EVERGREEN SELECT
ADJUSTABLE RATE FUND
ANNUAL REPORT
FOR THE YEAR ENDED
FEBRUARY 28, 1998
[EVERGREEN LOGO APPEARS HERE]
EVERGREEN FUNDS(SM)
SINCE 1932
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Letter to Shareholders.................................. 1
Portfolio Manager Commentary............................ 2
Financial Highlights.................................... 4
Schedule of Investments................................. 6
Statement of Assets and Liabilities..................... 8
Statement of Operations................................. 9
Statement of Changes in Net Assets...................... 10
Notes to Financial Statements........................... 11
Independent Auditors' Report............................ 14
Federal Tax Status...................................... 15
Additional Information.................................. 16
</TABLE>
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
LETTER TO SHAREHOLDERS
April 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are very proud of the strong record of the Evergreen Select Adjustable Rate
Fund over its lifetime. At its inception as the Keystone Institutional
Adjustable Rate Fund in 1991, this Fund was designed for institutional investors
seeking a yield premium over other short-term investments, with reduced
fluctuations in net asset value. In addition, it has focused on the highest
credit quality securities, with a portfolio of only government and
government-agency securities.
STRONG PERFORMANCE RECORD
Throughout its life, the Fund has been a consistently strong performer, with
both classes of shares earning four-star ratings, the second highest ratings,
from Morningstar, as of March 31, 19981. The Fund was rated among 1,403 taxable
bond funds for the three year period ended March 31, 1998. For the five years
that ended on March 31, 1998, the Institutional Shares (formerly Class Z) were
ranked first among 25 funds in the Lipper Adjustable Rate Mortgage Fund
category.2 For the three years ended March 31, 1998, Institutional Shares were
ranked fourth among 32 funds, while Institutional Service Shares (formerly Class
Y) were ranked eighth. This record has been sustained during the 12 months ended
March 31, 1998, with Institutional Shares ranking first and Institutional
Service Shares ranking third among the 35 funds now in the Lipper category.
LOW VOLATILITY, DIVERSIFICATION
Market participants are currently debating how long the stock and bond markets
can sustain their rallies, and how significant any short-term volatility is
likely to be. In such an uncertain environment, it may be prudent to increase
diversification and allocate a portion of an overall portfolio to the relatively
lower volatility of a short-term investment, such as the Evergreen Select
Adjustable Rate Fund.
At Evergreen Funds, we are committed to providing a strong array of Select
Funds, to help institutional investors assemble personal portfolios that make
sense for their needs and risk tolerances.
Thank you for your investment in Evergreen Select Adjustable Rate Fund.
Sincerely,
/s/ William M. Ennis
William M. Ennis
MANAGING DIRECTOR
EVERGREEN FUNDS
/s/ David C. Francis
David C. Francis, CFA
CHIEF INVESTMENT OFFICER,
MANAGING DIRECTOR
FIRST CAPITAL GROUP
- ------------------------------------
1 Source: Morningstar, Inc. Morningstar's propietary ratings reflect the Fund's
historical risk-adjusted performance as of 3/31/98. The ratings are subject to
change monthly. Morningstar ratings are calculated from the Fund's three,
five, and ten-year average annual returns (if available) in excess of the 90
day Treasury Bill return with appropriate fee adjustments and a risk factor
that reflects fund performance below 90 day Treasury-bill returns. The Fund's
Institutional Shares were rated 4 stars among 831 taxable bond funds for the 5
year period ended 3/31/98. Ratings are not adjusted for sales charges, but are
adjusted for other fees. The top 10% of the funds in an investment category
receive five stars, and the next 22.5% receive four stars. Past performance is
no guarantee of future results.
2 Source: Lipper Analytical Services, an independent mutual fund rating company.
The ranking is based on total return and does not include the effect of a
sales charge. Past performance is no guarantee of future results.
1
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PERFORMANCE
The Evergreen Select Adjustable Rate Fund had exceptionally strong performance.
The Fund's Institutional Shares (formerly Class Z) had a total return of 7.15%
for the 12-month period ended February 28, 1998, while the Institutional Service
Shares (formerly Class Y) had a total return of 6.89%. In contrast, the average
return among the 35 funds in the Lipper Adjustable Rate Mortgage category was
5.84%.
INVESTMENT ENVIRONMENT
The bond market enjoyed a very healthy rally for the 12 months, led by longer
maturity bonds. The yield of the 30-year Treasury bond, for example, fell from
6.80% to 5.92% during the year. Shorter maturity bonds, whose performance more
closely influences that of the Fund, did not have as significant a rally. The
yield on the one-year Treasury, for example, fell from 5.67% to 5.41% during the
year.
The underlying economic environment featured a moderately strong economy with
very little inflation. Inflationary pressures in the United States were held
back by the strength of the U.S. dollar, the Asian economic crisis and the lack
of pricing power of U.S. corporations. U.S. companies, despite feeling the
pressure of rising labor, did not have the ability to offset those pressures by
raising the prices they charge their customers. This favorable inflationary
trend did not result in significant reductions in yields of shorter-maturity
securities because the tight labor situation acted as a check to deter the
Federal Reserve Board from easing monetary conditions and lowering short-term
rates.
INVESTMENT STRATEGY
In this environment it is easy for homeowners to refinance their mortgages, and
so the market values of mortgage-backed securities, particularly adjustable rate
mortgages, tend not to appreciate as much as do fixed-rate securities, most
notably Treasury securities. The pull from refinancing mortgages keeps the
pricing of mortgage securities closer to par than would be the case without the
prepayment option. In this environment, we have added to fixed-rate securities,
including Treasuries, to maintain interest rate sensitivity and thereby retain
the ability to realize some price appreciation potential in a bond market rally.
In addition, we focused on more seasoned adjustable rate mortgages, with an
average age of about 7-to-10 years from issuance. Experience has shown us that
property owners with older mortgages are less likely to refinance than the
owners with newer adjustable rate mortgages. We also try to avoid investing in
mortgages on properties in areas with strong real estate markets, as these
mortgages also tend to be refinanced more frequently.
Interest rate sensitivity, as measured by average maturity and duration,
remained fairly consistent during the year as we added fixed-rate securities,
including Treasuries, and de-emphasized adjustable-rate securities. At the end
of the fiscal year, the average weighted maturity was 4.70 years and duration
was 0.45 years.
Asset allocation, however, was somewhat different, reflecting the greater
emphasis on fixed-rate securities, as indicated by the following table,
comparing the portfolio at the end of the fiscal year to that at the middle of
the year.
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
ALLOCATION 1997 1998
- --------------------------------- ---------- ------------
<S> <C> <C>
Adjustable-rate mortgages........ 85.5% 79.8%
Fixed-rate securities............ 10.8% 19.8%
Repurchase Agreements & other
assets and liabilities, net.... 3.7% 0.4%
</TABLE>
Within fixed-rate securities, 6.1% of the portfolio's net assets were invested
in Treasuries, and 13.7% in fixed-rate mortgages on February 28, 1998, the end
of the fiscal year.
OUTLOOK
We expect continued low inflation, with a strong economy, that will experience
only moderate growth. The big question will be which conflicting factor will
have the greatest impact: the Asian financial crisis, which will tend to slow
growth, or the strong confidence of the U.S. consumer, which tends to encourage
growth. We tend to believe the favorable environment for fixed income
investments will continue, although the bond market is less likely to rally as
dramatically as it did last year. Within this environment, we expect to continue
to focus on fixed rate securities, particularly Treasuries, as we anticipate
mortgage refinancings to continue.
2
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[LINE GRAPH APPEARS BELOW WITH THE FOLLOWING PLOT POINTS:]
Comparison of a $10,000 investment in Evergreen Select Adjustable Rate Fund
Institutional Service Shares versus a similar investment in the 6 month Treasury
Bill Index and the Consumer Price Index (CPI).
<TABLE>
<CAPTION>
5/23/94 2/95 2/96 2/97 2/98
------- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
6 month Treasury Bill Index $10,000 $14,847 $12,070 $12,399 $12,877
Consumer Price Index (CPI) 9,525 10,280 11,005 11,750 12,559
Evergreen Select Adjustable Rate Fund 10,000 10,237 10,475 10,828 10,970
</TABLE>
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The 6-month T-Bill Index is an unmanaged index. The index
does not include transaction costs associated with buying and selling securities
nor any management fees. The Consumer Price Index, a measure of inflation, is
through February 28, 1998.
PERFORMANCE AND RETURNS
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
(CLASS I) (CLASS IS)
------------- -------------
<S> <C> <C>
Inception Date.................. 10-01-91 5-23-94
Average Annual Returns
1 year........................ 7.15% 6.89%
3 year........................ 7.13% 6.90%
5 year........................ 5.69% N/A
Since Inception................. 5.63% 6.22%
30-day SEC yield................ 6.82% 6.50%
12 month distributions per
share......................... $0.64 $0.61
</TABLE>
3
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
FEBRUARY 28, FEBRUARY 28, ----------------------------------------
INSTITUTIONAL SHARES 1998 1997(A) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD............. $ 9.71 $ 9.68 $ 9.65 $ 9.61 $ 9.93 $ 9.88
------------ ------------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... 0.64 0.28 0.64(b) 0.63 0.63 0.54
Net realized and unrealized gain (loss) on
investments................................. 0.04 0(d) 0 0.01 (0.49) (0.01)
------------ ------------ ------- ------- ------- -------
Total from investment operations................ 0.68 0.28 0.64 0.64 0.14 0.53
------------ ------------ ------- ------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income......................... (0.62) (0.23) (0.60) (0.55) (0.44) (0.48)
In excess of net investment income............ (0.02) (0.02) (0.01) (0.05) (0.02) 0
------------ ------------ ------- ------- ------- -------
Total distributions............................. (0.64) (0.25) (0.61) (0.60) (0.46) (0.48)
------------ ------------ ------- ------- ------- -------
NET ASSET VALUE END OF PERIOD................... $ 9.75 $ 9.71 $ 9.68 $ 9.65 $ 9.61 $ 9.93
------------ ------------ ------- ------- ------- -------
Total return.................................... 7.15% 2.97% 6.86% 6.87% 1.43% 5.53%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Total expenses................................ 0.30% 0.30%(c) 0.30% 0.30% 0.30% 0.30%
Net investment income......................... 6.63% 6.79%(c) 6.84% 6.61% 5.15% 5.46%
Portfolio turnover rate......................... 107% 44% 85% 56% 63% 81%
NET ASSETS END OF PERIOD (THOUSANDS)............ $ 25,981 $ 70,264 $65,974 $23,616 $25,200 $60,035
<CAPTION>
INSTITUTIONAL SHARES 1992
<S> <C>
- ------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD............. $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... 0.67
Net realized and unrealized gain (loss) on
investments................................. (0.15)
-------
Total from investment operations................ 0.52
-------
LESS DISTRIBUTIONS FROM
Net investment income......................... (0.64)
In excess of net investment income............ 0
-------
Total distributions............................. (0.64)
-------
NET ASSET VALUE END OF PERIOD................... $ 9.88
-------
Total return.................................... 5.46%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Total expenses................................ 0.30%
Net investment income......................... 6.83%
Portfolio turnover rate......................... 88%
NET ASSETS END OF PERIOD (THOUSANDS)............ $51,625
</TABLE>
(a) The Fund changed its fiscal year end from September 30 to February 28.
(b) Per share calculations based on weighted average shares outstanding.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
FEBRUARY 28, FEBRUARY 28, -----------------
INSTITUTIONAL SERVICE SHARES 1998 1997(A) 1996 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD........................... $ 9.72 $ 9.68 $ 9.65 $ 9.61
------------ ------------ ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income....................................... 0.59 0.28 0.65(b) 0.64
Net realized and unrealized gain (loss) on investments...... 0.06 0(d) (0.03) (0.02)
------------ ------------ ------- ------
Total from investment operations.............................. 0.65 0.28 0.62 0.62
------------ ------------ ------- ------
LESS DISTRIBUTIONS FROM
Net investment income....................................... (0.59) (0.22) (0.58) (0.53)
In excess of net investment income.......................... (0.02) (0.02) (0.01) (0.05)
------------ ------------ ------- ------
Total distributions........................................... (0.61) (0.24) (0.59) (0.58)
------------ ------------ ------- ------
NET ASSET VALUE END OF PERIOD................................. $ 9.76 $ 9.72 $ 9.68 $ 9.65
------------ ------------ ------- ------
Total return.................................................. 6.89% 2.97% 6.60% 6.60%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Total expenses.............................................. 0.55% 0.55%(c) 0.55% 0.55%
Net investment income....................................... 6.15% 6.39%(c) 6.64% 6.70%
Portfolio turnover rate....................................... 107% 44% 85% 56%
NET ASSETS END OF PERIOD (THOUSANDS).......................... $ 10,320 $3,564 $14,361 $2,871
<CAPTION>
MAY 23, 1994
(DATE OF INITIAL PUBLIC OFFERING)
THROUGH
SEPTEMBER 30,
INSTITUTIONAL SERVICE SHARES 1994
<S> <C>
- --------------------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD........................... $ 9.73
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income....................................... 0.17
Net realized and unrealized gain (loss) on investments...... (0.13)
------
Total from investment operations.............................. 0.04
------
LESS DISTRIBUTIONS FROM
Net investment income....................................... (0.16)
In excess of net investment income.......................... 0
------
Total distributions........................................... (0.16)
------
NET ASSET VALUE END OF PERIOD................................. $ 9.61
------
Total return.................................................. 0.35%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS
Total expenses.............................................. 0.43%(c)
Net investment income....................................... 5.03%(c)
Portfolio turnover rate....................................... 63%
NET ASSETS END OF PERIOD (THOUSANDS).......................... $ 1
</TABLE>
(a) The Fund changed its fiscal year end from September 30 to February 28.
(b) Per share calculations based on weighted average shares outstanding.
(c) Annualized.
(d) Amount represents less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
February 28, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE SECURITIES (79.8%)
FHLMC (35.6%)
FHLMC Pool #605343, Cap 13.639%, Margin 2.125% + CMT, Resets Annually 7.783% 03/01/19 $ 323,277 $ 338,026
FHLMC Pool #605386, Cap 12.889%, Margin 2.111% + CMT, Resets Annually 7.762 09/01/17 1,060,420 1,106,150
FHLMC Pool #606541, Cap 13.550%, Margin 2.030% + CMT, Resets Annually 7.672 03/01/21 702,373 733,320
FHLMC Pool #606679, Cap 12.068%, Margin 2.159% + CMT, Resets Annually 7.741 10/01/21 746,050 785,800
FHLMC Pool #607352, Cap 13.619%, Margin 2.181% + CMT, Resets Annually 7.862 04/01/22 1,488,587 1,568,137
FHLMC Pool #608034, Cap 14.769%, Margin 1.586% + CMT, Resets Annually 7.084 06/01/16 196,458 200,817
FHLMC Pool #785114, Cap 13.289%, Margin 2.125% + CMT, Resets Annually 7.908 07/01/19 98,577 103,244
FHLMC Pool #845039, Cap 12.471%, Margin 2.084% + CMT, Resets Annually 7.649 10/01/21 1,424,345 1,490,221
FHLMC Pool #845063, Cap 12.087%, Margin 2.181% + CMT, Resets Annually 7.797 11/01/21 2,044,522 2,117,358
FHLMC Pool #845070, Cap 11.838%, Margin 2.116% + CMT, Resets Annually 7.750 01/01/22 1,871,564 1,944,087
FHLMC Pool #845082, Cap 12.529%, Margin 1.970% + CMT, Resets Annually 7.563 03/01/22 1,221,171 1,255,516
FHLMC Pool #846163, Cap 13.050%, Margin 1.982% + CMT, Resets Annually 7.670 07/01/30 938,257 976,960
FHLMC Pool #865220, Cap 15.088%, Margin 2.345% + CMT, Resets Annually 8.369 04/01/20 285,078 295,769
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FHLMC 12,915,405
- -------------------------------------------------------------------------------------------------------------------------
FNMA (44.2%)
FNMA Pool #070033, Cap 14.341%, Margin 1.750% + CMT, Resets Annually 7.386 10/01/17 310,277 322,396
FNMA Pool #070119, Cap 12.021%, Margin 2.000% + CMT, Resets Annually 7.707 11/01/17 1,244,211 1,289,314
FNMA Pool #090678, Cap 13.137%, Margin 2.179% + CMT, Resets Annually 7.750 09/01/18 1,945,652 2,050,542
FNMA Pool #092086, Cap 15.446%, Margin 2.075% + CMT, Resets Annually 7.878 10/01/16 414,115 430,614
FNMA Pool #094564, Cap 15.861%, Margin 1.975% + CMT, Resets Annually 7.551 01/01/16 890,863 923,852
FNMA Pool #095405, Cap 13.913%, Margin 2.084% + CMT, Resets Annually 7.798 12/01/19 903,501 937,947
FNMA Pool #102905, Cap 13.114%, Margin 2.000% + CMT, Resets Annually 7.743 07/01/20 254,858 267,323
FNMA Pool #124015, Cap 13.377%, Margin 1.816% + CMT, Resets Annually 7.499 11/01/18 828,025 859,333
FNMA Pool #124204, Cap 13.893%, Margin 2.006% + CMT, Resets Annually 7.626 01/01/22 754,622 791,176
FNMA Pool #124289, Cap 13.432%, Margin 2.005% + CMT, Resets Annually 7.626 09/01/21 3,097,223 3,250,164
FNMA Pool #124945, Cap 12.857%, Margin 2.102% + CMT, Resets Annually 7.737 01/01/31 1,033,362 1,078,572
FNMA Pool #142963, Cap 10.969%, Margin 1.950% + CMT, Resets Annually 7.449 01/01/22 762,181 792,196
FNMA Pool #313663, Cap 12.922%, Margin 1.931% + CMT, Resets Annually 7.620 05/01/22 1,786,988 1,870,762
FNMA Pool #313994, Cap 9.873%, Margin 1.702% + LIBOR, Resets Semi-annually 7.570 12/01/23 1,005,039 1,036,004
FNMA Pool #391290, Cap 12.618%, Margin 2.031% + CMT, Resets Annually 7.671 02/01/17 141,035 145,112
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FNMA 16,045,307
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST--$28,880,490) 28,960,712
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
February 28, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
FIXED RATE MORTGAGE SECURITIES (13.7%)
COLLATERALIZED MORTGAGE OBLIGATION (5.1%)
FNMA, REMIC, Series 1993--160, Class PD (Est. Mat. 1998) (a) 5.600% 10/25/12 $1,848,804 $ 1,841,149
- -------------------------------------------------------------------------------------------------------------------------
FHLMC (0.8%)
FHLMC Pool #B00475 10.500 04/01/04 245,060 256,026
FHLMC Pool #277831 7.250 11/01/08 32,553 33,049
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FHLMC 289,075
- -------------------------------------------------------------------------------------------------------------------------
FNMA (4.1%)
FNMA Pool #004534 10.750 10/01/12 713,737 787,558
FNMA Pool #058442 11.000 01/01/18 497,179 546,007
FNMA Pool #100051 9.500 04/01/05 145,768 152,236
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FNMA 1,485,801
- -------------------------------------------------------------------------------------------------------------------------
GNMA (3.7%)
GNMA Pool #268164 10.250 11/15/29 1,288,107 1,358,953
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED RATE MORTGAGE SECURITIES (COST--$4,960,555) 4,974,978
- -------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES (6.1%)
U.S. Treasury Notes (b) 5.750 11/30/02 1,400,000 1,407,000
U.S. Treasury Notes 5.875 11/30/01 235,000 237,019
U.S. Treasury Notes 6.250 08/31/02 555,000 568,442
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U. S. TREASURY NOTES (COST--$2,220,990) 2,212,461
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY MATURITY MARKET
RATE DATE VALUE VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.9%) (COST--$343,000)
Keystone Joint Repurchase Agreement (Investments in repurchase agreements,
in a joint trading account, purchased 2/27/98) (c) 5.670 03/02/98 343,162 343,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$36,405,035) 100.5% 36,491,151
OTHER ASSETS AND LIABILITIES--NET (0.5) (190,747)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $36,300,404
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation (CMO) is
based on current and projected prepayment rates. Changes in interest rates
can cause the estimated maturity to differ from the listed dates.
(b) $705,000 principal amount of this security is used as collateral for a
reverse repurchase agreement at February 28, 1998.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at February 28, 1998.
LEGEND OF PORTFOLIO ABBREVIATIONS:
CMT 1, 3 or 5 year Constant Maturity Treasury Index
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GNMA Government National Mortgage Association
LIBOR 6-Month London Inter-Bank Offer Rate
REMIC Real Estate Mortgage Investment Conduit
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at market value (identified cost--$36,405,035)..................................................... $36,491,151
Cash........................................................................................................... 302
Receivable for Fund shares sold................................................................................ 1,800,000
Interest receivable............................................................................................ 334,701
Receivable for principal paydowns.............................................................................. 236,846
Receivable from investment advisor............................................................................. 1,380
- -------------------------------------------------------------------------------------------------------------------------------
Total assets................................................................................................. 38,864,380
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased.............................................................................. 1,842,012
Payable for reverse repurchase agreement....................................................................... 700,449
Dividends payable.............................................................................................. 9,212
Accrued management fee......................................................................................... 8,310
Distribution fee payable....................................................................................... 3,921
Accrued expenses and other liabilities......................................................................... 72
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities............................................................................................ 2,563,976
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS....................................................................................................... $36,300,404
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital................................................................................................ $36,752,991
Accumulated distributions in excess of net investment income................................................... (10,097)
Accumulated net realized loss on investments................................................................... (528,606)
Net unrealized appreciation on investments..................................................................... 86,116
- -------------------------------------------------------------------------------------------------------------------------------
Total net assets............................................................................................. $36,300,404
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Institutional Shares........................................................................................... $25,980,565
Institutional Service Shares................................................................................... 10,319,839
- -------------------------------------------------------------------------------------------------------------------------------
$36,300,404
- -------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Institutional Shares........................................................................................... 2,664,912
Institutional Service Shares................................................................................... 1,057,669
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Institutional Shares........................................................................................... $ 9.75
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Service Shares................................................................................... $ 9.76
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended February 28, 1998
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest........................................................................................................ $3,163,703
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fee.................................................................................................. 137,489
Distribution Plan expenses...................................................................................... 17,676
Professional fees............................................................................................... 500
Trustees' fees and expenses..................................................................................... 405
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses................................................................................................ 156,070
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME........................................................................................... 3,007,633
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................................................................................ 297,743
Net change in unrealized appreciation (depreciation) on investments............................................. (69,974)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments................................................................. 227,769
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................ $3,235,402
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997* SEPTEMBER 30, 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income......................................... $ 3,007,633 $ 2,283,405 $ 2,748,371
Net realized gain (loss) on investments....................... 297,743 27,179 (269,386)
Net change in unrealized appreciation (depreciation) on
investments................................................. (69,974) 38,889 170,926
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations........ 3,235,402 2,349,473 2,649,911
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Institutional Shares........................................ (2,464,459) (1,744,950) (1,945,801)
Institutional Service Shares................................ (423,938) (197,984) (563,993)
In excess of net investment income
Institutional Shares........................................ (78,993) (144,070) (29,260)
Institutional Service Shares................................ (13,589) (16,346) (8,481)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (2,980,979) (2,103,350) (2,547,535)
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold..................................... 17,099,051 18,545,059 66,580,547
Proceeds from reinvestment of distributions................... 2,868,485 2,386,262 1,946,279
Payment for shares redeemed................................... (57,749,240) (27,684,051) (14,781,625)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions..... (37,781,704) (6,752,730) 53,745,201
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets..................... (37,527,281) (6,506,607) 53,847,577
NET ASSETS
Beginning of period........................................... 73,827,685 80,334,292 26,486,715
- ----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD................................................. $36,300,404 $ 73,827,685 $ 80,334,292
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income.... $ (10,097) $ (250) $ (168,733)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund changed its fiscal year end from September 30 to February 28.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Evergreen Select Adjustable Rate Fund (the "Fund") (formerly, Keystone
Institutional Adjustable Rate Fund) is a diversified series of Evergreen Select
Fixed Income Trust (the "Trust"). The Trust is a Delaware business trust
organized on September 17, 1997 as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund offers Institutional Shares (formerly, Class Z) and Institutional
Service Shares (formerly, Class Y) to institutional investors. Both classes of
shares are sold at net asset value and are not subject to contingent deferred
sales charges. Institutional Service Shares pay ongoing distribution fees.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES--U.S. government obligations held by the Fund are
valued at the mean between the over-the-counter bid and asked prices. Corporate
bonds, other fixed-income securities and mortgage and other asset-backed
securities are valued at prices provided by an independent pricing service. In
determining value for normal institutional-size transactions, the pricing
service uses methods based on market transactions for comparable securities and
analysis of various relationships between similar securities which are generally
recognized by institutional traders. Securities for which valuations are not
available from an independent pricing service (including restricted securities)
are valued at fair value as determined in good faith according to procedures
established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value. Short-term securities with
greater than 60 days to maturity are valued at market value.
B. REPURCHASE AGREEMENTS--The Fund may invest in repurchase agreements.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral
daily and will require the seller to provide additional collateral in the event
the market value of the securities pledged falls below the carrying value of the
repurchase agreement, including accrued interest. The Fund will only enter into
repurchase agreements with banks and other financial institutions which are
deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund, along with certain other funds managed by Keystone Investment
Management Company ("Keystone"), may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are fully collateralized by U.S. Treasury and/or federal agency
obligations.
C. REVERSE REPURCHASE AGREEMENTS--To obtain short-term financing, the Fund may
enter into reverse repurchase agreements with qualified third-party
broker-dealers. Interest on the value of reverse repurchase agreements is based
upon competitive market rates at the time of issuance. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counter party to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. 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.
J. FEDERAL TAXES--The Fund has qualified and intends to continue to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Thus, the Fund will not incur any federal income tax
liability since it is expected to distribute all of its net investment company
taxable income and net capital gains, if any, to its shareholders. The Fund also
intends to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is the Fund's policy not to distribute such gains.
K. DISTRIBUTIONS--Distributions from net investment income for the Fund are
declared daily and paid monthly. Distributions from net realized capital gains,
if any, are paid at least annually. Distributions to shareholders are recorded
at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distribution and distributions made in accordance with
income tax regulations are primarily due to differing treatment for principal
paydown gains and losses.
L. CLASS ALLOCATIONS--Income, expenses (other than class specific expenses) and
realized and unrealized gains and losses are prorated among the classes based on
the relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plan for Institutional
Service Shares.
11
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of $0.001 par value shares of beneficial
interest authorized. Shares of beneficial interest of the Fund are currently
divided into Institutional Shares and Institutional Service Shares. Transactions
in shares of the Fund were as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER
FEBRUARY 28, 1998 FEBRUARY 28, 1997 30, 1996
-------------------------- -------------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SHARES
<S> <C> <C> <C> <C> <C>
Shares sold..................................... 756,542 $ 7,370,775 1,030,429 $ 10,000,000 4,318,022
Shares issued in reinvestment of
distributions................................. 254,776 2,481,417 221,061 2,145,897 147,411
Shares redeemed................................. (5,579,904) (54,382,797) (830,759) (8,073,653) (99,669)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)......................... (4,568,586) $(44,530,605) 420,731 $ 4,072,244 4,365,764
- -------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES
Shares sold..................................... 996,337 $ 9,728,276 879,121 $ 8,545,059 2,560,589
Shares issued in reinvestment of
distributions................................. 39,661 387,068 24,800 240,365 53,718
Shares redeemed................................. (344,863) (3,366,443) (2,020,244) (19,610,398) (1,428,881)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)......................... 691,135 $ 6,748,901 (1,116,323) $(10,824,974) 1,185,426
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMOUNT
<S> <C>
- ------------------------------------------------
INSTITUTIONAL SHARES
Shares sold..................................... $41,798,486
Shares issued in reinvestment of
distributions................................. 1,426,821
Shares redeemed................................. (962,799)
- ------------------------------------------------ -----------
Net increase (decrease)......................... $42,262,508
- ------------------------------------------------ -----------
INSTITUTIONAL SERVICE SHARES
Shares sold..................................... $24,782,061
Shares issued in reinvestment of
distributions................................. 519,458
Shares redeemed................................. (13,818,826)
- ------------------------------------------------ -----------
Net increase (decrease)......................... $11,482,693
- ------------------------------------------------ -----------
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (excluding short-term
securities) were $48,809,646 and $84,187,289, respectively.
The average daily balance of reverse repurchase agreements outstanding during
the year ended February 28, 1998 was $5,753 at a weighted average interest rate
of 5.77%. The maximum amount of borrowing outstanding during the year ended
February 28, 1998 was $700,449 (including accrued interest). On February 28,
1998 the Fund had a reverse repo agreement outstanding in the amount of $700,449
(including accrued interest) maturing on March 2, 1998.
On February 28, 1998, the cost of investments for federal tax purposes was
$36,411,383, gross unrealized appreciation of investments was $153,410 and gross
unrealized depreciation of investments was $73,642, resulting in net unrealized
appreciation of $79,768 for income tax purposes.
As of February 28, 1998, the Fund had a capital loss carryover for federal
income tax purposes of approximately $522,000 which expires as follows:
$198,000--2001, $281,000--2002 and $43,000--2004.
4. DISTRIBUTION PLAN
Evergreen Distributor, Inc. ("EDI") (formerly, Evergreen Keystone Distributor,
Inc.), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), serves as
principal underwriter to the Fund.
The Fund has adopted a Distribution Plan for its Institutional Service Shares as
allowed by Rule 12b-1 of the 1940 Act. The Distribution Plan permits the Fund to
reimburse its principal underwriter for costs related to selling shares of the
Fund and for various other services. These costs, which consist primarily of
commissions and services fees to broker-dealers who sell shares of the Fund, are
paid by shareholders through expenses called "Distribution Plan expenses".
Institutional Service Shares pay a distribution fee which is limited to 0.25%
per annum of its average daily net assets. Distribution Plan expenses are
calculated daily and paid monthly.
The Distribution Plan may be terminated at any time by vote of the Independent
Trustees or by vote of a majority of the outstanding Institutional Service
Shares' voting shares. However, after the termination of the Distribution Plan,
and subject to the discretion of the Independent Trustees, payments to EDI may
continue as compensation for services which had been provided while the
Distribution Plan was in effect.
5. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone, a subsidiary of First Union Corporation ("First Union"), is the
investment adviser for the Fund. In return for providing investment management
and administrative services to the Fund, the Fund pays Keystone a management fee
that is calculated daily and paid monthly. The management fee is computed at an
annual rate of 0.30% of the average daily net asset value of the Fund.
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company), a wholly-owned subsidiary of Evergreen, serves as the transfer and
dividend disbursing agent for the Fund.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Fund.
12
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCING AGREEMENT
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of banks (the "Banks") became effective. Under this
agreement, the Banks provide an unsecured credit facility in the aggregate
amount of $400 million ($275 million committed and $125 million uncommitted).
The credit facility is allocated, under the terms of the financing agreement,
among the Banks. The credit facility is to be accessed by the Funds for
temporary or emergency purposes only and is subject to each Fund's borrowing
restrictions. Borrowings under this facility bear interest at 0.50% per annum
above the Federal Funds rate. A commitment fee of 0.065% per annum will be
incurred on the unused portion of the committed facility, which will be
allocated to all Funds. For its assistance in arranging this financing
agreement, the Capital Market Group of First Union was paid a one time
arrangement fee of $27,500. State Street serves as administrative agent for the
Banks, and as administrative agent is entitled to a fee of $20,000 per annum
which is allocated to all of the Funds. For the year ended February 28, 1998,
the Fund had no borrowings under this agreement.
13
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Evergreen Select Adjustable Rate Fund
We have audited the accompanying statement of assets and liabilities of
Evergreen Select Adjustable Rate Fund, including the schedule of investments, as
of February 28, 1998, and the related statement of operations for the year then
ended, the statements of changes in net assets for the year then ended, the five
months ended February 28, 1997 and the year ended September 30, 1996, and the
financial highlights for the year ended February 28, 1998, the five months ended
February 28, 1997 and each of the years in the five-year period ended September
30, 1996 for Institutional Shares and for the year ended February 28, 1998, the
five months ended February 28, 1997, each of the years in the two-year period
ended September 30, 1996 and the period from May 23, 1994 (date of initial
public offering) to September 30, 1994 for Institutional Service Shares. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of February 28, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Select Adjustable Rate Fund as of February 28, 1998, the results of
its operations for the year then ended, the changes in its net assets for the
year then ended, the five months ended February 28, 1997 and the year ended
September 30, 1996, and the financial highlights for each of the years or
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 27, 1998
14
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS--FISCAL 1998 DISTRIBUTIONS (UNAUDITED)
The per share distributions paid to you for fiscal 1998, whether
taken in shares or cash, are as follows:
<TABLE>
<CAPTION>
INCOME
DIVIDENDS
<S> <C>
- ------------------------------------------------------------------------------
INSTITUTIONAL SHARES.............................................. $0.64
- ------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES...................................... $0.61
- ------------------------------------------------------------------------------
</TABLE>
In January 1999, complete information on calendar year 1998 distributions will
be forwarded to you to assist in completing your 1998 federal income tax return.
15
<PAGE>
EVERGREEN SELECT ADJUSTABLE RATE FUND
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
On December 15, 1997, a special meeting of shareholders for the Fund was held to
consider a number of proposals. On October 16, 1997, the record date for the
meeting, the Fund had the following shares outstanding and had the following
number of shares represented at the December 15, 1997 meeting:
Record Date Shares Outstanding...........................3,075,394
Shares represented at meeting............................2,305,082
Percentage of record date shares represented at meeting.....74.95%
The votes recorded at the meeting, by proposal, were as follows:
<TABLE>
<S> <C>
PROPOSAL 1--THE PROPOSED REORGANIZATION OF THE FUND AS A SERIES OF THE EVERGREEN SELECT
FIXED INCOME TRUST, A DELAWARE BUSINESS TRUST:
Shares voted "For".......................................................................... 2,305,082
Shares voted "Against"...................................................................... 0
Shares voted "Abstain"...................................................................... 0
PROPOSAL 2--RECLASSIFICATION AS NON-FUNDAMENTAL OF THE INVESTMENT OBJECTIVE OF THE FUND
WHOSE INVESTMENT OBJECTIVE IS CURRENTLY CLASSIFIED AS FUNDAMENTAL:
Shares voted "For".......................................................................... 2,305,082
Shares voted "Against"...................................................................... 0
Shares voted "Abstain"...................................................................... 0
PROPOSAL 3--CHANGES TO FUNDAMENTAL INVESTMENT RESTRICTIONS:
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING DIVERSIFICATION OF INVESTMENTS
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING CONCENTRATION OF THE FUND'S ASSETS
IN A PARTICULAR INDUSTRY:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING THE ISSUANCE OF SENIOR SECURITIES:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING BORROWING:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING UNDERWRITING:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING INVESTMENTS IN REAL ESTATE:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING COMMODITIES:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING LENDING:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING UNSEASONED ISSUERS:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING SHORT SALES:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING INVESTMENTS IN OTHER INVESTMENT
COMPANIES:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
PROPOSAL TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING PLEDGING OF SECURITIES:
Shares voted "For".......................................................................... 2,303,483
Shares voted "Against"...................................................................... 1,599
Shares voted "Abstain"...................................................................... 0
</TABLE>
16
<PAGE>
This report must be preceded or accompanied by a prospectus of an Evergreen fund
contained herein. The prospectus contains more complete information, including
fees and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<C> <C> <S>
ARE NOT
MUTUAL FUNDS: FDIC MAY LOSE VALUE
INSURED ARE NOT BANK GUARANTEED
</TABLE>
EVERGREEN DISTRIBUTOR, INC.
4/98
