EVERGREEN INVESTMENT TRUST, N-30D, 1996-03-22

EVERGREEN INVESTMENT TRUST
N-30D, 1996-03-22

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<PAGE>

EVERGREEN SPECIALTY
GROWTH AND INCOME
FUNDS

(Photos of a dam, power lines and buildings)

1995 ANNUAL REPORT

(Photo of trees)

(Evergreen tree logo appears here)

<PAGE>
EVERGREEN SPECIALTY GROWTH AND INCOME FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
A Review of the Past Year
and Prospects for the Future.............................................. 1
(Photo of TAX STRATEGIC A Report From Your Portfolio Managers..................................... 3
a dam) FOUNDATION FUND Results to Date........................................................... 6
Statement of Investments.................................................. 7
Statement of Assets and Liabilities....................................... 11
Statement of Operations................................................... 12
Statement of Changes in Net Assets........................................ 13
Financial Highlights...................................................... 14

(Photo of UTILITY A Report From Your Portfolio Manager...................................... 16
power lines) FUND Results to Date........................................................... 17
Statement of Investments.................................................. 18
Statement of Assets and Liabilities....................................... 20
Statement of Operations................................................... 21
Statement of Changes in Net Assets........................................ 22
Financial Highlights...................................................... 23

(Photo of SMALL CAP A Report From Your Portfolio Manager...................................... 24
buildings) EQUITY INCOME Results to Date........................................................... 27
FUND Statement of Investments.................................................. 28
Statement of Assets and Liabilities....................................... 30
Statement of Operations................................................... 31
Statement of Changes in Net Assets........................................ 32
Financial Highlights...................................................... 33
Combined Notes to Financial Statements.................................... 35
Report of Independent Accountants -- Price Waterhouse LLP................. 42
Independent Auditors' Report -- KPMG Peat Marwick LLP..................... 43
Report of Independent Auditors -- Ernst & Young LLP....................... 44
Trustees and Officers.........................................Inside Back Cover
</TABLE>

<PAGE>
EVERGREEN SPECIALTY GROWTH AND INCOME FUNDS
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
As 1995 ended, there was a general high level of (Photo of
confidence in the national ability to control Stephen A. Lieber)
inflation. In the broadest consensus on economic
matters that we had seen in decades, we found
expectations that the United
States will have no more than a 2.5% rate of inflation through 1996.
Expectations of controlled inflation allowed interest rates to fall, as measured
by the 30-year U. S. Treasury bond, from a peak of almost 8% at the beginning of
1995, to 6% in December. Investors throughout the world normally expect a 3%
real (net after inflation) rate of return, and in some periods of greater
volatility in the inflation rate, up to a 4% real rate of return. Assuming a
2.5% inflation rate, real returns at the end of 1995 calculated to be 3.5%. If
the rate of inflation remains steadily below 2.5%, or even trends downward in
1996, it is reasonable to expect that long-term interest rates will range around
current levels or, move even lower, but with one caveat.
That caveat has to do with the value of the dollar relative to the currencies
of the other major trading nations. Since the beginning of the current major
decline in interest rates in August, the dollar has been gradually stronger
against the German mark and the Japanese yen. This has supported international
confidence in investing in dollar obligations, as has the decline in our
inflation rate. Thus, we must look at 1996 prospects for the dollar as well as
for our inflation rate. The dollar is subject to political risks as well as
economic trends.
The central political issue related to the dollar and, in the longer run, to
inflation prospects has to do with the United States budget deficit,
notwithstanding that its deficit as a percentage of Gross Domestic Product ranks
the U.S. comparative position as one of the lowest among major industrial
nations. If the current negotiations between the legislative and the executive
branches over budget legislation produce a program for deficit control which
will be widely considered likely to succeed, there should be broader foreign
confidence in our currency and less apprehension over the resurgence of
inflation.
The key challenge to the equity markets in this environment of preoccupation
with inflation control and deficit reduction is whether fiscal policy and
corporate strategies will permit sufficient growth to meet investor expectations
of increasing corporate earnings. Corporations are focused on tight cost control
to compete globally. Frequently, corporate productivity gains, particularly for
manufacturing and service industries, are obtained through employment reduction.
This has deflationary consequences that may prove positive to the bond market,
but inherently slows consumer demand and creates a drag effect on production
growth. Our conclusion is that the economic and political conditions likely to
prevail at least at the beginning of 1996, will tend to support expectations of
controlled inflation, but not allow rapid expansion of corporate profits. For
those equity investors who anticipate earnings growth from corporations
positively affected by sustained lower interest rates, the environment should be
offering satisfactory returns. For those who expect sizable growth in cyclical
industries, the likelihood is that such returns will only be obtained by
corporations with classical turnaround situations, restructuring, or the
introduction of new or higher profit-margin products. Outstanding profit gains
are likely to be readily achieved by companies with either innovative products
or services, or participation in exceptionally high-growth markets.
We see 1996 as a year of less widespread gains than those of 1995, as
optimism will likely be tempered by the realization that effective inflation
control and cost reduction by government and industry incurs the risk of slowed
growth. However, the real return-driven demand in a low-inflation environment
should support new opportunities in both bonds and equities.
Investing for both growth and income could well prove particularly rewarding
in 1996 if the securities
1

<PAGE>
EVERGREEN SPECIALTY GROWTH AND INCOME FUNDS
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
markets remain highly sensitive to changes in economic direction. Frequent and
sizable volatility is likely as consensus expectations change regarding the
prospects for specific industries and sectors within those industries.
Investment direction will be driven by the vast and continuing flows of new
savings into the equity markets from employee benefit plans, personal savings,
and institutional resources, all impacted by declining bond market yield
alternatives. Attention may well shift rapidly from industry to industry as
expectations change. Those companies with the implicit stability of earnings
trends to have established dividend policies and, even increasing dividend
trends, should have a lower level of downside volatility in weaker markets.
Additionally, many companies which are oriented toward returns on equity,
increasingly choose to use excess cash flow to buy back their shares rather than
pay out higher dividends. This, too, provides a support for equity prices in
volatile, downward phases of market fluctuation. We expect to see a sustained
pattern of corporate buy-backs in 1996. Our overall expectations are for a
continued slower economy in an environment of lower inflation where investors
and investment managers will have to concentrate both their new purchases and
their retention of long-term investments on those companies with superior growth
possibilities notwithstanding a possibly lackluster economy.
2

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam)

A REPORT FROM YOUR
PORTFOLIO MANAGERS
STEPHEN A. LIEBER
JAMES T. COLBY, III
Evergreen Tax Strategic Foundation Fund's total return (Photos of
(Class Y, no-load shares) for the twelve months ended December Stephen A.
31, 1995 was 27.3%*, exceeding the 25.2% return of the Lipper Lieber and
Balanced Funds average of 220 balanced funds tracked by Lipper James T.
during that time**. The Fund's performance is especially Colby, III)
notable considering the lower yield of its tax exempt bond
portfolio when compared with balanced funds with taxable
bonds. Evergreen Tax Strategic Foundation Fund's total return
ranked #1 among the 143 balanced funds tracked by Lipper for
the period since its inception on November 2, 1993, through
December 31, 1995. The Fund's average annual compound return
for that time was 15.4%, compared with 10.7% for the Lipper
Balanced Funds average. The Fund's total return ranked #50
among 220 balanced funds tracked by Lipper for the twelve
months ended December 31. (For additional performance
information, please see page 6.)
For 1995, the Fund provided capital appreciation and risk
protection in a tax-efficient investment structure. Of the
dividend income paid to shareholders, 59.9% was tax-exempt.
Long-term capital gains were minimal, and the taxable ordinary
gains were 4.4%. Where possible, dividend income was
minimized, as the Fund focused on investment in companies that
provide a partial return of capital dividend. The majority of
equity holdings are in companies with large stock buy-back
programs used to employ distributable funds in lieu of paying
them out as taxable dividends. The equity portfolio provided a return of 41.0%
for the year.
The equity portfolio of the Fund provided many outstanding gains throughout
the year. Following are the Fund's top ten equity performances in 1995:
<TABLE>
<S> <C>
1) Southern Energy Homes, Inc. +113.5%
2) Bank of Boston Corp. +91.0%
3) Baybanks, Inc. +85.8%
4) CWM Mortgage Holdings, Inc. +79.5%
5) Intel Corp. +73.9%
6) Hewlett-Packard Co. +65.8%
7) Roanoke Electric Steel Corp. +57.7%
8) Barnett Banks, Inc. +53.4%
9) Burlington Northern Sante Fe +47.7%
10) FFE Financial Corp. +40.0%
</TABLE>

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FOR THE FUND'S CLASS A, CLASS B, AND CLASS C SHARES IS NOT
AVAILABLE AS THOSE CLASSES WERE NOT IN EXISTENCE FOR THE FULL 12-MONTH PERIOD
ENDED 12/31/95. 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.
WHILE THE INCOME FROM MUNICIPAL SECURITIES IS EXEMPT FROM FEDERAL INCOME TAX, IT
MAY BE SUBJECT TO STATE AND LOCAL TAXES, AND THE FEDERAL ALTERNATIVE MINIMUM TAX
FOR CERTAIN INVESTORS.
** LIPPER ANALYTICAL SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE
MONITOR.
3

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam)

In contrast, on the negative side, only two holdings declined more than 10%.
These were Micron Technology, Inc., down 26.4%, and Lincare Holdings, Inc., down
11.9%.
The Fund's strategy parallels the basic strategy of Evergreen Foundation Fund
in its search for companies which we feel are undervalued and offer growth
potential. Four of the Fund's financial holdings proved their undervaluation
through merger and acquisition offers, one of which was completed: Coral Gables
Fedcorp, Inc., (purchased in July, 1994), was acquired by First Union
Corporation in June 1995, providing a gain of 29.4% to the Fund. Two other
holdings have received acquisition offers and, while the acquisitions have not
yet been completed, the Fund has benefited through the appreciation. They are as
follows: FFE Financial Corp. (purchased in July, 1995) has received an
acquisition bid from SouthTrust Corp., providing an appreciation of 40.3%, and
Baybanks, Inc. has received an acquisition bid from Bank of Boston Corp.
providing an appreciation of 114.5% over the Fund's original purchase in
November, 1993, and a doubling of the Fund's average cost+. In addition,
Meridian Bancorp, Inc. (purchased in August, 1994) is to be acquired by
CoreStates Financial Corp. We sold our shares of Meridian Bancorp in October,
1995, for a 39.2% gain to the Fund.
Growth through advancing technology is represented in Evergreen Tax Strategic
Foundation Fund through key holdings. These are: Avnet, Inc. (the largest
distributor of electronics components), Hewlett-Packard Co. (a major, integrated
producer of electronic instruments, computers, and systems), and Intel Corp.
(the world's largest and leading producer of integrated circuits). These three
holdings represent 5.9% of the portfolio's net assets at fiscal year-end. Each
was purchased with the conviction that they represented undervalued growth
opportunities, beginning with the purchase of Intel Corp. at the inception of
the Fund in 1993. At 1995 year-end, Intel Corp. was the second largest holding
in the Fund, behind Bank of Boston.
The Fund's fixed income portfolio is fundamentally constructed with the
highest quality tax-exempt obligations, insured++ and stand-alone triple A-rated
bonds, and short-term tax-exempt triple A-rated paper. The primary goal is to
seek capital appreciation, together with yield, from the highest quality
tax-exempt obligations. The tax-exempt portfolio, as a whole, including
short-term cash reserves, provided an 18.5% return during 1995, an attractive
return as compared with 17.5% return for the Lehman Municipal Insured Index. The
strategy for tax-exempt investment during the year was primarily one of moving
from short or intermediate-term maturities, to longer maturities. The program
was particularly accelerated after August when we anticipated that the U.S. bond
interest rate structure would decline consequent to the German Bundesbank
interest rate reduction that month. At year-end, the portfolio of bonds had a
duration of 8.76 years, and an average maturity of 13.79 years.
We found the tax-exempt bond market increasingly attractive relative to the
taxable bond market as the spread between high-grade taxable interest rates and
high-grade tax-exempt rates became narrower than usual. The generally accepted
reason for this disparity is that the political discussion of a possible flat
tax has made many investors fearful that tax-exemption will be eliminated for
municipal, state, and agency issued bonds. We have held to the view that this is
highly unlikely to happen.
The year-end asset allocation of the Fund, 52.4% in tax-exempt bonds and
short-term paper, and 46.4% in common stocks, is consistent with the Fund's
portfolio goals. We find these allocations appropriate in present circumstances,
with a portion of the tax-exempt monies held in short-term paper, to maintain
our flexibility to move either into equities or longer-term fixed commitments,
as we see the appropriate trends and opportunities.
+ THE FUND MAY BE NEGATIVELY IMPACTED SHOULD THESE PENDING ACQUISITIONS NOT BE
COMPLETED.
++ INSURED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST. THE FUND ITSELF IS
NOT INSURED, NOR IS THE VALUE OF ITS SHARES GUARANTEED.
4

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam)

We believe the Fund is well-positioned for an environment of slow industrial
growth, contained inflation, and prospects for a moderately declining interest
rates and steepening yield curve though lower short-term rates. We are prepared
to be flexible in our selection of duration and maturities among the bond
holdings, in order to seek out the appropriate combination of the best
protection of assets, the highest yield, and the greatest possibility for
capital appreciation. Our policy of investing in insured or triple A-rated
tax-exempt securities allows us to concentrate on the economic and interest rate
developments without undue risks of credit quality. We believe this is a sound
base on which to continue to build an outstanding investment performance for
this Fund which seeks to provide a tax-exempt and tax-oriented foundation of an
investment portfolio.
We very much appreciate the support of the new shareholders who have joined us
in the last year and, of course, those who have been with us from the inception
of the Fund. We are optimistic that we will again provide superior,
tax-effective investment results in 1996.
5

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(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam)

RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN TAX STRATEGIC FOUNDATION FUND
The graphs below compare a $10,000 investment in the Evergreen Tax
Strategic Foundation Fund (Class A, Class B, Class C and Class Y Shares) with a
similar investment in the S&P 500 Index and the Lehman Municipal Bond Index
("Indexes").

(Four line graphs appear here with the following plot points:)

CLASS A
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=18.9%

<TABLE>
<CAPTION>
1/17/95* 3/31/95 6/30/95 9/30/95 12/31/95
<S> <C> <C> <C> <C> <C>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
LEHMAN MUNICIPAL BOND INDEX
S&P 500
</TABLE>

CLASS B
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=20.6%

<TABLE>
<CAPTION>
1/6/95* 3/31/95 6/30/95 9/30/95 12/31/95
<S> <C> <C> <C> <C> <C>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
LEHMAN MUNICIPAL BOND INDEX
S&P 500
</TABLE>

CLASS C
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=20.2%

<TABLE>
<CAPTION>
3/3/95* 3/31/95 6/30/95 9/30/95 12/31/95
<S> <C> <C> <C> <C> <C>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
LEHMAN MUNICIPAL BOND INDEX
S&P 500
</TABLE>

CLASS Y
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=27.3%
SINCE INCEPTION=15.4%

<TABLE>
<CAPTION>
11/02/93* 12/31/93 6/30/94 12/31/95 6/30/95 12/31/95
<S> <C> <C> <C> <C> <C> <C>
EVERGREEN TAX STRATEGIC FOUNDATION FUND
LEHMAN MUNICIPAL BOND INDEX
S&P 500
</TABLE>

*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 December 31, 1995; (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 Indexes are unmanaged indexes and include the reinvestment of income,
but do not reflect the payment of transaction costs and advisory fees associated
with an investment in the Fund.
6

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 46.4%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- 1.7%
7,000 Chrysler Corp......................... $ 387,625
BANKS -- 12.3%
19,000 Bank of Boston Corp................... 878,750
7,000 Bankers Trust New York Corp........... 465,500
5,000 Barnett Banks, Inc.................... 295,000
2,500 Baybanks, Inc......................... 245,625
1,900 First Empire State Corp............... 414,200
11,000 First of America Bank Corp............ 488,125
1,500 +First Union Corp..................... 83,438
2,870,638
BUILDING, CONSTRUCTION &
FURNISHINGS -- 1.1%
9,000 Roanoke Electric Steel Corp........... 149,625
6,250 *Southern Energy Homes, Inc........... 109,375
259,000
CHEMICALS -- 1.0%
10,000 Schulman (A.), Inc.................... 225,000
CONSUMER PRODUCTS -- 1.2%
10,000 Adidas AG ADS......................... 267,500
ELECTRICAL EQUIPMENT & ELECTRONICS -- 5.9%
6,000 Avnet, Inc............................ 268,500
5,000 Hewlett-Packard Co.................... 418,750
12,000 Intel Corp............................ 681,000
1,368,250
FINANCE & INSURANCE -- 5.4%
2,000 American International Group, Inc..... 185,000
10,000 Countrywide Credit Industries, Inc.... 217,500
3,000 Federal National Mortgage
Association........................ 372,375
3,000 Inter-Regional Financial Group, Inc... 75,750
10,000 John Alden Financial Corp............. 208,750
8,000 John Nuveen Co. (The) Cl. A........... 198,000
1,257,375
HEALTH CARE PRODUCTS & SERVICES -- 1.9%
5,000 *Lincare Holdings, Inc................ 125,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
HEALTH CARE PRODUCTS & SERVICES --
(CONTINUED)
5,000 Merck & Co., Inc...................... $ 328,750
453,750
INDUSTRIAL COMMERCIAL GOODS &
SERVICES -- 1.3%
5,000 *Chemfab Corp......................... 105,000
4,000 PHH Corp.............................. 187,000
292,000
PAPER & PACKAGING -- 1.3%
6,000 Avery Dennison Corp................... 300,750
REAL ESTATE -- 8.2%
1,000 *Alexander's, Inc..................... 69,500
7,500 Capstead Mortgage Corp................ 171,563
3,500 Continental Homes Holding Corp........ 86,187
20,000 Crown American Realty Trust........... 157,500
40,000 CWM Mortgage Holdings, Inc............ 680,000
5,000 Gables Residential Trust.............. 114,375
5,100 Hospitality Properties Trust.......... 136,425
8,000 Irvine Apartment Communities, Inc..... 154,000
6,000 Kaufman & Broad Home Corp............. 89,250
7,000 Patriot American Hospitality, Inc..... 180,250
3,485 Security Capital Pacific Trust........ 68,828
1,907,878
RETAILING -- 2.4%
7,000 Lowe's Companies, Inc................. 234,500
7,000 Mercantile Stores Co., Inc............ 323,750
558,250
THRIFT INSTITUTIONS -- 1.2%
7,500 *FFE Financial Corp................... 190,312
15,000 *Suncoast Savings and Loan
Association........................ 93,750
284,062
TRANSPORTATION -- .7%
2,000 Burlington Northern Sante Fe.......... 156,000
UTILITIES-ELECTRIC -- .8%
9,900 TNP Enterprises, Inc.................. 185,625
TOTAL COMMON STOCKS
(COST $8,883,862).................. 10,773,703
</TABLE>

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- 52.1%
LONG-TERM -- 48.7%
ALASKA -- 1.0%
$210,000 Anchorage, Alaska General Obligation
School and General Obligation
Refunding School Bonds, Series 1995
6.00%, 10/1/14 (FGIC).............. $ 229,343
ARIZONA -- 2.3%
500,000 City of Tucson, Arizona Water System
Revenue Refunding Bonds, Series
1993
5.70%, 7/1/08 (FGIC)............... 530,130
CALIFORNIA -- 2.2%
250,000 Contra Costa County, California Water
District; Water Revenue Bonds,
Series G
5.75%, 10/1/14 (MBIA).............. 258,903
250,000 San Jose-Santa Clara, California Clean
Water Financing Authority; Sewer
Revenue Bonds, Series 1995A 5.67%,
11/15/20 (FGIC).................... 249,812
508,715
CONNECTICUT -- 1.1%
250,000 Connecticut Health and Education
Facilities Authority; Revenue
Bonds (Kent School Issue) Series B
5.40%, 7/1/23 (MBIA)............... 250,638
COLORADO -- 5.9%
500,000 Arapahoe County, Colorado Capital
Improvement Trust Fund Highway
Revenue Bonds; E-470 Public Highway
Authority 6.15%, 8/31/26 (MBIA).... 537,375
250,000 City and County of Denver, Colorado
Airport System Revenue Bonds Series
1995C
5.60%, 11/15/25 (MBIA)............. 249,623
500,000 School District No. 1 in the City and
County of Denver General Obligation
Refunding Bonds, Series 1994A
6.50%, 6/1/10 (MBIA)............... 576,950
1,363,948
FLORIDA -- 4.6%
500,000 City of Palm Bay, Florida Utility
System Refunding Revenue Bonds,
Series 1994
5.00%, 10/1/15 (MBIA).............. 490,730
250,000 City of Pensacola, Florida Sales &
Excise Tax Refunding Revenue Bonds,
Series 1995
5.50%, 10/1/12 (MBIA).............. 257,135
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
FLORIDA -- (CONTINUED)
$300,000 Dade County, Florida Aviation Revenue
Refunding Bonds, Series 1995A
6.10%, 10/1/11 (AMBAC)............. $ 324,870
1,072,735
GEORGIA -- 2.1%
500,000 Metropolitan Atlanta Rapid Transit
Authority; Sales Tax Revenue Bonds,
(Second Indenture Series) Series
1993A
5.125%, 7/1/18 (AMBAC)............. 489,865
ILLINOIS -- 1.4%
300,000 Illinois State Toll Highway Authority;
Toll Highway Priority Revenue
Bonds, Series 1992A 6.20%, 1/1/16
(FGIC)............................. 317,157
MASSACHUSETTS -- 2.4%
250,000 Massachusetts Bay Transportation
Authority; General Transportation
System Bonds, Series 1994A 7.00%,
3/1/08............................. 294,655
250,000 Massachusetts Housing Finance Agency;
Housing Revenue Refunding Bonds,
Series 1994A 5.95%, 10/1/08
(AMBAC)............................ 260,628
555,283
MICHIGAN -- 2.7%
300,000 Caledonia Community Schools, Counties
of Kent, Allegan and Barry Series
1993 Refunding Bonds, (General
Obligation --
Unlimited Tax)
5.50%, 5/1/22...................... 299,976
300,000 Michigan Municipal Bond Authority
Revenue Bonds; Local Gov't Loan
Program, Series 1994G
6.55%, 11/1/08 (AMBAC)............. 335,829
635,805
NEW JERSEY -- .7%
160,000 Delaware River Port Authority Revenue
Bonds, Series 1995 5.50%, 1/1/26
(FGIC)............................. 160,978
NEW YORK -- 7.9%
325,000 Dormitory Authority of the State of
New York (City University System
Consolidated Revenue Bonds) Third
General Resolution Series 1
5.375%, 7/1/25 (AMBAC)............. 322,383
</TABLE>
8

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- CONTINUED
LONG-TERM -- (CONTINUED)
NEW YORK -- (CONTINUED)
$250,000 New York State Medical Care Facilities
Finance Agency (Mental Health
Services Facilities Improvement
Revenue Bonds) Series 1992B
6.25%, 8/15/10 (AMBAC)............. $ 269,858
250,000 New York State Mortgage Agency;
Homeowner Mortgage Revenue Bonds,
Series 44 (AMT)
6.60%, 4/1/03...................... 263,523
450,000 New York State Thruway Authority
General Revenue Bonds, Series B
5.00%, 1/1/14...................... 441,103
250,000 Niagara Falls, New York Bridge
Commission (Toll Bridge System
Revenue Bonds) Series 1993B 5.25%,
10/1/15 (FGIC)..................... 254,613
250,000 Port Authority of New York and New
Jersey Consolidated Bonds, Ninety
Seventh Series
7.00%, 7/15/05 (FGIC).............. 290,590
1,842,070
NEVADA -- 1.1%
250,000 Clark County, Nevada Las Vegas
McCarran Int'l Airport (Passenger
Facility Charge Revenue Bonds)
Series 1992A
6.00%, 7/1/22 (AMBAC).............. 259,260
NORTH DAKOTA -- 1.8%
400,000 Mercer County, North Dakota Pollution
Control Refunding Revenue Bonds,
Basin Electric Power Cooperative
Antelope Valley Unit 1 and Common
Facilities
6.05%, 1/1/19 (AMBAC).............. 422,040
OHIO -- 2.2%
500,000 City of Cleveland, Ohio Waterworks
Improvement First Mortgage
Refunding Revenue Bonds,
Series 1993G
5.50%, 1/1/13 (MBIA)............... 524,890
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
PENNSYLVANIA -- .7%
$160,000 Delaware River Port Authority Revenue
Bonds, Series 1995 5.50%, 1/1/26
(FGIC)............................. $ 160,977
PUERTO RICO -- 2.2%
500,000 Puerto Rico Housing Bank & Finance
Agency Affordable Housing Mortgage
Subsidy Program; Single Family
Mortgage Revenue Bonds, Portfolio I
(AMT)
5.85%, 4/1/09...................... 508,985
SOUTH CAROLINA -- 1.1%
250,000 Hilton Head, South Carolina No. 1
Public Service District; Waterworks
and Sewer System Improvement and
Refunding Revenue Bonds, Series
1995 5.50%, 8/1/20 (MBIA).......... 250,837
TENNESSEE -- 1.5%
300,000 City of Bristol, Tennessee Health and
Educational Facilities Board;
Hospital Revenue Refunding Bonds,
Series 1993
6.75%, 9/1/07 (FGIC)............... 349,740
TEXAS -- 2.7%
500,000 City of Houston, Texas Water
Conveyance System Contract;
Certificate of Participation,
Series 1993H
7.50%, 12/15/10 (AMBAC)............ 632,035
VIRGINIA -- 1.1%
250,000 City of Norfolk, Virginia Water
Revenue Bonds, Series 1993 5.375%,
11/1/23 (AMBAC).................... 248,017
TOTAL LONG-TERM
(COST $10,667,664)............... 11,313,448
</TABLE>
9

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL OBLIGATIONS -- CONTINUED
SHORT-TERM -- 3.4%
GEORGIA -- 2.1%
$500,000 Hapeville Development Authority
Revenue Bonds (Hapeville Hotel
Limited Partnership Project) Series
1985
3.20% -- VRDN...................... $ 500,000
NEW YORK -- 1.3%
300,000 The City of New York Fiscal 1995
General Obligation Bonds Series B
Subseries B-3
4.40% -- VRDN...................... 300,000
TOTAL SHORT-TERM
(COST $800,000).................. 800,000
TOTAL MUNICIPAL OBLIGATIONS
(COST $11,467,664)............... 12,113,448
</TABLE>

<TABLE>
<CAPTION>
MUTUAL FUND SHARES -- .3%
SHARES
<C> <S> <C>
65,000 Lehman Municipal Money Market Fund (at
net asset value)
(COST $65,000)...................... 65,000
</TABLE>

<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $20,416,526)........ 98.8% 22,952,151
OTHER ASSETS AND
LIABILITIES -- NET........ 1.2 290,382
NET ASSETS................... 100.0% $23,242,533
</TABLE>

* Non income producing security.
ADS -- American Depository Shares.
AMT -- Subject to alternative minimum tax.
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other parties not
affiliated with the issuer. These notes normally incorporate an irrevocable
letter of credit or line of credit from a major bank. Interest rates are
determined and reset by the issuer daily. Interest rates presented for these
securities are those in effect as of December 31, 1995.
+ At December 31, 1995, the Fund owned 1,500 shares of common stock of First
Union at a cost of $57,890. During the year ended December 31, 1995, the Fund
earned $2,940 in dividend income from this investment. These shares were
purchased by the Fund prior to the acquisition of the investment adviser and
Lieber & Company by First Union.
Municipal bond insurance companies:
AMBAC -- American Municipal Bond Assurance Corp.
FGIC -- Financial Guarantee Insurance Corp.
MBIA -- Municipal Bond Insurance Association.
See accompanying notes to financial statements.
10

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $20,416,526)............................................................. $22,952,151
Receivable for investment securities sold...................................................................... 377,249
Receivable for Fund shares sold................................................................................ 33,634
Dividends and interest receivable.............................................................................. 230,526
Unamortized organization expenses.............................................................................. 26,889
Prepaid expenses............................................................................................... 28,868
Total assets............................................................................................. 23,649,317
LIABILITIES:
Due to custodian bank.......................................................................................... 34,722
Payable for investment securities purchased.................................................................... 119,818
Payable for Fund shares purchased.............................................................................. 116,689
Accrued expenses............................................................................................... 104,612
Accrued advisory fee........................................................................................... 17,073
Organization expenses payable to Adviser....................................................................... 8,208
Distribution fee payable....................................................................................... 5,662
Total liabilities........................................................................................ 406,784
NET ASSETS........................................................................................................ $23,242,533
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $20,706,908
Net unrealized appreciation of investments..................................................................... 2,535,625
Net assets............................................................................................... $23,242,533
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($2,702,439/221,458 shares of beneficial interest outstanding).................................. $12.20
Sales charge -- 4.75% of offering price........................................................................ .61
Maximum offering price...................................................................................... $12.81
Class B Shares ($6,558,997/537,997 shares of beneficial interest outstanding).................................. $12.19
Class C Shares ($495,696/40,654 shares of beneficial interest outstanding)..................................... $12.19
Class Y Shares ($13,485,401/1,103,476 shares of beneficial interest outstanding)............................... $12.22
</TABLE>

See accompanying notes to financial statements.
11

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest........................................................................................ $ 455,857
Dividends (net of foreign withholding taxes of $942)............................................ 274,869
Total investment income................................................................... 730,726
EXPENSES:
Advisory fee.................................................................................... $ 140,386
Distribution fee -- Class A Shares.............................................................. 2,582
Distribution fee -- Class B Shares.............................................................. 21,725
Shareholder services fee -- Class B Shares...................................................... 7,242
Distribution fee -- Class C Shares.............................................................. 1,292
Shareholder services fee -- Class C Shares...................................................... 431
Registration and filing fees.................................................................... 81,530
Custodian fee................................................................................... 65,180
Transfer agent fee.............................................................................. 47,112
Reports and notices to shareholders............................................................. 33,742
Professional fees............................................................................... 30,643
Insurance....................................................................................... 8,566
Amortization of organization expenses........................................................... 8,074
Trustees' fees and expenses..................................................................... 6,979
Miscellaneous................................................................................... 968
Total expenses............................................................................ 456,452
Less: Fee waivers and expense reimbursements.................................................... (182,518)
Net expenses.............................................................................. 273,934
Net investment income.............................................................................. 456,792
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................ 671,486
Net change in unrealized appreciation (depreciation) of investments............................. 2,607,309
Net gain on investments............................................................................ 3,278,795
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $3,735,587
</TABLE>

See accompanying notes to financial statements.
12

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................ $ 456,792 $ 216,225
Net realized gain on investments............................................................. 671,486 223,927
Net change in unrealized appreciation (depreciation) of investments.......................... 2,607,309 (170,351)
Net increase in net assets resulting from operations................................... 3,735,587 269,801
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares............................................................................... (34,215) --
Class B Shares............................................................................... (72,776) --
Class C Shares............................................................................... (4,715) --
Class Y Shares............................................................................... (346,086) (215,225)
Total distributions to shareholders from net investment income......................... (457,792) (215,225)
IN EXCESS OF NET INVESTMENT INCOME:
Class A Shares............................................................................... (162) --
Class B Shares............................................................................... (345) --
Class C Shares............................................................................... (22) --
Class Y Shares............................................................................... (1,644) --
Total distributions to shareholders in excess of net investment income................. (2,173) --
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares............................................................................... (77,951) --
Class B Shares............................................................................... (199,612) --
Class C Shares............................................................................... (14,445) --
Class Y Shares............................................................................... (490,453) (99,018)
Total distributions to shareholders from net realized gain on
investments......................................................................... (782,461) (99,018)
Total distributions to shareholders.................................................... (1,242,426) (314,243)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................... 10,412,208 5,836,214
Proceeds from reinvestment of distributions.................................................. 1,158,751 293,992
Payment for shares redeemed.................................................................. (1,396,543) (935,002)
Net increase resulting from Fund share transactions.......................................... 10,174,416 5,195,204
Net increase in net assets............................................................. 12,667,577 5,150,762
NET ASSETS:
Beginning of year............................................................................ 10,574,956 5,424,194
End of year (including undistributed net investment income of $0 and $1,000, respectively)... $23,242,533 $10,574,956
</TABLE>

See accompanying notes to financial statements.
13

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 17, 1995* JANUARY 6, 1995*
THROUGH THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1995
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................... $10.44 $10.31
Income from investment operations:
Net investment income................................................. .29 .22
Net realized and unrealized gain on investments....................... 2.24 2.37
Total from investment operations.................................. 2.53 2.59
Less distributions to shareholders from:
Net investment income................................................. (.31) (.25)
Net realized gain on investments...................................... (.46) (.46)
Total distributions............................................... (.77) (.71)
Net asset value, end of period.......................................... $12.20 $12.19
TOTAL RETURN**.......................................................... 24.8% 25.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................... $2,702 $6,559
Ratios to average net assets #:
Expenses+............................................................. 1.75% 2.50%
Net investment income+................................................ 2.79% 2.03%
Portfolio turnover rate++............................................... 110% 110%
<CAPTION>
MARCH 3, 1995*
THROUGH
DECEMBER 31, 1995
CLASS C SHARES
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................... $10.69
Income from investment operations:
Net investment income................................................. .22
Net realized and unrealized gain on investments....................... 1.99
Total from investment operations.................................. 2.21
Less distributions to shareholders from:
Net investment income................................................. (.25)
Net realized gain on investments...................................... (.46)
Total distributions............................................... (.71)
Net asset value, end of period.......................................... $12.19
TOTAL RETURN**.......................................................... 21.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................... $496
Ratios to average net assets #:
Expenses+............................................................. 2.50%
Net investment income+................................................ 2.07%
Portfolio turnover rate++............................................... 110%
</TABLE>

* Commencement of class operations.
** Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized. Due to the recent commencement of their offering, the ratios for
Class A, Class B and Class C shares are not necessarily comparable to that of
the Class Y shares, and are not necessarily indicative of future ratios.
++ Portfolio turnover is calculated for the fiscal year ended December 31, 1995.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived 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>
JANUARY 17, 1995* JANUARY 6, 1995*
THROUGH THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1995
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Expenses....................................................................... 5.02% 3.65%
Net investment income (loss)................................................... (.48%) .88%
<CAPTION>
MARCH 3, 1995*
THROUGH
DECEMBER 31, 1995
CLASS C SHARES
<S> <C>
Expenses....................................................................... 18.91%
Net investment income (loss)................................................... (14.34%)
</TABLE>

See accompanying notes to financial statements.
14

<PAGE>
(Photo of EVERGREEN TAX STRATEGIC FOUNDATION FUND
a dam) CLASS Y SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.............................................................. $ 10.27 $ 10.31
Income from investment operations:
Net investment income........................................................................... .35 .27
Net realized and unrealized gain on investments................................................. 2.39 .08
Total from investment operations............................................................ 2.74 .35
Less distributions to shareholders from:
Net investment income........................................................................... (.33) (.27)
Net realized gain on investments................................................................ (.46) (.12)
Total distributions......................................................................... (.79) (.39)
Net asset value, end of period.................................................................... $ 12.22 $ 10.27
TOTAL RETURN**.................................................................................... 27.3% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................................................... $13,485 $10,575
Ratios to average net assets #:
Expenses........................................................................................ 1.50% 1.49%
Net investment income........................................................................... 3.06% 2.87%
Portfolio turnover rate........................................................................... 110% 245%
<CAPTION>

NOVEMBER 2, 1993*

THROUGH

DECEMBER 31, 1993

<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.............................................................. $ 10.00

Income from investment operations:
Net investment income........................................................................... .05

Net realized and unrealized gain on investments................................................. .31

Total from investment operations............................................................ .36

Less distributions to shareholders from:
Net investment income........................................................................... (.05)

Net realized gain on investments................................................................ --

Total distributions......................................................................... (.05)

Net asset value, end of period.................................................................... $ 10.31

TOTAL RETURN**.................................................................................... 3.5%

RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................................................... $ 5,424

Ratios to average net assets #:
Expenses........................................................................................ .00%+

Net investment income........................................................................... 3.65%+

Portfolio turnover rate........................................................................... 25%

</TABLE>

* Commencement of operations.
** Total return is calculated for the periods indicated and is not annualized.
+ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
Expenses......................................................................................... 2.23% 2.41%
Net investment income............................................................................ 2.33% 1.95%
<CAPTION>

NOVEMBER 2, 1993*

THROUGH

DECEMBER 31, 1993

<S> <C>
Expenses......................................................................................... 3.10%

Net investment income............................................................................ .54%

</TABLE>

See accompanying notes to financial statements.
15

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines)

A REPORT FROM YOUR
PORTFOLIO MANAGER
BRAD DONAVAN
Evergreen Utility Fund enjoyed a very good year in 1995, as (Photo of
did utilities in general. For the calendar year, the Fund (all Brad Donavan)
classes of shares) ranked in the top third of all 78 utility
funds tracked by Lipper Analytical Services* during that time.
This strong performance was driven by a continued focus on
higher quality companies positioned to thrive in a more
competitive environment. Some examples include FPL Group,
AT&T, GTE, and MCN Corporation.
The S&P Utility Composite Index** rose 42% for 1995,
beating the stronger surge of the broader market as measured
by the S&P 500 Reinvested Index, which rose 37%.
Telecommunication stocks led the sector, with the seven
regional bells+ providing a total return of 44% as a group. Natural Gas stocks
also performed well, with the S&P Natural Gas Index rising 36% in price for
1995. Finally, the electric utilities performed admirably with the Philadelphia
Utility Index** rising 22% in price during the year. (For Fund performance
information, please see page 17.)
We continue to manage the Evergreen Utility Fund with a focus on companies
with financial and operating strength which produce attractive current income
and have the potential for modest capital appreciation. We have diversified the
Fund across sectors of the utility industry and have added several companies
outside the utility sector with attractive total return prospects.
With regard to these sectors, the electric utility group continues to exhibit
attractive relative valuation characteristics to both the bond market and the
broader equity market, albeit to a lesser extent given the strong performance in
1995. We continue to feel positive about the group's defensive merits and
continue to favor those electrics with strong competitive positioning, favorable
regulatory outlooks, below-average dividend pay-out ratios, and superior
dividend growth prospects. We added a new position in SCE Corporation, the
beneficiary of a favorable regulatory ruling, during the second half of 1995.
Final passage of the Telecommunications bill seems to have been delayed by
political maneuvering. We still feel the long-distance companies will benefit
the most from the enactment of this legislation. Moreover, Regional Bell
Operating Company (RBOC) valuations seem to already discount even the most
favorable outcomes for the local telephone companies. Accordingly, we have
slowly been reducing our RBOC exposure in favor of niche long-distance companies
such as U.S. Long Distance or independent telephone companies such as ALLTEL.
Natural gas stocks are benefiting from a near perfect operating environment:
colder than average weather; strong demand; low storage levels. We increased our
exposure to the natural gas sector in the second half of 1995 with positions in
MCN Corporation and New Jersey Resources. The Fund ended 1995 with 40% of net
assets in telecommunications stocks, 37% in electric utilities, 7% in natural
gas, 10% in Real Estate Investment Trusts (REITs) and 6% in non-utilities.
* LIPPER ANALYTICAL SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE
MONITOR
FUND'S INCEPTION 1/4/94
** UNMANAGED INDEXES OF SELECTED SECURITIES. INVESTMENTS CAN NOT BE MADE IN AN
INDEX.
INVESTMENT CONCENTRATION IN ONE SECTOR OF THE MARKET INCREASES RISKS THAT WOULD
OTHERWISE BE DECREASED IN MORE DIVERSE INVESTMENTS.
+ BELL ATLANTIC, BELLSOUTH, AMERITECH, NYNEX, PACIFIC TELESIS, CDC
COMMUNICATIONS, U. S. WEST
16

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines)

RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN UTILITY FUND
The graphs below compare a $10,000 investment in the Evergreen Utility Fund
(Class A, Class B, Class C and Class Y Shares) with a similar investment in the
S&P 500 Index and the S&P 500 Utility Index ("Indexes").

(Four line graphs appear here with the following plot points:)

CLASS A
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=24.5%
SINCE INCEPTION=8.5%

1/4/94* 6/30/94 12/31/94 6/30/95 12/31/95
EVERGREEN UTILITY FUND
S&P 500
S&P UTILITY

CLASS B
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=24.9%
SINCE INCEPTION=8.6%

1/4/94* 6/30/94 12/31/94 6/30/95 12/31/95
EVERGREEN UTILITY FUND
S&P 500
S&P UTILITY

CLASS C
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=28.8%
SINCE INCEPTION=19.6%

9/2/94* 12/31/94 6/30/94 12/31/95
EVERGREEN UTILITY FUND
S&P 500
S&P UTILITY

CLASS Y
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=31.3%
SINCE INCEPTION=15.0%

2/28/94* 6/30/94 12/31/94 6/30/95 12/31/95
EVERGREEN UTILITY FUND
S&P 500
S&P UTILITY

*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.

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 94.1%
UTILITIES -- 77.8%
80,000* Airtouch Communications, Inc...... $ 2,260,000
110,000 ALLTEL Corp....................... 3,245,000
82,000 American Electric Power Co.,
Inc............................... 3,321,000
24,800 Ameritech Corp.................... 1,463,200
89,000 AT & T Corp....................... 5,762,750
47,000 Bell Atlantic Corp................ 3,143,125
40,000 BellSouth Corp.................... 1,740,000
30,100 Carolina Power & Light Co......... 1,038,450
75,000 Central & South West Corp......... 2,090,625
120,500 CINERGY Corp...................... 3,690,313
25,000 Eastern Utilities Association..... 590,625
60,000 Entergy Corp...................... 1,755,000
135,000 Factory Stores of America, Inc.... 1,771,875
122,000 FPL Group, Inc.................... 5,657,750
125,000 Frontier Corp..................... 3,750,000
166,700 GTE Corp.......................... 7,334,800
111,300 General Public Utilities Corp..... 3,784,200
80,000 Hong Kong Telecommunications, Ltd.
ADR............................... 1,420,000
140,000 Houston Industries, Inc........... 3,395,000
80,000 Illinova Corp..................... 2,400,000
175,000 MCI Communications Corp........... 4,571,875
160,000 MCN Corp.......................... 3,720,000
167,900* Midcom Communications Inc......... 3,064,175
40,000 New Jersey Resources Corp......... 1,205,000
105,000 NICOR, Inc........................ 2,887,500
48,000 NIPSCO Industries, Inc............ 1,836,000
50,000 Northeast Utilities Service Co.... 1,218,750
74,000 NYNEX Corp........................ 3,996,000
50,000 Pacific Gas & Electric Co......... 1,418,750
45,000 Pacific Telesis Group............. 1,513,125
140,000 PECO Energy Co.................... 4,217,500
60,000 Public Service Co. of Colorado.... 2,122,500
40,000 Public Service Enterprise
Group, Inc........................ 1,225,000
55,600 SCANA Corp........................ 1,591,550
100,000 SCEcorp........................... 1,775,000
115,000 Shandong Huaneng Power Co., Ltd.
S.A. ADR.......................... 776,250
60,000 Sprint Corporation................ 2,392,500
35,000 TNP Enterprises, Inc.............. 656,250
52,000 Tele Danmark ADR.................. 1,436,500
<CAPTION>
SHARES VALUE
<C> <S> <C>
UTILITIES -- (CONTINUED)
37,000 Telefonica de Espana S.A. de C.V.
ADR............................... $ 1,549,375
35,000 Texas Utilities Co................ 1,439,375
90,000 Unicom Corp....................... 2,947,500
81,000* U.S. Long Distance Corp........... 1,134,000
145,000 U.S. West Communications Group,
Inc............................... 5,183,750
60,000 Utilicorp United, Inc............. 1,762,500
80,000 Western Resources, Inc............ 2,670,000
117,924,438
BASIC INDUSTRY -- 1.6%
161,000 Hanson Plc ADR.................... 2,455,250
ENERGY -- 3.2%
24,100 Atlantic Richfield Co............. 2,669,075
50,000 Williams Companies, Inc........... 2,193,750
4,862,825
MEDIA -- 1.6%
130,000* U.S. West Media Group, Inc........ 2,470,000
REAL ESTATE -- 9.9%
120,000 Chelsea GCA Realty, Inc........... 3,600,000
161,000 General Growth Properties, Inc.... 3,340,750
11,600 HealthCare Realty Trust, Inc...... 266,800
136,500 Sovran Self Storage, Inc.......... 3,600,188
50,000 Starwood Lodging Trust............ 1,487,500
120,000 Storage Trust Realty.............. 2,730,000
15,025,238
TOTAL COMMON STOCKS
(COST $121,369,552).......... 142,737,751
CONVERTIBLE SECURITIES -- 1.6%
UTILITIES -- 1.6%
24,000 Compania de Inversiones en
Telecomunicaciones S.A., PRIDES
(exchangeable for ADS's of
Telefonica de Argentina S.A.)..... 1,392,000
30,100 Nacional Financiera, S.N.C.,
PRIDES (exchangeable for ADS's of
Telefonos de Mexico, S.A.
de C.V.).......................... 997,062
TOTAL CONVERTIBLE
SECURITIES
(COST $2,725,734)............ 2,389,062
</TABLE>

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C> <C> <C> <C> <C> <C>
</TABLE>

<TABLE>
<C> <S> <C> <C>
CORPORATE BONDS -- 2.8%
UTILITIES -- 2.8%
$1,000,000 Duke Power Co.
7.00%, 9/1/05...................... $ 1,035,311
1,000,000 Norsk Hydro A.S.
7.75%, 6/15/23..................... 1,125,497
1,000,000 Pacific Telephone & Telegraph Co.
7.25%, 2/1/08...................... 1,020,099
1,000,000 Virginia Electric & Power Co.
7.57%, 12/9/02..................... 1,076,975
TOTAL CORPORATE BONDS
(COST $3,802,643)............. 4,257,882
TOTAL LONG TERM INVESTMENTS
(COST $127,897,929)........... 149,384,695
REPURCHASE AGREEMENT -- 1.9%
2,822,000 Donaldson, Lufkin & Jenrette
Securities Corp., 5.75% dated
12/29/95, due 1/2/96 --
collateralized by $2,722,000 U.S.
Treasury Notes, 8.50%, 4/15/97;
value, including accrued interest
$2,927,384
(COST $2,822,000)................. 2,822,000
TOTAL INVESTMENTS
(COST $130,719,929).. 100.4% 152,206,695
OTHER ASSETS AND
LIABILITIES -- NET... (.4) (635,980)
TOTAL NET ASSETS........ 100.0% $151,570,715
</TABLE>

* Non-income producing security.
The following abbreviations are used in this portfolio:
ADR -- American Depository Receipts
ADS -- American Depository Shares
PRIDES -- Provisionally Redeemable Income Debt
Exchangeable for Stock
See accompanying notes to financial statements.

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $130,719,929)........................................................... $152,206,695
Dividends and interest receivable............................................................................. 916,944
Receivable for Fund shares sold............................................................................... 108,734
Prepaid expenses.............................................................................................. 27,659
Total assets............................................................................................... 153,260,032
LIABILITIES:
Due to custodian bank......................................................................................... 37,710
Payable for investment securities purchased................................................................... 1,079,841
Payable for Fund shares repurchased........................................................................... 405,705
Accrued expenses.............................................................................................. 104,993
Distribution fee payable...................................................................................... 40,508
Accrued advisory fee.......................................................................................... 20,560
Total liabilities.......................................................................................... 1,689,317
NET ASSETS....................................................................................................... $151,570,715
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $129,969,779
Undistributed net investment income........................................................................... 68,090
Accumulated net realized gain on investment transactions...................................................... 46,080
Net unrealized appreciation of investments.................................................................... 21,486,766
Net assets................................................................................................. $151,570,715
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($107,872,279/9,988,198 shares of beneficial interest outstanding)................................ $ 10.80
Sales charge -- 4.75% of offering price.......................................................................... .54
Maximum offering price........................................................................................ $ 11.34
Class B Shares ($35,661,658/3,299,581 shares of beneficial interest outstanding)................................. $ 10.81
Class C Shares ($245,883/22,732 shares of beneficial interest outstanding)....................................... $ 10.82
Class Y Shares ($7,790,895/720,319 shares of beneficial interest outstanding).................................... $ 10.82
</TABLE>

See accompanying notes to financial statements.
20

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $34,126)........................................ $ 4,411,302
Interest....................................................................................... 419,608
Total investment income..................................................................... 4,830,910
EXPENSES:
Advisory fee................................................................................... $456,021
Administrative personnel and service fees...................................................... 55,712
Distribution fee -- Class A Shares............................................................. 133,582
Distribution fee -- Class B Shares............................................................. 234,357
Shareholder services fee -- Class B Shares..................................................... 78,119
Distribution fee -- Class C Shares............................................................. 1,271
Shareholder services fee -- Class C Shares..................................................... 424
Transfer agent fee............................................................................. 121,515
Custodian fee.................................................................................. 60,300
Registration and filing fees................................................................... 54,947
Reports and notices to shareholders............................................................ 32,371
Professional fees.............................................................................. 25,831
Insurance expense.............................................................................. 5,264
Trustees' fees and expenses.................................................................... 1,359
Miscellaneous.................................................................................. 31,397
Total expenses.............................................................................. 1,292,470
Less: Fee waivers and expense reimbursements................................................... (350,922)
Net expenses................................................................................ 941,548
Net investment income............................................................................. 3,889,362
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net change in unrealized appreciation of investments........................................... 17,561,515
Net realized gain on investments............................................................... 6,197,705
Net gain on investments........................................................................... 23,759,220
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................................. $27,648,582
</TABLE>

See accompanying notes to financial statements.
21

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JANUARY 4, 1994*
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................... $ 3,889,362 $ 1,350,527
Net realized gain (loss) on investments.................................................. 6,197,705 (93,656)
Net change in unrealized appreciation (depreciation) of
investments........................................................................... 17,561,515 (2,396,270)
Net increase (decrease) in net assets resulting from operations....................... 27,648,582 (1,139,399)
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A Shares........................................................................ (2,358,231) (191,065)
Class B Shares........................................................................ (1,177,734) (922,823)
Class C Shares........................................................................ (6,275) (1,182)
Class Y Shares........................................................................ (298,965) (210,047)
Total distributions to shareholders from net investment
income.......................................................................... (3,841,205) (1,325,117)
IN EXCESS OF NET INVESTMENT INCOME:
Class Y Shares........................................................................ -- (5,477)
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares........................................................................ (4,315,104) --
Class B Shares........................................................................ (1,416,839) --
Class C Shares........................................................................ (9,717) --
Class Y Shares........................................................................ (316,309) --
Total distributions to shareholders from net realized gain on investments.......... (6,057,969) --
Total distributions to shareholders................................................ (9,899,174) (1,330,594)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................ 8,809,765 49,288,964
Proceeds from shares issued from the acquisition of ABT
Utility Income Fund, Inc.............................................................. 99,162,259 --
Proceeds from reinvestment of distributions.............................................. 7,723,699 1,133,996
Payment for shares redeemed.............................................................. (20,186,142) (9,641,241)
Net increase from Fund share transactions............................................. 95,509,581 40,781,719
Net increase in net assets......................................................... 113,258,989 38,311,726
NET ASSETS:
Beginning of year........................................................................ 38,311,726 --
End of year (including undistributed net investment income of $68,090 and $19,933,
respectively).......................................................................... $151,570,715 $ 38,311,726
</TABLE>

* Commencement of operations.
See accompanying notes to financial statements.
22

<PAGE>
(Photo of EVERGREEN UTILITY FUND
power lines) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y
JANUARY 4, JANUARY 4, SEPTEMBER 2, SHARES
YEAR 1994* YEAR 1994* YEAR 1994* YEAR
ENDED THROUGH ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 1995 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $9.00 $10.00 $9.00 $10.00 $9.01 $9.33 $9.00
Income (loss) from
investment operations:
Net investment income....... .44 .45 .37 .39 .37 .12 .47
Net realized and unrealized
gain (loss) on
investments............... 2.25 (1.01) 2.26 (1.01) 2.26 (.33) 2.27
Total from investment
operations............ 2.69 (.56) 2.63 (.62) 2.63 (.21) 2.74
Less distributions to
shareholders:
From net investment
income.................. (.44) (.44) (.37) (.38) (.37) (.11) (.47)
In excess of net
investment income....... -- -- -- -- -- -- --
From net realized gain on
investments............. (.45) -- (.45) -- (.45) -- (.45)
Total distributions..... (.89) (.44) (.82) (.38) (.82) (.11) (.92)
Net asset value, end of
period.................... $10.80 $9.00 $10.81 $9.00 $10.82 $9.01 $10.82
TOTAL RETURN+............... 30.7% (5.6%) 29.9% (6.2%) 29.8% (2.2%) 31.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $107,872 $4,190 $35,662 $28,792 $246 $128 $7,791
Ratios to average net
assets:
Expenses**................ .79% .53%++ 1.53% 1.27%++ 1.54% 1.94%++ .54%
Net investment income**... 4.51% 5.07%++ 3.78% 4.19%++ 3.76% 3.96%++ 4.76%
Portfolio turnover rate..... 88% 23% 88% 23% 88% 23% 88%
<CAPTION>

FEBRUARY 28,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $9.51
Income (loss) from
investment operations:
Net investment income....... .37
Net realized and unrealized
gain (loss) on
investments............... (.50)
Total from investment
operations............ (.13)
Less distributions to
shareholders:
From net investment
income.................. (.37)
In excess of net
investment income....... (.01)
From net realized gain on
investments............. --
Total distributions..... (.38)
Net asset value, end of
period.................... $9.00
TOTAL RETURN+............... (1.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $5,201
Ratios to average net
assets:
Expenses**................ .40%++
Net investment income**... 4.93%++
Portfolio turnover rate..... 23%
</TABLE>

* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Y
JANUARY 4, JANUARY 4, SEPTEMBER 2, SHARES
YEAR 1994* YEAR 1994* YEAR 1994* YEAR
ENDED THROUGH ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 1995 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses................... 1.18% 1.43% 1.93% 2.11% 1.93% 2.78% .93%
Net investment income...... 4.12% 4.17% 3.37% 3.35% 3.37% 3.12% 4.37%
<CAPTION>

FEBRUARY 28,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses................... 1.24%
Net investment income...... 4.09%
</TABLE>

See accompanying notes to financial statements.
23

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings)

A REPORT FROM YOUR
PORTFOLIO MANAGER
NOLA M. FALCONE
We are happy to announce that Evergreen Small Cap Equity (Photo of
Income Fund completed its second full calendar year with a Nola M. Falcone)
total return of 29.1%* (Class Y, no-load shares) -- notable
when you consider this Fund had a dividend distribution rate
higher than that of the S&P 500 Reinvested Index** (3.4%
versus 2.2%). The Fund's investment objective is to achievie a
return consisting of current income and capital appreciation
in the value of its shares. In attempting to attain this goal,
the Fund seeks growth by investing in small entrepreneurial
companies, and attempts to reduce risk by utilizing
convertible bonds, preferred stocks, and common stocks
yielding more than the S&P 500.

The Fund's total return for calendar 1995 compares with +28.4%
for the Russell 2000 Index**, whose yield was 1.8% for that time. Since
inception on October 1, 1993 through December 31, 1995, the Fund's average
annual compound return was 12.9%, versus 12.1% for the Russell 2000 and 17.1%
for the S&P 500. At calendar year-end, the Fund's median market cap was $195
million as compared with $277 million for the Russell 2000. The Fund's beta of
0.8 (at December 31) demonstrates that investing in yield issues helps to reduce
volatility, as we had anticipated. Beta is a measure of the market risk of a
fund's portfolio. It illustrates the volatility of the net asset value per share
of a mutual fund as compared with the market as a whole, as measured by S&P 500
Reinvested Index which is assigned a beta of one. Generally, 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. A beta is subject to
change. (For additional performance information, please see page 27.)
INVESTMENT STRATEGIES
Our basic program of seeking to invest in the shares of smaller, financially
strong, entrepreneurial companies should help provide a desired combination of
growth and current yield. Mergers and acquisitions were record in number in
1995, fitting well with our focus of buying undervalued issues that not only
have good growth potential but are also takeover targets in consolidating
industries. The entrepreneurially managed companies in which we invest,
particularly those still under the aegis of their founders, are often candidates
for acquisition by larger firms seeking to diversify.
During the year, we had three completed acquisitions for an average gain of
62.3%. These included: Paco Pharmaceutical Services, acquired by West Co. for a
27.3% gain (held 1 year, 8 months), Joslyn Corp. acquired by Danaher Corp. for a
38.3% gain (held 1 year, 10 months), and Elco Industries, acquired by Textron
Inc. for a 121.4% gain (held 1 year). There is a pending takeover of Washington
Energy Co. by Puget Sound Power and Light Co.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*PERFORMANCE FIGURES FOR THE FUND'S CLASS A, CLASS B, AND CLASS C SHARES ARE NOT
AVAILABLE AS THOSE CLASSES WERE NOT IN EXISTENCE FOR THE FULL 12 MONTHS ENDED
12/31/95. PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE. INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN
ORIGINAL COST.
THE FUND'S 30-DAY SEC YIELD (CLASS Y, NO-LOAD SHARES) AS OF DECEMBER 31, 1995
WAS 3.15%.
**UNMANAGED REINVESTED INDEXES OF SELECTED SECURITIES. AN INVESTMENT CAN NOT BE
MADE IN AN INDEX.
24

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings)
Inflation declined in 1995, which led the Federal Reserve to ease. Long-term
interest rates declined as the economy began to slow. We invested in a number of
companies which are usually sensitive to interest rate changes; several were
among our best performers. The insurance group with its holdings of the new
reinsurance issues, GCR Holdings, Ltd., and LaSalle Re Holdings, Ltd. were
favorably impacted. Renaissance Re Holdings, Ltd. provided a 56.4% gain for the
Fund upon its sale in December (held 4 months). We also realized a gain of 22.0%
in American Travellers Corp. 6-1/2% Convertible Debentures due October 1, 2005,
(held for 2 months). Banks stocks were also favorably impacted in this
environment, with unrealized gains for the year ranging from 66.5% on Vermont
Financial Services Corp. to 47.2% on Deposit Guaranty Corp. and 42.2% on
Interchange Financial Services Corp., among others. Surprisingly, the
convertible debenture section, usually interest sensitive, did not move up as
strongly as the S&P 500. We believe this group should rebound during the first
half of 1996 since it has lagged the other market indices, especially if the
Federal Reserve maintains its easing stance.
Our strategic focus on health care products and services provided strong
gains. Many health care related issues were depressed in 1994 due to concerns
about restraints on medical spending, not only by the Federal government but
also by corporations. But, in 1995 there was a dramatic rebound. For example,
shares of ADAC Laboratories rose 53.9%, Kinetic Concepts, Inc. rose 74.0%, and
Shared Medical Systems Corp. rose 65.7%. A gain of 49.3% was taken in Meridian
Diagnostics, Inc. 7-1/4% Convertible Debenture due September 1, 2001 (held for 1
year, 7 months).
Although we primarily work within a framework of theme investing, the
portfolio has also been built by studying and selecting specific issues that fit
within our overall strategy. The Fund's best performer for 1995 was American
Business Products, 91.6%, followed by AMC Entertainment, Inc. $1.75 Convertible
Preferred, an operator of multi-screen motion picture theaters, 75.2%. These
gains, along with the 54.2% gain on Roanoke Electric Steel Corp. and the 41.9%
gain on Research, Inc., a control instrumentation and heating device company,
illustrate the wide range of research performed by our analytical efforts in
building this portfolio. Evergreen Asset Management Corp. currently has 19
people involved in portfolio management and original, fundamental research. The
dedication and insight of Steven Stokes, assistant portfolio manager, has been
vital to the achievements of the Fund.
PORTFOLIO
At fiscal year-end, we had a position in cash and short-term investments of
11.4% due to our concerns about the high level of the market and the uncertainty
created by the current budget negotiations. We are holding this position to
enable us to add to or begin new purchases which we believe to be undervalued.
Our largest industry investment is in banks, followed by utilities and
healthcare products and service companies.
Not all of the Fund's holdings provided positive returns for 1995. We
mentioned the convertible debentures as lagging the S&P 500. We believe this
group will rebound this year, not only because of market conditions, but also
because we believe the underlying equities for these issues have strong growth
prospects. Real Estate Investment Trusts (REITs) also underperformed as many of
these were affected by the slowing consumer retail purchasing patterns. Apparel
stocks also served as a drag on the portfolio. In these groups, we had negative
performance in such issues as Oxford Industries, Inc., an apparel manufacturer,
Russ Berrie & Co., Inc., a manufacturer of gifts and toys, and Tucker Properties
Corp., a real estate investment trust which develops shopping centers. We have
maintained these holdings because we believe they offer value and over time will
provide improved performance for the portfolio.
25

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings)
OUTLOOK
As we enter 1996, the economy is in a low inflation, slow growth phase which
leads us to believe that the Federal Reserve will continue its policy of easing
over the next few months. We are also seeing an easing in Europe which portends
well for mergers and acquisitions worldwide. We anticipate a well sustained
demand for shares of those companies which have powerful business franchises
based on a stream of innovative products which will be sought after by the
consumer or industry, or services which are uniquely effective. Credit
availability will be a positive factor, gradually stimulating the recently
depressed construction industry. Although we are currently seeing a pullback in
technology-related issues, we believe that the long-term growth trends are still
in place. However, it will be increasingly necessary to focus on those
businesses which have the best customer franchises and the greatest ability to
lead rather than follow.
The merger and acquisition activity should continue this year due to low
capital costs, strong cash positions, and strengthening balance sheets of
numerous large companies. Many companies may choose to buy smaller companies
that have strong growth outlooks in order to improve returns on equity. A large
percent of our companies fit into this category.
We welcome our new shareholders and seek to produce favorable returns as we
focus on investing in well-run, well-financed smaller companies.
26

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN SMALL CAP EQUITY INCOME FUND
The graphs below compare a $10,000 investment in the Evergreen Small Cap
Equity Income Fund (Class A, Class B, Class C and Class Y Shares) with a similar
investment in the Russell 2000 Index and the NASDAQ OTC Composite Index
("Indexes").

(Four line graphs appear here with the following plot points:)

CLASS A
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=23.4%

1/3/95* 3/31/95 6/30/95 9/30/95 12/31/95
EVERGREEN SMALL CAP
EQUITY FUND
RUSSELL 2000
NASDAQ

CLASS B
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=23.7%

1/3/95* 3/31/95 6/30/95 9/30/95 12/31/95
EVERGREEN SMALL CAP
EQUITY FUND
RUSSELL 2000
NASDAQ

CLASS C
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION=26.3%

1/24/95* 3/31/95 6/30/95 9/30/95 12/31/95
EVERGREEN SMALL CAP
EQUITY FUND
RUSSELL 2000
NASDAQ

CLASS Y
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR=29.1%
SINCE INCEPTION=12.9%

1/10/93* 12/31/93 6/30/94 12/31/94 6/30/95 12/31/95
EVERGREEN SMALL CAP
EQUITY FUND
RUSSELL 2000
NASDAQ

*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.

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) STATEMENT OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 69.9%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING -- .5%
3,000 Simpson Industries, Inc................. $ 27,000
BANKS -- 16.7%
5,000 BancorpSouth, Inc....................... 101,250
3,000 CB Bancshares, Inc...................... 87,000
1,500 Citizens Bancorp........................ 48,375
1,500 Deposit Guaranty Corp................... 66,750
2,000 First Midwest Bancorp, Inc.............. 57,750
1,500 Interchange Financial Services Corp..... 31,500
3,000 Mahaska Investment Co................... 45,000
2,000 One Valley Bancorp of
West Virginia, Inc...................... 62,500
1,500 State Financial Services Corp........... 25,875
4,000 Susquehanna Bancshares, Inc............. 106,000
3,000 Vermont Financial Services Corp......... 103,688
10,000 West Coast Bancorp, Inc................. 150,000
885,688
BUILDING, CONSTRUCTION
& FURNISHINGS -- .6%
3,000 Monarch Cement Co....................... 34,875
BUSINESS EQUIPMENT & SERVICES -- 4.4%
4,500 American Business Products, Inc......... 128,250
7,500 Computer Language Research, Inc......... 105,000
233,250
CONSUMER PRODUCTS & SERVICES -- 2.1%
4,000 Armor All Products Corp................. 72,500
4,100 Piccadilly Cafeterias Inc............... 38,950
111,450
ELECTRICAL EQUIPMENT &
ELECTRONICS -- 1.1%
8,100 Research Inc............................ 60,750
ENERGY -- 2.5%
1,500 Berry Petroleum Co. Cl. A............... 15,187
4,000 Enron Global Power & Pipelines L.L.C.... 99,500
600 Penn Virginia Corp...................... 19,350
134,037
FINANCE & INSURANCE -- 4.3%
5,000* GCR Holdings, Ltd....................... 112,500
5,000* LaSalle Re Holdings Ltd................. 114,375
226,875
HEALTH CARE PRODUCTS & SERVICES -- 6.5%
7,500 ADAC Laboratories....................... 90,937
12,000 Kinetic Concepts, Inc................... 144,000
<CAPTION>
SHARES VALUE
<C> <S> <C>
HEALTH CARE PRODUCTS & SERVICES --
(CONTINUED)
2,000 Shared Medical Systems Corp............. $ 108,750
343,687
INDUSTRIAL, COMMERCIAL GOODS &
SERVICES -- 3.5%
2,000 Gilbert Associates, Inc. Cl. A.......... 25,000
9,000 Lindberg Corp........................... 60,750
2,000 Petrolite Corp.......................... 57,000
2,500 Roanoke Electric Steel Corp............. 41,563
184,313
REAL ESTATE -- 6.3%
2,000 CBL & Associates Properties, Inc........ 43,500
2,500 Chelsea GCA Realty, Inc................. 75,000
2,000 Columbus Realty Trust................... 38,750
2,000 Gables Residential Trust................ 45,750
1,000 Kranzco Realty Trust.................... 14,750
2,500 Sovran Self Storage, Inc................ 65,938
1,500 Tanger Factory Outlet Centers, Inc...... 37,500
1,300 Tucker Properties Corp.................. 11,375
332,563
RETAILING & DISTRIBUTION -- 4.5%
12,000 Marsh Supermarkets, Inc. Cl. B.......... 159,000
3,800 Russ Berrie & Co., Inc.................. 47,975
4,200 Wolf (Howard B.), Inc................... 30,450
237,425
TEXTILE & APPAREL -- 2.6%
3,500 Kellwood Co............................. 71,312
4,000 Oxford Industries, Inc.................. 67,000
138,312
THRIFT INSTITUTIONS -- .7%
2,000 People's Savings Financial Corp......... 39,000
UTILITIES -- ELECTRIC -- 6.1%
3,000 Commonwealth Energy System.............. 134,250
3,000 Eastern Utilities Association........... 70,875
6,500 TNP Enterprises, Inc.................... 121,875
327,000
UTILITIES -- GAS -- 6.5%
2,000 Energen Corp............................ 48,250
4,000 New Jersey Resources Corp............... 120,500
5,000 Providence Energy Corp.................. 85,000
3,000 Public Service Company
of North Carolina, Inc.................. 53,625
2,000 Washington Energy Co.................... 37,250
344,625
</TABLE>

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) STATEMENT OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UTILITIES -- WATER -- 1.0%
4,500 United Water Resources, Inc............. $ 54,000
TOTAL COMMON STOCKS
(COST $3,111,087).................. 3,714,850
CONVERTIBLE PREFERRED STOCKS -- 5.9%
BANKS -- .4%
700 Second Bancorp Inc.
$1.50, Series A-1....................... 22,663
BUILDING, CONSTRUCTION &
FURNISHINGS -- .4%
500 Southdown, Inc. $2.875 Series D......... 22,125
ENERGY -- 2.8%
4,000 Callon Petroleum Co. 8.50%.............. 111,000
1,400 Chieftain International Funding
Corp. $1.8125........................... 35,350
146,350
PUBLISHING, BROADCASTING &
ENTERTAINMENT -- 2.3%
3,000 AMC Entertainment, Inc. $1.75........... 122,250
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $254,953).................... 313,388
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
CONVERTIBLE DEBENTURES -- 12.8%
BANKS -- 1.1%
$ 50,000 First State Bancorp
7.00%, 11/1/03......................... 58,750
BUILDING, CONSTRUCTION &
FURNISHINGS -- 1.1%
60,000 Medusa Corp.
6.00%, 11/5/03......................... 58,200
CONSUMER PRODUCTS & SERVICES -- 2.4%
130,000 Max & Erma's Restaurants, Inc.
8.00%, 9/1/04.......................... 127,075
FINANCE & INSURANCE -- 2.2%
100,000 Trenwick Group, Inc.
6.00%, 12/15/99........................ 118,000
HEALTH CARE PRODUCTS & SERVICES -- 2.0%
100,000 Maxxim Medical, Inc.
6.75%, 3/1/03.......................... 103,000
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE DEBENTURES -- CONTINUED
INDUSTRIAL COMMERCIAL GOODS &
SERVICES -- 1.9%
$ 50,000 Quanex Corp.
6.88%, 6/30/07......................... $ 48,250
50,000 Telxon Corp.
7.50%, 6/1/12.......................... 52,500
100,750
RETAILING & DISTRIBUTION -- 2.1%
50,000 Baker (J.), Inc.
7.00%, 6/1/02.......................... 35,000
90,000 Proffitt's Inc.
4.75%, 11/1/03......................... 76,500
111,500
TOTAL CONVERTIBLE DEBENTURES
(COST $668,086)................... 677,275
SHORT TERM U.S GOVERNMENT AGENCY OBLIGATIONS -- 10.3%
100,000 Federal Farm Credit Bank
5.45%, 1/16/96......................... 99,772
150,000 Federal Home Loan Bank
5.50%, 1/31/96......................... 149,313
Federal Home Loan Mortgage Association
200,000 5.50%, 1/25/96......................... 199,267
100,000 5.48%, 1/31/96......................... 99,543
298,810
</TABLE>

<TABLE>
<C> <S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS
(COST $547,895).................... 547,895
TOTAL INVESTMENTS
(COST $4,582,021)........... 98.9% 5,253,408
OTHER ASSETS AND
LIABILITIES -- NET.......... 1.1 58,808
TOTAL NET ASSETS.............. 100.0% $5,312,216
</TABLE>

* Non-income producing security.
See accompanying notes to financial statements.
29

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $4,582,021)................................................................ $5,253,408
Receivable from Adviser.......................................................................................... 47,616
Prepaid expenses................................................................................................. 25,609
Dividends and interest receivable................................................................................ 23,668
Unamortized organization expenses................................................................................ 17,280
Receivable for Fund shares sold.................................................................................. 11,100
Total assets............................................................................................... 5,378,681
LIABILITIES:
Due to custodian bank............................................................................................ 2,417
Accrued expenses................................................................................................. 64,048
Total liabilities.......................................................................................... 66,465
NET ASSETS.......................................................................................................... $5,312,216
NET ASSETS CONSIST OF:
Paid-in capital.................................................................................................. $4,608,407
Accumulated net realized gain on investment transactions......................................................... 32,422
Net unrealized appreciation of investments....................................................................... 671,387
Net assets................................................................................................. $5,312,216
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($216,434/18,701 shares of beneficial interest outstanding)....................................... $11.57
Sales charge -- 4.75% of offering price.......................................................................... .58
Maximum offering price........................................................................................ $12.15
Class B Shares ($265,840/22,977 shares of beneficial interest outstanding)....................................... $11.57
Class C Shares ($23,634/2,044 shares of beneficial interest outstanding)......................................... $11.56
Class Y Shares ($4,806,308/415,210 shares of beneficial interest outstanding).................................... $11.58
</TABLE>

See accompanying notes to financial statements.
30

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................................................................ $ 142,214
Interest......................................................................................... 87,823
Total investment income....................................................................... 230,037
EXPENSES:
Advisory fee..................................................................................... $ 45,397
Distribution fee -- Class A Shares............................................................... 340
Distribution fee -- Class B Shares............................................................... 1,298
Shareholder services fee -- Class B Shares....................................................... 433
Distribution fee -- Class C Shares............................................................... 111
Shareholder services fee -- Class C Shares....................................................... 37
Registration and filing fees..................................................................... 78,754
Custodian fee.................................................................................... 59,176
Transfer agent fee............................................................................... 41,618
Professional fees................................................................................ 16,848
Reports and notices to shareholders.............................................................. 12,899
Insurance expense................................................................................ 7,533
Trustees' fees and expenses...................................................................... 7,173
Amortization of organization expense............................................................. 6,361
Miscellaneous.................................................................................... 2,318
Total expenses................................................................................ 280,296
Less: Fee waivers and expense reimbursements..................................................... (209,981)
Net expenses.................................................................................. 70,315
Net investment income............................................................................... 159,722
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................. 232,995
Net change in unrealized appreciation (depreciation) of investments.............................. 786,111
Net gain on investments............................................................................. 1,019,106
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ 1,178,828
</TABLE>

See accompanying notes to financial statements.
31

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................... $ 159,722 $ 108,281
Net realized gain on investments................................................................ 232,995 38,143
Net change in unrealized appreciation (depreciation) of investments............................. 786,111 (150,229)
Net increase (decrease) in net assets resulting from operations.............................. 1,178,828 (3,805)
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME
Class A Shares.................................................................................. (5,089) --
Class B Shares.................................................................................. (4,875) --
Class C Shares.................................................................................. (421) --
Class Y Shares.................................................................................. (155,906) (101,829)
Total distributions to shareholders from net investment income............................... (166,291) (101,829)
FROM NET REALIZED GAIN ON INVESTMENTS:
Class A Shares.................................................................................. (8,583) --
Class B Shares.................................................................................. (10,427) --
Class C Shares.................................................................................. (900) --
Class Y Shares.................................................................................. (196,151) (19,339)
Total distributions to shareholders from net realized gain on investments.................... (216,061) (19,339)
Total distributions to shareholders.......................................................... (382,352) (121,168)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold....................................................................... 1,451,437 1,843,201
Proceeds from reinvestment of distributions..................................................... 315,637 99,604
Payment for shares redeemed..................................................................... (864,156) (441,492)
Net increase resulting from Fund share transactions.......................................... 902,918 1,501,313
Net increase in net assets................................................................ 1,699,394 1,376,340
NET ASSETS:
Beginning of year............................................................................... 3,612,822 2,236,482
End of year (including undistributed net investment income of $0 and $6,591, respectively)...... $5,312,216 $3,612,822
</TABLE>

See accompanying notes to financial statements.
32

<PAGE>
(Photo of EVERGREEN SMALL CAP EQUITY INCOME FUND
buildings) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 3,
1995* 1995*
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1995 1995
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
PER SHARE DATA:
Net asset value, beginning of period.............................................. $9.64 $9.64
Income from investment operations:
Net investment income.......................................................... .34 .28
Net realized and unrealized gain on investments................................ 2.45 2.43
Total from investment operations............................................ 2.79 2.71
Less distributions to shareholders:
From net investment income..................................................... (.37) (.29)
From net realized gains on investments......................................... (.49) (.49)
Total distributions......................................................... (.86) (.78)
Net asset value, end of period.................................................... $11.57 $11.57
TOTAL RETURN**.................................................................... 29.5% 28.7%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................................... $216 $266
Ratios to average net assets#:
Expenses+...................................................................... 1.75% 2.50%
Net investment income+......................................................... 3.39% 2.67%
Portfolio turnover rate++......................................................... 48% 48%
<CAPTION>
JANUARY 24,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
CLASS C SHARES
PER SHARE DATA:
Net asset value, beginning of period.............................................. $9.74
Income from investment operations:
Net investment income.......................................................... .28
Net realized and unrealized gain on investments................................ 2.33
Total from investment operations............................................ 2.61
Less distributions to shareholders:
From net investment income..................................................... (.30)
From net realized gains on investments......................................... (.49)
Total distributions......................................................... (.79)
Net asset value, end of period.................................................... $11.56
TOTAL RETURN**.................................................................... 27.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)......................................... $24
Ratios to average net assets#:
Expenses+...................................................................... 2.50%
Net investment income+......................................................... 2.63%
Portfolio turnover rate++......................................................... 48%
</TABLE>

* Commencement of class operations.
** Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
+ Annualized. Due to the recent commencement of their offering, the ratios for
Class A ,Class B,and Class C shares are not necessarily comparable to that of
the Class Y shares, and are not necessarily indicative of future ratios.
++ Portfolio turnover is calculated for the year ended December 31, 1995.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 3,
1995* 1995*
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1995 1995
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
Expenses...................................................................... 24.45% 20.90%
Net investment loss........................................................... (19.30%) (15.72%)
<CAPTION>
JANUARY 24,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
CLASS C SHARES
Expenses...................................................................... 187.29%
Net investment loss........................................................... (182.16%)
</TABLE>

See accompanying notes to financial statements.
33

<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
(Photo of CLASS Y SHARES
buildings) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................. $9.70 $10.15
Income (loss) from investment operations:
Net investment income.............................................................. .38 .34
Net realized and unrealized gain (loss) on investments............................. 2.38 (.41)
Total from investment operations................................................ 2.76 (.07)
Less distributions to shareholders:
From net investment income......................................................... (.38) (.33)
From net realized gains on investments............................................. (.50) (.05)
Total distributions............................................................. (.88) (.38)
Net asset value, end of period........................................................ $11.58 $9.70
TOTAL RETURN+......................................................................... 29.1% (.7%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................. $4,806 $3,613
Ratios to average net assets#:
Expenses........................................................................... 1.50% 1.48%
Net investment income.............................................................. 3.56% 3.72%
Portfolio turnover rate............................................................... 48% 9%
<CAPTION>
OCTOBER 1,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period.................................................. $10.00
Income (loss) from investment operations:
Net investment income.............................................................. .10
Net realized and unrealized gain (loss) on investments............................. .15
Total from investment operations................................................ .25
Less distributions to shareholders:
From net investment income......................................................... (.10)
From net realized gains on investments............................................. --
Total distributions............................................................. (.10)
Net asset value, end of period........................................................ $10.15
TOTAL RETURN+......................................................................... 2.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............................................. $2,236
Ratios to average net assets#:
Expenses........................................................................... 0%++
Net investment income.............................................................. 4.07%++
Portfolio turnover rate............................................................... 15%
</TABLE>

* Commencement of operations.
+ Total return is calculated for the periods indicated and is not annualized.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived 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 YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
Expenses........................................................................ 4.34% 4.68%
Net investment income (loss).................................................... .72% .53%
<CAPTION>
OCTOBER 1,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses........................................................................ 4.39%
Net investment income (loss).................................................... (.33%)
</TABLE>

See accompanying notes to financial statements.
34

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Specialty Growth and Income Funds (the "Funds") are separate
series of open-end management companies registered under the Investment Company
Act of 1940, as amended (the "Act"). The Evergreen Specialty Growth and Income
Funds consist of Evergreen Tax Strategic Foundation Fund ("Tax Strategic"),
Evergreen Utility Fund ("Utility") and Evergreen Small Cap Equity Income Fund
("Small Cap") known collectively as the Funds. Effective July 7, 1995, Utility
changed its name from First Union Utility Portfolio.
Tax Strategic's investment objective is to maximize the after-tax total
return on its portfolio of investments by investing in equities as well as
municipal securities, which are exempt from Federal income tax. Utility's
investment objective is to achieve a return consisting of high current income
and moderate capital appreciation by investing in a diversified portfolio of
equity and debt securities of utility companies. Small Cap's investment
objective is to achieve a return consisting of current income and capital
appreciation in the value of its shares.
NOTE 2 -- ACQUISITION INFORMATION
On June 30, 1995, Utility acquired substantially all of the net assets of
ABT Utility Income Fund, Inc. ("ABT"), an open-end investment company registered
under the Act through the issuance of 10,160,068 of its Class A Shares in
exchange for ABT's net assets valued at $99,162,259. The aggregate net assets of
Utility after the acquisition were $140,913,190.
The acquired assets in this non-taxable exchange consisted primarily of
portfolio securities with unrealized appreciation of $6,321,522.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their 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 other 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 Board of 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.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the Federal Reserve Bank and are designated as being held
on each Fund's behalf by its custodian under a book-entry system. Each Fund
monitors the adequacy of the collateral on a daily basis and can require the
seller to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are distributed monthly for Utility and quarterly for Tax Strategic and Small
Cap. 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
35

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
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.
As of December 31, 1995, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to paid-in
capital:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT REALIZED GAIN
INCOME ON INVESTMENTS
<S> <C> <C>
Tax Strategic $ 2,173 ($17,391)
Small Cap (22) 22
</TABLE>

INCOME TAXES -- It is each 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 each Fund's policy not to distribute
such gains.
Capital losses incurred after October 31 within a fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Small Cap has incurred and will elect to defer such capital losses of
$11,493.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. 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.
UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Tax Strategic and
Small Cap incurred in connection with their organization are being deferred and
amortized over a period of benefit not to exceed 60 months from the date they
commenced operations.
USE OF ESTIMATES -- The preparation of the 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.
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North
Carolina ("First Union") is entitled to an annual fee of .50 of 1% of Utility's
average daily net assets pursuant to the Fund's investment advisory agreement.
First Union voluntarily waived $299,028 of its fee for the year ended December
31, 1995.
Pursuant to an agreement with Tax Strategic's and Small Cap's investment
adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned
subsidiary of First Union. Evergreen Asset is entitled to an annual fee based on
each of Tax Strategic's and Small Cap's average daily net assets, respectively,
in accordance with the following schedules:
<TABLE>
<CAPTION>
TAX STRATEGIC SMALL CAP
<S> <C> <C> <C>
First $750 million 0.875% First $750 million 1.00%
Next $250 million 0.750% Next $250 million 0.90%
Over $1 billion 0.700% Over $1 billion 0.80%
</TABLE>

Evergreen Asset has agreed to reimburse Small Cap to the extent that the
Fund's operating expenses (including the investment advisory fee and
amortization of organizational expenses but excluding interest, taxes, brokerage
commissions,
36

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
12b-1 distribution and shareholder services fees and extraordinary expenses)
exceed 1.50% of its average daily net assets until the Fund's net assets reach
$15 million. Evergreen Asset waived all of its advisory fee for the year ended
December 31, 1995 under this limitation. For the year ended December 31, 1995,
Evergreen Asset voluntarily limited Tax Strategic's total operating expenses
(including the investment advisory fee and amortization of organizational
expenses but excluding interest, taxes, brokerage commissions, 12b-1
distribution and shareholder services fees and extraordinary expenses) to 1.50%
of average daily net assets. For the year ended December 31, 1995, Evergreen
Asset waived $96,975 of its advisory fee under this limitation. In addition, for
the year ended December 31, 1995, Evergreen Asset voluntarily reimbursed
expenses amounting to $85,543 and $164,584 for Tax Strategic and Small Cap,
respectively. Evergreen Asset can modify or terminate voluntary waivers at any
time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Tax Strategic and Small Cap and also provides brokerage services
with respect to substantially all security transactions of these Funds effected
on the New York or American Stock Exchanges. For transactions executed during
the year ended December 31, 1995, Tax Strategic and Small Cap incurred brokerage
commissions of $35,954 and $4,863 with Lieber & Company. Lieber & Company is
reimbursed by Evergreen Asset, at no additional expense to these Funds, for its
cost of providing investment advisory services.
ADMINISTRATION AGREEMENT -- Evergreen Asset furnishes Tax Strategic and
Small Cap with administrative services as part of their advisory agreements and
accordingly, these Funds do not pay a separate administration fee. Furman Selz,
Incorporated ("Furman Selz") is each of the Funds' sub-administrator. As
sub-administrator, Furman Selz provides the officers of the Funds. For Tax
Strategic and Small Cap, Furman Selz' fee is paid by Evergreen Asset and is not
a fund expense.
Through July 7, 1995, Federated Investor Services ("FAS") provided Utility
with certain administrative personnel and services. Pursuant to Utility's
agreement with FAS, FAS was entitled to $16,382, all of which was waived.
Effective July 7, 1995, Evergreen Asset became Utility's administrator and
Furman Selz became its sub-administrator. Evergreen Asset's and Furman Selz'
fees for Utility are based on the average daily net assets of all of the funds
administered by Evergreen Asset for which either First Union or Evergreen Asset
is also the investment adviser. This fee is calculated at the following annual
rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% in excess of $30 billion
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>

Evergreen Asset was entitled to $35,512 under this agreement, all of which
was waived.
At December 31, 1995, assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was investment
adviser totalled approximately $10.4 billion.
PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A Shares,
Class B Shares, and Class C Shares, Distribution Plans (the "Plans") pursuant to
Rule 12b-1 under the Act (see note 5). Under the terms of the Plans, the Funds
may
37

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
incur distribution-related and shareholder servicing expenses which may not
exceed an annual fee of .75 of 1% for Class A and an annual fee of 1% for Class
B and Class C Shares. For each of the Funds, the payments for Class A were
voluntarily limited to .25 of 1% of average daily net assets. Rule 12b-1 fees
are accrued daily and paid monthly.
In connection with their Plans, Tax Strategic and Small Cap have entered
into distribution agreements with Evergreen Funds Distributor, Inc. ("EFD"), a
subsidiary of Furman Selz, whereby Tax Strategic and Small Cap will compensate
EFD 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 Shares' 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.
EFD 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 each of the Fund's Class B and Class C Shares.
In connection with its Plan, through July 7, 1995, Utility had entered into
a distribution agreement with Federated Securities Corp. ("FSC") whereby Utility
compensated FSC for its services at a rate which did not exceed an annual fee of
.25 of 1% of Class A average daily net assets and an annual fee of .75 of 1% of
Class B and Class C average daily net assets. Effective July 7, 1995, Utility
entered into a distribution agreement with EFD whereby Utility will compensate
EFD for its services at a rate which may not exceed an annual fee of .25 of 1%
of Class A average daily net assets and an annual fee of .75 of 1% of Class B
and Class C average daily net assets for certain services provided to Class B
and C shareholders.
Under the terms of a Shareholder Services Agreement with FUBS, Utility will
pay FUBS, an annual fee of up to .25% of 1% of the average net assets of its
Class B and Class C shares. This fee is designed to obtain certain services for
shareholders and to maintain shareholder accounts.
SALES CHARGES -- EFD has advised the Funds that it has retained the
following amounts from front-end sales charges resulting from sales of Class A
Shares during the year ended December 31, 1995:
<TABLE>
<CAPTION>
FRONT-END
SALES
CHARGES
<S> <C>
Tax Strategic $28,976
Utility 15,692
Small Cap 284
</TABLE>

ORGANIZATIONAL EXPENSES -- Organizational Expenses for Utility were
initially borne by FAS. As a result of Evergreen Asset becoming the
Administrator, First Union purchased the remaining unreimbursed organizational
expenses from FAS. As of December 31, 1995, $33,033 remains due to First Union.
NOTE 5 -- SHARES OF BENEFICIAL INTEREST
Tax Strategic and Small Cap have an unlimited number of $0.0001 par value
shares of beneficial interest authorized. Utility has an unlimited number of no
par shares authorized. The shares are divided into classes which are designated
Class Y, Class A, Class B, and Class C 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 purchase. Class C shares are sold with a contingent
deferred sales charge of 1% for shares redeemed during the first year after
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
38

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
and Class C shares bear distribution expenses (see Note 4) 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
DECEMBER 31, 1995* DECEMBER 31, 1994
TAX STRATEGIC SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................................. 215,649 $ 2,527,734 -- --
Shares issued on reinvestment of distributions............................... 8,759 105,291 -- --
Shares redeemed.............................................................. (2,950) (36,239) -- --
Net increase................................................................. 221,458 2,596,786 -- --
CLASS B
Shares sold.................................................................. 550,703 6,364,106 -- --
Shares issued on reinvestment of distributions............................... 21,721 260,033 -- --
Shares redeemed.............................................................. (34,427) (407,693) -- --
Net increase................................................................. 537,997 6,216,446 -- --
CLASS C
Shares sold.................................................................. 39,093 457,822 -- --
Shares issued on reinvestment of distributions............................... 1,561 18,761 -- --
Shares redeemed.............................................................. -- -- -- --
Net increase................................................................. 40,654 476,583 -- --
CLASS Y
Shares sold.................................................................. 92,229 1,062,541 565,134 $5,836,214
Shares issued on reinvestment of distributions............................... 66,375 774,666 28,865 293,992
Shares redeemed.............................................................. (84,665) (952,606) (90,753) (935,002)
Net increase................................................................. 73,939 884,601 503,246 5,195,204
Total net increase resulting from Fund share transactions.................... 874,048 $10,174,416 503,246 $5,195,204
</TABLE>

* For Class A, Class B, and Class C shares, the Fund share transaction activity
reflects the period January 17, 1995, January 6, 1995, and March 3, 1995,
respectively (commencement of class operations) through December 31, 1995.
39

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
UTILITY SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................... 190,219 $ 1,885,138 1,050,103 $10,216,835
Shares issued in acquisition of ABT Utility
Income Fund, Inc.................................................... 10,160,068 99,162,259 -- --
Shares issued on reinvestment of distributions........................ 505,736 5,335,896 17,247 160,044
Shares redeemed....................................................... (1,333,516) (13,551,249) (601,659) (5,692,851)
Net increase.......................................................... 9,522,507 92,832,044 465,691 4,684,028
CLASS B
Shares sold........................................................... 506,602 4,989,454 3,519,138 33,433,097
Shares issued on reinvestment of distributions........................ 222,027 2,287,981 85,030 784,986
Shares redeemed....................................................... (626,919) (6,110,450) (406,297) (3,732,308)
Net increase.......................................................... 101,710 1,166,985 3,197,871 30,485,775
CLASS C
Shares sold........................................................... 10,650 109,078 14,069 129,494
Shares issued on reinvestment of distributions........................ 1,497 15,571 130 1,182
Shares redeemed....................................................... (3,614) (37,152) -- --
Net increase.......................................................... 8,533 87,497 14,199 130,676
CLASS Y
Shares sold........................................................... 184,329 1,826,095 580,992 5,509,538
Shares issued on reinvestment of distributions........................ 8,025 84,251 20,357 187,784
Shares redeemed....................................................... (49,697) (487,291) (23,687) (216,082)
Net increase.......................................................... 142,657 1,423,055 577,662 5,481,240
Total net increase resulting from Fund share transactions............. 9,775,407 $95,509,581 4,255,423 $40,781,719
</TABLE>

* For Class A and Class B shares, the Fund share transaction activity reflects
the period January 4, 1994 (commencement of class operations) through December
31, 1994. For Class C and Class Y shares, the Fund share transaction activity
reflects the period September 2, 1994 and February 28, 1994, respectively
(commencement of class operations) through December 31, 1994.
40

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995* DECEMBER 31, 1994
SMALL CAP SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................................. 20,272 $ 210,173 -- --
Shares issued on reinvestment of distributions............................... 1,218 13,667 -- --
Shares redeemed.............................................................. (2,789) (30,712) -- --
Net increase................................................................. 18,701 193,128 -- --
CLASS B
Shares sold.................................................................. 24,055 248,049 -- --
Shares issued on reinvestment of distributions............................... 1,305 14,752 -- --
Shares redeemed.............................................................. (2,383) (26,158) -- --
Net increase................................................................. 22,977 236,643 -- --
CLASS C
Shares sold.................................................................. 1,928 19,533 -- --
Shares issued on reinvestment of distributions............................... 116 1,317 -- --
Shares redeemed.............................................................. -- -- -- --
Net increase................................................................. 2,044 20,850 -- --
CLASS Y
Shares sold.................................................................. 93,274 973,677 186,565 $ 1,843,201
Shares issued on reinvestment of distributions............................... 25,655 285,901 10,291 99,604
Shares redeemed.............................................................. (76,033) (807,281) (44,916) (441,492)
Net increase................................................................. 42,896 452,297 151,940 1,501,313
Total net increase resulting from Fund share transactions.................... 86,618 $ 902,918 151,940 $ 1,501,313
</TABLE>

* For Class A and Class B shares, the Fund share transaction activity reflects
the period January 3, 1995, (commencement of class operations) through
December 31, 1995. For Class C shares, the Fund share transaction activity
reflects the period January 24, 1995, (commencement of class operations)
through December 31, 1995.
NOTE 6 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Tax Strategic.... $26,323,775 $16,841,520
Utility.......... 158,967,981 75,343,938
Small Cap........ 2,393,265 1,893,391
</TABLE>

On December 31, 1995, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost for federal
tax purposes was as follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET TAX COST
<S> <C> <C> <C> <C>
Tax Strategic.... $ 2,589,622 $ 37,141 $ 2,552,481 $ 20,399,670
Utility.......... 24,867,820 3,381,054 21,486,766 130,719,929
Small Cap........ 768,077 96,690 671,387 4,582,021
</TABLE>

NOTE 7 -- CONCENTRATION OF CREDIT RISK
Tax Strategic invests the municipal bond portion of its portfolio in
obligations issued by states, territories and possessions of the United States
and by their political subdivisions and duly constituted authorities. The
issuers' abilities to meet their obligations may be affected by economic and
political developments in a specific state or region. Certain debt obligations
held in the Fund's municipal portfolio may be entitled to the benefit of standby
letters of credit or other guarantees of banks or other financial institutions.
41

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN TAX STRATEGIC FOUNDATION 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 Tax Strategic Foundation
Fund, at December 31, 1995, the results of its operations for the year then
ended, the changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated, 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 audits. We conducted our
audits 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
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 15, 1996
42

<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN UTILITY FUND:
We have audited the accompanying statement of assets and liabilities of
Evergreen Utility Fund including the statement of investments, as of December
31, 1995 and the related statement of operations for the year then ended, the
statement of changes in net assets and financial highlights for year ended
December 31, 1995 and the period from January 4, 1994 (commencement of
operations) through December 31, 1994. 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 audit.
We conducted our audit 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 are financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the overall accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Utility Fund as of December 31, 1995, and the results of its
operations for the year then ended, the changes in net assets and financial
highlights for year ended December 31, 1995 and the period from January 4, 1994
(commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
February, 16, 1996
43

<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN SMALL CAP EQUITY INCOME FUND
We have audited the accompanying statement of assets and liabilities of
Evergreen Small Cap Equity Income Fund (one of the portfolios constituting
Evergreen American Retirement Trust), including the statement of investments, as
of December 31, 1995 and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the years presented
therein. 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. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian. An audit also includes
assessing the overall 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 Small Cap Equity Income Fund portfolio of Evergreen American Trust at
December 31, 1995, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 15, 1996
44

<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
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
* Trustees for Tax Strategic
and Small Cap only.
<TABLE>
<S> <C>
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
During the fiscal year ended December 31, 1995 Tax Strategic, Utility and Small Cap paid $13,968,
$2,781,823 and $89,950 respectively, in net long term capital gain distributions.
During the fiscal year ended December 31, 1995, Tax Strategic paid $275,603 of tax-exempt
distributions. Of the total tax-exempt distributions, 13.64%, 12.56%, 12.95% and 12.57% is subject
to alternative minimum tax for Class Y, Class A, Class B and Class C shares of Tax Strategic,
respectively.
For corporate taxpayers 32.48%, 51.91% and 46.69% of the ordinary income distributions paid during
the fiscal year ended December 31, 1995 by Tax Strategic, Utility and Small Cap respectively,
qualified for corporate dividends received deduction.
</TABLE>

<PAGE>

NOT May lose value
FDIC No bank guarantee
INSURED

Evergreen Funds Distributor, Inc.

537859 2/96