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EVERGREEN
INCOME AND GROWTH
FUND
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(Background photo of stock certificates, inset photo of sky, mountain & trees)
1997 ANNUAL REPORT
(logo) Evergreen Keystone (logo)
FUNDS(SM)
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
TABLE OF CONTENTS
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Economic Overview......................................................... 1
(Photo of calculator) A Report From Your Portfolio Manager...................................... 3
Results to Date........................................................... 8
Statement of Investments.................................................. 9
Statement of Assets and Liabilities....................................... 13
Statement of Operations................................................... 14
Statement of Changes in Net Assets........................................ 15
Financial Highlights...................................................... 16
Notes to Financial Statements............................................. 18
Report of Price Waterhouse LLP -- Independent Accountants................. 23
Trustees and Officers....................................... Inside Back Cover
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
ECONOMIC OVERVIEW
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
President Clinton's Inaugural Address listed many of (Photo of
his hopes for the future of our nation. One of these Stephen A.
hopes, "a nation that balances its budget but never Lieber)
loses the balance of its values" speaks to a central
theme of the investment markets as we enter 1997. The hope of investors is for
sustained healthy growth, with the long-range promise of building a nation
economically strong enough to meet the challenges of supporting an
increasingly elderly and retired population. Optimism, reflected in consumer
surveys and business surveys, is high at the start of the year, as 1996 proved
to provide a stronger and better balanced economy than had been widely
anticipated at the beginning of the year. Even in the fourth quarter,
expectations of a slowdown were not realized, as growth in that period was
apparently at about a 3.5% annual rate, up from the 2.1% Gross Domestic Product
gain in the third quarter. Industrial output rose at an estimated 0.8% per
month in the fourth quarter, while the core inflation rate of the Producers
Price Index, as well as the Consumers Price Index, rose at a rate of only 0.1%
per month. Thus, the core inflation rate was contained at just 2.6% in 1996,
down from 3.0% in 1995. From the consumers' point of view, apart from a spurt
in food and energy prices at year-end, prices of general merchandise were
indicated to be somewhat lowered by a combination of widespread discounting and
increased imports, made cheaper by the rise of the dollar.
A healthy employment situation encouraged the confidence of the American
consumer and industry throughout the year. The greatest concern, in contrast to
normal uncertainties over employment, was that the slack in the economy was
diminishing, so that the cost of labor might be raised and, thus, stimulate
inflation. During the summer, the unemployment total was but 5.1% of the work
force and, at year-end, had increased very moderately to 5.3%. With
manufacturers reluctant to add to staff, hours worked increased by 3.2%. These
positive factors did not strain the nation's economic potential because
manufacturing capacity was indicated to be increasing month by month, with the
year-over-year gain in December, 4.5%. The lack of inflationary pressures was
particularly impressive given the extraordinary short-term impacts on purchasing
power from the price of oil which rose 40% during the year, and weather-related
agricultural developments which increased the price of food. Doubtless adding to
demand was the so-called wealth effect, induced by yet another significantly
rising stock market, and an ever broader participation by American families in
its investments. The wealth effect was manifested in higher year-end demand for
luxury goods, whose retailers and vendors often showed outstanding sales
results.
Looking ahead in 1997, there is a widespread expectation that the economy
will reflect the improved consumer and industrial sentiment, but that it will
have less external stimulus than it had at the beginning of 1996. In contrast
with the monetary stimulus provided by last January's reduction in the Federal
funds rate, there is virtually no expectation at this time that the Federal
Reserve will soon reduce interest rates, and considerable concern that if the
economy sustains its strength, it may well increase rates, thus creating a
dragging force on the economy. Improvement in the balance of payments as a
stimulus is not expected, as exports are already slowing as a result of the 6%
increase of the dollar in 1996, which, in turn, is bringing in more cheaper
imports to compete with American manufacturers. Credit ease for the consumer is
not expected after several months of larger-than-normal credit card losses
reported by the banking and financial industries. In fact, credit in this
consumer area is tightening, with an estimated decline of 15% in the number of
credit card solicitations by banks in the fourth quarter, and a more than 40%
increase in credit card write-offs. Finally, borrowing costs are almost one full
percent higher than they were a year ago when the Federal Reserve reduced the
federal funds rate.
1
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
ECONOMIC OVERVIEW -- (CONTINUED)
Investors are challenged by the fact that prices of stocks have increased
over the past year as corporate profitability rose, and optimism over future
profit rates was well sustained. Today's consensus expectations for corporate
profits is for an increase of up to 10% in 1997. If price pressures continue
from international competition, if domestic productivity and technology drives
prices down in many sectors of growing production, as has been the case, and
sales volumes grow at single digits or less, these profits expectations are
unlikely to be met. In contrast, those companies which produced the products or
services which will be the growth leaders of 1997, have high promise of
achieving new levels of profitability and sustaining long-term growth trends.
They will be the focus of investment. Companies driving for higher profitability
and stronger returns on invested capital through restructuring and reallocation
of assets, should become more prominent in the investment spectrum as they
enhance their profits outlook through these efficiencies. Another class of
promising investments is the specialty business, especially smaller
entrepreneurial and innovative ones where growth rates can be enhanced through
the synergies of merger and acquisition with larger entities. Given the very
strong cash reserves built up through this recent period of high corporate
profitability, we anticipate an acceleration of the merger and acquisition drive
by large companies looking for broader or new lines of business growth. Many
companies which find excess of liquid capital in terms of their near-term
business opportunities, may well choose to continue the recent pattern of
accelerating corporate stock buy-backs, with the aim of increasing the profits
available to continuing shareholders. In summary, there should be powerful
forces providing selective opportunities for sustained and important profit
gains for many corporations.
The savings rate of the American people had generally remained modest, but an
increasing portion is moving into the equity markets. With the advantages of
tax-deferred programs, ranging from IRAs to 401(k)s, and the shift of retirement
plans into equity-related programs, the use of mutual funds has become the
predominant mode of investment saving for individuals. In a benign environment,
such trends could well be expected to continue. Interruptions are only likely to
come through major and, often sudden, market adversities caused by unexpected
problems in the short run, and in the longer run, only from the recurrence of
inflation and significant rises in the income available from fixed income
investment alternatives.
The U.S. economic horizon looks clear and healthy at this time. It may well
be further encouraged by a decline in interest rates which could occur if growth
remains moderate, inflation well-controlled, and investors gain confidence that
cooperation between the Administration and the Congress will address their
long-term budget fears. Thus, we can conclude as we did a year ago that, "the
real return driven demand in a low inflation environment should support new
opportunities in both bonds and equities".
2
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
A REPORT FROM YOUR
PORTFOLIO MANAGER
NOLA MADDOX FALCONE
On January 31, 1997, your Fund's name was changed from (Photo of Nola
Evergreen Total Return Fund to Evergreen Income and Growth Maddox Falcone)
Fund. We believe this name better reflects the way the Fund is
managed. In addition, the Fund was re-categorized into
Lipper's Income Funds group as this category also better
reflects the nature of the Fund and provides a better
comparison with other funds with similar investment
objectives.
Evergreen Income and Growth Fund seeks to provide a sizable
current income flow and competitive long-term growth*. The
Fund's consistent quarterly stream of
dividends, CLASS Y, NO-LOAD SHARES, has provided an annual
payout rate significantly higher than that of the S&P 500
Reinvested Index** for each of the last ten years. This Fund was originally
intended to provide an inflation-hedging substitute for bond investing. During
the twelve-month period under review, the Fund (Class Y shares) sustained its
high and continuous income flow (more than double that of the S&P 500). The Fund
(Class Y shares) has paid a minimum quarterly cash distribution of $.27 per
share for each of the last ten years***. The Fund's CLASS A SHARES have paid a
minimum quarterly cash distribution of $.258 per share since their inception on
January 3, 1995.
Securities with dividend increases continued to be a significant factor for
the Fund in providing distributable income and support for growth of values.
Over 46% of the common stocks held in the Fund's portfolio at year-end provided
dividend increases during the year. For instance, LaSalle Re Holdings Ltd. and
International Business Machines Corp. provided dividend increases of 184% and
40%, respectively. We anticipate a continuation of these trends in the new
fiscal year, although we are disappointed that companies are focusing less on
the dividend as a reward for investors than on using their cash flow to buy back
shares. We would prefer to see a more equitable approach for investors.
Nationally, dividends as a payout of earnings have reached a near-record low of
38.4%.
The Fund's investments are focused on the market's equity yield sector, which
includes convertibles and common stocks with above-average dividend income
which, we have observed, tends to act as a buffer against volatility. This is
evidenced by the Fund's low beta of .64. Beta is a measure of the market risk of
a fund's portfolio, illustrating the volatility of the net asset value per share
of a fund as compared with the market as a whole (as measured by S&P 500
Reinvested Index which is assigned a beta of one). A beta of less than one
indicates that a fund would fluctuate less than the market and greater than one
indicates it would fluctuate more than the market.
In view of the highly volatile trends in the recent stock market, we have
positioned the portfolio in many investments which provide values not
necessarily related to market trends. These usually offer defensive qualities in
weaker markets.
* THE FUND'S INVESTMENT OBJECTIVE IS TO ACHIEVE A RETURN CONSISTING OF CURRENT
INCOME AND CAPITAL APPRECIATION.
** THE S&P 500 IS AN UNMANAGED INDEX OF COMMON STOCKS IN INDUSTRY,
TRANSPORTATION, FINANCE, AND PUBLIC UTILITIES, DENOTING GENERAL MARKET
PERFORMANCE AS MONITORED BY STANDARD & POOR'S CORP. AN INVESTMENT CAN NOT BE
MADE IN AN INDEX.
*** FIGURES REPRESENT PAST DISTRIBUTIONS WHICH IS NO GUARANTEE OF FUTURE
RESULTS. FOR THE 1997 FISCAL YEAR, THE FUND'S DIVIDEND WAS FUNDED ENTIRELY FROM
NET INVESTMENT INCOME AND DID NOT REPRESENT A RETURN OF CAPITAL TO SHAREHOLDERS.
3
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
PORTFOLIO PERFORMANCE
Evergreen Income and Growth Fund ended its nineteenth fiscal year on January
31, 1997, with a total return, CLASS Y SHARES, of 14.1%+. The Fund's average
annual compound return for the period since inception on September 7, 1978,
through January 31, 1997, was 14.3%, which means that a $10,000 investment in
the Fund would have grown to $116,769 during that time. The Fund's five- and
ten-year average annual compound returns ended January 31, were 10.7% and 8.3%
respectively. The twelve-month total return ended January 31, for the Fund's
CLASS A SHARES was 8.4%+. The average annual compound return for the Fund's
Class A shares for the period since their inception on January 3, 1995, through
January 31, 1997, was 15.6%. (Please see page 8 for additional performance
information.)
MERGERS AND ACQUISITIONS
Merger and acquisition candidates are one of the types of investments we use
which provide values not necessarily related to market trends. Nationally,
mergers and acquisitions continued at a record pace in calendar 1996 -- $659
billion, up 27% from $519 billion in calendar 1995. This is staggering when
compared with those of the early 1980's which averaged around $82.5 billion. We
have tried to capitalize on this trend by buying undervalued issues that not
only have growth potential but are undervalued relative to the acquisition
multiples we are seeing offered in consolidating industries. It is often easier
for companies to buy growth or create margin improvement from synergistic
combinations than build internally. The stock market has given acquiring
companies ever more valuable currencies -- their own shares -- with which to pay
for acquisitions. Many small- and mid-cap companies have not appreciated in the
last two years as much as the S&P 500 or Dow Jones Industrial Average. We also
see a relatively restrained antitrust and regulatory environment, in which new
industries are open to competition, and consolidation is even sometimes
encouraged. And, finally, a need to compete in an intensely competitive world is
creating swift strategic changes. Globalization is also having an effect as
companies are becoming bigger to compete effectively.
The largest acquisition gain in the portfolio was 115.8% for our holding in
Citizens Bancorp (held 3 3/4 years). The most recent announcement has been the
proposed merger of Long Island Lighting Co. into Brooklyn Union Gas Co. which
could result in a sizable gain to the Fund++. Real estate activity also brought
merger and acquisition to the portfolio -- South West Property Trust, Inc., was
acquired by United Dominion Realty Trust, Inc., for a gain of 22.1% (held two
years and seven months) and Simon Property Group has acquired Debartolo Realty
Corp. Tucker Properties Corp. was acquired by Bradley Real Estate, Inc., at a
price below our cost. We had purchased shares in Tucker when we calculated that
the value of the shares were trading at a significant discount to the net asset
value of the actual real estate. Bradley also understood the value of Tucker's
real estate and recognized the arbitrage opportunity. We held on to the Bradley
shares received, which now have a gain, as cash flow numbers improved with
Bradley's strong management. In the health field, an acquisition offer for FHP
International Corp. was made by PacifiCare Health Systems, Inc. We sold our
shares of FHP after the acquisition was announced for a gain to the portfolio of
24.6%. Since inception, the Fund has had a total of 103 completed acquisitions
of its holdings with an average gain of 51.8%.
FIGURES REPRESENT PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
+ PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS'
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS
A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT END SALES CHARGE. THE FUND ALSO
OFFERS CLASS B SHARES WHICH ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED
SALES CHARGE, AND CLASS C SHARES WHICH ARE SUBJECT TO A 1% CONTINGENT DEFERRED
SALES CHARGE WITHIN THE FIRST YEAR OF PURCHASE. PERFORMANCE FOR THESE CLASSES OF
SHARES MAY BE DIFFERENT.
++ SHOULD THIS ACQUISITION NOT BE COMPLETED, THE FUND MAY BE NEGATIVELY
IMPACTED.
4
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
SECTOR PERFORMANCE
Healthcare was the best performing sector for the portfolio during our fiscal
year, led by strong gains in Warner-Lambert Co., 76.5%; followed by ADAC
Laboratories, 75.2%. We also had strong gains in Zeneca Group Plc., ADR 44.7%;
Bristol-Myers Squibb Co., 43.5%; and Schering-Plough Corp., 39.2%. This was a
year when the market rewarded companies with reliable earnings growth driven by
strong pharmaceutical products and a pipeline of new products, and operational
improvements. The growth of HMO's seemed to prompt strong growth in
pharmaceutical sales and earnings in the past year as drugs are increasingly
viewed as a cost-effective way to treat disease.
Banks and thrifts were the second and third best performing groups,
respectively, in the portfolio during the fiscal year. Gains included 49.0% on
our shares of One Valley Bancorp of West Virginia, Inc.; 47.5% in People's
Savings Financial Corp.; 42.7% in Deposit Guaranty Corp.; and 38.2% in First of
America Bank Corp. As many of the financial stocks moved up, we were prompted to
take profits and redirect the monies into other issues that appeared to offer
better values. Gains were realized on the sales of our shares of Firstar Corp.
convertible preferred, 117.2% and Jefferson Bankshares, Inc., 62.8%, (each held
four years and eight months); Barnett Banks, Inc., 57.4% (held two years, eleven
months); Second Bancorp Inc., 54.9%, (held three years, eight months); and
Bankers Trust New York Corp., 34.5% (held one year, three months). We have
diversified the bank and thrift portfolio across the U.S. so that the Fund may
benefit from the consolidating trends in the industry and to help protect the
portfolio against the effects of economic slowdown in any one area, with a
concentration primarily in small- to mid-size regional banks.
Performance was also helped by our focus on technology issues where we could
find income yields. Our interest has been created by the rapid growth patterns
that we are seeing in personal computer demand, Internet activity, Intranet
activity by corporations, and telecommunications strategies which are combining
the use of computers and telephony (telephone services and equipment for voice
and data transmission). We believe the key in technology investing is keeping an
eye on value. Good technology stocks or convertibles remind us of bouncing balls
that often are moving in an upward trajectory pattern. We try to seize those
opportunities where technology securities are at temporary moments of weakness
but still have long-term growth prospects. We benefited strongly from our
position in International Business Machines Corp., +58.2% since our initial
purchase in June 1996; Pitney Bowes, Inc., and National Semiconductor Corp. In
our quest for participation in technology together with income yield, we added
convertibles of Adaptec, Inc. 4 3/4% convertible bonds due 2/1/04; Altera Corp.
convertible debentures 5 3/4% due 6/15/02; HMT Technology Corp. 5 3/4%
convertible debentures due 1/15/04; and SCI Systems, Inc., 5% convertible
debentures due 5/1/06.
Restructuring stocks again proved profitable to us this year; ranging from a
gain of 38.7% from the sale of our shares of Lindberg Corp., 34.5% from the sale
of our shares of Bankers Trust New York Corp., and 33.3% from a partial sale of
our International Business Machines Corp. holding. Earlier in the year we
realized a gain of 23.8% in Westinghouse Electric Corp., which has been in the
process of extensive restructuring.
International stocks also provided gains+++. We have made a significant
investment in Australian banks with a net positive result for the portfolio. The
Australian economy is improving and interest rates are
+++ INTERNATIONAL INVESTING MAY INVOLVE CERTAIN ADDITIONAL RISKS SUCH AS
CURRENCY FLUCTUATIONS, ECONOMIC AND POLITICAL INSTABILITY, AND DIFFERENCES IN
ACCOUNTING STANDARDS.
5
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
declining in an environment where deregulation is pending to allow takeovers of
Australian banks by other Australian or foreign enterprises. Purchases include
Commonwealth Bank of Australia installment receipts, National Australia Bank
Ltd., Westpac Banking Corp. Ltd., and Australia and New Zealand Banking Group,
Ltd. We have also bought a group of U.K. issues, including Tomkins Plc. ADR and
Imperial Chemical Industries, which we believe should benefit from their
restructuring efforts.
Globally, the utility industries are changing at a very rapid pace. Some
utilities are being privatized by the countries in which they are located and
other non-U.S. utilities are being acquired by U.S. companies. We have had
outstanding results in a number of these issues including Portugal Telecom S.A.
ADS and Scottish Power Plc. ADR. We wrote covered call options on Telecom
Argentina Stet-France Telecom S.A. for a gain of over $600,000 for the
portfolio.
We believe that in an ebullient market it is important to take gains when
issues become fully valued and re-deploy the money to undervalued issues. A gain
of 79.3% was taken in a partial sale of our Zeneca Group Plc. holdings (held one
year, ten months). We sold our shares of Comsat Corp. for a gain of 29.4% and
Rhone-Poulenc S.A. for 17.9% (each was held only one month). We were able to
take profits in short-term holdings of the convertibles of Seagate Technology,
Inc., Altera Corp., and 3Com Corp., of approximately 29% in each issue.
In the convertibles, we had mixed results. While we had good results in the
energy group from the convertibles of Key Energy Group, Inc., Offshore
Logistics, Inc., Swift Energy, and Callon Petroleum Co., we were disappointed in
a number of the convertibles which underperformed the market, some such as
Beverly Enterprises, Inc., Westinghouse Electric Corp., Maxxim Medical, Inc.,
and Philippine Long Distance Telephone Co. Our largest realized dollar loss was
from the sale of T.C.I. Communications convertible preferreds, (-26.1%, held 9
months) which we sold when we realized management was having difficulty meeting
earnings goals.
There currently is a cloud over the electric and telephone utility stocks
because of the uncertainty attached to deregulation and increased competition
within both industries. Generally, investors have been apprehensive about
political and regulatory uncertainties which could impact shareholders'
interests. For the twelve-month period ended January 31, 1997, the S&P Utility
Average# was down 2.5% as compared with a 26.3% gain for the S&P 500. While the
utility group accounted for a substantial part of the shortfall in the
performance of the Fund versus the S&P 500, the above-average income level of
the Fund continues to be supported, however, by our utility holdings. We have
had some success in a number of utility issues such as Portland General Corp.,
up as a result of their announced merger with Enron Corp., and takeover
candidate TNP Enterprises, Inc. which is up 24.2%. Moreover, several of our
other utility holdings are issues that may become takeover candidates as the
industry continues through its consolidation trend. The balance of the Fund's
utility holdings are considered to be "value timing" opportunities which were
purchased at prices where the stock appeared to be undervalued. In the telephone
utility industry we have capital appreciation in U.S. West, Inc., which we think
is a possible merger or acquisition candidate. U.S. West, Inc. also displays
better-than-average customer growth, one of the promising features of the stock.
The remaining domestic telephone issues have been weak in the recent past due to
continued uncertainties about increased competition in the $95 billion local
telecommunications market. For instance, we experienced an unrealized loss of
15% on our Frontier Corp. purchases (since April 1996), and a unrealized loss of
15% on Southern New England Telecommunications holding (for the fiscal year).
Both of these holdings we consider takeover candidates.
# AN UNMANAGED INDEX OF SELECTED SECURITIES WITHIN THE UTILITY INDUSTRY.
6
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
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A REPORT FROM YOUR
PORTFOLIO MANAGER -- (CONTINUED)
On balance we had appreciation in our gas utilities, but at a lesser
percentage increase than the major market indexes. Again, most of these issues
we are holding are companies that have strong operating stories, high yield, and
prospects for merger or acquisition.
OUTLOOK
The economy is still growing moderately with a low inflation outlook. We have
had an ebullient stock market fueled largely by the inflows from mutual funds
and 401(k) plans. This has been a narrow base move, though, with a few large
capitalization company stocks accounting for a large percentage of the increase
in the S&P 500, the Dow Jones Industrial Average, and the NASDAQ OTC Composite.
We are still seeing very good value among the small and medium-cap companies,
many of which have very attractive price-to cash-flow and price-to-earnings
ratios. Some of these issues are in consolidating industries. We also are
continuing to see restructuring domestically but increasingly more abroad.
We believe our policy of investing in strong dividend-paying stocks,
particularly ones with increasing dividends, should help to produce a lower
level of volatility on the downside for the Fund should the market pullback. At
this writing, we are not anticipating a major pullback, but we are well
positioned if such an event should occur.
We have a very strong group of analysts who work as a team helping to develop
ideas for the Fund. Our analysts are focused on helping the Fund sustain its
long-term record of capital appreciation and maintain its stable income flow.
With a higher than typical income yield from our holdings, the Fund's
performance has been highly correlated to the trends of interest rates. But, we
have increasingly sought other forms of investing such as growth convertibles,
merger and acquisition candidates, and "value timing" opportunities to seek and
improve the capital appreciation prospects for the Fund.
We thank you for your support as shareholders.
7
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
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RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN INCOME AND GROWTH FUND
The graphs below compare a $10,000 investment in the Evergreen Income and
Growth Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Wilshire 5000 Index and Lipper Income Funds Average.
CLASS A
1-YEAR TOTAL RETURN=8.4%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=15.6%
(Line graph appears here with the following plot points.)
1/3/95* 7/31/95 1/31/96 7/31/96 1/31/97
EVERGREEN INCOME AND GROWTH FUND (PLEASE FILL IN PLOT POINTS)
WILSHIRE 5000 INDEX
LIPPER INCOME FUNDS AVERAGE
CLASS B
1-YEAR TOTAL RETURN=8.0%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=16.2%
(Line graph appears here with the following plot points.)
1/3/95* 7/31/95 1/31/96 7/31/96 1/31/97
EVERGREEN INCOME AND GROWTH FUND (PLEASE FILL IN PLOT POINTS)
WILSHIRE 5000 INDEX
LIPPER INCOME FUNDS AVERAGE
CLASS C
1-YEAR TOTAL RETURN=11.9%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION=17.4%
(Line graph appears here with the following plot points.)
1/3/95* 7/31/95 1/31/96 7/31/96 1/31/97
EVERGREEN INCOME AND GROWTH FUND (PLEASE FILL IN PLOT POINTS)
WILSHIRE 5000 INDEX
LIPPER INCOME FUNDS AVERAGE
CLASS Y
1-YEAR TOTAL RETURN=14.1%
AVERAGE ANNUAL COMPOUND RETURN:
5-YEAR=10.7%
10-YEAR=8.3%
(Line graph appears here with the following plot points.)
1/31/87 1/31/88 1/31/89 1/31/96 1/31/97
EVERGREEN INCOME AND GROWTH FUND (PLEASE FILL IN PLOT POINTS)
WILSHIRE 5000 INDEX
LIPPER INCOME FUNDS AVERAGE
* Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT
FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C Shares, assuming full redemption on January 31, 1997; (c) all
recurring fees (including investment advisory fees), net of fee waivers and
reimbursements, were deducted; and (d) all dividends and distributions were
reinvested.
The Wilshire 5000 Index is unmanaged and includes the reinvestment of
income, but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
8
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EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
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STATEMENT OF INVESTMENTS
JANUARY 31, 1997
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<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
COMMON STOCKS -- 71.5%
BANKS -- 13.0%
11,900 AmSouth Bancorp...................... $ 612,850
2,000,000 Australian & New Zealand Banking
Group, Ltd........................... 12,265,446
142,000 BancorpSouth, Inc.................... 3,869,500
192,500 + CB Bancshares, Inc................... 5,390,000
24,850 CCB Financial Corp................... 1,615,250
1,908,000 Commonwealth Bank of Australia....... 12,370,709
86,840 Crestar Financial Corp............... 2,995,980
80,000 Deposit Guaranty Corp................ 2,510,000
70,606 F&M National Corp.................... 1,403,294
56,000 First Essex Bancorp, Inc............. 770,000
2,000 First of America Bank Corp........... 119,000
20,000 First Tennessee National Corp........ 810,000
80,500 First Virginia Banks, Inc............ 4,186,000
7,500 Firstbank of Illinois Co............. 264,375
79,100 FirstMerit Corp...................... 2,946,475
33,551 Hudson Chartered Bancorp, Inc........ 910,074
141,960 Interchange Financial Services
Corp................................. 3,974,880
120,000 Jacksonville Bancorp, Inc............ 1,725,000
203,251 Jefferson Bankshares, Inc............ 5,818,060
175,900 Magna Group, Inc..................... 5,211,038
12,000 Mercantile Bancorporation, Inc....... 639,000
369,000 National Australia Bank, Ltd......... 22,416,750
274,537 ONBANCorp, Inc....................... 10,226,503
12,500 One Valley Bancorp of West Virginia,
Inc.................................. 465,625
39,627 Second Bancorp, Inc.................. 1,307,691
49,500 Susquehanna Bancshares, Inc.......... 1,744,875
3,500 United Bankshares, Inc............... 116,375
107,320 USBancorp, Inc....................... 4,829,400
1,000,000 Westpac Banking Corp., Ltd........... 5,720,824
117,234,974
BUSINESS EQUIPMENT & SERVICES -- 1.9%
110,000 International Business Machines
Corp................................. 17,297,500
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.5%
40,000 Dow Chemical Co. (The)............... 3,085,000
100,000 Du Pont (E. I.) de Nemours........... 10,962,500
14,047,500
CONSUMER PRODUCTS & SERVICES -- 1.0%
148,600 International Flavors &
Fragrances, Inc...................... 6,594,125
150,640 Knape & Vogt Manufacturing Co........ 2,636,200
9,230,325
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
DIVERSIFIED COMPANIES -- 2.7%
2,760,700 Hanson Plc, ADR...................... $ 20,705,250
45,000 Tenneco, Inc......................... 1,800,000
124,800 Tomkins Plc, ADR..................... 2,262,000
24,767,250
ELECTRICAL EQUIPMENT &
SERVICES -- .8%
148,800 Thomas & Betts Corp.................. 6,975,000
ENERGY -- 3.6%
190,500 Enron Global Power
& Pipelines LLC...................... 5,715,000
106,200 Equitable Resources, Inc............. 3,451,500
48,850 Northwest Natural Gas Co............. 1,221,250
655,400 Occidental Petroleum Corp............ 16,712,700
156,600 Peoples Energy Corp.................. 5,206,950
32,307,400
FINANCE & INSURANCE -- 2.2%
200,000 GCR Holdings, Ltd.................... 4,675,000
100,000 LaSalle Re Holdings, Ltd............. 2,706,250
13,400 Marsh & McLennan Co., Inc............ 1,443,850
208,800 Ohio Casualty Corp................... 7,777,800
71,600 Provident Co., Inc................... 3,517,350
20,120,250
FOOD & BEVERAGE PRODUCTS -- .4%
152,800 Sbarro, Inc.......................... 3,915,500
FOREST PRODUCTS -- .3%
60,000 Union Camp Corp...................... 2,842,500
HEALTHCARE PRODUCTS &
SERVICES -- 3.2%
328,000 ADAC Laboratories.................... 8,159,000
25,000 American Home Products Corp.......... 1,584,375
54,700 Bristol-Myers Squibb Co.............. 6,946,900
15,000 Schering-Plough Corp................. 1,134,375
72,500 Shared Medical System Corp........... 3,421,094
87,200 Warner-Lambert Co.................... 7,019,600
3,900 Zeneca Group Plc, ADR................ 336,375
28,601,719
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- 1.8%
70,000 BW/IP, Inc........................... 1,181,250
97,000 Cooper Industries, Inc............... 4,183,125
377,500 McDermott International, Inc......... 6,889,375
71,900 Timken Co. (The)..................... 3,702,850
15,956,600
</TABLE>
9
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS -- CONTINUED
<C> <C> <S> <C>
INFORMATION SERVICES &
TECHNOLOGY -- .2%
76,499 * National Semiconductor Corp.......... $ 2,122,847
METAL PRODUCTS & SERVICES -- .4%
113,100 Carpenter Technology Corp............ 4,071,600
OFFICE EQUIPMENT & SUPPLIES -- .0%(A)
3,400 Pitney Bowes, Inc.................... 195,925
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .3%
64,000 Reader's Digest Assn., Inc. (The).... 2,472,000
REAL ESTATE INVESTMENT TRUSTS -- 6.2%
250,184 Bradley Real Estate, Inc............. 4,628,404
155,000 Burnham Pacific Properties, Inc...... 2,286,250
89,700 CarrAmerica Realty Corp.............. 2,612,512
257,200 Columbus Realty Trust................ 5,658,400
120,000 Crown American Realty Trust.......... 960,000
9,000 Evans Withycombe Residential, Inc.... 189,000
57,000 Gables Residential Trust............. 1,517,625
11,087 * Homestead Village Properties, Inc.... 207,881
7,438 * Homestead Village Properties, Inc.
Warrants Expire 10/29/97............. 66,942
484,512 Horizon Group, Inc................... 8,236,704
611,700 + Kranzco Realty Trust................. 9,940,125
50,400 Patriot American Hospitality, Inc.... 2,368,800
139,500 Post Property, Inc................... 5,789,250
95,000 Prentiss Properties Trust............ 2,553,125
100,000 Security Capital Atlantic, Inc....... 2,525,000
170,000 Sunstone Hotel Investors, Inc........ 2,273,750
255,658 United Dominion Realty Trust, Inc.... 3,962,699
55,776,467
RETAILING & WHOLESALE -- 1.1%
200,000 Mercantile Stores Co., Inc........... 9,800,000
TELECOMMUNICATION SERVICES &
EQUIPMENT -- .8%
5,000 Portugal Telecom SA, ADS............. 171,250
30,400 Telecom Corp. Of New Zealand Ltd.,
ADS.................................. 2,458,600
220,000 Telefonica del Peru SA, ADS.......... 4,757,500
7,387,350
THRIFT INSTITUTIONS -- .6%
82,782 CFX Corp............................. 1,469,380
30,800 Eagle Financial Corp................. 893,200
99,000 + People's Savings Financial Corp.
(Ct.)................................ 2,920,500
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
THRIFT INSTITUTIONS -- CONTINUED
7,755 Washington Federal, Inc.............. $ 201,630
5,484,710
UTILITIES -- ELECTRIC -- 21.0%
265 Eastern Utilities Assocociates....... 5,002
497,200 Enova Corp........................... 11,124,850
255,200 Florida Progress Corp................ 7,911,200
239,000 FPL Group, Inc....................... 10,575,750
1,049,000 Houston Industries., Inc............. 23,733,625
25,000 LG & E Energy Corp................... 606,250
1,177,100 Long Island Lighting Co.............. 26,779,025
175,800 Northern State Power Corp............ 8,108,775
400,000 Portland General Corp................ 15,700,000
120,200 Potomac Electric Power Co............ 2,974,950
421,500 PP&L Resources, Inc.................. 9,536,438
835,000 Public Service Enterprise
Group, Inc........................... 22,858,125
1,150,000 Scottish Power Plc, ADR.............. 6,909,950
101,300 Texas Utilities Co................... 4,102,650
404,000 TNP Enterprises, Inc................. 11,110,000
1,000,000 UtiliCorp United, Inc................ 27,625,000
189,661,590
UTILITIES -- GAS -- .9%
37,900 Chesapeake Utilities Corp............ 658,513
77,100 CMS Energy Corp...................... 1,513,087
200,800 New Jersey Resources Corp............ 5,998,900
10,000 South Jersey Industry, Inc........... 237,500
8,300 Yankee Energy System, Inc............ 186,750
8,594,750
UTILITIES -- TELEPHONE -- 4.4%
591,800 Frontier Corp........................ 12,945,625
200,000 * Nortel Inversora SA.................. 9,300,000
100,000 NYNEX Corp........................... 5,062,500
159,400 Southern New England
Telecommunications Corp.............. 5,937,650
187,400 U.S. West Communications
Group, Inc........................... 6,160,775
39,406,550
UTILITIES -- WATER -- .6%
500,000 South West Water Plc, ADR............ 5,402,780
OTHER SECURITIES -- 2.6%............. 23,196,416
TOTAL COMMON STOCKS
(COST $ 591,411,864)................. 646,869,503
</TABLE>
10
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 20.7%
CHEMICAL & AGRICULTURAL
PRODUCTS -- 1.7%
655,700 Atlantic Richfield Co.
9.00%, DECS.......................... $ 15,081,100
COMMUNICATION SYSTEMS &
SERVICES -- 2.1%
700,000 AirTouch Communications
6.00%................................ 19,425,000
CONSUMER PRODUCTS &
SERVICES -- 1.2%
175,000 Corning, Inc.
6.00%, MIPS.......................... 10,718,750
ELECTRICAL EQUIPMENT & SERVICES --
1.1%
600,000 Westinghouse Electric Corp.
$1.30, Series C, 144A, PEPS.......... 10,050,000
ENERGY -- 2.0%
50,000 Callon Petroleum Co.
8.50% Series A....................... 2,225,000
48,000 Nuevo Financing I
5.75%, Series A, TECONS.............. 2,634,000
25,000 Parker & Parsley Capital, LLC
6.25%, 144A, MIPS.................... 1,612,500
935,000 Santa Fe Energy Resources, Inc.
8.25%, DECS.......................... 11,921,250
18,392,750
FINANCE & INSURANCE -- 2.5%
100,000 Aetna, Inc.6.25%, Series C........... 7,825,000
5,000 Allstate Corp. (The)
6.76%, 1998, DECS.................... 222,500
259,600 American General Corp.
$3.00, Series A, MIPS................ 14,180,650
22,228,150
FOOD & BEVERAGE PRODUCTS -- 3.3%
565,000 Wendys Financing I
5.00%, TECONS........................ 30,227,500
METAL PRODUCTS & SERVICES -- 2.2%
Freeport McMoRan Copper
& Gold, Inc.
275,601 5.00%, EDS, Series A................. 5,825,400
212,800 7.00%, EDS........................... 7,544,578
120,000 Timet Capital Trust I
6.625%, 144A, BUCS................... 6,120,000
19,489,978
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .3%
88,000 AMC Entertainment, Inc.
$1.75................................ $ 2,596,000
REAL ESTATE -- .4%
172,700 Wellsford Residential Property Trust
7.00%, Series A...................... 3,993,688
UTILITIES -- 3.9%
52,400 Enron Corp.
6.25%, ACES.......................... 1,165,900
199,400 MCN Corp.
8.75%, PRIDES........................ 5,882,300
321,000 Philippine Long Distance Telephone
Co., 7.00%, Series III GDS........... 17,655,000
298,300 Sprint Corp.
8.25%, DECS.......................... 10,403,212
35,106,412
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $187,626,917).................. 187,309,328
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <C> <S> <C>
CONVERTIBLE DEBENTURES -- 6.1%
BANKS -- .2%
$1,500,000 Magna Group, Inc.
8.75%, 11/1/98..................... 1,635,000
ELECTRICAL EQUIPMENT &
SERVICES -- 1.2%
1,500,000 Adaptec, Inc.
4.75%, 2/1/04...................... 1,631,250
5,500,000 HMT Technology Corp.
5.75%, 1/15/04..................... 5,960,900
2,500,000 Sci Systems, Inc.
5.00%, 5/1/06...................... 3,412,500
11,004,650
ENERGY -- 1.2%
2,500,000 Key Energy Group, Inc.
7.50%, 7/1/03...................... 3,775,000
1,000,000 Nabors Industries, Inc.
5.00%, 5/15/06..................... 1,232,500
3,775,000 Offshore Logistics, Inc.
6.00%, 12/15/03.................... 4,270,658
1,500,000 Swift Energy Co.
6.25%, 11/15/06.................... 1,867,500
11,145,658
</TABLE>
11
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CONVERTIBLE DEBENTURES -- CONTINUED
<C> <C> <S> <C>
FINANCE & INSURANCE -- .5%
$ 65,000 Merrill Lynch & Co., Inc. STRYPES
7.25%, 6/15/99 (Exchangeable
for SunAmerica, Inc. common
stock)............................. $ 4,241,250
HEALTHCARE PRODUCTS &
SERVICES -- 1.3%
Beverly Enterprises, Inc.
8,220,000 5.50%, 8/1/18...................... 9,206,400
1,335,000 7.625%, 3/15/03.................... 1,345,012
1,369,000 Maxxim Medical, Inc.
6.75%, 3/1/03...................... 1,375,845
11,927,257
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES -- .5%
3,500,000 Magna International, Inc.
5.00%, 10/15/02.................... 4,099,550
500,000 Robbins & Myers, Inc.
6.50%, 9/1/03...................... 595,000
4,694,550
METAL PRODUCTS & SERVICES -- 1.0%
5,000,000 Altera Corp.
5.75%, 6/15/02..................... 8,975,000
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- .2%
55,000 Merrill Lynch & Co., Inc. STRYPES
6.00%, 6/1/99 (Exchangeable
for Cox Communications, Inc.
common stock)...................... 1,175,625
TOTAL CONVERTIBLE DEBENTURES
(COST $50,238,893)................. 54,798,990
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- .8%
COMMERCIAL PAPER -- .8%
7,000,000 Federal Farm Credit Bank
5.26%, 2/26/97
(COST $6,974,431).................. 6,974,431
</TABLE>
<TABLE>
<C> <C> <S> <C> <C>
TOTAL INVESTMENTS --
(COST $836,252,105)......... 99.1% 895,952,252
OTHER ASSETS AND
LIABILITIES -- NET.......... .9 8,290,186
NET ASSETS.................. 100.0% $904,242,438
</TABLE>
* Non-income producing.
(a) Less than one tenth of one percent.
+ Investment in non-controlled affiliates-holding over 5% of outstanding voting
securities. During the year ended January 31, 1997, the Fund recognized
$1,514,804 in dividend income from these investments.
The following abbreviations are used in this portfolio:
ACES -- Automatically Convertible Equity Securities.
ADR -- American Depositary Receipts.
ADS -- American Depositary Shares.
BUCS -- Beneficial Unsecured Convertible Securities.
DECS -- Dividend Enhanced Convertible Stock.
EDS -- Exchangeable Depositary Shares.
GDS -- Global Depositary Shares.
MIPS -- Monthly Income Preferred Shares.
PEPS -- Participating Equity Preferred Shares.
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities.
STRYPES -- Structured Yield Product Exchangeable for Stock.
TECONS -- Term Convertible Shares.
Rule 144A securities are restricted as to resale to qualified institutional
investors
See accompanying notes to financial statements.
12
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $836,252,105)........................................................... $895,952,252
Foreign currencies at value (identified cost $130,807)........................................................ 129,709
Cash.......................................................................................................... 820,738
Receivable for investments sold............................................................................... 9,697,692
Dividends and interest receivable............................................................................. 2,804,753
Receivable for Fund shares sold............................................................................... 303,777
Prepaid expenses.............................................................................................. 13,508
Total assets............................................................................................ 909,722,429
LIABILITIES:
Payable for investments purchased............................................................................. 3,500,000
Accrued advisory fee.......................................................................................... 719,498
Payable for Fund shares repurchased........................................................................... 627,104
Accrued expenses.............................................................................................. 601,280
Distribution fee payable...................................................................................... 32,109
Total liabilities....................................................................................... 5,479,991
NET ASSETS....................................................................................................... $904,242,438
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $845,075,615
Undistributed net investment income........................................................................... 1,321,369
Accumulated net realized loss on investment and foreign currency transactions................................. (1,848,556)
Net unrealized appreciation of investments and foreign currencies............................................. 59,694,010
Net assets.............................................................................................. $904,242,438
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($9,678,253 444,225 shares of beneficial interest outstanding)................................. $ 21.79
Sales charge -- 4.75% of offering price....................................................................... 1.09
Maximum offering price.................................................................................. $ 22.88
Class B Shares ($35,323,484/1,628,497 shares of beneficial interest outstanding).............................. $ 21.69
Class C Shares ($982,384/45,290 shares of beneficial interest outstanding).................................... $ 21.69
Class Y Shares ($858,258,317/39,346,425 shares of beneficial interest outstanding)............................ $ 21.81
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding taxes of $1,278,418)............................... $ 53,144,164
Interest................................................................................. 3,845,707
Total investment income............................................................... 56,989,871
EXPENSES:
Advisory fee............................................................................. $ 8,823,541
Distribution fee -- Class A Shares....................................................... 18,106
Distribution fee -- Class B Shares....................................................... 189,323
Shareholder services fee -- Class B Shares............................................... 63,108
Distribution fee -- Class C Shares....................................................... 6,382
Shareholder services fee -- Class C Shares............................................... 2,127
Transfer agent fee....................................................................... 871,200
Reports and notices to shareholders...................................................... 383,131
Custodian fee............................................................................ 289,300
Registration and filing fees............................................................. 101,620
Insurance................................................................................ 54,655
Trustees' fees and expenses.............................................................. 49,710
Professional fees........................................................................ 32,629
Miscellaneous............................................................................ 33,481
Total operating expenses.............................................................. 10,918,313
Interest expense......................................................................... 220,252
Net expenses....................................................................... 11,138,565
Net investment income.......................................................................... 45,851,306
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FOREIGN CURRENCIES AND COVERED CALL OPTIONS:
Net realized gain on:
Investment transactions.................................................................. 27,747,824
Foreign currency transactions............................................................ 84,342
Covered call options..................................................................... 784,954
28,617,120
Net change in unrealized appreciation (depreciation) of:
Investments.............................................................................. 43,509,351
Foreign currency transactions............................................................ (1,098)
43,508,253
Net gain on investments, foreign currencies and covered call options........................... 72,125,373
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $117,976,679
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 45,851,306 $ 53,831,619
Net realized gain on investment transactions and covered call options................... 28,532,778 18,456,772
Net realized gain on foreign currency transactions...................................... 84,342 --
Net change in unrealized appreciation of investments and foreign currencies............. 43,508,253 126,889,047
Net increase in net assets resulting from operations................................. 117,976,679 199,177,438
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.......................................................................... (379,400) (115,623)
Class B Shares.......................................................................... (1,152,510) (338,493)
Class C Shares.......................................................................... (39,024) (10,937)
Class Y Shares.......................................................................... (45,453,926) (53,434,290)
Total distributions to shareholders from net investment income....................... (47,024,860) (53,899,343)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 55,014,841 52,666,229
Proceeds from reinvestment of distributions............................................. 41,805,502 48,433,865
Payment for shares redeemed............................................................. (197,670,999) (254,625,686)
Net decrease resulting from Fund share transactions............................... (100,850,656) (153,525,592)
Net decrease in net assets........................................................ (29,898,837) (8,247,497)
NET ASSETS:
Beginning of year....................................................................... 934,141,275 942,388,772
End of year (including undistributed net investment income of $1,321,369 and $2,410,572,
respectively)......................................................................... $ 904,242,438 $ 934,141,275
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JANUARY 3, JANUARY 3,
1995* 1995*
YEAR ENDED YEAR ENDED THROUGH YEAR ENDED YEAR ENDED THROUGH YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1997 1996 1995 1997 1996 1995 1997
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................ $20.15 $17.28 $17.09 $20.08 $17.28 $17.09 $20.08
Income from investment
operations:
Net investment income......... 1.02 1.01 .02 .89 .91 .02 .87
Net realized and unrealized
gain on investments......... 1.67 2.94 .17 1.64 2.87 .17 1.66
Total from investment
operations................ 2.69 3.95 .19 2.53 3.78 .19 2.53
Less distributions to
shareholders from net
investment income............. (1.05) (1.08) -- (.92) (.98) -- (.92)
Net asset value, end of
period........................ $ 21.79 $ 20.15 $ 17.28 $21.69 $20.08 $ 17.28 $ 21.69
TOTAL RETURN+................... 13.8% 23.4% 1.1% 13.0% 22.4% 1.1% 12.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............... $ 9,678 $ 4,412 $119 $35,323 $14,750 $599 $982
Ratios to average net assets:
Expenses...................... 1.44% 1.36%** 1.45%++ 2.19% 2.11%** 2.23%++ 2.19%
Interest expense.............. .03% -- -- .03% -- -- .03%
Net investment income......... 4.93% 5.39%** 4.09%++ 4.17% 4.69%** 3.23%++ 4.15%
Portfolio turnover rate......... 168% 138% 151% 168% 138% 151% 168%
Average commission rate paid per
share......................... $ .0491 N/A N/A $.0491 N/A N/A $ .0491
<CAPTION>
JANUARY 3,
1995*
YEAR ENDED THROUGH
JANUARY 31, JANUARY 31,
1996 1995
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................ $17.27 $17.09
Income from investment
operations:
Net investment income......... .90 .01
Net realized and unrealized
gain on investments......... 2.89 .17
Total from investment
operations................ 3.79 .18
Less distributions to
shareholders from net
investment income............. (.98) --
Net asset value, end of
period........................ $ 20.08 $ 17.27
TOTAL RETURN+................... 22.4% 1.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............... $523 $24
Ratios to average net assets:
Expenses...................... 2.11%** 2.22%++
Interest expense.............. -- --
Net investment income......... 4.67%** 2.68%++
Portfolio turnover rate......... 138% 151%
Average commission rate paid per
share......................... N/A N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
** Net of expense reimbursements. If the Fund had borne all expenses that were
assumed by the investment adviser, the annualized ratios of expenses and net
investment income (loss) to average net assets, exclusive of any applicable
state expense limitations, would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1996
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Expenses.................................................................................... 2.50% 2.25% 13.03%
Net investment income (loss)................................................................ 4.25% 4.55% (6.25%)
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
(Photo of calculator)
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
CLASS Y SHARES
TEN MONTHS
YEAR ENDED YEAR ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1997 1996 1995*
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................ $20.16 $ 17.28 $ 18.29
Income (loss) from investment operations:
Net investment income............................................................. 1.08 1.10 .87
Net realized and unrealized gain (loss) on investments............................ 1.66 2.87 (.55)
Total from investment operations................................................ 2.74 3.97 .32
Less: distributions to shareholders from:
Net investment income............................................................. (1.09) (1.09) (1.08)
Net realized gain on investments.................................................. -- -- (.25)
Total distributions........................................................... (1.09) (1.09) (1.33)
Net asset value, end of period...................................................... $21.81 $ 20.16 $ 17.28
TOTAL RETURN+....................................................................... 14.1% 23.5% 1.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)..................................................................... $858 $914 $942
Ratios to average net assets:
Expenses.......................................................................... 1.18% 1.19% 1.24%++
Interest expense.................................................................. .03% -- --
Net investment income............................................................. 5.14% 5.70% 5.70%++
Portfolio turnover rate............................................................. 168% 138% 151%
Average commission rate paid per share.............................................. $.0491 N/A N/A
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................ $20.90 $18.82
Income (loss) from investment operations:
Net investment income............................................................. 1.08 1.11
Net realized and unrealized gain (loss) on investments............................ (1.41) 2.51
Total from investment operations................................................ (.33) 3.62
Less: distributions to shareholders from:
Net investment income............................................................. (1.08) (1.08)
Net realized gain on investments.................................................. (1.20) (.46)
Total distributions........................................................... (2.28) (1.54)
Net asset value, end of period...................................................... $18.29 $20.90
TOTAL RETURN+....................................................................... (2.1%) 20.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)..................................................................... $1,065 $1,142
Ratios to average net assets:
Expenses.......................................................................... 1.18% 1.18%
Interest expense.................................................................. -- --
Net investment income............................................................. 5.29% 5.65%
Portfolio turnover rate............................................................. 106% 164%
Average commission rate paid per share.............................................. N/A N/A
</TABLE>
* The Fund changed its fiscal year end from March 31 to January 31.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
See accompanying notes to financial statements.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Income and Growth Fund (the "Fund") is an open-end management
company registered under the Investment Company Act of 1940, as amended (the
"Act"). The Fund's investment objective is to achieve a return consisting of
current income and capital appreciation. Effective January 31, 1997, the Fund's
name was changed from Evergreen Total Return Fund.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS") are
valued at the last reported sales price. Securities traded on an exchange or NMS
for which there has been no sale and securities traded in the over-the-counter
market are valued at the mean between the last reported bid and asked price.
Unlisted securities for which market quotations are not readily available are
valued at a price quoted by one or more brokers. Debt securities (other than
short term obligations) are valued on the basis of valuations provided by a
pricing service. Securities for which market quotations are not readily
available are valued at their respective fair value as determined in good faith
by the Fund's Trustees. Short-term investments are valued at amortized cost,
which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Dividend income is recorded on the
ex-dividend date. Interest income and expenses are accrued daily.
INCOME TAXES -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable net income and net realized capital
gains to its shareholders. Accordingly, no provisions for Federal income or
excise taxes are necessary. 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. At January 31, 1997, the Fund had a capital loss carryover of
$1,390,282 which expires on January 31, 2004.
Currency losses incurred after October 31, within the Fund's fiscal year
are deemed to arise on the first business day of the Fund's following fiscal
year. The Fund has incurred and will elect to defer post October currency losses
of $228,458.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are distributed quarterly. Distributions from net realized capital gains on
investments, if any, will be distributed at least annually. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from amounts available under generally accepted accounting
principles. To the extent these differences are permanent in nature, such
amounts are reclassified within the components of net assets. These differences
are primarily due to differing treatments for wash sales and gains and losses on
currency transactions.
As of January 31, 1997, a reclassification has been made to increase
undistributed net investment income and to increase accumulated net realized
loss on investments and foreign currency transactions by $84,351.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Investment income, net of expenses (other than
class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
USE OF ESTIMATES -- The preparation of financial statements is in
accordance with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates.
REAL ESTATE INVESTMENT TRUSTS -- The Fund owns shares of real estate
investment trusts ("REITs") which report information on the source of their
distributions annually. A portion of distributions received from REITs during
the year is estimated to be a return of capital and is recorded as a reduction
of their cost.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- Pursuant to an agreement with the Fund's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union National Bank of North Carolina ("First
Union"), Evergreen Asset is entitled to an annual fee based on the Fund's
average daily net assets in accordance with the following schedule:
<TABLE>
<S> <C>
First $750 million 1.00%
Next $250 million 0.90%
Over $1 billion 0.80%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to the Fund and also provides brokerage services with respect to
substantially all security transactions effected on the New York or American
Stock Exchanges. For transactions executed during the year ended January 31,
1997, the Fund incurred brokerage commissions of $2,835,293 with Lieber &
Company. Lieber & Company is reimbursed by Evergreen Asset, at no additional
expense to the Fund, for its cost of providing investment advisory services.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes the Fund with
administrative services as part of its advisory agreement and accordingly, the
Fund does not pay a separate administration fee. Through December 31, 1996
Furman Selz LLC ("Furman Selz") was the Fund's sub-administrator. Effective
January 1, 1997, Bisys Group, Inc. ("Bisys") acquired Furman Selz Mutual Fund
unit and accordingly, Bisys Fund Services became sub-administrator. The
administration fee structure has remained unchanged. As sub-administrator,
Furman Selz and Bisys provided the officers of the Fund. Furman Selz' and Bisys'
fees are paid by Evergreen Asset and are not fund expenses.
PLANS OF DISTRIBUTION -- The Fund has adopted for its Class A shares, Class
B shares, and Class C shares, Distribution Plans (the "Plans") pursuant to Rule
12b-1 under the Act (see note 4). Under the terms of the Plans, the Fund may
incur distribution-related and shareholder servicing expenses which may not
exceed an annual fee of .75 of 1% of Class A share's average daily net assets
and an annual fee of 1% of Class B and Class C share's average daily net assets.
For the year ended January 31, 1997, the payments for Class A were voluntarily
limited to .25 of 1% of average daily net assets.
In connection with its Plans, the Fund has entered into a distribution
agreement with Evergreen Keystone Distributor, Inc. ("EKD"), formerly Evergreen
Funds Distributor, a subsidiary of Bisys, whereby the Fund will compensate EKD
for its services at a rate which may not exceed an annual fee of .25 of 1% of
Class A shares average daily net assets and an annual fee of 1% of Class B and
Class C share's average daily net assets. A portion of the payments for Class B
and C shares, up to .25 of 1% may constitute a shareholder services fee. EKD has
entered into a Shareholder Services Agreement with First Union Brokerage
("FUBS"), an affiliate of First Union, whereby they will compensate FUBS for
certain services provided to shareholders and/or maintenance of shareholder
accounts relating to the Fund's Class B and Class C shares.
SALES CHARGES -- EKD has advised the Fund that it has retained $20,208 from
front-end sales charges resulting from sales of Class A shares during the year
ended January 31, 1997.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
The Fund has an unlimited number of $0.0001 par value shares of beneficial
interest authorized. The shares are divided into classes which are designated
Class A, Class B, Class C and Class Y shares. Class A shares are sold with a
front-end sales charge of up to 4.75%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares seven years after the date of purchase. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year after the date of
purchase. Class Y shares are sold without a sales charge and are available only
to investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other funds
managed by First Union and its affiliates as of December 30, 1994. The classes
have identical voting, dividend, liquidation and other rights, except that Class
A, Class B and Class C Shares bear distribution expenses (see Note 3) and have
exclusive voting rights with respect to their distribution plans.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold................................................... 288,739 $ 5,918,321 228,841 $ 4,349,310
Shares issued on reinvestment of distributions................ 16,567 341,281 5,285 101,915
Shares redeemed............................................... (80,074) (1,646,836) (22,041) (423,996)
Net increase.................................................. 225,232 4,612,766 212,085 4,027,229
CLASS B
Shares sold................................................... 973,616 19,899,458 719,805 13,730,445
Shares issued on reinvestment of distributions................ 48,861 1,003,747 15,667 302,547
Shares redeemed............................................... (128,458) (2,649,792) (35,675) (692,877)
Net increase.................................................. 894,019 18,253,413 699,797 13,340,115
CLASS C
Shares sold................................................... 33,684 684,918 24,468 469,424
Shares issued on reinvestment of distributions................ 1,429 29,305 445 8,587
Shares redeemed............................................... (15,865) (328,507) (262) (4,731)
Net increase.................................................. 19,248 385,716 24,651 473,280
CLASS Y
Shares sold................................................... 1,398,445 28,512,144 1,829,669 34,117,050
Shares issued on reinvestment of distributions................ 1,968,663 40,431,169 2,547,340 48,020,816
Shares redeemed............................................... (9,386,347) (193,045,864) (13,511,557) (253,504,082)
Net decrease.................................................. (6,019,239) (124,102,551) (9,134,548) (171,366,216)
Total net decrease resulting from
Fund share transactions..................................... (4,880,740) ($100,850,656) (8,198,015) ($153,525,592)
</TABLE>
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended January 31, 1997 were $1,474,882,363
and $1,463,903,225, respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT TRANSACTIONS -- continued
The aggregate cost of investments owned at January 31, 1997 for Federal
income tax purposes was $836,710,380. Gross unrealized appreciation and
depreciation was $90,446,394 and $31,204,522, respectively, resulting in net
unrealized appreciation for Federal income tax purposes of $59,241,872.
NOTE 6 -- FINANCING AGREEMENT
Through July 3, 1996, the Fund had a financing agreement with its
custodian, State Street Bank and Trust Company ("State Street"), which provided
the Fund with a line of credit, in the aggregate amount of the lesser of
$50,000,000 or 5% of the value of the Fund's net assets, to be accessed for
temporary or emergency purposes. Borrowings under the line of credit bore
interest at 1% above State Street's cost of funds as set periodically by State
Street and were secured by securities pledged by the Fund. Effective July 3,
1996, a financing agreement was put in place with all of the Evergreen Funds
("Evergreen") and State Street. Under this agreement, State Street provided an
unsecured line of credit facility, in the aggregate amount of $100 million ($50
million committed and $50 million uncommitted), to be accessed by Evergreen for
temporary or emergency purposes only and is subject to each participating Fund's
borrowing restrictions. Effective October 31, 1996, a new financing agreement
was put in place with Evergreen and State Street, Societe Generale and ABN AMRO
Bank N.V. (collectively, the "Banks"). Under this agreement, the Banks provide
an unsecured credit facility in the aggregate amount of $225 million ($112.5
million committed and $112.5 million uncommitted) allocated evenly between the
Banks. Borrowings under the July 3 and October 31 facilities bore interest at
.75% per annum above the Federal Funds rate. A commitment fee of .10% per annum
was incurred on the unused portion of the committed facility which was allocated
to all participating funds. State Street acts as agent for the Banks, and as
agent is entitled to a fee of $15,000 which is allocated to all of the Evergreen
Funds. During the year ended January 31, 1997, the Fund had borrowings
outstanding for 107 days under the lines of credit and incurred $220,252 in
interest charges related to these borrowings. The Fund's average amount of debt
outstanding during the year aggregated $11,969,533 at a weighted average
interest rate of 6.28%. The Fund had no outstanding borrowings at January 31,
1997.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- OPTIONS WRITTEN
The Fund is authorized to write covered call options. When the Fund writes
a call option, an amount equal to the premium received by the Fund is reflected
as an asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the option
written. When a security is sold through an exercise of an option, the related
premium received is added to the proceeds of the security sold. When an option
expires, the Fund realizes a gain on the option to the extent of the premium
received. When the Fund enters into a closing transaction, the Fund realizes a
gain or loss to the extent the cost of the closing transaction exceeds the
premium received.
Investment activity in covered call option contracts for the year ended
January 31, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS PREMIUMS
<S> <C> <C>
Open option contracts written at January 31, 1996 2,639 $ 865,850
Option contracts written 750 145,755
Option contracts closed (3,389) (1,011,605)
Open option contracts written at January 31, 1997 0 0
</TABLE>
NOTE 8 -- DEFERRED TRUSTEE'S FEES
Each Trustee may defer any or all compensation related to performance of
duties as a Trustee of the Fund. Each Trustee's deferred balances are allocated
to deferral accounts which are included in the Fund's accrued expenses. Any
gains earned or losses incurred in the deferral accounts are reported in the
Trustee's fees and expenses. Trustees will be paid either in one lump sum or in
quarterly installments for up to ten years at their election, not earlier then
either the year in which the Trustee ceases to be a member of the Board of
Trustees or January 1, 2000. As of January 31, 1997, Trustees had deferred
$44,237.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
EVERGREEN INCOME AND GROWTH FUND
(formerly known as Evergreen Total Return Fund):
In our opinion, the accompanying Statement of Assets and Liabilities,
including the Statement of Investments, and the related Statements of Operations
and of Changes in Net Assets and the Financial Highlights present fairly, in all
material respects, the financial position of Evergreen Income and Growth Fund
(formerly known as Evergreen Total Return Fund, the "Fund"), at January 31,
1997, and the results of its operations, the changes in its net assets, and the
financial highlights for the year then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at January 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above. The Statement of Changes in
Net Assets for the year ended January 31, 1996 and the financial highlights for
the year ended January 31, 1996, the period ended January 31, 1995, and the two
year period ended March 31, 1993 were audited by other independent accountants,
whose opinion, dated March 21, 1996, were unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York NY 10036
March 24, 1997
23
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin
Foster Bam
James S. Howell, Chairman
Robert J. Jeffries+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
George O. Martinez
Secretary
Sheryl Hirschfeld
Assistant Secretary
Stephen W. St. Clair
Assistant Treasurer
+ Trustee Emeritus
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
For corporate taxpayers 88.57% of the ordinary income
distributions paid during the fiscal year ended January 31, 1997
qualified for corporate dividends received deduction.
<PAGE>
This brochure must be preceeded or accompanied by a prospectus for Evergreen
Income and Growth Fund. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing or
sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Keystone Distributor, Inc.
Evergreen Keystone(SM) is a Service Mark of Evergreen Keystone Investment
Services, Inc. Copyright 1997.
47822 540709
3/97
