, Inc., Sr. Sub. Note,
10.75%, 2/15/2009................................. 3,105,000
------------
3,640,500
------------
Real Estate - 0.8%
2,000,000 Intrawest Corp.,
Sr. Note,
9.75%, 8/15/2008.................................. 1,930,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Retailing & Wholesale - 4.7%
$ 2,000,000 Big 5 Corp.,
Sr. Note, Ser. B,
10.875%, 11/15/2007............................... $ 1,975,000
1,250,000 Community Distributors, Inc., Sr. Note, Ser. B,
10.25%, 10/15/2004................................ 1,071,875
1,500,000 French Fragrances, Inc.,
Sr. Note, Ser. B,
10.375%, 5/15/2007................................ 1,432,500
2,500,000 K Mart Corp.,
Debentures,
7.95%, 2/1/2023................................... 2,272,960
2,000,000 Owens & Minor, Inc.,
Sr. Sub. Note,
10.875%, 6/1/2006................................. 2,030,000
1,500,000 Pathmark Stores, Inc.,
Sub. Note,
11.625%, 6/15/2002................................ 1,477,500
1,635,000 Phar Mor, Inc.,
Note,
11.72%, 9/11/2002................................. 1,618,650
------------
11,878,485
------------
Telecommunication Services & Equipment - 10.8%
1,000,000 Allegiance Telecom, Inc.,
Sr. Note,
12.875%, 5/15/2008................................ 1,085,000
500,000 American Cellular Corp.,
Sr. Note,
10.50%, 5/15/2008................................. 516,250
2,000,000 AMSC Acquisition, Inc.,
Sr. Note,
12.25%, 4/1/2008.................................. 1,430,000
2,350,000 Centennial Cellular Operating Co., Sr. Sub. Note,
10.75%, 12/15/2008................................ 2,455,750
2,000,000 Filtronic Plc,
Sr. Note,
10.00%, 12/1/2005 (a)............................. 1,955,000
2,000,000 Hermes Europe Railtel BV,
Sr. Note,
11.50%, 8/15/2007................................. 2,025,000
1,770,000 ICG Holdings, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.32%),
0.00%, 5/1/2006 (b)............................... 1,354,050
1,200,000 Insight Midwest LP,
Sr. Note,
9.75%, 10/1/2009 (a).............................. 1,209,000
1,650,000 KMC Telecom Holdings, Inc.,
Sr. Note,
13.50%, 5/15/2009 (a)............................. 1,625,250
2,000,000 McLeod USA, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 9.75%),
0.00%, 3/1/2007 (b)............................... 1,585,000
1,000,000 Omnipoint Corp.,
Sr. Note,
11.50%, 9/15/2009 (a)............................. 1,035,000
</TABLE>
60
<PAGE>
EVERGREEN
High Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Telecommunication Services & Equipment - continued
Primus Telecommunications Group, Sr. Note:
$ 750,000 11.25%, 1/15/2009................................... $ 712,500
1,000,000 11.75%, 8/1/2004.................................... 980,000
PSINet, Inc.:
Sr. Note,
2,000,000 11.50%, 11/1/2008................................... 2,025,000
1,000,000 11.00%, 8/1/2009 (a)................................ 992,500
Sprint Spectrum LP:
1,000,000 Sr. Disc. Note, Step Bond,
(Eff. Yield 9.80%),
0.00%, 8/15/2006 (b) ............................... 925,000
1,000,000 Sr. Note,
11.00%, 8/15/2006................................... 1,125,000
Telewest Communications PLC,
Sr. Disc. Note, Step Bond:
1,500,000 (Eff. Yield 11.09%),
0.00%, 10/1/2007 (b)................................ 1,346,250
500,000 (Eff. Yield 9.55%),
0.00%, 4/15/2009 (a)(b)............................. 305,000
4,000,000 Triton PCS, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.57%),
0.00%, 5/1/2008 (b)................................ 2,710,000
------------
27,396,550
------------
Textile & Apparel - 1.8%
200,000 Consoltex Group,
Sr. Sub. Note, Ser. B,
11.00%, 10/1/2003.................................. 201,000
1,000,000 Panolam Inds. Int'l., Inc.,
Sr. Sub. Note,
11.50%, 2/15/2009 (a).............................. 1,005,000
1,500,000 Simmons Co.,
Sr. Sub. Note,
10.25%, 3/15/2009.................................. 1,485,000
2,000,000 Supreme Int'l. Corp.,
Sr. Sub. Note,
12.25%, 4/1/2006................................... 1,970,000
------------
4,661,000
------------
Transportation - 1.0%
1,000,000 American Commercial Lines LLC,
Sr. Note,
10.25%, 6/30/2008.................................. 987,500
1,335,000 Greyhound Lines, Inc.,
Sr. Note, Ser. B,
11.50%, 4/15/2007.................................. 1,503,911
------------
2,491,411
------------
Total Corporate Bonds
(cost $230,528,488)................................ 218,081,265
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
YANKEE OBLIGATIONS - 0.9%
Communication Systems & Services - 0.9%
$ 2,500,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.65%),
0.00%, 12/15/2005 (b) (cost $2,355,839)........... $ 2,368,750
------------
<CAPTION>
Shares Value
<C> <S> <C>
WARRANTS - 0.1%
Commercial Services - 0.1%
2,000* Splitrock Services, Inc., ......................... 144,000
------------
Communication Systems & Services - 0.0%
2,000* Startec Global Communications Corp................. 2,000
------------
Telecommunication Services & Equipment - 0.0%
2,000* American Mobile Satellite Corp., .................. 79,000
------------
Total Warrants
(cost $33,218).................................... 225,000
------------
COMMON STOCKS - 0.6%
Communication Systems & Services - 0.6%
64,002* Price Communications Wireless, Inc.,
(cost $819,062)................................... 1,604,050
------------
PREFERRED STOCKS - 0.5%
Telecommunication Services & Equipment - 0.5%
11,170* Rural Cellular Corp.
(cost $898,635)................................... 1,139,340
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 11.2%
Repurchase Agreement -
11.2%
$28,330,545 State Street Bank &
Trust Co.,
5.28%, purchased
9/30/1999, maturing
10/1/1999
maturity value
$28,334,700
(cost $28,330,545)
(c)......................................... 28,330,545
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $262,965,787)........................ 99.2% 251,748,950
Other Assets and
Liabilities - net.......................... 0.8 1,994,796
----- ------------
Net Assets.................................. 100.0% $253,743,746
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(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 the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
* Non-income producing security.
See Combined Notes to Financial Statements.
61
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - 99.2%
Alaska - 1.4%
$ 1,580,000 Alaska Hsg. Fin. Corp. RB, Ser. A2, 5.75%,
6/1/2024.......................................... $ 1,533,295
------------
Arizona - 1.4%
1,430,000 Pima Cnty., AZ
IDRB, Lease Obl.,
7.25%, 7/15/2010, (FSA)........................... 1,551,235
------------
California - 6.5%
2,500,000 Alameda Corridor Trans. Auth. RB, Ser. 1999A,
(Eff. Yield 5.26%)
0.00%, 10/1/2033, (MBIA) (a)...................... 338,525
1,070,000 California Statewide CDA, Spl. Assmt., RB, United
Air Lines Inc. Proj., 5.625%, 10/1/2034........... 978,226
1,915,000 East Bay, CA
Muni. Util. Dist. Wst. Wtr. RB, Refunding Sub.,
4.75%, 6/1/2021, (FGIC)........................... 1,672,963
1,000,000 Fontana, CA
COP, Refunding Proj.,
5.00%, 9/1/2017, (AMBAC).......................... 931,590
1,000,000 San Diego, CA
Unified Sch. Dist. GO, Ser. A,
(Eff. Yield 5.30%)
0.00%, 7/1/2019, (FGIC) (a)....................... 319,180
1,000,000 San Francisco, CA
City & Cnty. RB, Int'l. Arpt. Proj., Ser. 8A,
6.30%, 5/1/2025, (FGIC)........................... 1,038,870
2,000,000 Univ. of CA RB, Multiple Purpose Proj., Ser. C,
4.75%, 9/1/2016, (AMBAC).......................... 1,809,580
------------
7,088,934
------------
Colorado - 5.5%
405,000 Colorado HFA, SFHRB, Ser. A3, 7.00%, 11/1/2024..... 422,338
Denver, CO, City & Cnty., Arpt. RB:
1,000,000 Ser. D,
7.75%, 11/15/2013.................................. 1,176,490
1,555,000 Unrefunded Balance, Ser. A, 8.50%, 11/15/2023...... 1,647,305
3,000,000 Jefferson Cnty., CO RB 5.00%, 11/1/2018, (FGIC).... 2,751,060
------------
5,997,193
------------
Connecticut - 0.9%
1,000,000 Connecticut Dev. Auth. Wtr. Facs. RB, Bridgeport
Hydraulic Proj., 6.15%, 4/1/2035.................. 1,011,490
------------
District of Columbia - 0.8%
1,000,000 District Columbia GO, Ser. B, 5.25%, 6/1/2026,
(FSA)............................................. 902,000
------------
Florida - 1.2%
1,250,000 Hillsborough Cnty., FL
IDA PCRB, Tampa Elec. Co. Proj.,
6.25%, 12/1/2034, (MBIA).......................... 1,307,737
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Georgia - 2.3%
$1,500,000 George L. Smith, GA
World Congress Ctr. Auth. RB, Domed Stadium Proj.,
5.50%, 7/1/2020, (MBIA)............................ $ 1,384,800
1,000,000 Monroe Cnty., GA
IDA PCRB, Oglethorpe Pwr. Corp. Scherer,
6.75%, 1/1/2010.................................... 1,100,870
------------
2,485,670
------------
Idaho - 2.7%
Idaho HFA SFHRB:
2,000,000 Sr. Ser. E2,
5.70%, 7/1/2019, (FHA).............................. 1,958,080
1,000,000 Sr. Ser. G2,
6.00%, 7/1/2029..................................... 1,001,460
------------
2,959,540
------------
Illinois - 9.2%
970,000 Broadview, IL
Tax Increment RB, Sr. Lien,
8.25%, 7/1/2013 (b)................................ 1,116,305
2,475,000 Chicago Heights, IL
Mtge. RB, Ser. B,
(Eff. Yield 7.375%)
0.00%, 6/1/2009 (a)................................ 1,258,909
2,000,000 Chicago, IL, O'Hare Intl. Arpt. Spl. Fac. RB, United
Air Lines Proj., Ser. B,
5.20%, 4/1/2011.................................... 1,874,840
2,000,000 Chicago, IL, Capital Appreciation GO
(Eff. Yield 6.90%)
0.00%, 7/1/2016, (AMBAC) (a)....................... 706,100
1,000,000 Illinois Hlth. Facs. Auth. RB, Midwest Physician
Group Ltd., 5.50%, 11/15/2019...................... 890,630
2,000,000 Kane Cnty., IL
Sch. Dist. No. 129 GO, Aurora West Side Proj.,
5.50%, 2/1/2011, (FGIC)............................ 2,029,160
Metropolitan Pier & Exposition, IL Auth. RB:
1,950,000 McCormick Plan Expansion:
(Eff. Yield 6.75%)
0.00%, 6/15/2021, (FGIC) (a)........................ 541,944
1,000,000 5.50%, 12/15/2024, (FGIC)........................... 952,810
1,650,000 St. Clair Cnty., IL
Pub. Bldg. RB, Capital Appreciation, Ser. B,
(Eff. Yield 5.95%)
0.00%, 12/1/2016, (FGIC) (a)....................... 613,585
------------
9,984,283
------------
Indiana - 0.3%
1,000,000 Indiana Trans. Fin. Auth. Hwy. RB, Ser. A,
(Eff. Yield 6.25%)
0.00%, 6/1/2017, (AMBAC) (a)....................... 361,930
------------
Iowa - 0.6%
625,000 Iowa Student Loan Liquidity Corp. RB, Ser. I, (Gtd.
Student Loans)
6.95%, 3/1/2006.................................... 655,800
------------
</TABLE>
62
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Kentucky - 1.4%
$1,400,000 Kenton Cnty., KY
Arpt. Board, Arpt. RB, Spl. Facs. Delta Airlines
Proj., 7.50%, 2/1/2020............................. $ 1,484,784
------------
Louisiana - 1.8%
2,000,000 New Orleans, LA
GO, Refunding,
5.50%, 12/1/2021................................... 1,969,640
------------
Maine - 0.6%
575,000 Maine Hsg. Auth. Mtge. Purchase RB, Ser. C2,
6.875%, 11/15/2023................................. 597,822
------------
Massachusetts - 3.1%
Massachusetts HFA SFHRB:
960,000 Ser. 59,
5.40%, 6/1/2020, (MBIA)............................ 904,128
1,500,000 Ser. 73,
5.90%, 12/1/2019, (FSA)............................. 1,502,055
1,000,000 Massachusetts Hlth. & Edl. Fac. Auth. RB, St. Mem.
Med. Ctr., Ser. A, 6.00%, 10/1/2023................ 923,720
------------
3,329,903
------------
Michigan - 1.6%
1,000,000 Muskegon Cnty., MI
Bldg. Auth. RB, Refunding,
4.70%, 9/1/2014, (AMBAC)........................... 903,220
1,000,000 Wayne Charter Cnty., MI
Arpt. RB, Detroit Metropolitan Wayne Cnty. Arpt.
Proj.,
5.00%, 12/1/2028................................... 860,550
------------
1,763,770
------------
Minnesota - 0.6%
750,000 Marshall, MN
Med. Ctr. Gross RB, Weiner Mem. Med. Ctr. Proj.,
6.00%, 11/1/2028................................... 700,328
------------
Mississippi - 2.1%
Mississippi Business Fin. Corp. PCRB, Sys. Energy
1,500,000 Resources Inc. Proj.: 5.875%, 4/1/2022............. 1,394,985
1,000,000 5.90%, 5/1/2022..................................... 932,770
------------
2,327,755
------------
Montana - 2.1%
2,355,000 Montana Hsg. Board SFHRB, Ser. A2, 5.65%,
12/1/2020.......................................... 2,284,162
------------
Nebraska - 3.1%
2,560,000 American Pub. Energy Agcy. NE Gas Supply RB, NE Pub.
Gas Agcy. Proj., Ser. A,
4.375%, 6/1/2010, (AMBAC).......................... 2,378,803
1,000,000 Nebraska Pub. Gas Agcy. Supply RB, Ser. A,
5.00%, 4/1/2000.................................... 1,004,160
------------
3,382,963
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Nevada - 2.1%
$2,000,000 Clark Cnty., NV
IDRB, NV Pwr. Co. Proj., Ser. B,
5.90%, 10/1/2030................................... $ 1,881,240
395,000 Henderson, NV
Local Impt. Dist. RB, No. T4, Ser. A,
8.50%, 11/1/2012................................... 408,146
------------
2,289,386
------------
New Hampshire - 0.8%
890,000 New Hampshire Higher Edl. & Fac. RB, Daniel Webster
College Issue, 6.10%, 7/1/2009..................... 868,186
------------
New Jersey - 2.7%
New Jersey EDA RB:
1,000,000 Arbor Glen Proj., Ser. A, 6.00%, 5/15/2028.......... 939,020
1,000,000 Continental Airlines, Inc. Proj., 6.25%, 9/15/2019.. 979,880
1,040,000 Ocean Cnty., NJ
Util. Auth. Wst. Wtr. RB, Ser. A,
4.00%, 1/1/2008.................................... 969,072
------------
2,887,972
------------
New Mexico - 1.5%
1,750,000 New Mexico Edl. Assistance Foundation RB, Ser. C1,
(Gtd. Student Loans)
5.50%, 11/1/2010 .................................. 1,657,040
------------
New York - 7.8%
455,000 Clifton Springs, NY
Hosp. & Clinic RB, Refunding,
8.00%, 1/1/2020.................................... 495,277
1,000,000 Metro Trans. Auth. NY Svcs. RB, Transport Facs.
Proj., Ser. 7, 4.75%, 7/1/2019..................... 858,510
2,005,000 Nassau Cnty., New York GO, General Impt., Ser. B,
5.25%, 6/1/2015.................................... 1,940,419
New York City, NY GO:
60,000 Prerefunded, Ser. H, 7.20%, 2/1/2013................ 64,644
1,500,000 Ser. L,
5.625%, 8/1/2007.................................... 1,562,925
120,000 Unrefunded Balance, Ser. H, 7.20%, 2/1/2013......... 127,613
1,000,000 New York Dormitory Auth. RB, Secd. Hosp. Wyckoff
Hts. Proj., 5.20%, 2/15/2014....................... 949,460
1,000,000 New York Mtge. Agcy. RB, Ser. 69, 5.50%, 10/1/2028.. 940,800
1,500,000 Port Auth. NY & NJ RB 5.875%, 9/15/2015, (FGIC)..... 1,522,335
------------
8,461,983
------------
North Carolina - 2.2%
1,000,000 North Carolina, Eastern Muni. Pwr. Agcy., Pwr. Sys
RB, Ser. A, 5.70%, 1/1/2013, (MBIA)................ 1,020,770
</TABLE>
63
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
North Carolina - continued
Sampson Area Dev. Corp. NC RB: 4.70%, 6/1/2014,
$1,000,000 (MBIA)............................................. $ 904,250
500,000 4.75%, 6/1/2024, (MBIA)............................. 422,310
------------
2,347,330
------------
North Dakota - 0.9%
1,000,000 Devils Lake, ND
Hlth. Care Facs. RB, Refunding & Impt. Lake Region
Lutheran Proj.,
6.10%, 10/1/2023................................... 924,390
------------
Ohio - 1.9%
1,000,000 Cuyahoga Cnty., OH
Hlth. Care Facs. RB, Refunding Benjamin Rose
Institute Proj.,
5.50%, 12/1/2028................................... 882,880
1,260,000 Toledo Lucas Cnty., OH
Port Auth. RB, Northwest OH Bond Fund Superior,
5.40%, 5/15/2019................................... 1,154,437
------------
2,037,317
------------
Oklahoma - 0.5%
540,000 Oklahoma City, OK
Indl. & Cultural Facs. RB, Trigen Proj.,
6.75%, 9/15/2017................................... 541,080
------------
Oregon - 2.2%
1,000,000 Klamath Falls, OR
Elec. RB, Refunding Sr. Lien Klamath Cogen Proj.,
6.00%, 1/1/2025.................................... 946,550
1,550,000 Multnomah Cnty., OR,
COP, Ser. A,
4.125%, 8/1/2007................................... 1,471,663
------------
2,418,213
------------
Pennsylvania - 1.9%
1,000,000 Pennsylvania EDA Solid Wst. Disposal RB, USG Corp.
Proj., 6.00%, 6/1/2031............................. 962,940
1,075,000 Philadelphia, PA
Hosp. & Higher Edl. Facs. RB, Temple Univ. Proj.,
6.50%, 11/15/2008.................................. 1,101,606
------------
2,064,546
------------
Rhode Island - 0.3%
286,000 West Warwick, RI
GO, Ser. A,
7.30%, 7/15/2008................................... 308,874
------------
South Dakota - 0.9%
1,000,000 South Dakota Hsg. Dev. Auth. RB, Refunding
Homeownership Mtge., Ser. G,
5.95%, 5/1/2020.................................... 996,420
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Tennessee - 1.5%
$1,500,000 Memphis Shelby Cnty., TN
Arpt. Auth. RB, Federal Express Corp. Proj.,
7.875%, 9/1/2009................................... $ 1,612,035
------------
Texas - 12.6%
1,000,000 Abilene, TX
Hlth. Facs. Dev. RB, Sears Methodist Retirement
Proj.,
5.90%, 11/15/2025.................................. 922,630
2,000,000 Alliance Arpt. Auth., Inc., TX
Spl. Facs. RB, Federal Express Corp. Proj.,
6.375%, 4/1/2021................................... 2,017,560
2,000,000 Brazos River Auth., TX
RB, Refunding Houston Inds. Proj.,
4.90%, 10/1/2015, (MBIA)........................... 1,837,500
416,000 Brazos, TX
Higher Ed. Auth. Inc. RB,
Sub. Ser. C2,
(Gtd. Student Loans)
7.10%, 11/1/2004................................... 435,178
1,000,000 Dallas Fort Worth, TX
Int'l. Arpt. Fac. RB, American Airlines, Inc.
Proj.,
7.25%, 11/1/2030................................... 1,065,140
2,000,000 Fort Worth, TX
Higher Ed. Fin. Corp. RB, TX Christian Proj.,
5.00%, 3/15/2027, (AMBAC).......................... 1,749,360
1,000,000 Houston, TX
Wtr. & Swr. Sys. RB, Jr. Lien, Ser. A,
6.20%, 12/1/2025, (MBIA)........................... 1,083,180
1,000,000 Lufkin, TX
Hlth. Facs. Dev. Corp. RB, Mem. Hlth. Sys. of East
TX, 5.70%, 2/15/2028............................... 910,070
Matagorda Cnty., TX
Navigation Dist. No. 1 RB:
2,000,000 Houston Lighting Pwr. Co., 5.125%, 11/1/2028,
(AMBAC)............................................. 1,788,200
1,000,000 Reliant Energy Proj., 5.95%, 5/1/2030............... 943,500
1,000,000 Texas GO, Veterans Hsg. Assistance Program Fund,
Ser. A, 5.65%, 12/1/2017........................... 978,820
------------
13,731,138
------------
Utah - 1.6%
230,000 Bountiful, UT
Hosp. RB, South Davis Community Hosp.,
9.50%, 12/15/2018.................................. 274,899
Utah HFA SFHRB:
425,000 Ser. A,
7.20%, 1/1/2027, (FHA).............................. 439,675
1,000,000 Sub. Ser. C2, Cl. II,
5.75%, 7/1/2021, (FHA).............................. 978,060
------------
1,692,634
------------
</TABLE>
64
<PAGE>
EVERGREEN
Municipal Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
MUNICIPAL OBLIGATIONS - continued
Vermont - 1.4%
$1,500,000 Vermont EDA RB, Wake Robin Corp. Proj., Ser. A,
6.30%, 3/1/2033, (ACA)............................. $ 1,495,740
------------
Virginia - 0.8%
800,000 Metropolitan Washington DC Arpt. Auth. RB, Ser. A,
6.625%, 10/1/2019, (MBIA).......................... 846,272
------------
Washington - 0.9%
1,000,000 Washington HFA SFHRB, Ser. 4A, 5.40%, 12/1/2024,
(GNMA/FNMA)........................................ 938,530
------------
West Virginia - 2.0%
2,000,000 Harrison Cnty., WV
Solid Wst. Disposal RB, West PA Pwr. Co. Proj.,
6.75%, 8/1/2024, (AMBAC)........................... 2,141,380
------------
Wisconsin - 3.5%
1,500,000 Wisconsin Hlth. & Edl. Facs. RB, Franciscan Sisters
Christian Proj., 5.50%, 2/15/2028.................. 1,318,965
2,500,000 Wisconsin Hsg. & EDA RB, Ser. G, 5.75%, 4/1/2030.... 2,423,175
------------
3,742,140
------------
Total Municipal Obligations (cost $109,254,300)..... 107,682,840
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.1%
Mutual Fund Shares - 0.2%
232,586 Federated Municipal Obligation Fund.................. $ 232,586
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Alabama - 0.9%
$1,000,000 Stevenson, AL
IDRB, The Mead Corp. Proj.,
4.00%, 10/1/1999,
(LOC: Toronto Dominion Bank)........................ 1,000,000
------------
Total Short-Term Investments
(cost $1,232,586)................................... 1,232,586
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $110,486,886)......................... 100.3% 108,915,426
Other Assets and
Liabilities - net........................... (0.3) (312,141)
----- ------------
Net Assets................................... 100.0% $108,603,285
===== ============
</TABLE>
The Fund invests primarily in debt securities issued by municipalities. The
ability of the issuers of debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce risk associated with such economic developments, at September
30, 1999, 46.7% of the securities, as a percentage of net assets, are backed by
bond insurance of various financial institutions and financial guaranty
assurance agencies. At September 30, 1999, the Fund had securities backed by
bond insurance of the following financial institutions representing more than
5% of net assets:
FGIC 13.2%
AMBAC 11.8%
MBIA 9.3%
(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accrues until its maturity date.
(b) All or a portion of the principal amount of this security was pledged to
cover initial margin requirements for open future contracts.
Summary of Abbreviations:
ACA American Capital Access
AMBAC American Municipal Bond Assurance Corporation
CDA Community Development Authority
COP Certificates of Participation
EDA Environmental Development Authority
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Authority
FNMA Federal National Mortgage Association
FSA Financial Security Assurance Corporation
GNMA Government National Mortgage Association
GO General Obligation
HFA Housing Finance Authority
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
PCRB Pollution Control Revenue Bond
RB Revenue Bond
SFHRB Single Family Housing Revenue Bond
FUTURES CONTRACTS - SHORT POSITIONS
<TABLE>
<CAPTION>
Initial Contract Value at Unrealized
Expiration Number of Contracts Amount September 30, 1999 Gain
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 48 Municipal Bond Index $5,407,497 $5,389,500 $17,997
</TABLE>
See Combined Notes to Financial Statements.
65
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 13.9%
Advanta Mtge. Loan Trust:
$ 811,090 Ser. 1993-3, Class A-5,
5.55%, 1/25/2025................................. $ 782,925
563,144 Ser. 1993-4, Class A-2,
5.55%, 3/25/2010................................. 553,540
678,826 AFG Receivables Trust,
7.00%, 2/15/2003................................ 679,868
2,535,000 Capital One Master Trust,
5.43%, 1/15/2007................................ 2,441,395
6,500,000 CS First Boston Mtge. Secs. Corp., Ser. 1996-2,
Class A-6,
7.18%, 2/25/2018................................ 6,476,567
3,005,000 Discover Card Master Trust I,
Ser. 1998-7, Class A,
5.60%, 5/16/2006................................ 2,894,191
Equifax Credit Corp. Home Equity Loan Trust:
1,026,838 Ser. 1994-1, Class B,
5.75%, 3/15/2009................................. 1,010,536
2,370,000 Ser. 1998-2, Class A-F,
6.159%, 4/15/2008................................ 2,300,097
225,470 Fifth Third Bank Auto Grantor Trust,
6.20%, 9/15/2001................................ 225,715
2,700,000 First USA Credit Card Master Trust,
5.28%, 9/18/2006................................ 2,571,467
3,900,000 Green Tree Fin. Corp.,
Ser. 1999-A, Class A-5,
6.13%, 2/15/2019................................ 3,791,560
4,000,000 JCP Master Credit Card Trust,
5.50%, 6/15/2007................................ 3,849,820
416,074 Old Stone Credit Corp. Home Equity Loan Trust,
Ser. 1993-1, Class B-1,
6.00%, 3/15/2008................................ 416,043
------------
Total Asset-Backed Securities
(cost $28,702,767).............................. 27,993,724
------------
CORPORATE BONDS - 28.2%
Airlines - 1.0%
2,000,000 Northwest Airlines,
Ser. 1999-2, Class B,
7.95%, 3/1/2015................................. 1,985,295
------------
Automotive Equipment & Manufacturing - 1.5%
3,000,000 Daimler Chrysler AG,
Guaranteed Note,
6.90%, 9/1/2004 (c)............................. 3,014,229
------------
Cable/Other Video Distribution - 1.7%
1,400,000 Century Communications Corp.,
Sr. Note,
9.50%, 8/15/2000................................ 1,407,000
750,000 CSC Holdings, Inc.,
Sr. Sub. Note,
9.875%, 5/15/2006 (c)........................... 785,625
1,100,000 Rogers Cablesystems Ltd.,
Sr. Secd. Note, Ser. B,
10.00%, 3/15/2005............................... 1,182,500
------------
3,375,125
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Chemical & Agricultural
Products - 0.3%
$ 550,000 Lyondell Chemical Co.,
Sr. Secd. Note, Ser. B,
9.875%, 5/1/2007.................................. $ 547,938
------------
Consumer Products & Services - 0.5%
1,000,000 Playtex Prods. Inc.,
Sr. Note, Ser. B,
8.875%, 7/15/2004 (c)............................. 1,007,500
------------
Communication Systems &
Services - 8.0%
625,000 Adelphia Communications Corp.,
Sr. Note,
9.875%, 3/1/2005.................................. 639,062
1,200,000 Chancellor Media Corp.,
Sr. Sub. Note,
9.00%, 10/1/2008.................................. 1,221,000
1,200,000 Charter Communications Holdings,
Sr. Note,
8.625%, 4/1/2009 (a).............................. 1,140,000
430,000 Intermedia Communications, Inc.,
Sr. Note,
8.60%, 6/1/2008................................... 370,875
750,000 JCAC Inc., Sr. Sub. Note,
10.125%, 6/15/2006................................ 806,250
3,000,000 Lucent Technologies, Inc., Deb.,
6.45%, 3/15/2029.................................. 2,704,530
1,400,000 McLeod USA, Inc., Sr. Note,
9.25%, 7/15/2007.................................. 1,407,000
1,120,000 Metromedia Fiber Network Inc.,
Sr. Note,
10.00%, 11/15/2008................................ 1,086,400
420,000 Microcell Telecommunications, Inc., Sr. Disc. Note,
Ser. B,
14.00%, 6/1/2006.................................. 352,800
750,000 Nextel Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 10.97%),
0.00%, 9/15/2007 (c)(e) .......................... 558,750
1,250,000 Rogers Cantel, Inc.,
Sr. Sub. Note,
8.80%, 10/1/2007.................................. 1,281,250
Sprint Capital Corp.:
2,000,000 Note,
6.90%, 5/1/2019.................................... 1,862,592
3,000,000 Note (c),
6.125%, 11/15/2008................................. 2,787,900
------------
16,218,409
------------
Electronic Equipment &
Services - 0.4%
800,000 Amkor Technologies, Inc.,
Sr. Note,
9.25%, 5/1/2006 (a)............................... 798,000
------------
Finance & Insurance - 5.1%
3,000,000 CIT Group, Inc.,
5.91%, 11/23/2005................................. 2,819,655
2,200,000 Goldman Sachs Group, Inc., Note,
6.65%, 5/15/2009.................................. 2,095,604
</TABLE>
66
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
$1,300,000 Household Fin. Corp., Note,
6.40%, 6/17/2008 (c).............................. $ 1,222,278
2,000,000 Principal Finl. Group Australia, Guaranteed Sr.
Note,
8.20%, 8/15/2009 (a).............................. 2,021,394
2,000,000 Salomon, Inc., Note,
7.30%, 5/15/2002.................................. 2,039,824
------------
10,198,755
------------
Food & Beverage Products - 1.6%
1,250,000 Canandaigua Brands Inc.,
Sr. Note,
8.625%, 8/1/2006.................................. 1,231,250
2,000,000 Kroger Co., Sr. Note,
7.25%, 6/1/2009 (a)............................... 1,956,748
------------
3,187,998
------------
Gaming - 0.6%
600,000 Casino Magic Louisiana Corp.,
Mtge. Note, Ser. B,
13.00%, 8/15/2003................................. 679,500
500,000 Isle Capri Casinos, Inc.,
Sr. Sub. Note,
8.75%, 4/15/2009.................................. 461,250
------------
1,140,750
------------
Information Services &
Technology - 1.0%
2,000,000 Sun Microsystems, Inc.,
Sr. Note,
7.65%, 8/15/2009 (c)............................... 2,030,640
------------
Leisure & Tourism - 0.2%
480,000 Cinemark USA, Inc.,
Sr. Sub. Note, Ser. D,
9.625%, 8/1/2008.................................. 415,200
------------
Oil/Energy - 4.4%
3,000,000 Alabama Power Co.,
Sr. Warrants,
7.125%, 8/15/2004................................. 3,024,408
900,000 CMS Energy Corp., Sr. Note,
6.75%, 1/15/2004.................................. 846,373
4,000,000 Enron Corp.,
6.725%, 11/17/2008................................ 3,823,152
250,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................. 252,500
500,000 Ocean Energy, Inc.,
Sr. Sub. Note, Ser. B,
8.375%, 7/1/2008 (c).............................. 485,000
550,000 Pride Petroleum Svcs., Inc.,
Sr. Note,
9.375%, 5/1/2007.................................. 555,500
------------
8,986,933
------------
Retailing & Wholesale - 1.9%
1,145,000 Randall's Food Mkts. Inc.,
Sr. Sub. Note, Ser. B,
9.375%, 7/1/2007.................................. 1,253,775
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Retailing & Wholesale - continued
$2,500,000 Wal-Mart Stores, Inc., Note,
6.875%, 8/10/2009.................................. $ 2,508,702
------------
3,762,477
------------
Total Corporate Bonds
(cost $57,893,906)................................. 56,669,249
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 19.2%
Bank America Mtge. Secs., Inc.:
2,040,281 Ser. 1999-3, Sub. Class B-1,
6.25%, 5/25/2014.................................... 1,906,326
952,787 Ser. 1999-3, Sub. Class B-2,
6.25%, 5/25/2014.................................... 876,752
1,046,915 Ser. 1998-3,
6.50%, 7/25/2013.................................... 1,000,225
2,744,935 Chase Mtge. Fin. Trust,
Ser. 1993-L, Class 2-M,
7.00%, 10/25/2024.................................. 2,679,509
General Electric Capital Mtge. Svcs., Inc.:
1,706,169 Ser. 1993-18, Class B-1,
6.00%, 2/25/2009.................................... 1,644,448
4,750,000 Ser. 1999-H, Class A-7,
6.265%, 4/25/2029................................... 4,525,539
1,098,789 Ser. 1998-11, Class 3-M,
6.50%, 6/25/2013.................................... 1,052,711
700,375 Ser. 1998-1, Class M,
6.75%, 1/25/2013.................................... 681,329
1,207,359 Key Auto Fin. Trust,
Ser. 1997-2, Class A-4,
6.15%, 10/15/2001.................................. 1,209,430
Nationsbanc Montgomery Funding:
2,999,261 Ser. 1998-5, Class B,
6.00%, 11/25/2013................................... 2,757,809
2,569,864 Ser. 1998-4,
6.25%, 10/25/2028................................... 2,251,722
Norwest Asset Secs. Corp.:
6,062,113 Ser. 1998-22,
6.25%, 9/25/2028.................................... 5,528,789
1,659,002 Class M,
7.00%, 9/25/2011.................................... 1,642,454
Prudential Home Mtge. Security:
1,119,935 Ser. 1996-4, Class B-1,
6.50%, 4/25/2026.................................... 1,053,643
3,633,761 Ser. 1995-7, Class M,
7.00%, 11/25/2025................................... 3,549,068
1,434,674 Ser. 1995-5, Class B-1,
7.25%, 9/25/2025 (a)................................ 1,408,590
2,529,809 Ser. 1995-5, Class M,
7.25%, 9/25/2025.................................... 2,487,649
2,500,000 Saxon Asset Securities Trust,
Ser. 1999-2, Class A-6,
6.415%, 3/25/2014.................................. 2,378,556
------------
Total Collateralized Mortgage Obligations
(cost $39,947,831)................................. 38,634,549
------------
</TABLE>
67
<PAGE>
EVERGREEN
Quality Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 38.1%
U.S. Government Agency Obligations - 38.1%
Federal Home Loan Mortgage Corp:
$ 6,493,261 6.00%, 3/15/2009.................................... $ 6,088,334
8,633,540 6.50%, 11/15/2008 - 7/25/2018....................... 8,308,902
Federal National Mortgage Assoc:
3,197,380 6.00%, 12/1/2013 (f)................................ 3,058,134
7,942,826 6.50%, 9/25/2008 - 5/18/2028........................ 7,745,928
29,955,673 7.00%, 9/1/2014 - 8/1/2029 (g)...................... 29,609,860
9,000,000 7.50%, 12/1/2099 (h)................................ 9,135,000
Government National Mortgage Assoc:
2,060,805 6.00%, 3/15/2029.................................... 1,913,478
1,885,879 6.125%, 12/15/2001.................................. 1,913,564
1,245,632 6.50%, 7/15/2014.................................... 1,224,083
542,800 6.875%, 4/20/2022................................... 551,409
7,274,876 7.00%, 12/15/2008 - 12/15/2028...................... 7,192,572
------------
Total U.S. Government & Agency Obligations
(cost $77,341,765)................................. 76,741,264
------------
<CAPTION>
Shares Value
<C> <S> <C>
PREFERRED STOCK - 1.8%
4,350,000 Home Ownership Funding
(cost $3,796,225).................................. 3,593,126
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - 3.5%
Capital Mtge. Funding I, Inc.:
$ 11,874 1999-1, 10/20/2022.................................. 338,453
12,907 1999-2, 10/20/2023.................................. 343,937
13,438 1999-3, 12/20/2027.................................. 352,052
20,896 1999-6, 11/20/2022.................................. 369,365
General Mtge. Securities II, Inc.:
5,752 1995-1, 1997, 6/25/2020............................. 241,249
3,300 1995-4, 1998, 6/25/2023............................. 273,932
8,024 1997-4, 1998, 5/20/2022............................. 367,229
14,717 1997-5, 7/20/2023................................... 549,505
18,228 1998-1, 10/20/2024.................................. 492,135
23,724 1998-2, 10/20/2024.................................. 370,974
24,990 1998-5, 9/20/2021................................... 551,414
35,016 1999-1, 8/20/2024................................... 525,467
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - continued
National Mtge. Funding I, Inc.:
$ 23,324 1999-2, 1/20/2022.................................. $ 375,412
10,899 1998-3, 1/20/2023.................................. 394,399
44,156 1998-4, 5/20/2023.................................. 516,789
25,580 1998-6, 7/20/2022.................................. 541,606
24,266 1998-8, 5/20/2024.................................. 411,412
------------
Total Residual Interests
(cost $8,465,563)................................. 7,015,330
------------
YANKEE OBLIGATIONS - 2.5%
Communication Systems & Services - 0.2%
550,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 13.54%),
0.00%, 12/15/2005 (e)............................. 521,125
------------
Finance & Insurance - 2.3%
2,525,000 Ford Capital BV,
9.875%, 5/15/2002................................. 2,719,821
2,000,000 Rothmans Nederland Holdings BV,
6.875%, 5/6/2008.................................. 1,879,702
------------
4,599,523
------------
Total Yankee Obligations
(cost $5,191,051)................................. 5,120,648
------------
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 4.6%
Mutual Fund Shares - 2.8%
5,605,710 Navigator Prime Portfolio (d)...................... 5,605,710
------------
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Repurchase Agreement - 1.8%
$ 3,601,471 State Street Bank & Trust Co.,
5.28%, purchased 9/30/1999, maturing 10/01/1999,
maturity value $3,601,999 (cost $3,601,471) (b)... 3,601,471
------------
Total Short-Term Investments
(cost $9,207,181)................................. 9,207,181
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $230,546,289)........................ 111.8% 224,975,071
Other Assets and Liabilities - net.......... (11.8) (23,777,255)
----- ------------
Net Assets -................................ 100.0% $201,197,816
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(b) The repurchase agreement is fully collateralized by the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
(c) All or a portion of this security is currently on loan.
(d) Represents investment in cash collateral received for securities on loan.
(e) Effective yield (calculated at the time of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
(f) All or a portion of the principal amount of this security was pledged to
cover initial margin requirements for open future contracts.
(g) All or a portion of the principal amount of this security was pledged as
collateral for open mortgage dollar roll agreement.
(h) Security acquired under mortgage dollar roll agreement.
FUTURES CONTRACTS-SHORT POSITIONS
<TABLE>
<CAPTION>
Number of Initial Contract Value at Net
Expiration Contracts Amount September 30, 1999 Unrealized Loss
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December
1999 22 5 Yr. T-Note $2,375,875 $2,386,312 ($10,437)
December
1999 32 2 Yr. T-Note 6,619,500 6,641,000 (21,500)
--------
($31,937)
========
</TABLE>
See Combined Notes to Financial Statements.
68
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - 19.5%
$ 516,192 Advanta Home Equity Loan Trust,
Ser. 1993-2, Class A-2,
6.15%, 10/25/2009................................... $ 507,729
Advanta Mtge. Loan Trust,
Ser. 1993-3, Class A-3:
267,486 4.75%, 11/25/2009.................................... 265,053
225,352 5.55%, 3/25/2010..................................... 221,509
169,191 AFC Mtge. Loan Trust,
6.60%, 2/25/2027.................................... 168,647
AFG Receivables Trust:
139,793 Ser. 1996-B, Class B,
7.05%, 4/15/2001 (a)................................. 139,928
729,089 Ser. 1997-A, Class A,
6.35%, 10/15/2002.................................... 729,239
67,883 Ser. 1997-B, Class A,
6.20%, 2/15/2003..................................... 67,752
509,120 Ser. 1997-B, Class C,
7.00%, 2/15/2003 (a)................................. 509,901
2,000,000 Capital One Master Trust,
Ser. 1998-4, Class A,
5.43%, 1/15/2007.................................... 1,926,150
4,000,000 CS First Boston Mtge. Secs. Corp., Ser. 1996-2, Class
A-6,
7.18%, 2/25/2018.................................... 3,985,580
2,000,000 Discover Card Master Trust I,
Ser. 1998-7, Class A,
5.60%, 5/16/2006.................................... 1,926,250
Equifax Credit Corp. Home Equity Loan Trust:
326,465 Ser. 1994-1, Class B,
5.75%, 3/15/2009..................................... 321,283
3,006,750 Ser. 1998-2, Class A-6F,
6.159%, 4/15/2008.................................... 2,918,066
1,225,000 Ser. 1999-2, Class A-6F,
6.685%, 2/25/2010.................................... 1,192,727
112,851 Fifth Third Bank Auto Grantor Trust, Ser. 1996,
6.20%, 9/15/2001.................................... 112,973
3,575,000 JCP Master Credit Card Trust,
Ser. E, Class A,
5.50%, 6/15/2007.................................... 3,440,776
3,000,000 MMCA Auto Owner Trust,
Ser. 1999-1, Class A-3,
5.50%, 7/15/2005.................................... 2,976,555
187,239 Old Stone Credit Corp. Home Equity Loan Trust, Ser.
1993-2, Class B-1,
6.20%, 6/15/2008.................................... 185,793
Olympic Automobile Receivables Trust:
244,209 Ser. 1994-B, Class A2,
6.85%, 6/15/2001..................................... 244,469
407,684 Ser. 1995-B, Class A2,
7.35%, 10/15/2001.................................... 408,203
4,000,000 The Money Store Home Equity Loan Trust, Ser. 1994-A,
Class A-4,
6.275%, 12/15/2022.................................. 3,955,940
Union Acceptance Corp. Auto Trust:
434,228 Ser. 1996-B, Class A,
6.45%, 7/9/2003...................................... 435,225
430,000 Ser. 1997-A,
6.48%, 5/10/2004..................................... 429,129
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
ASSET-BACKED SECURITIES - continued
Union Acceptance Corp. Auto Trust -continued
$ 1,937,251 Ser. 1997-B, Class A-2,
6.70%, 6/8/2003................................... $ 1,943,964
2,400,000 Ser. 1998-D,
5.75%, 6/9/2003................................... 2,388,396
------------
Total Asset-Backed Securities
(cost $31,900,826)............................... 31,401,237
------------
CORPORATE BONDS - 17.8%
Cable/Other Video Distribution - 1.3%
1,207,000 Century Communications Corp.,
Sr. Note,
9.50%, 8/15/2000................................. 1,213,035
1,000,000 CMS Energy Corp.,
Sr. Note,
6.75%, 1/15/2004................................. 940,415
------------
2,153,450
------------
Chemical & Agricultural
Products - 0.3%
550,000 Lyondell Chemical Co.,
Sr. Secd. Note, Ser. B,
9.875%, 5/1/2007................................. 547,938
------------
Communication Systems &
Services - 2.1%
1,000,000 Adelphia Communications Corp.,
Sr. Note,
7.50%, 1/15/2004................................. 947,500
1,250,000 JCAC, Inc.,
Sr. Sub. Note,
10.125%, 6/15/2006............................... 1,343,750
1,000,000 Nextel Communications, Inc.,
Sr. Disc. Note,
9.75%, 8/15/2004................................. 1,013,750
------------
3,305,000
------------
Consumer Products & Services - 0.6%
1,000,000 Playtex Prods., Inc.,
Sr. Note, Ser. B,
8.875%, 7/15/2004................................ 1,007,500
------------
Diversified Companies - 1.1%
1,800,000 Tyco Int'l. Group S.A.,
Note,
6.875%, 9/5/2002 (a)............................. 1,804,597
------------
Electronic Equipment &
Services - 0.4%
600,000 Amkor Technologies, Inc.,
Sr. Note,
9.25%, 5/1/2006 (a).............................. 598,500
------------
Finance & Insurance - 4.6%
1,000,000 Associates Corp. North America,
Note,
7.875%, 9/30/2001................................ 1,026,168
750,000 CSC Holdings, Inc.,
Sr. Sub. Note,
9.875%, 5/15/2006................................ 785,625
2,250,000 General Motors Acceptance Corp., Note,
6.875%, 7/15/2001................................ 2,272,700
</TABLE>
69
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Finance & Insurance - continued
Salomon, Inc.:
$1,000,000 Note,
7.30%, 5/15/2002..................................... $ 1,019,912
2,250,000 Sr. Note,
7.25%, 5/1/2001...................................... 2,283,372
------------
7,387,777
------------
Gaming - 0.7%
1,000,000 Casino Magic Louisiana Corp.,
Mtge.,
Note, Ser. B,
13.00%, 8/15/2003................................... 1,132,500
------------
Information Services &
Technology - 1.3%
2,000,000 Sun Microsystems, Inc.,
Sr. Note,
7.00%, 8/15/2002.................................... 2,013,334
------------
Leisure & Tourism - 0.5%
950,000 Cinemark USA, Inc.,
Sr. Sub. Note, Ser. D,
9.625%, 8/1/2008.................................... 821,750
------------
Oil/Energy - 1.7%
200,000 Eott Energy Partners LP,
Sr. Note,
11.00%, 10/1/2009................................... 202,000
550,000 Pride Petroleum Svcs., Inc.,
Sr. Note,
9.375%, 5/1/2007.................................... 555,500
2,000,000 PSI Energy Inc.,
Note,
6.00%, 12/14/2001................................... 1,955,202
------------
2,712,702
------------
Retailing & Wholesale - 3.2%
925,000 Randal's Food Mkts., Inc.,
Sr. Sub. Note, Ser. B,
9.375%, 7/1/2007.................................... 1,012,875
1,500,000 Shoppers Food Warehouse Corp.,
Sr. Note,
9.75%, 6/15/2004.................................... 1,612,500
2,500,000 Wal-Mart Stores, Inc.,
Note,
6.15%, 8/10/2001.................................... 2,501,307
------------
5,126,682
------------
Total Corporate Bonds
(cost $29,046,194).................................. 28,611,730
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 20.0%
Chase Mtge. Fin. Trust:
394,404 Ser. 1999-S3, Class B-1,
6.25%, 3/25/2014..................................... 359,494
1,239,558 Ser. 1999-S3, Class M,
6.25%, 3/25/2014..................................... 1,166,517
6,335,957 Citicorp Mtge. Secs. Inc.,
Ser. 1992-18, Class A-1,
6.52%, 11/25/2022................................... 6,466,533
2,118,833 DLJ Mtge. Acceptance Corp.,
Ser. 1991-3, Class A-1,
6.59%, 2/20/2021.................................... 2,082,082
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - continued
$ 2,300,000 First USA Credit Card Master Trust, Ser. 1998-9,
Class A,
5.28%, 9/18/2006.................................. $ 2,190,509
Glendale Federal Savings Bank:
4,262,585 Ser. 1990-1, Class A,
6.49%, 10/25/2029.................................. 4,289,284
2,167,554 Ser. 1990-3, Class A-1,
6.84%, 3/25/2030................................... 2,143,267
3,100,000 Green Tree Fin. Corp.,
Ser. 1999-A, Class A-5,
6.13%, 2/15/2019.................................. 3,013,804
3,219,624 Key Auto Fin. Trust,
Ser. 1997-2, Class A-4,
6.15%, 10/15/2001................................. 3,225,145
4,329,526 Perpetual Savings Bank, Structured Asset Secs.
Corp. Trust,
Ser. 1990-1, Class 1,
6.97%, 3/1/2020................................... 4,296,297
2,887,163 Saxon Mtge. Secs. Corp.,
Ser. 1995-1, Class 1,
7.15%, 4/25/2025.................................. 2,911,406
------------
Total Collateralized Mortgage Obligations
(cost $32,366,887)................................ 32,144,338
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 40.5%
U.S. Treasury Notes - 3.5%
U.S. Treasury Notes:
5,700,000 5.25%, 5/15/2004................................... 5,571,750
------------
U.S. Government Agency Obligations - 37.0%
Federal Home Loan Mortgage
Corp.:
9,459,827 6.00%, 6/1/2006.................................... 9,195,709
3,982,142 6.23%, 5/1/2014.................................... 4,007,695
3,178,937 6.50%, 9/1/2006.................................... 3,140,853
Federal National Mortgage
Assoc.:
14,584,741 6.00%, 3/1/2014 - 4/1/2014......................... 14,034,313
10,606,461 7.00%, 9/1/2010 - 8/1/2029......................... 10,543,858
108,583 10.00%, 6/1/2005................................... 113,776
Government National Mortgage Assoc.:
4,283,334 6.00%, 11/15/2013 - 12/15/2013..................... 4,117,954
5,461,338 6.125%, 10/20/2022 - 12/20/2022.................... 5,541,510
4,521,851 6.375%, 4/20/2022.................................. 4,593,568
3,352,728 6.625%, 7/20/2022 - 9/20/2023...................... 3,405,038
843,487 7.00%, 12/15/2008.................................. 845,233
------------
59,539,507
------------
Total U.S. Government & Agency Obligations
(cost $65,798,318)................................ 65,111,257
------------
RESIDUAL INTERESTS (a) - 1.5%
General Mtge. Securities II, Inc.:
2,675 1997-4, 1998, 5/20/2022............................ 121,441
12,152 1998-1, 10/20/2024................................. 328,090
26,262 1999-1, 8/20/2024.................................. 394,100
17,493 1999-2, 1/20/2022.................................. 281,559
</TABLE>
70
<PAGE>
EVERGREEN
Short-Duration Income Fund
Schedule of Investments(continued)
September 30, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
RESIDUAL INTERESTS (a) - continued
National Mtge. Funding I, Inc.:
$ 16,177 1998-8, 5/20/2024................................ $ 276,459
42,076 1999-4, 1/20/2023................................ 530,925
39,423 1999-5, 7/20/2023................................ 553,528
------------
Total Residual Interests
(cost $2,945,585)............................... 2,486,102
------------
YANKEE OBLIGATIONS - 3.3%
Cable/Other Video Distribution - 1.1%
1,700,000 Rogers Cablesystems Ltd.,
Sr. Secd. Note, Ser. B,
10.00%, 3/15/2005............................... 1,827,500
------------
Communication Systems & Services - 0.5%
850,000 Clearnet Communications, Inc.,
Sr. Disc. Note, Step Bond,
(Eff. Yield 12.13%)
0.00%, 12/15/2005 (b)........................... 805,375
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
YANKEE OBLIGATIONS - continued
Finance & Insurance - 1.7%
$2,525,000 Ford Capital BV,
Deb.,
9.875%, 5/15/2002.................................. $ 2,719,822
------------
Total Yankee Obligations
(cost $5,422,125).................................. 5,352,697
------------
SHORT-TERM INVESTMENTS - 1.1%
Repurchase Agreement - 1.1%
1,804,424 State Street Bank & Trust Co.,
5.28%, purchased 9/30/1999, maturing 10/1/1999,
maturity value $1,804,689 (cost $1,804,424) (c).... 1,804,424
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $169,284,359)......................... 103.7% 166,911,785
Other Assets and
Liabilities - net........................... (3.7) (5,950,638)
----- ------------
Net Assets................................... 100.0% $160,961,147
===== ============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid un-
der guidelines established by the Board of Trustees.
(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 the U.S. government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1999.
See Combined Notes to Financial Statements.
71
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Statements of Assets and Liabilities
September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............... $323,004,591 $431,049,857 $230,110,779 $428,068,845
Repurchase agreements at
amortized cost........... 41,410,701 43,350,457 23,655,068 40,429,320
Net unrealized gains or
losses on securities..... 20,637,115 70,076,312 4,616,564 67,170,567
-------------------------------------------------------------------------------
Market value of
securities............... 385,052,407 544,476,626 258,382,411 535,668,732
Cash...................... 0 0 141 0
Receivable for securities
sold..................... 4,112,072 6,120,268 0 3,784,568
Receivable for Fund shares
sold..................... 745,757 501,769 123,663 50,573
Dividends and interest
receivable............... 1,665,792 456,183 1,122,402 61,784
Deferred organization
expenses................. 0 0 0 0
Prepaid expenses and other
assets................... 64,760 34,737 22,947 43,740
-------------------------------------------------------------------------------
Total assets.............. 391,640,788 551,589,583 259,651,564 539,609,397
-------------------------------------------------------------------------------
Liabilities
Distributions payable..... 0 0 0 0
Payable for securities
purchased................ 10,498,619 7,373,854 0 2,008,587
Payable for Fund shares
redeemed................. 837,292 1,554,611 854,746 1,347,897
Deferred mortgage dollar
roll income payable...... 0 0 0 0
Payable for reverse
repurchase agreements.... 0 0 0 0
Payable for securities on
loan..................... 22,733,449 3,687,316 13,385,847 74,111,928
Payable for mortgage
dollar roll.............. 0 0 0 0
Payable for daily
variation margin on open
futures contracts........ 42,688 0 0 0
Due to custodian bank..... 0 0 0 0
Accrued expenses and other
liabilities.............. 328 1,184 1,122 1,262
-------------------------------------------------------------------------------
Total liabilities......... 34,112,376 12,616,965 14,241,715 77,469,674
-------------------------------------------------------------------------------
Net assets................. $357,528,412 $538,972,618 $245,409,849 $462,139,723
-------------------------------------------------------------------------------
Net assets represented by
Paid-in capital........... $330,560,987 $465,630,652 $223,798,393 $374,305,296
Undistributed
(overdistributed) net
investment income or
loss..................... 20,038 0 0 0
Accumulated net realized
gains or losses on
securities and
futures contracts........ 6,386,741 3,265,654 16,994,892 20,663,819
Net unrealized gains on
securities and futures
contracts................ 20,560,646 70,076,312 4,616,564 67,170,608
-------------------------------------------------------------------------------
Total net assets........... $357,528,412 $538,972,618 $245,409,849 $462,139,723
-------------------------------------------------------------------------------
Net assets consists of
Class A................... $138,686,469 $285,690,223 $108,815,447 $ 92,228,603
Class B................... 218,816,199 253,281,072 136,593,245 334,484,299
Class Y................... 25,744 1,323 1,157 35,426,821
-------------------------------------------------------------------------------
Total net assets........... $357,528,412 $538,972,618 $245,409,849 $462,139,723
-------------------------------------------------------------------------------
Shares outstanding
Class A................... 9,151,723 11,718,143 5,568,885 5,768,901
Class B................... 14,469,304 11,024,546 6,999,329 21,737,662
Class Y................... 1,703 54 58 2,207,033
-------------------------------------------------------------------------------
Net asset value per share
Class A................... $ 15.15 $ 24.38 $ 19.54 $ 15.99
-------------------------------------------------------------------------------
Class A--Offering price
based on sales charge.... $ 16.07 $ 25.87 $ 20.73 $ 16.97
-------------------------------------------------------------------------------
Class B................... $ 15.12 $ 22.97 $ 19.52 $ 15.39
-------------------------------------------------------------------------------
Class Y................... $ 15.12 $ 24.50 $ 19.95 $ 16.05
-------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
72
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Statements of Assets and Liabilities
September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............ $234,635,242 $110,486,886 $226,944,818 $167,479,935
Repurchase agreements
at amortized cost..... 28,330,545 0 3,601,471 1,804,424
Net unrealized gains on
securities............ (11,216,837) (1,571,460) (5,571,218) (2,372,574)
---------------------------------------------------------------------------------
Market value of
securities............ 251,748,950 108,915,426 224,975,071 166,911,785
Cash................... 0 1,343 907 0
Receivable for
securities sold....... 32,750 2,436,887 623,513 34,224
Receivable for Fund
shares sold........... 575,246 27,841 397,241 130,873
Dividends and interest
receivable............ 6,119,271 1,894,329 2,322,327 1,593,692
Deferred organization
expenses.............. 13,037 0 0 9,259
Prepaid expenses and
other assets.......... 136,818 62,369 162,752 49,148
---------------------------------------------------------------------------------
Total assets.......... 258,626,072 113,338,195 228,481,811 168,728,981
---------------------------------------------------------------------------------
Liabilities
Distributions payable.. 2,010,036 386,040 972,239 746,321
Payable for securities
purchased............. 2,400,000 3,967,581 958,524 200,000
Payable for Fund shares
redeemed.............. 463,584 348,885 583,483 205,558
Deferred mortgage
dollar roll income
payable............... 0 0 12,220 0
Payable for reverse
repurchase
agreements............ 0 0 10,003,028 6,564,948
Payable for securities
on loan............... 0 0 5,605,710 0
Payable for mortgage
dollar roll........... 0 0 9,129,375 0
Payable for daily
variation margin on
open futures
contracts............. 0 25,500 16,406 0
Due to custodian bank.. 213 0 0 326
Accrued expenses and
other liabilities..... 8,493 6,904 3,010 50,681
---------------------------------------------------------------------------------
Total liabilities..... 4,882,326 4,734,910 27,283,995 7,767,834
---------------------------------------------------------------------------------
Net assets.............. $253,743,746 $108,603,285 $201,197,816 $160,961,147
---------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital........ $280,553,185 $113,070,780 $226,794,868 $166,649,350
Undistributed
(overdistributed) net
investment income or
loss.................. (2,010,036) (354,075) (972,239) (746,321)
Accumulated net
realized gains on
securities and futures
contracts............. (13,582,566) (2,559,957) (19,021,658) (2,569,308)
Net unrealized gains on
securities and futures
contracts............. (11,216,837) (1,553,463) (5,603,155) (2,372,574)
---------------------------------------------------------------------------------
Total net assets........ $253,743,746 $108,603,285 $201,197,816 $160,961,147
---------------------------------------------------------------------------------
Net assets consists of
Class A................ $146,179,228 $ 57,456,295 $103,793,931 $116,886,218
Class B................ 107,564,518 51,145,969 97,402,838 44,073,867
Class Y................ 0 1,021 1,047 1,062
---------------------------------------------------------------------------------
Total net assets........ $253,743,746 $108,603,285 $201,197,816 $160,961,147
---------------------------------------------------------------------------------
Shares outstanding
Class A................ 14,200,357 3,896,157 8,351,828 9,580,772
Class B................ 10,448,961 3,472,523 7,837,510 3,609,532
Class Y................ 0 67 80 83
---------------------------------------------------------------------------------
Net asset value per
share
Class A................ $ 10.29 $ 14.75 $ 12.43 $ 12.20
---------------------------------------------------------------------------------
Class A--Offering price
based on sales
charge................ $ 10.80 $ 15.49 $ 13.05 $ 12.32
---------------------------------------------------------------------------------
Class B................ $ 10.29 $ 14.73 $ 12.43 $ 12.21
---------------------------------------------------------------------------------
Class Y................ -- $ 15.24 $ 13.09 $ 12.80
---------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
73
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Operations
Year Ended September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign
withholding taxes of $0,
$0, $36,407, and $1,261,
respectively)............. $ 1,573,116 $ 4,715,103 $ 3,243,007 $ 529,238
Securities lending income.. 115,962 47,858 88,553 432,703
Interest................... 8,056,698 1,274,313 7,189,972 2,116,893
-------------------------------------------------------------------------------
Total investment income..... 9,745,776 6,037,274 10,521,532 3,078,834
-------------------------------------------------------------------------------
Expenses
Advisory fee............... 2,216,232 4,069,089 2,001,452 3,600,834
Distribution and service
fees...................... 2,221,946 3,159,378 1,807,959 4,057,806
Administrative services
fees...................... 367,370 650,694 334,638 637,352
Transfer agent fee......... 435,200 509,095 411,719 845,912
Trustees' fees and
expenses.................. 5,328 10,562 6,540 16,022
Printing and postage
expenses.................. 218,701 88,465 36,103 119,726
Custodian fee.............. 82,005 107,413 53,001 109,233
Registration and filing
fees...................... 181,604 79,323 69,586 17,374
Professional fees.......... 59,665 27,290 12,921 40,815
Organization expenses...... 0 0 0 0
Other...................... 97,274 287,304 46,160 14,064
-------------------------------------------------------------------------------
Total expenses............. 5,885,325 8,988,613 4,780,079 9,459,138
Fee waivers............... 0 0 0 0
-------------------------------------------------------------------------------
Net expenses............... 5,885,325 8,988,613 4,780,079 9,459,138
-------------------------------------------------------------------------------
Net investment income
(loss).................... 3,860,451 (2,951,339) 5,741,453 (6,380,304)
-------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and
futures contracts
Net realized gains or
losses on:
Securities................. 7,191,289 6,966,212 18,940,632 21,528,448
Futures contracts.......... 0 0 0 0
-------------------------------------------------------------------------------
Net realized gains or
losses on securities and
futures contracts......... 7,191,289 6,966,212 18,940,632 21,528,448
-------------------------------------------------------------------------------
Net change in unrealized
gains or losses on
securities and
futures contracts......... 5,962,995 63,612,291 (6,082,843) 50,477,009
-------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and
futures contracts......... 13,154,284 70,578,503 12,857,789 72,005,457
-------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations................ $17,014,735 $67,627,164 $18,599,242 $65,625,153
-------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
74
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Operations
Year Ended September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $0, $0, $0,
and $0, respective-
ly)................... $ 0 $ 0 $ 144,975 $ 0
Securities lending
income................ 0 0 18,603 0
Interest (a)........... 23,684,944 6,733,358 14,786,226 11,218,934
--------------------------------------------------------------------------------
Total investment
income................. 23,684,944 6,733,358 14,949,804 11,218,934
--------------------------------------------------------------------------------
Expenses
Advisory fee........... 1,635,473 729,071 1,258,891 906,876
Distribution and
service fees.......... 1,078,822 596,230 1,058,124 610,596
Administrative services
fees.................. 222,888 121,471 209,815 181,548
Transfer agent fee..... 186,633 115,868 240,192 197,477
Trustees' fees and
expenses.............. 4,905 2,987 4,330 4,152
Printing and postage
expenses.............. 38,275 14,170 24,733 18,509
Custodian fee.......... 87,268 33,405 31,164 33,329
Registration and filing
fees.................. 64,568 70,767 168,883 12,290
Professional fees...... 31,301 9,793 34,915 8,484
Organization expenses.. 4,449 0 0 7,337
Other.................. 16,045 3,607 15,878 13,119
--------------------------------------------------------------------------------
Total expenses......... 3,370,627 1,697,369 3,046,925 1,993,717
Fee waivers........... (308,131) 0 (312,164) (230,905)
--------------------------------------------------------------------------------
Net expenses........... 3,062,496 1,697,369 2,734,761 1,762,812
--------------------------------------------------------------------------------
Net investment income.. 20,622,448 5,035,989 12,215,043 9,456,122
--------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and futures contracts
Net realized gains or
losses on:
Securities............ (13,493,851) (1,268,792) (4,581,576) (2,567,317)
Futures contracts..... 0 712,881 (307,773) (106,091)
--------------------------------------------------------------------------------
Net realized gains or
losses on securities
and futures
contracts............. (13,493,851) (555,911) (4,889,349) (2,673,408)
--------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (1,893,351) (9,175,621) (14,077,222) (4,282,494)
--------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities
and futures
contracts............. (15,387,202) (9,731,532) (18,966,571) (6,955,902)
--------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ $ 5,235,246 $(4,695,543) $ (6,751,528) $ 2,500,220
--------------------------------------------------------------------------------
</TABLE>
(a) Net of interest expense of $0, $0, $2,331,502, and $281,846, respectively,
related to reverse repurchase agreements.
See Combined Notes to Financial Statements.
75
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1999
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income
(loss)................ $ 3,860,451 $ (2,951,339) $ 5,741,453 $ (6,380,304)
Net realized gains or
losses on securities
and futures
contracts............. 7,191,289 6,966,212 18,940,632 21,528,448
Net change in
unrealized gains or
losses on securities
and
futures contracts..... 5,962,995 63,612,291 (6,082,843) 50,477,009
----------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 17,014,735 67,627,164 18,599,242 65,625,153
----------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... (1,667,411) 0 (2,977,681) 0
Class B............... (2,118,036) 0 (2,835,751) 0
Class Y............... (912) 0 (10) 0
Net realized gains
Class A............... (206,847) (16,362,218) (4,931,114) (2,988,098)
Class B............... (736,381) (23,300,909) (7,248,972) (15,033,436)
Class Y............... (655) (125) (54) (1,016,636)
----------------------------------------------------------------------------------
Total distributions to
shareholders......... (4,730,242) (39,663,252) (17,993,582) (19,038,170)
----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 190,802,847 289,520,215 48,128,352 543,766,956
Payment for shares
redeemed.............. (84,513,846) (159,195,434) (61,742,682) (632,970,382)
Net asset value of
shares issued in
reinvestment of
distributions......... 3,532,642 38,814,981 15,777,543 18,495,507
Net asset value of
shares issued in
acquisition........... 222,601,303 0 0 0
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions... 332,422,946 169,139,762 2,163,213 (70,707,919)
----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 344,707,439 197,103,674 2,768,873 (24,120,936)
Net assets
Beginning of period... 12,820,973 341,868,944 242,640,976 486,260,659
----------------------------------------------------------------------------------
End of period......... $357,528,412 $ 538,972,618 $245,409,849 $ 462,139,723
----------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income or
loss................... $ 20,038 $ 0 $ 0 $ 0
----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
76
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1999
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund Fund Fund Fund
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 20,622,448 $ 5,035,989 $ 12,215,043 $ 9,456,122
Net realized gains or
losses on securities
and futures
contracts............. (13,493,851) (555,911) (4,889,349) (2,673,408)
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (1,893,351) (9,175,621) (14,077,222) (4,282,494)
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 5,235,246 (4,695,543) (6,751,528) 2,500,220
----------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income..
Class A............... (13,172,505) (2,771,545) (6,334,342) (7,224,733)
Class B............... (9,182,508) (2,268,587) (6,056,792) (2,740,563)
Class Y............... 0 (10) (19) (3)
Net realized gains
Class A............... 0 0 0 (110,579)
Class B............... 0 0 0 (46,577)
Class Y............... 0 0 0 (1)
----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (22,355,013) (5,040,142) (12,391,153) (10,122,456)
----------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 188,593,421 35,564,410 111,477,462 126,350,364
Payment for shares
redeemed.............. (41,516,220) (31,211,348) (106,436,056) (112,171,940)
Net asset value of
shares issued in
reinvestment of
distributions......... 10,030,172 2,876,771 8,117,826 7,360,520
Net asset value of
shares issued in
acquisition........... 0 0 0 0
----------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions......... 157,107,373 7,229,833 13,159,232 21,538,944
----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 139,987,606 (2,505,852) (5,983,449) 13,916,708
Net assets
Beginning of period... 113,756,140 111,109,137 207,181,265 147,044,439
----------------------------------------------------------------------------------
End of period......... $253,743,746 $108,603,285 $ 201,197,816 $ 160,961,147
----------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income
(loss)................. $ (2,010,036) $ (354,075) $ (972,239) $ (746,321)
----------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
77
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1998
<TABLE>
<CAPTION>
Capital
Capital Capital Income and
Balanced Growth Growth Growth
Fund Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 110,202 $ (1,099,960) $ 4,930,518 $ (6,962,845)
Net realized gains on
securities and futures
contracts............. 822,291 45,438,253 10,845,766 37,565,972
Net change in
unrealized losses on
securities and futures
contracts............. (583,942) (32,273,002) (5,423,416) (173,567,460)
--------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 348,551 12,065,291 10,352,868 (142,964,333)
--------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... 0 (29,728) (2,350,498) 0
Class B............... 0 (52,910) (2,488,039) 0
Class Y............... (159,807) 0 (29) 0
Net realized gains
Class A............... 0 (5,934,313) (5,325,307) (6,599,466)
Class B............... 0 (10,484,517) (8,807,307) (31,307,757)
Class Y............... (1,140,442) (12) (1) (10)
--------------------------------------------------------------------------------
Total distributions to
shareholders.......... (1,300,249) (16,501,480) (18,971,181) (37,907,233)
--------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 9,280,672 220,347,637 101,090,596 313,753,597
Payment for shares
redeemed.............. (910,125) (69,421,744) (39,059,107) (294,819,420)
Net asset value of
shares issued in
reinvestment of
distributions......... 1,300,249 16,089,732 17,902,342 36,935,409
--------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions......... 9,670,796 167,015,625 79,933,831 55,869,586
--------------------------------------------------------------------------------
Total increase
(decrease) in net
assets.............. 8,719,098 162,579,436 71,315,518 (125,001,980)
Net assets
Beginning of period... 4,101,875 179,289,508 171,325,458 611,262,639
--------------------------------------------------------------------------------
End of period......... $12,820,973 $341,868,944 $242,640,976 $ 486,260,659
--------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income...... $ 18,259 0 $ 91,952 0
--------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
78
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Statements of Changes in Net Assets
Year Ended September 30, 1998
<TABLE>
<CAPTION>
High Municipal Quality Short-Duration
Income Income Income Income
Fund (a) Fund Fund Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income.. $ 1,818,180 $ 4,054,279 $ 9,334,606 $ 5,167,036
Net realized gains or
losses on securities
and futures
contracts............. (88,715) (41,138) 713,191 325,954
Net change in
unrealized gains or
losses on securities
and futures
contracts............. (9,323,486) 3,077,428 6,558,180 1,608,387
---------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (7,594,021) 7,090,569 16,605,977 7,101,377
---------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class A............... (1,040,534) (1,979,908) (4,831,082) (3,203,099)
Class B............... (1,178,956) (2,308,071) (5,431,749) (2,394,223)
Class Y............... 0 (43) (51) (49)
Net realized gains
Class A............... 0 0 0 0
Class B............... 0 0 0 0
Class Y............... 0 0 0 0
---------------------------------------------------------------------------------
Total distributions to
shareholders.......... (2,219,490) (4,288,022) (10,262,882) (5,597,371)
---------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold.................. 126,286,107 45,477,369 106,644,051 169,053,248
Payment for shares
redeemed.............. (3,998,009) (13,461,719) (40,705,601) (82,572,822)
Net asset value of
shares issued in
reinvestment of
distributions......... 1,281,553 2,625,084 6,677,759 4,352,285
---------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 123,569,651 34,640,734 72,616,209 90,832,711
---------------------------------------------------------------------------------
Total increase in net
assets................ 113,756,140 37,443,281 78,959,304 92,336,717
Net assets
Beginning of period.... -- 73,665,856 128,221,961 54,707,722
---------------------------------------------------------------------------------
End of period.......... $113,756,140 $111,109,137 $207,181,265 $147,044,439
---------------------------------------------------------------------------------
Undistributed
(overdistributed) net
investment income
(loss)................. $ (371,874) $ (349,922) $ (923,573) $ (512,293)
---------------------------------------------------------------------------------
</TABLE>
(a) For the period from June 23, 1998 (commencement of operations) to September
30, 1998.
See Combined Notes to Financial Statements.
79
<PAGE>
EVERGREEN
Equity and Fixed Income Funds (formerly Mentor Funds)
Combined Notes to Financial Statements
1. ORGANIZATION
Evergreen Equity and Fixed Income Funds (formerly Mentor Funds) consist of Ev-
ergreen Capital Balanced Fund ("Capital Balanced Fund") (formerly Mentor Bal-
anced Portfolio), Evergreen Capital Growth Fund ("Capital Growth Fund") (for-
merly Mentor Capital Growth Portfolio), Evergreen Capital Income and Growth
Fund ("Capital Income and Growth Fund") (formerly Mentor Income and Growth
Portfolio), Evergreen Growth Fund ("Growth Fund") (formerly Mentor Growth Port-
folio), Evergreen High Income Fund ("High Income Fund") (formerly Mentor High
Income Portfolio), Evergreen Municipal Income Fund ("Municipal Income Fund")
(formerly Mentor Municipal Income Portfolio), Evergreen Quality Income Fund
("Quality Income Fund") (formerly Mentor Quality Income Portfolio) and Ever-
green Short-Duration Income Fund ("Short-Duration Income Fund") (formerly Men-
tor Short-Duration Income Portfolio), (collectively, the "Funds"). Each Fund
was a diversified series of a Massachusetts business trust, an open-end manage-
ment investment company organized on January 20, 1992 and registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Funds changed
their form of organization to diversified series of various Evergreen Delaware
business trusts as of the following dates: October 15, 1999 for the Capital
Balanced Fund, Growth Fund, High Income Fund, Municipal Income Fund, and Qual-
ity Income Fund; October 22, 1999 for the Capital Income and Growth Fund, Capi-
tal Growth Fund and Short-Duration Income Fund. (See Note 10 and Additional
Information.)
Until the date of the approved share classes restructuring (see Note 10), the
Funds offered Class A, Class B, and, except for High Income Fund, Class Y
shares. Class A shares were sold with a maximum front-end sales charge of 5.75%
for Capital Balanced Fund, Capital Growth Fund, Capital Income and Growth Fund,
and Growth Fund; 4.75% for High Income Fund, Municipal Income Fund and Quality
Income Fund; and 1.00% for Short-Duration Income Fund, payable at the time of
purchase. Class B shares were sold subject to a contingent deferred sales
charge that was payable upon redemption and decreased depending on how long the
shares have been held. Class Y shares are sold at net asset value and are not
subject to contingent deferred sales charges or distribution fees. Class Y
shares were sold only to certain institutional investors and high net-worth in-
dividual investors.
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 an established securities exchange or included on the
Nasdaq National Market System ("NMS") and other securities traded in the over-
the-counter market are valued at the last reported sales price on the exchange
where primarily traded. Securities traded on an exchange or NMS and other secu-
rities 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, municipal 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 institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities, which are generally recognized by insti-
tutional traders. In evaluating the fair value of a Fund's municipal bonds an
independent pricing service uses a variety of factors which may include yield,
liquidity, interest rate risk, credit quality, coupon, maturity and type of is-
sue.
Securities for which valuations are not available from an independent pricing
service may be valued by brokers which use prices provided by market makers or
estimates of market value obtained from yield data relating to investments or
securities with similar characteristics. Otherwise, securities for which market
quota-
80
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Combined Notes to Financial Statements (continued)
tions are not readily available or valuations are not available from an inde-
pendent pricing service (including restricted securities) are valued at fair
value as determined in good faith according to procedures established by the
Board of Trustees.
Mutual Fund shares held as short term investments are valued at net asset val-
ue. 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, other than Municipal Income Fund, may invest in repurchase agree-
ments. The custodian holds securities pledged as collateral for repurchase
agreements in a segregated account 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 collateral daily and will require the seller to
provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions, which are deemed by the investment ad-
visor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
C. Reverse Repurchase Agreements
To obtain short-term financing, each Fund, except for Growth Fund, may enter
into reverse repurchase agreements with qualified third-party broker-dealers.
Interest on the value of reverse repurchase agreements is based upon competi-
tive market rates at the time of issuance. At the time the Fund enters into a
reverse repurchase agreement, it will establish and maintain a segregated ac-
count 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 securi-
ties to be repurchased by the Fund may be delayed or limited.
D. Dollar Roll Transactions
Each of the Funds, except for the Growth Fund and Municipal Income Fund, may
engage in dollar roll transactions with respect to mortgage-backed securities
issued by GNMA, FNMA, and FHLMC. In a dollar-roll transaction, a Fund sells a
mortgage-backed security to a financial institution, 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 securities that are re-
purchased will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment histo-
ries.
E. Residual Interests
Capital Balanced Fund, High Income Fund, Quality Income Fund and Short-Duration
Income Fund may invest in mortgage security residual interests ("residuals"). A
residual is a derivative security, which is any investment that derives its
value from an underlying security, asset, or market index. The Funds' invest-
ments in residuals are primarily in securities issued by proprietary mortgage
trusts. While these entities have been highly leveraged, often having indebted-
ness of up to 95% of their total value, the Funds have not incurred any indebt-
edness in the course of making these residual investments; nor have the Funds'
assets been pledged to secure the indebtedness of the issuing structure or the
Funds' investment in the residuals. In consideration of the risk associated
with investment in residual securities, it is the Funds' policy to limit their
exposure at the time of purchase to no more than 20% of their total assets.
F. Interest-Rate Swaps
Capital Balanced Fund, High Income Fund, Quality Income Fund and Short-Duration
Income Fund may invest in interest-rate swap transactions. An interest-rate
swap is a contract between two parties on a specified principal amount, re-
ferred 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.
81
<PAGE>
EVERGREEN
Equity and Fixed Income Funds
Combined Notes to Financial Statements (continued)
G. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Each Fund, other than Growth Fund and Municipal Income 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 exchange; 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 gain or
loss resulting from changes in foreign currency exchange rates is a component
of net unrealized gains or losses on securities and foreign currency related
transactions. Net realized foreign currency 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 cur-
rency related transactions and the difference between the amounts of interest
and dividends recorded on the books of the Fund and the amount actually re-
ceived. 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.
H. 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 statement of
assets and liabilities.
I. Forward Foreign Currency Exchange Contracts
The Funds that may invest in foreign securities may enter into forward foreign
currency exchange contracts ("forward contracts") to settle Fund purchases and
sales of securities denominated in a foreign currency and to hedge certain for-
eign currency assets or liabilities. Forward contracts are recorded at the for-
ward rate and marked-to-market daily. Realized gains and losses arising from
such transactions 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 un-
der the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
J. 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.
K. Securities Lending
In order to generate income and to offset expenses, each Fund, except Municipal
Income Fund, may lend portfolio securities to brokers, dealers and other finan-
cial organizations. The Funds' investment advisor will monitor the creditwor-
thiness of such borrowers. 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, includ-
ing accrued interest. The Fund monitors the adequacy of the collateral daily
and will require the borrower to provide additional collateral in the event the
value of the collateral falls below 100% of the market value of
82
<PAGE>
Combined Notes to Financial Statements (continued)
the securities on loan. While such securities are on loan, the borrower will
pay a Fund any income accruing thereon, and the Fund may invest any cash col-
lateral received in Fund 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 connection with such loans.
L. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income and
capital gains realized on some foreign securities may be subject to foreign
taxes, which are accrued as applicable.
M. 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, net tax-exempt income and net capital gains, if any, to their sharehold-
ers. The Funds also intend to avoid any excise tax liability by making the re-
quired distributions under 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.
N. Distributions
Distributions from net investment income for the Funds are declared daily and
paid monthly to all shareholders invested in High Income Fund, Municipal Income
Fund, Quality Income Fund and Short-Duration Income Fund. Dividends are de-
clared and paid quarterly to all shareholders invested in the Capital Balanced
Fund and Capital Income and Growth Fund; and annually to all shareholders in-
vested in Capital Growth Fund and Growth Fund. Distributions from net realized
capital gains, if any, are paid at least annually. Distributions to sharehold-
ers are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The differences between financial statement amounts avail-
able for distributions and distributions made in accordance with income tax
regulations are primarily due to differing treatment for dollar roll transac-
tions, residual interests, Futures contracts, principal retirements on certain
asset backed securities and certain repurchases of securities sold at a loss.
To the extent these differences are permanent in nature, such amounts are re-
classified within the components of net assets.
O. 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 and Service Plans for each class.
P. Organization Expenses
Organization expenses for High Income Fund and Short-Duration Income Fund are
being amortized to operations over a five-year period on a straight-line basis.
In the event any of the initial shares of the Fund are redeemed by any holder
during the five-year amortization period, redemption proceeds will be reduced
by any unamortized organization expenses in the same proportion as the number
of initial shares being redeemed bears to the number of initial shares out-
standing at the time of the redemption.
83
<PAGE>
Combined Notes to Financial Statements (continued)
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Mentor Investment Advisors, LLC ("Mentor Advisors"), a wholly-owned subsidiary
of First Union Corporation ("First Union"), serves as the investment advisor
for each Fund.
Mentor Advisors receives for its services an investment advisory fee that is
calculated daily and paid monthly based on the average daily net assets of each
Fund as follows:
<TABLE>
<CAPTION>
Annual
Advisory Fee
------------
<S> <C>
Capital Balanced Fund............................... 0.75%
Capital Growth Fund................................. 0.80
Capital Income and Growth Fund...................... 0.75
Growth Fund......................................... 0.70
High Income Fund.................................... 0.70
Municipal Income Fund............................... 0.60
Quality Income Fund................................. 0.60
Short-Duration Income Fund.......................... 0.50
</TABLE>
Prior to June 14, 1999, Van Kampen American Capital Management, Inc. served as
the sub-advisor to High Income Fund and Municipal Income Fund and was paid by
Mentor Advisors for its services. Prior to July 1, 1999, Wellington Management
Company LLC served as the sub-advisor to Capital Income and Growth Fund and was
paid by Mentor Advisors for its services.
Each investment advisor may from time to time voluntarily waive some or their
entire investment advisory fee and may terminate any such voluntary waiver at
any time at its sole discretion. During the year ended September 30, 1999, the
amount of investment advisory fees waived for certain Funds by the investment
advisor and the impact on each Fund's expense ratio represented as a percentage
of its average net assets were as follows:
<TABLE>
<CAPTION>
Fees % of Average Daily
Waived Net Assets
------- -----------------
<S> <C> <C>
High Income Fund.................... $269,733 0.12%
Quality Income Fund................. 312,164 0.15
Short-Duration Income Fund.......... 49,357 0.03
</TABLE>
Evergreen Investment Services, Inc. ("EIS"), a subsidiary of First Union,
serves as the administrator to the Funds. As administrator, EIS provides the
Funds with facilities, equipment and personnel. EIS is entitled to a fee at an
annual rate based on the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
Administrative
Fee
--------------
<S> <C>
Capital Balanced Fund............................. 0.15%
Capital Growth Fund............................... 0.15
Capital Income and Growth Fund.................... 0.15
Growth Fund....................................... 0.15
High Income Fund.................................. 0.10
Municipal Income Fund............................. 0.10
Quality Income Fund............................... 0.10
Short-Duration Income Fund........................ 0.10
</TABLE>
Prior to June 14, 1999, Mentor Investment Group, LLC ("Mentor"), a wholly-owned
subsidiary of First Union, provided administrative personnel and services for
each Fund at the same rates indicated above. Prior to April 1, 1999, the fees
paid to Mentor for administrative services by the Capital Balanced Fund, Capi-
tal Growth Fund, Capital Income and Growth Fund and Growth Fund were 0.10% of
each Fund's average daily net assets.
84
<PAGE>
Combined Notes to Financial Statements (continued)
For the year ended September 30, 1999, the Funds paid or accrued to EIS and
Mentor, the following amounts for administrative services:
<TABLE>
<CAPTION>
EIS Mentor
------- --------
<S> <C> <C>
Capital Balanced Fund......................... $150,798 $216,572
Capital Growth Fund........................... 253,350 397,344
Capital Income and Growth Fund................ 224,781 109,857
Growth Fund................................... 218,689 418,663
High Income Fund.............................. 74,245 148,643
Municipal Income Fund......................... 34,925 86,546
Quality Income Fund........................... 56,686 153,129
Short-Duration Income Fund.................... 52,226 129,322
</TABLE>
During the year ended September 30, 1999, the High Income Fund and Short-Dura-
tion Income Fund waived $38,398 and $181,548, respectively, in administrative
expenses, representing 0.02% and 0.10%, respectively, of the average daily net
assets of each Fund.
Evergreen Service Company ("ESC"), an indirectly, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. Prior to September 13, 1999, Boston Financial Data Services, Inc. served
as each Fund"s transfer and disbursing agent.
For the year ended September 30, 1999, the Funds paid or accrued the following
amounts to ESC:
<TABLE>
<CAPTION>
ESC
------
<S> <C>
Capital Balanced Fund........................... $35,182
Capital Growth Fund............................. 44,276
Capital Income and Growth Fund.................. 24,599
Growth Fund..................................... 52,616
High Income Fund................................ 8,727
Municipal Income Fund........................... 5,228
Quality Income Fund............................. 14,126
Short-Duration Income Fund...................... 11,108
4. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
Mentor Distributors, LLC ("Mentor Distributors") serves as principal under-
writer to the Funds. Mentor Distributors is a wholly owned subsidiary of BISYS
Fund Service, Inc.
Each Fund has adopted a Distribution Plan (the "Distribution Plan") under Rule
12b-1 of the 1940 Act for its Class B shares. To compensate Mentor Distributors
for the services it provides and for the expenses it incurred under the Distri-
bution Plan, Class B shares of the Funds paid a distribution fee, which was ac-
crued daily and paid monthly at the following annual rates for each Fund:
<CAPTION>
Distribution Fee
----------------
<S> <C>
Capital Balanced Fund........................... 0.75%
Capital Growth Fund............................. 0.75
Capital Income and Growth Fund.................. 0.75
Growth Fund..................................... 0.75
High Income Fund................................ 0.50
Municipal Income Fund........................... 0.50
Quality Income Fund............................. 0.50
Short-Duration Income Fund...................... 0.30
</TABLE>
Each Fund has also adopted a Shareholder Servicing Plan (the "Service Plan")
with Mentor Distributors with respect to Class A and Class B shares of each
Fund. Under the Service Plan, financial institutions will enter into share-
holder service agreements with the Funds to provide administrative support
services to their customers who from time to time might be owners of record or
beneficial owners of Class A or Class B shares of one or more Funds. In return
for providing these support services, a financial institution might receive
payments from one or more Funds at an annual rate of 0.25% of the average daily
net assets of the Class A or Class B shares of the particular Fund or Funds
beneficially owned by the financial institution's customers for whom it was a
holder of record or with whom it had a servicing relationship.
85
<PAGE>
Combined Notes to Financial Statements (continued)
During the year ended September 30, 1999, amounts paid or accrued to Mentor
Distributors pursuant to the Distribution and Service Plans were as follows:
<TABLE>
<CAPTION>
Shareholder Shareholder Distribution
Servicing Fee Servicing Fee Fee
Class A Class B Class B
------------ ----------- -----------
<S> <C> <C> <C>
Capital Balanced
Fund................. $240,418 $495,382 $1,486,146
Capital Growth Fund... 642,323 629,264 1,887,791
Capital Income and
Growth Fund.......... 286,877 380,270 1,140,812
Growth Fund........... 251,717 951,522 2,854,567
High Income Fund...... 340,268 243,829 494,725
Municipal Income
Fund................. 157,398 146,277 292,555
Quality Income Fund... 257,763 266,787 533,574
Short-Duration Income
Fund................. 322,468 130,967 157,161
</TABLE>
The Distribution Plan and Service Plan may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class.
5. ACQUISITIONS
Effective November 16, 1998, the Capital Balanced Fund acquired substantially
all the assets and assumed the liabilities of Mentor Strategy Portfolio
("Strategy Portfolio") in exchange for Class A, Class B and Class Y shares of
the Capital Balanced Fund. The acquisition was accomplished by a tax-free ex-
change of the respective shares of the Capital Balanced Fund for the net assets
of the Strategy Portfolio. The net assets acquired amounted to $222,601,303.
The acquired net assets consisted primarily of the portfolio securities and
futures contracts with unrealized appreciation (depreciation) of $15,536,901
and ($1,142,275), respectively. The aggregate net assets of the Capital Bal-
anced Fund immediately after the acquisition were $255,551,169.
86
<PAGE>
Combined Notes to Financial Statements (continued)
6. CAPITAL SHARE TRANSACTIONS
The Funds have an authorized unlimited number of shares of beneficial interest.
Shares of beneficial interest of the Funds are currently divided into Class A,
Class B and Class Y. Transactions in shares of the Funds were as follows:
Capital Balanced Fund
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1999 1998
------------------------ ---------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.................. 9,086,010 $143,511,236 258,246 $ 3,577,935
Shares redeemed.............. (1,949,361) (30,839,772) 0 0
Shares issued in reinvestment
of distributions............ 89,104 1,341,038 0 0
Shares issued in acquisition
of Mentor Strategy
Portfolio................... 1,667,724 24,198,670 0 0
------------------------------------------------------------------------------
Net increase................. 8,893,477 138,211,172 258,246 3,577,935
------------------------------------------------------------------------------
Class B
Shares sold.................. 3,086,070 47,290,308 412,403 5,702,737
Conversion of Class B Shares
to Class Y shares........... 0 0 (273,416) (3,350,117)
Shares redeemed.............. (3,307,503) (49,837,695) (48,378) (810,125)
Shares issued in reinvestment
of distributions............ 146,658 2,190,038 88,886 1,300,249
Shares issued in acquisition
of Mentor Strategy
Portfolio................... 14,131,685 198,402,633 0 0
------------------------------------------------------------------------------
Net increase................. 14,056,910 198,045,284 179,495 2,842,744
------------------------------------------------------------------------------
Class Y (a)
Shares sold.................. 89 1,303 0 0
Conversion of Class B Shares
to Class Y shares........... 0 0 273,416 3,350,117
Shares redeemed.............. (264,603) (3,836,379) (7,305) (100,000)
Shares issued in reinvestment
of distributions............ 106 1,566 0 0
------------------------------------------------------------------------------
Net increase (decrease)...... (264,408) (3,833,510) 266,111 3,250,117
------------------------------------------------------------------------------
Net increase................. $332,422,946 $ 9,670,796
</TABLE>
-------------------------------------------------------------------------------
Capital Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1999 1998
------------------------- ------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold.............. 8,969,729 $ 218,527,291 5,110,051 $121,415,173
Shares redeemed.......... (4,384,818) (107,572,611) (1,926,775) (45,709,577)
Shares issued in
reinvestment of
distributions........... 741,724 16,054,923 278,288 5,833,664
-----------------------------------------------------------------------------
Net increase............. 5,326,635 127,009,603 3,461,564 81,539,260
-----------------------------------------------------------------------------
Class B
Shares sold.............. 3,100,435 70,992,924 4,375,173 98,931,464
Shares redeemed.......... (2,242,187) (51,622,823) (1,063,324) (23,712,167)
Shares issued in
reinvestment of
distributions........... 1,106,815 22,759,933 507,715 10,256,056
-----------------------------------------------------------------------------
Net increase............. 1,965,063 42,130,034 3,819,564 85,475,353
-----------------------------------------------------------------------------
Class Y (b)
Shares sold.............. 0 0 48 1,000
Shares redeemed.......... 0 0 0 0
Shares issued in
reinvestment of
distributions........... 5 125 1 12
-----------------------------------------------------------------------------
Net increase............. 5 125 49 1,012
-----------------------------------------------------------------------------
Net increase............. $ 169,139,762 $167,015,625
</TABLE>
-------------------------------------------------------------------------------
(a) For the period from September 16, 1998 (commencement of class operations)
to September 30, 1998.
(b) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
87
<PAGE>
Combined Notes to Financial Statements (continued)
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 1,535,653 $ 30,363,881 2,515,923 $ 49,323,113
Shares redeemed........... (1,369,583) (27,336,486) (915,370) (18,005,450)
Shares issued in
reinvestment of
distributions............ 347,798 6,756,517 371,373 7,153,831
-----------------------------------------------------------------------------
Net increase.............. 513,868 9,783,912 1,971,926 38,471,494
-----------------------------------------------------------------------------
Class B
Shares sold............... 922,461 17,764,471 2,642,784 51,766,483
Shares redeemed........... (1,753,193) (34,406,196) (1,074,795) (21,053,657)
Shares issued in
reinvestment of
distributions............ 465,134 9,020,962 559,471 10,748,481
-----------------------------------------------------------------------------
Net increase (decrease)... (365,598) (7,620,763) 2,127,460 41,461,307
-----------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 53 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 3 64 2 30
-----------------------------------------------------------------------------
Net increase.............. 3 64 55 1,030
-----------------------------------------------------------------------------
Net increase.............. $ 2,163,213 $ 79,933,831
</TABLE>
-------------------------------------------------------------------------------
Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............. 31,738,871 $ 498,194,431 12,016,618 $ 210,103,016
Shares redeemed......... (31,503,018) (497,861,464) (12,306,743) (213,035,017)
Shares issued in
reinvestment of
distributions.......... 209,823 2,939,628 346,751 6,474,795
-------------------------------------------------------------------------------
Net increase............ 445,676 3,272,595 56,626 3,542,794
-------------------------------------------------------------------------------
Class B
Shares sold............. 2,136,351 27,314,195 4,138,131 73,047,883
Shares redeemed......... (8,496,928) (122,872,448) (4,698,527) (80,890,251)
Shares issued in
reinvestment of
distributions.......... 1,070,622 14,539,245 1,667,456 30,460,604
-------------------------------------------------------------------------------
Net increase
(decrease)............. (5,289,955) (81,019,008) 1,107,060 22,618,236
-------------------------------------------------------------------------------
Class Y (a)
Shares sold............. 1,189,938 18,258,330 1,786,672 30,602,698
Shares redeemed......... (788,128) (12,236,470) (53,808) (894,152)
Shares issued in
reinvestment of
distributions.......... 72,358 1,016,634 1 10
-------------------------------------------------------------------------------
Net increase............ 474,168 7,038,494 1,732,865 29,708,556
-------------------------------------------------------------------------------
Net increase
(decrease)............. $ (70,707,919) $ 55,869,586
</TABLE>
-------------------------------------------------------------------------------
High Income Fund
<TABLE>
<CAPTION>
Year Ended Period Ended
September 30, 1999 September 30, 1998 (b)
------------------------ -----------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................ 11,606,611 $127,776,306 4,775,208 $ 56,602,255
Shares redeemed............ (2,587,728) (28,057,661) (168,561) (1,889,222)
Shares issued in
reinvestment of
distributions............. 523,286 5,731,421 51,541 580,207
-----------------------------------------------------------------------------
Net increase............... 9,542,169 105,450,066 4,658,188 55,293,240
-----------------------------------------------------------------------------
Class B
Shares sold................ 5,534,821 60,817,115 5,890,307 69,683,852
Shares redeemed............ (1,241,203) (13,458,559) (190,546) (2,108,787)
Shares issued in
reinvestment of
distributions............. 393,141 4,298,751 62,441 701,346
-----------------------------------------------------------------------------
Net increase............... 4,686,759 51,657,307 5,762,202 68,276,411
-----------------------------------------------------------------------------
Net increase............... $157,107,373 $123,569,651
</TABLE>
-------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
(b) For the period from June 23, 1998 (commencement of class operations) to
September 30, 1998.
88
<PAGE>
Combined Notes to Financial Statements (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1999 1998
------------------------ ----------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold................. 1,730,028 $ 27,697,748 1,688,990 $25,509,509
Shares redeemed............. (1,167,496) (18,298,845) (423,337) (6,641,364)
Shares issued in
reinvestment of
distributions.............. 95,949 1,495,527 75,715 1,188,701
-----------------------------------------------------------------------------
Net increase................ 658,481 10,894,430 1,341,368 20,056,846
-----------------------------------------------------------------------------
Class B
Shares sold................. 505,740 7,866,662 1,208,341 18,966,860
Shares redeemed............. (844,406) (12,912,503) (436,001) (6,820,355)
Shares issued in
reinvestment of
distributions.............. 88,642 1,381,234 91,662 1,436,340
-----------------------------------------------------------------------------
Net increase (decrease)..... (250,024) (3,664,607) 864,002 13,582,845
-----------------------------------------------------------------------------
Class Y (a)
Shares sold................. 0 0 64 1,000
Shares redeemed............. 0 0 0 0
Shares issued in
reinvestment of
distributions.............. 0 10 3 43
-----------------------------------------------------------------------------
Net increase................ 0 10 67 1,043
-----------------------------------------------------------------------------
Net increase................ $ 7,229,833 $33,640,734
</TABLE>
-------------------------------------------------------------------------------
Quality Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 6,870,812 $ 86,944,421 4,256,782 $ 56,191,423
Shares redeemed........... (5,746,275) (71,969,150) (1,597,720) (21,178,895)
Shares issued in
reinvestment of
distributions............ 300,159 3,883,017 233,015 3,077,659
-----------------------------------------------------------------------------
Net increase.............. 1,424,696 18,858,288 2,892,077 38,090,187
-----------------------------------------------------------------------------
Class B
Shares sold............... 1,882,214 24,533,041 3,811,046 50,451,628
Shares redeemed........... (2,669,108) (34,466,906) (1,478,885) (19,526,706)
Shares issued in
reinvestment of
distributions............ 327,045 4,234,809 272,551 3,600,049
-----------------------------------------------------------------------------
Net increase (decrease)... (459,849) (5,699,056) 2,604,712 34,524,971
-----------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 76 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 0 0 4 51
-----------------------------------------------------------------------------
Net increase.............. 0 0 80 1,051
-----------------------------------------------------------------------------
Net increase.............. $ 13,159,232 $ 72,616,209
</TABLE>
-------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
89
<PAGE>
Combined Notes to Financial Statements (continued)
Short-Duration Income Fund
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold............... 8,743,015 $109,426,581 9,921,692 $124,978,729
Shares redeemed........... (6,891,134) (85,442,151) (4,997,458) (62,897,886)
Shares issued in
reinvestment of
distributions............ 415,576 5,165,194 200,895 2,525,409
-----------------------------------------------------------------------------
Net increase.............. 2,267,457 29,149,624 5,125,129 64,606,252
-----------------------------------------------------------------------------
Class B
Shares sold............... 1,353,089 16,923,783 3,500,465 44,073,519
Shares redeemed........... (2,148,019) (26,729,789) (1,563,684) (19,674,936)
Shares issued in
reinvestment of
distributions............ 175,996 2,195,326 145,226 1,826,827
-----------------------------------------------------------------------------
Net increase (decrease)... (618,934) (7,610,680) 2,082,007 26,225,410
-----------------------------------------------------------------------------
Class Y (a)
Shares sold............... 0 0 79 1,000
Shares redeemed........... 0 0 0 0
Shares issued in
reinvestment of
distributions............ 0 0 4 49
-----------------------------------------------------------------------------
Net increase.............. 0 0 83 1,049
-----------------------------------------------------------------------------
Net increase.............. $ 21,538,944 $ 90,832,711
</TABLE>
-------------------------------------------------------------------------------
(a) For the period from November 19, 1997 (commencement of class operations) to
September 30, 1998.
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 year ended September 30, 1999:
<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........... $324,124,906 $317,474,616 $220,169,427 $150,656,567
Capital Growth
Fund........... 0 485,192,062 0 390,571,941
Capital Income and Growth
Fund........... 128,359,577 198,430,306 122,751,166 217,073,220
Growth Fund..... 0 516,201,245 0 576,320,792
High Income
Fund........... 0 308,383,817 0 165,849,562
Municipal Income
Fund........... 0 178,602,438 0 170,912,646
Quality Income
Fund........... 229,795,325 223,837,300 440,523,399 64,354,626
Short-Duration
Income Fund.... 304,466,078 140,005,551 353,250,418 56,318,659
</TABLE>
Short-Duration Income Fund and Quality Income Fund had the following reverse
repurchase agreement outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Repurchase Interest Maturity
Amount Counterparty Rate Date
---------- --------------------------- ------ --------
<S> <C> <C> <C> <C>
Quality Income
Fund........... $10,003,028 State Street Bank & Trust Co. 5.45% 10/6/1999
Short-Duration
Income Fund.... 6,564,948 State Street Bank & Trust Co. 5.20 10/6/1999
</TABLE>
During the year ended September 30, 1999, Capital Balanced Fund, Quality Income
Fund and Short-Duration Income Fund entered into reverse repurchase agreements.
The average daily balance, weighted average interest rate and maximum amount
outstanding under these agreements were as follows:
<TABLE>
<CAPTION>
Average Daily Weighted Maximum
Balance Average Amount
Outstanding Interest Rate Outstanding*
------------ ----------- -----------
<S> <C> <C> <C>
Capital Balanced
Fund................. $ 62,378 1.75% $ 2,846,968
Quality Income Fund... 21,559,331 4.90 81,054,844
Short-Duration Income
Fund................. 8,739,347 4.56 22,005,806
</TABLE>
-------
* The Maximum Amount Outstanding under reverse repurchase agree-
ments includes accrued interest.
At September 30, 1999, Quality Income Fund had a dollar roll agreements out-
standing as follows:
<TABLE>
<CAPTION>
Dollar Roll Interest Maturity
Amount Counterparty Rate Date
----------------------- ---------------- ------ ---------
<S> <C> <C> <C>
$9,095,625.............. Piper Jaffray Inc. 7.50% 10/16/1999
</TABLE>
90
<PAGE>
Combined Notes to Financial Statements (continued)
During the year ended September 30, 1999, Capital Balanced Fund, Capital Income
and Growth Fund, Quality Income Fund and Short-Duration Income Fund earned in-
come on mortgage dollar roll transactions as follows:
<TABLE>
<CAPTION>
Income Earned on
Dollar Roll Transactions
------------------------
<S> <C>
Capital Balanced Fund................... $70,313
Capital Income and Growth Fund.......... 56,451
Quality Income Fund..................... 18,450
Short-Duration Income Fund.............. 44,801
</TABLE>
The Funds loaned securities during the year ended September 30, 1999 to certain
brokers who paid the Fund a negotiated lender's fee. These fees are included in
interest income. At September 30, 1999, the value of securities on loan and the
value of collateral were as follows:
<TABLE>
<CAPTION>
Value of Securities on Loan Value of Collateral
-------------------------- ------------------
<S> <C> <C>
Capital Balanced
Fund........... $22,502,324 $22,733,449
Capital Growth
Fund........... 3,710,844 3,687,316
Capital Income
and Growth
Fund........... 13,251,295 13,385,847
Growth Fund..... 71,648,214 74,111,928
Quality Income
Fund........... 5,488,562 5,605,710
</TABLE>
On September 30, 1999, the composition of unrealized appreciation and deprecia-
tion on securities based on the aggregate cost of securities for federal income
tax purposes were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Tax Cost Appreciation Depreciation (Depreciation)
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Capital
Balanced
Fund.......... $364,494,014 $29,044,073 $ (8,485,680) $ 20,558,393
Capital Growth
Fund.......... 474,404,827 94,015,303 (23,943,504) 70,071,799
Capital Income
and Growth
Fund.......... 253,769,604 12,142,042 (7,529,235) 4,612,807
Growth Fund.... 469,866,310 91,391,664 (25,589,242) 65,802,422
High Income
Fund.......... 262,966,662 3,177,339 (14,395,051) (11,217,712)
Municipal
Income Fund... 110,486,886 1,626,259 (3,197,719) (1,571,460)
Quality Income
Fund.......... 230,458,983 456,333 (5,940,245) (5,483,912)
Short-Duration
Income Fund... 169,441,212 473,157 (3,002,584) (2,529,427)
</TABLE>
As of September 30, 1999, the Funds had capital loss carryovers for federal in-
come tax purposes as follows:
<TABLE>
<CAPTION>
Expiration
---------------------------------------------------------------
Capital Loss 2002 2003 2004 2005 2006 2007
Carryover --------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
High Income Fund........ $ 1,128,619 $ 0 $ 0 $ 0 $ 0 $ 0 $1,128,619
Municipal Income Fund... 1,920,439 0 8,142 1,616,817 0 295,480
Quality Income Fund..... 13,907,548 3,547,591 7,326,035 1,708,773 1,325,149 0
</TABLE>
Capital (Currency) 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, Municipal Income Fund, Quality Income Fund
and Short-Duration Income Fund have incurred and will elect to defer post Octo-
ber (currency) losses of $12,453,072, $621,521, $5,233,354 and $2,726,161, re-
spectively.
8. EXPENSE OFFSET ARRANGEMENTS
The Funds have entered into expense offset arrangements with their custodian as
of June 14, 1999, and with ESC on September 13, 1999, 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 Funds did not receive any fee credits for the year ended September
30, 1999.
9. FINANCING AGREEMENTS
On August 6, 1999 the Evergreen Equity and Fixed Income Funds became party to a
credit agreement between Evergreen Funds and a group of banks (the "Lenders").
Under this agreement, effective for all other Evergreen Funds on July 27, 1999,
the Lenders provide an unsecured revolving credit commitment in the
91
<PAGE>
Combined Notes to Financial Statements (continued)
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 as general working capital as permitted by each Fund's bor-
rowing restrictions. Borrowings under this facility are assessed 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 Funds. For its assistance in arranging this fi-
nancing agreement, First Union Capital Markets Corp. was paid a one-time ar-
rangement fee of $250,000. State Street Bank & Trust Co. 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 of the Funds. During the year ended September 30,
1999 the Funds had no borrowings under this agreement.
10. SUBSEQUENT EVENTS (unaudited)
Acquisition of EVEREN by First Union
On April 26, 1999, First Union announced an agreement to acquire EVEREN Capital
Corporation ("EVEREN"). As part of this acquisition Mentor would be combined
with the Evergreen mutual funds complex and Mentor Funds would convert from a
series of a Massachusetts business trust to various Evergreen Delaware business
trusts. On October 1, 1999, the acquisition of EVEREN by First Union was
completed.
Special Meetings of Shareholders
Special meetings of the Mentor Funds shareholders were held on October 15, 1999
for the Capital Balanced Fund, Growth Fund, High Income Fund, Municipal Income
Fund, and Quality Income Fund, and on October 22, 1999 for the Capital Growth
Fund, Capital Income and Growth Fund, and Short-Duration Income Fund. (See Ad-
ditional Information.)
Class Restructuring
Upon approval by shareholders of each Fund on the conversion of the Mentor
Funds to various series of Evergreen Delaware business trusts, the shareholders
of Class A, Class B and Class Y of the Mentor Funds became owners of that num-
ber of full and fractional shares of Class A, Class C and Class Y shares, re-
spectively, of the corresponding Evergreen Equity and Fixed Income Funds. In
addition, effective October 18, 1999 for the Capital Balanced Fund, Growth
Fund, High Income Fund, and Quality Income Fund; October 25, 1999 for the Capi-
tal Growth Fund, each of the Funds added a new class of shares designated as
Class B, and High Income Fund added Class Y shares.
Class A shares of the Funds are currently sold with a maximum front-end sales
charge of 4.75%. Class B and Class C shares are sold without a front-end sales
charge, but pay a higher ongoing distribution fee than Class A. The distribu-
tion fee is paid by the Funds at an annual rate of 0.25%, 1.00% and 1.00% of
the average daily net assets of the Class A, Class B and Class C shares, re-
spectively. Class B shares are sold subject to a contingent deferred sales
charge that is payable upon redemption and decreases depending on how long the
shares have been held. Class B shares will automatically convert to Class A
shares after seven years. Class C shares are sold subject to a contingent de-
ferred sales charge ("CDSC") payable on shares redeemed within one year after
the month of purchase. Holders of Class C shares received in the conversion are
subject to the schedule of CDSC applicable to Class B shares of the former Men-
tor Funds. Class Y shares are sold only to investment advisory clients of First
Union Corporation ("First Union") and its affiliates, certain institutional in-
vestors or Class Y shareholders of record of certain other Funds managed by
First Union and its affiliates as of December 30, 1994.
92
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Evergreen Equity Trust
Evergreen Fixed Income Trust
Evergreen Municipal Trust
(formerly Mentor Funds)
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments of the Evergreen Capital Balanced Fund (for-
merly Mentor Balanced Portfolio), Evergreen Capital Growth Fund (formerly Men-
tor Capital Growth Portfolio), Evergreen Capital Income and Growth Fund (for-
merly Mentor Income and Growth Portfolio), Evergreen Growth Fund (formerly Men-
tor Growth Portfolio), portfolios of the Evergreen Equity Trust, and Evergreen
High Income Fund (formerly Mentor High Income Portfolio), Evergreen Quality In-
come Fund (formerly Mentor Quality Income Portfolio), Evergreen Short-Duration
Income Fund (formerly Mentor Short-Duration Income Portfolio), portfolios of
the Evergreen Fixed Income Trust, and Evergreen Municipal Income Fund (formerly
Mentor Municipal Income Portfolio), a portfolio of Evergreen Municipal Trust
(all Trusts formerly Mentor Funds), as of September 30, 1999, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years or periods in the two-year period then ended
and financial highlights for each of the years of periods in the five-year pe-
riod ended September 30, 1999. These financial statements and financial high-
lights are the responsibility of the Funds' management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Sep-
tember 30, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Capital Balanced Fund, Evergreen Capital Growth Fund, Evergreen
Capital Income and Growth Fund, Evergreen Growth Fund, Evergreen High Income
Fund, Evergreen Quality Income Fund, Evergreen Short-Duration Income Fund and
Evergreen Municipal Income Fund as of September 30, 1999, the results of their
operations, changes in their net assets and financial highlights for each of
the years or periods described above in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
November 5, 1999
93
<PAGE>
Additional Information (unaudited)
DISTRIBUTIONS TO SHAREHOLDERS
On November 1, 1999 the following Funds declared net investment income divi-
dends, payable on November 2, 1999 to shareholders of record on November 1,
1999:
<TABLE>
<CAPTION>
Class C
Class A Class B (former Class B) Class Y
------ ----- -------------- ------
<S> <C> <C> <C> <C>
High Income Fund..... $0.09 $0.09 $0.08 $0.09
Municipal Income
Fund................ 0.06 0 0.05 0.07
Quality Income Fund.. 0.07 0.06 0.06 0.07
Short-Duration Income
Fund................ 0.06 0 0.06 0.07
</TABLE>
These distributions are not reflected in the accompanying financial statements.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the Mentor Funds shareholders were held on October 15, 1999
for the Capital Balanced Fund, Capital Income and Growth Fund, Growth Fund,
High Income Fund, Municipal Income Fund, Quality Income Fund and Short-Duration
Income Fund, and on October 22, 1999 for the Capital Growth Fund to approve
each Fund's conversion into a series of an Evergreen Delaware business trust
and other related matters. Shareholders of record on August 17, 1999 were enti-
tled to notice of and to vote at the meetings and any adjournments thereof. The
record date shares and the number of shares voted and represented at the meet-
ings were as follows:
<TABLE>
<CAPTION>
Shares Voted as
Total Percentage of
Record Date Total Record Date
Share Position Shares Voted Shares
------------- ---------- ----------------
<S> <C> <C> <C>
Capital Balanced
Fund........... 23,922,217 12,187,097 50.94%
Capital Growth
Fund........... 23,394,963 11,828,888 50.56%
Capital Income
and Growth
Fund........... 13,103,400 7,452,701 56.88%
Growth Fund..... 31,252,368 16,241,039 51.97%
High Income
Fund........... 24,989,893 12,604,633 50.44%
Municipal Income
Fund........... 7,718,454 4,610,379 59.73%
Quality Income
Fund........... 16,037,390 9,605,132 59.89%
Short-Duration
Income Fund.... 15,022,761 9,404,050 62.60%
</TABLE>
During each of the special meetings the shareholders of the Funds voted the
following:
1. To approve an Agreement and Plan of Conversion and Termination providing for
the conversion of each of the above-named Funds into a corresponding series
of Evergreen Delaware business trust;
2. To approve the proposed changes of the Fund's investment objectives from
fundamental to non-fundamental;
3. To approve the proposed changes to the Fund's investment restrictions (for
Short-Duration Income Fund this vote was designated as vote number 2 on the
shareholders' proxy cards):
3A.Diversification
3B.Concentration
3C.Senior securities
3D.Borrowing
3E.Underwriting
3F.Real Estate
3G.Commodities
3H.Lending
3I. To reclassify as non-fundamental certain fundamental restrictions that
are no longer required to be fundamental:
3I(i).Short sales
3I(ii).Margin purchases
94
<PAGE>
Additional Information (unaudited) (continued)
3I(iii).Pledging
3I(iv).Restricted securities
3I(v).Unseasoned issuers
3I(vi).Illiquid securities
3I(vii).Officers' and directors' ownership of securities
3I(viii).Control of management
3I(ix).Joint trading
3I(x).Other investment companies
3I(xi).Oil, gas and minerals
3I(xii).Foreign securities
3I(xiii).Warrants
4. To transact any other business that may properly come before the meeting or
any adjournment thereof (for Capital Income and Growth Fund and Municipal
Income Fund this vote was designated as vote number 5 on the shareholders'
voting cards).
The results were as follows:
Capital Balanced Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 10,994,733 90.22%
AGAINST................. 348,910 2.86%
ABSTAIN................. 843,454 6.92%
TOTAL................... 12,187,097 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 10,909,586 89.52%
AGAINST................. 388,502 3.19%
ABSTAIN................. 889,009 7.29%
TOTAL................... 12,187,097 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 10,905,238 89.48% 336,515 2.76% 945,344 7.76%
3B. ................. 10,905,199 89.48% 336,554 2.76% 945,344 7.76%
3C. ................. 10,894,243 89.39% 347,510 2.85% 945,344 7.76%
3D. ................. 10,864,360 89.15% 377,393 3.10% 945,344 7.76%
3E. ................. 10,892,480 89.38% 349,273 2.87% 945,344 7.76%
3F. ................. 10,875,315 89.24% 366,438 3.01% 945,344 7.76%
3G. ................. 10,866,717 89.17% 375,036 3.08% 945,344 7.76%
3H. ................. 10,879,211 89.27% 362,542 2.97% 945,344 7.76%
3I(i). .............. 10,893,042 89.38% 348,711 2.86% 945,344 7.76%
3I(ii). ............. 10,892,031 89.37% 349,722 2.87% 945,344 7.76%
3I(iii). ............ 10,898,547 89.43% 343,206 2.82% 945,344 7.76%
3I(iv). ............. 10,893,828 89.39% 347,925 2.85% 945,344 7.76%
3I(v). .............. 10,893,828 89.39% 347,925 2.85% 945,344 7.76%
3I(vi). ............. 10,890,301 89.36% 351,452 2.88% 945,344 7.76%
3I(vii). ............ 10,889,042 89.35% 352,711 2.89% 945,344 7.76%
3I(viii). ........... 10,893,755 89.39% 347,998 2.86% 945,344 7.76%
3I(ix). ............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(x). .............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(xi). ............. 10,899,333 89.43% 342,420 2.81% 945,344 7.76%
3I(xii). ............ 10,896,592 89.41% 345,161 2.83% 945,344 7.76%
3I(xiii). ........... 10,909,327 89.52% 332,426 2.73% 945,344 7.76%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 11,034,747 90.55%
AGAINST................. 235,770 1.93%
ABSTAIN................. 916,580 7.52%
TOTAL................... 12,187,097 100.00%
</TABLE>
95
<PAGE>
Additional Information (unaudited) (continued)
Capital Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 10,630,330 89.87%
AGAINST................. 405,804 3.43%
ABSTAIN................. 792,754 6.70%
TOTAL................... 11,828,888 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 10,545,591 89.15%
AGAINST................. 474,312 4.01%
ABSTAIN................. 808,985 6.84%
TOTAL................... 11,828,888 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 10,540,789 89.11% 399,374 3.38% 888,725 7.51%
3B. ................. 10,531,371 89.03% 408,792 3.46% 888,725 7.51%
3C. ................. 10,538,320 89.09% 401,843 3.40% 888,725 7.51%
3D. ................. 10,532,404 89.04% 407,759 3.45% 888,725 7.51%
3E. ................. 10,539,383 89.10% 400,780 3.39% 888,725 7.51%
3F. ................. 10,534,491 89.06% 405,672 3.43% 888,725 7.51%
3G. ................. 10,522,752 88.96% 417,411 3.53% 888,725 7.51%
3H. ................. 10,528,667 89.01% 411,496 3.48% 888,725 7.51%
3I(i). .............. 10,534,592 89.06% 405,571 3.43% 888,725 7.51%
3I(ii). ............. 10,532,514 89.04% 407,649 3.45% 888,725 7.51%
3I(iii). ............ 10,532,775 89.04% 407,388 3.44% 888,725 7.51%
3I(iv). ............. 10,534,795 89.06% 405,368 3.43% 888,725 7.51%
3I(v). .............. 10,534,942 89.06% 405,221 3.43% 888,725 7.51%
3I(vi). ............. 10,529,745 89.02% 410,418 3.47% 888,725 7.51%
3I(vii). ............ 10,535,657 89.07% 404,506 3.42% 888,725 7.51%
3I(viii). ........... 10,536,127 89.07% 404,036 3.42% 888,725 7.51%
3I(ix). ............. 10,536,163 89.07% 404,000 3.42% 888,725 7.51%
3I(x). .............. 10,535,992 89.07% 404,171 3.42% 888,725 7.51%
3I(xi). ............. 10,536,249 89.07% 403,914 3.41% 888,725 7.51%
3I(xii). ............ 10,536,153 89.07% 404,010 3.42% 888,725 7.51%
3I(xiii). ........... 10,541,990 89.12% 398,173 3.37% 888,725 7.51%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 10,696,920 90.43%
AGAINST................. 285,472 2.41%
ABSTAIN................. 846,496 7.16%
TOTAL................... 11,828,888 100.00%
</TABLE>
96
<PAGE>
Additional Information (unaudited) (continued)
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 6,620,618 88.84%
AGAINST................. 330,476 4.43%
ABSTAIN................. 501,607 6.73%
TOTAL................... 7,452,701 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 6,665,453 89.44%
AGAINST................. 300,698 4.03%
ABSTAIN................. 486,550 6.53%
TOTAL................... 7,452,701 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 6,710,597 90.04% 254,043 3.41% 488,061 6.55%
3B. ................. 6,710,348 90.04% 254,292 3.41% 488,061 6.55%
3C. ................. 6,703,616 89.95% 261,024 3.50% 488,061 6.55%
3D. ................. 6,706,503 89.99% 258,137 3.46% 488,061 6.55%
3E. ................. 6,707,785 90.00% 256,855 3.45% 488,061 6.55%
3F. ................. 6,696,672 89.86% 267,968 3.60% 488,061 6.55%
3G. ................. 6,703,089 89.94% 261,551 3.51% 488,061 6.55%
3H. ................. 6,706,320 89.99% 258,320 3.47% 488,061 6.55%
3I(i). .............. 6,702,543 89.93% 262,097 3.52% 488,061 6.55%
3I(ii). ............. 6,707,752 90.00% 256,888 3.45% 488,061 6.55%
3I(iii). ............ 6,702,825 89.94% 261,815 3.51% 488,061 6.55%
3I(iv). ............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(v). .............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(vi). ............. 6,702,496 89.93% 262,144 3.52% 488,061 6.55%
3I(vii). ............ 6,703,715 89.95% 260,925 3.50% 488,061 6.55%
3I(viii). ........... 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(ix). ............. 6,707,752 90.00% 256,888 3.45% 488,061 6.55%
3I(x). .............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(xi). ............. 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
3I(xii). ............ 6,702,825 89.94% 261,815 3.51% 488,061 6.55%
3I(xiii). ........... 6,708,034 90.01% 256,606 3.44% 488,061 6.55%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 6,670,205 89.50%
AGAINST................. 301,630 4.05%
ABSTAIN................. 480,866 6.45%
TOTAL................... 7,452,701 100.00%
</TABLE>
97
<PAGE>
Additional Information (unaudited) (continued)
Growth Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 14,895,816 91.72%
AGAINST................. 541,540 3.33%
ABSTAIN................. 803,683 4.95%
TOTAL................... 16,241,039 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 14,804,165 91.16%
AGAINST................. 634,137 3.90%
ABSTAIN................. 802,737 4.94%
TOTAL................... 16,241,039 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 14,793,159 91.09% 555,808 3.42% 892,072 5.49%
3B. ................. 14,789,499 91.06% 559,468 3.44% 892,072 5.49%
3C. ................. 14,790,192 91.07% 558,775 3.44% 892,072 5.49%
3D. ................. 14,772,975 90.96% 575,992 3.55% 892,072 5.49%
3E. ................. 14,787,626 91.05% 561,341 3.46% 892,072 5.49%
3F. ................. 14,761,844 90.89% 587,123 3.62% 892,072 5.49%
3G. ................. 14,757,964 90.87% 591,003 3.64% 892,072 5.49%
3H. ................. 14,761,461 90.89% 587,506 3.62% 892,072 5.49%
3I(i). .............. 14,771,461 90.95% 577,506 3.56% 892,072 5.49%
3I(ii). ............. 14,775,676 90.98% 573,291 3.53% 892,072 5.49%
3I(iii). ............ 14,776,563 90.98% 572,404 3.52% 892,072 5.49%
3I(iv). ............. 14,779,578 91.00% 569,389 3.51% 892,072 5.49%
3I(v). .............. 14,782,407 91.02% 566,560 3.49% 892,072 5.49%
3I(vi). ............. 14,778,607 91.00% 570,360 3.51% 892,072 5.49%
3I(vii). ............ 14,784,662 91.03% 564,305 3.47% 892,072 5.49%
3I(viii). ........... 14,784,304 91.03% 564,663 3.48% 892,072 5.49%
3I(ix). ............. 14,786,029 91.04% 562,938 3.47% 892,072 5.49%
3I(x). .............. 14,786,029 91.04% 562,938 3.47% 892,072 5.49%
3I(xi). ............. 14,784,919 91.03% 564,048 3.47% 892,072 5.49%
3I(xii). ............ 14,782,977 91.02% 565,990 3.48% 892,072 5.49%
3I(xiii). ........... 14,789,803 91.06% 559,164 3.44% 892,072 5.49%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 15,002,311 92.38%
AGAINST................. 370,883 2.28%
ABSTAIN................. 867,845 5.34%
TOTAL................... 16,241,039 100.00%
</TABLE>
98
<PAGE>
Additional Information (unaudited) (continued)
High Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 11,564,156 91.75%
AGAINST................. 385,038 3.05%
ABSTAIN................. 655,439 5.20%
TOTAL................... 12,604,633 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 11,551,119 91.64%
AGAINST................. 367,058 2.91%
ABSTAIN................. 686,456 5.45%
TOTAL................... 12,604,633 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3B. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3C. ................. 11,644,985 92.39% 272,857 2.16% 686,791 5.45%
3D. ................. 11,642,623 92.37% 275,219 2.18% 686,791 5.45%
3E. ................. 11,648,084 92.41% 269,758 2.14% 686,791 5.45%
3F. ................. 11,646,949 92.40% 270,893 2.15% 686,791 5.45%
3G. ................. 11,639,174 92.34% 278,668 2.21% 686,791 5.45%
3H. ................. 11,642,739 92.37% 275,103 2.18% 686,791 5.45%
3I(i). .............. 11,650,689 92.43% 267,153 2.12% 686,791 5.45%
3I(ii). ............. 11,644,459 92.38% 273,383 2.17% 686,791 5.45%
3I(iii). ............ 11,645,635 92.39% 272,207 2.16% 686,791 5.45%
3I(iv). ............. 11,646,542 92.40% 271,300 2.15% 686,791 5.45%
3I(v). .............. 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(vi). ............. 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(vii). ............ 11,648,802 92.42% 269,040 2.13% 686,791 5.45%
3I(viii). ........... 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(ix). ............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(x). .............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(xi). ............. 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
3I(xii). ............ 11,649,225 92.42% 268,617 2.13% 686,791 5.45%
3I(xiii). ........... 11,651,308 92.44% 266,534 2.11% 686,791 5.45%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 11,826,369 93.83%
AGAINST................. 190,649 1.51%
ABSTAIN................. 587,615 4.66%
TOTAL................... 12,604,633 100.00%
</TABLE>
99
<PAGE>
Additional Information (unaudited) (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 4,210,871 91.33%
AGAINST................. 94,439 2.05%
ABSTAIN................. 305,069 6.62%
TOTAL................... 4,610,379 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 4,154,796 90.12%
AGAINST................. 128,272 2.78%
ABSTAIN................. 327,311 7.10%
TOTAL................... 4,610,379 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3B. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3C. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3D. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3E. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3F. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3G. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3H. ................. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(i). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(ii). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(iii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(iv). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(v). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(vi). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(vii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(viii). ........... 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(ix). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(x). .............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xi). ............. 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xii). ............ 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
3I(xiii). ........... 4,172,540 90.50% 96,931 2.10% 340,908 7.39%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 4,137,428 89.75%
AGAINST................. 106,685 2.31%
ABSTAIN................. 366,266 7.94%
TOTAL................... 4,610,379 100.00%
</TABLE>
100
<PAGE>
Additional Information (unaudited) (continued)
Quality Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 8,744,290 91.04%
AGAINST................. 275,788 2.87%
ABSTAIN................. 585,054 6.09%
TOTAL................... 9,605,132 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 2.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 8,747,045 91.07%
AGAINST................. 232,637 2.42%
ABSTAIN................. 625,450 6.51%
TOTAL................... 9,605,132 100.00%
</TABLE>
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................. 8,749,090 91.09% 202,285 2.11% 653,756 6.81%
3B. ................. 8,747,677 91.07% 203,698 2.12% 653,756 6.81%
3C. ................. 8,746,448 91.06% 204,927 2.13% 653,756 6.81%
3D. ................. 8,741,284 91.01% 210,091 2.19% 653,756 6.81%
3E. ................. 8,741,944 91.01% 209,431 2.18% 653,756 6.81%
3F. ................. 8,734,969 90.94% 216,406 2.25% 653,756 6.81%
3G. ................. 8,744,549 91.04% 206,826 2.15% 653,756 6.81%
3H. ................. 8,742,143 91.02% 209,232 2.18% 653,756 6.81%
3I(i). .............. 8,741,828 91.01% 209,547 2.18% 653,756 6.81%
3I(ii). ............. 8,743,750 91.03% 207,625 2.16% 653,756 6.81%
3I(iii). ............ 8,744,064 91.04% 207,311 2.16% 653,756 6.81%
3I(iv). ............. 8,743,750 91.03% 207,625 2.16% 653,756 6.81%
3I(v). .............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(vi). ............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(vii). ............ 8,749,206 91.09% 202,169 2.10% 653,756 6.81%
3I(viii). ........... 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(ix). ............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(x). .............. 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(xi). ............. 8,749,206 91.09% 202,169 2.10% 653,756 6.81%
3I(xii). ............ 8,749,598 91.09% 201,777 2.10% 653,756 6.81%
3I(xiii). ........... 8,749,771 91.09% 201,604 2.10% 653,756 6.81%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted % of Total
----------- ----- ---------
<S> <C> <C> <C>
FOR............. 8,846,098 92.10% 55.16%
AGAINST......... 197,970 2.06% 1.23%
ABSTAIN......... 561,064 5.84% 3.50%
TOTAL........... 9,605,132 100.00% 59.89%
</TABLE>
101
<PAGE>
Additional Information (unaudited) (continued)
Short-Duration Income Fund
<TABLE>
<CAPTION>
Vote 1.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 7,510,210 76.92%
AGAINST................. 1,529,577 15.66%
ABSTAIN................. 724,797 7.42%
TOTAL................... 9,764,584 100.00%
</TABLE>
Vote 2.--N/A
<TABLE>
<CAPTION>
Vote 3.
Shares Voted % Shares Voted % Shares Voted %
FOR Voted AGAINST Voted ABSTAIN Voted
----------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
3A. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3B. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3C. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3D. ................ 7,502,468 76.83% 1,509,258 15.46% 752,858 7.71%
3E. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3F. ................ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3G. ................ 7,504,493 76.85% 1,507,233 15.44% 752,858 7.71%
3H. ................ 7,508,794 76.90% 1,502,932 15.39% 752,858 7.71%
3I(i). ............. 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(ii). ............ 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(iii). ........... 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(iv). ............ 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(v). ............. 7,503,748 76.85% 1,507,978 15.44% 752,858 7.71%
3I(vi). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(vii). ........... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(viii). .......... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(ix). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(x). ............. 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xi). ............ 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xii). ........... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
3I(xiii). .......... 7,510,074 76.91% 1,501,652 15.38% 752,858 7.71%
</TABLE>
<TABLE>
<CAPTION>
Vote 4.
Shares Voted % Voted
----------- ------
<S> <C> <C>
FOR..................... 7,490,714 76.71%
AGAINST................. 1,520,990 15.58%
ABSTAIN................. 752,880 7.71%
TOTAL................... 9,764,584 100.00%
</TABLE>
In addition, Capital Income and Growth Fund, Municipal Income Fund and Short-
Duration Income Fund shareholders voted to approve a Plan of Reorganization
whereby each Fund will transfer all of its assets and have its identified lia-
bilities assumed by another Evergreen fund in exchange for shares of the ac-
quiring Evergreen fund as follows:
Acquired Fund Acquiring Fund
Capital Income and Capital Balanced Fund
Growth Fund Evergreen Municipal Bond
Municipal Income Fund Fund
Short-Duration Income Evergreen Short-Intermedi-
Fund ate Bond Fund
The shareholders of Capital Income and Growth Fund, Municipal Income Fund and
Short-Duration Income Fund voted to approve the Plan of Reorganization during
the meetings held on October 22, 1999, October 15, 1999 and October 29, 1999,
respectively.
For Capital Income and Growth Fund and Municipal Income Fund this vote was des-
ignated as vote number 4 and for Short-Duration Income Fund this vote was des-
ignated as vote number 3 on the shareholders' voting cards. The results of the
vote were as follows:
Capital Income and Growth Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
----------- ---------
<S> <C> <C>
FOR.................. 6,756,644 90.66%
AGAINST.............. 230,077 3.09%
ABSTAIN.............. 465,980 6.25%
TOTAL................ 7,452,701 100.00%
</TABLE>
102
<PAGE>
Additional Information (unaudited) (continued)
Municipal Income Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
----------- ---------
<S> <C> <C>
FOR.................. 4,155,092 90.12%
AGAINST.............. 87,960 1.91%
ABSTAIN.............. 367,327 7.97%
TOTAL................ 4,610,379 100.00%
</TABLE>
Short-Duration Income Fund
<TABLE>
<CAPTION>
Vote
Shares Voted % of Voted
----------- ---------
<S> <C> <C>
FOR.................. 7,514,233 76.96%
AGAINST.............. 1,524,681 15.61%
ABSTAIN.............. 725,670 7.43%
TOTAL................ 9,764,584 100.00%
</TABLE>
YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisor and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisor is taking steps to
address this potential year 2000 problem with respect to the computer systems
that they use and to obtain satisfactory assurances that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any ad-
verse impact on the Funds from this problem.
FEDERAL TAX STATUS OF DISTRIBUTIONS
Pursuant to section 852 of the Internal Revenue code, the Funds have designated
the following amounts as long-term capital gain distributions for the fiscal
year ended September 30, 1999:
<TABLE>
<CAPTION>
Aggregate Per Share
---------- --------
<S> <C> <C>
Capital Balanced Fund..................................... $ 755,106 $0.050
Capital Growth Fund....................................... 27,486,789 2.630
Capital Income and Growth Fund............................ 9,316,482 0.980
Growth Fund............................................... 19,038,170 0.560
Short-Duration Income Fund................................ 70,058 0.005
</TABLE>
For corporate shareholders, the following percentages of ordinary income divi-
dends paid during the fiscal year ended September 30, 1999 qualified for the
dividends received deduction:
<TABLE>
<S> <C>
Capital Balanced Fund.................................................... 39.61%
Capital Income and Growth Fund........................................... 27.10
</TABLE>
For the fiscal year ended September 30, 1999, the percentage representing the
portion of distributions from net investment income exempt form Federal income
taxes, other than alternative minimum tax, for Municipal Income Fund is 98.45%
103
<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 Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
Municipal Income 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
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Quality Income Fund
Short-Duration Income Fund
High Income Fund
Balanced
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Capital Balanced Fund
Capital Income and Growth Fund
Growth & Income
Utility Fund
Income and Growth Fund
Equity Income Fund
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Value Fund
Select Equity Index Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Growth Fund
Capital Growth Fund
Select Special Equity Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
28585 551386 11/99
[LOGO OF EVERGREEN FUNDS] -------------
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U.S. POSTAGE
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200 Berkeley Street PERMIT NO. 19
Boston, MA 02116 HUDSON, MA
-------------
<PAGE>
<PAGE>
Evergreen Foundation Fund
Pro Forma Combining
Schedule of Investments
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS 61.7%
Advertising & Related Services 0.2%
Interpublic Group of Companies, Inc. 174,670 $7,183,304 174,670 $7,183,304
----------- -----------
Aerospace & Defense 0.5%
Boeing Co. 247,600 $10,553,950 247,600 10,553,950
United Technologies Corp. 92,530 5,488,186 92,530 5,488,186
------------ -----------
16,042,136 16,042,136
Automotive Equipment & Manufacturing 0.9%
Daimler Chrysler AG 344,066 23,891,083 344,066 23,891,083
Delphi Automotive Systems Corp. 90,860 1,459,439 90,860 1,459,439
General Motors Corp. 110,000 6,923,125 110,000 6,923,125
------------ -----------
32,273,647 32,273,647
Banks 2.4%
Bank One Corp. 117,923 4,105,194 117,923 4,105,194
BankAmerica Corp. 179,539 9,998,078 179,539 9,998,078
BankBoston Corp. 668,600 29,000,525 668,600 29,000,525
Charter One Financial, Inc. (b) 102,766 2,376,455 102,766 2,376,455
M&T Bank Corp. 2,901 1,331,559 2,901 1,331,559
National City Corp. 366,160 9,771,895 366,160 9,771,895
Seacoast Banking Corp. of Florida, Cl. A 70,000 2,060,625 70,000 2,060,625
SouthTrust Corp. 173,100 6,209,962 173,100 6,209,962
SunTrust Banks, Inc. 184,280 12,116,410 184,280 12,116,410
Wells Fargo Co. (b) 140,495 5,567,114 140,495 5,567,114
----------- ----------- -----------
67,052,727 15,485,090 82,537,817
Building, Construction & Furnishings 0.1%
Sherwin Williams Co. 134,985 2,826,248 134,985 2,826,248
----------- -----------
Business Equipment & Services 1.3%
Automatic Data Processing, Inc. 98,000 4,373,250 174,800 7,800,450 272,800 12,173,700
Computer Sciences Corp. 106,200 7,467,188 128,645 9,045,352 234,845 16,512,540
* First Data Corp. 162,100 7,112,137 162,100 7,112,137
SunGard Data Systems, Inc. (b) 156,600 4,120,538 156,600 4,120,538
* Xerox Corp. 120,000 5,032,500 120,000 5,032,500
----------- ----------- -----------
16,872,938 28,078,477 44,951,415
Capital Goods 0.2%
Caterpillar, Inc. 156,000 8,550,750 156,000 8,550,750
------------ -----------
Chemical & Agricultural Products 1.8%
Air Products & Chemicals, Inc. 40,000 1,162,500 40,000 1,162,500
Du Pont (E.I.) De Nemours & Co. 575,400 35,027,475 575,400 35,027,475
Monsanto Co. 280,800 10,021,050 280,800 10,021,050
Nalco Chemical Co. 45,000 2,272,500 45,000 2,272,500
Pioneer Hi-Bred International, Inc. 174,000 6,927,375 174,000 6,927,375
PPG Industries, Inc. 105,800 6,348,000 105,800 6,348,000
Praxair, Inc. 40,000 1,840,000 40,000 1,840,000
------------ -----------
63,598,900 63,598,900
Communication Systems & Services 3.3%
Cisco Systems, Inc. 816,200 55,960,712 816,200 55,960,712
Lucent Technologies, Inc. 643,870 41,771,066 643,870 41,771,066
MCI WorldCom, Inc. 170,900 12,283,438 84,585 6,079,547 255,485 18,362,985
----------- ----------- -----------
110,015,216 6,079,547 116,094,763
Consumer Products & Services 0.9%
Gillette Co. 218,000 7,398,375 218,000 7,398,375
Procter & Gamble Co. 251,451 23,573,531 251,451 23,573,531
------------ -----------
30,971,906 30,971,906
Diversified Companies 1.2%
Tyco International Ltd. 334,586 34,546,004 334,586 34,546,004
Tyco International Ltd. (b) 86,645 8,946,096 86,645 8,946,096
----------- ----------- -----------
34,546,004 8,946,096 43,492,100
Electrical Equipment & Services 3.0%
Applied Power, Inc., Cl. A 130,000 3,948,750 130,000 3,948,750
Emerson Electric Co. 254,300 16,068,581 254,300 16,068,581
General Electric Co. 612,400 72,607,675 612,400 72,607,675
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Motorola, Inc. 127,500 11,220,000 127,500 11,220,000
------------ ------------
103,845,006 103,845,006
Finance & Insurance 7.2%
AFLAC, Inc. 100,000 4,187,500 100,000 4,187,500
Allstate Corp. 144,000 3,591,000 144,000 3,591,000
American Express Co. 263,000 35,406,375 45,860 6,173,903 308,860 41,580,278
American International Group, Inc. 367,612 31,959,268 367,612 31,959,268
Berkshire Hathaway Inc. 4,600 8,537,600 4,600 8,537,600
Citigroup, Inc. 437,625 19,255,500 437,625 19,255,500
Countrywide Credit Industries, Inc. 158,350 5,106,788 158,350 5,106,788
Federal Home Loan Mortgage Corp. 84,000 4,368,000 84,000 4,368,000
Federal National Mortgage Assoc. 718,000 45,009,625 718,000 45,009,625
Federal National Mortgage Assoc. (b) 103,910 6,513,858 103,910 6,513,858
Household International, Inc. 370,055 14,848,457 370,055 14,848,457
Marsh & McLennan Co., Inc. 354,100 24,255,850 354,100 24,255,850
Merrill Lynch & Co., Inc. 407,400 27,372,187 407,400 27,372,187
MGIC Investment Corp. 169,800 8,107,950 169,800 8,107,950
Raymond James Financial, Inc. 312,975 6,239,939 312,975 6,239,939
Washington Mutual, Inc. 70,880 2,073,240 70,880 2,073,240
------------ ----------- ------------
238,246,039 14,761,001 253,007,040
Food & Beverage Products 2.7%
Albertsons, Inc. 150,000 5,934,375 150,000 5,934,375
Anheuser Busch Companies, Inc. 182,000 12,751,375 182,000 12,751,375
Bestfoods 240,000 11,640,000 240,000 11,640,000
Campbell Soup Co. 111,000 4,342,875 111,000 4,342,875
Coca Cola Co. 439,400 21,118,662 439,400 21,118,662
Conagra, Inc. 206,900 4,668,181 206,900 4,668,181
McDonald's Corp. 242,000 10,406,000 242,000 10,406,000
Pepsico, Inc. 250,000 7,562,500 250,000 7,562,500
Philip Morris Companies, Inc. 274,000 9,367,375 145,000 4,957,187 419,000 14,324,562
Tricon Global Restaurants, Inc. 3,000 122,813 3,000 122,813
------------ ----------- ------------
81,979,781 10,891,562 92,871,343
Forest Products 0.1%
Willamette Industries, Inc. 90,000 3,881,250 90,000 3,881,250
------------ ------------
Healthcare Products & Services 6.7%
Abbott Laboratories 431,400 15,853,950 431,400 15,853,950
American Home Products Corp. 243,600 10,109,400 243,600 10,109,400
Baxter International, Inc. 70,000 4,217,500 70,000 4,217,500
Bristol-Myers Squibb Co. 350,400 23,652,000 108,890 7,350,075 459,290 31,002,075
Glaxo Wellcome Plc, ADR 29,400 1,528,800 29,400 1,528,800
Guidant Corp. 137,100 7,351,988 137,100 7,351,988
IMS Health, Inc. 40,000 912,500 40,000 912,500
Johnson & Johnson 205,500 18,880,312 80,205 7,368,834 285,705 26,249,146
Lilly (Eli) & Co. 312,524 20,001,536 312,524 20,001,536
McKesson HBOC, Inc. 198,680 5,761,720 198,680 5,761,720
Medtronic, Inc. 297,200 10,550,600 297,200 10,550,600
Merck & Co., Inc. 538,516 34,902,568 538,516 34,902,568
PE Corp-PE Biosystems Group 324,000 23,409,000 324,000 23,409,000
Pfizer, Inc. 253,500 9,110,156 253,500 9,110,156
Schering-Plough Corp. 314,000 13,698,250 314,000 13,698,250
* Tenet Healthcare Corp. 367,970 6,462,473 367,970 6,462,473
Warner-Lambert Co. 227,400 15,093,675 227,400 15,093,675
------------ ----------- ------------
215,033,955 21,181,382 236,215,337
Industrial Specialty Products & Services 1.0%
Corning, Inc. 143,000 9,804,438 143,000 9,804,438
Honeywell, Inc. 108,000 12,021,750 108,000 12,021,750
Illinois Tool Works, Inc. 63,700 4,749,631 94,435 7,041,310 158,135 11,790,941
------------ ----------- ------------
26,575,819 7,041,310 33,617,129
Information Services & Technology 12.7%
America Online, Inc. 161,000 16,744,000 161,000 16,744,000
Analog Devices, Inc. 162,566 8,331,507 162,566 8,331,507
BMC Software, Inc. 100,000 7,156,250 100,000 7,156,250
Compaq Computer Corp. 520,133 11,930,551 520,133 11,930,551
Computer Associates International, Inc. 106,000 6,492,500 106,000 6,492,500
Dell Computer Corp. 600,000 25,087,500 600,000 25,087,500
EMC Corp. 216,000 15,430,500 216,000 15,430,500
Hewlett-Packard Co. 342,800 31,537,600 342,800 31,537,600
Intel Corp. 1,619,200 120,326,800 108,000 8,025,750 1,727,200 128,352,550
International Business Machines Corp. 480,000 58,260,000 480,000 58,260,000
Microsoft Corp. 980,000 88,751,250 980,000 88,751,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
* Sun Microsystems, Inc. 428,000 39,804,000 93,050 8,653,650 521,050 48,457,650
------------ ----------- ------------
429,852,458 16,679,400 446,531,858
Manufacturing - Distributing 0.2%
Sysco Corp. 245,935 8,623,096 245,935 8,623,096
----------- -----------
Oil & Energy 2.6%
Atlantic Richfield Co. 100,000 8,862,500 100,000 8,862,500
BP Amoco Plc 105,054 11,641,296 105,054 11,641,296
Chevron Corp. 153,000 13,578,750 153,000 13,578,750
Consolidated Natural Gas Co. 66,000 4,116,750 66,000 4,116,750
Equitable Resources, Inc. 289,000 10,927,813 289,000 10,927,813
Exxon Corp. 246,400 18,711,000 246,400 18,711,000
Mobil Corp. 141,800 14,286,350 141,800 14,286,350
Texaco, Inc. 125,000 7,890,625 125,000 7,890,625
------------ ------------
90,015,084 90,015,084
Oil Field Services 0.6%
Baker Hughes, Inc. 83,430 2,419,470 83,430 2,419,470
Halliburton Co. 167,600 6,871,600 167,600 6,871,600
Schlumberger Ltd. 187,800 11,702,288 187,800 11,702,288
------------ ------------
20,993,358 20,993,358
Printing, Publishing, Broadcasting &
Entertainment 1.7%
CBS Corp. 128,620 5,948,675 128,620 5,948,675
Cox Communications, Inc., Cl. A 154,500 6,450,375 154,500 6,450,375
Disney (Walt) Co. 387,479 10,026,019 387,479 10,026,019
Kimberly-Clark Corp. 93,000 4,882,500 104,600 5,491,500 197,600 10,374,000
New York Times Co., Cl. A 40,000 1,500,000 40,000 1,500,000
Time Warner, Inc. 243,800 14,810,850 243,800 14,810,850
* AMFM, Inc. (b) 113,600 6,915,400 113,600 6,915,400
Omnicom Group, Inc. 24,800 1,963,850 24,800 1,963,850
------------ ----------- ------------
43,618,419 14,370,750 57,989,169
Real Estate 0.3%
Marriott International, Inc., Cl. A 235,000 7,681,563 235,000 7,681,563
Sunstone Hotel Investors, Inc. REIT 186,700 1,633,625 186,700 1,633,625
------------ ------------
9,315,188 9,315,188
Retailing & Wholesale 3.0%
Bed Bath & Beyond, Inc. 255,000 8,909,063 255,000 8,909,063
Costco Wholesale Corp. 91,000 6,552,000 91,000 6,552,000
Dayton Hudson Corp. 82,400 4,949,150 82,400 4,949,150
Home Depot, Inc. 399,000 27,381,375 399,000 27,381,375
Lowe's Companies, Inc. 216,000 10,530,000 216,000 10,530,000
Safeway, Inc. 95,000 3,615,938 95,000 3,615,938
W.W. Grainger, Inc. 110,100 5,291,681 110,100 5,291,681
Wal-Mart Stores, Inc. 779,000 37,051,187 779,000 37,051,187
------------ ------------
104,280,394 104,280,394
Telecommunications Services & Equipment 1.5%
Global Crossing Ltd. 1,255,215 33,263,197 1,255,215 33,263,197
Qwest Communications International, Inc. 253,000 7,479,313 253,000 7,479,313
Univision Communications, Inc., Cl. A 33,165 2,698,802 33,165 2,698,802
Vodafone Airtouch Public Ltd., ADR 34,000 8,083,500 34,000 8,083,500
------------ ------------
51,524,812 51,524,812
Transportation 0.9%
Burlington Northern Santa Fe Corp. 75,000 2,062,500 75,000 2,062,500
Union Pacific Corp. 524,000 25,184,750 524,000 25,184,750
Werner Enterprises, Inc. 174,272 3,071,544 174,272 3,071,544
------------ ----------- ------------
27,247,250 3,071,544 30,318,794
Utilities - Electric 1.0%
Central Hudson Gas & Electric Corp. 360,100 14,178,937 360,100 14,178,937
Eastern Utilities Associates 104,300 3,115,962 104,300 3,115,962
Energy East Corp. 276,800 6,574,000 276,800 6,574,000
PacifiCorp 200,000 4,025,000 200,000 4,025,000
Public Service Enterprise Group, Inc. 47,500 1,834,688 47,500 1,834,688
Southern Co. 154,000 3,965,500 154,000 3,965,500
------------ ------------
33,694,087 33,694,087
Utilities - Gas 0.2%
Keyspan Corp. 276,636 7,918,706 276,636 7,918,706
------------ ------------
Utilities - Telephone 3.7%
ALLTEL Corp. 72,766 5,120,907 72,766 5,120,907
AT&T Corp. 580,000 25,230,000 580,000 25,230,000
Bell Atlantic Corp. 348,080 23,430,135 348,080 23,430,135
GTE Corp. 311,400 23,938,875 311,400 23,938,875
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sprint Corp. 702,000 38,083,500 702,000 38,083,500
Sprint Corp. (PCS Group) 175,500 13,085,719 175,500 13,085,719
-------------- -------------
128,889,136 128,889,136
-------------- ------------ -------------
Total Common Stocks 1,996,834,966 165,218,807 2,162,053,773
(pro forma combined cost $1,393,111,172) -------------- ------------ -------------
RIGHTS 0.0%
Telecommunication Services & Equipment - 0.0%
TALK.com, Inc. 5,300 0 5,300 0
(pro forma combined cost $0) -------------- -------------
ASSET-BACKED SECURITIES 0.5%
AFG Receivables Trust, Series 1997-A Cl. B
6.65%, 10/15/2002 16,825 16,872 16,825 16,872
Capital Auto Receivables Asset, Series
1999-2 Cl. A4 6.30%, 10/15/1999 1,000,000 1,001,285 1,000,000 1,001,285
Capital One Master Trust, Series 1998-4 Cl. A
5.43%, 1/15/2007 2,900,000 2,792,917 2,900,000 2,792,917
Continental Airlines Trust, Series 1997-1A
7.461%, 4/1/2015 1,691,872 1,646,251 1,691,872 1,646,251
CS First Boston Mortgage Securities Corp.,
Series 1996-2 Cl. A6 7.18%, 2/25/2018 25,000 24,910 25,000 24,910
Discover Card Master Trust I
Series 1998-7 Cl. A, 5.60%, 5/16/2006 1,125,000 1,083,516 1,125,000 1,083,516
Series 1996-3 Cl. A, 6.05%, 8/18/2008 2,025,000 1,957,658 2,025,000 1,957,658
EQCC Home Equity Loan Trust, Series 1999-2 Cl. A6F
6.685%, 2/25/2010 2,500,000 2,434,137 2,500,000 2,434,137
Ford Credit Auto Owner Trust, Series 1999-C Cl. A4
6.08%, 9/16/2002 1,200,000 1,197,006 1,200,000 1,197,006
Key Auto Finance Trust, Series 1999-1 Cl. A3
5.63%, 7/15/2003 1,500,000 1,487,093 1,500,000 1,487,093
Northwest Airlines Trust, Series 1999-2 Cl. B
7.95%, 3/1/2015 1,700,000 1,687,501 1,700,000 1,687,501
Saxon Asset Securities Trust, Series 1999-2 Cl. Af6
6.415%, 3/25/2014 2,500,000 2,378,555 2,500,000 2,378,555
Union Acceptance Corp.
Series 1998-D, 5.75%, 6/9/2003 250,000 248,791 250,000 248,791
Series 1997-A Cl. A3, 6.48%, 5/10/2004 45,000 44,909 45,000 44,909
------------ -----------
Total Asset-Backed Securities 18,001,401 18,001,401
(pro forma combined cost $18,524,831) ------------ -----------
CONVERTIBLE DEBENTURES 0.1%
Business Equipment & Services 0.0%
Personnel Group of America, Inc.
5.75%, 07/01/2004 800,000 596,000 800,000 596,000
-------------- -------------
Environmental Services 0.0%
Waste Management, Inc.
4.00%, 02/12/2002 100,000 89,500 100,000 89,500
-------------- -------------
Industrial Specialty Products & Services 0.1%
Robbins & Myers, Inc.
6.50%, 09/01/2003 2,100,000 1,756,125 2,100,000 1,756,125
Simula, Inc.
8.00%, 05/01/2004 750,000 548,438 750,000 548,438
-------------- -------------
2,304,563 2,304,563
Retailing & Wholesale 0.0%
Home Depot, Inc.
3.25%, 10/01/2001 500,000 1,483,125 500,000 1,483,125
-------------- -------------
-------------- -------------
Total Convertible Debentures 4,473,188 4,473,188
(pro forma combined cost $4,280,000) -------------- -------------
CORPORATE BONDS & NOTES 2.4%
Automotive Equipment & Manufacturing 0.7%
Daimler Chrysler AG
6.90%, 09/01/2004 25,000,000 25,118,575 25,000,000 25,118,575
-------------- -------------
Banks 0.0%
Norwest Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
6.80%, 5/15/2002 60,000 60,419 60,000 60,419
---------- ----------
Chemical & Agricultural Products 0.0%
Arco Chemical Co.
10.25%, 11/01/2010 210,000 216,441 210,000 216,441
----------- ----------
Diversified Companies 0.0%
Rothmans Nederland Holdings BV
6.875%, 5/6/2008 1,500,000 1,409,777 1,500,000 1,409,777
---------- ----------
Finance & Insurance 0.2%
Associates Corp. of North America
6.25%, 11/1/2008 1,500,000 1,414,170 1,500,000 1,414,170
Chrysler Financial Corp.
6.95%, 03/25/2002 500,000 507,876 500,000 507,876
Ford Motor Credit Co.
5.80%, 1/12/2009 1,250,000 1,137,487 1,250,000 1,137,487
General Electric Capital Corp.
6.29%, 12/15/2007 300,000 300,166 300,000 300,166
Goldman Sachs Group, Inc.
6.65%, 5/15/2009 1,580,000 1,505,024 1,580,000 1,505,024
Household Finance Corp.
6.40%, 6/17/2008 1,450,000 1,363,310 1,450,000 1,363,310
Toyota Motor Credit Corp.
5.625%, 11/13/2003 100,000 96,452 100,000 96,452
----------- ---------- ----------
507,876 5,816,609 6,324,485
Food & Beverage Products 0.1%
Kroger Co.
7.25%, 6/1/2009 1,500,000 1,467,561 1,500,000 1,467,561
Pepsi Bottling Holdings, Inc.
5.625%, 2/17/2009 1,800,000 1,619,048 1,800,000 1,619,048
---------- ----------
3,086,609 3,086,609
Healthcare Products & Services 0.0%
SmithKline Beecham Corp.
6.625%, 10/1/2001 330,000 333,041 330,000 333,041
---------- ----------
Information Services & Technology 0.1%
IBM Corp. (b)
6.50%, 1/15/2028 1,800,000 1,651,469 1,800,000 1,651,469
Sun Microsystems, Inc.
7.65%, 8/15/2009 2,000,000 2,030,640 2,000,000 2,030,640
---------- ----------
3,682,109 3,682,109
Oil / Energy 0.1%
Atlantic Richfield Co.
5.90%, 4/15/2009 1,400,000 1,302,323 1,400,000 1,302,323
Conoco, Inc.
6.35%, 4/15/2009 1,800,000 1,716,021 1,800,000 1,716,021
Enron Corp.
6.725%, 11/17/2008 1,000,000 955,788 1,000,000 955,788
---------- ----------
3,974,132 3,974,132
Retailing & Wholesale 0.8%
Wal-Mart Stores, Inc.
6.88%, 08/10/2009 25,000,000 25,087,025 1,500,000 1,505,222 26,500,000 26,592,247
----------- ---------- ----------
Sovereign Government 0.0%
Quebec Province Canada
7.50%, 9/15/2029 1,150,000 1,150,840 1,150,000 1,150,840
---------- ----------
Telecommunication Services & Equipment 0.1%
Cable & Wireless Communication
6.625%, 3/6/2005 1,540,000 1,554,214 1,540,000 1,554,214
Lucent Technologies, Inc.
6.45%, 3/15/2029 1,500,000 1,352,265 1,500,000 1,352,265
Tyco International Group SA
6.875%, 9/5/2002 2,000,000 2,005,108 2,000,000 2,005,108
---------- ----------
4,911,587 4,911,587
Utilities - Electric 0.1%
Alabama Power Co.
7.125%, 8/15/2004 2,000,000 2,016,272 2,000,000 2,016,272
Georgia Power Co.
5.50%, 12/1/2005 1,500,000 1,400,668 1,500,000 1,400,668
6.00%, 3/1/2000 1,000,000 1,000,833 1,000,000 1,000,833
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -----------------------
Principal / Market Principal / Market Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4,417,773 4,417,773
Utilities - Telephone 0.0%
Sprint Capital Corp.
6.90%, 5/1/2019 1,850,000 1,722,898 1,850,000 1,722,898
---------- -----------
Utilities 0.0%
PSI Energy, Inc.
6.00%, 12/14/2001 1,000,000 977,601 1,000,000 977,601
---------- -----------
------------- ---------- -----------
Total Corporate Bonds & Notes 50,929,917 33,048,617 83,978,534
(pro forma combined cost $84,824,820) ------------- ---------- -----------
UNIT INVESTMENT TRUST 0.1%
Finance & Insurance 0.1%
S&P 500 Depositary Receipt (Spiders) 36,000 4,635,000 36,000 4,635,000
---------- -----------
Total Unit Investment Trust 4,635,000 4,635,000
(pro forma combined cost $4,605,660) ---------- -----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS 26.0%
U.S. Government Agency Obligations 5.5%
Federal Home Loan Bks
7.00%, 9/22/2004 2,250,000 2,242,062 2,250,000 2,242,062
---------- -----------
Federal Home Loan Mortgage Corp.
6.44%, 01/28/2000 500,000 501,361 500,000 501,361
------------ -----------
Federal National Mortgage Assoc.
5.94%, 12/12/2005 500,000 479,991 500,000 479,991
6.00%, 8/1/2014 3,687,244 3,548,087 3,687,244 3,548,087
6.21%, 08/06/2038 1,250,000 1,137,689 1,250,000 1,137,689
6.50%, 4/1/2014 10,400,000 10,227,673 10,400,000 10,227,673
6.625%, 9/15/2009 4,750,000 4,733,693 4,750,000 4,733,693
7.00%, 8/1/2029 15,085,999 14,841,196 15,085,999 14,841,196
7.00%, 9/1/2014 16,250,001 16,272,101 16,250,001 16,272,101
7.50%, 9/1/2029 25,000,000 25,105,277 25,000,000 25,105,277
------------ ---------- -----------
1,617,680 74,728,027 76,345,707
Government National Mortgage Assoc.
6.50%, 5/15/2009 78,864 77,789 78,864 77,789
6.50%, 7/15/2014 2,541,089 2,497,128 2,541,089 2,497,128
6.50%, 4/15/2029 8,096,238 7,746,237 8,096,238 7,746,237
---------- -----------
10,321,154 10,321,154
Tennessee Valley Authority
7.25%, 07/15/2043 8,000,000 7,801,728 8,000,000 7,801,728
7.85%, 06/15/2044 10,000,000 9,994,500 10,000,000 9,994,500
------------ -----------
17,796,228 17,796,228
U.S. Treasury Obligations 32.6%
U.S. Treasury Bonds
6.00%, 02/15/2026 38,000,000 36,242,500 500,000 476,875 38,500,000 36,719,375
6.25%, 08/15/2023 40,000,000 39,362,520 40,000,000 39,362,520
7.13%, 02/15/2023 25,000,000 27,140,625 25,000,000 27,140,625
7.25%, 05/15/2016 49,500,000 53,521,875 49,500,000 53,521,875
7.25%, 08/15/2022 23,000,000 25,264,074 23,000,000 25,264,074
8.00%, 11/15/2021 10,000,000 11,818,750 10,000,000 11,818,750
8.13%, 05/15/2021 25,000,000 29,828,125 25,000,000 29,828,125
8.13%, 08/15/2019 50,000,000 59,218,750 50,000,000 59,218,750
8.38%, 08/15/2008 30,000,000 32,353,140 30,000,000 32,353,140
8.50%, 02/15/2020 10,000,000 12,284,380 10,000,000 12,284,380
10.63%, 08/15/2015 1,000,000 1,410,625 1,000,000 1,410,625
------------ ---------- -----------
328,445,364 476,875 328,922,239
U.S. Treasury Bonds (b)
5.25%, 11/15/2028 1,700,000 1,474,220 1,700,000 1,474,220
6.50%, 11/15/2026 9,350,000 9,501,937 9,350,000 9,501,937
---------- -----------
10,976,157 10,976,157
U.S. Treasury Notes
5.25%, 08/15/2003 125,000,000 122,578,125 125,000,000 122,578,125
5.50%, 05/15/2009 25,000,000 24,179,700 25,000,000 24,179,700
5.88%, 11/15/1999 2,000,000 2,003,126 2,000,000 2,003,126
5.88%, 02/15/2000 350,000 351,094 350,000 351,094
5.88%, 09/30/2002 75,000,000 75,304,725 75,000,000 75,304,725
5.88%, 11/15/2005 50,000,000 49,687,500 50,000,000 49,687,500
6.00%, 10/15/1999 500,000 500,469 500,000 500,469
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Foundation Fund Capital Balanced Fund Pro - Forma Combined
------------------------- ---------------------- -------------------------
Principal / Market Principal / Market / Principal / Market
Shares Value Shares Value Shares Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
6.00%, 08/15/2009 1,250,000 1,260,157 1,250,000 1,260,157
6.13%, 09/30/2000 1,000,000 1,006,563 1,000,000 1,006,563
6.13%, 08/15/2007 75,000,000 75,117,225 75,000,000 75,117,225
6.38%, 01/15/2000 500,000 501,875 500,000 501,875
6.50%, 05/31/2001 900,000 912,094 900,000 912,094
6.50%, 08/31/2001 100,000,000 101,531,300 100,000,000 101,531,300
6.50%, 08/15/2005 1,130,000 1,156,485 1,130,000 1,156,485
6.63%, 03/31/2002 1,000,000 1,021,250 1,000,000 1,021,250
6.88%, 05/15/2006 500,000 521,875 500,000 521,875
7.50%, 11/15/2001 3,235,000 3,353,281 3,235,000 3,353,281
7.50%, 02/15/2005 600,000 641,438 600,000 641,438
7.75%, 11/30/1999 700,000 703,719 700,000 703,719
-------------- ------------ --------------
461,071,844 1,260,157 462,332,001
-------------- ------------ --------------
Total U.S. Government & Agency Obligation 809,432,477 100,004,432 909,436,909
(pro forma combined cost $903,138,211) -------------- ------------ --------------
SHORT-TERM INVESTMENTS 9.6%
Mutual Funds 0.6%
Navigator Prime Portfolio (c) 22,733,449 22,733,449 22,733,449 22,733,449
------------ --------------
Repurchase Agreements 8.9%
State Street Bank & Trust Co.(a $271,335,000 271,335,000 $41,410,701 $41,410,701 $312,745,701 312,745,701
-------------- ------------ --------------
-------------- ------------ --------------
Total Short-Term Investments 271,335,000 64,144,150 335,479,150
(pro forma combined cost $335,479,150) -------------- ------------ --------------
-------------- ------------ --------------
Total Investments 3,133,005,548 385,052,407 3,518,057,955
(pro forma combined cost $2,743,963,844)
Other Assets and Liabilities - net 12,864,220 (27,523,995) (14,659,775)
-------------- ------------ --------------
Net Assets $3,145,869,768 $357,528,412 $3,503,398,180
============== ============ ==============
</TABLE>
* Non-income producing security.
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices plus accrued interest at
September 30, 1999.
(b) All or a portion of this security is on loan.
(c) Represents investment in cash collateral received for securities on loan.
Summary of Abbreviations:
ADR - American Depository Receipt
REIT - Real Estate Investment Trust
<TABLE>
<CAPTION>
FUTURES CONTRACTS - SHORT POSITIONS
Number of Initial Contract Value at Net
Expiration Contracts Amount September 30, 1999 Unrealized Loss
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 1999 87 5 Yr. T-Note $9,389,204 $9,436,786 ($47,582)
December 1999 43 2 Yr. T-Note 8,894,954 8,923,841 (28,887)
---------
($76,469)
=========
</TABLE>
See Notes to Pro Forma Combining Financial Statements
<PAGE>
Evergreen Foundation Fund
Pro Forma Combining
Statement of Assets and Liabilities
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Foundation Capital Pro Forma
Fund Balanced Fund Adjustments Combined
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
===================================================================================================================================
Assets
Identified cost of securities $ 2,108,213,552 $ 323,004,591 $ 2,431,218,143
Repurchase agreements at amortized cost 271,335,000 41,410,701 312,745,701
Net unrealized gain on securities 753,456,996 20,637,115 774,094,111
Market value of securities 3,133,005,548 385,052,407 3,518,057,955
Receivable for securities sold 3,380,663 4,112,072 7,492,735
Receivable for Fund shares sold 3,240,685 745,757 3,986,442
Dividends and interest receivable 10,862,920 1,665,792 12,528,712
Prepaid expenses and other assets 62,482 64,760 127,242
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 3,150,552,298 391,640,788 3,542,193,086
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for securities purchased - 10,498,619 10,498,619
Payable for Fund shares redeemed 1,783,726 837,292 2,621,018
Payable for securities on loan - 22,733,449 22,733,449
Payable for daily variation margin on open
futures contracts - 42,688 42,688
Due to custodian bank 142,031 - 142,031
Advisory fee payable 1,954,077 - 1,954,077
Distribution Plan expenses payable 352,848 - 352,848
Accrued expenses and other liabilities 449,848 328 450,176
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,682,530 34,112,376 38,794,906
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $ 3,145,869,768 $ 357,528,412 $ 3,503,398,180
===================================================================================================================================
===================================================================================================================================
Net assets represented by
Paid-in capital $ 2,343,245,133 $ 330,560,987 $ 2,673,806,120
Undistributed net investment income 90,566 20,038 110,604
Accumulated net realized gains on securities,
futures and foreign currency related transactions 49,077,073 6,386,741 55,463,814
Net unrealized gains on securities
and foreign currency related transactions 753,456,996 20,560,646 774,017,642
- -----------------------------------------------------------------------------------------------------------------------------------
Total net assets $ 3,145,869,768 $ 357,528,412 $ 3,503,398,180
===================================================================================================================================
Net assets consist of
Class A $ 416,795,978 $ 138,686,469 $ 555,482,447
Class B 1,475,686,368 218,816,199 1,694,502,567
Class C 67,946,045 - 67,946,045
Class Y 1,185,441,377 25,744 1,185,467,121
- -----------------------------------------------------------------------------------------------------------------------------------
Total net assets $ 3,145,869,768 $ 357,528,412 $ 3,503,398,180
===================================================================================================================================
Shares outstanding
Class A 19,870,139 9,151,723 (2,540,070) (1) 26,481,792
Class B 70,700,136 14,469,304 (3,985,830) (1) 81,183,610
Class C 3,255,896 - - 3,255,896
Class Y 56,503,666 1,703 (476) (1) 56,504,893
===================================================================================================================================
Net asset value per share
===================================================================================================================================
Class A $ 20.98 $ 15.15 $ 20.98
===================================================================================================================================
Class A - Offering price
(based on sales charge of 4.75%) $ 22.03 $ 16.07 $ 22.03
===================================================================================================================================
Class B $ 20.87 $ 15.12 $ 20.87
===================================================================================================================================
Class C $ 20.87 - $ 20.87
===================================================================================================================================
Class Y $ 20.98 $ 15.12 $ 20.98
===================================================================================================================================
</TABLE>
(1) Adjustment represents change in shares outstanding as a result of merger
transaction.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Foundation Fund
Pro Forma Combining
Statement of Operations
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Capital Pro Forma Pro Forma
Foundation Fund Balanced Fund Adjustments Combined
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign withholding taxes) $ 37,326,399 $ 1,573,116 $ - $ 38,899,515
Securities lending income - - - -
Interest 64,166,656 8,172,660 - 72,339,316
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 101,493,055 9,745,776 - 111,238,831
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses
Advisory fee 23,218,845 2,216,232 (110,752) (1) 25,324,325
Distribution Plan expenses 15,841,458 2,221,946 18,063,404
Transfer agent fee 5,732,986 435,200 166,284 (2) 6,334,470
Administrative services fees - 367,370 (367,370) (2) -
Trustees' fees and expenses 103,341 5,328 3,940 (3) 112,609
Printing and postage expenses 250,483 218,701 (196,192) (3) 272,992
Custodian fee 874,922 82,005 1,958 (2) 958,885
Registration and filing fees 117,541 181,604 (174,508) (3) 124,637
Professional fees 32,701 59,665 (57,492) (4) 34,874
Organization expenses 17,958 - - 17,958
Other 120,636 97,274 (84,825) (3) 133,085
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 46,310,871 5,885,325 (818,957) 51,377,239
Less: Fee credits (147,551) - - (147,551)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 46,163,320 5,885,325 (818,957) 51,229,688
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 55,329,735 3,860,451 818,957 60,009,143
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities,
futures contracts and foreign currency related transactions
Net realized gains or losses on:
Securities 44,070,596 7,191,289 - 51,261,885
Foreign currency related transactions (9,750) - - (9,750)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains or losses on securities, futures contracts
and foreign currency related transactions 44,060,846 7,191,289 - 51,252,135
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized gains or losses on securities, futures
contracts and foreign currency related transactions 238,126,046 5,962,995 - 244,089,041
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities,
futures contracts and foreign currency related transactions 282,186,892 13,154,284 - 295,341,176
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $337,516,627 $17,014,735 $818,957 $355,350,319
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjustment to reflect advisory fees for the combined fund based on the
advisory fee rates in place for the period for the acquiring fund.
(2) Adjustment to reflect fees for the combined fund under the Foundation
Fund's respective service agreements in place for the period; Capital
Balanced Fund was formerly a Mentor Fund.
(3) Adjustment to reflect expenses for the combined fund based on Foundation
Fund's expense structure for the period; Capital Balanced Fund was formerly
a Mentor Fund.
(4) Adjustment to reflect audit, tax and legal fees for the combined fund for
the period.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Foundation Fund
Notes to Pro Forma Combining Financial Statements
September 30, 1999 (Unaudited)
1. Basis of Combination - The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Combining Schedule of Investments and
the related Pro Forma Combining Statement of Operations ("Pro Forma
Statements"), reflect the accounts of Evergreen Foundation Fund
("Foundation Fund") and Evergreen Capital Balanced Fund ("Capital Balanced
Fund") at September 30, 1999 and for the respective periods then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of
Capital Balanced Fund. The Reorganization provides for the acquisition of
all assets and the identified liabilities of Capital Balanced Fund by
Foundation Fund, in exchange for Class A, Class B, Class C and Class Y
shares of Foundation Fund. Thereafter, there will be a distribution of
Class A, Class B, Class C and Class Y shares of Foundation Fund to the
respective shareholders of Capital Balanced Fund in liquidation and
subsequent termination thereof. As a result of the Reorganization, the
shareholders of Capital Balanced Fund will become the owners of that number
of full and fractional Class A, Class B, Class C and Class Y shares of
Foundation Fund having an aggregate net asset value equal to the aggregate
net asset value of their shares of Capital Balanced Fund as of the close of
business immediately prior to the date that Capital Balanced Fund net
assets are exchanged for Class A, Class B, Class C and Class Y shares of
Foundation Fund.
The Pro Forma Statements reflect the expenses of each Fund in carrying out
its obligations under the Reorganization as though the merger occurred at
the beginning of the respective periods presented.
The information contained herein is based on the experience of each Fund
for the respective periods then ended and is designed to permit
shareholders of the consolidating mutual funds to evaluate the financial
effect of the proposed Reorganization. The expenses of Capital Balanced
Fund in connection with the Reorganization (including the cost of any proxy
soliciting agents) will be borne by First Union National Bank of North
Carolina. It is not anticipated that the securities of the combined
portfolio will be sold in significant amounts in order to comply with the
policies and investment practices of Foundation Fund.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the
Statement of Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of Class A, Class B, Class C and Class Y shares of
Foundation Fund which would have been issued at September 30, 1999 in
connection with the proposed Reorganization. Shareholders of Capital
Balanced Fund would receive Class A, Class B, Class C and Class Y shares of
Foundation Fund based on conversion ratios determined on September 30,
1999. The conversion ratios are calculated by dividing the net asset value
of Capital Balanced Fund by the net asset value per share of the respective
class of Foundation Fund.
3. Pro Forma Operations - The Pro Forma Combining Statement of Operations
assumes similar rates of gross investment income for the investments of
each Fund. Accordingly, the combined gross investment income is equal to
the sum of each Fund's gross investment income. Pro Forma operating
expenses include the actual expenses of the Funds adjusted to reflect the
expected expenses of the combined entity. The combined pro forma expenses
were calculated by determining the expense rates based on the combined
average assets of the two funds and applying those rates to the average
assets of the Foundation Fund for the twelve months ended September 30,
1999 and to the average net assets of the Capital Balanced Fund for the
twelve months ended September 30, 1999. The adjustments reflect those
amounts needed to adjust the combined expenses to these rates.
<PAGE>
EVERGREEN EQUITY TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to the sub- caption
"Liability and Indemnification of Trustees" under the caption "Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Equity Trust's
Registration Statement on Form N-1A filed on October 8, 1997. Registration
No. 333-37453 ("Form N-1A Registration Statement")
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Evergreen Equity Trust Articles II., III.6(c), IV.(3),
IV.(8), V., VI., VII., and VIII and ByLaws Articles II., III., and VIII.
6(a).Investment Advisory Agreement between Evergreen Asset Management Corp. and
Evergreen Equity Trust. Incorporated by reference to Evergreen Equity
Trust's Post-Effective Amendment No. 4 filed on March 12, 1998.
Registration No. 333-36047.
6(b).Sub-Advisory Agreement between Evergreen Asset Management Corp. and Lieber
& Company. Incorporated by reference to Evergreen Equity Trust's Post-
Effective Amendment No. 9 filed on October 1, 1998. Registration
No. 333-36047.
7(a).Underwriting Agreement between Evergreen Distributor, Inc. and Evergreen
Equity Trust for Classes A, B, C and Y. Incorporated by reference to
Evergreen Equity Trust's Post-Effective Amendment No. 4 filed on March 12,
1998. Registration No. 333-36047.
7(b).Specimen Copy of Dealer Agreement for Class A , Class B and Class C
shares used by Evergreen Distributor, Inc. Incorporated by reference
to the Form N-1A Registration Statement.
8. Form of Deferred Compensation Plan. Incorporated by reference to Evergreen
Equity Trust's Post-Effective Amendment No. 1 filed on November 10, 1997.
Registration No. 333-36047.
9. Agreement between State Street Bank and Trust Company and Evergreen Equity
Trust. Incorporated by reference to Evergreen Equity Trust's
Post-Effective Amendment No. 4 filed on March 12, 1998. Registration
No. 333-36047.
10. Rule 12b-1 Distribution Plan. Incorporated by reference to Evergreen
Equity Trust's Post-Effective Amendment No. 4 filed on March 12, 1998.
Registration No. 333-36047.
11. Opinion and Consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax Opinion and Consent of Sullivan & Worcester LLP. To be Filed by
Amendment on or about May 4, 2000.
13. Not applicable.
14. Consent of KPMG. Filed herewith.
15. Not applicable.
16. Not applicable.
17. Powers of Attorney. Filed herewith.
18. Form of Proxy Card. Filed herewith.
19. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus that is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by person who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a apart of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act the Trust has duly caused this Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 11th day of April 2000.
EVERGREEN EQUITY TRUST
By: /s/ William M. Ennis
----------------------
Name: William M. Ennis*
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 11th day of April, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William M. Ennis /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ---------------------------- ----------------------------- --------------------------------
William M. Ennis* Laurence B. Ashkin* Charles A. Austin III*
President Trustee Trustee
/s/ K. Dun Gifford /s/ Arnold H. Dreyfuss /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* Arnold H. Dreyfuss* William Walt Pettit*
Trustee Trustee Trustee
/s/ Leroy Keith, Jr. /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ---------------------------- ----------------------------- --------------------------------
Leroy Keith, Jr.* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Russell A. Salton, III MD /s/ Louis W. Moelchert, Jr.
- ---------------------------- ------------------------------ -------------------------------
Gerald M. McDonell* Russell A. Salton, III MD* Louis W. Moelchert, Jr.*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Richard K. Wagoner /s/ Carol Kosel
- ---------------------------- ------------------------------ -------------------------------
David M. Richardson* Richard K. Wagoner* Carol Kosel*
Trustee Trustee Treasurer (Principal Financial and
Accounting Officer)
/s/ Richard J. Shima
- ----------------------------
Richard J. Shima*
Trustee
*By: /s/ Beth K. Werths
- ----------------------------
Beth K. Werths
Attorney-in-Fact
</TABLE>
*Beth K. Werths, by signing her name hereto, does hereby sign this
document on behalf of each of the applicable above-named individuals pursuant to
powers of attorney duly executed by such persons.
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
11 Opinion and Consent of Sullivan & Worcester LLP
14 Consent of KPMG Peat Marwick LLP
17 Powers of Attorney
18 Form of Proxy
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
April 11, 2000
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen Equity Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 18, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen Foundation Fund (the "Acquiring Fund"), a series of the Trust. We
understand that the Trust is about to file a Registration Statement on Form N-14
for the purpose of registering shares of the Trust under the Securities Act of
1933, as amended (the "1933 Act"), in connection with the proposed acquisition
by the Acquiring Fund of all of the assets of Evergreen Capital Balanced Fund
(the "Acquired Fund"), a series of the Trust, in exchange solely for shares of
the Acquiring Fund and the assumption by the Acquiring Fund of the identified
liabilities of the Acquired Fund pursuant to an Agreement and Plan of
Reorganization, the form of which is included in the Form N-14 Registration
Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
<PAGE>
Evergreen Fixed Income Trust
April 11, 2000
Page 2
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware. To the extent that the conclusions based on the
laws of the State of Delaware are involved in the opinion set forth herein
below, we have relied, in rendering such opinions, upon our examination of
Chapter 38 of Title 12 of the Delaware Code Annotated, as amended, entitled
"Treatment of Delaware Business Trusts" (the "Delaware business trust law") and
on our knowledge of interpretation of analogous common law of The Commonwealth
of Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on July 14, 2000, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
F:\RNH\SALEM33\FOUNDATI\N14SWOP.C
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Evergreen Equity Trust
We consent to the use of our reports, dated April 30, 1999 and November 5, 1999,
for Evergreen Foundation Fund and Evergreen Capital Balanced Fund, respectively,
each a portfolio of Evergreen Equity Trust, incorporated herein by reference and
to the references to our firm under the caption "FINANCIAL STATEMENTS AND
EXPERTS" in the Prospectus/Proxy Statement.
/s/ KPMG LLP
Boston, Massachusetts
April 10, 2000
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter a
Trustee and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
December 17, 1999.
Signature Title
/s/Richard Wagoner Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter a
Trustee and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
December 17, 1999.
Signature Title
/s/Arnold H. Dreyfuss Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter the
Treasurer and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of March
15, 2000.
Signature Title
/s/Carol A. Kosel Treasurer
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter the
President and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of March
15, 2000.
Signature Title
/s/William M. Ennis President
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter a
Trustee and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
December 17, 1999.
Signature Title
/s/Leroy Keith, Jr. Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Charles A. Austin III Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/K. Dun Gifford Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Laurence B. Ashkin Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/William W. Pettit Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Gerald M. McDonnell Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Thomas L. McVerry Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/David M. Richardson Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Richard J. Shima Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Michael S. Scofield Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey, David M. Leahy and William J. Tomko, and each of them
singly, my true and lawful attorneys, with full power to them and each of them
to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-14 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Trustee and for which Evergreen Investment Management Company,
Evergreen Asset Management Corp., First Union National Bank, or any other
investment advisory affiliate of First Union National Bank, serves as Adviser or
Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and on my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
September 25, 1998.
Signature Title
/s/Russell A. Salton, III M.D. Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Sally E. Ganem,
Catherine E. Foley, Beth K. Werths, Michael H. Koonce, T. Hal Clarke, John A.
Dudley, Robert N. Hickey and David M. Leahy, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name in the capacity indicated below any and all registration
statements, including, but not limited to, Forms N-8A, N-8B-1, S-5, N-14 and
N-1A, as amended from time to time, and any and all amendments thereto to be
filed with the Securities and Exchange Commission for the purpose of registering
from time to time all investment companies of which I am now or hereafter a
Trustee and for which Evergreen Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank, or any other investment advisory
affiliate of First Union National Bank, serves as Advisor or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and on my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
December 17, 1999.
Signature Title
/s/Louis W. Moelchert, Jr. Trustee
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN CAPITAL BALANCED FUND,
a series of Evergreen Equity Trust
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 2000
The undersigned, revoking all Proxies heretofore given, hereby appoints
Maureen E. Towle, Sally E. Ganem, Catherine E. Foley and Beth K. Werths or any
of them as Proxies of the undersigned, with full power of substitution, to vote
on behalf of the undersigned all shares of Evergreen Capital Balanced Fund, a
series of Evergreen Equity Trust, ("Capital Balanced Fund") that the undersigned
is entitled to vote at the special meeting of shareholders of Capital Balanced
Fund to be held at 2:00 p.m. on July 14, 2000 at the offices of the Evergreen
Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116 and at any
adjournments thereof, as fully as the undersigned would be entitled to vote if
personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
Date , 2000
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
EQUITY TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO
THE ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMENDS A VOTE FOR THE
PROPOSALS. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Foundation Fund, a series of Evergreen Equity Trust, will (i) acquire all of the
assets of Capital Balanced Fund in exchange for shares of Evergreen Foundation
Fund; and (ii) assume the identified liabilities of Capital Balanced Fund, as
substantially described in the accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come before
said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
